<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
Registration No. 333-36355
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SOLUTIA INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 28 3-1781797
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------
10300 Olive Boulevard,
P.O. Box 66760
St. Louis, Missouri 63166-6760
(314) 674-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
Karl R. Barnickol, Esq.
General Counsel
Solutia Inc.
10300 Olive Boulevard, P.O. Box 66760, St. Louis, Missouri 63166-6760
(314) 674-1000
(Address, including zip code, and telephone number, including
area code, of agent for service of process)
------------------------------
with copies to:
<TABLE>
<S> <C>
Eric S. Robinson, Esq. Robert M. Thomas, Jr., Esq.
Wachtell, Lipton, Rosen & Katz Sullivan & Cromwell
51 West 52nd Street 125 Broad Street
New York, New York 10019 New York, New York 10004
(212) 403-1000 (212) 558-4000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
PROPOSED PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
% Notes due 2002............................ $150,000,000 100% $150,000,000 45,455
- ---------------------------------------------------------------------------------------------------------------------------
% Debentures due 2027....................... $300,000,000 100% $300,000,000 90,909
- ---------------------------------------------------------------------------------------------------------------------------
% Debentures due 2037....................... $150,000,000 100% $150,000,000 45,455
- ---------------------------------------------------------------------------------------------------------------------------
Total............................................... $600,000,000 100% $600,000,000 $181,819(3)
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
(2) Calculated pursuant to Rule 457.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1997
$600,000,000
SOLUTIA INC.
$150,000,000 % NOTES DUE 2002
$300,000,000 % DEBENTURES DUE 2027
$150,000,000 % DEBENTURES DUE 2037
[SOLUTIA LOGO]
------------------------
Interest on the % Notes due 2002, on the % Debentures due 2027 and on
the % Debentures due 2037 (the Notes, the 2027 Debentures and the 2037
Debentures, collectively, the "Securities") of Solutia Inc. (the "Company" or
"Solutia") offered hereby is payable semiannually on and
of each year, commencing , 1998. The Securities will
be unsecured senior obligations of the Company and will rank pari passu with
each other and with all other unsecured senior indebtedness of the Company. The
Notes are not redeemable at the option of the Company prior to maturity. The
2027 Debentures are redeemable at any time and the 2037 Debentures are
redeemable at any time after , 2004, in either case, in whole or in
part, at the option of the Company at a redemption price equal to the greater of
(i) 100% of the principal amount of such 2027 Debenture or such 2037 Debenture,
respectively, or (ii) as determined by an Independent Investment Banker (as
defined herein), the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including the portion of any
such payments of interest accrued as of the date of redemption) discounted to
the date of redemption on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein),
plus, in each case, accrued interest thereon to the date of redemption.
The holder of each 2037 Debenture may elect to have such 2037 Debenture, or
any portion of the principal amount thereof that is a multiple of $1,000, repaid
on , 2004 at 100% of the principal amount thereof, together with
accrued interest thereon to , 2004. Such election, which is
irrevocable when made, must be made during the period commencing on ,
2004 and ending at the close of business on , 2004. See "Description
of the Securities."
Each series of the Securities will be represented by one or more Global
Securities registered in the name of the nominee of The Depository Trust Company
or other successor depository appointed by the Company. Beneficial interests in
the Global Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the depository and its participants. Except
as described herein, Securities in definitive form will not be issued. See
"Description of the Securities."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Per % Note due 2002................. % % %
Total................................... $ $ $
Per % Debenture due 2027............ % % %
Total................................... $ $ $
Per % Debenture due 2037............. % % %
Total................................... $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $934,000 payable by the Company.
------------------------
Each series of the Securities offered hereby is offered by the Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Securities will be ready for delivery in book-entry form only through the
facilities of The Depository Trust Company in New York, New York on or about
, 1997, against payment therefor in immediately available funds.
For the Debentures due 2027:
GOLDMAN, SACHS & CO. SALOMON BROTHERS INC
For the Notes due 2002 and the Debentures due 2037:
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES, INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities being offered by this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information regarding the Company and the Securities set forth
in the Registration Statement and in the exhibits and schedules thereto. For
further information regarding the Company and the Securities, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed as a part thereof. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is hereby made to the
exhibit for a more complete description of the matter involved, and each
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information
relating to its business, financial statements and other matters with the
Commission. The Registration Statement, including exhibits and schedules
thereto, and the reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center,
thirteenth floor, New York, New York 10048 and at the Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such materials also can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The common stock, $.01 per share, of the Company (the "Company
Common Stock") is listed on The New York Stock Exchange, Inc. (the "NYSE") under
the symbol "SOI". Copies of the foregoing materials and other information
concerning the Company are also available for inspection at the NYSE, 20 Broad
Street, New York, New York 10005.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary is qualified by the more detailed information and financial
statements, including the notes thereto, set forth elsewhere in this Prospectus,
which should be read in its entirety. On September 1, 1997 (the "Distribution
Date"), Solutia became an independent public company as the result of the
distribution on that date by Monsanto Company ("Monsanto") of all of the
outstanding Company Common Stock to the stockholders of Monsanto on a
one-for-five basis (the "Spinoff"). Unless the context requires otherwise, (i)
"Solutia" or the "Company" refers to the Chemicals Business (as defined below)
of Monsanto for periods prior to the Distribution Date and to Solutia Inc. and
its consolidated subsidiaries for the periods on and after the Distribution Date
and (ii) the "Offerings" refer to the offerings of $150,000,000 aggregate
principal amount of the Company's % Notes due 2002 (the "Notes"), $300,000,000
aggregate principal amount of the Company's % Debentures due 2027 (the "2027
Debentures"), and $150,000,000 aggregate principal amount of the Company's %
Debentures due 2037 (the "2037 Debentures" and, together with the Notes and the
2027 Debentures, the "Securities").
THE COMPANY
Solutia manufactures and markets a broad range of chemical-based products
which are used to make or enhance the performance of consumer, household,
automotive and industrial goods. Upon the Spinoff, Solutia became an independent
public company. In the fiscal year ended December 31, 1996, the Company had net
sales of approximately $3.0 billion and operating income of approximately $33
million (approximately $281 million if the effect of $248 million of
restructuring costs and other unusual charges were excluded). At June 30, 1997,
the Company had total assets of approximately $2.5 billion. See "Selected
Historical Financial Data," "Unaudited Pro Forma Condensed Combined Financial
Statements" and "Business and Properties."
The Company's strategic focus is built on four key technology strengths:
polymer chemistry, phosphorus chemistry, fiber technology, and process
engineering expertise. These technologies are used in various combinations to
create value-added products in ten business units: Acrilan(R) Acrylic Fibers,
Carpet Fibers, Industrial Nylon Fibers, Industrial Products, Intermediates,
Nylon Plastics & Polymers, Phosphorus Derivatives, Polymer Modifiers, Resins,
and Saflex(R) Plastic Interlayer (collectively, the "Chemicals Business"). Three
business units -- Carpet Fibers, Intermediates and Saflex(R) Plastic Interlayer
- -- accounted for over 50% of the Company's total sales in 1996.
To compete effectively in its markets, the Company is implementing a
strategy which emphasizes the following key elements:
CORE PRODUCTS AND TECHNOLOGIES: The Company intends to focus on its
core products and technologies throughout its ten business units. The
Company will continue to invest in manufacturing technology, product
research and technical and marketing support in order to continually
improve its cost and quality positions as well as its applications support
and technical service.
AGGRESSIVE COST CONTROLS AND FOCUS ON PROFITABILITY: Over the past
several years, the Company has restructured its product portfolio to exit
underperforming businesses. The Company believes that additional expense
reductions can be achieved in manufacturing and administrative functions.
SELECTED GROWTH INITIATIVES: The Company intends to develop the growth
potential of its core chemistries and technologies through targeted new
product introductions, innovations in related fields and selective
expansions of its presence in international markets.
PERFORMANCE INCENTIVES: The Company plans to provide incentives for
employees to increase cash flow, earnings per share and shareholder value.
3
<PAGE> 5
The Company was incorporated in Delaware in April 1997 as a wholly owned
subsidiary of Monsanto in order to accomplish the Spinoff. Prior to the Spinoff,
Monsanto contributed the Chemicals Business to the Company. In connection with
the Spinoff, the Company assumed $1.029 billion of indebtedness from Monsanto,
primarily commercial paper, and certain other liabilities. See "Recent
Developments" and "Agreements with Monsanto -- Distribution Agreement."
All of the executive officers of the Company formerly served as officers or
other key employees of Monsanto. All of the management of the Company directly
involved in operating the businesses of the Company managed those businesses
when they were still owned by Monsanto. Currently, the Company and Monsanto have
no executive officers in common. One director of the Company is also a director
of Monsanto. See "Management."
THE OFFERINGS
Securities Offered.............. $150,000,000 aggregate principal amount of
Notes,
$300,000,000 aggregate principal amount of
2027 Debentures, and
$150,000,000 aggregate principal amount of
2037 Debentures.
Interest........................ Interest on the Notes, the 2027 Debentures
and the 2037 Debentures is payable
semiannually on and of
each year, commencing , 1998, at
the rates specified on the cover page of this
Prospectus.
Repayment at Option of
Holders......................... The holder of each 2037 Debenture may elect
to have that 2037 Debenture, or any portion
of the principal amount thereof that is a
multiple of $1,000, repaid on ,
2004 at 100% of the principal amount thereof,
together with accrued interest to ,
2004. Such election, which is irrevocable
when made, must be made during the period
commencing on , 2004 and ending at
the close of business on , 2004.
The Notes and 2027 Debentures are not subject
to repayment at the option of the holder.
Redemption...................... The Notes are not redeemable at the option of
the Company prior to maturity. The 2027
Debentures are redeemable at any time and the
2037 Debentures are redeemable at any time
after , 2004, in either case, in
whole or in part, at the option of the
Company upon not less than 30 nor more than
90 days' written notice at a redemption price
equal to the greater of (i) 100% of the
principal amount of such 2027 Debentures or
such 2037 Debentures, respectively, or (ii)
as determined by an Independent Investment
Banker (as defined herein), the sum of the
present values of the remaining scheduled
payments of principal and interest thereon
(not including the portion of any such
payments of interest accrued as of the date
of redemption) discounted to the date of
redemption on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate (as
defined herein), plus, in each case, accrued
interest thereon to the date of redemption.
4
<PAGE> 6
Ranking......................... The Securities will be unsecured senior
obligations of the Company and will rank pari
passu with each other and with all other
unsecured senior indebtedness of the Company.
The Securities are effectively subordinated
to all future indebtedness of the Company's
subsidiaries. Upon issuance of the
Securities, the Company will have no debt
outstanding which is senior to the
Securities.
Restrictive Covenants........... The Indenture (as defined herein) under which
each series of Securities is to be issued
contains a limited number of restrictive
covenants regarding, among other things, the
creation and existence of additional secured
indebtedness, sale and leaseback transactions
and mergers, consolidation and certain sales
of assets. See "Description of the
Securities."
Use of Proceeds................. The proceeds to the Company from the
Offerings will be used to refinance the
Company's commercial paper. See "Use of
Proceeds" and "Other Indebtedness of the
Company." The Company's commercial paper has
been used to refinance the approximately $1.0
billion of commercial paper issued by
Monsanto and assumed by the Company in
connection with the Spinoff (the "Assumable
Commercial Paper").
RISK FACTORS
Prospective purchasers of the Securities offered hereby should consider
carefully the information set forth under "Risk Factors," in addition to the
other information set forth in this Prospectus, before purchasing any of the
Securities.
5
<PAGE> 7
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Combined Financial Statements and
the related notes thereto that are included elsewhere in this Prospectus. This
selected historical financial data has been derived from the combined financial
statements of the Company for the five years ended December 31, 1996 and the six
months ended June 30, 1997 and 1996. During this time, the Chemicals Business,
now operated by the Company, was operated by Monsanto. The historical financial
information may not be indicative of the Company's future performance and does
not necessarily reflect what the financial position and results of operations of
the Company would have been had the Company operated as a separate, stand-alone
entity during the periods covered. Per share data has not been presented for the
historical information because the Company was not publicly held during the
periods presented below. In the opinion of management of the Company, the
unaudited combined financial data as of June 30, 1997 and June 30, 1996 and for
the six months ended June 30, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
these interim periods, and the unaudited combined financial data for 1993 and
1992 have been prepared on a basis consistent with that of the audited financial
data. Principally because of factors related to the Spinoff, results for the
first six months of 1997 should not be annualized.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE YEARS ENDED OR AS OF DECEMBER 31,
OR AS OF JUNE 30,
------------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales(1)......................... $1,489 $1,454 $2,977 $2,964 $3,097 $3,028 $3,022
Operating income(2).................. 192 118 33 258 256 300 30
Other income (expense)............... 22 23 36 9 1 8 (11)
Income (loss) before income taxes.... 193 122 33 231 228 290 (10)
Net income (loss)(3)................. 127 83 32 147 149 192 (6)
OTHER STATISTICS:
Total assets......................... $2,529 $2,542 $2,483 $2,462 $2,435 $2,491 $2,543
Capital expenditures................. 64 92 192 179 187 179 229
Depreciation and amortization........ 67 82 166 162 219 224 262
Intercompany charges(4).............. 12 35 85 72 69 61 77
Interest expense(5).................. 21 19 36 36 29 19 29
Long-term debt(5).................... 0 0 0 0 0 0 0
</TABLE>
- ---------------
(1) Net sales for the Company included $140 million in 1995, $400 million in
1994, $407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed by Monsanto to the
Flexsys, L.P. joint venture between Monsanto and Akzo Nobel N.V.
("Flexsys"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Operating income includes charges (credits) for restructuring and other
unusual items of $12 million in the six months ended June 30, 1997 and $248
million, $46 million, $34 million, $(43) million, and $150 million in the
years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The
1996 charges are associated with the closure or sale of certain facilities,
asset write-offs and workforce reductions. In addition, operating income in
1993 and 1992 includes $25 million and $12 million, respectively, for the
Company's rubber chemicals business. Operating income for this business was
not significant in 1994 and 1995.
(3) In 1992, Monsanto adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", and No. 109, "Accounting for Income Taxes", and, as a
result, recorded a net aftertax charge of $540 million as a cumulative
effect of accounting changes. This net charge was not allocated to the
Company.
(4) Prior to the Spinoff, Monsanto provided certain general and administrative
services to the Company, including finance, legal, treasury, information
systems and human resources. The cost for these services was allocated to
the Company based upon the percentage relationship between the net assets
utilized in the Company's operations and Monsanto's total net assets, as
well as other methods which management believes to be reasonable. The
Company's management estimates that the cost of such general and
administrative expenses on a stand-alone basis would have been approximately
$46 million in 1996.
(5) Monsanto uses a centralized approach to cash management and the financing of
its operations. As a result, cash and cash equivalents and debt were not
allocated to the Company in the historical financial statements of Monsanto.
Interest expense has been allocated to the Company in the Company's combined
financial statements to reflect the Company's pro rata share of the
financing structure of Monsanto. See Note 1 to the Company's Combined
Financial Statements.
6
<PAGE> 8
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data of the
Company give effect to the Spinoff and the Offerings. The pro forma information
is presented for illustrative purposes only and may not be indicative of the
results that would have been obtained had the transactions actually occurred on
the dates assumed, nor is it necessarily indicative of the future combined
results of operations or financial position of the Company. The summary selected
unaudited pro forma combined financial data should be read in conjunction with
the pro forma condensed combined financial statements and the related notes
thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(IN MILLIONS)
<S> <C> <C>
STATEMENT OF INCOME DATA:(1)
Net sales................................................. $ 1,480 $ 2,962
Operating income(2)....................................... 166 37
Net income(2)............................................. 102 17
OTHER PRO FORMA DATA:
Interest expense.......................................... 34 64
Interest income........................................... -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1997
-------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:(3)
Cash and cash equivalents................................. $ 70
Total assets.............................................. 2,718
Short-term debt........................................... --
Long-term debt............................................ 1,029
Total liabilities......................................... 2,998
Stockholders' deficit..................................... (280)
</TABLE>
- ---------------
(1) The pro forma combined statement of income data gives effect to the Spinoff
and the Offerings as if both had occurred at the beginning of the periods
presented.
(2) Operating income includes charges for restructuring and other unusual items
of $12 million in the six months ended June 30, 1997 and $248 million in the
year ended December 31, 1996.
(3) The pro forma combined balance sheet data gives effect to the Spinoff and
the Offerings as if both had occurred as of June 30, 1997.
7
<PAGE> 9
RISK FACTORS
Investors should consider the following factors, as well as the other
information set forth in this Prospectus, before making an investment in the
Securities. Investors are also cautioned that this Prospectus includes
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements regarding the Company's
expected future financial position, results of operations, cash flows,
dividends, financing plans, business strategy, budgets, projected costs and
capital expenditures, competitive positions, growth opportunities for existing
products, benefits from new technology, plans and objectives of management for
future operations, and markets for stock are forward-looking statements.
Although the Company believes its expectations reflected in such forward-looking
statements are based on reasonable assumptions, no assurance can be given that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the expectations reflected in the
forward-looking statements herein include, among others, those set forth below
as well as general economic and business and market conditions, customer
acceptance of new products, efficacy of new technology, changes in U.S. and
non-U.S. laws and regulations, costs or difficulties relating to the
establishment of the Company as an independent entity and increased competitive
and/or customer pressure.
LACK OF OPERATING HISTORY AS A SEPARATE ENTITY
Prior to the Spinoff, the businesses now operated by the Company were
operated by Monsanto, a larger and more diversified enterprise. The Company has
no operating history as a separate company. In addition, prior to the Spinoff
the Company was not operated as a public company, and since the Spinoff the
Company has incurred and will continue to incur additional costs and expenses
associated with the management of a public company. Monsanto is not required to
provide assistance or services to the Company except as described in the
Distribution Agreement, the Transition Services Agreement, the Operating
Agreements (as such terms are defined herein) and the other agreements entered
into between the companies in connection with the Spinoff. In addition, some of
this assistance or these services may be terminated upon certain events,
including a change of control of the Company. See "Agreements with Monsanto."
The Spinoff may also result in some temporary dislocation and
inefficiencies to the business operations, as well as the organization and
personnel structure, of the Company.
Finally, the Company does not have the right to use the Monsanto name
except during a transition period. The Company has previously had the benefit of
the Monsanto name and reputation in the marketing of its products and in
dealings with government officials. The Company is currently engaged in
developing an identity for itself independent of the Monsanto name. However, the
Company may have to make additional advertising and promotion expenditures to
position its new name in its markets and cannot predict with certainty the
extent to which the substitution of a new name may adversely affect its
retention and acquisition of customers, its relations with governmental agencies
or its financial performance.
CYCLICALITY OF BUSINESS, PRICES AND COMPETITION
The Company is affected by certain general economic conditions,
particularly as they relate to the housing industry in the United States and the
automotive industry both in the United States and internationally, which are
cyclical businesses. In addition, global competition and customer demands for
efficiency will continue to make sustained price increases difficult. There can
be no assurance that the Company will not be affected in the future by the
foregoing conditions. In addition, while raw materials and fuels are generally
sufficiently available to cover current and projected requirements, their
continuing availability and price are subject to unscheduled plant interruptions
occurring during periods of high demand, or due to domestic and world market and
political conditions, as well as to the direct or indirect effect of U.S. and
other countries' government regulations. The impact of any
8
<PAGE> 10
future raw material and energy shortages on the Company's business as a whole or
in specific world areas cannot be accurately predicted. Operations and products
may, at times, be adversely affected by legislation, shortages or international
or domestic events.
The Company competes with many United States-based and international
companies, including companies that are larger and have significantly greater
financial resources than the Company. There can be no assurance that the Company
will be able to continue to compete successfully in its markets. Because the
Company competes, in part, on the basis of product performance, innovation and
quality, as well as manufacturing technology, significant product innovation or
technical advance by competitors could reduce the Company's competitive
advantage and thereby adversely affect the Company's business and financial
results.
INCREASED LEVERAGE OF THE COMPANY
On an historical basis, the Company was not allocated any of Monsanto's
debt. Effective as of the Spinoff, the Company balance sheet included
approximately $1.029 billion of debt, primarily the Assumable Commercial Paper
which was issued by Monsanto prior to the Spinoff and assumed by the Company
effective as of the Distribution Date. See Note 1 to the Company's Combined
Financial Statements. Since the Spinoff, the Company has refinanced the
Assumable Commercial Paper with the Company's own commercial paper. The
commercial paper is backed by $1.2 billion in revolving credit facilities of the
Company. Assuming the Spinoff and the Offerings had been consummated as of June
30, 1997, the Company would have had total debt of $1.029 billion and a
stockholders' deficit of $280 million, compared with the Company's historical
debt of $0 and total stockholders' equity of $859 million at June 30, 1997. The
Company's higher debt levels after the Spinoff can be expected to result in
increased interest expense to the Company compared with the amount previously
allocated to the Company by Monsanto. On a pro forma basis, the Company's annual
interest expense would have been approximately $64 million in 1996 had the
Spinoff and the Offerings occurred on January 1, 1996. See "Unaudited Pro Forma
Condensed Combined Financial Statements," and the Company's Combined Financial
Statements included elsewhere in this Prospectus.
ENVIRONMENTAL LIABILITIES
The Company is subject to various laws and government regulations
concerning environmental matters and employee safety and health in the United
States and other countries. U.S. state and federal authorities may seek fines
and penalties for violation of these laws.
Expenditures in 1996 were approximately $9 million for the Company's
environmental capital projects, and approximately $85 million for the management
of environmental programs, including the operation and maintenance of facilities
for environmental control. The Company estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.
The Company's policy is to accrue costs for remediation of contaminated
sites in the accounting period in which the responsibility is established and
the cost is estimable. The Company had an accrued liability of $51 million as of
December 31, 1996 for Superfund sites. Because of uncertainties such as the
method and extent of remediation, the percentage of material attributable to the
Company at the sites relative to that attributable to other parties, and the
financial capabilities of the other potentially responsible parties (a "PRP") at
most sites, the Company currently estimates that potential future expenses could
be as much as an additional $10 million. The Company spent approximately $20
million in 1996 for remediation of Superfund sites. Similar expenditures can be
expected in future years.
9
<PAGE> 11
The Company had environmental reserves of $58 million as of December 31,
1996 for shut-down plants and third-party sites for which the Company is
assuming responsibility pursuant to the Distribution Agreement. The Company's
estimates of its liabilities are based on evaluations of currently available
facts with respect to each individual site and take into consideration factors
such as existing technology, laws and agency policy, and prior experience in
remediation of contaminated sites. Subject to these uncertainties, the Company
currently estimates that potential future expenses could be as much as an
additional $50 million for these sites. The Company spent approximately $21
million in 1996 for remediation of these sites. Similar amounts can be expected
in the future.
For solid and hazardous waste remediation at the Company's operating
locations, the Company recognizes post-closure environmental costs and
remediation costs over the estimated remaining useful life of the related
facilities, not to exceed 20 years. The Company spent $18 million in 1996 for
remediation of these facilities and had an accrued liability of $41 million as
of December 31, 1996 for these sites. The Company estimates that closure costs
for these facilities will be an additional $70 million based upon existing
technology and other currently available information.
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accounts' Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in the Company's accounting principles
associated with the adoption of this SOP was an acceleration of the recognition
of certain environmental remediation liabilities at operating facilities. As a
result, the Company recorded an aftertax charge of $6 million in the first half
of 1997. Additional aftertax charges in the range of $9 million to $14 million
are anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.
Although the ultimate costs and results of remediation of contaminated
sites cannot be predicted with certainty, they are not expected to result in a
material adverse change in the Company's liquidity or financial position as
reflected in the Company's historical financial statements, but they could have
a material adverse effect on profitability in a given period. The impact of any
future changes in environmental laws and regulations on the Company's liquidity,
financial position and profitability cannot be predicted with accuracy.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Matters."
In addition, at the time of the Spinoff, the Company assumed from Monsanto,
pursuant to the Distribution Agreement, liabilities related to specified legal
proceedings, including claims for personal injury and for property damage with
respect to alleged environmental contamination. The results of such litigation
cannot be predicted with certainty. See "Business and Properties -- Legal
Proceedings."
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities are new issues of securities for which there is currently no
market. The Company does not intend to apply for listing of the Securities on
any securities exchange or on the National Association of Securities Dealers,
Inc. automated quotation system. If the Securities are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors. The Underwriters have informed the Company that,
subject to applicable laws and regulations, they currently intend to make a
market in the Securities. However, the Underwriters are not obligated to do so,
and any such market making may be discontinued at any time without notice.
Therefore, no assurance can be given as to whether an active trading market will
develop for the Securities or, if such market
10
<PAGE> 12
develops, whether it will continue. See "Underwriting." If an active public
market does not develop, the market price and liquidity of the Securities may be
adversely affected.
CERTAIN TAX RISKS OF THE SPINOFF
In connection with the Spinoff, Monsanto received a ruling from the
Internal Revenue Service (the "IRS") to the effect, among other things, that the
Spinoff qualifies as a tax-free reorganization under Sections 355 and 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Such a ruling, while
generally binding upon the IRS, is subject to certain factual representations
and assumptions provided by Monsanto. The Company has agreed to certain
restrictions on its future actions to provide further assurances that the
Spinoff will qualify as tax-free. If the Company fails to abide by such
restrictions and, as a result, the Spinoff fails to qualify as a tax-free
reorganization, then the Company will be obligated to indemnify Monsanto for any
resulting tax liability, which would be substantial. See "Agreements with
Monsanto -- Tax Sharing and Indemnification Agreement."
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
- ---------------- -----------------
<S> <C>
4.5 --
</TABLE>
Historical computation of earnings to fixed charges is not considered
meaningful because interest expense has been allocated to the Company in the
combined financial statements to reflect the Company's pro rata share of the
financing structure of Monsanto, but no debt was allocated from Monsanto. The
pro forma ratios of earnings to fixed charges are presented as if the Spinoff
and the Offerings had occurred as of the beginning of the periods presented. The
pro forma information is presented for illustrative purposes only and may not be
indicative of the results that would have been obtained had the transactions
actually occurred on the dates assumed, nor is it necessarily indicative of
future results. For purposes of calculating the pro forma ratio of earnings to
fixed charges, "earnings" represents pro forma income before income taxes, plus
fixed charges, less equity income of affiliated companies. "Fixed charges"
consist of pro forma interest on pro forma long-term debt and estimated interest
on rentals. For the year ended December 31, 1996, pro forma earnings were
approximately $9 million lower than the amount needed to cover fixed charges in
this year, as earnings in 1996 were impacted by $256 million of restructuring
and other unusual charges (see Note 4 to the Company's Combined Financial
Statements). Excluding these charges, the pro forma ratio of earnings to fixed
charges would have been 4.3. For the six months ended June 30, 1997, excluding
net unusual charges of $12 million for the period, the pro forma ratio of
earnings to fixed charges would have been 4.8. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
11
<PAGE> 13
THE COMPANY
The Company manufactures and markets a broad range of chemical-based
products which are used to make or enhance the performance of consumer,
household, automotive and industrial goods. The Company became an independent
public company upon the Spinoff on September 1, 1997. For the fiscal year ended
December 31, 1996, the Company had net sales of approximately $3.0 billion, and
operating income of approximately $33 million (approximately $281 million if the
effect of $248 million of restructuring costs and other unusual charges were
excluded). The Company's business focus is built on strengths in four key
technologies: polymer chemistry, phosphorus chemistry, synthetic fiber
technology and process engineering expertise. The Company owns a number of
established trademarks, designating its proprietary products and processes.
These trademarks include Wear-Dated(R) residential carpet, Ultron(R) VIP
commercial carpet, Saflex(R) plastic interlayer for laminated glass, Acrilan(R)
acrylic fiber for apparel, craft yarn and upholstery, Phos-Chek(R) fire
retardant and Skydrol(R) hydraulic fluids for aircraft. The Company is also a
major producer of chemical intermediates -- "building block" chemicals used in
the manufacture of a wide variety of finished goods. The Company operates 24
manufacturing sites in four countries, and has offices and distribution
facilities worldwide. The Company currently makes approximately one-third of its
annual sales into markets outside of the United States. The Company relies on
research and development activities to generate new commercial applications for
its technologies, investing approximately 2.6% of sales in research and
development work each year. See "Selected Historical Financial Data," "Unaudited
Pro Forma Condensed Combined Financial Statements" and "Business and
Properties."
The principal corporate offices of the Company are located at 10300 Olive
Boulevard, P.O. Box 66760, St. Louis, Missouri 63166-6760 and the Company's
telephone number is (314) 674-1000.
RECENT DEVELOPMENTS
On the Distribution Date, all of the outstanding Company Common Stock was
distributed to the holders of the common stock, $2.00 par value, of Monsanto
("Monsanto Common Stock") on the record date for the Spinoff on a one-for-five
basis. The Company was incorporated in Delaware in April 1997 as a wholly owned
subsidiary of Monsanto in order to accomplish the Spinoff. To effect the
Spinoff, Monsanto contributed the Chemicals Business to the Company. The Company
Common Stock is listed for trading on the NYSE under the symbol "SOI". In
connection with the Spinoff, the Company assumed $1.029 billion of indebtedness
from Monsanto, primarily commercial paper. See "Capitalization."
On September 3, 1997, the Board of Directors of the Company (the "Company
Board") authorized the purchase of up to 5 million shares of Company Common
Stock. The Company currently plans to complete these purchases over the next two
years.
USE OF PROCEEDS
The proceeds to the Company from the sale of the Securities will be used to
refinance commercial paper which, as of September 19, 1997, had a weighted
average maturity of 25 days and a weighted average interest rate of 5.77%. The
commercial paper has been used to refinance the Assumable Commercial Paper
assumed from Monsanto in connection with the Spinoff. The Company received no
proceeds from the Assumable Commercial Paper. See "Other Indebtedness of the
Company."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997 and as adjusted as provided in the notes to the pro forma condensed
combined financial statements of the Company for the six months ended June 30,
1997 to reflect (i) the Spinoff and (ii) the Spinoff and the Offerings and the
application of the proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------------
AS ADJUSTED
AS ADJUSTED FOR THE SPINOFF
ACTUAL(1) FOR THE SPINOFF(2) AND THE OFFERINGS
--------- ------------------ -----------------
(IN MILLIONS)
<S> <C> <C> <C>
LONG-TERM DEBT:
Commercial paper..................... $ -- $ 983 $ 383
Securities offered hereby............ -- -- 600
Other debt........................... -- 46 46
----- ------ -------
Total Long-Term Debt............ -- 1,029 1,029
Monsanto Company Equity................ 859 -- --
Stockholders' Deficit.................. -- (280) (280)
----- ------ -------
TOTAL CAPITALIZATION................... $ 859 $ 749 $ 749
===== ====== =======
</TABLE>
- ---------------
(1) Monsanto uses a centralized approach to cash management and the financing of
its operations. As a result, debt was not allocated to the Company in the
historical financial statements of Monsanto. See Note 1 to the Company's
Combined Financial Statements.
(2) In connection with the Spinoff, the Company assumed $983 million of
Assumable Commercial Paper and $46 million of other debt from Monsanto.
13
<PAGE> 15
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Combined Financial Statements and
the Notes thereto included elsewhere in this Prospectus. This selected
historical financial data has been derived from the combined financial
statements of the Company for the five years ended December 31, 1996 and the six
months ended June 30, 1997 and 1996. During this time, the Chemicals Business,
now operated by the Company, was operated by Monsanto. The historical financial
information may not be indicative of the Company's future performance and does
not necessarily reflect what the financial position and results of operations of
the Company would have been had the Company operated as a separate, stand-alone
entity during the periods covered. Per share data has not been presented for the
historical information because the Company was not publicly held during the
periods presented below. In the opinion of management of the Company, the
unaudited combined financial statements at June 30, 1997 and 1996 and for the
six months ended June 30, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
such interim periods, and the unaudited combined financial data for 1993 and
1992 have been prepared on a basis consistent with that of the audited financial
data. Principally because of factors related to the Spinoff, results for the
first six months of 1997 should not be annualized.
14
<PAGE> 16
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED OR AS OF
ENDED OR AS OF JUNE 30, DECEMBER 31,
-------------------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales(1)...................... $1,489 $1,454 $2,977 $2,964 $3,097 $3,028 $3,022
Operating income(2)............... 192 118 33 258 256 300 30
Other income (expense)............ 22 23 36 9 1 8 (11)
Income (loss) before income
taxes........................... 193 122 33 231 228 290 (10)
Net income (loss)(3).............. 127 83 32 147 149 192 (6)
OTHER STATISTICS:
Total assets...................... $2,529 $2,542 $2,483 $2,462 $2,435 $2,491 $2,543
Capital expenditures.............. 64 92 192 179 187 179 229
Depreciation and amortization..... 67 82 166 162 219 224 262
Intercompany charges(4)........... 12 35 85 72 69 61 77
Interest expense(5)............... 21 19 36 36 29 19 29
Long-term debt(5)................. 0 0 0 0 0 0 0
</TABLE>
- ------------------------
(1) Net sales for the Company included $140 million in 1995, $400 million in
1994, $407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed by Monsanto to Flexsys.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Operating income includes charges (credits) for restructuring and other
unusual items of $12 million in the six months ended June 30, 1997 and $248
million, $46 million, $34 million, $(43) million and $150 million in the
years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The
1996 charges are associated with the closure or sale of certain facilities,
asset write-offs and workforce reductions. In addition, operating income in
1993 and 1992 includes $25 million and $12 million, respectively, for the
Company's rubber chemicals business. Operating income for this business was
not significant in 1994 and 1995.
(3) In 1992, Monsanto adopted SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions," and No. 109, "Accounting for
Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of accounting changes. This net charge was
not allocated to the Company.
(4) Prior to the Spinoff, Monsanto provided certain general and administrative
services to the Company, including finance, legal, treasury, information
systems and human resources. The cost for these services was allocated to
the Company based upon the percentage relationship between the net assets
utilized in the Company's operations and Monsanto's total net assets, as
well as other methods which management believes to be reasonable. The
Company's management estimates that the cost of such general and
administrative expenses on a stand-alone basis would have been approximately
$46 million in 1996.
(5) Monsanto uses a centralized approach to cash management and the financing of
its operations. As a result, cash and cash equivalents and debt were not
allocated to the Company in the historical financial statements of Monsanto.
Interest expense has been allocated to the Company in the Company's combined
financial statements to reflect the Company's pro rata share of the
financing structure of Monsanto. See Note 1 to the Company's Combined
Financial Statements.
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statements of income
for the six months ended June 30, 1997 and for the year ended December 31, 1996
and the unaudited pro forma condensed combined statement of financial position
as of June 30, 1997 give effect to the Spinoff and the Offerings. The pro forma
condensed combined statements of income are presented as if the Spinoff and the
Offerings had occurred as of the beginning of the periods presented and the pro
forma condensed combined statement of financial position is presented as if the
Spinoff and the Offerings had occurred on June 30, 1997. The pro forma
information is presented for illustrative purposes only and may not be
indicative of the results that would have been obtained had the transactions
actually occurred on the dates assumed, nor is it necessarily indicative of
future results.
The pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of the Company included in this Prospectus.
16
<PAGE> 18
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
NET SALES.......................................... $1,489 $ (9)(A) $ 1,480
Cost of goods sold................................. 1,124 (1)(B) 1,121
1(C)
(3)(D)
---------- ----------- -----------
GROSS PROFIT....................................... 365 (6) 359
Marketing, administrative and technological
expenses......................................... 173 11(B) 193
(9)(D)
18(E)
---------- ----------- -----------
OPERATING INCOME(1)................................ 192 (26) 166
Interest expense................................... (21) (13)(F) (34)
Other income -- net................................ 22 22
---------- ----------- -----------
INCOME BEFORE INCOME TAXES......................... 193 (39) 154
Income taxes....................................... 66 (14)(G) 52
---------- ----------- -----------
NET INCOME......................................... $ 127 $ (25) $ 102
========= ============ ==============
EARNINGS PER SHARE................................. $ 1.05 $ 0.84
========= ==============
Shares used in the calculation of earnings per
share(2)......................................... 121.3 121.3
========= ==============
Ratio of earnings to fixed charges(3)(4)........... 4.5
==============
</TABLE>
- ---------------
(1) The Company's historical operating income for the six months ended June 30,
1997 was negatively affected by net unusual charges of $12 million. For a
description of these items, see Notes 2, 6 and 7 to the Company's Interim
Combined Financial Statements.
(2) Based on 606.5 million shares of Monsanto Common Stock, and the distribution
ratio in the Spinoff of one share of Company Common Stock for every five
shares of Monsanto Common Stock.
(3) Historical computation of earnings to fixed charges is not considered
meaningful because interest expense has been allocated to the Company in the
combined financial statements to reflect the Company's pro rata share of the
financing structure of Monsanto, but no debt was allocated from Monsanto.
Excluding the net unusual charges of $12 million indicated in Note (1)
above, the ratio of earnings to fixed charges would have been 4.8.
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents pro forma income before income taxes, plus fixed
charges, less equity income of affiliated companies. "Fixed charges" consist
of pro forma interest on pro forma long-term debt and estimated interest on
rentals.
See Notes to Pro Forma Condensed Combined Financial Statements.
17
<PAGE> 19
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
NET SALES........................................ $2,977 $ (15)(A) $ 2,962
Cost of goods sold............................... 2,325 3 (B) 2,313
3 (C)
(18)(D)
------ ----- ------
GROSS PROFIT..................................... 652 (3) 649
Marketing, administrative and technological
expenses....................................... 427 14 (B) 420
(67)(D)
46 (E)
Restructuring expenses........................... 192 192
------ ----- ------
OPERATING INCOME(1).............................. 33 4 37
Interest expense................................. (36) (28)(F) (64)
Other income -- net.............................. 36 36
------ ----- ------
INCOME BEFORE INCOME TAXES....................... 33 (24) 9
Income taxes..................................... 1 (9)(G) (8)
------ ----- ------
NET INCOME....................................... $ 32 $ (15) $ 17
====== ===== ======
EARNINGS PER SHARE............................... $ 0.27 $ 0.14
====== ======
Shares used in the calculation of earnings per
share(2)....................................... 119.8 119.8
====== ======
Ratio of earnings to fixed charges(3)(4)......... --
======
</TABLE>
- ---------------
(1) The Company's historical operating income in 1996 was negatively affected by
restructuring and other unusual charges which totaled $248 million. For a
description of these charges, see Note 4 to the Company's Combined Financial
Statements.
(2) Based on 599 million shares of Monsanto Common Stock and the distribution
ratio in the Spinoff of one share of Company Common Stock for every five
shares of Monsanto Common Stock.
(3) Historical computation of earnings to fixed charges is not considered
meaningful because interest expense has been allotted to the Company in the
combined financial statements to reflect the Company's pro rata share of the
financing structure of Monsanto, but no debt was allocated from Monsanto.
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents pro forma income before income taxes, plus fixed
charges, less equity income of affiliated companies. "Fixed charges" consist
of pro forma interest on pro forma long-term debt and estimated interest on
rentals. Pro forma earnings were approximately $9 million lower than the
amount needed to cover fixed charges in this year, as earnings in 1996 were
impacted by $256 million of restructuring and other unusual charges (see
Note 4 to the Company's Combined Financial Statements). Excluding these
charges, the ratio of earnings to fixed charges would have been 4.3.
See Notes to Pro Forma Condensed Combined Financial Statements.
18
<PAGE> 20
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 75(H) $ 70
(5)(I)
Trade receivables...................................... $ 430 430
Miscellaneous receivables and prepaid expenses......... 108 108
Deferred income tax benefit............................ 110 (6)(J) 104
Inventories............................................ 288 288
------ ------- ------
TOTAL CURRENT ASSETS.............................. 936 64 1,000
------ ------- ------
Net property, plant and equipment...................... 907 907
Investment in affiliates............................... 388 25(K) 413
Other assets........................................... 298 105(L) 398
(10)(J)
5(I)
------ ------- ------
TOTAL ASSETS........................................... $2,529 $ 189 $ 2,718
====== ======= ======
LIABILITIES AND MONSANTO COMPANY EQUITY (STOCKHOLDERS' DEFICIT)
Accounts payable....................................... $ 191 $ 191
Accrued liabilities.................................... 420 $ 32(L) 460
8(J)
------ ------- ------
TOTAL CURRENT LIABILITIES......................... 611 40 651
------ ------- ------
Long-term debt......................................... 1,029(M) 1,029
Post-retirement liabilities............................ 615 303(L) 918
Other liabilities...................................... 444 (44)(L) 400
Monsanto Company equity................................ 859 75(H) --
(24)(J)
(25)(K)
(1,029)(M)
(186)(L)
280(N)
Stockholders' deficit.................................. (280)(N) (280)
------ ------- ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY
(STOCKHOLDERS' DEFICIT).............................. $2,529 $ 189 $ 2,718
====== ======= ======
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
19
<PAGE> 21
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED
(A) To record the estimated effect of new selling prices and arrangements on
former intercompany sales from the Company to Monsanto. The Company sells
certain products to Monsanto under arms-length long-term contracts with
formula-based or market-based pricing mechanisms. The Company also acts as
the agent for Monsanto in purchasing additional quantities of one of these
products. The net effect of these changes in supply arrangements and prices
is to reduce the overall net sales of the Company. See "Agreements with
Monsanto -- Raw Material Supply Agreements."
(B) To record the assumed increase in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Company's historical financial
statements, the annual costs for retiree medical and pension liabilities
have been allocated generally based upon the percentage of payroll costs to
total Company payroll costs. In connection with the Spinoff, the Company
assumed retiree medical liabilities for its active employees and former
employees who last worked at a Chemicals Business facility or certain former
chemicals facilities. In addition, in connection with the Spinoff, the
Company assumed the U.S. pension liabilities, and received related assets,
for its active employees and for certain former employees of the Company who
left Monsanto in earlier years. The amount of these liabilities assumed by
the Company is significantly greater than the amounts allocated
historically. As a result pension and post-retirement costs for the Company
have increased significantly in total following the Spinoff. See "Agreements
with Monsanto -- Employee Benefits Allocation Agreement."
(C) To record the estimated effect of transactions with the P4 Joint Venture (as
defined herein). The amounts reflect assumed payments from the Company to
Monsanto of $2 million and $5 million, for the six months ended June 30,
1997 and the year ended December 31, 1996, respectively, for premiums
related to production taken over certain specified levels. These amounts are
offset by assumed accrued income for option fee payments from Monsanto to
the Company for the six months ended June 30, 1997 and the year ended
December 31, 1996, of $1 million and $2 million, respectively. See
"Agreements with Monsanto -- P4 Joint Venture."
(D) To reverse the historical Monsanto corporate expense allocation to the
Company because the Company is no longer subject to the allocation of
corporate expenses from Monsanto following the Spinoff. The allocated
corporate expenses include, among other items, executive administration,
Monsanto's business and organizational development initiatives, and the cost
of corporate incentives. For purposes of the historical financial
statements, such expenses were allocated on the basis of the net capital
employed by the Chemicals Business. For the six months ended June 30, 1997
and the year ended December 31, 1996, $12 million and $85 million,
respectively, of such expenses were allocated to the Company.
(E) Because the Company is no longer subject to the allocation of corporate
expenses from Monsanto, a pro forma adjustment was made to record estimated
general corporate costs that the Company believes it would have incurred had
the Company been a separate public company for the periods presented.
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<PAGE> 22
(F) To record additional interest expense as a result of the assumption of debt
by the Company from Monsanto and the borrowings under the Offerings,
detailed as follows:
<TABLE>
<S> <C>
For the year ended December 31, 1996 --
(1) Estimated interest on long-term debt at an average assumed rate of
6.17%.............................................................. $ 64
(2) Elimination of historical interest expense........................ (36)
----
Net pro forma adjustment.............................................. $ 28
=====
For the six months ended June 30, 1997 --
(1) Estimated interest on long-term debt at an average assumed rate of
6.67%.............................................................. $ 34
(2) Elimination of historical interest expense........................ (21)
----
Net pro forma adjustment.............................................. $ 13
=====
</TABLE>
An increase or decrease of 0.125% in the weighted average interest rate
would result in an increase or decrease in interest expense of $1.3 million and
$0.6 million for the year ended December 31, 1996 and the six months ended June
30, 1997, respectively.
In September 1997 the Company entered into interest rate swaps with certain
financial institutions, with a notional amount of $200 million, for the purpose
of hedging the interest rate of debt the Company anticipated issuing in 1997.
The interest rate swaps will be settled in cash in conjunction with sale of the
2027 Debentures. Any such amounts will be amortized as an adjustment in interest
expense payable on the 2027 Debentures over the expected term of the 2027
Debentures.
(G) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (A) through (F) above at an estimated
combined U.S. federal and state income tax rate of 36%.
(H) To record the contribution of $75 million in cash to the Company from
Monsanto. See "Agreements with Monsanto -- Distribution Agreement."
(I) To record the deferred financing costs associated with the Offerings.
(J) To record the reduction in deferred tax assets to an estimated combined
U.S. federal and state income tax rate of 36% for the Company and to
reflect the assumption of certain tax liabilities in accordance with the
Tax Sharing and Indemnification Agreement (as defined herein). See
"Agreements with Monsanto -- Tax Sharing and Indemnification Agreement."
(K) To record the contribution by Monsanto of a 40% interest in the P4 Joint
Venture (as defined herein) to the Company. See "Agreements with Monsanto --
P4 Joint Venture."
(L) To record the assumption and reclassification of additional post-retirement
liabilities by the Company, principally for retiree medical and pensions,
and to record the related deferred tax asset and the resulting effect on
Monsanto Company equity. See "Agreements with Monsanto -- Employee Benefits
Allocation Agreement." See Note (B) above for additional information.
(M) Reflects the following:
<TABLE>
<S> <C>
(1) Assumption in the Spinoff of debt by the Company, principally
assumable commercial paper....................................... $1,029
(2) Borrowings under the Offerings................................... 600
(3) Repayment of commercial paper.................................... (600)
------
$1,029
======
</TABLE>
(N) Reclassification from Monsanto Company equity to stockholders' deficit.
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The combined financial statements of the Company generally reflect the
results of operations, financial position and cash flows of the operations
transferred to the Company by Monsanto in connection with the Spinoff.
Accordingly, the Company's combined financial statements have been carved out
from the consolidated financial statements of Monsanto using the historical
results of operations and historical basis of the assets and liabilities of the
Chemicals Business and the allocation methodology described in Note 1 to the
Company's Combined Financial Statements. The historical combined financial
statements of the Company do not include certain assets and liabilities which
were transferred to the Company in connection with the Spinoff. See "Unaudited
Pro Forma Condensed Combined Financial Statements" and Note 1 to the Company's
Combined Financial Statements included in this Prospectus. Management believes
the assumptions underlying the Company's financial statements are reasonable.
The combined financial statements, however, may not necessarily reflect the
results of operations, cash flows or financial position of the Company in the
future, or what the results of operations, cash flows or financial position
would have been had the Company been a separate stand-alone public entity.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
For the six months ended June 30, 1997, the Company's net sales of $1,489
million increased $35 million, or 2%, as compared with the same period in 1996.
Approximately $27 million of the increase can be attributed to higher sales
volumes and an improved sales mix, with the remainder of the increase
attributable to higher average selling prices. The sales increase was driven by
increased demand and was principally the result of higher sales volumes of nylon
plastics and polymers, as well as higher sales volumes of Saflex(R) plastic
interlayer. The sales increase was partially offset by lower sales volumes for
carpet fibers, principally because of lower sales into the residential carpet
market. Combined sales of the other business units for the first half of 1997
were essentially even with sales in the same period of 1996.
The Company's operating income for the first half of 1997 increased $74
million, or 63%, versus the first half of 1996. However, as further discussed in
Note 2 of the Notes to Interim Combined Financial Statements included elsewhere
in this Prospectus, operating income for the first half of 1997 includes $10
million of pretax charges associated with the adoption of the SOP 96-1 for
environmental reserves at operating locations. In addition, as further described
in Notes 6 and 7 to the Company's Interim Combined Financial Statements,
operating income in the first half of 1997 reflects a charge of $10 million for
environmental-related litigation at the Brio Superfund site, as well as $8
million in reversals of excess restructuring reserves from prior years. If the
net effect of these changes was excluded, operating income in the first six
months of 1997 would have increased 73% compared with a weak operating income
performance in the same period last year. Lower administrative expenses, the
effect of increased sales described above, and improved manufacturing
performance all contributed to the significant increase in operating income. The
decrease in administrative expenses can be attributed primarily to lower
allocations related to Monsanto's business and organizational development
initiatives. Higher capacity utilization contributed to the improved
manufacturing performance. In addition, operations benefited from cost savings
realized through the various restructuring actions taken in recent years.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning January 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company has not yet completed its analysis of how it will apply
this new standard.
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<PAGE> 24
The Company is affected by certain general economic conditions,
particularly as they relate to the housing industry in the United States and the
automotive industry both in the United States and internationally, which are
cyclical businesses. In addition, global competition and customer demands for
efficiency will continue to make sustained price increases difficult. The prices
of purchased raw materials used by the Company fluctuate in the short term and
are affected by factors such as plant outages, oil prices and supply and demand.
However, in the long term, the Company believes that the addition of new
worldwide capacity should exert downward pressure on raw material costs.
1996 COMPARED WITH 1995
The Company's net sales increased $13 million in 1996. However, as further
discussed in the Notes to the Company's Combined Financial Statements, prior
year operations reflect four month sales and operating income from the rubber
chemicals business that was contributed to the formation in May 1995 of the
Flexsys joint venture between Monsanto and Akzo Nobel N.V. ("Akzo Nobel") which
is described below. Sales and operating results for the rubber chemicals
business are no longer included in the Company's combined totals. If the sales
from this business were excluded in 1995, the Company's sales would have
increased $153 million, or 5%, in 1996. Approximately $204 million of the
increase can be attributed to higher sales volumes and an improved sales mix.
This increase was partially offset by the effect of lower average selling prices
which totaled approximately $51 million.
Most of the sales growth was driven by increased sales for fibers products,
primarily because of higher sales volumes of nylon and acrylic fibers. Nylon
fiber sales were considerably higher than sales in 1995 because of higher demand
in the carpet industry. Increased demand in U.S. markets and higher export
sales, particularly into China, drove the sales volume growth for acrylic
fibers. A decline in average selling prices partially offset the increase in
nylon and acrylic fiber sales. Nylon polymer sales also contributed to the sales
increase on the strength of higher sales volumes. Sales of intermediates and
phosphorus and derivative products were essentially even with the prior year.
Sales of industrial products in 1996 were up moderately from those in 1995,
principally because of higher sales volumes, led by higher sales volumes for
Therminol(R) heat transfer fluids. Higher sales volumes, partially offset by
lower average selling prices, resulted in a modest increase in the net sales of
Saflex(R) plastic interlayer in 1996. Polymer modifier sales declined slightly
in 1996, primarily due to lower sales volumes.
In 1996, operating income for the Company decreased $225 million from
operating income in 1995. However, profitability in both years was affected by
unusual items. Operating income in 1996 included a net charge of $248 million
for restructuring and other actions, primarily for the costs of work force
reductions, asset write-offs and facility rationalizations. Operating income in
1995 was reduced by $46 million, principally as a result of restructuring
charges for employment reductions and the costs to close several facilities. If
the unusual items in 1996 and 1995 and the results of the rubber chemicals
business were excluded, 1996 operating income for the Company would have
decreased $20 million from the comparable amount in 1995.
The positive effect of higher sales volumes and lower raw material costs on
operating income was offset by lower average selling prices, by significantly
higher administrative expenses and by higher manufacturing costs. The
manufacturing cost increase was principally associated with maintenance downtime
and capacity expansion projects. Customer demands and worldwide competitive
pressures limited the Company's pricing flexibility on most of its products.
Future reductions or increases in average selling prices will continue to be
contingent upon these demands and pressures.
The 1996 increase in administrative expenses was primarily due to higher
costs associated with various employee incentive programs, as well as to
increased allocations related to Monsanto's business and organizational
development initiatives.
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<PAGE> 25
The increase in "Other income (expense) -- net" was primarily the result of
higher earnings from equity affiliates, principally associated with the Flexsys
and the Advanced Elastomer Systems 50/50 joint venture ("Advanced Elastomer
Systems") between Monsanto and Exxon Corporation ("Exxon").
The 1996 effective income tax rate of 3% compared to the U.S. federal
statutory rate of 35% can be attributed primarily to the joint venture after tax
earnings included in "Other income (expense) -- net" and benefits from the
foreign sales corporation. It is expected that the effective income tax rate in
future periods will be significantly higher and will slightly exceed the U.S.
federal statutory rate.
1995 COMPARED WITH 1994
The Company's net sales decreased $133 million in 1995. However, net sales
and operating results for the first four months of 1995 and for all of 1994
include the results from the Company's rubber chemicals business. As further
discussed in Note 4 to the Company's Combined Financial Statements, on May 1,
1995, Monsanto contributed the rubber chemicals business to the Flexsys joint
venture. Operations for the Flexsys joint venture commenced on May 1, 1995. As a
result, sales and operating results for the rubber chemicals business are no
longer included in the Company's results. If the sales from this business were
excluded in both 1995 and 1994, the Company's sales in 1995 would have increased
$127 million, or 5%. Approximately $105 million of this increase can be
attributed to the effects of higher average selling prices, with the remainder
of the increase attributable to higher sales volumes.
Nylon intermediate sales in 1995 increased significantly from sales in
1994, primarily on the strength of higher selling prices. In addition, the
Company's 1995 sales increase benefited from higher sales of polymer modifiers
and nylon polymers as a result of higher average selling prices. Net sales of
Saflex(R) plastic interlayer increased modestly from sales in 1994, principally
because of favorable exchange rates. Sales volumes were essentially even with
those in 1994 as expected growth in the global automotive markets failed to
materialize in 1995. The 1995 increase in net sales was partially offset by
lower nylon and carpet fiber sales, as the carpet industry experienced lower
consumer demand in 1995. Demand for acrylic fibers in U.S. markets was soft
during 1995 and negatively affected sales volumes. This decline was partially
offset by higher export sales, particularly in China.
Operating income for the Company increased slightly in 1995 from operating
income in 1994. However, unusual items affected profitability in both years.
Operating income in 1995 was reduced by $46 million, principally the result of
restructuring charges for employment reductions and the costs to close several
facilities. Operating income in 1994 was reduced by $34 million in restructuring
charges, principally related to work force reductions and costs to close several
facilities. If these unusual items and the results of the rubber chemicals
business were excluded, operating income for the Company would have increased by
3% from operating income in 1994.
Operating income was positively affected by higher selling prices, the
effect of continued cost-reduction efforts, and manufacturing efficiencies, but
was hurt by higher raw material costs. Competitive pressures worldwide limited
the Company's ability to recover the increased raw material costs fully through
increased selling prices.
The decrease in marketing expenses was principally due to the inclusion of
only four months of marketing expenses associated with the rubber chemicals
business in 1995 operating results.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated sufficient cash from its operations
to fund its capital needs, including working capital. Capital expenditures
averaged $186 million per year for the past three years and were used to fund
various maintenance and capacity expansion projects. The
24
<PAGE> 26
Company expects that its capital requirements for 1997 will be approximately
$175 million and could increase to between approximately $275 million and $450
million annually over the following few years, principally as a result of
capacity expansion and cost reduction projects. In addition, environmental
remediation expenditures have averaged $62 million per year over the past three
years, and the Company expects to incur similar amounts per year over the next
several years.
The Company's working capital at June 30, 1997 increased to $325 million
from $121 million at December 31, 1996, primarily because of an increase in
trade receivables and lower accrued liabilities. The decrease in accrued
liabilities, principally wages and benefits, was primarily the result of
significantly higher payouts associated with employee incentive programs. The
increased incentive payouts included the final payment of certain deferred
amounts related to a three-year incentive plan.
On September 3, 1997, the Company Board authorized the purchase of up to 5
million shares of Company Common Stock. The Company currently plans to complete
these purchases over the next two years.
The Company's pro forma balance sheet includes approximately $1.029 billion
of debt, consisting primarily of the Securities and commercial paper. The
commercial paper is backed by $1.2 billion in revolving credit facilities of the
Company. See "Other Indebtedness of the Company."
The Company believes that its cash flow from operations, supplemented by
periodic additional borrowings, provides it with sufficient resources to finance
operations and planned capital needs.
ENVIRONMENTAL MATTERS
The Company continues to make a strong commitment to comply with various
laws and government regulations concerning environmental matters and employee
safety and health in the United States and other countries. U.S. federal
environmental legislation having particular effect on the Company includes the
Toxic Substances Control Act; the Resource Conservation and Recovery Act
("RCRA"); the Clean Air Act; the Clean Water Act; the Safe Drinking Water Act;
and the Comprehensive Environmental Response, Compensation and Liability Act
(commonly known as "Superfund"), as amended by the Superfund Amendments and
Reauthorization Act. The Company is also subject to the Occupational Safety and
Health Act and regulations of the Occupational Safety and Health Administration
("OSHA") concerning employee safety and health matters. The Environmental
Protection Agency ("EPA"), OSHA and other federal agencies have the authority to
promulgate regulations which have an effect on the Company's operations. In
addition to these federal activities, various states have been delegated certain
authority under the aforementioned federal statutes. Many state and local
governments have adopted environmental and employee safety and health laws and
regulations, some of which are similar to federal requirements. State and
federal authorities may seek fines and penalties for violation of these laws and
regulations.
The Company is dedicated to long-term environmental protection and
compliance programs that reduce and monitor emissions of hazardous materials
into the environment as well as to the remediation of identified existing
environmental concerns. The Company is among the leaders in the chemical
industry's Responsible Care performance enhancement program.
Expenditures in 1996 were approximately $9 million for environmental
capital projects and approximately $85 million for the management of
environmental programs, including the operation and maintenance of facilities
for environmental control. The Company estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.
Monsanto intermittently received notices from the EPA alleging that it is a
PRP under Superfund with respect to Company sites. In 1996, two such notices
were received for the Company. With respect to many of these notices, Monsanto
has resolved disputes, entered partial and complete
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<PAGE> 27
consent decrees, and executed administrative orders with the EPA settling a
portion or all of the Company's liability. Remediation pursuant to such
settlements is ongoing.
The Company's policy is to accrue costs for remediation of contaminated
sites in the accounting period in which the responsibility is established and
the cost is estimable. The Company's estimates of its liabilities for Superfund
sites are based on evaluations of currently available facts with respect to each
individual site and take into consideration factors such as existing technology,
laws and agency policy, and prior experience in remediation of contaminated
sites. As assessments and remediation activities progress at individual sites,
these liabilities are reviewed periodically and adjusted to reflect additional
technical, engineering and legal information that becomes available. The Company
had an accrued liability of $51 million as of December 31, 1996 for Superfund
sites. Major Superfund sites in this category include the noncompany-owned sites
at Brio and MOTCO in Texas, Fike/Artel in West Virginia and Woburn in
Massachusetts, which account for $34 million of the accrued amount. Because of
uncertainties primarily related to the method and extent of remediation,
potential future expenses could be as much as an additional $10 million for
these sites based upon existing technology and other currently available
information. These potential future expenses may be incurred over the next
decade. The Company spent approximately $20 million in 1996 for remediation of
Superfund sites. Similar amounts can be expected in future years.
The Company had environmental reserves of $58 million as of December 31,
1996 for shut-down plants and third-party sites for which the Company assumed
responsibility pursuant to the Distribution Agreement. The Company's estimates
of its liabilities are based on evaluations of currently available facts with
respect to each individual site and take into consideration factors such as
existing technology, laws and agency policy and prior experience in remediation
of contaminated sites. Subject to these uncertainties, the Company currently
estimates that potential future expenses could be as much as an additional $50
million for these sites. The Company spent $21 million in 1996 for remediation
of these sites. Similar amounts can be expected in the future.
For solid and hazardous waste remediation at the Company's operating
locations, the Company recognizes post-closure environmental costs and
remediation costs over the estimated remaining useful life of the related
facilities, not to exceed 20 years. The Company spent $18 million in 1996 for
remediation of these facilities and had an accrued liability of $41 million as
of December 31, 1996 for these sites. Uncertainties related to these costs are
evolving government regulations, the methods and extent of remediation and
future changes in technology. The Company estimates that closure costs for these
facilities will be an additional $70 million, based upon existing technology and
other currently available information.
Although the ultimate costs and results of remediation of contaminated
sites cannot be predicted with certainty, they are not expected to result in a
material adverse change in the Company's liquidity or financial position as
reflected in the Company's historical financial statements, but they could have
a material adverse effect on profitability in a given period. The impact of any
future changes in environmental law and regulation on the Company's liquidity,
financial position and profitability cannot be predicted with accuracy.
Effective January 1, 1997, the Company adopted SOP 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in the Company's accounting principles
associated with the adoption of this SOP was an acceleration of the recognition
of certain environmental remediation liabilities at operating facilities. As a
result, the Company recorded an aftertax charge of $6 million in the first half
of 1997. Additional aftertax charges in the range of $9 million to $14 million
are anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.
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<PAGE> 28
BUSINESS AND PROPERTIES
The Company produces and markets a range of high performance chemical-based
materials, including nylon and acrylic fibers and fiber intermediates, Saflex(R)
plastic interlayer, phosphorus derivatives, and specialty chemicals. These
materials are used by customers to make consumer, household, automotive and
industrial products.
The Company's strategic focus is built on four key technology strengths:
polymer chemistry, phosphorus chemistry, fiber technology, and process
engineering expertise. These technologies are used in various combinations to
create value-added products in ten business units: Acrilan(R) Acrylic Fibers,
Carpet Fibers, Industrial Nylon Fibers, Industrial Products, Intermediates,
Nylon Plastics & Polymers, Phosphorus Derivatives, Polymer Modifiers, Resins,
and Saflex(R)Plastic Interlayer. Three business units -- Carpet Fibers,
Intermediates and Saflex(R) Plastic Interlayer -- accounted for over 50% of the
Company's total sales in 1996.
To compete effectively in its markets, the Company is implementing a
strategy which emphasizes the following key elements:
CORE PRODUCTS AND TECHNOLOGIES: The Company intends to focus on its
core products and technologies throughout its ten business units. The
Company will continue to invest in manufacturing technology, product
research and technical and marketing support in order to continually
improve its cost and quality positions as well as its applications support
and technical service.
AGGRESSIVE COST CONTROLS AND FOCUS ON PROFITABILITY: Over the past
several years, the Company has restructured its product portfolio to exit
underperforming businesses. The Company believes that additional expense
reductions can be achieved in manufacturing and administrative functions.
SELECTED GROWTH INITIATIVES: The Company intends to develop the growth
potential of its core chemistries and technologies through targeted new
product introductions, innovations in related fields and selective
expansions of its presence in international markets.
PERFORMANCE INCENTIVES: The Company plans to provide incentives for
employees to increase cash flow, earnings per share and shareholder value.
In 1996, the Company had revenues of approximately $3.0 billion and
operating income of approximately $33 million (approximately $281 million if the
effect of $248 million of restructuring costs and unusual charges were
excluded). Approximately one-third of the Company's sales in 1996 were made into
markets outside the United States. See the Company's Combined Financial
Statements.
DESCRIPTION OF PRINCIPAL PRODUCTS AND COMPETITIVE SITUATION
Set forth below are descriptions of the Company's ten business units, in
alphabetical order.
ACRILAN(R) ACRYLIC FIBER
The Company is the largest producer of acrylic fiber in North America. It
manufactures and markets a full line of commodity and specialty grades of this
fiber, which is used to make apparel, craft yarns, cloth for home furnishings,
and brake fibers, among other uses.
The Company's Acrilan(R) trademark is widely recognized in the industry, as
are the following brand names which are used to identify products made with
Acrilan(R): Wear-Dated(R) upholstery; DuraSpun(R) fibers; the Smart Yarns fibers
(for socks); and Wintuk(R), Sayelle(R) and Bounce Back(R) (fibers for craft
yarn).
The principal competitor for acrylic fiber in North America is Sterling
Chemicals, Inc. Worldwide, competitors include MonteFibre S.p.A. (Italy), AKSA
Akrilik Kimya Sanayii A.S. (Turkey), Courtalds
27
<PAGE> 29
plc (United Kingdom) and Mitsubishi Chemicals Corporation (Japan). Acrylic fiber
also competes against other fibers such as cotton and polyester.
The primary raw material for acrylic fiber is acrylonitrile, which is
produced internally by Intermediates and supplemented with external purchases.
There are a variety of differentiated Acrilan(R) brand products, including
producer-colored fiber, pigmented UV resistant fibers, bi-component Bounce
Back(R) fibers, DuraSpun(R) abrasion-resistant fibers and technical fibers used
in friction applications, as well as precursor chemicals for carbon fibers.
These products -- and the opportunity to develop sales in other parts of the
Western Hemisphere -- represent the business unit's best opportunity for growth.
In addition, the Company generates significant income from the licensing of its
proprietary wet spinning acrylic technology, primarily in Asian markets.
CARPET FIBERS
The Company is the largest supplier of nylon staple to the North American
carpet industry, for the residential market (new construction and replacement),
the contract market (offices, hotels, restaurants, retail and institutions) and
the rug market. Its product portfolio includes nylon 6,6 staple, bulk continuous
filament ("BCF") and acrylic staple fibers -- offering carpet mills a wide range
of performance and styling characteristics.
The Company's products are marketed under two of the industry's most
respected brand names: Wear-Dated(R) carpets (residential) and Ultron(R) VIP
nylon (contract). The Wear-Dated(R) name is widely recognized by consumers in
North America for its guarantee of the finished carpet's outstanding quality and
exceptional performance.
Competitive success is determined by different factors in different
segments of the market. Overall, Carpet Fibers benefits from vertical
integration with Intermediates. In the residential segment, branded products
compete based on technical advances and marketing programs, such as the
Company's warranty offered on Wear-Dated(R) carpets, retailer sales incentives
and similar activities.
In contract markets, the basis for competition is product performance and
downstream marketing programs. The Ultron(R) VIP nylon brand offers carpet
makers an innovative mix of fiber shapes and sizes that are specifically
engineered for features such as soil-hiding ability and extra bulk and cover.
Carpet Fibers works closely with the building design community to develop new
products which address the contract market's needs. It also sells Ultron(R) SD
Solution-Dyed nylon 6,6, which offers superior colorfastness and protection
against harsh chemicals, bacterial growth and stains.
The Company is introducing DyeNAMIX(R) technology, a substantially improved
fiber system which permits rich, deep colors and enhances the print clarity of
carpets. This proprietary technology is environmentally friendly, while also
allowing carpet mills to achieve higher efficiencies and lower dye costs.
The principal competitors for nylon carpet fiber in the United States are
E.I. DuPont De Nemours and Company ("DuPont"), AlliedSignal Inc.
("AlliedSignal") and BASF AG ("BASF"). The Company and AlliedSignal offer both
nylon staple and BCF products, while DuPont and BASF are primarily BCF
suppliers. The Company owns and operates the world's largest integrated nylon
manufacturing plant in Pensacola, Florida.
A majority of Carpet Fibers' sales are generated by a few major customers
in the carpet mill industry.
Carpet Fibers receives almost all of its major raw materials from
Intermediates.
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<PAGE> 30
INDUSTRIAL NYLON FIBERS
The Company makes and supplies a line of industrial-strength nylon fibers
to a variety of manufacturing customers. Industrial Nylon Fibers' product line
features continuous filament nylon 6,6 yarns in thickness ranging from 60 to
2000 deniers. Heavier yarns are used for applications such as bias tires for
earth movers, NASA space shuttles, aircraft and trucks; mining conveyor belts;
and cargo slings. Lighter weight yarns are used to make backpacks, ribbons,
sewing threads and dental floss. Cost per unit of performance, service
(including the ability to tailor the properties of yarns for use in specific
applications) and breadth of product line are the major drivers of success in
the industrial fibers market. The Company has built a strong presence in the
bias tire and other heavy-denier segments and in industrial sewing threads.
Sales to five major tire companies account for about 50% of total Industrial
Nylon Fibers volume.
The Company is currently investing capital to increase spinning capacity
and to enhance spinning technology at its Greenwood, South Carolina plant. This
project will use proprietary technology (licensed from Toray Industries Inc.) to
improve product quality, enhance yarn performance and tenacity and enable the
Company to achieve a low-cost position in key segments of the market, including
automotive airbags and high performance tires.
Industrial Nylon Fibers receives almost all of its major raw materials from
Intermediates. Competitors in the United States include DuPont (the market
leader) and AlliedSignal.
INDUSTRIAL PRODUCTS
The Company is a leading producer of specialty industrial fluids and
lubricants. Its products are widely recognized in their market segments for
specific performance characteristics which result from proprietary formulations.
Substantially all of the products in this business unit are trademarked, and
include the following brands: Skydrol(R) aviation fluids; Therminol(R) heat
transfer fluids; Dequest(R) water treatment chemicals; and Glacier(R)
metalworking fluids.
The Skydrol(R) product line includes fire-resistant hydraulic fluids which
are used in more than half of the world's commercial aircraft. A new product,
Skydrol(R) 5, was introduced in 1996. It offers a range of enhanced performance
characteristics, such as improved thermal stability, improved corrosion
protection and reduced weight. The Skydrol(R) brand's major competitor is
manufactured by Exxon.
Therminol(R) heat transfer fluids are leaders in the worldwide high
temperature liquid phase market. These products, used in various types of
capital equipment, are known for remaining thermally stable at high temperatures
and for their low temperature pumping characteristics. Competitors include The
Dow Chemical Company and Nippon Steel Chemical Co., Ltd.
Dequest(R) water treatment chemicals are used to solve problems in a number
of heavy and light industrial applications. These products offer functional
properties such as sequestration, scale inhibition and corrosion control.
Competing products are marketed by Albright & Wilson plc ("Albright & Wilson")
and Bayer Corporation ("Bayer").
Launched in 1996, Glacier(R) metalworking fluids are the industry's first
environmentally safe lubricants designed for machining operations such as
grinding, drilling and threading. The fluids are biodegradable and practically
non-toxic.
The Company's specialty industrial fluids are sold throughout the world,
with no single customer accounting for a significant level of sales.
Industrial Products expects to develop new opportunities in its niche
markets by continuing to develop and introduce new products such as Glacier(R)
and by pursuing sales in additional geographic areas such as Asia and Latin
America. The Company recently formed a joint venture in Suzhou, China, to
manufacture Therminol(R) heat transfer fluids.
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<PAGE> 31
Industrial Products relies on a number of raw materials such as benzene,
phenol and phosphorus trichloride, most of which are processed internally by
Intermediates.
INTERMEDIATES
Intermediates manufactures more than three dozen "building block" chemicals
which are used by the Company and by other companies to make a wide variety of
finished products. Intermediates' product lines include nylon intermediates,
sold to a number of fibers and plastics manufacturers worldwide; chlorobenzenes,
used in applications such as rubber chemicals, pigments, antioxidants,
herbicides, solvents and resins; and other intermediates which are used to
produce fertilizers, detergents and animal feed supplements.
Intermediates relies on aggressive cost control, exceptional product
quality, world-class manufacturing scale and proprietary manufacturing
technology to drive its competitive success. Its strategy is to support the
competitiveness of other Company products by achieving the low-cost position on
their critical "building block" chemicals and to pursue profitable external
sales of these products. Intermediates has achieved a leading position in nylon
intermediates through a combination of proprietary technology and scale.
Intermediates obtains its key raw materials, including natural gas,
cyclohexane, propylene, benzene and chlorine, from a number of suppliers.
To meet internal demand and address external sales opportunities,
Intermediates is planning an expansion of its acrylonitrile manufacturing
capacity, which will also reduce its manufacturing costs.
The majority of the production of Intermediates is used internally, with
most of the external sales made to a limited number of customers. In some
product lines, external sales are dependent on a major customer. However, in
each of these cases, sales to internal customers account for the majority of the
business unit's production capacity.
Competitors vary by product line and by world region and include DuPont,
Rhone-Poulenc S.A. ("Rhone-Poulenc") and BASF.
NYLON PLASTICS & POLYMERS
The Company manufactures and markets a line of Vydyne(R) nylon 6,6 molding
resins and extrusion polymers and nylon 6,6 polymers for fiber applications.
Vydyne(R) nylon gives plastics manufacturers the ability to provide their
products with enhanced performance characteristics, such as heat resistance,
chemical resistance and toughness. Vydyne(R) nylon molding resins are used in
under-the-hood automotive components, electrical connectors for telephone
systems and computers, medical devices and similar applications.
Product performance, technical service, vertical integration and breadth of
product line are the major drivers of success in this market. Nylon Plastics &
Polymers relies on nylon 6,6 salt as its primary raw material. This material is
produced internally by Intermediates. The business unit's primary competitor is
DuPont.
PHOSPHORUS DERIVATIVES
The Company has developed an extensive franchise in phosphorus chemistry.
The Company is a low-cost producer of phosphorus-based chemicals, and most of
its product technologies are proprietary. It also has a joint venture in Brazil
using purified wet acid technology to produce many of these products. The
Company manufactures products for a wide range of industries:
FOOD AND BEVERAGE. Its phosphates are used in many food products to
improve texture, appearance and flavor. Branded products include
Levn-Lite(R), Pan-O-Lite(R) and Leverage(R) brand leavening agents, used in
baking; Nutrifos(R) sodium tripolyphosphate, used in meat and poultry
processing; and Katch Fish(R) phosphate, used to extend the shelf life of
fish products.
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<PAGE> 32
PERSONAL CARE PRODUCTS. Major toothpaste manufacturers around the
world rely on the Company's oral care phosphates to improve the performance
of their products. The Company has been a leader in the development of
dentifrice agents which are used to control tartar and to polish and whiten
teeth.
SPECIALTY CHEMICALS. The Company manufactures a number of
phosphorus-based intermediates which serve as key ingredients in oil
additives, pesticides and mining chemicals. The Company also offers
high-purity phosphoric acid, used as a building block in the manufacture of
high-purity phosphate salts.
INDUSTRIAL CLEANERS AND FIRE RETARDANTS. The Company provides
specialized cleaning ingredients for commercial laundries, restaurant and
hospital dishwashing systems and vehicle wash facilities. The Company also
makes and sells Phos-Chek(R) fire fighting agent, used in aerial spraying
to control forest fires and wildfires.
ELEMENTAL PHOSPHORUS. The Company may also offer for sale elemental
phosphorus sourced from the P4 Joint Venture.
The primary competitors for Phosphorus Derivatives are FMC Corporation, Albright
& Wilson and Rhone-Poulenc. The business unit's primary raw material is
elemental phosphorus, which is mined and processed in Soda Springs, Idaho, at
facilities which are jointly owned by the Company and Monsanto through the P4
Joint Venture. See "Agreements with Monsanto -- P4 Joint Venture."
POLYMER MODIFIERS
The Company manufactures and markets a line of polymer modifiers and
specialty plasticizers which are used to improve the performance of flooring
products, sealants, caulks, adhesives and other goods. Unit brands include
Santicizer(R) polymer modifiers and plasticizers, and Santotac MRS(R), a
flooring additive.
Polymer Modifiers is focused on specialty applications, where technical
expertise and processing knowledge can be used to help customers obtain valuable
performance attributes in their products (e.g., mar/scratch resistance, stain
resistance, enhanced gloss and flame retardance). Competitors vary by product
line and include Bayer and Akzo Nobel.
Polymer Modifiers obtains its key raw materials from U.S. and European
markets. New products (such as Santotac MRS(R)) and geographic expansion
(particularly into central Europe and Asia) are expected to be the primary
drivers of growth.
RESINS
This business unit manufactures and markets a line of specialty resins
which are used in the manufacture of thermoset paints and coatings, pressure
sensitive adhesives, paper coatings, plastic products and other applications.
Brands include Resimene(R) amino crosslinkers, Gelva(R) pressure sensitive
adhesives, Santosol(R) solvents which have certain environmentally friendly
characteristics, Scripset(R) resins for paper sizing, Butvar(R) specialty
binders, Modaflow(R) flow and leveling agents, ClearPass(R) spray control
systems and other fabricated products.
Resins provides technical expertise to help customers obtain value-added
performance characteristics. Major competitors vary by product line and include
Cytec Industries, Inc. (coatings and surface size); National Starch and Chemical
Co. and Ashland Inc. (solution acrylic adhesives); Rohm and Haas Company and Air
Products and Chemicals, Inc. (emulsion water-based adhesives); and DuPont
(solvents which have certain environmentally friendly characteristics).
Resins relies on a number of commodity chemicals as raw materials, all of
which are readily available. New products (such as di-methyl esters, a solvent
with certain environmentally-friendly characteristics) and geographic expansion
(particularly into Europe, Latin America and Asia) are expected to be the
primary drivers of growth.
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<PAGE> 33
SAFLEX(R) PLASTIC INTERLAYER
The Company is the world's largest producer of polyvinyl butyral ("PVB"), a
plastic interlayer used in the manufacture of laminated glass for automotive and
architectural applications. The business unit's product is marketed under the
Saflex(R), Saflex SV(R) (superior value) and KeepSafe(TM) (for residential
security windows) trademarks. In 1997, Saflex(R) Plastic Interlayer will
commercialize a patented, reformulated product which is designed to provide
superior processing and application performance. Continued business development
will be driven by the introduction of the reformulated PVB product, by increased
penetration of geographic markets (especially Asia) and by the creation of new
primary demand for PVB in laminated glass worldwide. A Saflex(R) finishing plant
is scheduled to start up in Singapore in late 1997.
Six customers account for 65% to 70% of total sales of Saflex(R) products
worldwide. Saflex(R) Plastic Interlayer relies on vinyl acetate monomer,
polyvinyl alcohol and butanol as raw materials, all of which are readily
available in the U.S. and European markets. Sales volumes are influenced by
shifts in automotive production and commercial building construction, which are
cyclical businesses. The principal competitor in the manufacture of PVB is
DuPont.
* * *
In 1997, the Company reorganized its businesses into the ten business units
described above. While sales information for prior years was not collected on
the basis of these ten units, sales information for four groups of the Company's
businesses was collected and each accounted for more than 10% of the Company's
annual sales during the fiscal years 1994, 1995 and 1996. Each of these four
groups included the business activity of one or more of the current ten units.
The Company believes that the sales data for these groups is generally
comparable to what would have been recorded had the Company's current ten units
been reported as part of these four groups. The table below shows the percentage
of sales derived from each of these four groups along with the identity of the
current units whose business activities were primarily included within those
groups, as well as sales associated with other businesses which have either been
divested or contributed to joint ventures:
<TABLE>
<CAPTION>
PERCENT OF
SALES
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fibers & Intermediates.................................... 51% 47% 44%
(generally comparable with the Acrilan Acrylic Fibers,
Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers units)
Phosphorus Products....................................... 11% 11% 11%
(generally comparable with the Phosphorus Derivatives
unit)
Resins.................................................... 21% 20% 19%
(generally comparable with Saflex(R) Plastic Interlayer
and Resins units)
Specialty Chemicals....................................... 17% 17% 15%
(generally comparable with the Industrial Products and
Polymer Modifiers units)
Divested/Joint Ventures................................... -- 5% 11%
</TABLE>
PRINCIPAL EQUITY AFFILIATES
The Company participates in a number of joint ventures in which it shares
management control with other companies. Principal joint ventures include the
Flexsys joint venture, Advanced Elastomer Systems and the P4 Joint Venture. The
Company's share of the unconsolidated net sales of the Company's joint ventures
was $445 million in 1996.
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<PAGE> 34
The Flexsys joint venture, headquartered in Belgium, is the world's leading
supplier of process chemicals to the rubber industry. Its product line includes
a number of branded accelerators (Santocure(R), Thiofide(R), Thiotax(R)),
pre-vulcanization inhibitors (Santogard(R)), antidegradants and antioxidants
(Flectol(R), Santowhite(R)), and insoluble sulphur (Crystex(R)). Flexsys is a
50/50 joint venture between the Company and Akzo Nobel.
Advanced Elastomer Systems, headquartered in the United States, produces
and sells thermoplastic elastomers -- materials which combine the processability
of thermoplastic and the functional performance of thermoset rubber products.
The joint venture's product lines include Santoprene(R) thermoplastic rubber and
Vistaflex(R) thermoplastic elastomer. Advanced Elastomer Systems is a 50/50
joint venture between the Company and Exxon Corporation ("Exxon").
See "Agreements with Monsanto -- P4 Joint Venture" for information about
the P4 Joint Venture with Monsanto.
SALE OF PRODUCTS
The Company's products are sold directly to end users in various
industries, and to wholesalers, principally by the Company's own sales force.
The Company's marketing and distribution practices do not result in unusual
working capital requirements on a consolidated basis. Inventories of finished
goods, goods in process and raw materials are maintained to meet customer
requirements and the Company's scheduled production. In general, the Company
does not manufacture its products against a backlog of firm orders; production
is geared to the level of incoming orders and to projections of future demand.
The Company generally is not dependent upon one or a group of customers, and it
has no material contracts with the government of the United States, or any U.S.
state or local, or foreign government. In general, the Company's sales are not
subject to seasonality.
RAW MATERIALS AND ENERGY RESOURCES
The Company is a significant purchaser of basic, commodity raw materials,
including propylene, cyclohexane, benzene and natural gas. Major requirements
for key raw materials and fuels are typically purchased pursuant to long-term
contracts. The Company is not dependent on any one supplier for a material
amount of its raw materials or fuel requirements, but certain important raw
materials are obtained from a few major suppliers. In general, where the Company
has limited sources of raw materials, it has developed contingency plans to
minimize the effect of any interruption or reduction in supply. Information
regarding specific raw materials is provided under "-- Description of Principal
Products and Competitive Situation."
While temporary shortages of raw materials and fuels may occasionally
occur, these items are generally sufficiently available to cover current and
projected requirements. However, their continuing availability and price are
subject to unscheduled plant interruptions occurring during periods of high
demand, or due to domestic and world market and political conditions, as well as
to the direct or indirect effect of U.S. and other countries' government
regulations. The impact of any future raw material and energy shortages on the
Company's business as a whole or in specific world areas cannot be accurately
predicted. Operations and products may, at times, be adversely affected by
legislation, shortages or international or domestic events.
PATENTS AND TRADEMARKS
The Company owns a large number of patents which relate to a wide variety
of products and processes, has pending a substantial number of patent
applications, and is licensed under a small number of patents owned by others.
Also, the Company owns a considerable number of established trademarks in many
countries under which it markets its products. Such patents and trademarks in
the aggregate are of material importance in the operations of the Company.
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<PAGE> 35
COMPETITION
The Company encounters substantial competition with respect to each of its
product lines. This competition, from other manufacturers of the same products
and from manufacturers of different products designed for the same uses, is
expected to continue in both U.S. and ex-U.S. markets. Depending on the product
involved, various types of competition are encountered, including price,
delivery, service, performance, product innovation, product recognition and
quality. Overall, the Company regards its principal product groups to be
competitive with many other products of other producers, and believes that it is
an important producer of many such product groups. For information regarding
competition in specific markets, see "-- Description of Principal Products and
Competitive Situation."
RESEARCH AND DEVELOPMENT
Research and development constitute an important part of the Company's
activities. In recent years, the Company's research and development expenses
amounted to approximately 2.6% of sales on average, or $76 million, $77 million
and $81 million in 1994, 1995 and 1996, respectively. The Company focuses its
research and development expenditures on process improvements and select product
development.
The Company actively pursues technologies from around the world that are
expected to bring value to its business. Recent examples include new technology
for converting benzene to phenol, which was licensed from Boreskov Institute of
Catalysis in Russia, and which the Company is actively seeking to license to
third parties; and nylon industrial spinning technology, licensed from Toray
Industries Inc. in Japan. The Company also licenses technologies to other firms.
ENVIRONMENTAL MATTERS
For a discussion of environmental matters, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental
Matters."
EMPLOYEE RELATIONS
As of September 1, 1997, the Company had approximately 8,800 employees
worldwide. Satisfactory relations have prevailed between the Company and its
employees. The Company uses self-directed work teams, incentive programs, and
other initiatives to keep employees actively involved in the success of the
business. Substantially all of the Company employees have options to purchase
Company Common Stock ("Company Options"). Approximately 20% of the Company
workforce is represented by various labor unions.
INTERNATIONAL OPERATIONS
The Company and affiliated companies are engaged in manufacturing, sales
and research and development in areas outside the United States, including
Europe, Canada, Latin America and Asia. Approximately one-third of the Company's
1996 sales were made into markets outside the United States. Operations outside
the United States are potentially subject to a number of risks and limitations
which are not present in domestic operations, including fluctuations in currency
values, trade restrictions, investment regulations, governmental instability and
other potentially detrimental governmental practices or policies affecting U.S.
companies doing business abroad.
PROPERTIES
The general offices of the Company are located in St. Louis County,
Missouri in premises leased from Monsanto. The Company also has research
laboratories, research centers and
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<PAGE> 36
manufacturing locations worldwide. In addition to the general offices, the
Company has the following principal facilities, all of which are owned:
<TABLE>
<CAPTION>
PLANT SITE BUSINESS UNITS SERVED
- --------------------------------- ----------------------------------------------------------
<S> <C>
Anniston, Alabama................ Industrial Products
Augusta, Georgia................. Phosphorus Derivatives
Carondelet
(St. Louis, Missouri).......... Phosphorus Derivatives
Chocolate Bayou
(Alvin, Texas)................. Industrial Products, Intermediates
Decatur, Alabama................. Acrilan Acrylic Fiber, Intermediates, Research Center
Delaware River
(Bridgeport, New Jersey)....... Industrial Products, Intermediates, Polymer Modifiers
Foley, Alabama................... Carpet Fibers, Nylon Plastics & Polymers
Ghent, Belgium................... Resins, Saflex(R) Plastic Interlayer
Greenwood, South Carolina........ Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers
Indian Orchard
(Springfield, Massachusetts)... Research Center, Resins, Saflex(R) Plastic Interlayer
Krummrich
(Sauget, Illinois)............. Intermediates, Phosphorus Derivatives
LaSalle, Canada.................. Polymer Modifiers, Resins
Newport, Wales (U.K.)............ Industrial Products, Polymer Modifiers, Resins
Pensacola, Florida............... Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers, Research Center
Queeny
(St. Louis, Missouri).......... Industrial Products, Polymer Modifiers, Resins
Trenton, Michigan................ Phosphorus Derivatives, Resins, Saflex(R) Plastic
Interlayer
Westport
(St. Louis, Missouri).......... Resins
</TABLE>
The Company also owns certain buildings and production equipment, and
leases the underlying real estate, used to produce products for the indicated
business units at the following Monsanto sites:
<TABLE>
<CAPTION>
PLANT SITE BUSINESS UNITS SERVED
- --------------------------------- ----------------------------------------------------------
<S> <C>
Antwerp, Belgium................. Industrial Products, Polymer Modifiers, Saflex(R) Plastic
Interlayer
Luling, Louisiana................ Intermediates
Sao Jose dos Campos, Brazil...... Industrial Products, Phosphorus Derivatives, Saflex(R)
Plastic Interlayer
</TABLE>
The Company operates these facilities pursuant to arrangements described
under "Agreements with Monsanto -- Operating Agreements."
The Company's principal plants are suitable and adequate for their use.
Utilization of these facilities may vary with seasonal, economic and other
business conditions, but none of the principal plants is substantially idle. The
facilities generally have sufficient capacity for existing needs and expected
near-term growth. The Company operates several facilities for third parties,
principally within the Chocolate Bayou and Pensacola sites, under long-term
lease and operating agreements. In connection with the Spinoff, the Company
entered into an Operating Agreement with Monsanto
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<PAGE> 37
relating to a portion of the Chocolate Bayou site. See "Agreements with Monsanto
- -- Operating Agreements."
The Company is an active participant in the VPP Star program, a voluntary
safety and health program administered by OSHA. Currently ten of the Company's
sites have qualified for the VPP Star and one site for the Merit designation. In
addition, 17 of the Company's locations have been certified wholly or in part
under the ISO 9000 quality program.
LEGAL PROCEEDINGS
At the time of the Spinoff, the Company assumed from Monsanto, pursuant to
the Distribution Agreement, liabilities related to specified legal proceedings.
As a result, although Monsanto remains the named defendant, the Company will
manage the litigation and indemnify Monsanto for costs, expenses and judgments
arising from such litigation. Most of these proceedings have arisen in the
ordinary course of business and involve claims for money damages. While the
results of litigation cannot be predicted with certainty, the Company does not
believe these matters or their ultimate disposition will have a material adverse
effect on the Company's combined financial position, profitability or liquidity
in any one year, as applicable. The following describes certain proceedings to
which Monsanto is a party and for which the Company assumed any liabilities
pursuant to the Distribution Agreement as of the Distribution Date.
On April 12, 1985, Monsanto was named as a defendant in Alanis et al. v.
Farm & Home Savings, et al., filed in the District Court in Harris County,
Texas, the first of a number of lawsuits in which plaintiffs claim injuries
resulting from alleged exposure to substances present at or emanating from the
Brio Superfund site near Houston, Texas. Monsanto is one of a number of
companies that has sold materials to the chemical reprocessor at that site.
Currently pending are the following matters. (1) Monsanto is one of a number of
defendants in 11 cases brought in Harris County District Court or the United
States District Court for the Southern District of Texas on behalf of 960
plaintiffs who owned homes or lived in subdivisions near the Brio site or along
Clear Creek downstream from the site, attended school near the site or used
nearby recreational baseball fields. Plaintiffs claim to have suffered various
personal injuries and fear future disease; they assert the need for medical
monitoring, and, in the case of the homeowners, claim property damage. In
addition to their claims of personal injury, four plaintiffs in one of these
cases allege business losses. Plaintiffs seek compensatory and punitive damages
in an unspecified amount. Monsanto has settled the claims of 811 plaintiffs in
six of the cases described in this subparagraph for $10 million. The Court has
approved the settlements for 190 of these plaintiffs who are minors. (2)
Monsanto is one of a number of defendants in two actions brought in Harris
County District Court and one action brought in Galveston County District Court
on behalf of 409 plaintiffs, who are former employees of the owners/operators of
the Brio site, and members of the employees' families or persons who worked near
the Brio site. Plaintiffs in one of these actions also owned homes or lived in
subdivisions near the site, attended schools near the site or used nearby
recreational ball fields. Plaintiffs claim physical and emotional injury and
seek compensatory and punitive damages in an unspecified amount. The Company
believes that there are meritorious defenses to all of these lawsuits including
lack of proximate cause, lack of negligent or other improper conduct on the part
of Monsanto, and negligence of plaintiffs (or their parents) and/or of builders
and developers of the Southbend subdivision. These actions are being vigorously
defended.
On November 15, 1993, Monsanto was named as a defendant in Dyer et al. v.
Monsanto Company, et al., filed in the Circuit Court in St. Clair County,
Alabama, the first of a number of lawsuits in which plaintiffs claim to have
sustained personal injuries or property damage as a result of the discharge of
hazardous substances, including polychlorinated biphenyls ("PCBs"), from its
Anniston, Alabama, plant site. The following matters are currently pending. (1)
Monsanto is a defendant in a case pending in Circuit Court in St. Clair County,
Alabama which has been certified as a class action on behalf of all property
owners in a specified area along waterways near the plant. Monsanto is a
defendant in an additional action filed in Circuit Court in Shelby County,
Alabama on
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<PAGE> 38
behalf of a purported class of property owners along a different waterway near
the plant. Plaintiffs in both actions claim loss in the value of their property
and seek compensatory and punitive damages in an unspecified amount. (2)
Monsanto is a defendant in nine additional cases brought in Circuit Court in
Calhoun County, Circuit Court in St. Clair County, Circuit Court in Taladega
County or in U.S. District Court in the Northern District of Alabama on behalf
of 2,057 individual plaintiffs who own or rent homes or own or operate
businesses along waterways near the plant or who live or attend churches near
the plant. An additional case has been filed in Circuit Court in Calhoun County
by one of the churches near the plant. The individual plaintiffs claim to have
suffered various personal injuries and fear future disease; they assert the need
for medical monitoring and claim to have suffered loss in the value of their
property or commercial injury. They seek compensatory and punitive damages of $3
million or in unspecified amounts for each individual, and $20 million for the
church. (3) Monsanto is a defendant in an action brought in U.S. District Court
in the Northern District of Alabama pursuant to RCRA Section 7002(a)(1)(B) on
behalf of four individuals who are plaintiffs in one of the suits pending in
Circuit Court in Calhoun County. Plaintiffs seek an order enjoining Monsanto
from continuing to handle improperly hazardous waste from the Anniston plant,
directing Monsanto immediately to remove all PCBs released from the plant and
granting plaintiffs their costs of suit, including attorney and expert witness
fees. The Company believes that there are meritorious defenses to all these
matters, including lack of any physical injury or property damage to plaintiffs,
lack of any imminent or substantial endangerment to health or the environment
and lack of negligence or improper conduct on Monsanto's part. These actions are
being vigorously defended.
RISK MANAGEMENT
The Company has evaluated risk retention and insurance levels for product
liability, property damage and other potential areas of risk. The Company will
continue to devote significant effort to maintaining and improving safety and
internal control programs, which reduce its exposure to certain risks.
Management decides the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain based on the
cost and availability of insurance and the likelihood of a loss. Management
believes that the levels of risk retention which it has implemented are
consistent with those of other companies in the chemical industry. There can be
no assurance that the Company will not incur losses beyond the limits, or
outside the coverage, of its insurance. The Company's combined financial
position, profitability and liquidity are not expected to be affected materially
by the levels of risk retention that it accepts. For treatment of the Company's
coverage under Monsanto insurance policies in connection with the Spinoff, see
"Agreements with Monsanto -- Distribution Agreement."
AGREEMENTS WITH MONSANTO
For the purpose of governing certain of the ongoing relationships between
Monsanto and the Company and to provide mechanisms for an orderly transition
following the Spinoff, Monsanto and the Company or their respective
subsidiaries, as applicable, have entered into the various agreements described
in this section. Certain of the agreements summarized in this section are
included as exhibits to the Registration Statement and incorporated herein by
reference, and the following summaries are qualified in their entirety by
reference to the agreements as filed.
DISTRIBUTION AGREEMENT
In connection with the Spinoff, Monsanto and the Company entered into the
Distribution Agreement (the "Distribution Agreement"). The Distribution
Agreement provides for, among other things, the principal corporate transactions
which were required to effect the Spinoff and certain other matters governing
the relationship between the Company and Monsanto with respect to or in
consequence of the Spinoff.
Subject to certain exceptions described below, the Distribution Agreement
contains provisions designed principally to place with the Company the assets
and personnel involved in the Chemicals
37
<PAGE> 39
Business and financial responsibility for known and contingent or unknown
liabilities of the Chemicals Business. In addition, certain other assets and
liabilities of Monsanto described in the Distribution Agreement were contributed
to, or assumed by, the Company. These additional assets include, among others:
(1) a joint venture interest in the elemental phosphorus mining and operations
of the P4 Joint Venture (see "-- P4 Joint Venture"); (2) Monsanto's interests in
certain other joint ventures, including the Flexsys joint venture between
Monsanto and Akzo Nobel and the Advanced Elastomer Systems joint venture between
Monsanto and Exxon (see "Business and Properties -- Principal Equity
Affiliates"); and (3) $75 million of cash. These additional liabilities include,
among others: (1) most of the remaining liabilities of sold or discontinued
businesses conducted by former chemicals units or divisions of Monsanto; (2)
environmental remediation liabilities of certain other specified sold or
discontinued businesses of Monsanto; and (3) liabilities associated with the
Assumable Commercial Paper.
Under the Distribution Agreement, the Company is entitled to the benefit of
liability insurance coverage under certain Monsanto policies, to the extent such
coverage existed and coverage limits are not exhausted, for claims for which it
is assuming responsibility. Such insurance coverage generally will be shared
with Monsanto for other liabilities existing prior to the Distribution Date
which Monsanto has retained, on an as available basis, without allocation.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Monsanto and the Company have entered into an employee benefits and
compensation allocation agreement (the "Employee Benefits Allocation Agreement")
setting forth the manner in which assets and liabilities under employee benefit
plans and other employment-related liabilities are divided between them. In
general, the Company is responsible for compensation and employee benefits
relating to its employees and former employees who last worked at a Chemicals
Business facility. The Company has received or will receive corresponding assets
under these employee benefit plans qualified under the Code, but will receive no
assets with respect to liabilities under non-qualified plans. Certain
liabilities relating to some former employees of the Chemicals Business have
been retained by Monsanto (along with any corresponding assets), including
liabilities and assets for defined benefit pension plan benefits accrued by
certain retired employees of the Chemicals Business, liabilities and assets
under Monsanto Savings and Investment Plan and the corresponding supplemental
executive plan for such retired salaried employees and unfunded deferred
compensation liabilities.
The Employee Benefits Allocation Agreement also provides for the treatment
of outstanding options to purchase Monsanto Common Stock ("Monsanto Options").
At the time of the Spinoff, Monsanto Options were converted into either Company
Options, adjusted Monsanto Options ("New Monsanto Options") or a combination of
both (collectively, "Substituted Options"), in each case, with adjustments to
preserve their value notwithstanding the Spinoff. These adjustments were based
upon the relative trading values of Monsanto Common Stock, and the when-issued
trading value of Company Common Stock prior to the Spinoff. The Company will be
responsible for delivering shares of the Company Common Stock upon exercise of
the Company Options, and Monsanto will be responsible for the delivery of shares
of Monsanto Common Stock upon exercise of New Monsanto Options. The holders of
restricted shares of Monsanto Common Stock ("Monsanto Restricted Stock")
(whether employed by Monsanto or the Company after the Spinoff) received the
distribution of shares of Company Restricted Stock in the Spinoff with respect
to their Monsanto Restricted Stock, and such shares of the Company Restricted
Stock are generally subject to the same restrictions as Monsanto Restricted
Stock. (Restricted shares of the Company Common Stock are referred to in this
Prospectus as "Company Restricted Stock".)
TAX SHARING AND INDEMNIFICATION AGREEMENT
The Company and Monsanto have also entered into the Tax Sharing and
Indemnification Agreement (the "Tax Sharing and Indemnification Agreement"),
which sets forth each party's
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<PAGE> 40
rights and obligations with respect to payment and refunds, if any, with respect
to taxes for periods before and after the Distribution Date and related matters
such as the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities.
In general, Monsanto is responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the Distribution Date, and for paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liability by the applicable taxing authorities). The Tax Sharing and
Indemnification Agreement also allocates liability between Monsanto and the
Company for property taxes and for any taxes which may arise in connection with
separating the Chemicals Business from the business remaining with Monsanto.
Pursuant to the Tax Sharing and Indemnification Agreement, the Company has
agreed to refrain from engaging in certain transactions for two years following
the Distribution Date without Monsanto's written consent unless it shall first
provide Monsanto with a ruling from the IRS, or in the case of certain
intragroup transfers of assets, an opinion of counsel in a form reasonably
acceptable to Monsanto, that the transaction will not adversely affect the tax
consequences of the Spinoff. Transactions subject to these restrictions include,
among other things, liquidation or merger with another corporation, certain
repurchase or issuance of Company Common Stock, sale, distribution or other
disposition of certain assets and the discontinuance of certain businesses.
Monsanto and the Company have agreed that, in general, they will indemnify each
other, on an aftertax basis, against any tax liability resulting from either
Monsanto's or the Company's breach of any covenant or representations contained
in the Tax Sharing and Indemnification Agreement.
The Tax Sharing and Indemnification Agreement further provides for
cooperation with respect to certain tax matters, the method of reporting of
non-qualified stock options, indemnification in connection with the income of
certain partnerships, the exchange of information and the retention of records
which may affect the income tax liability of either party.
Though valid as between the parties thereto, the Tax Sharing and
Indemnification Agreement is not binding on the IRS and does not affect the
several liability of Monsanto, the Company and their respective subsidiaries to
the IRS for all U.S. federal taxes of the consolidated group relating to periods
prior to the Distribution Date.
INTELLECTUAL PROPERTY AGREEMENTS
Monsanto and the Company have entered into a series of agreements (the
"Intellectual Property Agreements") relating to the transfer of intellectual
property, including patents, trademarks, copyrights, know-how and trade secrets.
The Intellectual Property Agreements include: (1) an assignment of intellectual
property rights to the Company which relate solely to the Chemicals Business,
(2) an assignment of intellectual property rights to the Company which relate
primarily, but not entirely, to the Chemicals Business, in which case a license
will be granted to Monsanto for use in its current businesses (the "Life
Sciences Business") and in certain specified areas outside the Chemicals
Business, and (3) a license to the Company of certain of Monsanto's intellectual
property rights which relate primarily, but not entirely, to the Life Sciences
Business for use by the Company in the Chemicals Business and in certain
specified areas which are outside the Life Sciences Business.
TRANSITION SERVICES AGREEMENT
Monsanto and the Company have entered into a transitional services
agreement (the "Transition Services Agreement"), pursuant to which Monsanto and
the Company will provide each other with transitional administrative and support
services (the "Transition Services") for a period of time not to exceed 18
months from the Distribution Date. The Transition Services Agreement provides
that, in consideration for the performance of a Transition Service, the user of
such Transition
39
<PAGE> 41
Service (the "Service User") will pay to the provider of such Transition Service
(the "Service Provider") the cost incurred by the Service Provider in rendering
such Transition Service.
The Transition Services Agreement provides that the Service Provider has
the right to terminate the provision of certain Transition Services under
certain circumstances, including the occurrence of certain changes in the
ownership or beneficial control of the Service User, and also contains
provisions whereby the Service User generally agrees to indemnify the Service
Provider for all claims, losses, damages, liabilities and other costs incurred
by the Service Provider to a third party which arise in connection with the
provision of a Transition Service, other than those costs resulting from the
Service Provider's own willful misconduct or fraud. In general, the Service User
can terminate a Transition Service after an agreed notice period.
P4 JOINT VENTURE
In conjunction with the Spinoff, Monsanto formed a venture for the mining
of phosphate rock and the production of elemental phosphorus (the "P4 Joint
Venture") and contributed a 40% interest in such P4 Joint Venture to the
Company, retaining the remaining 60% interest. The elemental phosphorus
production facilities are located at Soda Springs, Idaho and are operated by the
Company under an operating agreement with the P4 Joint Venture. The elemental
phosphorus produced by the P4 Joint Venture is either sold to Monsanto or the
Company generally at cost with certain adjustments to reflect ownership.
Monsanto has priority for a certain percentage of the production volume. The
phosphorus material acquired by Monsanto is either used as a raw material for
the manufacture of herbicides (including Monsanto's Roundup(R) brand). The
phosphorus material acquired by the Company is used by the Company as a new raw
material for the manufacture of phosphorus derivatives which are then sold by
the Company or are resold (as elemental phosphorus) by the Company. In the event
of a change of control of the Company, Monsanto has an option to acquire the
Company's interest in the P4 Joint Venture at the then book value. Monsanto is
paying the Company an annual fee in consideration of this option.
OPERATING AGREEMENTS
Monsanto and the Company have entered into certain operating agreements,
including master operating agreements (the "Operating Agreements") with respect
to each of four production facilities located at Chocolate Bayou in Alvin,
Texas; Luling, Louisiana; Antwerp, Belgium; and Sao Jose dos Campos, Brazil.
Monsanto is the operator (the "Operator") and the Company is the guest (the
"Guest") at all of the facilities except the Chocolate Bayou facility, at which
Monsanto is the Guest and the Company is the Operator.
Pursuant to each of the Operating Agreements, the Operator, as an
independent contractor, provides, or arranges for the provision of, such
production, utility and certain ancillary services as are reasonably necessary
or required for the Guest's production operations at the facility, and the
Operator leases to the Guest the real property at the facility that is used in
connection with the Guest's production operations. The Guest is required to pay
all direct and indirect costs incurred by the Operator in the performance or
supply of such services, plus an agreed upon return on the net capital employed
in connection with the respective Operating Agreement. The Guest owns the
production assets related to its operations at the facility.
Unless terminated earlier by either party thereto in accordance with the
terms of the Operating Agreements, the initial term of each of the Operating
Agreements is 20 years. After the initial term, the Operating Agreements
continue indefinitely unless and until terminated by either party upon at least
24 months' prior written notice. Each of the Operating Agreements also provides
that, under certain circumstances, either the Operator or the Guest may
terminate the Operating Agreement prior to the expiration of its initial term.
The Operating Agreements contain provisions requiring the Guest to
indemnify the Operator for all losses (other than environmental liabilities)
arising out of the operation of the facility or the
40
<PAGE> 42
provision of services, except to the extent that such losses are caused by the
Operator's willful misconduct or fraud. The Operating Agreements also apportion
certain environmental liabilities.
RAW MATERIAL SUPPLY AGREEMENTS
Monsanto and the Company entered into a series of raw material supply
agreements pursuant to which the Company provides materials to Monsanto for the
continued manufacture of certain of Monsanto's products, including herbicides
(such as Roundup(R)) and aspartame. The raw materials provided by the Company
are as follows: formalin (formaldehyde), monochlorobenzene (MCB),
hexamethylenediamine (HMD), hexamethylenetetramine (HMTA), hydrogen cyanide
(HCN) and L-aspartic acid (L-Asp).
The raw material supply agreements have a term of 10 years and provide that
Monsanto will obtain its requirements of the materials for the facility to which
the agreement relates from the Company. The Company sells these materials under
formula-based or market-based pricing mechanisms. The Company also acts as the
agent for Monsanto in purchasing additional quantities of one of these
materials.
Monsanto and the Company entered into a supply agreement pursuant to which
Monsanto provides phosphorus trichloride (PCl(3)) to the Company for a term of
approximately seven years. Monsanto sells this material under a formula-based
pricing mechanism.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS
Set forth below are the names, ages, titles, and past positions of the
executive officers of the Company. Each such individual serves at the pleasure
of the Company Board.
<TABLE>
<CAPTION>
NAME AND AGE CURRENT TITLE POSITIONS SINCE JANUARY 1, 1992
- ------------------------- --------------------------- --------------------------------------
<S> <C> <C>
Robert G. Potter, 58..... Chairman, Chief Executive Prior to the Spinoff, chief executive
Officer and Director of Monsanto's chemical businesses,
since 1986. Executive Vice President
of Monsanto, since 1990. Advisory
Director of Monsanto, since 1986.
Karl R. Barnickol, 56.... Senior Vice President, Prior to the Spinoff, General Counsel
General Counsel and of the Monsanto Chemicals Business,
Secretary since 1997. Associate General Counsel
and Assistant Secretary of Monsanto,
since 1985.
Rodney L. Bishop, 57..... Vice President and Prior to the Spinoff, Treasurer of the
Treasurer Monsanto Chemicals Business, since
1997. General Auditor of Monsanto,
since 1993. Assistant Controller of
Monsanto, 1982-1993.
Dennis L. Cavner, 43..... Vice President, Operational Prior to the Spinoff, Vice President,
Excellence Operational Excellence of the Monsanto
Chemicals Business, since 1997.
Director, Manufacturing, Saflex(R)
Plastic Interlayer, of Monsanto,
1996-1997. Director, Manufacturing,
Phosphorus and Derivatives, of
Monsanto, 1995-1996. Plant Manager of
Monsanto's Muscatine, Iowa facility,
1992-1995.
Robert A. Clausen, 52.... Senior Vice President and Prior to the Spinoff, Chief Financial
Chief Financial Officer Officer of the Monsanto Chemicals
Business, since 1997. President,
Monsanto Business Services, 1994-1997.
Vice President, Asset Management of
Monsanto, 1992-1994.
Sheila Feldman, 42....... Vice President, Human Prior to the Spinoff, Vice President,
Resources Human Resources, of the Monsanto
Chemicals Business, since 1997.
Director, Human Resources, Monsanto
Business Services and Stewardship,
1995-1997. Director, Human Resources,
The Chemical Group of Monsanto,
1993-1995. Manager, Human Resources
Planning, The Chemical Group of
Monsanto, 1991-1993.
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
NAME AND AGE CURRENT TITLE POSITIONS SINCE JANUARY 1, 1992
- ------------------------- --------------------------- --------------------------------------
<S> <C> <C>
G. Bruce Greer, 37....... Vice President, Growth and Prior to the Spinoff, Vice President,
Commercial Development Growth and Commercial Development of
the Monsanto Chemicals Business, since
1997. Senior Director, Strategic
Change, of Monsanto, 1996-1997.
Associate Manager and Principal of
Gemini Consulting, a management
consulting firm, 1992-1996.
Roger S. Hoard, 52....... Vice President and Prior to the Spinoff, Controller of
Controller the Monsanto Chemicals Business, since
1997. Senior Director, Finance,
Monsanto Business Services, 1995-1997.
Controller, Fibers Division, The
Chemical Group of Monsanto, 1990-1995.
John C. Hunter III, 50... President, Chief Operating Prior to the Spinoff, Chief Operating
Officer and Director Officer of the Monsanto Chemicals
Business, since 1997. President,
Fibers Business Unit of Monsanto,
1995-1997. Vice President and General
Manager, Fibers Division and
Asia-Pacific, The Chemical Group of
Monsanto 1993-1995. Vice President and
General Manager, Asia-Pacific,
Monsanto Chemical Company, 1989-1993.
Michael E. Miller, 56.... Senior Vice President Prior to the Spinoff, Vice President,
and Chief Administrative Shared Services and Supply Chain of
Officer the Monsanto Chemicals Business, since
1997. President, Specialty Products
Business Unit Vice President,
Industrial Products of Monsanto, 1993-
1995. Senior Vice President,
Operations, The Chemical Group of
Monsanto, 1993-1995. Corporate Vice
President, Administration of Monsanto,
1989-1993.
O. Jerry Mullis, 55...... Vice President, Growth and Prior to the Spinoff, Vice President,
Commercial Development and Growth and Commercial Development and
Chief Technical Officer Chief Technical Officer of the
Monsanto Chemicals Business, since
1997. Director of Technology and MTS
for Specialty Products Division, The
Chemical Group of Monsanto, 1993-1997.
Director of Technology, Fibers
Division, The Chemical Group of
Monsanto, 1991-1993.
</TABLE>
DIRECTORS
Information with respect to the directors of the Company is set forth
below. The Company Board is divided into three classes. Directors for each class
are elected at the annual meeting of
43
<PAGE> 45
stockholders held in the year in which the term for such class expires and serve
thereafter for three years.
<TABLE>
<CAPTION>
INITIAL
TERM
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS EXPIRES
- ------------------------------ --------------------------------------------------- -------
<S> <C> <C>
Robert T. Blakely, 55......... Executive Vice President and Chief Financial 2000
Officer, Tenneco Inc., since 1981. Director: New
York City Ballet; Manhattan and Bronx Council of
the Boy Scouts of America.
Joan T. Bok, 67............... Chairman of the Board, New England Electric System, 1999
since 1984. Director: Avery Dennison Corporation;
John Hancock Mutual Life Insurance Company; New
England Electric System and its subsidiaries
Massachusetts Electric Company, The Narragansett
Electric Company, and New England Power Company.
Trustee: National Osteoporosis Foundation; Woods
Hole Oceanographic Institution; Worcester
Foundation for Biomedical Research.
Paul H. Hatfield, 61.......... Chairman of the Board, President and Chief 2000
Executive Officer, Petrolite Corporation,
1995-1997. Vice President, Ralston Purina Co. and
Chief Executive Officer, Protein Technologies
International, Inc., a subsidiary of Ralston Purina
Co., 1977-1995. Director: DeKalb Genetics
Corporation; Penwest, Ltd.
John C. Hunter III, 50........ President and Chief Operating Officer of the 1998
Company. Director: Missouri Baptist Hospital. See
also "-- Executive Officers."
Robert H. Jenkins, 54......... Chairman of the Board and Chief Executive Officer, 2000
Sundstrand Corporation, since 1997; President and
Chief Executive Officer. Sundstrand Corporation,
1995-1997. Executive Vice President, Illinois Tool
Works, Inc., 1990-1995. Director: AK Steel Holdings
Corporation; Sundstrand Corporation.
Howard M. Love, 67............ Chief Executive Officer, National Intergroup, Inc., 1999
1981-91; Honorary Chairman, National Steel
Corporation, formerly a subsidiary of National
Intergroup, Inc., since 1990; Chairman and Chief
Executive Officer, 1984-90. Director: AEA
Investors; COMSAT Corp. Member: The Business
Council.
Frank A. Metz, Jr., 63........ Senior Vice President, Finance and Planning, and 2000
Chief Financial Officer, International Business
Machines Corporation, 1986-93; Director, 1991-93.
Director: Allegheny Power System, Inc.; Norrell
Corporation.
Robert G. Potter, 58.......... Chairman and Chief Executive Officer of the 1999
Company. Director: Southdown Inc.; Stepan Company.
See also "-- Executive Officers."
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
INITIAL
TERM
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS EXPIRES
- ------------------------------ --------------------------------------------------- -------
<S> <C> <C>
William D. Ruckelshaus, 65.... Chairman, Browning-Ferris Industries, Inc., since 1998
1995; Principal, Madrona Investment Group L.L.C.,
since 1996; Chairman and Chief Executive Officer,
Browning-Ferris Industries, Inc., 1988-95. Of
Counsel, Perkins Coie since 1985. Administrator,
Environmental Protection Agency, 1983-85. Director:
Browning-Ferris Industries, Inc.; Cummins Engine
Co., Inc.; Gargoyles Inc.; Monsanto; Nordstrom,
Inc.; Weyerhaeuser Company.
John B. Slaughter, 63......... President, Occidental College since 1988. Director, 1998
National Science Foundation, 1980-82. Director:
Atlantic Richfield Company; Avery Dennison
Corporation; International Business Machines
Corporation; Northrop Grumman Corp. Member:
American Academy of Arts and Sciences; National
Academy of Engineering. Fellow: American
Association for the Advancement of Science;
Institute of Electrical and Electronic Engineers.
</TABLE>
Prior to the Spinoff, Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter
were directors of Monsanto. Mr. Ruckelshaus is a director of both Monsanto and
the Company.
COMMITTEES OF THE COMPANY BOARD
The Company Board has established several committees, including an Audit
and Finance Committee, an Executive Compensation and Development Committee, and
a Governance Committee.
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive a retainer or other
compensation for attendance at the Board or Board committee meetings.
Non-employee directors receive an annual retainer of $50,000. At least half is
credited in deferred stock units ("DSUs") which will be paid out in Company
Common Stock in two installments following termination of the director's Board
service. Each non-employee director may elect to receive the remainder in cash
or defer all or a part into DSUs, a cash deferral account, or both. In addition,
non-employee directors receive a non-qualified stock option to purchase 8,000
shares of Company Common Stock upon their initial election to the Board and an
annual non-qualified stock option to purchase 2,000 shares of Company Common
Stock in either case at an exercise price equal to the fair market value of the
Company Common Stock on the date of grant. The annual grant is prorated if a
director is elected at a time other than the Annual Meeting of Shareholders. The
stock options become exercisable in three equal installments on the first three
anniversaries of the option grant date. The stock options have a term of ten
years, but terminate two years after the cessation of a director's Board service
for any reason, if earlier. Committee chairs are paid an annual retainer of
$5,000. Each non-employee director receives a fee of $1,000 for each Board
committee meeting attended. The Company does not have a retirement program for
its non-employee directors.
45
<PAGE> 47
EXECUTIVE COMPENSATION
HISTORICAL COMPENSATION
The following table sets forth compensation paid by Monsanto in 1996 to the
Chief Executive Officer of the Company and, based on such compensation, the most
highly compensated executive officers for the fiscal year ended December 31,
1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------------ ----------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h)
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(4) ($)(5)
- ------------------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R.G. Potter.......................... 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Chairman, Chief
Executive Officer and Director
K.R. Barnickol....................... 1996 197,925 207,789 -0- 491,500 -0- -0- 19,022
Senior Vice President,
General Counsel and Secretary
R.A. Clausen......................... 1996 230,000 307,150 -0- -0- 250,000 -0- 21,762
Senior Vice President and
Chief Financial Officer
J.C. Hunter III...................... 1996 250,000 340,000 -0- -0- 250,000 -0- 28,077
President, Chief Operating
Officer and Director
M.E. Miller.......................... 1996 260,000 362,000 -0- -0- 250,000 -0- 24,337
Senior Vice President
and Chief Administrative Officer
</TABLE>
- ---------------
(1) 30% of the 1996 bonus amounts shown above (excluding the portion
attributable to achievement of Monsanto's return on equity ("ROE") goal for
each of the Named Executive Officers) was adjusted to recognize sustained
long-term performance and paid in March 1997 as described in footnote 1 to
the Long Term Incentive Plan Award table below.
(2) Applicable regulations set reporting levels for certain non-cash
compensation.
(3) On December 31, 1996, Mr. Barnickol held 20,000 shares of Monsanto
Restricted Stock having a value on that date of $788,760. These shares were
received on January 24, 1996, when they had the value shown in the table
above. The restrictions on these shares are scheduled to lapse as to
one-fourth of the shares on the first business day following each of the
first four anniversaries of the date of grant. In accordance with this
schedule, 5,000 shares vested on January 27, 1997. Dividends are paid on
these shares of Monsanto Restricted Stock at the same rate as paid to all
stockholders.
(4) These columns reflect grants of Monsanto Options and payouts made under
various option programs and long-term incentive plans ("LTIPs"),
respectively. No LTIP payments were made in 1996.
(5) Amounts shown for 1996 include contributions to thrift/savings plans of
Monsanto as follows: Mr. Potter, $21,000; Mr. Barnickol, $8,313; Mr.
Clausen, $9,660; Mr. Hunter, $10,500; and Mr. Miller, $10,920; split dollar
life insurance premiums paid as follows: Mr. Potter, $32,468; Mr. Barnickol,
$10,563; Mr. Clausen, $11,618; Mr. Hunter, $17,577; and Mr. Miller, $13,417;
costs for supplemental medical plans of Monsanto as follows: Mr. Potter,
$524 and Mr. Clausen, $338; and costs for executive travel accident plans of
Monsanto, as follows: Mr. Potter, $146; Mr. Barnickol, $146; and Mr.
Clausen, $146.
The following table shows grants of Monsanto Options under the Monsanto
Management Incentive Plan of 1996 to the Named Executive Officers during the
1996 fiscal year. In accordance with Commission rules, the Black-Scholes option
pricing model was chosen to estimate the grant date present value of the options
set forth in this table. The Company's use of this model should not be construed
as an endorsement of its accuracy at valuing options. Accordingly, there is no
assurance that the value realized by an executive, if any, will be at or near
the value estimated by the Black-Scholes model. The following assumptions were
made for purposes of calculating the original grant date present value of
Monsanto Options: an option term of 4.5 years, volatility of 25%, dividend yield
of 1.5%, and a risk-free interest rate of 6.28%. As a result of the Spinoff,
each Monsanto Option granted to the Named Executive Officers listed below was
replaced with a
46
<PAGE> 48
combination of a New Monsanto Option and a Company Option pursuant to
adjustments provided in the Employee Benefits Allocation Agreement, and, as a
result, their value will depend, in part, on the future value of Company Common
Stock as well as on the future value of Monsanto Common Stock. See "Adjustments
to Outstanding Monsanto Stock Awards as a result of the Spinoff."
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE
-------------------------- ---------
(b) (c) (d) (e) (f)
NUMBER OF % OF TOTAL GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
(a) GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)
---------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
R. G. Potter......................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(2)
K. R. Barnickol...................... -0- -0- -- -- --
R. A. Clausen........................ 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
J.C. Hunter III...................... 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
M.E. Miller.......................... 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 38.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,260
50,000 0.2 45.000 04/25/06 308,000(2)
</TABLE>
- ---------------
(1) The exercise price of $30.338 for this tranche of Monsanto Options was the
fair market value per underlying share on April 26, 1996, the date of grant.
The three succeeding tranches have pre-established "premium" exercise prices
(prices higher than the fair market value per underlying share on the date
of grant) which must be attained within four, five, and six years,
respectively, from the date of grant and maintained for ten consecutive
trading days in order to avoid forfeiture of Monsanto Options in the
tranche. All of the preestablished exercise prices have now been met. All
Monsanto Options must be held for a minimum of one year from the date of
grant before they may be exercised. These Monsanto Options expire on the
tenth anniversary of the grant date unless forfeited earlier. The Monsanto
Options carry stock tax withholding rights.
(2) Two of the assumptions used to calculate the grant date present value of
these Monsanto Options varied from the assumptions set forth above because
the pre-established exercise price of these Monsanto Options had not yet
been attained when the calculation was made. The option term was assumed to
be six years, and the risk-free interest rate 6.37%.
As adjusted in connection with the Spinoff, the above grants to Mr. Potter
were converted into (a) Company Options on 86,523 shares of Company Common Stock
at an exercise price of $13.46 per share, 129,784 shares at $15.53 per share,
129,784 shares at $17.75 per share and 86,523 shares at $19.97 per share and (b)
New Monsanto Options on 133,444 shares of Monsanto Common Stock at an exercise
price of $27.64 per share, 200,166 shares at $31.89 per share, 200,166 at $36.44
per share and 133,444 at $41.00 per share. For each of Messrs. Clausen, Hunter
and Miller, the above grants were converted into (a) Company Options on 27,038
shares of Company Common Stock at an exercise price of $13.46 per share, 40,558
shares at $15.53 per share, 40,558 shares at $17.75 per share and 27,038 shares
at $19.97 per share and (b) New Monsanto Options on 41,701 shares of
47
<PAGE> 49
Monsanto Common Stock at an exercise price of $27.64 per share, on 62,552 shares
at $31.89 per share, 62,552 shares at $36.44 per share and 41,701 shares at
$41.00 per share.
The following table provides information with respect to Monsanto Options
exercised by the Named Executive Officers during the 1996 fiscal year and the
value of unexercised Monsanto Options held by the Named Executive Officers at
fiscal year end. As a result of the Spinoff, each Monsanto Option granted to the
Named Executive Officers listed below was replaced with a combination of a New
Monsanto Option and a Company Option, pursuant to adjustments provided in the
Employee Benefits Allocation Agreement and, as a result, their value will depend
on the future value of Company Common Stock as well as on the future value of
Monsanto Common Stock. See "Adjustments to Outstanding Monsanto Stock Awards as
a result of the Spinoff." The amounts set forth in the two columns relating to
unexercised Monsanto Options, unlike the amounts set forth in the column headed
"Value Realized," have not been, and might never be, realized. The underlying
options might not be exercised; and actual gains on exercise, if any, would
depend on the value of Monsanto Common Stock or Company Common Stock, as
applicable, on the date of exercise, and there can be no assurance that these
values would be realized.
AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION VALUES ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
(d)
---------------------- (e)
(b) NUMBER OF SECURITIES --------------------
----------- (c) UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES --------- OPTIONS AT IN-THE-MONEY OPTIONS
(a) ACQUIRED VALUE FY-END(#)(2) AT FY-END($)(2)
- ---------------------------- ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- --------- ---------------------- --------------------
<S> <C> <C> <C> <C>
R. G. Potter................ -0- -0- 947,390/800,000 25,961,331/2,521,120
K. R. Barnickol............. 22,000 503,800 434,000/0 12,017,131/0
R. A. Clausen............... -0- -0- 229,305/250,000 5,735,595/787,850
J. C. Hunter III............ 60,000 1,272,000 114,500/250,000 3,133,914/787,850
M. E. Miller................ 115,000 1,542,449 318,000/250,000 8,941,810/787,850
</TABLE>
- ---------------
(1) The amounts in column (c) reflect the value of shares received on the
exercises of Monsanto Options granted up to ten years earlier at fair market
values ranging from $6.90 to $11.50.
(2) Unexercised Monsanto Options shown in columns (d) and (e) reflect grants
received over an extended period of time.
ADJUSTMENTS TO OUTSTANDING MONSANTO STOCK AWARDS AS A RESULT OF THE SPINOFF
Pursuant to the Employee Benefits Allocation Agreement, at the time of the
Spinoff, certain Monsanto Options granted to Company employees in 1997 were
converted into Company Options with adjustments to preserve their value. These
adjustments were based upon the pre-Spinoff trading value of Monsanto Common
Stock and the when-issued trading value of Company Common Stock. In addition,
Monsanto Options granted to Company employees prior to 1997 were converted into
two awards, one based on Monsanto Common Stock and one based on Company Common
Stock, with the same overall value at the time of the Spinoff as the old award.
The Company will be responsible for delivering shares of the Company Common
Stock upon exercise of the Company Options, and Monsanto will be responsible for
the delivery of shares of Monsanto Common Stock upon exercise of New Monsanto
Options. See "Agreements with Monsanto -- Employee Benefits Allocation
Agreement." The holders of Monsanto Restricted Stock (whether employed by
Monsanto or the Company after the Spinoff) received the distribution of shares
of the Company Restricted Stock with respect to their Monsanto Restricted Stock,
and such shares of the Company Restricted Stock are generally subject to the
same restrictions as Monsanto Restricted Stock.
48
<PAGE> 50
The following table includes information with respect to awards made
pursuant to the Monsanto Executive Stock Purchase Incentive Plan (the "Monsanto
Executive Stock Purchase Incentive Plan") to the Named Executive Officers in
1996.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER NON-
SHARES, UNTIL STOCK PRICE-BASED PLANS
UNITS OR MATURATION -------------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
(a) (a)(b) (c) ($)(d) ($)(e) ($)(f)
- --------------------- ------------ ----------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
R. G. Potter......... N/A (1) N/A N/A 242,813 N/A
65,000 units(2) N/A N/A N/A N/A
K. R. Barnickol...... N/A (1) N/A N/A 47,715 N/A
R. A. Clausen........ N/A (1) N/A N/A 72,750 N/A
20,000 units(2) N/A N/A N/A N/A
J. C. Hunter III..... N/A (3) N/A N/A 468,313 N/A
20,000 units(2) N/A N/A N/A N/A
M. E. Miller......... N/A (3) N/A N/A 498,620 N/A
20,000 units(2) N/A N/A N/A N/A
</TABLE>
- ---------------
(1) The amount shown in this line represents the sustained performance
adjustment applied this year to both the portion of the 1996 bonus described
in footnote 1 to the Summary Compensation Table and the portion of the
annual bonus withheld for 1995 because net income and capital employed
objectives were met for all three performance years under Monsanto's annual
incentive program for the years 1994-1996. The total of all adjustments for
sustained performance relative to an individual's cumulative incentive
awards over the 1994-1996 performance period paid in March 1997 ranged from
20% to 25% of the awards paid for the three-year period.
(2) The units represent shares of Monsanto Common Stock purchased under the
Monsanto Executive Stock Purchase Incentive Plan. Pursuant to this plan,
each Named Executive Officer purchased with a full-recourse interest-bearing
loan from Monsanto the number of shares of Monsanto Common Stock equal to
the number of units next to his name and became entitled to receive certain
payouts at the end of the five-year performance period based upon continued
service with Monsanto and the total stockholder return to Monsanto's
stockholders during such performance period as compared with the total
shareholder return for companies in the Standard & Poor's Industrials. The
interest rate on the loan was 6.36%, the applicable U.S. federal rate (as
determined by Section 1274(d) of the Code) in effect at the time of
purchase. As a result of the Spinoff and the executive's consequent
termination of employment with Monsanto, the executive will receive a
prorated service award under the plan based on the number of months of
service with Monsanto during the performance period and be eligible to
receive a prorated performance award under the plan based upon Monsanto's
relative stock price performance through the date of termination. The awards
will be applied to the outstanding loan balances, and any remaining loan
balance must be repaid by the executive.
(3) The amount shown in this line represents the sum of (a) the award for
recognition of performance in 1996 under the 1994-1996 long-term incentive
program applicable to the executive and (b) the sustained performance
adjustment applied this year to the total of the long-term incentive award
for 1996 and the portion of the annual bonuses withheld for 1995 and 1996
because net income and capital employed objectives were met for all three
performance years under both the annual and the long-term incentive programs
for the years 1994-1996. The total of all adjustments for sustained
performance relative to an individual's cumulative incentive awards over the
1994-1996 performance period paid in March 1997 ranged from 20% to 25% of
the awards paid for the three-year period.
49
<PAGE> 51
PENSION PLANS
Prior to the Spinoff, the Named Executive Officers were eligible to receive
benefits payable under Monsanto's defined benefit pension plans. In connection
with the Spinoff, Solutia assumed the liability to provide the benefits accrued
by the Named Executive Officers under the Monsanto defined benefit pension plans
prior to the Spinoff. The Named Executive Officers will be eligible for benefits
payable under Solutia's defined benefit pension plans based on their service
with Monsanto before the Spinoff and their service with Solutia after the
Spinoff.
The following table illustrates the annual normal retirement benefits
payable under Monsanto's defined benefit pension plans in effect in 1996 and
applicable to the Named Executive Officers. The benefit levels in the table
assume retirement at age 65 and payment in the form of a single life annuity.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35 40
- ------------ -------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 28,000 $ 56,000 $ 84,000 $112,512 $142,512 $172,512 $ 202,512 $ 252,512
600,000 42,000 84,000 127,512 172,512 217,512 262,512 307,512 352,512
800,000 56,000 112,512 172,512 232,512 292,512 352,512 412,512 472,512
1,000,000 70,000 142,512 217,512 292,512 367,512 442,512 517,512 592,512
1,200,000 84,000 172,512 262,512 352,512 442,512 532,512 622,512 712,512
1,400,000 98,000 202,512 307,512 412,512 517,512 622,512 727,512 832,512
1,600,000 112,512 232,512 352,512 472,512 592,512 712,512 832,512 952,512
</TABLE>
Generally, compensation utilized for pension formula purposes includes
salary and annual bonus reported in columns (c) and (d) of the Summary
Compensation Table. However, the portion of the annual bonus attributable to
achievement of 20% ROE is not included in the pension formula.
The annual normal retirement benefits payable under Monsanto's pension
plans in effect in 1996 to the Named Executive Officers are the greater of 1.4%
of average final compensation multiplied by years of service, without reduction
for Social Security or other offset amounts, or 1.5% of average final
compensation multiplied by years of service, less a 50% Social Security offset.
Average final compensation for purposes of these plans is the greater of (1)
average compensation received during the final 36 months of employment or (2)
average compensation received during the highest three of the final five
calendar years of employment.
Average final compensation and the respective years of service at Monsanto
as of December 31, 1996 for the Named Executive Officers are as follows: Mr.
Potter, $1,073,223 (31.1 years); Mr. Barnickol, $333,120 (26.4 years); Mr.
Clausen, $368,244 (27.8 years); Mr. Hunter, $423,408 (27.3 years); and Mr.
Miller, $530,604 (31.4 years).
The Solutia defined benefit pension plans consist of two accounts: a "Prior
Plan Account" and a "Cash Balance Account." The opening balance of the Prior
Plan Account was the lump sum value of the executive's December 31, 1996 monthly
retirement benefit earned prior to January 1, 1997 under the Monsanto defined
benefit pension plans described above, calculated using the assumption that the
monthly benefit would be payable at age 55 with no reduction for early payment.
For each year of the executive's continued employment with Solutia (including
all of 1997), the executive's Prior Plan Account will be increased by 4% to
recognize that prior plan benefits would have grown as a result of pay
increases. For each year during which the executive is employed by Solutia
(including all of 1997), 3% of annual compensation in excess of the Social
Security wage base and a percentage (based on age) of annual compensation
(salary and annual bonus) will be credited to the Cash Balance Account. The
applicable percentages and age ranges are: 3% before age 30, 4% for ages 30 to
39, 5% for ages 40 to 44, 6% for ages 45 to 49, and 7% for age 50 and over. In
addition, the Cash Balance Account of executives who earned benefits under
Monsanto's defined benefit pension plans before 1997 will be credited each year
(for up to 10 years based on prior years of service with Monsanto before 1997)
during which the executive is employed by Solutia (including all of 1997) with
an amount equal to a percentage (based on age) of annual compensa-
50
<PAGE> 52
tion. The applicable percentages and age ranges are: 2% before age 30, 3% for
ages 30 to 39, 4% for ages 40 to 44, 5% for ages 45 to 49, and 6% for age 50 and
over.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Each of the Named Executive Officers and certain other key executives of
the Company is a party to a change of control employment agreement (a "Change of
Control Employment Agreement"). Each such Change of Control Employment Agreement
becomes effective upon a "change of control" of the Company (as defined in the
Change of Control Employment Agreement). Each Change of Control Employment
Agreement provides for the continuing employment of the executive after the
change of control on terms and conditions no less favorable than those in effect
before the change of control. If the executive's employment is terminated by the
Company without "cause" or if the executive terminates his or her own employment
for "good reason" (each as defined in the Change of Control Employment
Agreement), the executive is entitled to severance benefits equal to a
"multiple" of his or her annual compensation (including bonus) and continuation
of certain benefits for a number of years equal to the multiple. The multiple is
three for Named Executive Officers and two or three for the other executives
(or, in either case, the shorter number of years until the executive's normal
retirement date). In addition, each of the Named Executive Officers and the
other executives who are entitled to a severance multiple of three is entitled
to receive the severance benefits if he or she voluntarily terminates his or her
own employment during the 30-day period beginning on the first anniversary of
certain changes of control. Finally, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any excise
tax imposed by the Code on certain change of control payments (unless the safe
harbor below which the excise tax is imposed is not exceeded by more than 10%,
in which event the payments will be reduced to avoid the excise tax). These
Change of Control Agreements with the Company executives were assumed by the
Company from Monsanto at the time of the Spinoff, and each will terminate six
months after the Spinoff unless before that time there is either a change of
control of the Company or the Company Board ratifies such Change of Control
Agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS
During 1996, Mr. Potter, Mr. Clausen, Mr. Hunter and Mr. Miller all
received full-recourse, interest-bearing loans for the purchase price of
Monsanto Common Stock they purchased pursuant to the terms of the Monsanto
Executive Stock Purchase Incentive Plan. The loans initially had an eight-year
term and accrue interest at the applicable U.S. federal rate (as determined by
Section 1274(d) of the Code) on the purchase date for loans of such maturity,
compounded annually. The applicable U.S. federal rate in effect on the purchase
date was 6.36%. In addition, the loans were secured by a pledge of the shares of
Monsanto Common Stock acquired under the Monsanto Executive Stock Purchase
Incentive Plan. Interest is payable prior to maturity to the extent of dividends
paid on the shares purchased, with the balance due at the maturity of the loan.
As a result of the Spinoff and the executive's consequent termination of
employment with Monsanto, the executive will receive, pursuant to the Monsanto
Executive Stock Purchase Incentive Plan, a prorated service award under the plan
based on the number of months of service with Monsanto during the performance
period and will be eligible to receive a prorated performance award under the
plan based upon Monsanto's relative stock price performance through the date of
termination, which will be applied to prepay a portion of the outstanding loans.
The executives will be required to pay any remaining balances on the loans.
On May 10, 1996, Mr. Potter and the other three Named Executive Officers
who received loans were given loans in the following amounts: Mr. Potter,
$1,962,194; Mr. Clausen, $603,752; Mr. Hunter, $603,752; and Mr. Miller,
$603,752. The largest amounts outstanding during 1996, which were also the
amounts outstanding as of December 31, 1996, were as follows: Mr. Potter,
$2,012,729; Mr. Clausen, $619,301; Mr. Hunter, $619,301; and Mr. Miller,
$619,301.
51
<PAGE> 53
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
OF COMPANY COMMON STOCK
BY MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
beneficially owned, directly or indirectly, by each director of the Company,
each Named Executive Officer and all directors and executive officers of the
Company as a group, as of September 1, 1997. Except as otherwise indicated, each
individual named has sole investment and voting power with respect to the
securities shown.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK SHARES UNDERLYING
OWNED DIRECTLY OR OPTIONS EXERCISABLE
NAME INDIRECTLY(a)(b) WITHIN 60 DAYS(c) TOTAL
- -------------------------------------- ----------------- ------------------- ---------
<S> <C> <C> <C>
Karl R. Barnickol..................... 21,024(d) 207,657 228,681
Robert T. Blakely..................... 0 0
Joan T. Bok........................... 2,689 2,689
Robert A. Clausen..................... 8,463 205,492 213,955
Paul H. Hatfield...................... 400 400
John C. Hunter III.................... 17,749(e) 192,783 210,532
Robert H. Jenkins..................... 0 0
Howard M. Love........................ 3,957(f) 3,957
Frank A. Metz, Jr..................... 2,037 2,037
Michael E. Miller..................... 17,237 280,119 297,356
Robert G. Potter...................... 73,276(g) 944,930 1,018,206
William D. Ruckelshaus................ 2,922(h) 2,922
John B. Slaughter..................... 1,930(i) 1,930
All directors and executive officers
(19 persons)........................ 168,570(j) 2,006,009 2,174,579
</TABLE>
- ---------------
(a) Includes shares held under the Company Savings and Investment Plan ("SIP")
based on a preliminary calculation of adjustments being made as a result of
the Spinoff: Mr. Potter, 29,458; Mr. Barnickol, 13,122; Mr. Clausen, 1,083;
Mr. Hunter, 9,948; Mr. Miller, 12,380; and directors and executive officers
as a group, 80,129. With respect to shares held under the Company SIP,
employee directors and officers have sole discretion as to voting and,
within limitations provided by the Company SIP, investment of shares. Shares
are voted by the trustees of the Company SIP in accordance with instructions
from participants. If instructions are not received by the trustees as to
the voting of particular shares, shares are to be voted in proportion to
instructions actually received from other participants in the Company SIP.
Also includes Company Restricted Stock received in the Spinoff as a dividend
on Monsanto Restricted Stock held under a Monsanto incentive plan: Mr.
Barnickol, 3,000 shares. With respect to these shares, Mr. Barnickol has
sole voting power and no current investment power.
(b) Includes Company Restricted Stock received in the Spinoff by Mrs. Bok,
Messrs. Love and Metz, and Dr. Slaughter, who were directors of Monsanto, as
a dividend on the stock-based portion of the non-employee director annual
retainer from Monsanto that has since been forfeited as a result of their
resignation from Monsanto's Board of Directors at the Spinoff: Mrs. Bok, 99;
Mr. Love, 130; Mr. Metz, 262; and Dr. Slaughter, 130. Also includes 300
shares of Company Restricted Stock received in the distribution by Mr.
Ruckelshaus, who is continuing as a director of Monsanto. With respect to
these shares, Mr. Ruckelshaus has sole voting power and no current
investment power.
(c) The Commission deems a person to have beneficial ownership of all shares
which that person has the right to purchase within 60 days. The shares
indicated represent Company Options received in the conversion of Monsanto
Options.
(d) Includes 1,778 shares owned jointly by Mr. Barnickol and his wife.
(e) Includes 33 shares owned by Mr. Hunter's son.
52
<PAGE> 54
(f) Includes 1,200 shares held in trust in which Mr. Love has an income interest
as to which he expressly disclaims beneficial ownership.
(g) Includes 6,520 shares owned by Mr. Potter's wife as to which he expressly
disclaims beneficial ownership and 99 shares owned jointly by Mr. Potter and
his wife.
(h) Includes 200 shares owned jointly by Mr. Ruckelshaus and his wife.
(i) Includes 137 shares owned by Dr. Slaughter's wife as to which he expressly
disclaims beneficial ownership.
(j) Includes 90 shares beneficially owned by a member of the household of an
executive officer not named above and 2,466 shares as to which an executive
officer not named above shares investment and voting power.
The percentage of shares of outstanding Company Common Stock, including
Company Options exercisable within 60 days of September 1, 1997, beneficially
owned by all directors and executive officers of the Company as a group is
approximately 1.83%. The percentage of such shares beneficially owned by any one
director or Named Executive Officer does not exceed 1%.
BY OTHERS
The following table sets forth each person or entity that, to the knowledge
of the Company, beneficially owned more than 5% of the outstanding Company
Common Stock on September 1, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
OF COMPANY PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK CLASS
- ---------------------------------------------------- ----------------------- ----------
<S> <C> <C>
Oppenheimer Group, Inc.............................. 6,246,465(a) 5.31%
Oppenheimer Tower
World Financial Center
New York, New York 10281
FMR Corp............................................ 5,987,029(b) 5.09%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(a) The ownership information disclosed above is based on a Schedule 13G with
respect to Monsanto Common Stock filed with the Commission on February 4,
1997 by Oppenheimer Group, Inc., on behalf of itself and related companies
and certain investment advisory clients. Such 13G reports the beneficial
ownership of 31,232,321 shares of Monsanto Common Stock. Power to vote and
dispose of all 31,232,321 shares, including 30,923,115 shares held by
Oppenheimer Capital, is shared. Oppenheimer Group, Inc. and the related
companies and investment advisory clients disclaim beneficial ownership and
shared voting and dispositive power with respect to all 31,232,321 shares.
According to a Schedule 13F filed with respect to the first quarter of 1997
by Oppenheimer Group, Inc., the 31,232,321 shares of Monsanto Common Stock
has been decreased to 31,116,110. Based on the Schedule 13G and the one-
for-five distribution ratio in the Spinoff, Oppenheimer Group, Inc. would
beneficially own 6,246,465 shares of Company Common Stock as a result of the
Spinoff.
(b) The ownership information disclosed above is based on a Schedule 13G with
respect to Monsanto Common Stock filed on February 12, 1997 with the
Commission by FMR Corp. ("FMR") on behalf of itself, certain related
companies, and certain shareholders. Such 13G reports beneficial ownership
of 29,935,145 shares of Monsanto Common Stock. FMR, through its
subsidiaries, Fidelity Management & Research Company and Fidelity Management
Trust Company, and through Fidelity International Limited, had sole
dispositive power over all 29,935,145 shares, shared voting power as to none
of these shares, and sole voting power as to 4,483,385 of these shares.
According to a Schedule 13F filed with respect to the first quarter of 1997
by FMR, the 29,935,145 has increased to 32,441,650. Based on the Schedule
13G and the one-for-five distribution ratio in the Spinoff, FMR would
beneficially own 5,987,029 shares of Company Common Stock as a result of the
Spinoff.
53
<PAGE> 55
OTHER INDEBTEDNESS OF THE COMPANY
COMMERCIAL PAPER
The proceeds of the Offerings will be used to refinance commercial paper
issued by the Company which, at September 19, 1997, had a weighted average
maturity of 25 days and a weighted average interest rate of 5.77%. The
commercial paper issued by the Company has been used to refinance the
approximately $1.0 billion of Assumable Commercial Paper assumed by the Company
from Monsanto in connection with the Spinoff. See "Use of Proceeds."
THE CREDIT FACILITIES
The Company has entered into a total of $1.2 billion in revolving credit
facilities (the "Credit Facilities") to support its commercial paper borrowings.
The Credit Facilities are also available for working capital and other general
corporate purposes. As of September 22, 1997, there were no borrowings
outstanding under the Credit Facilities. The Credit Facilities consist of an
unsecured five-year revolving credit facility under which the Company may borrow
from time to time on a revolving credit basis an aggregate principal amount of
up to $800 million and an unsecured 364-day revolving credit facility under
which the Company may borrow on a revolving credit basis an aggregate principal
amount of up to $400 million. The interest rates under the Credit Facilities are
based upon, at the option of the Company, (i) the London interbank offered rate
("LIBOR") or (ii) the Base Rate. The Base Rate shall at all times be equal to
the highest of (a) the prime rate of Citibank, N.A. ("Citibank"),(b) the federal
funds rate plus 0.5% or (c) the sum (adjusted to the nearest 1/16 of 1% or, if
there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%) of (i) 0.5% plus
(ii) the rate obtained by dividing (A) the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, by (B) a
percentage equal to 100% minus the average of the daily percentages specified
during such three-week period by the Board of Governors of the Federal Reserve
System for determining the maximum reserve requirement for Citibank with respect
to liabilities consisting of or including (among other liabilities) three-month
U.S. dollar non-personal time deposits in the United States, plus (iii) the
average during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable by
Citibank to the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of Citibank in the United States.
Interest rates based on LIBOR will be increased by a spread of between 13.5
and 22.5 basis points for the five-year revolving credit facility and 20.0 and
40.0 basis points for the 364-day revolving credit facility depending upon the
actual ratings (the "ratings") by two credit rating agencies of senior unsecured
long-term debt issued by the Company or, if there is no such debt, the
indicative rating of the Company by such rating agencies. Based on the current
ratings, the spread over LIBOR is presently 22.0 basis points for the five-year
revolving credit facility and 24.5 basis points for the 364-day revolving credit
facility. If the Company elects to borrow under either Credit Facility, the
total spread (including facilities fees) over LIBOR would be 32.5 basis points
for each Credit Facility.
The Credit Facilities contain a number of covenants that, among other
things, restrict the Company's ability to dispose of its assets, incur
additional indebtedness, create liens on assets, engage in mergers or
consolidations or change the businesses conducted by the Company, and otherwise
restrict certain corporate activities by the Company. In addition, under the
Credit Facilities, the Company is required to comply with and maintain specified
financial ratios and tests, including, without limitation, an interest expense
coverage ratio.
The Credit Facilities specify certain customary events of default,
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities.
54
<PAGE> 56
DESCRIPTION OF THE SECURITIES
The Notes, the 2027 Debentures and the 2037 Debentures will each constitute
a series of unsecured senior debt securities of the Company, and will rank pari
passu with each other and with all other unsecured senior indebtedness of the
Company. The Securities of each series will be issued pursuant to an Indenture,
to be dated as of October 1, 1997 (the "Indenture"), between the Company and The
Chase Manhattan Bank, as Trustee (the "Trustee"). The terms of the Indenture are
also governed by certain provisions contained in the Trust Indenture Act of
1939, as amended (the "TIA"). The Indenture provides for the issuance from time
to time in one or more series of unsecured debentures, notes or other evidences
of indebtedness and does not limit the aggregate principal amount of securities
that may be issued thereunder.
The following summary of the provisions of the Indenture and the Securities
does not purport to be complete and where reference is made to particular
provisions of the Indenture and the Securities, such provisions, including the
definitions of certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and the forms of Securities, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. As used in this "Description of the Securities," the term
"the Company" refers to Solutia Inc. and not to any of its subsidiaries.
All terms capitalized and not otherwise defined in this Prospectus have the
meanings ascribed thereto in the Indenture and the section references used
herein are references to the Indenture.
NOTES
The Notes will be unsecured senior obligations of the Company, will be
limited to $150,000,000 aggregate principal amount and will mature on
, 2002. The Notes will bear interest at the rate per annum
shown on the cover page of this Prospectus from , 1997 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable semi-annually on and of
each year, commencing , 1998, to the Persons in whose names the
Notes (or any predecessor Notes) are registered at the close of business on the
preceding or , as the case may be. The Notes will
not be redeemable at the option of the Company prior to maturity and do not have
the benefit of any sinking fund.
2027 DEBENTURES AND 2037 DEBENTURES
The 2027 Debentures and the 2037 Debentures will each be unsecured senior
obligations of the Company, will be limited to $300,000,000 aggregate principal
amount and $150,000,000 aggregate principal amount, respectively, and will
mature on , 2027 and , 2037, respectively. The
2027 Debentures and the 2037 Debentures will bear interest at the respective
rates per annum shown on the cover page of this Prospectus from
, 1997 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable semi-annually on and
of each year, commencing , 1998, to the Persons
in whose names such Debentures (or any predecessor Debentures) are registered at
the close of business on the preceding or , as the
case may be.
REPAYMENT AT OPTION OF HOLDERS OF 2037 DEBENTURES
The 2037 Debentures may be repaid on , 2004, at the option
of the registered Holders of the 2037 Debentures, at 100% of their principal
amount, together with accrued interest to , 2004. In order for
a Holder to exercise this option, the Company must receive at its office or
agency in New York, New York, during the period beginning on , 2004
and ending at 5:00 p.m. (New York City time) on , 2004 (or, if
, 2004 is not a Business Day, the next succeeding Business Day), the
certificate representing the 2037 Debenture subject to repayment with the form
"Option to Elect Repayment on , 2004" on such
55
<PAGE> 57
certificate duly completed. Any such notice received by the Company during the
period beginning on , 2004 and ending at 5:00 p.m. (New York
City time) on , 2004 (or, if , 2004 is not a Business
Day, the next succeeding Business Day) shall be irrevocable. See "-- Book Entry,
Delivery and Form." The repayment option may be exercised by the Holder of a
2037 Debenture for less than the entire principal amount of the 2037 Debenture
held by such Holder, so long as the principal amount with respect to which such
right is exercised is equal to $1,000 or an integral multiple of $1,000. All
questions as to the validity, form, eligibility (including time of receipt) and
acceptance of any 2037 Debenture for repayment will be determined by the
Company, whose determination will be final and binding.
Failure by the Company to repay the 2037 Debentures when required as
described in the preceding paragraph will result in an Event of Default under
the Indenture.
As long as the 2037 Debentures are represented by a Global Security, the
Depositary or the Depositary's nominee will be the registered Holder of the 2037
Debentures and therefore will be the only entity that can exercise a right to
repayment. See "-- Book Entry, Delivery and Form."
No similar right of repayment is available to Holders of the Notes or the
2027 Debentures.
OPTIONAL REDEMPTION
The 2027 Debentures will be redeemable at any time and the 2037 Debentures
will be redeemable at any time after , 2004, in either case, in
whole or in part, at the option of the Company at a Redemption Price equal to
the greater of (i) 100% of the principal amount of such 2027 Debentures or 2037
Debentures, as the case may be, or (ii) as determined by an Independent
Investment Banker (as defined herein), the sum of the present values of the
remaining scheduled payments of principal and interest thereon (not including
any portion of such payments of interest accrued as of the Redemption Date)
discounted to the Redemption Date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in each
case, accrued interest thereon to the Redemption Date. The 2027 Debentures and
the 2037 Debentures do not have the benefit of any sinking fund.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price of the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date, plus %.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the 2027 Debentures or the 2037 Debentures to be redeemed
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of such 2027 Debentures or 2037
Debentures, respectively. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any Redemption Date (A)
the average of the Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations. "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New York
City time) on the third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., Chase
Securities Inc., J.P. Morgan Securities Inc., NationsBanc Montgomery Securities,
Inc. and Salomon Brothers Inc
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<PAGE> 58
and their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but not more than
90 days before the Redemption Date to each Holder of the 2027 Debentures or the
2037 Debentures to be redeemed.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the 2027 Debentures
or the 2037 Debentures (as applicable) or portions thereof called for
redemption.
RESTRICTIONS ON LIENS
The Indenture provides that the Company will not, nor will it permit any
Restricted Subsidiary to, secure indebtedness for money borrowed by placing a
Lien on any Principal Property now or hereafter owned or leased by the Company
or any Restricted Subsidiary or on any shares of stock or Debt of any Restricted
Subsidiary without equally and ratably securing the Securities, unless (i) the
principal amount of such indebtedness plus (ii) the Attributable Debt in respect
of sale and leaseback transactions described below covering Principal Properties
(other than sale and leaseback transactions the proceeds of which are applied to
reduce indebtedness under (b) of the following paragraph) does not exceed 15% of
the Consolidated Net Tangible Assets of the Company and its consolidated
subsidiaries. This restriction will not apply to, and there shall be excluded in
computing secured indebtedness for purposes of this restriction, certain
permitted liens, including (a) liens existing as of the date of the Indenture,
(b) liens existing at the time any corporation becomes a Restricted Subsidiary,
(c) liens on property existing at the time of acquisition and certain purchase
money or similar liens, (d) liens to secure certain exploration, drilling,
development, operation, construction, alteration, repair or improvement costs,
(e) liens securing indebtedness owing to the Company or another Restricted
Subsidiary by a Restricted Subsidiary, (f) liens in connection with government
contracts, including the assignment of moneys due or to become due thereon, (g)
certain liens pertaining to the performance of bids and contracts or to the
maintaining of benefits under various government regulations, (h) certain liens
in connection with legal proceedings or arising in the ordinary course of
business and not in connection with the borrowing of money, and (i) extensions,
substitutions, replacements or renewals of the foregoing. Production payments
and certain other financial arrangements with regard to oil, gas and mineral
properties are not deemed to involve liens securing indebtedness for money
borrowed. (Section 1008)
RESTRICTION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture further provides that the Company will not, nor will it
permit any Restricted Subsidiary to, enter into any sale and leaseback
transaction (except a lease for a temporary period not exceeding three years)
after the date of the Indenture covering any Principal Property, which was or is
owned or leased by the Company or a Restricted Subsidiary and which has been or
is to be sold or transferred more than 120 days after the acquisition or
completion of construction and commencement of full operation thereof, unless
(a) the Attributable Debt in respect thereto and all other sale and leaseback
transactions entered into after the date of the Indenture (other than those the
proceeds of which are applied to reduce indebtedness under (b) below), plus the
aggregate amount of then outstanding secured indebtedness not otherwise
permitted or excepted without equally and ratably securing the Securities, does
not exceed 15% of the Consolidated Net Tangible Assets of the Company and its
consolidated subsidiaries, or (b) an amount equal to the fair value of the
Principal Property leased is applied within 120 days to the voluntary retirement
of the Securities or other indebtedness maturing more than one year thereafter.
(Section 1009)
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<PAGE> 59
CERTAIN DEFINITIONS
"Attributable Debt", in respect of the sale and leaseback transactions
described above, means the amount determined by multiplying the greater, at the
time such arrangement is entered into, of (i) the fair value of the real
property subject to such arrangement (as determined by the Company) or (ii) the
net proceeds of the sale of such real property to the lender or investor, by a
fraction of which the numerator is the unexpired initial term of the lease of
such real property as of the date of determination and of which the denominator
is the full initial term of such lease. Sale and leasebacks with respect to
facilities financed with Industrial Development Bonds (whether or not tax
exempt) are excepted from the definition. (Section 101)
"Consolidated Net Tangible Assets" is the aggregate amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (a) all current liabilities (excluding certain renewable or extendible
indebtedness) and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all the
foregoing as shown on the latest balance sheet of the Company and its
consolidated subsidiaries and computed in accordance with generally accepted
accounting principles. (Section 101)
A "Principal Property" is any manufacturing plant or facility located
within the United States (excluding its territories and possessions, but
including Puerto Rico), the gross book value of which exceeds 3% of Consolidated
Net Tangible Assets, other than any such plant, facility or portion thereof (a)
which is financed by Industrial Development Bonds (whether or not tax exempt) or
(b) which, in the opinion of the Board of Directors of the Company, is not of
material importance to the total business conducted by the Company and its
Restricted Subsidiaries taken as a whole. (Section 101)
A "Restricted Subsidiary" is any subsidiary (a) more than 50% of whose net
sales and operating revenues during the preceding four calendar quarters were
derived in, or more than 50% of whose operating properties are located in, the
United States (excluding its territories and possessions, but including Puerto
Rico) or (b) more than 50% of whose assets consist of securities of other
Restricted Subsidiaries or (c) which owns a Principal Property, except that
certain export sales, banking, insurance, finance, real estate, construction and
unconsolidated subsidiaries do not constitute Restricted Subsidiaries so long as
they shall not own any Principal Property. (Section 101)
EVENTS OF DEFAULT
An Event of Default with respect to any series of the Securities is defined
in the Indenture as: default in payment of principal of or premium, if any, on
any Security of that series at Maturity; default for 30 days in payment of
interest on any Security of that series; failure by the Company in the
performance of any other of the covenants or warranties in the Indenture (other
than a covenant or warranty included in the Indenture solely for the benefit of
a series of Securities other than that series) continued for 90 days after due
notice, as specified in the Indenture, by the Trustee or by Holders of at least
25% in principal amount of the Outstanding Securities of that series; the
occurrence of an Event of Default with respect to securities of any other series
issued pursuant to the Indenture; and certain events of bankruptcy, insolvency
or reorganization of the Company. In addition, the Indenture provides that, with
respect to a security of any series issued under the Indenture to which a
sinking fund applies, there shall be an Event of Default with respect to such
security upon the failure for 30 days to deposit any sinking fund payment when
due by the terms of that security or upon default for 30 days in payment when
due of securities called for redemption with respect to a sinking fund payment.
The Indenture also defines Event of Default with respect to a series of
securities to include any other Event of Default provided with respect to the
securities of that series. (Section 501). The terms of the Securities provide
that the definition of Event of Default shall include the occurrence of an Event
of Default with respect to securities of any other series issued pursuant to the
Indenture.
The Indenture provides that, if any Event of Default with respect to
Securities of any series at the time Outstanding occurs and is continuing,
either the Trustee or the Holders of not less than 25%
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<PAGE> 60
in principal amount of the Outstanding Securities of that series may declare the
principal amount of all Securities of that series to be due and payable
immediately, but upon certain conditions such declaration may be annulled and
past defaults (except, unless theretofore cured, a default in payment of
principal of or premium, if any, or interest, if any, on the Securities of that
series and certain other specified defaults) may be waived by the Holders of a
majority in principal amount of the Outstanding Securities of that series on
behalf of the Holders of all Securities of that series. (Sections 502 and 513)
The Indenture provides that, with respect to most defaults under the
Indenture, the Trustee shall give to the Holders of Securities notice of such
default to the extent and in the manner provided in the TIA as then in effect.
Under the TIA as of the date of this Prospectus, the Trustee is required to give
to the Holders of the Securities notice of a default known to it within 90 days
of the occurrence of such default, provided that, except in the case of a
default in the payment of principal of, or premium (if any) or interest on, any
Security, the Trustee will be protected in withholding such notice if and so
long as the Trustee in good faith determines that the withholding of such notice
is in the interest of the Holders of the Securities. With respect to defaults
under most covenants not pertaining to the payment of principal of, or premium
(if any) or interest on, any Security, the Trustee shall give similar notice,
except that no such notice to Holders shall be given until at least 30 days
after the occurrence of such default. The term default with respect to any
series of Outstanding Securities for the purpose only of this provision means
the happening of any of the Events of Default specified in the Indenture and
relating to such series of Outstanding Securities, excluding any grace periods
and irrespective of any notice requirements. (Section 602)
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during default to act with the required standard of care, to
be indemnified by the Holders of any series of Outstanding Securities before
proceeding to exercise any right or power under the Indenture at the request of
the Holders of such series of Securities. (Section 603) The Indenture provides
that the Holders of a majority in principal amount of Outstanding Securities of
any series may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or other power
conferred on the Trustee, with respect to the Securities of such series provided
that the Trustee may decline to act if such direction is contrary to law or the
Indenture. With respect to the Securities, as Book-Entry Securities, the
Indenture requires the Trustee to establish a record date for purposes of
determining which Holders are entitled to join in such direction. (Section 512)
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate of no default. (Section 1006)
MODIFICATION OF THE INDENTURE AND WAIVER OF COVENANTS
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than 66 2/3% in principal amount of
Outstanding Securities of each series affected thereby, to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of the Indenture or modifying the rights of the Holders of
Outstanding Securities of such series, except that no such supplemental
indenture may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity, or reduce the principal
amount, the premium, if any, thereon or the rate of payment of interest thereon,
of any Security of any series, (b) reduce the aforesaid percentage of
Outstanding Securities of any series, the consent of the Holders of which is
required for any supplemental indenture or for waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder or (c) effect certain
other changes. (Section 902) The Indenture also permits the Company to omit
compliance with certain covenants in the Indenture with respect to Securities of
any series upon waiver by the Holders of 66 2/3% in principal amount of
Outstanding Securities of such series. (Section 1011)
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<PAGE> 61
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture contains a provision permitting the Company, without the
consent of the Holders of any of the Outstanding Securities under the Indenture,
to consolidate with or merge into any other corporation or transfer or lease its
assets substantially as an entirety to any person provided that: (i) the
successor is a Person organized under the laws of any domestic jurisdiction;
(ii) the successor Person assumes the Company's obligations on the Securities
and under the Indenture; (iii) after giving effect to the transaction no Event
of Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have happened and be continuing; and (iv) certain other
conditions are met. (Section 801)
DEFEASANCE AND COVENANT DEFEASANCE
DEFEASANCE AND DISCHARGE
The terms of the Securities provide that, pursuant to Section 403 of the
Indenture, the Company will, at its option, be discharged from any and all
obligations in respect of the respective series of Securities (except for
certain obligations to register the transfer or exchange of Securities of such
series, to replace stolen, lost or mutilated Securities of such series, to
maintain paying agencies and hold moneys for payment in trust) on the 91st day
after the date of the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations which, through the payment of interest and principal
thereof in accordance with their terms, will provide money in an amount
sufficient to pay any installment of principal (and premium, if any) and
interest on the Securities of such series on the stated maturity of such
payments in accordance with the terms of the Indenture and such Securities. Such
discharge may only occur if, among other things, the Company has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel to the effect
that the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or that since the date of this Indenture there has
been a change in tax law, in either case to the effect that Holders of the
Securities of such series will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposits, defeasance and discharge and
will be subject to Federal income tax on the same amount and in the same manner
and at the same times, as would have been the case if such deposit, defeasance
and discharge had not occurred; and such discharge will not be applicable to any
Securities of such series then listed on the New York Stock Exchange or any
other securities exchange if the provision would cause said Securities to be
delisted as a result thereof.
DEFEASANCE OF CERTAIN COVENANTS
The terms of the Securities provide, pursuant to Section 1010 of the
Indenture, the Company with the option to omit to comply with certain
restrictive covenants described in Sections 1008 and 1009 of the Indenture.
Among other requirements, the Company, in order to exercise such option, will be
required to deposit with the Trustee money and/or U.S. Government Obligations
which, through the payment of interest and principal thereof in accordance with
their terms, will provide money in an amount sufficient to pay principal (and
premium, if any) and interest on, the Securities of such series on the stated
maturity of such payments in accordance with the terms of the Indenture and such
Securities. The Company will also be required to deliver to the Trustee an
Officers' Certificate and an Opinion of Counsel to the effect that Holders of
the Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to Federal income tax on the same amount
and in the same manner and at the same times, as would have been the case if
such deposit and defeasance had not occurred. In the event the Company exercises
this option and the Securities of such series are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations, as the case may be, on deposit with the Trustee will be
sufficient to pay amounts due on the Securities of such series at the time of
their Stated Maturity but may not be sufficient to pay amounts due on the
Securities of such series at the
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time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
BOOK-ENTRY, DELIVERY AND FORM
DTC has advised the Company and the Underwriters as follows: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of which (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Upon the issuance by the Company of Securities represented by the Global
Securities, the Depository will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Securities represented
by such Global Securities to the accounts of participants. The accounts to be
credited shall be designated by the Underwriters. Ownership of beneficial
interests in the Global Securities will be limited to participants or persons
that hold interests through participants. Ownership of beneficial interests in
Securities represented by the Global Securities will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depository (with respect to interests of participants in the Depository), or
by participants in the Depository or persons that may hold interests through
such participants (with respect to persons other than participants in the
Depository). The laws of some states require that certain purchases of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
the Global Securities.
Neither the Company, the Trustee, any Payment Agent, nor the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Principal and interest payments on the Securities represented by the Global
Securities will be made by the Company through the Paying Agent to the
Depository's nominee as the Holder of the certificates relating to the Global
Securities. The Indenture provides that the Company and the Trustee will treat
the persons in whose names the Global Securities are registered (the Depository
or its nominee) as the Holders of the Global Securities for the purpose of
receiving payment of principal and interest on the Global Securities and for all
other purposes whatsoever. Therefore, neither the Company, the Trustee, nor any
Paying Agent has any direct responsibility or liability for the payment of
principal or interest on the Global Securities to owners of beneficial interests
in the Global Securities. The Depository has advised the Company and the Trustee
that its present practice is, upon receipt of any payment of principal or
interest, to immediately credit the accounts of the participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Securities, as shown on the records
of the Depository. Payments by participants and indirect participants to owners
of beneficial interests in the Global Securities will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of the participants or indirect participants.
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<PAGE> 63
So long as the 2037 Debentures are represented by a Global Security, the
Depository's nominee will be the only entity that can exercise a right to
repayment pursuant to the Holder's option to elect repayment of its 2037
Debentures. Notice by participants or by owners of beneficial interests in a
Global Security held through such participants of the exercise of the option to
elect repayment of beneficial interests in 2037 Debentures represented by a
Global Security must be transmitted to the Depository in accordance with its
procedures on a form required by the Depository and provided to participants. In
order to ensure that the Depository or the Depository's nominee will timely
exercise a right to repayment with respect to a particular 2037 Debenture, the
beneficial owner of such 2037 Debenture must instruct the broker or other
participant through which it holds an interest in such 2037 Debenture to notify
the Depository of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a 2037 Debenture in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depository. The Company will not be
liable for any delay in delivery of such notice to the Depository.
Owners of beneficial interests in a Global Security are not entitled to
receive physical delivery of Securities of such series in definitive form unless
(a) the Depository with respect to such Security notifies the Company that it is
unwilling or unable to continue as Depository for such Global Security or if
such Depository ceases to be a clearing agency registered under the Exchange
Act, (b) the Company determines that such Global Security shall be exchangeable
for Securities in definitive form or (c) there shall have occurred and be
continuing an Event of Default under the Indenture with respect to the
Securities of such series. Physical delivery of Securities of such series in
definitive form pursuant to the preceding sentence shall be registered in such
names as the Depositary holding such Global Security shall direct.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Securities will be made by the Underwriters in
immediately available funds. All applicable payments of principal and interest
on the Securities will be made by the Company in immediately available funds.
Secondary market trading activity in the Securities will settle in immediately
available funds.
NOTICES TO HOLDERS
Notices to Holders of Securities will be given in writing and mailed,
first-class postage prepaid, to the addresses of such Holders as they may appear
in the Security Register. (Section 106)
TITLE
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner thereof, whether
or not such Security may be overdue, for the purpose of making payment and for
all other purposes. (Section 308)
GOVERNING LAW
The Indenture and the Securities will be governed by and construed in
accordance with the laws of the State of New York. (Section 112)
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. The Company
maintains banking relationships in the ordinary course of business with the
Trustee. Among other things, the Trustee is a lending bank under the Credit
Facilities and acts as the issuing and paying agent for the Company's commercial
paper programs.
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VALIDITY OF SECURITIES
The validity of the Securities offered hereby will be passed upon for the
Company by Karl R. Barnickol, Senior Vice President, General Counsel and
Secretary of the Company and for the Underwriters by Sullivan & Cromwell, New
York, New York. Mr. Barnickol owns 21,024 shares of Company Common Stock and
holds Company Options to purchase an additional 331,269 of such shares. Certain
legal matters will be passed upon for the Company by Wachtell, Lipton, Rosen &
Katz, New York, New York.
EXPERTS
The statements of combined financial position at December 31, 1996 and 1995
and the related statements of combined income and cash flow for each of the
three years in the period ended December 31, 1996 included in this Prospectus
and the related financial statement schedule included elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOLUTIA INC. (formerly identified as Chemicals SpinCo)
Report of Independent Auditors..................................................... F-2
Statement of Combined Income for the three years ended December 31, 1996........... F-3
Statement of Combined Financial Position at December 31, 1996 and December 31,
1995............................................................................ F-4
Statement of Combined Cash Flow for the three years ended December 31, 1996........ F-5
Notes to Combined Financial Statements............................................. F-6
Interim Combined Financial Statements (Unaudited):
Statement of Combined Income for the six months ended June 30, 1997 and 1996....... F-22
Statement of Combined Financial Position at June 30, 1997 and December 31, 1996.... F-23
Statement of Combined Cash Flow for the six months ended June 30, 1997 and 1996.... F-24
Notes to Interim Combined Financial Statements..................................... F-25
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
To the stockholders of Solutia Inc.:
We have audited the accompanying statements of combined financial position
of Solutia Inc., previously referred to as "Chemicals SpinCo" (as described in
Note 1 to the combined financial statements), as of December 31, 1996 and 1995,
and the related statements of combined income and cash flow for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements referred to above
present fairly, in all material respects, the financial position of Solutia Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP Signature
Deloitte & Touche LLP
St. Louis, Missouri
May 1, 1997, except for the first and
second paragraphs and the Subsequent
Event section of Note 1, as to which
the date is September 1, 1997
F-2
<PAGE> 67
SOLUTIA INC.
STATEMENT OF COMBINED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES....................................................... $2,977 $2,964 $3,097
Cost of goods sold.............................................. 2,325 2,243 2,368
------ ------ ------
GROSS PROFIT.................................................... 652 721 729
Marketing expenses.............................................. 172 179 202
Administrative expenses......................................... 167 136 138
Technological expenses.......................................... 88 95 99
Restructuring expenses -- net................................... 192 53 34
------ ------ ------
OPERATING INCOME................................................ 33 258 256
Interest expense................................................ (36) (36) (29)
Other income (expense) -- net................................... 36 9 1
------ ------ ------
INCOME BEFORE INCOME TAXES...................................... 33 231 228
Income taxes.................................................... 1 84 79
------ ------ ------
NET INCOME...................................................... $ 32 $ 147 $ 149
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-3
<PAGE> 68
SOLUTIA INC.
STATEMENT OF COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $7 in 1996 and $6 in 1995.......... $ 412 $ 369
Miscellaneous receivables and prepaid expenses............................. 80 113
Deferred income tax benefit................................................ 108 92
Inventories................................................................ 291 311
------ ------
TOTAL CURRENT ASSETS....................................................... 891 885
PROPERTY, PLANT AND EQUIPMENT:
Land....................................................................... 18 15
Buildings.................................................................. 367 368
Machinery and equipment.................................................... 2,622 2,581
Construction in progress................................................... 121 88
------ ------
Total property, plant and equipment........................................ 3,128 3,052
Less accumulated depreciation.............................................. 2,217 2,140
------ ------
NET PROPERTY, PLANT AND EQUIPMENT.......................................... 911 912
INVESTMENTS IN AFFILIATES.................................................. 366 344
LONG-TERM DEFERRED INCOME TAX BENEFIT...................................... 194 172
OTHER ASSETS............................................................... 121 149
------ ------
TOTAL ASSETS............................................................... $2,483 $2,462
====== ======
LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 223 $ 230
Wages and benefits......................................................... 156 114
Restructuring reserves..................................................... 79 39
Miscellaneous accruals..................................................... 312 271
------ ------
TOTAL CURRENT LIABILITIES.................................................. 770 654
POST-RETIREMENT LIABILITIES................................................ 634 632
OTHER LIABILITIES.......................................................... 423 421
MONSANTO COMPANY EQUITY.................................................... 656 755
------ ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY.............................. $2,483 $2,462
====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE> 69
SOLUTIA INC.
STATEMENT OF COMBINED CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income....................................................... $ 32 $ 147 $ 149
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes....................................... (45) 25 (23)
Depreciation and amortization............................... 166 162 219
Restructuring expenses...................................... 192 53 34
Other....................................................... 43 1 (7)
Working capital changes that provided (used) cash:
Accounts receivable......................................... (43) 64 (27)
Inventories................................................. 20 (78) 48
Accounts payable and accrued liabilities.................... (33) (61) (59)
Other....................................................... 24 (13) 12
Other items.................................................... (20) 20 8
----- ----- -----
TOTAL CASH PROVIDED BY OPERATIONS................................ 336 320 354
----- ----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases.......................... (192) (179) (187)
Acquisition and investment payments.............................. (17) (51) (4)
Investment and property disposal proceeds........................ 4 51 73
----- ----- -----
CASH USED IN INVESTING ACTIVITIES................................ (205) (179) (118)
----- ----- -----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company........................... (131) (141) (236)
----- ----- -----
CASH USED IN FINANCING ACTIVITIES................................ (131) (141) (236)
----- ----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. -- -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR................................................ -- -- --
----- ----- -----
END OF YEAR...................................................... $ -- $ -- $ --
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE> 70
SOLUTIA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1. BASIS OF PRESENTATION
Solutia Inc., previously referred to as Chemicals SpinCo (the "Company" or
"Solutia"), is an international producer and marketer of a range of high
performance chemical-based materials which are used by its customers to make
consumer, household, automotive and industrial products. Prior to September 1,
1997, the businesses contributed to form the Company were wholly owned by
Monsanto Company ("Monsanto"). On September 1, 1997, Monsanto distributed all of
the outstanding shares of common stock of the Company as a dividend to Monsanto
shareowners (the "Spinoff"). The distribution resulted in the issuance of one
share of the Company's common stock for every five shares of Monsanto common
stock held of record as of August 20, 1997. As a result of the Spinoff, the
Company became an independent publicly held company listed on the New York Stock
Exchange and its operations ceased to be owned by Monsanto.
Effective with the Spinoff on September 1, 1997, Solutia assumed
approximately $1,029 million of debt from Monsanto, primarily assumable
commercial paper. The assumable commercial paper is guaranteed by Monsanto until
repaid or refinanced by Solutia at maturity, which is up to 30 days following
the Spinoff. On August 14, 1997, Solutia entered into a total of $1.2 billion in
revolving credit facilities with a syndicate of banks to support its commercial
paper. These credit facilities are also available for working capital and other
general corporate purposes. These credit facilities consist of (i) an $800
million five-year revolving credit facility, and (ii) a $400 million 364-day
credit agreement. The interest rates under the Credit Facilities are based upon,
at the option of the Company, (i) the London interbank offered rate ("LIBOR") or
(ii) the Base Rate. The Base Rate shall at all times be equal to the highest of
(a) the prime rate of Citibank, N.A., ("Citibank"), (b) the federal funds rate
plus 0.5% or (c) the sum (adjusted to the nearest 1/16 of 1% or, if there is no
nearest 1/16 of 1%, to the next higher 1/16 of 1%) of (i) 0.5%, plus (ii) the
rate obtained by dividing (A) the latest three-week moving average of secondary
market morning offering rates in the United States for three-month certificates
of deposit of major United States money market banks, by (B) a percentage equal
to 100% minus the average of the daily percentages specified during such three-
week period by the Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement for Citibank with respect to
liabilities consisting of or including (among other liabilities) three-month
U.S. dollar non-personal time deposits in the United States, plus (iii) the
average during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable by
Citibank to the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of Citibank in the United States. Interest rates
based on LIBOR will be increased by a spread of between 13.5 and 22.5 basis
points for the five-year revolving credit facility and 20.0 and 40.0 basis
points for the 364-day revolving credit facility depending upon the actual
ratings (the "ratings") by two credit rating agencies of senior unsecured
long-term debt issued by the Company or, if there is no such debt, the
indicative rating of the Company by such rating agencies. If the Company elects
to borrow under either credit facility, the total spread (including facilities
fees) over LIBOR would be 32.5 basis points for each credit facility. The credit
agreements contain various covenants, which among other things, restrict the
ability of Solutia to merge with another entity, to create liens against assets,
or to amend, cancel or terminate agreements entered into with Monsanto to effect
the Spinoff. These credit agreements also require Solutia to meet certain
leverage and interest coverage ratios. The Company expects to have the ability
to refinance the $1,029 million of, primarily, assumable commercial paper on a
long-term basis through the issuance of additional commercial paper and
long-term debt securities, although these financing arrangements are not
finalized. Solutia plans to conduct a public offering of debt securities in the
amount of $600 million having maturities of 5 to 40 years. The proceeds of the
offering will be used to refinance a portion of the Company's outstanding
commercial paper as it becomes due. The interest payable on such publicly
offered securities will be fixed and is expected to range generally from 6.5% to
7.5%. Subject to the level of
F-6
<PAGE> 71
future cash flows, the Company intends to refinance the approximately $429
million of remaining debt on a long-term basis.
The Spinoff was accomplished through a distribution agreement that provides
for, among other things, the assets to be contributed to Solutia and the
liabilities to be assumed by Solutia, certain of which assets and liabilities
have not been included in the accompanying Statement of Combined Financial
Position. Those assets and liabilities include, among other things: a joint
venture interest in Monsanto's elemental phosphorus business and a defined
amount of cash and debt.
Monsanto and Solutia also entered into an employee benefits and
compensation allocation agreement which sets forth the manner in which assets
and liabilities under employee benefit plans and other employment-related
liabilities were divided between them. Certain assets and liabilities related to
the plans have not been included in the accompanying Statement of Combined
Financial Position. These include, among other things, assets and liabilities
for: the U.S. defined benefit pension plans, workers' compensation and
additional obligations for health care and other postretirement benefits that
Solutia retained for substantially all retired U.S. employees.
The final determination of the assets contributed to Solutia and the
liabilities assumed by Solutia was made pursuant to the agreements entered into
between Monsanto and Solutia in connection with the Spinoff. As of the date of
the Spinoff, the effect of the final transfer will be treated as a direct
increase or decrease in "Monsanto Company Equity" in the Statement of Combined
Financial Position.
Regardless of the allocation of the assets and liabilities described in the
preceding paragraphs, Solutia's Statement of Combined Income includes all of the
related costs of doing business including an allocation of certain general
corporate expenses from Monsanto which were not directly related to Solutia.
Combined Financial Statements
The accompanying combined financial statements have been prepared on a
basis which reflects the historical financial statements of Solutia assuming
that the operations of Monsanto contributed to Solutia in connection with the
Spinoff of Solutia to Monsanto's stockholders were organized as a separate legal
entity, owning certain net assets of Monsanto. Generally, only those assets and
liabilities of the ongoing chemicals businesses expected to be transferred to
Solutia prior to the Spinoff were included in the Statement of Combined
Financial Position.
Monsanto provided certain general and administrative services to Solutia,
including finance, legal, treasury, information systems and human resources. The
cost for these services was allocated to Solutia based upon the percentage
relationship between the net assets utilized in Solutia's operations and
Monsanto's total net assets, as well as other methods which management believes
to be reasonable. These allocations were $85 million, $72 million and $69
million in 1996, 1995 and 1994, respectively. As a result of the Spinoff,
Solutia is required to perform these general and administrative services using
its own resources or purchased services and is responsible for the costs and
expenses associated with the management of a public company. Solutia management
estimates that the cost of such general and administrative expenses on a
stand-alone basis would have been approximately $46 million in 1996.
As described in Notes 9, 10 and 11, Solutia employees and retirees
participated in various Monsanto pension, health care, savings and other benefit
plans. The costs and certain obligations related to these plans are included in
Solutia's combined financial statements generally based on the percentage of
Solutia payroll costs to total Monsanto payroll cost.
Certain assets and liabilities related to Solutia's operation have been
managed and controlled by Monsanto on a centralized basis. Such assets and
liabilities have been allocated to Solutia in the manner described in preceding
paragraphs for allocated general and administrative expenses and benefit plans.
A portion of the following assets and liabilities have been determined in this
manner: other assets, accounts payable, post-retirement liabilities,
miscellaneous accruals and other liabilities.
F-7
<PAGE> 72
Monsanto uses a centralized approach to cash management and the financing
of its operations. As a result, cash and cash equivalents and debt were not
allocated to Solutia in the historical financial statements. Solutia generally
has not had borrowings except amounts due to Monsanto. Interest expense has been
allocated to Solutia in the combined financial statements to reflect Solutia's
pro rata share of the financing structure of Monsanto. This allocation in the
combined financial statements is based on the percentage relationship between
the net assets utilized in Solutia's operations and Monsanto's net assets.
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows, or
financial position of Solutia in the future, or what the results of operations,
cash flows, or financial position would have been had Solutia been a separate
stand-alone public entity.
Subsequent Event
On July 10, 1997, management approved the asset and liability allocation
which set forth the assets contributed to Solutia and the liabilities assumed by
Solutia in connection with the Spinoff. Included in those assets and liabilities
are the following material items which have not been included in the
accompanying Statement of Combined Financial Position: a joint venture interest
in Monsanto's elemental phosphorus business, cash of $75 million, debt of $1,029
million, accrued net pension liability for the U.S. defined benefit pension
plans, and additional obligations for healthcare and other postretirement
benefits. The following unaudited pro forma amounts give effect to those items,
as well as certain other items, as set forth in the unaudited pro forma
condensed financial statements included in the Prospectus. The following
unaudited pro forma amounts are presented as if the Spinoff has occurred on June
30, 1997 and December 31, 1996, with respect to the unaudited pro forma
condensed Statements of Combined Financial Position amounts, and as of the
beginning of the earliest period presented with respect to the unaudited pro
forma condensed Statement of Combined Income amounts for the six months ended
June 30, 1997 and for the year ended December 31, 1996, respectively.
Unaudited pro forma condensed Statements of Combined Financial Position as
of June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Total Assets........................................................... $2,718 $2,660
Long-term debt......................................................... 1,029 1,029
Post-retirement liabilities............................................ 918 876
Stockholders' Deficit.................................................. (280) (439)
Total Liabilities and Stockholders' Deficit............................ 2,718 2,660
</TABLE>
Unaudited pro forma Statements of Combined Income for the six months ended
June 30, 1997 and the year ended December 31, 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------------- ------------
<S> <C> <C>
Income Before Income Taxes..................................... $ 154 $ 9
Net Income..................................................... 102 17
Earnings per Share............................................. $ 0.84 $ 0.14
</TABLE>
The effect of the employee benefits and compensation allocation is an
increase in the retiree medical and pensions cost allocation of $17 million for
the year ended December 31, 1996 in excess of the amounts allocated to Solutia
in Solutia's historical financial statements.
The pro forma information is presented for illustrative purposes only and
may not be indicative of the results that would have been obtained had the
transactions actually occurred on the dates assumed, nor is it necessarily
indicative of the future combined results of operations.
F-8
<PAGE> 73
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The combined financial statements include the accounts of Solutia as
described in Note 1. Other companies in which Solutia has a significant interest
(20 to 50 percent) are included in "Investments in Affiliates" in the Statement
of Combined Financial Position. Solutia's share of these companies' net earnings
or losses is included in "Other income (expense) -- net" in the Statement of
Combined Income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that affect revenues and expenses during the period reported.
Estimates are adjusted when necessary to reflect actual experience. Significant
estimates are used when accounting for the allocation of financial statement
amounts between Monsanto and Solutia, restructuring reserves, environmental
reserves, self-insurance reserves, employee benefit plans, asset impairments,
and contingencies.
Currency Translation
The financial statements for most of Solutia's ex-U.S. operations are
translated into U.S. dollars at current exchange rates. Unrealized currency
adjustments in the Statement of Combined Financial Position are accumulated in
equity. The financial statements of ex-U.S. operations in hyperinflationary
economies, principally Brazil, are translated at either current or historical
exchange rates, as appropriate. These currency adjustments are included in net
income.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. The cost of plant and
equipment is depreciated over weighted average periods of 18 years for buildings
and 10 years for machinery and equipment, by the straight-line method.
Impairment of Long-lived Assets
Impairment tests of long-lived assets are made when conditions indicate a
possible loss. Such impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. If an impairment is indicated,
the asset value is written down to its fair value based upon discounted cash
value, using an appropriate discount rate.
Inventory Valuation
Inventories are stated at cost or market, whichever is less. Actual cost is
used to value raw materials and supplies. Standard cost, which approximates
actual cost, is used to value finished goods and goods in process. Standard cost
includes direct labor and raw materials, and manufacturing overhead based on
practical capacity. The cost of certain inventories (76 percent as of December
31, 1996) is determined by using the last-in, first-out "LIFO" method, which
generally reflects the effects of inflation or deflation on cost of goods sold
sooner than other inventory cost methods. The cost of other inventories
generally is determined by using the first-in, first-out "FIFO" method.
Income Taxes
Solutia does not file separate tax returns. It is included in the
consolidated returns filed by Monsanto and its subsidiaries in various U.S. and
ex-U.S. jurisdictions. The tax provisions reflected in the Statement of Combined
Income have been computed as if Solutia was a separate company. The accompanying
Statement of Combined Financial Position includes deferred tax amounts
F-9
<PAGE> 74
applicable to Solutia. Taxes currently payable and income tax payments are
recorded directly by Monsanto and, as a result, amounts related to Solutia are
included in "Net transactions with Monsanto Company" in the Statement of
Combined Cash Flow.
Earnings per Share
Historical earnings per share have not been presented as Solutia was wholly
owned by Monsanto.
Environmental Remediation
Costs for remediation of waste disposal sites are accrued in the accounting
period in which the responsibility is established and when the cost is
estimable. Post-closure and remediation costs for hazardous and other waste
facilities at operating locations are accrued over the estimated life of the
facility as part of its anticipated closure cost. Environmental liabilities are
not discounted, and they have not been reduced for any claims for recoveries
from insurance or third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and management believes
that collectability of such amounts is probable, the amounts are reflected as
receivables in the combined financial statements.
3. TRANSACTIONS WITH MONSANTO
Solutia participated in Monsanto's centralized cash management system.
Under this system, cash received from Solutia's operations was transferred to
Monsanto's centralized cash accounts and cash disbursements are funded from the
centralized cash accounts.
Included in the Statement of Combined Income are sales to Monsanto of $63
million, $75 million, and $80 million in 1996, 1995, and 1994, respectively.
Such sales were made at Monsanto's established transfer prices.
As specified in Note 1, Monsanto provided certain general and
administrative services to Solutia. The cost of these services, also included in
such statement, are $85 million, $72 million, and $69 million in 1996, 1995, and
1994, respectively. Interest expense charged to Solutia represents an allocation
from Monsanto of its total interest expense. The allocated interest expense to
Solutia was $36 million, $36 million, and $29 million in 1996, 1995, and 1994,
respectively.
4. RESTRUCTURING AND OTHER ACTIONS
In December 1996, Solutia recorded pretax restructuring and other special
charges totaling $256 million ($164 million aftertax) to cover the costs
associated with the closure or sale of certain facilities, asset write-offs, and
workforce reductions. Approximately 900 positions are expected to be eliminated
by these actions. Included in these charges were pretax amounts for asset
impairments totaling $56 million. These write-offs were necessary primarily
because of excess production capacity, coupled with insufficient demand for
certain products. Asset values were written down to their discounted cash
values, using appropriate discount rates.
In December 1995, Monsanto's board of directors approved a restructuring
plan. The pretax charge associated with these actions was $66 million ($57
million aftertax) and covered the costs of work force reductions, business
consolidations, facility closures and the exit from nonstrategic businesses and
facilities. This plan was substantially completed by the end of 1996 and reduced
employment by approximately 100 people.
In December 1994, Monsanto and Akzo Nobel N.V. agreed to form a 50-50 joint
venture by combining their respective rubber chemicals businesses. The venture
partners agreed to bear the one-time costs required to integrate their
respective rubber chemicals businesses into the joint venture. For Solutia,
these integration costs, which totaled $40 million pretax ($25 million
aftertax), were primarily for the cost of reducing the work force by
approximately 120 people and for special
F-10
<PAGE> 75
termination benefits for approximately 300 people transferring from Solutia to
the joint venture. The charge for these actions was recorded in the first
quarter of 1995. On May 1, 1995, the joint venture, known as Flexsys, L.P.
("Flexsys"), began operations and is accounted for as an equity affiliate.
Accordingly, Solutia's share of the earnings of Flexsys after that date has been
reflected in "Other income (expense) -- net" in the Statement of Combined
Income. Solutia's results of operations for 1995 and 1994 included net sales of
$140 million and $400 million, respectively, from the rubber chemicals business.
Operating income for this business during these periods was not significant.
Other items that affected Solutia's results of operations in 1995 included
the receipt in the first and third quarters of settlement payments from various
insurers related to environmental and other insurance litigation. The combined
effect of these settlements totaled $88 million pretax ($55 million aftertax).
In addition, Monsanto settled a lawsuit related to a Comprehensive Environmental
Response, Compensation and Liability site, commonly known as "Superfund," in La
Marque, Texas. The suit was brought by IT Corporation ("IT"), a subsidiary of
International Technology Corp., and claimed, among other things, breach of a
contract calling for IT to perform incineration and remediation work at the
site. Monsanto settled the suit by paying $41 million pretax ($25 million
aftertax), and Solutia recorded the payment in the third quarter of 1995.
In December 1994, Monsanto's board of directors approved a plan to
eliminate redundant staff activities and to consolidate certain staff and
administrative business functions. The plan, which was substantially completed
by the end of 1995, reduced worldwide employment by approximately 140 people. In
addition, Solutia closed certain facilities and terminated certain programs. The
pretax expense related to these actions was $34 million ($21 million aftertax).
The components of the pretax expense (income) related to the restructuring
programs and the other actions included in the accompanying Statement of
Combined Income were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cost of employee reductions.............................. $157 $ 22 $27
Shutdown and consolidation of various facilities and
departments............................................ 33 44 7
Asset impairments........................................ 56
Insurance-related settlement (income).................... (88)
Litigation settlement.................................... 41
Joint venture integration costs.......................... 40
Other costs.............................................. 10
---- ---- ----
Total............................................. $256 $ 59 $34
===== ===== =====
</TABLE>
Restructuring expenses are recorded based on estimates prepared at the time
the restructuring actions are approved by the board of directors. The balance in
restructuring reserves as of December 31, 1996, was $265 million. It is
earmarked primarily for work force reduction costs, asset impairments, and the
costs associated with shutdowns and consolidation of various facilities and
departments. Management believes that the balance of these reserves as of
December 31, 1996, is adequate for completion of those activities. Restructuring
actions during the last three years have reduced these liabilities by
approximately $300 million. Approximately two-thirds of these reductions were
recorded for write-offs and expenditures related to the termination or sale of
nonstrategic products and facilities. The remaining reductions were primarily
related to the cost of work force reduction programs, most of which have been
completed.
F-11
<PAGE> 76
The pretax expenses (income) related to the restructuring programs and the
other unusual items were recorded in the Statement of Combined Income in the
following categories:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cost of goods sold....................................... $ 56 $(7)
Restructuring expenses -- net............................ 192 53 $34
---- ---- ----
Decrease in operating income........................... 248 46 34
Other expense(1)......................................... 8 13
---- ---- ----
Total decrease in income before income taxes........... $256 $59 $34
===== ===== =====
</TABLE>
- -------------------------
(1) In 1996 and 1995, other expense includes Solutia's share of restructuring
actions undertaken by Flexsys.
Net income decreased by $164 million, $52 million and $21 million, in 1996,
1995 and 1994, respectively, because of these restructurings and unusual items.
5. INVESTMENTS IN AFFILIATES
At December 31, 1996, Solutia's investments in affiliates consisted
principally of its 50 percent interests in Flexsys, the rubber chemicals joint
venture, and the Advanced Elastomer Systems, L.P. ("AES") joint venture for
which Solutia uses the equity method of accounting. Summarized combined
financial information for the Flexsys and AES joint ventures follows (results of
operations for 1995 reflects eight months of operations for Flexsys):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Results of operations
Net sales...................................... $ 779 $ 628 $ 200
Net income..................................... 64 3 21
Financial position
Total assets................................... $ 853 $ 854
Total liabilities.............................. $ 237 $ 290
</TABLE>
6. INVENTORY VALUATION
The components of inventories were:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Finished goods............................................... $ 258 $ 266
Goods in process............................................. 47 53
Raw materials and supplies................................... 126 145
----- -----
Inventories, at FIFO cost.................................... 431 464
Excess of FIFO over LIFO cost................................ (140) (153)
----- -----
TOTAL........................................................ $ 291 $ 311
====== ======
</TABLE>
Inventories at FIFO approximate current cost. The effect of LIFO inventory
liquidations increased pretax income by $5 million in 1996 and was not material
in 1995.
F-12
<PAGE> 77
7. INCOME TAXES
The components of income before income taxes were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States............................................ $11 $221 $138
Outside United States.................................... 22 10 90
---- ---- ----
TOTAL.................................................... $33 $231 $228
===== ===== =====
</TABLE>
The components of income tax expense charged to operations were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. federal........................................... $ 13 $ 39 $ 72
U.S. state............................................. 2 7 5
Outside United States.................................. 31 13 25
---- ---- ----
46 59 102
---- ---- ----
Deferred:
U.S. federal........................................... (21) 23 (28)
U.S. state............................................. (1) 3 1
Outside United States.................................. (23) (1) 4
---- ---- ----
(45) 25 (23)
---- ---- ----
TOTAL.................................................... $ 1 $ 84 $ 79
===== ===== =====
</TABLE>
Factors causing the Solutia's effective tax rate to differ from the U.S.
federal statutory rate were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate.............................. 35% 35% 35%
U.S. state income taxes.................................. 1 3 2
Assumed tax benefit of foreign sales corporation......... (23) (4) (2)
Taxes related to foreign income, net of credits.......... 3 4 --
Income from equity affiliates recorded net of tax........ (13) (1) (1)
Other.................................................... -- (1) 1
---- ---- ----
EFFECTIVE INCOME TAX RATE................................ 3 % 36% 35%
===== ===== =====
</TABLE>
Deferred income tax balances were related to:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Property.............................................. $(176) $(181)
Post-retirement benefits.............................. 248 260
Restructuring reserves................................ 92 18
Environmental liabilities............................. 57 64
Inventory............................................. 4 5
Other................................................. 77 98
----- -----
NET ASSET............................................. $ 302 $ 264
====== ======
</TABLE>
F-13
<PAGE> 78
8. MONSANTO COMPANY EQUITY
The following is an analysis of Monsanto's investment in Solutia:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year............................. $755 $741 $809
Net income............................................... 32 147 149
Foreign currency translation adjustment.................. -- 8 19
Net transactions with the Company........................ (131) (141) (236)
---- ---- ----
Balance at end of year................................... $656 $755 $741
===== ===== =====
</TABLE>
9. POST-RETIREMENT BENEFITS -- PENSIONS
Solutia's employees participate in Monsanto's noncontributory pension
plans. No detailed information regarding the funded status of the plans and
components of net periodic pension cost, as it relates to Solutia is available.
The information that follows relates to all of Monsanto's pension plans. The
components of pension cost for these plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost for benefits earned during the year...... $ 83 $ 70 $ 75
Interest cost on benefit obligation................... 287 291 269
Assumed return on plan assets(1)...................... (322) (326) (317)
Amortization of unrecognized net (gain) loss.......... 9 (25) (12)
----- ----- -----
Total................................................. $ 57 $ 10 $ 15
====== ====== ======
</TABLE>
--------------------------------
(1) Actual returns (losses) on plan assets were $558 million, $671
million and $(142) million in 1996, 1995 and 1994, respectively.
Pension cost allocated to Solutia in 1996, 1995 and 1994 was $18 million,
$1 million, and $4 million, respectively.
Solutia is expected to retain costs related to its active employees and
certain former employees who last worked at a Solutia facility following the
proposed Spinoff. Consequently, future pension costs for Solutia after the
Spinoff are likely to be different when compared to historical amounts. Separate
actuarial calculations will be performed as of the date of the Spinoff.
Pension benefits are based on the employee's years of service and/or
compensation level. Pension plans are funded in accordance with Monsanto's
long-range projections of the plans' financial conditions. These projections
take into account benefits earned and expected to be earned, anticipated returns
on pension plan assets, and income tax and other regulations.
Pension costs are determined through the use of the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rate......................................... 7.50% 7.25% 8.50%
Assumed long-term rate of return on plan assets....... 9.50% 9.50% 9.50%
Annual rates of salary increase (for plans that base
benefits on final compensation level)............... 4.50% 4.50% 5.00%
</TABLE>
F-14
<PAGE> 79
The funded status of Monsanto's pension plans at year-end was:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
PLAN ASSETS AT FAIR VALUE................................... $3,817 $3,690
------ ------
Actuarial present value of plan benefits:
Vested.................................................... $3,495 $3,457
Nonvested................................................. 154 145
------ ------
Accumulated benefit obligation.............................. 3,649 3,602
Effect of projected future salary increases................. 377 385
------ ------
PROJECTED BENEFIT OBLIGATION(1)............................. $4,026 $3,987
------ ------
Deficiency of plan assets over projected benefit
obligation................................................ $ (209) $ (297)
Less:
Unrecognized initial net gain............................. 94 119
Unrecognized prior service costs.......................... (264) (192)
Unrecognized subsequent net gain (loss)................... 241 (5)
------ ------
ACCRUED NET PENSION LIABILITY(2)............................ $ 280 $ 219
====== ======
</TABLE>
--------------------------------
(1) Included $228 million in 1996 and $204 million in 1995 for unfunded
plans.
(2) Included $138 million in 1996 and $152 million in 1995 for unfunded
plans.
Included in the preceding table are plan assets and projected benefit
obligations for the principal U.S. plans of approximately $3.327 billion and
$3.264 billion, respectively, as of December 31, 1996. Plan assets consist
principally of common stocks and U.S. government and corporate obligations.
Contributions to these plans were neither required nor made in 1996, 1995 and
1994 because Monsanto's principal pension plans are adequately funded, using
assumed returns.
A final determination of the assets to be contributed and the liabilities
to be assumed by Solutia with respect to the U.S. plans has not been finalized.
Accordingly, the corresponding net pension asset or liability has not been
included in the accompanying Statement of Combined Financial Position.
10. POST-RETIREMENT BENEFITS -- HEALTH CARE AND OTHER
Solutia's employees participate in Monsanto benefit programs which provide
certain health care and life insurance benefits for retired employees. No
detailed information regarding the components of the total cost and obligations
of these post-retirement benefits, as it relates to Solutia is available.
Substantially all regular, full-time U.S. employees and certain employees in
other countries may become eligible for these benefits if they reach retirement
age while employed by Monsanto or Solutia. These post-retirement benefits are
unfunded and are generally based on the employee's years of service and/or
compensation level. The costs of post-retirement benefits are accrued by the
date the employees become eligible for the benefits.
The components of the total cost of Monsanto's post-retirement benefits,
principally health care and life insurance, were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year....... $ 25 $ 21 $ 23
Interest cost on benefit obligation.................... 88 94 87
Amortization of unrecognized net (gain) loss........... 2 (2) 7
---- ---- ----
TOTAL.................................................. $115 $113 $117
===== ===== =====
</TABLE>
Post-retirement benefit costs allocated to Solutia in 1996, 1995 and 1994
were $50 million, $54 million, and $55 million, respectively.
F-15
<PAGE> 80
Post-retirement costs are determined by using the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rate...................................... 7.50% 7.25% 8.50%
Initial trend rate for health care costs(1)........ 8.00% 9.00% 11.50%
Ultimate trend rate for health care costs.......... 5.00% 5.00% 5.50%
</TABLE>
--------------------------------
(1) The initial trend rate for health care costs declines by 1 percent per
year to 5 percent for years after the year 2001.
A 1 percent increase in the assumed trend rate for health care costs would
have increased the cost of 1996 post-retirement health care benefits by $4
million and the accumulated benefit obligation by $48 million as of December 31,
1996.
As of December 31, the status of Monsanto's obligations for post-retirement
health care and life insurance benefit plans, and employee disability benefit
plans was:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ACCUMULATED BENEFIT OBLIGATION:
Retirees.................................................. $ 938 $1,006
Eligible active employees................................. 60 52
Other active employees.................................... 251 213
------ ------
TOTAL....................................................... $1,249 $1,271
Unrecognized benefits from prior service.................. 27 34
Unrecognized subsequent net loss.......................... (28) (81)
------ ------
ACCRUED LIABILITY........................................... $1,248 $1,224
====== ======
</TABLE>
The assumptions used to compute the accumulated benefit obligation of the
principal plans were changed as of December 31, 1996. That resulted in a
decrease of approximately $28 million in the obligation.
Solutia's portion of this liability was approximately $671 million and $696
million, as of December 31, 1996 and 1995, respectively.
Following the Spinoff, Solutia is expected to retain the obligations for
post-retirement benefits for approximately two-thirds of retired U.S. employees
of Monsanto. Consequently, future post-retirement costs for Solutia after the
Spinoff are likely to be different and are likely to increase when compared to
historical amounts. Separate actuarial calculations will be performed as of the
date of the Spinoff.
11. EMPLOYEE SAVINGS PLANS
For some employee savings plans, employee contributions are matched in part
by Monsanto. Solutia's employees participate in these plans. The value of these
contributions for Solutia in each of 1996, 1995 and 1994 was approximately $11
million.
The information that follows relates to Monsanto's Employee Stock Ownership
Plan (the "ESOP"). The ESOP held 18.6 million shares of Monsanto's common stock
as of December 31, 1996. The ESOP acquired shares by using proceeds from the
issuance of long-term notes and debentures that are guaranteed by Monsanto and
from a $50 million loan from Monsanto. A portion of the ESOP shares is allocated
each year to employee savings accounts as matching contributions. In 1996,
752,515 shares were allocated to participants under the plan, leaving 12,623,080
unallocated shares as of December 31, 1996. Compensation expense is equal to the
cost of the shares allocated to participants, less dividends paid on the shares
held by the ESOP. Dividends on the
F-16
<PAGE> 81
common stock owned by the ESOP are being used to repay the ESOP borrowings,
which totaled $180 million as of December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total ESOP expense....................................... $17 $26 $29
Interest portion of total ESOP expense................... 14 16 17
Cash contribution........................................ 16 18 19
Dividends paid on ESOP shares held....................... 11 10 9
</TABLE>
12. STOCK OPTION PLANS
Monsanto has two fixed option plans in which Solutia's employees
participated. Under the Management Incentive Plan of 1996, Monsanto may grant
options to key officers and management employees for up to 46,250,000 shares of
common stock. Under this plan, the exercise price of each option equals not less
than the fair market value of Monsanto's stock on the date of grant, and an
option's maximum term is 10 years. Options are granted at the discretion of
Monsanto's board of directors' Executive Compensation and Development Committee
or its delegate. Options generally vest upon the earlier of the achievement of
business performance targets or upon the ninth anniversary of the option grant
date. Options granted to senior management vest upon the attainment of
pre-established prices within specified time periods. Under Monsanto's Shared
Success Stock Option Plan, the majority of regular full-time and regular
part-time employees of Monsanto have been granted options on 200 shares of
common stock. The maximum number of shares for which stock options may be
granted under this plan totals 13,500,000. Approximately 5,246,200 options,
which vest in April 1999, were outstanding under this plan as of December 31,
1996. Under this plan, the exercise price of each option is determined by the
committee administering the plan and generally equals the market price of
Monsanto's stock on the date of grant. An option's maximum term is 10 years.
Effective January 1, 1996, Monsanto adopted Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
As permitted by the standard, Monsanto has elected to continue following the
guidance of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been
recognized for Monsanto's option plans. Had the determination of compensation
cost for these plans been based on the fair value at the grant dates for awards
under these plans, consistent with the method of SFAS No. 123, Solutia's net
income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income:
As reported................................................... $32 $147
Pro forma..................................................... 18 144
</TABLE>
The resulting compensation expense may not be representative of
compensation expense to be incurred on a pro forma basis in future years.
The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield......................................... 1.5 % 3.0 %
Expected volatility............................................. 25.0% 20.0%
Risk-free interest rates........................................ 6.0 % 7.1 %
Expected option lives (years)................................... 4.0 4.5
</TABLE>
F-17
<PAGE> 82
The weighted-average fair values of options granted during 1996 and 1995
were $6.43 and $3.99, respectively.
Options to purchase Monsanto common stock under the above plans will be
converted into either options to purchase Solutia common stock, adjusted options
to purchase Monsanto common stock or a combination of both. The total value of
the options prior to the conversion will be equal to the combined value of the
resulting options at the date of the Spinoff.
13. COMMITMENTS AND CONTINGENCIES
Commitments, principally in connection with uncompleted additions to
property, were approximately $37 million as of December 31, 1996. Monsanto was
contingently liable as a guarantor for bank loans and for discounted customers'
receivables relating to Solutia totaling approximately $16 million and $7
million as of December 31, 1996 and 1995, respectively. Future minimum payments
under noncancelable operating leases and unconditional purchase obligations are
$23 million for 1997, $48 million for 1998, $15 million for 1999, $5 million for
2000, $3 million for 2001, and $3 million thereafter.
Solutia has entered into agreements with customers to supply a guaranteed
quantity of certain products annually at prices specified in the agreements. In
return, the customers have advanced funds to Solutia to cover the costs of
expanding capacity to provide the guaranteed supply. Solutia has recorded the
advances as deferred credits and amortizes the amounts to income as the
customers purchase the products. At December 31, 1996, the unamortized deferred
credits were approximately $68 million.
The more significant concentrations in Solutia's trade receivables at
year-end were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
U.S. chemical industry.......................................... $129 $182
U.S. carpet industry............................................ 79 74
European chemical industry...................................... 36 55
</TABLE>
Management does not anticipate losses on its trade receivables in excess of
established allowances.
Solutia's Statement of Combined Financial Position included accrued
liabilities of $150 million and $184 million as of December 31, 1996 and 1995,
respectively, for the remediation of identified waste disposal sites.
Expenditures related to remediation activities were $59 million in 1996, $68
million in 1995, and $58 million in 1994.
Solutia's future remediation expenses for waste disposal sites are affected
by a number of uncertainties, including, but not limited to, the method and
extent of remediation, the percentage of material attributable to Solutia at the
sites relative to that attributable to other parties, and the financial
capabilities of the other potentially responsible parties. Because of the
uncertainties associated with remediation activities, Solutia's potential future
expenses to remediate these sites could approximate an additional $60 million
beyond amounts already accrued.
Post-closure and remediation costs for hazardous and other waste facilities
are accrued over the estimated life of the facility as part of its anticipated
closure cost. Solutia's estimated closure costs for these facilities could reach
approximately $70 million (beyond amounts already accrued) based upon existing
technology and currently available information. Uncertainties related to these
costs include evolving government standards, the method and extent of
remediation, and future changes in technology.
Although the ultimate costs and results of remediation of contaminated
sites cannot be predicted with certainty, they are not expected to result in a
material adverse change in Solutia's
F-18
<PAGE> 83
liquidity or financial position as reflected in Solutia's historical financial
statements, but they could have a material adverse effect on profitability in a
given period.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," which is effective for Solutia in 1997. SOP 96-1 establishes
authoritative guidance regarding the recognition, measurement and disclosure of
environmental remediation liabilities. The preliminary estimate of the 1997
charges resulting from the adoption of this statement is in the range of $15
million to $20 million after tax.
Monsanto is a party to a number of lawsuits and claims relating to Solutia,
for which Solutia will assume responsibility in the Spinoff and which Solutia
intends to defend vigorously. Such matters arise out of the normal course of
business and relate to product liability, government regulation, including
environmental issues, and other issues. Certain of the lawsuits and claims seek
damages in very large amounts. Although the results of litigation cannot be
predicted with certainty, management's belief, based upon the advice of
Solutia's counsel, is that the final outcome of such litigation will not have a
material adverse effect on Solutia's combined financial position, profitability
or liquidity in any one year, as applicable.
14. SUPPLEMENTAL DATA
Supplemental income statement data were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Raw material and energy costs....................... $1,059 $ 929 $1,196
Employee compensation and benefits.................. 715 794 831
Current income and other taxes...................... 134 152 207
Rent expense........................................ 29 31 34
Technological expenses:
Research and development.......................... 81 77 76
Engineering, commercial development and patent.... 7 18 23
------ ------ ------
Total technological expenses........................ 88 95 99
Interest expense:
Total interest cost............................... 41 42 35
Less capitalized interest......................... (5) (6) (6)
------ ------ ------
NET INTEREST EXPENSE................................ 36 36 29
Currency losses including equity in affiliates'
currency gains and losses......................... 2 3 6
</TABLE>
15. SEGMENT AND GEOGRAPHIC DATA
Solutia is engaged in one industry segment - the production and marketing
of a range of high-performance chemical-based materials. Its products include a
range of performance materials, including nylon and acrylic fibers, Saflex(R)
plastic interlayer, phosphorus derivatives, and other specialty chemicals. The
markets served include automotive, housing, electronics and food. Solutia
F-19
<PAGE> 84
is a 50-50 partner in two key joint ventures, Flexsys, the rubber chemicals
joint venture, and the AES joint venture. Geographic data for Solutia follows:
<TABLE>
<CAPTION>
EUROPE- ASIA- LATIN ELIMINATIONS- COMBINED
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
1996.............. $2,355 $ 415 $ 67 $ 74 $ 66 -- $2,977
1995.............. 2,238 477 96 88 65 -- 2,964
1994.............. 2,288 515 121 96 77 -- 3,097
OPERATING INCOME
1996.............. $ 19 $ 28 $ 2 $ (2) (15) $ 1 $ 33
1995.............. 237 40 (26) 2 6 (1) 258
1994.............. 173 76 (5) 6 7 (1) 256
IDENTIFIABLE ASSETS
1996.............. $1,697 $ 303 $ 33 $ 27 $ 65 $ 358 $2,483
1995.............. 1,542 383 59 49 93 336 2,462
1994.............. 1,389 671 128 52 83 112 2,435
</TABLE>
The data above are prepared on an "entity basis," which means that net
sales, operating income and identifiable assets of each legal entity are
assigned to the geographic area where that legal entity is located. For example,
a sale from the United States to Latin America is reported as a U.S. export
sale. Interarea sales, which are sales between Solutia locations in different
world areas, were made on a market price basis.
Interarea sales have been excluded from the above table based upon the
world area shipped from and were:
<TABLE>
<CAPTION>
EUROPE- ASIA- LATIN ELIMINATIONS-
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996................. $ 204 $ 31 $ 8 $ 20 $ 2 $(265) $ --
1995................. 218 44 21 19 2 (304) --
1994................. 209 86 5 20 1 (321) --
</TABLE>
The operating income reported for the individual geographic areas does not
include the income recognized in other areas, principally the United States, on
the interarea sales. Direct export sales from the United States to third-party
customers outside the United States were $345 million for 1996, $331 million for
1995 and $274 million for 1994.
Sales and operating income for the geographic segments do not include
financial results from joint venture companies in which Solutia does not have
management control. Solutia's share of the income or loss of these companies is
reflected in "Other income (expense) -- net" in the Statement of Combined
Income. Solutia's share of the unconsolidated net sales and income or loss of
these companies for 1996 follows:
<TABLE>
<CAPTION>
CHEMICALS' SHARE
-----------------
NET INCOME
SALES (LOSS)
----- ------
<S> <C> <C>
United States............................................. $126 $ 14
Europe-Africa............................................. 268 (1)
Asia-Pacific.............................................. 25 --
Latin America............................................. 26 --
</TABLE>
F-20
<PAGE> 85
Geographic area operating income was affected by the 1996, 1995 and 1994
restructuring and other unusual items as follows -- income (expense):
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
United States........................................... $(187) $(13) $(50)
Europe-Africa........................................... (36) -- 15
Asia-Pacific............................................ (2) (33) (2)
Canada.................................................. (4) -- --
Latin America........................................... (19) -- 3
----- ---- ----
Total................................................. $(248) $(46) $(34)
====== ===== =====
</TABLE>
16. QUARTERLY DATA -- UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............................. 1996 $ 705 $ 749 $ 753 $ 770 $2,977
1995 802 756 705 701 2,964
Gross Profit.......................... 1996 160 175 200 117 652
1995 189 183 165 184 721
Operating Income (Loss)............... 1996 56 62 96 (181) 33
1995 85 71 73 29 258
Net Income (Loss)..................... 1996 36 47 61 (112) 32
1995 53 41 41 12 147
</TABLE>
Net income for the fourth quarter of 1996 included an aftertax charge of
$164 million for restructuring actions.
Net income in the first quarter of 1995 included an aftertax gain of $23
million for insurance-related settlement payments and an aftertax charge of $25
million for integration costs related to the formation of the Flexsys joint
venture.
In the third quarter of 1995, net income included an aftertax gain of $32
million for the receipt of settlement payments related to environmental
insurance litigation, and an aftertax charge of $25 million for the settlement
of a lawsuit related to a Superfund site in La Marque, Texas.
Net income for the fourth quarter of 1995 included an aftertax charge of
$57 million for restructuring actions.
F-21
<PAGE> 86
SOLUTIA, INC.
STATEMENT OF COMBINED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
NET SALES.............................................................. $1,489 $1,454
Cost of goods sold..................................................... 1,124 1,119
------ ------
GROSS PROFIT........................................................... 365 335
Marketing expenses..................................................... 71 85
Administrative expenses................................................ 63 86
Technological expenses................................................. 39 46
------ ------
OPERATING INCOME....................................................... 192 118
Interest expense....................................................... (21) (19)
Other income (expense) -- net.......................................... 22 23
------ ------
INCOME BEFORE INCOME TAXES............................................. 193 122
Income taxes........................................................... 66 39
------ ------
NET INCOME............................................................. $ 127 $ 83
====== ======
</TABLE>
See Notes to Interim Combined Financial Statements.
F-22
<PAGE> 87
SOLUTIA INC.
STATEMENT OF COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $8 in 1997 and $7 in
1996..................................................... $ 430 $ 412
Miscellaneous receivables and prepaid expenses.............. 108 80
Deferred income tax benefit................................. 110 108
Inventories................................................. 288 291
----------- ------------
TOTAL CURRENT ASSETS.......................................... 936 891
PROPERTY, PLANT AND EQUIPMENT:
Land.......................................................... 18 18
Buildings..................................................... 345 367
Machinery and equipment....................................... 2,654 2,622
Construction in progress...................................... 139 121
----------- ------------
Total property, plant and equipment...................... 3,156 3,128
Less accumulated depreciation ................................ 2,249 2,217
----------- ------------
NET PROPERTY, PLANT AND EQUIPMENT............................. 907 911
INVESTMENTS IN AFFILIATES..................................... 388 366
LONG-TERM DEFERRED INCOME TAX BENEFIT......................... 181 194
OTHER ASSETS.................................................. 117 121
----------- ------------
TOTAL ASSETS............................................. $ 2,529 $2,483
============ ==============
LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 191 $ 223
Wages and benefits.......................................... 63 156
Restructuring reserves...................................... 56 79
Miscellaneous accruals...................................... 301 312
----------- ------------
TOTAL CURRENT LIABILITIES..................................... 611 770
POSTRETIREMENT LIABILITIES.................................... 615 634
OTHER LIABILITIES............................................. 444 423
MONSANTO COMPANY EQUITY....................................... 859 656
----------- ------------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY............ $ 2,529 $2,483
============ ==============
</TABLE>
See Notes to Interim Combined Financial Statements.
F-23
<PAGE> 88
SOLUTIA INC.
STATEMENT OF COMBINED CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income.............................................................. $ 127 $ 83
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes.............................................. 11 34
Depreciation and amortization...................................... 67 82
Other.............................................................. (22) (15)
Working capital changes that provided (used) cash:
Accounts receivable................................................ (18) (61)
Inventories........................................................ 3 (8)
Accounts payable and accrued liabilities........................... (159) (76)
Other.............................................................. (28) 6
Other items........................................................... 41 (38)
----- -----
TOTAL CASH PROVIDED BY OPERATIONS....................................... 22 7
----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases................................. (64) (92)
Acquisition and investment payments..................................... -- (15)
----- -----
CASH USED IN INVESTING ACTIVITIES....................................... (64) (107)
----- -----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company.................................. 42 100
----- -----
CASH PROVIDED BY FINANCING ACTIVITIES................................... 42 100
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR....................................................... -- --
----- -----
END OF PERIOD........................................................... $ -- $ --
====== ======
</TABLE>
See Notes to Interim Combined Financial Statements.
F-24
<PAGE> 89
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1. BASIS OF PRESENTATION AND SUBSEQUENT EVENT
BASIS OF PRESENTATION
Solutia Inc., previously referred to as Chemicals SpinCo (the "Company" or
"Solutia"), is an international producer and marketer of a range of high
performance chemical-based materials which are used by its customers to make
consumer, household, automotive and industrial products. Prior to September 1,
1997, the businesses contributed to form the Company were wholly owned by
Monsanto Company ("Monsanto"). On September 1, 1997, Monsanto distributed all of
the outstanding shares of common stock of the Company as a dividend to Monsanto
shareowners (the "Spinoff"). The distribution resulted in the issuance of one
share of the Company's common stock for every five shares of Monsanto common
stock held of record as of August 20,1997. As a result of the Spinoff, the
Company became an independent publicly held company listed on the New York Stock
Exchange and its operations ceased to be owned by Monsanto. Monsanto and Solutia
have entered into a number of agreements with respect to the separation of the
companies and to provide mechanisms for an orderly transition following the
Spinoff. Descriptions of the various agreements are set forth under the caption
"Agreements with Monsanto."
The accompanying unaudited financial statements have been prepared on a
basis which reflects the historical financial statements of Solutia assuming
that the operations of Monsanto contributed to Solutia in the Spinoff were
organized as a separate legal entity, owning certain net assets of Monsanto.
These financial statements should be read in conjunction with the Basis of
Presentation and Significant Accounting Policies as set forth in Notes 1 and 2,
respectively, to the Combined Financial Statements of Solutia as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996. As indicated in Note 1 to the Combined Financial Statements of Solutia,
Monsanto provided certain general and administrative services to Solutia. The
cost for these services was allocated to Solutia based upon the net capital
employed in Solutia's operations, as well as other methods which management
believed to be reasonable. In preparation for the Spinoff, Monsanto began a
transition plan of separation. As part of this plan, Monsanto discontinued its
allocation of corporate expenses for those general and administrative services
on April 1, 1997 as these expenses were specifically identified and segregated
as part of Solutia's ongoing cost infrastructure.
The accompanying unaudited interim combined financial statements reflect
all adjustments which in the opinion of management are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods reported. Such adjustments, other than the adjustment described
in Notes 2, 6 and 7 below, are of a normal, recurring nature. The results of
operations for the six-month period ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
Historical earnings per share have not been presented as Solutia was wholly
owned by Monsanto for the periods presented.
SUBSEQUENT EVENT
On July 10, 1997, management approved the asset and liability allocation
which set forth the assets to be contributed to Solutia and the liabilities to
be assumed by Solutia in connection with the Spinoff. Included in those assets
and liabilities are the following material items which have not been included in
the accompanying Statement of Combined Financial Position: a joint venture
interest in
F-25
<PAGE> 90
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
Monsanto's elemental phosphorus business, cash of $75 million, debt of $1,029
million, accrued net pension liability for the U.S. defined benefit pension
plans, and additional obligations for healthcare and other post-retirement
benefits. The following unaudited pro forma amounts give effect to those items,
as well as certain other items, as set forth in the unaudited pro forma
condensed financial statements included in this Prospectus. The following
unaudited pro forma amounts are presented as if the Spinoff had occurred on June
30, 1997 and December 31, 1996, with respect to the unaudited pro forma
condensed Statements of Combined Financial Position amounts and as of January 1,
1997 and 1996 with respect to the unaudited pro forma condensed Statement of
Combined Income amounts for the six months ended June 30, 1997 and for the year
ended December 31, 1996, respectively.
Unaudited pro forma condensed Statements of Financial Position as of June
30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -----------------
<S> <C> <C>
Total Assets........................................... $ 2,718 $ 2,660
Long-term debt......................................... 1,029 1,029
Post-retirement liabilities............................ 918 876
Stockholders' Deficit.................................. (280) (439)
Total Liabilities and Stockholders' Deficit............ 2,718 2,660
</TABLE>
Unaudited pro forma Statements of Combined Income for the six months ended
June 30, 1997 and the year ended December 31, 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Income Before Income Taxes........... $ 154 $ 9
Net Income........................... 102 17
Earnings per Share................... $ 0.84 $0.14
</TABLE>
The effect of the employee benefits and compensation allocation agreement,
is an increase in the retiree medical and pensions costs allocation of $17 for
1996 in excess of the amounts allocated to Solutia in Solutia's historical
financial statements.
The pro forma information is presented for illustrative purposes only and
may not be indicative of the results that would have been obtained had the
transactions actually occurred on the dates assumed, nor is it necessarily
indicative of the future combined results of operations.
2. ACCOUNTING CHANGES
Effective January 1, 1997, Solutia adopted the American Institute of
Certified Public Accountants' Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Solutia's accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Solutia recorded an aftertax charge of $6 million in the first quarter of 1997.
Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related
F-26
<PAGE> 91
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
Information," which will be effective for the Company beginning January 1, 1998.
SFAS No. 131 redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about a company's
operating segments. The Company has not yet completed its analysis of how it
will apply this new standard.
3. INVENTORIES
The components of inventories as of June 30, 1997 and December 31, 1996
were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Finished goods..................................... $ 257 $ 258
Goods in process................................... 45 47
Raw materials and supplies......................... 136 126
-------- ------------
Inventories, at FIFO cost.......................... 438 431
Excess of FIFO over LIFO cost...................... (150) (140)
-------- ------------
Total.............................................. $ 288 $ 291
======== ==============
</TABLE>
4. INTERCOMPANY TRANSACTIONS
Included in the Statement of Combined Income are sales to Monsanto of $33
million and $30 million in 1997 and 1996, respectively. Such sales are made at
Monsanto's established transfer prices. In addition, Monsanto provided certain
general and administrative services to Solutia. The cost of these services, also
included in such statement are $12 million and $35 million in 1997 and 1996,
respectively. As further discussed in Note 1, Monsanto discontinued its
allocation of the cost of general and administrative expenses to Solutia,
effective April 1, 1997 as part of its transition plan of separation. Such
expenses were specifically identified and segregated as part of Solutia's on-
going cost infrastructure. Interest expense charged to Solutia represents an
allocation from Monsanto of its total interest expense. The allocated interest
expense to Solutia was $21 million and $19 million in 1997 and 1996,
respectively.
5. MONSANTO COMPANY EQUITY
The following is an analysis of Monsanto's investment in Solutia:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Balance at beginning of period........................................ $656
Net income............................................................ 127
Foreign currency translation adjustment............................... 34
Net transactions with Monsanto Company................................ 42
----
Balance at end of period.............................................. $859
=====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Solutia's Statement of Combined Financial Position included accrued
liabilities of $156 million and $150 million as of June 30, 1997 and December
31, 1996, respectively, for the remediation of identified waste disposal sites.
Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse
F-27
<PAGE> 92
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
change in Solutia's liquidity or financial position as reflected in Solutia's
historical financial statements, but they could have a material adverse effect
on profitability in a given period.
In June 1997, Monsanto reached a settlement with 811 plaintiffs in six
lawsuits related to the Brio Superfund site near Houston, Texas. The suits were
brought in Harris County District Court or the United States District Court for
the Southern District of Texas on behalf of 960 plaintiffs that claimed injuries
resulting from alleged exposure to substances present at or emanating from the
Brio site. As a result of this settlement, Solutia recorded a pretax charge of
$10 million ($6 million aftertax) in cost of goods sold in the Statement of
Combined Income during the second quarter of 1997. The settlement payment is
expected in the third quarter of 1997.
Monsanto is a party to a number of lawsuits and claims relating to Solutia,
for which Solutia assumed responsibility in the Spinoff and which Solutia
intends to defend vigorously. Such matters arise out of the normal course of
business and relate to product liability, government regulation, including
environmental issues, and other issues. Certain of the lawsuits and claims seek
damages in very large amounts. Although the results of litigation cannot be
predicted with certainty, management's belief, based upon the advice of
Solutia's counsel, is that the final outcome of such litigation will not have a
material adverse effect on Solutia's combined financial position, profitability
or liquidity in any one year, as applicable.
7. RESTRUCTURING RESERVES
During the second quarter of 1997, Solutia reversed approximately $8
million ($5 million aftertax) of excess restructuring reserves from prior years.
The excess was primarily due to lower exit costs associated with the sale and
closure of nonstrategic facilities included in 1995 restructuring actions.
8. FINANCING ARRANGEMENTS
Effective with the Spinoff on September 1, 1997, Solutia assumed
approximately $1.029 billion of debt from Monsanto, primarily assumable
commercial paper. The assumable commercial paper is guaranteed by Monsanto until
repaid or refinanced by Solutia at maturity, which is up to 30 days following
the Spinoff.
On August 14, 1997, Solutia entered into a total of $1.2 billion in
revolving credit facilities with a syndicate of banks to support its commercial
paper. The Credit Facilities are also available for working capital and other
general corporate purposes. These credit facilities consist of (i) an $800
million five-year revolving credit facility, and (ii) a $400 million 364-day
credit agreement. The interest rates under the Credit Facilities are based upon,
at the option of the Company, (i) the London interbank offered rate ("LIBOR") or
(ii) the Base Rate. The Base Rate shall at all times be equal to the highest of
(a) the prime rate of Citibank, N.A. ("Citibank"), (b) the federal funds rate
plus 0.5% or (c) the sum (adjusted to the nearest 1/16 of 1% or, if there is no
nearest 1/16 of 1%, to the next higher 1/16 of 1%) of (i) 0.5%, plus (ii) the
rate obtained by dividing (A) the latest three-week moving average of secondary
market morning offering rates in the United States for three-month certificates
of deposit of major United States money market banks, by (B) a percentage equal
to 100% minus the average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement for Citibank with respect to
liabilities consisting of or including (among other liabilities) three-month
U.S. dollar non-personal time deposits in the United States, plus (iii) the
average during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable by
Citibank to the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of Citibank in the United States.
F-28
<PAGE> 93
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
Interest rates based on LIBOR will be increased by a spread of between 13.5
and 22.5 basis points for the five-year revolving credit facility and 20.0 and
40.0 basis points for the 364-day revolving credit facility depending upon the
actual ratings (the "ratings") by two credit rating agencies of senior unsecured
long-term debt issued by the Company or, if there is no such debt, the
indicative rating of the Company by such rating agencies.
If the Company elects to borrow under either credit facility, the total
spread (including facilities fees) over LIBOR would be 32.5 basis points for
each credit facility.
The credit agreements contain various covenants, which among other things,
restrict the ability of Solutia to merge with another entity, to create liens
against assets, or to amend, cancel or terminate agreements entered into with
Monsanto to effect the Spinoff. These credit agreements also require Solutia to
meet certain leverage and interest coverage ratios.
Solutia plans to conduct a public offering of debt securities in the amount
of $600 million having maturities of 5 to 40 years. The proceeds of the offering
will be used to refinance a portion of its outstanding commercial paper as it
becomes due. The interest payable on such publicly offered securities will be
fixed and is expected to range from 6.5 percent to 7.5 percent. Subject to the
level of future cash flows, the Company intends to refinance the approximately
$429 million of remaining debt on a long-term basis.
F-29
<PAGE> 94
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreements, the Company has agreed to sell to each of the Underwriters named
below, and each of such Underwriters has severally agreed to purchase, the
principal amount of Securities set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES
UNDERWRITERS DUE 2002
----------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co.............................................. $
Chase Securities Inc. ...........................................
J.P. Morgan Securities Inc. .....................................
NationsBanc Montgomery Securities, Inc. .........................
---------
$
=========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF DEBENTURES
UNDERWRITERS DUE 2027
----------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co. ............................................ $
Salomon Brothers Inc.............................................
---------
$
=========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF DEBENTURES
UNDERWRITERS DUE 2037
----------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co.............................................. $
Chase Securities Inc. ...........................................
J.P. Morgan Securities Inc. .....................................
NationsBanc Montgomery Securities, Inc. .........................
---------
$
=========
</TABLE>
Under the terms and conditions of the relevant Underwriting Agreement, the
underwriters with respect to the Notes (the "Notes Underwriters") are committed
to take and pay for the Notes if any of the Notes are taken; the underwriters
with respect to the 2027 Debentures (the "2027 Debentures Underwriters") are
committed to take and pay for the 2027 Debentures if any of the 2027 Debentures
are taken; and the underwriters with respect to the 2037 Debentures (the "2037
Debentures Underwriters" and, together with the Notes Underwriters and the 2027
Debentures Underwriters, the "Underwriters") are committed to take and pay for
the 2037 Debentures if any of the 2037 Debentures are taken.
The Notes Underwriters propose to offer and sell the Notes in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of % of the principal amount of the Notes. The Notes Underwriters
may allow, and such dealers may reallow, a concession not to exceed % of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Notes Underwriters.
The 2027 Debentures Underwriters propose to offer and sell the 2027
Debentures in part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of % of the principal amount of the
2027 Debentures. The 2027 Debentures Underwriters may allow, and such dealers
may reallow, a concession not to exceed % of the principal amount of the 2027
Debentures to certain brokers and dealers. After the 2027 Debentures are
released for sale to the public, the
U-1
<PAGE> 95
offering price and other selling terms may from time to time be varied by the
2027 Debentures Underwriters.
The 2037 Debentures Underwriters propose to offer and sell the 2037
Debentures in part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of % of the principal amount of the
2037 Debentures. The 2037 Debentures Underwriters may allow, and such dealers
may reallow, a concession not to exceed % of the principal amount of the 2037
Debentures to certain brokers and dealers. After the 2037 Debentures are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the 2037 Debentures Underwriters.
The Securities are new issues with no established trading market. The
Company has been advised by each of the Underwriters that each such Underwriter
intends to make a market in the Securities but is not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Securities. The Securities
will not be listed on any securities exchange.
In connection with the Offerings, the Underwriters may purchase and sell
the Securities in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover short positions created by
the Underwriters in connection with the Offerings. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Securities. Short positions created by the
Underwriters involve the sale by the Underwriters of a greater amount of the
Securities than they are required to purchase from the Company in the Offerings.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the Securities sold in the Offerings may
be reclaimed by the Underwriters if such Securities are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Securities,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be affected in the over-the-counter market or otherwise.
The Company maintains bank accounts, borrows money and has customary
banking relationships with affiliates of Chase Securities Inc., J.P. Morgan
Securities Inc. and NationsBanc Montgomery Securities, Inc. in the ordinary
course of business. An affiliate of each of Chase Securities Inc., J.P. Morgan
Securities Inc. and NationsBanc Montgomery Securities, Inc. is a party to the
Company's Credit Facilities.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment or commercial banking services to Monsanto
and/or the Company and their respective affiliates, for which such Underwriters
have received and will receive customary fees and commissions. In September 1997
the Company entered into interest rate swaps with certain financial
institutions, including Goldman Sachs & Co. See Note F to the Company's Pro
Forma Condensed Combined Financial Statements.
In addition, The Chase Manhattan Bank, an affiliate of Chase Securities
Inc., will serve as Trustee under the Indenture.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE> 96
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 8
Ratio of Earnings to Fixed Charges..... 11
The Company............................ 12
Recent Developments.................... 12
Use of Proceeds........................ 12
Capitalization......................... 13
Selected Historical Financial Data..... 14
Unaudited Pro Forma Condensed Combined
Financial Statements................. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business and Properties................ 27
Agreements with Monsanto............... 37
Management............................. 42
Security Ownership of Management and
Certain Beneficial Owners of Company
Common Stock......................... 52
Other Indebtedness of the Company...... 54
Description of the Securities.......... 55
Validity of Securities................. 63
Experts................................ 63
Index to Financial Statements.......... F-1
Underwriting........................... U-1
</TABLE>
======================================================
======================================================
$600,000,000
SOLUTIA INC.
------------------
[SOLUTIA LOGO]
------------------
$150,000,000 % NOTES
DUE 2002
$150,000,000 % DEBENTURES
DUE 2037
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY
SECURITIES, INC.
$300,000,000 % DEBENTURES
DUE 2027
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
======================================================
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
An itemized statement of the estimated amount of all expenses in connection
with the distribution of the securities registered hereby is as follows:
<TABLE>
<S> <C>
Registration fee......................................................... $181,819
Blue Sky fees and expenses............................................... 5,000
Printing expenses........................................................ 200,000
Legal fees and expenses.................................................. 125,000
Accounting fees and expenses............................................. 37,000
Rating agency fees....................................................... 340,000
Trustee's fees and expenses.............................................. 20,000
Miscellaneous fees and expenses.......................................... 25,181
--------
Total............................................................... $934,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law"), inter alia, empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fees and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Similar indemnification is authorized for such persons
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of any such threatened, pending or
completed action or suit if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors or by independent legal counsel in a written opinion that
indemnification is proper because the indemnitee has met the applicable standard
of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145. The Company
maintains policies insuring the Company's officers and directors against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
Article IX of the Restated Certificate of Incorporation of the Company
provides as follows:
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any
II-1
<PAGE> 98
breach of the director's duty of loyalty to the Corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) under Section 174 of the General
Corporation Law of the State of Delaware, or (4) for any transaction from which
the director derived an improper personal benefit. Any amendment or repeal of
this Article IX shall not adversely affect any right or protection of a director
of the Corporation existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
Article VIII of the Restated Certificate of Incorporation of the Company
provides as follows:
Each person who is or was a director or officer of the Corporation, or each
such person who is or was serving or who has agreed to serve at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
the heirs, executor, administrators or estate of such person), shall be
indemnified by the Corporation to the fullest extent permitted from time to time
by the General Corporation Law of the State of Delaware as the same exists or
may hereafter be amended (but, if permitted by applicable law, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) or any other applicable laws
as presently or hereafter in effect. The Corporation may, by action of the Board
of Directors, provide indemnification to employees and agents of the
Corporation, and to any such persons serving as directors, officers, employees
or agents of another corporation, partnership, joint venture, trust or other
enterprise, at the request of the Corporation, with the same scope and effect as
the foregoing indemnification of directors and officers. The Corporation shall
be required to indemnify any person seeking indemnification in connection with
any action, suit, or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding")(or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors or is
a proceeding to enforce such person's claim to indemnification pursuant to the
rights granted by this Certificate of Incorporation or otherwise by the
Corporation. Without limiting the generality or the effect of the foregoing, the
Corporation may enter into one or more agreements with any person which provide
for indemnification greater than or different from that provided in this Article
VIII. Any amendment or repeal of this Article VIII shall not adversely affect
any right or protection existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
The registrant provides and maintains insurance covering certain
liabilities (within certain limits) of directors and officers and providing for
reimbursement for amounts paid by the registrant as indemnification to directors
and officers. The policies provide for payment of covered losses in excess of
certain retention amounts.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 28, 1997, the Company issued 10 shares of its common stock to
Monsanto, its direct parent, for consideration of $1,000. In the opinion of the
Company, this transaction is exempt from registration under the Securities Act
of 1933, as amended, by virtue of Section 4(2) thereof in that such transaction
did not involve any public offering.
In the Spinoff, on September 1, 1997, 118,371,271 shares of Company Common
Stock were distributed as a dividend to the holders of Monsanto Common Stock on
a one-for-five basis. No consideration was paid by the holders of Monsanto
Common Stock in connection with the Spinoff. By letter dated July 11, 1997, the
Division of Corporation Finance of the Commission indicated that it would not
recommend any enforcement action if the Company Common Stock was distributed to
the Monsanto shareholders without registration under the Securities Act.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
1(a) Form of Underwriting Agreement relating to the Notes and the 2037 Debentures*
1(b) Form of Underwriting Agreement relating to the 2027 Debentures*
2 Distribution Agreement**
3(a) Restated Certificate of Incorporation of the Company**
3(b) By-Laws of the Company**
4(a) Rights Agreement (incorporated by reference to Exhibit 4 of the Company's
Registration Statement on Form 10 filed on August 7, 1997 (the "Form 10"))
4(b) Form of Indenture
4(c) Form of Note
4(d) Form of 2027 Debenture
4(e) Form of 2037 Debenture
5 Opinion of Karl R. Barnickol, General Counsel of the Company regarding legality of
the Securities**
10(a) Employee Benefits Allocation Agreement**
10(b) Tax Sharing and Indemnification Agreement**
10(c) Solutia Inc. Management Incentive Replacement Plan**
10(d) Solutia Inc. 1997 Stock-Based Incentive Plan**
10(e) Solutia Inc. Non-Employee Director Compensation Plan**
10(f) $800,000,000 Credit Agreement, dated as of August 14, 1997, among Solutia Inc., the
initial lenders named therein, Bank of America National Trust and Savings
Association ("Bank of America") and Citibank, N.A. ("Citibank")**
10(g) $400,000,000 Credit Agreement, dated as of August 14, 1997, among Solutia Inc., the
initial lenders named therein, Bank of America and Citibank**
10(h) Form of Employment Agreement with Named Executive Officers**
10(i) Form of Employment Agreement with other executive officers**
12 Computation of ratio of earnings to fixed charges**
21 Subsidiaries of the Company
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Karl R. Barnickol, General Counsel of the Company (included in Exhibit 5
above)**
24(a) Powers of Attorney**
25 Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank,
as Trustee under the Indenture**
27 Financial Data Schedule**
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
II-3
<PAGE> 100
(b) FINANCIAL STATEMENT SCHEDULES:
The following supplemental schedule for the years ended December 31, 1996,
1995 and 1994 is filed with this Registration Statement:
Schedule II. Valuation and Qualifying Accounts
All other supplemental schedules are omitted because of the absence of the
conditions under which they are required.
REPORT OF INDEPENDENT AUDITORS
To the stockholders of Solutia Inc.:
We have audited the combined financial statements of Solutia Inc.,
previously referred to as "Chemicals SpinCo" (as described in Note 1 to the
combined financial statements), as of December 31, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated May 1, 1997, except for the first and second paragraphs and
the Subsequent Event section of Note 1, as to which the date is September 1,
1997; such financial statements and report appear in the Prospectus, which is
part of the Registration Statement. Our audits also included the financial
statement schedule of Solutia Inc., appearing elsewhere in the Registration
Statement. This financial statement schedule is the responsibility of the
company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information shown therein.
/S/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
May 1, 1997, except for the
first and second paragraphs
and the Subsequent Event
section of Note 1, as to which
the date is September 1, 1997
II-4
<PAGE> 101
SCHEDULE II
SOLUTIA INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ---------- COLUMN E
---------- ADDITIONS ----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- ---------------------------------------- BEGINNING COSTS AND ---------- END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Reserves deducted from related assets
in the Statement Of Combined
Financial Position:
Valuation accounts, principally for
doubtful receivables and returns
and allowances................... $ 7 $ 2 -- $ 9
----- ----- ----- -----
Year Ended December 31, 1995:
Reserves deducted from related assets
in the Statement Of Combined
Financial Position:
Valuation accounts, principally for
doubtful receivables and returns
and allowances................... $ 16 $ (2) $ 7 $ 7
----- ----- ----- -----
Year Ended December 31, 1994:
Reserves deducted from related assets
in the Statement Of Combined
Financial Position:
Valuation accounts, principally for
doubtful receivables and returns
and allowances................... $ 22 $ (3) $ 3 $ 16
----- ----- ----- -----
</TABLE>
II-5
<PAGE> 102
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Louis, State of Missouri, on October 6, 1997.
SOLUTIA INC.
By: /s/ ROBERT A. CLAUSEN
-----------------------------------
Robert A. Clausen
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to its registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------ ----------------
<S> <C> <C>
* Chairman, Chief Executive Officer and October 6, 1997
- ----------------------------------------- Director (Principal Executive Officer)
Robert G. Potter
* President and Director October 6, 1997
- -----------------------------------------
John C. Hunter III
/s/ ROBERT A. CLAUSEN Senior Vice President and Chief Financial October 6, 1997
- ----------------------------------------- Officer (Principal Financial Officer)
Robert A. Clausen
* Vice President and Controller (Principal October 6, 1997
- ----------------------------------------- Accounting Officer)
Roger S. Hoard
* Director October 6, 1997
- -----------------------------------------
Robert T. Blakely
* Director October 6, 1997
- -----------------------------------------
Joan T. Bok
* Director October 6, 1997
- -----------------------------------------
Paul H. Hatfield
* Director October 6, 1997
- -----------------------------------------
Robert H. Jenkins
* Director October 6, 1997
- -----------------------------------------
Howard M. Love
* Director October 6, 1997
- -----------------------------------------
Frank A. Metz
* Director October 6, 1997
- -----------------------------------------
William D. Ruckelshaus
* Director October 6, 1997
- -----------------------------------------
John B. Slaughter
</TABLE>
* Karl R. Barnickol, by signing his name hereto, does sign this document on
behalf of the above noted individuals, pursuant to powers of attorney duly
executed by such individuals which have been filed as an Exhibit to this
Registration Statement.
/s/ KARL R. BARNICKOL
--------------------------------------
Name: Karl R. Barnickol
Attorney-in-fact
II-7
<PAGE> 1
EXHIBIT 4(B)
================================================================================
Form of Indenture
SOLUTIA INC.
TO
THE CHASE MANHATTAN BANK
AS TRUSTEE
------------------------
INDENTURE
DATED AS OF OCTOBER 1, 1997
================================================================================
<PAGE> 2
SOLUTIA INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND
INDENTURE, DATED AS OF OCTOBER 1, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- --------------------
<C> <S> <C> <C>
Section 310(a) (1) ....................................................... 609
(a) (2) ....................................................... 609
(a) (3) ....................................................... Not Applicable
(a) (4) ....................................................... Not Applicable
(b) ....................................................... 608
610
Section 311(a) ....................................................... 613
(b) ....................................................... 613
Section 312(a) ....................................................... 701
702
(b) ....................................................... 702
(c) ....................................................... 702
Section 313(a) ....................................................... 703
(b) ....................................................... 703
(c) ....................................................... 703
(d) ....................................................... 703
Section 314(a) ....................................................... 704
(a) (4) ....................................................... 1006
(b) ....................................................... Not Applicable
(c) (1) ....................................................... 102
(c) (2) ....................................................... 102
(c) (3) ....................................................... Not Applicable
(d) ....................................................... Not Applicable
(e) ....................................................... 102
Section 315(a) ....................................................... 601, 603
(b) ....................................................... 602
703
(c) ....................................................... 601
(d) ....................................................... 601
(d) (1) ....................................................... 601, 603
(d) (2) ....................................................... 601
(d) (3) ....................................................... 601
(e) ....................................................... 514
Section 316(a) (1)(A) ....................................................... 502
512
(a) (1)(B) ....................................................... 513
(a) (2) ....................................................... Not Applicable
(b) ....................................................... 507, 508
(c) ....................................................... 301
307
Section 317(a) (1) ....................................................... 503
(a) (2) ....................................................... 504
(b) ....................................................... 1003
Section 318(a) ....................................................... 107
</TABLE>
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PARTIES................................................................................ 1
Recitals of the Company................................................................ 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions........................................................ 1
Act................................................................ 1
Affiliate; control................................................. 1
Attributable Debt.................................................. 1
Authenticating Agent............................................... 2
Board of Directors................................................. 2
Board Resolution................................................... 2
Business Day....................................................... 2
Commission......................................................... 2
Company............................................................ 2
Company Request; Company Order..................................... 2
Consolidated Net Tangible Assets................................... 2
Corporate Trust Office............................................. 2
corporation........................................................ 2
Defaulted Interest................................................. 2
Depositary......................................................... 2
Event of Default................................................... 2
Foreign Currency................................................... 3
Foreign Government Securities...................................... 3
Funded Debt........................................................ 3
Global Security or Global Securities............................... 3
Holder............................................................. 3
Indenture.......................................................... 3
Industrial Development Bonds....................................... 3
Interest........................................................... 3
Interest Payment Date.............................................. 3
Maturity........................................................... 3
Officers' Certificate.............................................. 3
Opinion of Counsel................................................. 3
Original Issue Discount Security................................... 4
Outstanding........................................................ 4
Paying Agent....................................................... 4
Person............................................................. 4
Place of Payment................................................... 4
Predecessor Security............................................... 5
Principal Property................................................. 5
Redemption Date.................................................... 5
Redemption Price................................................... 5
Regular Record Date................................................ 5
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
i
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Responsible Officer................................................ 5
Restricted Subsidiary.............................................. 5
Securities......................................................... 5
Security Register and Security Registrar........................... 6
Special Record Date................................................ 6
Stated Maturity.................................................... 6
Subsidiary......................................................... 6
Trustee............................................................ 6
Trust Indenture Act................................................ 6
U.S. Government Obligations........................................ 6
United States...................................................... 6
Vice President..................................................... 6
Voting Shares...................................................... 6
SECTION 102. Compliance Certificates and Opinions............................... 6
SECTION 103. Form of Documents Delivered to Trustee............................. 7
SECTION 104. Acts of Holders.................................................... 7
SECTION 105. Notices, Etc., to Trustee and Company.............................. 8
SECTION 106. Notice to Holders; Waiver.......................................... 8
SECTION 107. Conflict with Trust Indenture Act.................................. 8
SECTION 108. Effect of Headings and Table of Contents........................... 8
SECTION 109. Successors and Assigns............................................. 9
SECTION 110. Separability Clause................................................ 9
SECTION 111. Benefits of Indenture.............................................. 9
SECTION 112. Governing Law...................................................... 9
SECTION 113. Legal Holidays..................................................... 9
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.................................................... 9
SECTION 202. Form of Face of Security........................................... 10
SECTION 203. Form of Reverse of Security........................................ 11
SECTION 204. Additional Provisions Required in Global Security.................. 14
SECTION 205. Form of Trustee's Certificate of Authentication.................... 15
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series............................... 15
SECTION 302. Denominations...................................................... 17
SECTION 303. Execution, Authentication, Delivery and Dating..................... 17
SECTION 304. Temporary Securities............................................... 18
SECTION 305. Registration, Registration of Transfer and Exchange................ 19
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities................... 20
SECTION 307. Payment of Interest; Interest Rights Preserved..................... 20
SECTION 308. Persons Deemed Owners.............................................. 21
SECTION 309. Cancellation....................................................... 21
SECTION 310. Computation of Interest............................................ 21
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............................ 22
SECTION 402. Application of Trust Money; Indemnification........................ 22
SECTION 403. Satisfaction, Discharge and Defeasance of Securities of any
Series............................................................. 23
SECTION 404. Reinstatement...................................................... 24
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.................................................. 25
SECTION 502. Acceleration of Maturity; Rescission and Annulment................. 26
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.... 27
SECTION 504. Trustee May File Proofs of Claim................................... 28
SECTION 505. Trustee May Enforce Claims Without Possession of Securities........ 28
SECTION 506. Application of Money Collected..................................... 28
SECTION 507. Limitation on Suits................................................ 29
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest........................................................... 29
SECTION 509. Restoration of Rights and Remedies................................. 29
SECTION 510. Rights and Remedies Cumulative..................................... 29
SECTION 511. Delay or Omission Not Waiver....................................... 30
SECTION 512. Control by Holders................................................. 30
SECTION 513. Waiver of Past Defaults............................................ 30
SECTION 514. Undertaking for Costs.............................................. 31
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities................................ 31
SECTION 602. Notice of Defaults................................................. 31
SECTION 603. Certain Rights of Trustee.......................................... 31
SECTION 604. Not Responsible for Recitals or Issuance of Securities............. 32
SECTION 605. May Hold Securities................................................ 32
SECTION 606. Money Held in Trust................................................ 33
SECTION 607. Compensation and Reimbursement..................................... 33
SECTION 608. Disqualification; Conflicting Interests............................ 33
SECTION 609. Corporate Trustee Required; Eligibility............................ 33
SECTION 610. Resignation and Removal; Appointment of Successor.................. 34
SECTION 611. Acceptance of Appointment by Successor............................. 35
SECTION 612. Merger, Conversion, Consolidation or Succession to Business........ 36
SECTION 613. Preferential Collection of Claims Against Company.................. 36
SECTION 614. Appointment of Authenticating Agent................................ 36
SECTION 615. Investment of Certain Payments Held by the Trustee................. 37
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.......... 38
SECTION 702. Preservation of Information; Communications to Holders............. 38
SECTION 703. Reports by Trustee................................................. 38
SECTION 704. Reports by Company................................................. 38
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms............... 39
SECTION 802. Securities to be Secured in Certain Events......................... 39
SECTION 803. Successor Substituted.............................................. 39
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders................. 40
SECTION 902. Supplemental Indentures with Consent of Holders.................... 41
SECTION 903. Execution of Supplemental Indentures............................... 41
SECTION 904. Effect of Supplemental Indentures.................................. 42
SECTION 905. Conformity with Trust Indenture Act................................ 42
SECTION 906. Reference in Securities to Supplemental Indentures................. 42
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest......................... 42
SECTION 1002. Maintenance of Office or Agency.................................... 42
SECTION 1003. Money for Securities Payments to Be Held in Trust.................. 43
SECTION 1004. Payment of Taxes and Other Claims.................................. 44
SECTION 1005. Maintenance of Principal Properties................................ 44
SECTION 1006. Statement as to Default............................................ 44
SECTION 1007. Corporate Existence................................................ 44
SECTION 1008. Limitation upon Liens.............................................. 44
SECTION 1009. Limitation upon Sales and Leasebacks............................... 46
SECTION 1010. Defeasance of Certain Obligations.................................. 47
SECTION 1011. Waiver of Certain Covenants........................................ 48
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article........................................... 49
SECTION 1102. Election to Redeem; Notice to Trustee.............................. 49
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.................. 49
SECTION 1104. Notice of Redemption............................................... 49
SECTION 1105. Deposit of Redemption Price........................................ 50
</TABLE>
iv
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1106. Securities Payable on Redemption Date.............................. 50
SECTION 1107. Securities Redeemed in Part........................................ 50
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article........................................... 51
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.............. 51
SECTION 1203. Redemption of Securities for Sinking Fund.......................... 51
ARTICLE THIRTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
SECTION 1301. Exemption from Individual Liability................................ 51
TESTIMONIUM............................................................................ 52
SIGNATURES AND SEALS................................................................... 52
ACKNOWLEDGMENTS........................................................................ 53
</TABLE>
v
<PAGE> 8
INDENTURE, dated as of October 1, 1997 between SOLUTIA INC., a corporation
duly organized and existing under the laws of the State of Delaware (herein
called the "Company"), having its principal office at P.O. Box 66760, 10030
Olive Boulevard, St. Louis, Missouri 63166-6760, and THE CHASE MANHATTAN BANK, a
corporation organized and operating under the laws of the State of New York, as
Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTUREE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" means, as of any date upon which a determination of the
amount thereof shall be computed, an amount determined by multiplying the
greater, at the time a sale and leaseback transaction was entered into, of (i)
the fair value of the real property subject to such arrangement (as determined
by the Company) or (ii) the net proceeds of the sale of such real property to
the lender or investor, by a fraction of which the numerator shall be the
unexpired initial
<PAGE> 9
term of the lease of such real property as of the date of determination of such
computation and of which the denominator shall be the full initial term of such
lease. Attributable Debt shall not include any such arrangement involving
Industrial Development Bonds.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Securities of one or more series pursuant
to Section 614.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
to close, unless otherwise specified in or pursuant to a Board Resolution or in
one or more indentures supplemental hereto.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" and "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chairman or Vice Chairman of
the Board, the President or a Vice President of the Company, and also by the
Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(less applicable reserves and other properly deductible items) after deducting
therefrom (a) all current liabilities (excluding any thereof constituting Funded
Debt by reason of being renewable or extendible) and (b) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent balance sheet of the Company
and its consolidated subsidiaries and computed in accordance with generally
accepted accounting principles.
"Corporate Trust Office" means the office of the Trustee for Securities of
any series at which at any particular time its corporate trust business shall be
principally administered, which office of THE CHASE MANHATTAN BANK, at the date
of the execution of this Indenture is located at 450 West 33rd Street, New York,
New York 10001.
"corporation" includes corporations, associations, companies, joint stock
companies, limited liability companies, and business trusts.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depositary for such series by the Company pursuant to
Section 301, which Person shall be a clearing agency registered under the
Securities Exchange Act of 1934, as amended; and if at any time there is more
than one such Person, 'Depositary' as used with respect to the Securities of any
series shall mean the Depositary with respect to the Securities of such series.
"Event of Default" has the meaning specified in Section 501.
2
<PAGE> 10
"Foreign Currency" means a currency or cash issued by the government of any
country other than the United States of America or units based on or relating to
such currencies (including European Currency Units) (such units, including
European Currency Units, being hereinafter referred to as 'composite currencies'
or 'basket currencies').
"Foreign Government Securities" means, with respect to Securities of any
series that are denominated in a Foreign Currency, noncallable (i) direct
obligations of the government that issued such Foreign Currency for the payment
of which obligations its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of such government, the payment of which obligations is unconditionally
guaranteed as a full faith and credit obligation of such government.
"Funded Debt" means all indebtedness for money borrowed, or evidenced by a
bond, debenture, note or similar instrument or agreement whether or not for
money borrowed, having a maturity of more than 12 months from the date as of
which the amount thereof is to be determined or having a maturity of less than
12 months but by its terms being renewable or extendible beyond 12 months from
such date at the option of the borrower, provided that the definition of Funded
Debt shall be deemed to include any commercial paper of the Company which is
accounted for as long-term debt on the Company's balance sheet.
"Global Security" or "Global Securities" means a Security or Securities, as
the case may be, bearing the legend set forth in Section 204 (or such legend as
may be specified as contemplated by Section 301 for such Securities) evidencing
all or part of a series of Securities, issued to the Depositary for such series
or its nominee, and registered in the name of such Depositary or nominee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular series of Securities
established in or pursuant to a Board Resolution as contemplated by Section 301.
"Industrial Development Bonds" means obligations issued or guaranteed by,
or supported by the full faith and credit of, a State, a Commonwealth, a
Territory, or a possession of the United States of America, or any political
subdivision or governmental authority of any of the foregoing, or the District
of Columbia.
"interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an instalment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate, complying with the provisions
of Section 102, signed by the Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company including employees of the Company, and who shall be acceptable
to the Trustee, which shall comply with the provisions of Section 102.
3
<PAGE> 11
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been defeased pursuant to Section 403
hereof; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502, (B)
if, as of such date, the principal amount payable at the Stated Maturity of a
Security is not determinable, the principal amount of such Security which shall
be deemed to be Outstanding shall be the amount as specified or determined as
contemplated by Section 301, (C) the principal amount of a Security denominated
in one or more foreign currencies or currency units which shall be deemed to be
Outstanding shall be the U.S. dollar equivalent, determined as of such date in
the manner provided as contemplated by Section 301, of the principal amount of
such Security (or, in the case of a Security described in Clause (A) or (B)
above, of the amount determined as provided in such Clause), and (D) Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any other obligor
upon the Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment", when used with respect to the Securities of any series,
means the place or places where the principal of (and premium, if any) and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
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<PAGE> 12
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means any building, structure or other facility,
together with the land upon which it is erected and fixtures comprising a part
thereof, used primarily for manufacturing and located in the United States, the
gross book value (without deduction of any reserve for depreciation) of which on
the date as of which the determination is being made is an amount which exceeds
3% of Consolidated Net Tangible Assets, other than any such building, structure
or other facility or any portion thereof or any such fixture (together with the
land upon which it is erected and fixtures comprising a part thereof) (i) which
is financed by Industrial Development Bonds or (ii) which, in the opinion of the
Board of Directors of the Company, is not of material importance to the total
business conducted by the Company and its Restricted Subsidiaries taken as a
whole.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 301.
"Responsible Officer" when used with respect to the Trustee shall mean any
officer in the corporate trust department (or any successor group) of the
Trustee including any vice president, assistant vice president, assistant
secretary, or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Corporate Trust Office because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means as of the date of determination a Subsidiary
(a) more than 50% of whose operating revenues and net sales during the four
preceding calendar quarters, if any, were derived in or more than 50% of whose
operating properties are located in the United States, (b) more than 50% of
whose assets consist of securities of other Restricted Subsidiaries, or (c)
which owns any Principal Property; provided, however, that the term "Restricted
Subsidiary" shall not include any Subsidiary (i) more than 80% of whose revenues
during the four preceding calendar quarters, if any, were derived from, and more
than 80% of whose assets are related to, the financing of foreign subsidiaries,
or the financing of sales or leasing to Persons other than the Company or any
other Restricted Subsidiary, (ii) which is primarily engaged in holding or
developing real estate or constructing buildings or designing, constructing or
otherwise manufacturing structures, equipment, systems, machines, devices or
facilities for the control or abatement of atmospheric pollutants or
contaminants, water pollution, noise, odor or other pollution or waste disposal,
(iii) which is a bank, insurance company or finance company, (iv) which is or
was a "DISC" (Domestic International Sales Corporation) or a "FSC" (Foreign
Sales Corporation), as defined in Sections 992 or 922, respectively, of the
Internal Revenue Code of 1986, as amended, or which receives similar tax
treatment under any subsequent amendments thereto or successor laws thereof or
(v) which is any other financial entity whose accounts as of the date of
determination are not required to be consolidated with the accounts of the
Company in its audited consolidated financial statements (but such Subsidiary
shall be excluded pursuant to any of clauses (i) through (v) of this proviso
only so long as it shall not own any Principal Property).
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
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<PAGE> 13
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any instalment
of principal thereof or interest thereon, means the date specified in such
Security as the fixed date on which the principal of such Security or such
instalment of principal or interest is due and payable.
"Subsidiary" means any corporation at least a majority of the Voting Shares
of which is at the time owned directly or indirectly by the Company or by one or
more Subsidiaries of the Company, or by the Company and by one or more
Subsidiaries of the Company.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed except as provided in Section
905; provided, however, that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"U.S. Government Obligations" means direct obligations of the United States
for the payment of which its full faith and credit is pledged, or obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States and the payment of which is unconditionally guaranteed by
the United States.
"United States" means the United States of America excluding its
territories and possessions, but including the Commonwealth of Puerto Rico.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Shares" means outstanding shares of capital stock having voting
power for the election of directors, whether at all times or only so long as no
senior class of stock has such voting power because of default in dividends or
other default.
SECTION 102. Compliance Certificates and Opinions.
Except as otherwise expressly provided by this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act. Each
such certificate or opinion shall be given in the form of an Officers'
Certificate, if to be given by an officer of the Company, or an Opinion of
Counsel, if to be given by counsel, and shall comply with the requirements of
the Trust Indenture Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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<PAGE> 14
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Any certificate or opinion of any independent firm of public accountants
filed with the Trustee shall contain a statement that such firm is independent.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Indenture to be given, made or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient and in accordance with such
reasonable rules as the Trustee may determine.
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<PAGE> 15
(c) The ownership of Securities shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, by registered mail, postage prepaid, to the Company,
to the attention of the Treasurer, addressed to it at the address of its
principal office specified in the first paragraph of this instrument or at
any other address previously furnished in writing to the Trustee by the
Company for this purpose.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
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<PAGE> 16
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent the application of the
laws of another jurisdiction would be required thereby.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
The Trustee's certificates of authentication shall be in substantially the
form set forth in this Article.
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<PAGE> 17
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
SECTION 202. Form of Face of Security.
[Insert any legend required by the Internal Revenue Code and the
regulations thereunder.]
SOLUTIA INC.
NO. $
SOLUTIA INC., a Delaware corporation (hereinafter called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ______________ or
registered assigns, the principal sum of _______ Dollars on __________ [If the
Security is to bear interest prior to Maturity, [INSERT--,] and to pay interest
thereon from __________ or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on __________ and
__________ in each year, commencing __________ , at the rate of _ % per
annum, until the principal hereof is paid or made available for payment [If
applicable [INSERT--,] and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of % per annum on any overdue
principal and premium]. [The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the __________ or __________ (whether or not
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture].
[If the Security is not to bear interest prior to Maturity, [INSERT--] The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal and any overdue premium shall
bear interest at the rate of _ % per annum (to the extent that the payment of
such interest shall be legally enforceable), which shall accrue from the date of
such default in payment to the date payment of such principal has been made or
duly provided for. Interest on any overdue principal or premium shall be payable
on demand.]
Payment of the principal of (and premium, if any) and [if applicable,
[INSERT--] any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in __________ , in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts [if applicable, [INSERT--];
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or by wire transfer].
10
<PAGE> 18
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SOLUTIA INC.
BY
------------------------------------
ATTEST:
- ---------------------------------------------------------
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of October __________ , 1997 (herein called
the "Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof [, limited in aggregate principal amount to
$ ].
[If applicable, [INSERT--] The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, [if applicable,
[INSERT--] (1) on __________ in any year commencing with the year ___ and
ending with the year ___ through operation of the sinking fund for this series
at a Redemption Price equal to 100% of the principal amount, and (2)] at any
time [on or after _______ , 20 ], as a whole or in part, at the election of
the Company], at the following Redemption Prices (expressed as percentages of
the principal amount): If redeemed [on or before
__________ , _ %, and if redeemed] during the 12-month period beginning
__________ of the years indicated,
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
- ----- ---------- ---- ----------
<S> <C> <C> <C>
</TABLE>
11
<PAGE> 19
and thereafter at a Redemption Price equal to _ % of the principal amount,
together in the case of any such redemption [if applicable, [INSERT--] (whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest instalments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
[If applicable, [INSERT--] The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, (1) on __________ in any
year commencing with the year ___ and ending with the year ___ through ___
operation of the sinking fund for this series at the Redemption Prices for
redemption through operation of the sinking fund (expressed as percentages of
the principal amount) set forth in the table below, and (2) at any time [on or
after __________ ], as a whole or in part, at the election of the Company, at
the Redemption Prices for redemption otherwise than through operation of the
sinking fund (expressed as percentages of the principal amount) set forth in the
table below: If redeemed during the 12-month period beginning __________ of the
years indicated,
<TABLE>
<CAPTION>
REDEMPTION PRICE
FOR REDEMPTION
THROUGH REDEMPTION PRICE FOR
OPERATION REDEMPTION OTHERWISE
OF THE SINKING THAN THROUGH OPERATION
YEAR FUND OF THE SINKING FUND
------------------------------------ ---------------- ----------------------
<S> <C> <C>
</TABLE>
and thereafter at a Redemption Price equal to _ % of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest instalments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]
[Notwithstanding the foregoing, the Company may not, prior to __________ ,
redeem any Securities of this series as contemplated by [Clause (2) of] the
preceding paragraph as a part of, or in anticipation of, any refunding operation
by the application, directly or indirectly, of moneys borrowed having an
interest cost to the Company (calculated in accordance with generally accepted
financial practice) of less than _ % per annum [; provided, however, that this
shall not prevent a redemption pursuant to Section 1009(b) of the Indenture.]]
[The sinking fund for this series provides for the redemption on
__________ in each year beginning with the year ____ and ending with the
year ____ of [not less than] $ _______ [("mandatory
12
<PAGE> 20
sinking fund") and not more than $ _______ ] aggregate principal amount of
Securities of this series. [Securities of this series acquired or redeemed by
the Company otherwise than through [mandatory] sinking fund payments may be
credited against subsequent [mandatory] sinking fund payments otherwise required
to be made.]]
[In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.]
[If the Security is not an Original Issue Discount Security, -- If an Event
of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture. The
Indenture provides that such declaration may in certain events be annulled by
the Holder of a majority in principal amount of the Outstanding Securities of
this series.]
[If the Security is an Original Issue Discount Security, -- If an Event of
Default with respect to Securities of this series shall occur and be continuing,
an amount of principal of the Securities of this series may be declared due and
payable in the manner and with the effect provided in the Indenture. Such amount
shall be equal to -- insert formula for determining the amount. Upon payment (i)
of the amount of principal so declared due and payable and (ii) of interest on
any overdue principal to the extent that the payment of such interest shall be
legally enforceable), all of the Company's obligations in respect of the payment
of the principal of and interest, if any, on the Securities of this series shall
terminate. The Indenture provides that such declaration may in certain events be
annulled by the Holders of a majority in principal amount of the Outstanding
Securities of this series.]
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding, judicial
or otherwise, with respect to the Indenture or for the appointment of a receiver
or trustee or for any other remedy thereunder, unless such Holder shall have
previously given the Trustee written notice of a continuing Event of Default
with respect to the Securities of this series, the Holders of not less than 25%
in principal amount of the Outstanding Securities of this series shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in principal
amount of Outstanding Securities of this series a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the
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principal of (and premium, if any) and interest on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of (and premium, if any)
and interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $ ___ [and any integral multiple thereof]. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal of (or premium,
if any) or the interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto, against any incorporator, stockholder, officer,
director or employee, as such, past, present or future, of the Company or any
successor Person, whether by virtue of any constitution, statute or rule of law,
or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, any Global Security issued hereunder shall, in
addition to the provisions contained in Sections 202 and 203, bear a legend in
substantially the following form:
This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Security is exchangeable for Securities
registered in the name of a person other than the Depositary or its nominee
only in the limited circumstances described in the Indenture, and may not
be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary.
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SECTION 205. Form of Trustee's Certificate of Authentication.
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
as Trustee
By
------------------------------------
Authorized Officer
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and, subject to Section 303,
set forth in an Officers' Certificate or determined in the manner set forth in
an Officers' Certificate, or established in one or more indentures supplemental
hereto, prior to the issuance of Securities of any series,
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Sections 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall
be payable, if other than the Person in whose name that Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest;
(4) the date or dates on which the principal of the Securities of the
series is payable;
(5) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method of determination of such a rate or rates
(including any provisions for the increase or decrease of such rate or
rates upon the occurrence of specified events), the date or dates from
which any such interest shall accrue, or the method by which such date or
dates shall be determined, the date on which payment of such interest shall
commence, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any such interest payable on any
Interest Payment Date;
(6) the place or places where the principal of (and premium, if any)
and interest on Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which
and the terms and conditions upon which any Securities of the series may be
redeemed, in whole or in part, at the option of the Company;
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(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
(or the method of determination of such a period or periods) within which,
the price or prices at which, and the terms and conditions upon which any
Securities of the series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
502;
(11) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be
determined;
(12) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and
the manner of determining the equivalent thereof in the currency of the
United States of America for any purpose, including for purposes of the
definition of "Outstanding" in Section 101;
(13) if the principal of or any premium or interest on any Securities
of the series is to be payable, at the election of the Company or the
Holder thereof, in one or more currencies or currency units other than that
or those in which such Securities are stated to be payable, the currency,
currencies or currency units in which the principal of or any premium or
interest on such Securities as to which such election is made shall be
payable, the periods within which and the terms and conditions upon which
such election is to be made and the amount so payable (or the manner in
which such amount shall be determined);
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be
the principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or
which shall be deemed to be Outstanding as of any date prior to the Stated
Maturity (or, in any such case, the manner in which such amount deemed to
be the principal amount shall be determined);
(15) whether Sections 403 or 1010 shall apply to the Securities of
such series;
(16) if applicable, that any Securities of the series shall be
issuable in whole or in part in the form of one or more Global Securities
and, in such case, the respective Depositaries for such Global Securities,
the form of any legend or legends which shall be borne by any such Global
Security in addition to or in lieu of that set forth in Section 204 and any
circumstances in addition to or in lieu of those set forth in Section 305
in which any such Global Security may be exchanged in whole or in part for
Securities registered, and any transfer of such Global Security in whole or
in part may be registered, in the name or names of Persons other than the
Depositary for such Global Security or a nominee thereof;
(17) any addition to or change in the Events of Default which applies
to any Securities of the series and any change in the right of the Trustee
or the requisite Holders of such Securities to declare the principal amount
thereof due and payable pursuant to Section 502;
(18) any addition to or change in the covenants set forth in Article
Ten which applies to Securities of the series; and
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<PAGE> 24
(19) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture, except as permitted by
Section 901(5)).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 303) set forth in the
Officers' Certificate referred to above or in any such indenture supplemental
hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in registered form without
coupons in such denominations as shall be specified as contemplated by Section
301. In the absence of any such provisions with respect to the Securities of any
series, the Securities of such series shall be issuable in denominations of
$1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established as permitted
by Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(a) that such form has been established in conformity with the
provisions of this Indenture;
(b) that such terms have been established in conformity with the
provisions of this Indenture; and
(c) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Company, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting the enforcement of
creditors' rights and to general equity principles; provided that such
Opinion of Counsel need express no opinion as to whether a court in the
United States would render a money judgment in a currency other than that
of the United States.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own
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<PAGE> 25
rights, duties or immunities under the Securities and this Indenture or
otherwise in a manner which the Trustee determines would expose it to personal
liability.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the time
of authentication of each Security of such series if such documents are
delivered at or prior to the time of authentication upon original issuance of
the first Security of such series to be issued. After the original issuance of
the first Security of such series to be issued, any separate request by the
Company that the Trustee authenticate Securities of such series for original
issuance will be deemed to be a certification by the Company that it is in
compliance with all conditions precedent provided for in this Indenture relating
to the authentication and delivery of such Securities.
The Trustee shall not be required to authenticate Securities denominated in
a coin or currency other than that of the United States of America if the
Trustee reasonably determines that such Securities impose duties or obligations
on the Trustee which the Trustee is not able or reasonably willing to accept;
provided that the Trustee, upon the request of the Company, will resign as
Trustee with respect to Securities of any series as to which such a
determination is made, prior to the issuance of such Securities, and will comply
with the request of the Company to execute and deliver a supplemental indenture
appointing a successor Trustee pursuant to Section 611 hereof.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 309 together with a written statement (which
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series and of like tenor of authorized
denominations. Until so exchanged the temporary Securities of any series shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities of such series.
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SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept a register (the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of Securities.
Unless and until otherwise determined by the Company by or pursuant to a Board
Resolution, the Security Register shall be kept at the Corporate Trust Office of
the Trustee, and the Trustee is hereby initially appointed "Security Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security of any series
at the office or agency in a Place of Payment for that series, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of the same
series, of any authorized denominations and of a like aggregate principal amount
and tenor.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of a
like aggregate principal amount and tenor, upon surrender of the Securities to
be exchanged at such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series for a period of 15 days before the selection
of any Securities of that series and of like tenor for redemption under Section
1103, or (ii) to register the transfer of or exchange any Security so selected
for redemption in whole or in part, except the unredeemed portion of any
Security being redeemed in part.
Notwithstanding the foregoing, any Global Security shall be exchangeable
pursuant to this Section 305 for Securities registered in the names of Persons
other than the Depositary for such Security or its nominee only if (i) such
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time such Depositary ceases to
be a clearing agency registered under the Securities Exchange Act of 1934, as
amended, (ii) the Company executes and delivers to the Trustee a Company Order
that such Global Security shall be so exchangeable or (iii) there shall have
occurred and be continuing an Event of Default with respect to the Securities.
Any Global Security that is exchangeable pursuant to the preceding sentence
shall be exchangeable for Securities registered in such names as the Depositary
shall direct.
Notwithstanding any other provision in this Indenture, a Global Security
may not be transferred except as a whole by the Depositary with respect to such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
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SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided.
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<PAGE> 28
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder of Securities of such series at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner whatsoever
and may deliver to the Trustee (or to any other Person for delivery to the
Trustee) for cancellation any Securities previously authenticated hereunder
which the Company has not issued and sold, and all Securities so delivered shall
be promptly cancelled by the Trustee. No Securities shall be authenticated in
lieu of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order.
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for Securities
of any series, interest on the Securities of each series shall be computed on
the basis of a 360-day year of twelve 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company, or
(iv) are deemed paid and discharged pursuant to Section 403, as
applicable,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to
the date of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, or if money or obligations shall have been deposited with or
received by the Trustee pursuant to Section 403, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money; Indemnification.
(a) Subject to the provisions of the last paragraph of Section 1003 and
subsection (c) of this section and Section 615, all money deposited with the
Trustee pursuant to Section 401, all money and U.S. Government Obligations or
Foreign Government Securities deposited with the Trustee pursuant to Section 403
or 1010 and all money received by the Trustee in respect of U.S. Government
Obligations or Foreign Government Securities deposited with the Trustee pursuant
to
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<PAGE> 30
Section 403 or 1010, shall be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been deposited with or received by the Trustee or to make mandatory sinking
fund payments or analogous payments as contemplated by Section 403 or 1010.
(b) The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against U.S. Government Obligations
or Foreign Government Securities deposited pursuant to Section 403 or 1010, or
the interest and principal received in respect of such obligations, other than
any payable by or on behalf of Holders.
(c) The Trustee shall deliver or pay to the Company from time to time upon
Company Request any U.S. Government Obligations or Foreign Government Securities
or money held by it as provided in Section 403 or 1010 which, in the opinion of
a nationally recognized firm of independent certified public accountants
expressed in a written certification thereof delivered to the Trustee, are then
in excess of the amount thereof which then would have been required to be
deposited for the purpose for which such Obligations or Foreign Government
Securities or money were deposited or received. This provision shall not
authorize the sale by the Trustee of any U.S. Government Obligations or Foreign
Government Securities held under this Indenture.
SECTION 403. Satisfaction, Discharge and Defeasance of Securities of any
Series.
If this Section 403 is specified, as contemplated by Section 301, to be
applicable to Securities of any series, the Company shall be deemed to have paid
and discharged the entire indebtedness on all the Outstanding Securities of any
such series on the 91st day after the date of the deposit referred to in
subparagraph (d) hereof, and the provisions of this Indenture, as it relates to
such Outstanding Securities of any such series, shall no longer be in effect
(and the Trustee, at the expense of the Company, shall at Company Request
execute proper instruments acknowledging the same), except as to:
(a) the rights of Holders of Securities of such series to receive,
from the trust funds described in subparagraph (d) hereof, (i) payment of
the principal of (and premium, if any) and each installment of principal of
(and premium, if any) or interest on the Outstanding Securities of such
series on the Stated Maturity of such principal or installment of principal
or interest and (ii) the benefit of any mandatory sinking fund payments
applicable to the Securities of such series on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and the Securities of such series;
(b) the Company's obligations with respect to such Securities of such
series under Sections 305, 306, 1002, 1003 and 1107; and
(c) the rights, powers, trust and immunities of the Trustee hereunder
and the duties of the Trustee under Section 402 and the duty of the Trustee
to authenticate Securities of such series issued on registration of
transfer or exchange;
provided, however, that the following conditions have been satisfied:
(d) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for and
dedicated solely to the benefit of the Holders of such Securities (i) in
the case of Securities of such series denominated in U.S. dollars, cash in
U.S. dollars (or such other money or currencies as shall then be legal
tender in the United States) and/or U.S. Government Obligations, or (ii) in
the case of Securities of such series denominated in a Foreign Currency
(other than a basket currency), money and/or Foreign Government Securities
in the same Foreign Currency, which through the payment of interest and
principal in respect thereof, in accordance with their terms, will provide
(and without reinvestment and
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assuming no tax liability will be imposed on such Trustee), not later than
one day before the due date of any payment of money, an amount in cash,
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge each instalment of principal
(and premium, if any) (including mandatory sinking fund or analogous
payments) of and any interest on all the Securities of such series on the
dates such instalments of interest or principal are due;
(e) the trust arising from such deposit shall not constitute a
regulated investment company under the Investment Company Act of 1940, as
amended, or such trust shall be so qualified;
(f) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(g) such provision would not cause any Outstanding Securities of such
series then listed on the New York Stock Exchange or other securities
exchange to be de-listed as a result thereof;
(h) no Event of Default or event which with notice or lapse of time
would become an Event of Default with respect to the Securities of such
series shall have occurred and be continuing on the date of such deposit or
during the period ending on the 91st day after such date;
(i) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel to the effect that the Company has received from,
or there has been published by, the Internal Revenue Service a ruling, or
that since the date of this Indenture there has been a change in tax law,
in either case to the effect that Holders of the Securities of such series
will not recognize income, gain or loss for Federal income tax purposes as
a result of such deposits, defeasance and discharge and will be subject to
Federal income tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit, defeasance and
discharge had not occurred; and
(j) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the defeasance contemplated by this Section have
been complied with.
SECTION 404. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Sections 403 or 1010 with respect to any Securities by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the obligations
under this Indenture and such Securities from which the Company has been
discharged or released pursuant to Section 403 or 1010 shall be revived and
reinstated as though no deposit had occurred pursuant to such Section with
respect to such Securities, until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 403 or 1010 with
respect to such Securities in accordance with such Section; provided, however,
that if the Company makes any payment of principal of or any premium or interest
on any such Security following such reinstatement of its obligations, the
Company shall be subrogated to the rights (if any) of the Holders of such
Securities to receive such payment from the money so held in trust.
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity, and continuance of such
default for a period of 30 days in the case of a Security of that series
that becomes due and payable by the terms thereof pursuant to Article
Twelve; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Security of that series, and continuance of such
default for a period of 30 days; or
(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of series of Securities other than that
series), and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in
furtherance of any such action; or
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(7) any other Event of Default provided with respect to Securities of
that series.
Upon receipt by the Trustee of any Notice of Default pursuant to this
Section 501 with respect to Securities of a series all or part of which is
represented by a Global Security, the Trustee shall establish a record date for
determining Holders of Outstanding Securities of such series entitled to join in
such Notice of Default, which record date shall be at the close of business on
the day the Trustee receives such Notice of Default. The Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to join in such Notice of Default, whether or not such Holders remain Holders
after such record date; provided, that unless Holders of at least 10% in
principal amount of the Outstanding Securities of such series, or their proxies,
shall have joined in such Notice of Default prior to the day which is 90 days
after such record date, such Notice of Default shall automatically and without
further action by any Holder be cancelled and of no further effect. Nothing in
this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new Notice of Default identical to a
Notice of Default which has been cancelled pursuant to the proviso to the
preceding sentence, in which event a new record date shall be established
pursuant to the provisions of this Section 501.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount (or, if any of the Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount of such Securities as may be specified in the terms thereof) of
all of the Securities of that series to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount (or specified amount) shall
become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and all other amounts due to such
Trustee under Section 607;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Trustee of any declaration of acceleration, or
rescission and annulment thereof, with respect to Securities of a series all or
part of which is represented by a Global Security,
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the Trustee shall establish a record date for determining Holders of Outstanding
Securities of such series entitled to join in such declaration of acceleration,
or rescission and annulment, as the case may be, which record date shall be at
the close of business on the day the Trustee receives such declaration of
acceleration, or rescission and annulment, as the case may be. The Holders on
such record date, or their duly designated proxies, and only such Persons, shall
be entitled to join in such declaration of acceleration, or rescission and
annulment, as the case may be, whether or not such Holders remain Holders after
such record date; provided, that unless such declaration of acceleration, or
rescission and annulment, as the case may be, shall have become effective by
virtue of the requisite percentage having been obtained prior to the day which
is 90 days after such record date, such declaration of acceleration, or
rescission and annulment, as the case may be, shall automatically and without
further action by any Holder be cancelled and of no further effect. Nothing in
this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new declaration of acceleration, or
rescission or annulment thereof, as the case may be, that is identical to a
declaration of acceleration, or rescission or annulment thereof, which has been
cancelled pursuant to the proviso to the preceding sentence, in which event a
new record date shall be established pursuant to the provisions of this Section
502.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof (other than a Security that
becomes due and payable by the terms thereof pursuant to Article Twelve),
or
(3) default is made in the payment of the principal of (or premium, if
any, on) any Security on the date fixed for redemption of such Security by
the terms thereof pursuant to Article Twelve and such default continues for
a period of 30 days,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) at the rate or rates prescribed therefor
in such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and all other amounts due to such Trustee under Section
607.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
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SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and all other amounts due to such Trustee
under Section 607) and of the Holders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and all other amounts due to
such Trustee under Section 607, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to
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the amounts due and payable on such Securities for principal (and premium,
if any) and interest, respectively.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) the Trustee shall have received written notice from such Holder of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Trustee shall have received written request from the Holders
of not less than 25% in principal amount of the Outstanding Securities of
that series to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such requests;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in
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equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Upon receipt by the Trustee of any such direction with respect to
Securities of a series all or part of which is represented by a Global Security,
the Trustee shall establish a record date for determining Holders of Outstanding
Securities of such series entitled to join in such direction, which record date
shall be at the close of business on the day the Trustee receives such
direction. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such direction, whether or
not such Holders remain Holders after such record date; provided, that unless
such majority in principal amount shall have been obtained prior to the day
which is 90 days after such record date, such direction shall automatically and
without further action by any Holder be cancelled and of no further effect.
Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from
giving, after expiration of such 90-day period, a new direction identical to a
direction which has been cancelled pursuant to the provisions to the preceding
sentence, in which event a new record date shall be established pursuant to the
provisions of this Section 512.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to waive any past default hereunder.
If a record date is fixed, the Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to waive any
default hereunder, whether or not such Holders remain Holders after such record
date; provided, that unless such majority in principal amount shall have been
obtained prior to the date which is 90 days after such record date, any such
waiver previously given shall automatically and without further action by any
Holder be cancelled and of no further effect.
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Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities of any series, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of (or premium,
if any) or interest on any Security on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of the
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
The Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against such Trustee.
SECTION 602. Notice of Defaults.
If a default occurs hereunder with respect to Securities of any series, the
Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document
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believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order or as
otherwise expressly provided herein and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee or any Authenticating Agent assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee or any
Authenticating Agent shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
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SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee, and each predecessor Trustee, upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
(3) to indemnify the Trustee, and each predecessor Trustee, for, and
to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the benefit of the Holders of particular Securities. When the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 501 or in connection with Article Five hereof, the
expenses (including the reasonable fees and expenses of its counsel) and the
compensation for the service in connection therewith are intended to constitute
expenses of administration under any bankruptcy law.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign to the extent and in the manner provided by, and subject to
the provisions of the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.
Section 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $500,000,000 subject to supervision or examination by Federal or
State authority and having its Corporate Trust Office in The City of New York.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
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SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608(a) after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case, (i)
the Company by a Board Resolution may remove the Trustee with respect to
all Securities, or (ii) subject to Section 514, any Holder who has been a
bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities
and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to
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the Securities of any series by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders of Securities of such series
as their names and addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee with respect to the Securities of such
series and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Any trustee ceasing to act
shall, nevertheless, retain its prior lien upon all property or funds held or
collected by such trustee to secure any amounts then due it pursuant to the
provisions of Section 607.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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Section 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee or Authenticating Agent then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
or Authenticating Agent may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee or successor
Authenticating Agent had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
At any time when any of the Securities remain Outstanding the Trustee may,
at the instruction and request of the Company, appoint an Authenticating Agent
or Agents with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon original issue and upon exchange, registration of transfer or
partial redemption thereof or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $500,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving
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such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities of the series with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternate
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
as Trustee
By
--------------------------------------
as Authenticating Agent
By
--------------------------------------
Authorized Officer
SECTION 615. Investment of Certain Payments Held by the Trustee.
Any amounts deposited by the Company and held by the Trustee hereunder,
other than pursuant to Section 403 or Section 1010 hereof, shall be invested by
the Trustee from time to time at the direction of the Company in such
investments as may be specified by the Company and reasonably agreed to by the
Trustee from time to time; provided that no amounts deposited in respect of any
payment on a Security shall be invested in an investment that matures after the
due date of such payment and that the Trustee shall have no liability to the
Company for any loss on such investments; provided, further, that in investing
trust funds pursuant to the terms of this Section and liquidating any
investments held in trust hereunder, the Trustee may, to the extent permitted by
law, purchase securities (including for the purposes of this paragraph
securities as to which the Trustee or a Trustee Affiliate is the issuer or
guarantor) from, and sell securities to, itself or any Trustee Affiliate and
purchase securities underwritten by, or in which a market is made by, the
Trustee or a Trustee Affiliate. For the purposes hereof, a " Trustee Affiliate"
shall mean an entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Trustee. Any income or gain realized as a result of any such investment
shall be promptly distributed (in no event later than the next Business Day) to
the Company after payment of any amounts required to be paid to the Holders
entitled thereto, except after the occurrence and during the continuance of an
Event of Default. The Trustee shall have no liability to the Company for any
loss resulting from any investment made in accordance with this Section, and
shall bear no expense in connection with any investment pursuant to this
Section. Any
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such investment may be sold (without regard to maturity date) by the Trustee
whenever necessary to make any distribution required by this Indenture.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
With respect to each series of Securities, the Company will furnish or
cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date relating to that series (or, if there is no Regular Record Date
relating to that series, semi-annually on dates set forth in a Board
Resolution or Indenture supplemental hereto with respect to such series
furnished pursuant to Section 301) a list, in such form as the Trustee for
such series may reasonably require, of the names and addresses of the
Holders of that series as of such date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided, however, that so long as the Trustee is the Security Registrar for a
particular series, no such list shall be required to be furnished with respect
to such series.
SECTION 702. Preservation of Information; Communications to Holders.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto within 60
days after May 15 of each year commencing May 15, 1998.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required
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pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or lease the
properties and assets of the Company substantially as an entirety shall be
a corporation, partnership, limited liability company or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of (and premium, if any) and interest on all the
Securities and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing;
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
This Section shall not apply to any merger or consolidation in which the
Company is the surviving corporation.
SECTION 802. Securities to be Secured in Certain Events.
If, upon any such consolidation or merger of the Company with or into any
other corporation, or upon any such conveyance, transfer or lease of the
property and assets of the Company substantially as an entirety in accordance
with Section 801, any of the property of the Company (other than any property on
which Section 1008 would permit the Company to create, assume or suffer to exist
Liens without equally and ratably securing the Securities) would thereupon
become subject to any mortgage, pledge or lien, the Company, prior to such
consolidation, merger, conveyance, transfer or lease, will secure the due and
punctual payment of the principal of (and premium, if any) and interest on all
the Securities, equally and ratably with any other obligations of the Company
then entitled thereto, by a direct lien on all such property prior to all liens
other than any theretofore existing thereon.
SECTION 803. Successor Substituted.
Upon any consolidation or merger or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such
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successor Person had been named as the Company herein, and in case of any such
conveyance or transfer, the Person named as the "Company" in the first paragraph
of this instrument or any successor Person which shall theretofore have become
such in the manner prescribed in this Article shall be released from its
liability as obligor of any of the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such additional Events
of Default are to be for the benefit of less than all series of Securities,
stating that such additional Events of Default are expressly being included
solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons or to permit or facilitate the
issuance of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, provided that any
such addition, change or elimination (A) shall neither (i) apply to any
Security of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (ii) modify the
rights of the Holder of any such Security with respect to such provision or
(B) shall become effective only when there is no such Security Outstanding;
or
(6) to secure the Securities pursuant to the requirements of Section
1008 or otherwise; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 611(b); or
(9) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided such action shall not adversely affect the
interests of the Holders of Securities of any series in any material
respect.
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SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or reduce the amount of the principal of an
Original Issue Discount Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section
502, or change any Place of Payment where, or the coin or currency in
which, any Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1011, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, provided, however, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1011, or the
deletion of this proviso, in accordance with the requirements of Sections
611(b) and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
cancelled and of no further effect.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee
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shall be entitled to receive, and (subject to Section 601) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of that series and this Indenture
may be served. The Trustee is hereby initially appointed Paying Agent, and the
Corporate Trust Office of the Trustee is initially designated as the office or
agency where Securities may be presented or surrendered for payment. The Company
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such
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designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in each Place of Payment for
Securities of any series for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 1003. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or before each due date of the principal of (and
premium, if any) or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will (1) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or received by
the Trustee in respect of obligations deposited with the Trustee pursuant to
Section 403 or 1010, or then held by the Company, in trust for the payment of
the principal of (and premium, if any) or interest on any Security of any series
and remaining unclaimed for three years after such principal (and premium, if
any) or interest has become due and payable shall be paid to the Company on
Company Request (unless otherwise required by mandatory provisions of applicable
escheat or abandoned or unclaimed property law), or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
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SECTION 1004. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Restricted Subsidiary or upon
the income, profits or any Principal Property of the Company or any Restricted
Subsidiary, and (2) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon any Principal Property of the Company
or any Restricted Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (a) whose amount, applicability or validity is being
contested in good faith by appropriate proceedings or (b) which is not of
material importance to the business, operations, financial condition or results
of operations of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 1005. Maintenance of Principal Properties.
The Company will cause all Principal Properties to be maintained and kept
in good condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company or any Restricted Subsidiary from discontinuing the operation and
maintenance of any of such Principal Properties or from omitting to make any
repairs, renewals, replacements, betterments or improvements thereof if such
discontinuance or omission is, in the judgment of the Company, desirable in the
conduct of the business of the Company and its Restricted Subsidiaries taken as
a whole.
SECTION 1006. Statement as to Default.
The Company will deliver to the Trustee, on or before a date not more than
four months after the end of each fiscal year of the Company ending after the
date hereof, a statement (which shall not be deemed an Officers' Certificate and
need not conform with any of the provisions of Section 102) signed by the
Chairman or Vice Chairman of the Board or the President or any Vice President of
the Company and also by the Treasurer, the Controller, the Secretary, any
Assistant Treasurer, any Assistant Controller or any Assistant Secretary of the
Company, stating that in the course of the performance by the signers of their
duties as officers of the Company and based upon a review made under their
supervision of the activities of the Company during such year and of the
Company's performance under this Indenture they would normally obtain knowledge
whether or not the Company is in default in the performance of any covenant or
agreement contained in Sections 801, 802, 803, 1005, 1007, 1008 and 1009,
stating whether or not they have obtained knowledge that the Company is in
default in the performance of any such covenant or agreement, and if so,
specifying each such default of which the signers have knowledge and the nature
thereof.
SECTION 1007. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company.
SECTION 1008. Limitation upon Liens.
The Company will not itself, and will not permit any Restricted Subsidiary
to, create, incur, issue, assume, guarantee or secure any notes, bonds,
debentures or other similar evidences of indebtedness for money borrowed (notes,
bonds, debentures or other similar evidences of indebtedness for money borrowed
being hereinafter in this Section and Section 1009 called "Debt"), secured by
any
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pledge of, or mortgage, lien, encumbrance or security interest on (such pledges,
mortgages, liens, encumbrances and security interests being hereinafter in this
Section, in Section 802 and in Section 1009 collectively called "Liens"), any
Principal Property owned or leased by the Company or any Restricted Subsidiary,
or on any shares of stock or Debt of any Restricted Subsidiary owned or held by
the Company or any other Restricted Subsidiary, without effectively providing
that the Securities (together with, if the Company shall so determine, any other
Debt of the Company or such Restricted Subsidiary then existing or thereafter
created which is not subordinate to the Securities) shall be secured equally and
ratably with (or prior to) such secured Debt (for the purpose of providing such
equal and ratable security, the principal amount of any Securities which are
Original Issue Discount Securities shall mean and shall not be less than that
principal amount which could be declared to be due and payable pursuant to
Section 502 on the date of the making of such effective provision, and the
extent of such equal and ratable security shall be adjusted, to the extent
permitted by law, as and when said principal amount changes over time pursuant
to Section 502 and any other provision hereof), so long as such secured Debt
shall be so secured, unless, after giving effect thereto, the aggregate
principal amount of all such secured Debt then outstanding plus Attributable
Debt of the Company and its Restricted Subsidiaries in respect of sale and
leaseback transactions (as defined in Section 1009) entered into after the date
of this Indenture (other than sale and leaseback transactions permitted by
Section 1009(b)) would not exceed an amount equal to 15% of Consolidated Net
Tangible Assets; provided, however, that nothing contained in this Section shall
prevent, restrict or apply to, and there shall be excluded from secured Debt in
any computation under this Section, Debt secured by:
(a) Liens on any property or assets of the Company or any Restricted
Subsidiary existing as of the date of this Indenture;
(b) Liens on any property or assets of, or on any shares of stock or
Debt of, any corporation existing at the time such corporation becomes a
Restricted Subsidiary;
(c) Liens on any property or assets or shares of stock or Debt
existing at the time of acquisition thereof (including acquisition through
merger or consolidation) or securing the payment of all or any part of the
purchase price or construction cost thereof or securing any Debt incurred
prior to, at the time of or within 120 days after the acquisition of such
property or assets or shares of stock or Debt or the completion of any such
construction, whichever is later, for the purpose of financing all or any
part of the purchase price or construction cost thereof (provided such
Liens are limited to such property or assets, improvements thereon and the
land upon which such property, assets and improvements are located and any
other property or assets not then constituting a Principal Property);
(d) Liens on any property or assets to secure all or any part of the
cost of exploration, drilling, development, operation, construction,
alteration, repair or improvement of all or any part of such property or
assets, or to secure Debt incurred prior to, at the time of or within 120
days after the completion of such exploration, drilling, development,
operation, construction, alteration, repair or improvement, whichever is
later, for the purpose of financing all or any part of such cost (provided
such Liens are limited to such property or assets, improvements thereon and
the land upon which such property, assets and improvements are located and
any other property or assets not then constituting a Principal Property);
(e) Liens which secure Debt owing to the Company or another Restricted
Subsidiary by a Restricted Subsidiary;
(f) Liens arising from the assignment of moneys due and to become due
under contracts between the Company or any Restricted Subsidiary and the
United States of America, any State, Territory or possession thereof or any
agency, department, instrumentality or political subdivision of any
thereof; or Liens in favor of the United States of America, any State,
Commonwealth, Territory or possession thereof or any agency, department,
instrumentality or
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political subdivision of any thereof, pursuant to the provisions of any
contract not directly or indirectly in connection with securing Debt;
(g) any deposit or pledge as security for the performance of any bid,
tender, contract, lease or undertaking not directly or indirectly in
connection with the securing of Debt; any deposit or pledge with any
governmental agency required or permitted to qualify the Company or any
Restricted Subsidiary to conduct business, to maintain self-insurance or to
obtain the benefits of any law pertaining to workmen's compensation,
unemployment insurance, old age pensions, social security or similar
matters, or to obtain any stay or discharge in any legal or administrative
proceedings; deposits or pledges to obtain the release of mechanics',
workmen's, repairmen's, materialmen's or warehousemen's liens or the
release of property in the possession of a common carrier; any security
interest created in connection with the sale, discount or guarantee of
notes, chattel mortgages, leases, accounts receivable, trade acceptances or
other paper, or contingent repurchase obligations, arising out of sales of
merchandise in the ordinary course of business; liens permitted by Section
1004; or other deposits or pledges similar to those referred to in this
subdivision (g);
(h) Liens arising by reason of any judgment, decree or order of any
court or other governmental authority, so long as any appropriate legal
proceedings which may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or so long as the
period within which such proceedings may be initiated shall not have
expired; and
(i) any extension, renewal, substitution or replacement (or successive
extensions, renewals, substitutions or replacements), as a whole or in
part, of any of the Liens referred to in subdivisions (a) through (h) above
or the Debt secured thereby; provided that (1) such extension, renewal,
substitution or replacement Lien shall be limited to all or any part of the
same property or assets, shares of stock or Debt that secured the Lien
extended, renewed, substituted or replaced (plus improvements on such
property and any other property or assets not then constituting a Principal
Property) and (2) in the case of subdivisions (a) through (c) above, the
Debt secured by such Lien at such time is not increased.
Debt created by the Company or any Restricted Subsidiary shall not be
cumulated with a guarantee of the same Debt by the Company or any other
Restricted Subsidiary for the same financial obligation.
For purposes of this Section, the following shall not be deemed to be Liens
securing Debt and, accordingly, nothing contained in this Section shall prevent,
restrict or apply to: (x) any acquisition by the Company or any Restricted
Subsidiary of any property or assets subject to any reservation or exception
under the terms of which any vendor, lessor or assignor creates, reserves or
excepts or has created, reserved or excepted an interest in oil, gas and/or any
other mineral and/or the proceeds thereof, (y) any conveyance or assignment
under the terms of which the Company or any Restricted Subsidiary conveys or
assigns to any Person or Persons an interest in oil, gas and/or any other
mineral and/or the proceeds thereof, or (z) any Lien upon any property or assets
owned or leased by the Company or any Restricted Subsidiary or in which the
Company or any Restricted Subsidiary owns an interest to secure to the Person or
Persons paying the expenses of developing and/or conducting operations for the
recovery, storage, transportation and/or sale of the mineral resources of the
said property (or property with which it is unitized) the payment to such Person
or Persons of the Company's or the Restricted Subsidiary's proportionate part of
such development and/or operating expense.
SECTION 1009. Limitation upon Sales and Leasebacks.
The Company will not itself, and will not permit any Restricted Subsidiary
to, enter into any arrangement after the date of this Indenture with any bank,
insurance company or other lender or investor (other than the Company or another
Restricted Subsidiary) providing for the leasing by the
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Company or any such Restricted Subsidiary of any Principal Property (except a
lease for a temporary period not to exceed three years by the end of which it is
intended that the use of such Principal Property by the lessee will be
discontinued), which was or is owned or leased by the Company or a Restricted
Subsidiary and which has been or is to be sold or transferred, more than 120
days after the acquisition or the completion of construction and commencement of
full operation thereof, by the Company or such Restricted Subsidiary to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such Principal Property
(herein referred to as a "sale and leaseback transaction") unless, either:
(a) The Attributable Debt of the Company and its Restricted
Subsidiaries in respect of such sale and leaseback transaction and all
other sale and leaseback transactions entered into after the date of this
Indenture (other than sale and leaseback transactions permitted by Section
1009(b)), plus the aggregate principal amount of Debt secured by Liens on
Principal Properties then outstanding (excluding any such Debt secured by
Liens covered in subdivisions (a) through (i) of the first paragraph of
Section 1008) without equally and ratably securing the Securities, would
not exceed 15% of Consolidated Net Tangible Assets, or
(b) The Company applies, within 120 days after the sale or transfer,
an amount equal to the fair market value of the Principal Property so sold
and leased back at the time of entering into such sale and leaseback
transaction (as determined by any two of the following: the Chairman or
Vice Chairman of the Board, the President, any Vice President, the
Treasurer and the Controller of the Company) to the retirement of Funded
Debt (including Securities of any series constituting Funded Debt) of the
Company (and any redemption of Securities of any series pursuant to this
provision shall, if provided in the terms of such particular series of
Securities, not be prohibited pursuant to any redemption provision of such
series otherwise prohibiting redemption when such would constitute a
refunding operation or anticipated refunding operation or similar refunding
operation); provided, that the amount to be applied to the retirement of
Funded Debt of the Company shall be reduced by (i) the principal amount of
Securities (the principal amount of any Securities which are Original Issue
Discount Securities shall mean and shall not be less than that principal
amount which could then be declared to be due and payable pursuant to
Section 502) delivered within 120 days after such sale or transfer to the
Trustee for redemption and cancellation, and (ii) the principal amount of
Funded Debt (similarly determined with respect to Funded Debt that would
constitute an Original Issue Discount Security within the meaning of this
Indenture), other than Securities, voluntarily retired by the Company
within 120 days after such sale. Notwithstanding the foregoing, no
retirement referred to in this subdivision (b) may be effected by payment
at maturity or pursuant to any mandatory sinking fund payment or any
mandatory prepayment provision.
Notwithstanding the foregoing, where the Company or any Restricted
Subsidiary is the lessee in any sale and leaseback transaction, Attributable
Debt shall not include any Debt resulting from the guarantee by the Company or
any other Restricted Subsidiary of the lessee's obligation thereunder.
SECTION 1010. Defeasance of Certain Obligations.
If this Section is specified, as contemplated by Section 301, to be
applicable to Securities of any series, the Company may omit to comply with any
term, provision or condition set forth in Sections 1008 and 1009 with respect to
the Securities of such series, provided that the following conditions shall have
been satisfied:
(1) with reference to this Section 1010, the Company has deposited or
caused to be irrevocably deposited (except as provided in Section 403) with
the Trustee as trust funds in trust, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such (i) in the case
of Securities of such series denominated in U.S. dollars, cash in U.S.
dollars (or such other money or currencies as shall then be legal tender in
the United States) and/or U.S. Government Obligations, or (ii) in the case
of Securities of such series denomi-
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nated in a Foreign Currency (other than a basket currency), money and/or
Foreign Government Securities in the same Foreign Currency, which through
the payment of interest and principal in respect thereof, in accordance
with their terms, will provide (and without reinvestment and assuming no
tax liability will be imposed on such Trustee), not later than one day
before the due date of any payment of money, an amount in cash, sufficient,
in the opinion of a nationally recognized firm of independent certified
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge each instalment of principal (and
premium, if any) (including mandatory sinking fund or analogous payments)
of and any interest on all the Securities of such series on the dates such
instalments of interest or principal are due;
(2) such deposit shall not, in the Opinion of Counsel, cause the
Trustee with respect to the Securities of such series to have a conflicting
interest as defined in Section 608 and for purposes of the Trust Indenture
Act with respect to the Securities of such series;
(3) the trust arising from such deposit shall not constitute a
regulated investment company under the Investment Company Act of 1940, as
amended, or such trust shall be so qualified;
(4) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(5) no Event of Default or event which with notice or lapse of time
would become an Event of Default with respect to the Securities of such
series shall have occurred and be continuing on the date of such deposit;
(6) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel to the effect that Holders of the Securities of
such series will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance of certain obligations
and will be subject to Federal income tax on the same amount and in the
same manner and at the same times, as would have been the case if such
deposit and defeasance had not occurred; and
(7) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the defeasance contemplated by this Section
have been complied with.
SECTION 1011. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 1004 to 1009, inclusive, with respect to the
Securities of any series if before or after the time for such compliance the
Holders of at least 66 2/3% in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to waive compliance with any
covenant or condition hereunder. If a record date is fixed, the Holders on such
record date, or their duly designated proxies, and only such Persons, shall be
entitled to waive any such compliance, whether or not such Holders remain
Holders after such record date; provided, that unless the Holders of at least
66 2/3% in principal amount of the Outstanding Securities of such series shall
have waived such compliance prior to the date which is 90 days after such record
date, any such waiver previously given shall automatically and without further
action by any Holder be cancelled and of no further effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of
the tenor, if applicable, of the Securities to be redeemed, and of the principal
amount of Securities of such series to be redeemed. In the case of any
redemption of Securities prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed (unless
all of the Securities of a specified tenor are to be redeemed), the particular
Securities of a specified tenor to be redeemed shall be selected not more than
90 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities of such series and of the tenor subject to such redemption and not
previously called for redemption, by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to the minimum authorized denomination for Securities of that
series or any integral multiple thereof), of the principal amount of Securities
of such series and specified tenor of a denomination larger than the minimum
authorized denomination for Securities of that series and specified tenor.
The Trustee shall promptly notify the Company and the Security Registrar,
if other than the Trustee, in writing of the Securities selected for redemption
and, in the case of any Securities selected for partial redemption, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 90 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
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(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
or portions thereof which are to be redeemed on that date.
SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that, unless otherwise specified as
contemplated by Section 301, instalments of interest whose Stated Maturity is on
or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
SECTION 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered. If a Global Security is so surrendered, such new
Security so issued shall be a new Global Security.
50
<PAGE> 58
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to the Securities of such series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 1202 and will also deliver to the Trustee any Securities to
be so delivered. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 1103 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 1104. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS, DIRECTORS AND EMPLOYEES
SECTION 1301. Exemption from Individual Liability.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Security, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer,
director, or employee, as such, past, present or future, of the Company or of
any successor Person, either directly or through the Company, whether by virtue
of
51
<PAGE> 59
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations
of the Company, and that no such personal liability whatever shall attach to, or
is or shall be incurred by, the incorporators, stockholders, officers,
directors, or employees, as such, of the Company or of any successor Person, or
any of them, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom; and that any and all
such personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, stockholder, officer, director, or employee, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issue of such Securities.
* * * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SOLUTIA INC.
By
--------------------------------------
Attest:
- ---------------------------------------------------------
THE CHASE MANHATTAN BANK
By
--------------------------------------
Attest:
- ---------------------------------------------------------
52
<PAGE> 60
<TABLE>
<S> <C>
STATE OF MISSOURI D
COUNTY OF ST. LOUIS C ss.:
</TABLE>
On the day of , 1997, before me personally came , to
me known, who, being by me duly sworn, did depose and say that he is Treasurer
of SOLUTIA INC., one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation, and that he signed his
name thereto by like authority.
--------------------------------------
<TABLE>
<S> <C>
STATE OF NEW YORK D
COUNTY OF NEW YORK C ss.:
</TABLE>
On the day of , 1997, before me personally came , to
me known, who, being by me duly sworn, did depose and say that she is Vice
President of THE CHASE MANHATTAN BANK, one of the corporations described in and
which executed the foregoing instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that she signed her name thereto by like authority.
--------------------------------------
53
<PAGE> 1
Exhibit 4(c)
Form of 2002 Note
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.*
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.**
SOLUTIA INC.
__% Note due 2002
____________________________________________
CUSIP NO. _______ Principal Amount $___________
SOLUTIA INC., a Delaware corporation (hereinafter called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
_____________________or registered assigns, the principal sum of __________
Dollars on __________, 2002, and to pay interest thereon from ________, 1997 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on __________and _______in each year,
commencing _________ , 1998 at the rate of ____ % per annum, until the principal
hereof is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest,
- --------
* Insert for Global Security
** Insert if registered in the name of The Depository Trust Company or its
nominee.
<PAGE> 2
which shall be the____________ or _______________(whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SOLUTIA INC.
By_________________________________
ATTEST:
_______________________________
-2-
<PAGE> 3
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By_________________________________
Authorized Officer
-3-
<PAGE> 4
REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of October 1, 1997 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$_________.
This Security is not redeemable at the option of the Company and shall
not have the benefit of any sinking fund.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. The Indenture provides that such declaration may in certain events be
annulled by the Holders of a majority in principal amount of the Outstanding
Securities of this series.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding,
judicial or otherwise, with respect to the Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder, unless such Holder shall
have previously given the Trustee written notice of a
-4-
<PAGE> 5
continuing Event of Default with respect to the Securities of this series, the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from the
Holders of a majority in principal amount of Outstanding Securities of this
series a direction inconsistent with such request, and shall have failed to
institute any such proceeding, for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the respective due dates
expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The provisions of Section 403 of the Indenture with respect to
satisfaction, discharge and defeasance of Securities of any series and of
Section 1010 of the Indenture with respect to defeasance of certain covenants,
shall apply to Securities of this series, which provisions shall have the same
effect as if set forth herein in their entirety.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
-5-
<PAGE> 6
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal of (or
premium, if any) or the interest on this Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture or any indenture supplemental thereto, against any incorporator,
stockholder, officer, director or employee, as such, past, present or future, of
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities of this series and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption, and reliance may be
placed only on the other identification numbers placed thereon.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
-6-
<PAGE> 1
Exhibit 4(d)
Form of 2027 Debenture
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.*
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.**
SOLUTIA INC.
__% Debenture due 2027
____________________________________________
CUSIP NO. _______ Principal Amount $__________
SOLUTIA INC., a Delaware corporation (hereinafter called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
_____________________or registered assigns, the principal sum of _________
Dollars on __________, 2027, and to pay interest thereon from ________, 1997 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on __________and _____________in each year,
commencing ___________, 1998 at the rate of ___ % per annum, until the principal
hereof is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the ____________ or
_______________(whether or not
- --------
* Insert for Global Security
** Insert if registered in the name of The Depositary Trust Company or its
nominee.
<PAGE> 2
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SOLUTIA INC.
By_________________________________
ATTEST:
_____________________________________
2
<PAGE> 3
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By_________________________________
Authorized Officer
3
<PAGE> 4
REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of October 1, 1997 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$_________.
The Securities of this series are subject to redemption upon not less
than 30 days' or more than 90 days notice, by mail at any time in whole or in
part, at the option of the Company, at a Redemption Price equal to the greater
of (i) 100% of the principal amount of such Securities of this series or (ii) as
determined by an Independent Investment Banker (as defined herein), the sum of
the present values of the remaining scheduled payments of principal and interest
thereon (not including any portion of such payments of interest accrued as of
the Redemption Date) discounted to the Redemption Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate, plus, in each case, accrued interest thereon to the Redemption
Date, but interest installments whose Stated Maturity is on or prior to said
Redemption Date will be payable to the Holders of said Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
The Securities of this series shall not have the benefit of any sinking fund.
"Adjusted Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price of the Comparable Treasury issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date, plus 0.__%.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities of this series to be redeemed that would be
utilized, at the time of selection and
4
<PAGE> 5
in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of such
Securities of this series. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any Redemption Date
(A) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Dealer Quotations,
or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and any
Redemption Date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Trustee by such Treasury
Reference Dealer at 5:00 p.m. (New York City time) on the third Business Day
preceding such Redemption Date.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., Chase
Securities Inc., J.P. Morgan & Co., NationsBanc Montgomery Securities, Inc. and
Salomon Brothers Inc and their respective successors; provided, however that if
any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the Securities of
this series or portions thereof called for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. The Indenture provides that such declaration may in certain events be
annulled by the Holders of a majority in principal amount of the Outstanding
Securities of this series.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by
5
<PAGE> 6
the Company and the Trustee with the consent of the Holders of 66 2/3% in
principal amount of the Securities at the time Outstanding of each series to be
affected. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding,
judicial or otherwise, with respect to the Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder, unless such Holder shall
have previously given the Trustee written notice of a continuing Event of
Default with respect to the Securities of this series, the Holders of not less
than 25% in principal amount of the Outstanding Securities of this series shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default as Trustee and offered the Trustee reasonable indemnity,
and the Trustee shall not have received from the Holders of a majority in
principal amount of Outstanding Securities of this series a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The provisions of Section 403 of the Indenture with respect to
satisfaction, discharge and defeasance of Securities of any series and of
Section 1010 of the Indenture with respect to defeasance of certain covenants,
shall apply to Securities of this series, which provisions shall have the same
effect as if set forth herein in their entirety.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the
6
<PAGE> 7
principal of (and premium, if any) and interest on this Security are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series and of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal of (or
premium, if any) or the interest on this Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture or any indenture supplemental thereto, against any incorporator,
stockholder, officer, director or employee, as such, past, present or future, of
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the
7
<PAGE> 8
Securities of this series and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Securities or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
8
<PAGE> 1
Exhibit 4(e)
Form of 2037 Debenture
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.*
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.**
SOLUTIA INC.
__% Debenture due 2037
____________________________________________
CUSIP NO. _______ Principal Amount $_______
SOLUTIA INC., a Delaware corporation (hereinafter called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
__________________________or registered assigns, the principal sum of _________
Dollars on __________, 2037, and to pay interest thereon from ________, 1997 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on _____________and _____________in each year,
commencing ______________, 1998 at the rate of ____% per annum, until the
principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
- --------
* Insert for Global Security
** Insert if registered in the name of The Depositary Trust Company or its
nominee.
<PAGE> 2
on the Regular Record Date for such interest, which shall be the
_______________or ____________(whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SOLUTIA INC.
By_________________________________
ATTEST:
___________________________________
2
<PAGE> 3
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By_________________________________
Authorized Officer
3
<PAGE> 4
REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of October 1, 1997 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$___________.
The Securities of this series are subject to redemption upon not less
than 30 days' or more than 90 days notice, by mail, at any time after ______
2004, in whole or in part, at the option of the Company, at a Redemption Price
equal to the greater of (i) 100% of the principal amount of such Securities of
this series or (ii) as determined by an Independent Investment Banker (as
defined herein), the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the Redemption Date) discounted to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case, accrued
interest thereon to the Redemption Date, but interest installments whose Stated
Maturity is on or prior to said Redemption Date will be payable to the Holders
of said Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Dates referred to on the face hereof,
as provided in the Indenture. The Securities of this series shall not have the
benefit of any sinking fund.
"Adjusted Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price of the Comparable Treasury issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date, plus 0.__%.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities of this series to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Securities
4
<PAGE> 5
of this series. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any Redemption Date
(A) the average of the Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Dealer Quotations,
or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and any
Redemption Date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Trustee by such Treasury
Reference Dealer at 5:00 p.m. (New York City time) on the third Business Day
preceding such Redemption Date.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., Chase
Securities Inc., J.P. Morgan & Co., NationsBanc Montgomery Securities, Inc. and
Salomon Brothers Inc and their respective successors; provided, however that if
any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the Securities of
this series or portions thereof called for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. The Indenture provides that such declaration may in certain events be
annulled by the Holders of a majority in principal amount of the Outstanding
Securities of this series.
Subject to and upon compliance with the provisions set forth herein,
each Holder shall have the right, at such Holder's option, to require the
Company to repay, and if such right is exercised the Company shall repay, all or
any part of such Holder's Securities on _____, 2004 (the "Repayment Date") at a
price (the "Repayment Price") equal to 100% of the principal amount thereof,
together with accrued interest to ______, 2004. No interest payment (other than
the payment of accrued interest in connection with the Repayment Price, as
described in the immediately preceding sentence) with respect to that portion of
5
<PAGE> 6
such Holder's Securities for which such repayment option is exercised shall be
made on the Interest Payment Date next succeeding the date on which such Holder
surrenders such Securities and the completed election form as described herein.
Interest installments whose Stated Maturity is on or prior to said Repayment
Date will be payable to the Holders of said Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
To exercise such right, the Holder of this Security shall surrender
this Security at the office or agency of the Company in New York, New York
during the period beginning on _____, 2004 and ending at 5:00 p.m. (New York
City time) on _____, 2004 (or, if _____, 2004 is not a Business Day, the next
succeeding Business Day), with the form entitled "Option to Elect Repayment on
________, 2004" on the reverse hereof duly completed. Any such notice received
by the Company during the period beginning on ______, 2004 and ending at 5:00
p.m. (New York City time) on _____, 2004 (or, if _____, 2004 is not a Business
Day, the next succeeding Business Day) shall be irrevocable. The repayment
option may be exercised by any Holder for less than the entire principal amount
of this Security, provided that the principal amount with respect to which such
right is exercised must be equal to $1,000 or an integral multiple of $1,000.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of this Security for repayment shall be determined by the
Company, whose determination shall be final and binding.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding,
judicial or otherwise, with respect to the Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder, unless such Holder shall
have previously given the Trustee written notice of a continuing Event of
Default with respect to the Securities of this series, the
6
<PAGE> 7
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from the
Holders of a majority in principal amount of Outstanding Securities of this
series a direction inconsistent with such request, and shall have failed to
institute any such proceeding, for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the respective due dates
expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The provisions of Section 403 of the Indenture with respect to
satisfaction, discharge and defeasance of Securities of any series and of
Section 1010 of the Indenture with respect to defeasance of certain covenants,
shall apply to Securities of this series, which provisions shall have the same
effect as if set forth herein in their entirety.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
7
<PAGE> 8
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal of (or
premium, if any) or the interest on this Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture or any indenture supplemental thereto, against any incorporator,
stockholder, officer, director or employee, as such, past, present or future, of
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities of this series and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption, and reliance may be
placed only on the other identification numbers placed thereon.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
8
<PAGE> 9
OPTION TO ELECT REPAYMENT ON _____, 2004
(To be executed by the registered Holder if such
Holder desires to exercise the repayment option)
The undersigned registered Holder of this Security hereby irrevocably
exercises the option to require the Company to repay this Security or portion
thereof (which is $1,000 or an integral multiple thereof) below designated on
_________, 2004, in accordance with the terms of such Security, and directs that
payment be made to the registered Holder hereof unless a different name has been
indicated below.
Dated: ___________________, 2004
Signature of Holder: Signature(s) must be guaranteed if payment
is to be made other than to and in the name
of the registered Holder.
___________________________ ____________________________________________
Signature Guarantee
Portion of Security to be repaid
(in integral multiples of $1,000) if other
than the full principal amount thereof:
___________________________
Fill in for payment of Repayment Price
if to be made otherwise than to the
registered Holder:
Name: (please print)
___________________________
Address (including zip code): (please print)
___________________________
___________________________
SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER:
___________________________
9
<PAGE> 1
Exhibit 21
SOLUTIA AND SUBSIDIARIES
Solutia Inc.
Monchem Inc. (Delaware)
Solutia Greater China, Inc. (Delaware)
Monsanto Chemical Company Ltd. (60% owned) (China)
Solutia Services, Inc. (Delaware)
Solutia International Sales, Inc. (Barbados)
Beamer Road Management Company (Delaware)
Monchem International, Inc. (Delaware)
Solutia Argentina S.R.L. (Argentina)
Solutia Australia Pty. Ltd. (Australia)
Solutia Europe N.V./ S.A. (Belgium)
Solutia Services International N.V./S.A. (Belgium)
Solutia Participacoes Ltda. (Brazil)
Solutia Brasil Ltda. (Brazil)
Solutia Canada Inc. (Canada)
Solutia Colombia Ltda. (Colombia)
Solutia France S.A.R.L. (France)
Solutia Deutschland GmbH (Germany)
Solutia Hong Kong Limited (Hong Kong)
Solutia China Limited (Hong Kong)
Solutia Italia S.r.L. (Italy)
Solutia Japan Ltd. (Japan)
Solutia Korea Ltd. (Korea)
Solutia Mexico, S. de R.L. de C.V. (Mexico)
Solutia Singapore Pte. Ltd. (Singapore)
Solutia South Africa (Pty.) Ltd. (South Africa)
Solutia Iberia S.L. (Spain)
Solutia (Thailand) Ltd. (Thailand)
Solutia U.K. Ltd. (United Kingdom)
Solutia Inter-America, Inc. (Delaware)
Solutia Taiwan, Inc. (Delaware)
Solutia Venezuela, S.R.L. (Venezuela)
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
Solutia Inc.:
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-36355 of Solutia Inc. of our report, relating to the combined financial
statements, dated May 1, 1997, except for the first and second paragraphs and
the Subsequent Event section of Note 1, as to which the date is September 1,
1997, appearing in the Prospectus, which is part of this Registration Statement,
and of our report, relating to the financial statement schedule, dated May 1,
1997, except for the first and second paragraphs and the Subsequent Event
section of Note 1, as to which the date is September 1, 1997, appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP Signature
DELOITTE & TOUCHE LLP
St. Louis, Missouri
October 6, 1997
