<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
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
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
(2) Calculated pursuant to Rule 457.
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 SEPTEMBER 24, 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 CAPITAL MARKETS, 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 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, (ii) all
references to "Monsanto" include Monsanto Company and its consolidated
subsidiaries as of the relevant date and (iii) "Offerings" refers 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 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. The Assumable Commercial Paper is guaranteed by Monsanto
until repaid or refinanced by the Company at maturity, which is up to 30 days
following the Distribution Date. The Company has also put in place its own
commercial paper program, a part of which is being used currently to refinance
the Assumable Commercial Paper. The Assumable Commercial Paper and the
commercial paper are 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 (as defined herein), 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."
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)
11
<PAGE> 13
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 Company's historical financial statements of
Monsanto. 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. 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. 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, plastic, 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
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<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
38
<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, 56..... 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, 36....... 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, 54...... 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,
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 $1,000 for each Board
committee meeting attended. The Company does not have a retirement program for
its non-employee directors.
45
<PAGE> 47
EXECUTIVE COMPENSATION
HISTORICAL COMPENSATION
The following table sets forth compensation paid by Monsanto in 1996 to the
Chief Executive Officer of the Company and, based on such compensation, the most
highly compensated executive officers for the fiscal year ended December 31,
1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS
ANNUAL COMPENSATION ----------------------- PAYOUTS
- ------------------------------------------------------------------------------ -------
(e) (f) (g)
OTHER RESTRICTED SECURITIES (h)
(c) (d) ANNUAL STOCK UNDERLYING LTIP OTHER
(a) (b) SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(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 the 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 ranges 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 ranges 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"):
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 distribution 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. "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 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 Securities Inc., NationsBanc Capital Markets, Inc.
and Salomon Brothers Inc and their
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<PAGE> 58
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 to include any other event defined
to be an Event of Default with respect to the securities of any series. (Section
501)
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, except that, 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 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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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. 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 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
F-6
<PAGE> 71
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.
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
F-7
<PAGE> 72
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.
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 "Invest-
F-8
<PAGE> 73
ments 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
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.
F-9
<PAGE> 74
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 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
F-10
<PAGE> 75
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.
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 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
F-25
<PAGE> 90
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
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, Chemicals 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 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
F-26
<PAGE> 91
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 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 any given period.
F-27
<PAGE> 92
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
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, Monsanto 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.
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
F-28
<PAGE> 93
SOLUTIA INC.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 Capital Markets, 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 Capital Markets, 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 syndicate 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. Syndicate 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 syndicate members or other broker-dealers
in respect of the Securities sold in the Offerings for their account may be
reclaimed by the syndicate if such Securities are repurchased by the syndicate
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 Capital Markets, Inc. in the ordinary course of
business. An affiliate of each of Chase Securities Inc., J.P. Morgan Securities
Inc. and NationsBanc Capital Markets, 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............................ 11
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 CAPITAL MARKETS, 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, 118,351,492 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
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.
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 registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of St. Louis, State of
Missouri, on September 24, 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
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 September 24, 1997
- ----------------------------------------- Director (Principal Executive Officer)
Robert G. Potter
* President and Director September 24, 1997
- -----------------------------------------
John C. Hunter III
/s/ ROBERT A. CLAUSEN Senior Vice President and Chief September 24, 1997
- ----------------------------------------- Financial Officer (Principal Financial
Robert A. Clausen Officer)
* Vice President and Controller September 24, 1997
- ----------------------------------------- (Principal Accounting Officer)
Roger S. Hoard
* Director September 24, 1997
- -----------------------------------------
Robert T. Blakely
* Director September 24, 1997
- -----------------------------------------
Joan T. Bok
* Director September 24, 1997
- -----------------------------------------
Paul H. Hatfield
* Director September 24, 1997
- -----------------------------------------
Robert H. Jenkins
* Director September 24, 1997
- -----------------------------------------
Howard M. Love
* Director September 24, 1997
- -----------------------------------------
Frank A. Metz
* Director September 24, 1997
- -----------------------------------------
William D. Ruckelshaus
* Director September 24, 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 2
DISTRIBUTION AGREEMENT
BY AND BETWEEN
MONSANTO COMPANY,
A DELAWARE CORPORATION,
AND
SOLUTIA INC.,
A DELAWARE CORPORATION
AS OF SEPTEMBER 1, 1997
<PAGE> 2
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of September 1, 1997 (this
"Agreement"), by and between Monsanto Company, a Delaware corporation
("Monsanto"), and Solutia Inc., a newly-formed Delaware corporation
("Chemicals").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Monsanto has determined that it is
appropriate and desirable to separate Monsanto and its subsidiaries into two
publicly traded organizations by: (1) consolidating into Chemicals and its newly
formed subsidiaries certain of the businesses conducted by Monsanto directly and
through certain of its other subsidiaries and (2) distributing to the holders of
the issued and outstanding shares of common stock, par value $2.00 per share, of
Monsanto all of the issued and outstanding shares of common stock, par value
$.01 per share, of Chemicals in accordance with Article III hereof (the
"Distribution");
WHEREAS, the Distribution is intended to qualify as a tax-free spinoff
under Section 355 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters prior to and following such Distribution;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
1. ACTION: any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state,
local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
2. AFFILIATE: with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person;
PROVIDED, HOWEVER, that for purposes of this
<PAGE> 3
Agreement, no member of either Group shall be deemed to be an Affiliate of any
member of the other Group.
3. AGENT: the distribution agent appointed by Monsanto to distribute
the shares of Chemicals Common Stock pursuant to the Distribution.
4. ARBITRATION ACT: the United States Arbitration Act, 9 U.S.C.
secs.1-14, as the same may be amended from time to time.
5. ARBITRATION DEMAND DATE: as defined in Section 7.03(a) hereof.
6. ARBITRATION DEMAND NOTICE: as defined in Section 7.03(a) hereof.
7. ASSETS: any and all assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or
other third parties or elsewhere), whether real, personal or mixed,
tangible, intangible or contingent, in each case whether or not recorded or
reflected or required to be recorded or reflected on the books and records
or financial statements of any Person, including, without limitation, the
following:
(i) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic tape or
any other form;
(ii) all apparatus, computers and other electronic data
processing equipment, fixtures, trade fixtures, machinery, equipment,
capital and other spares, furniture, office equipment, automobiles,
trucks, aircraft, rolling stock, vessels, motor vehicles, trailers and
other transportation equipment, special and general tools, test
devices, prototypes and models and any other tangible personal
property;
(iii) all inventories of materials, raw materials, catalysts,
precious metals, stores inventories, supplies, work-in-process,
consigned goods and finished goods and products and product samples;
(iv) all interests in real property of whatever nature, including
easements, leases and licenses, whether as owner, mortgagee or holder
of a Security Interest in real property, lessor, sublessor, lessee,
sublessee or otherwise;
(v) all buildings and other improvements to real property and all
leasehold improvements;
(vi) all bonds, notes, debentures or other securities issued by
any Subsidiary or any other Person, all loans, advances or other
extensions of credit or capital contributions to any Subsidiary or any
other Person, all certificates of deposit, bankers' acceptances,
certificates of interest or participation in profit sharing
agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment
contracts, voting trust certificates, fractional
-3-
<PAGE> 4
undivided interests in oil, gas or other mineral rights, puts, calls,
straddles, options and other securities of any kind;
(vii) all license agreements, leases of personal property and
other leases, open purchase orders for raw materials, supplies, parts
or services, unfilled orders for the manufacture or sale of products,
other sales or purchase agreements, other commitments or arrangements,
permits, distribution arrangements, and other contracts, agreements or
commitments;
(viii) all deposits, letters of credit and performance and surety
bonds;
(ix) all technical information, data, specifications, research
and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by
consultants and other third parties; environmental clean-up
technology, safety and industrial hygiene methods and technology;
(x) all technology, domestic and foreign patents, statutory,
common law and registered copyrights, trade names, registered and
unregistered trademarks, service marks, service names, trade styles,
product bar codes and associated goodwill, and registrations and
applications for any of the foregoing, mask works, trade secrets,
inventions, formulas, processes, designs, know-how, or other data or
information, confidential information, other proprietary information
and licenses from third Persons granting the right to use any of the
foregoing and other rights in, to and under the foregoing (it being
understood that the transfer of Assets described in this clause (x)
shall be made pursuant to the Intellectual Property Agreements);
(xi) all computer applications, programs and other software and
databases (including all embodiments or fixations thereof and related
documentation, registrations and franchises, and all additions,
improvements, enhancements, updates and accessions thereto), all
technical manuals and documentation made in connection with the
foregoing, and the right to sue for past infringement thereof, and all
licenses and rights with respect to the foregoing or of like nature,
including operating software, network software, firmware, middleware,
design software, design tools, systems documentation and instructions;
(xii) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists,
customer and vendor data, correspondence and lists, product
literature, artwork, design, development and manufacturing files,
vendor and customer drawings, formulations and specifications, quality
records and reports, lists of advertisers, records pertaining to
advertisers and accounts, and other books, records, studies, surveys,
reports, plans and document forms and any other business information;
(xiii) all prepayments or prepaid expenses, trade accounts and
other accounts and notes receivable and all other current assets;
-4-
<PAGE> 5
(xiv) the right to receive mail, payments on accounts receivable
and other communications;
(xv) all rights under contracts, agreements, warranties or
guaranties, all claims or rights or judgments against any Person, all
rights in connection with any bids or offers and all claims, choses in
action, rights of recovery and rights of set-off or similar rights,
whether accrued or contingent, refunds and deposits;
(xvi) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(xvii) all licenses, permits, approvals and authorizations which
have been issued by any Governmental Authority;
(xviii) advertising materials and other printed or written
materials;
(xix) employee contracts, including any rights thereunder to
restrict an employee or former employee from competing in certain
respects, and personnel and medical files and records;
(xx) cash, cash equivalents, bank accounts, lock boxes and other
deposit arrangements; and
(xxi) interest rate, currency, commodity or other swap, collar,
cap, floor, or other hedging or similar agreements or arrangements.
8. BUSINESS TRANSFER AGREEMENTS: the agreements which have been or
will be entered into between certain wholly-owned Chemicals Subsidiaries
incorporated, or having a branch or presence outside the United States and
certain wholly-owned Monsanto Subsidiaries incorporated, or having a branch
or presence outside the United States, providing for the transfer of
Chemicals Assets and assumption of Chemicals Liabilities outside the United
States from such Monsanto Subsidiaries to such Chemicals Subsidiaries. For
purposes hereof, the term Business Transfer Agreement shall also include:
(i) any other agreements related to the transfer of Chemicals Assets and
assumption of Chemicals Liabilities outside the United States, including
without limitation, those agreements which are required by local law or are
executed in connection with or to implement such transfer of Chemicals
Assets and assumption of Chemicals Liabilities; and (ii) the assignment
from Monsanto to Chemicals transferring the operating assets in the United
States.
9. BUSINESS DAY: any day other than a Saturday, a Sunday or a day on
which banking institutions located in the States of Missouri, New York or
Delaware are authorized or obligated by law or executive order to close.
10. CHEMICALS: as defined in the preamble to this Agreement.
-5-
<PAGE> 6
11. CHEMICALS ASSETS: excluding the Excluded Chemicals Assets, and
any Assets sold or otherwise disposed of on or prior to the Distribution
Date (1) all Assets included on the Chemicals Balance Sheet or the
accounting records supporting the Chemicals Balance Sheet, as adjusted by
the pro forma adjustments thereto as set forth in the Proxy Statement and
all Assets of either Group acquired between March 31, 1997 and the
Distribution Date which would have been included on the Chemicals Balance
Sheet had they been owned on March 31, 1997; (2) all Assets exclusively
dedicated to the Chemicals Business and all Assets formerly used in the
Former Chemicals Business which are not used in the Monsanto Business on
the Distribution Date, which in either case, are owned, leased, licensed or
held by any member of either Group on the Distribution Date; (3) real
property (including the buildings, fixtures and improvements located
thereon) listed on Schedule 1.01(11)(a) and such other real property
interests held by members of either Group formerly used in any Former
Chemicals Business which are not used in the Monsanto Business on the
Distribution Date; (4) all of the outstanding shares of all classes of
capital stock of the Chemicals Subsidiaries to the extent owned by any
member of the Monsanto Group; (5) the partnership, joint venture and other
equity interests listed on Schedule 1.01(11)(b), and Chemicals' rights with
respect to and interests in the P4 Joint Venture as provided in the P4
Joint Venture Agreement; (6) all contracts, leases and licenses exclusively
dedicated to the Chemicals Business, and such rights under other contracts,
leases or licenses as the parties have otherwise agreed pursuant to this
Agreement, the Other Agreements or in any other enforceable agreement
executed on behalf of a member of the Chemicals Group, on the one hand, and
a member of the Monsanto Group, on the other hand; (7) warranties,
guarantees, claims or any other rights that members of either Group may
have against any Third Party (including Governmental Authorities) to the
extent relating to the disposition of any Former Chemicals Business; (8)
those books and records to be delivered to the Chemicals Group and rights
of access to other books and records as provided in Article VI of this
Agreement; (9) the rights of Chemicals under the Insurance Policies as
provided in Article IX of this Agreement; (10) any pension assets, pension
funds or other Assets expressly contemplated to be transferred, licensed or
otherwise made available to any member of the Chemicals Group pursuant to
this Agreement or any Other Agreements; and (11) all of the Assets listed
on Schedule 1.01(11)(c).
CHEMICALS ASSETS shall also mean any and all other Assets owned or
held on the Distribution Date by members of the Monsanto Group that are
related to the Chemicals Business and which the parties agree should have
been transferred to the Chemicals Group, if, had the parties given specific
consideration to such Asset as of the date hereof, such Asset would have
been classified as a Chemicals Asset; provided, however, that no Asset
shall be deemed to be a Chemicals Asset solely as a result of this
provision unless a claim with respect thereto is made by a member of the
Chemicals Group on or prior to eighteen months after the Distribution Date.
12. CHEMICALS BALANCE SHEET: the unaudited combined balance sheet of
the Chemicals Business as of March 31, 1997 and the notes thereto as set
forth in the Proxy Statement.
-6-
<PAGE> 7
13. CHEMICALS BUSINESS: (i) all businesses and operations (including
related joint ventures and alliances) of the chemicals businesses of
Monsanto as described in the Proxy Statement in the section "Businesses and
Properties of Chemicals After the Spinoff" and as conducted on the
Distribution Date, consisting principally of those businesses and
operations set forth on Schedule 1.01(13) conducted by the Acrilan(R)
Acrylic Fibers Unit, the Carpet Fibers Unit, the Nylon Plastics and
Polymers Unit, the Nylon Industrial Unit, the Intermediates Unit, the
Saflex(R) Unit, the Phosphorus and Derivatives Unit, the Resins Unit, the
Polymer Modifiers Unit and the Industrial Products Unit and (ii) any other
business or operation on the Distribution Date conducted by or for the
Chemicals Group through the ownership or use of the Chemicals Assets.
14. CHEMICALS CLAIM: any claim with respect to any injury, Loss,
Liability, damage or expense (x) that is or was incurred or asserted to
have been incurred prior to the Distribution Date in, or in connection
with, the Chemicals Business, the Former Chemicals Business, the Chemicals
Assets or the Chemicals Liabilities or the Joint Ownership Properties or
the P4 Business to the extent of Chemicals' rights or obligations under the
P4 Joint Venture Agreement with respect to such claims; or (y) that is or
was incurred prior to the Distribution Date that is against any member of
the Chemicals Group or any employee of any member of the Chemicals Group;
provided, that in the case of any claim under (x) or (y) or claims
identified in (i) through (vi) below, such injury, Loss, Liability, damage
or expense (including costs of defense and reasonable attorneys' fees) are
or may be insured or insurable under one or more of the Insurance Policies.
Chemicals Claims include, without limitation, (i) claims for property or
casualty damage or any other injury, Loss, Liability, damage or expense
with respect to Chemicals Assets; (ii) claims of injury, Loss, Liability,
damage or expense arising from business interruption of any type of the
Chemicals Business or Former Chemicals Business; (iii) claims against any
member of the Chemicals Group whether or not the Chemicals Group has or has
assumed liability for such claims under this Agreement or any of the Other
Agreements; (iv) claims against any member of the Monsanto Group to the
extent any member of the Chemicals Group has assumed liability for such
claims under this Agreement or any of the Other Agreements; (v) claims
involving or against any director, officer, employee, fiduciary or agent of
the Chemicals Group who are entitled or would have been entitled to
indemnification by Monsanto had the Distribution not occurred; and (vi)
claims with respect to the Chemicals Business, the Former Chemicals
Business, the Chemicals Assets, the Chemicals Liabilities or the Joint
Ownership Properties or the P4 Business to the extent of Chemicals rights
or obligations under the P4 Joint Venture Agreement involving any other
Person who is entitled or would have been entitled to indemnification by
any member of the Monsanto Group had the Distribution not occurred.
15. CHEMICALS COMMON STOCK: the common stock, par value $.01 per
share, of Chemicals. References to Chemicals Common Stock shall also
include the associated preferred share purchase rights issued under the
Chemicals Rights Plan.
16. CHEMICALS DIRECTOR: any individual who is a member of the Board
of Directors of Chemicals.
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<PAGE> 8
17. CHEMICALS FACILITIES: facilities which are Chemicals Assets.
18. CHEMICALS GROUP: Chemicals and the Chemicals Subsidiaries of
which Chemicals directly or indirectly owns 100% of the stock or other
equity interest entitled to vote on the election of members to the board of
directors or similar governing body.
19. CHEMICALS LIABILITIES: excluding the Excluded Chemicals
Liabilities and excluding those Liabilities (or portions thereof) which
have been satisfied, paid or discharged prior to the Distribution Date, (1)
all Liabilities included on the Chemicals Balance Sheet or the accounting
records supporting such Chemicals Balance Sheet as adjusted by the pro
forma adjustments thereto as set forth in the Proxy Statement and all
Liabilities of either Group incurred or arising between March 31, 1997 and
the Distribution Date which would have been included on the Chemicals
Balance Sheet had they been incurred or arisen on or prior to March 31,
1997; (2) all Liabilities relating exclusively to or arising exclusively
from the Chemicals Assets, the Chemicals Business or the Former Chemicals
Business or the disposition of any Former Chemicals Business, whether
incurred or arising prior to or after the Distribution Date; (3) except as
expressly provided in the Other Agreements, all Liabilities relating to or
arising from the operation of its business or the use of its Assets by any
member of the Chemicals Group at any time from and after the Distribution
Date; (4) those Liabilities for worker's compensation or Third Party claims
incurred prior to the Distribution Date at a site transferred to the
Chemicals Group as part of the Chemicals Assets; (5) all Liabilities
assumed by any member of the Chemicals Group under an express provision of
this Agreement or an Other Agreement; (6) those Liabilities for
environmental remediation or other environmental responsibilities as
described to be assumed by Chemicals in Schedule 1.01(19)(a); (7) all
Liabilities for products of the Chemicals Business or Former Chemicals
Business sold to Third Parties by any member of either Group; (8) all
Liabilities arising under the Financing Facility and the Third Party
indebtedness listed on Schedule 1.01(19)(b); and (9) all Liabilities listed
on Schedule 1.01(19)(c).
CHEMICALS LIABILITIES shall also mean, any and all other
Liabilities owed on the Distribution Date by members of the Monsanto Group
that are related to the Chemicals Business and which the parties agree
should have been transferred to the Chemicals Group, if, had the parties
given specific consideration to such Liability as of the date hereof, such
Liability would have been classified as a Chemicals Liability; provided,
however, that no Liability shall be deemed to be a Chemicals Liability
solely as a result of this provision unless a claim with respect thereto is
made by a member of the Monsanto Group on or prior to eighteen months after
the Distribution Date.
20. CHEMICALS RIGHTS PLAN: the share purchase rights plan in the form
approved by the Board of Directors of Chemicals prior to the Distribution
Date.
21. CHEMICALS SUBSIDIARIES: all of the corporations listed on
Schedule 1.01(21).
22. CHEMICALS SUPPORT AGREEMENTS: any obligation or agreement of the
Monsanto Group under any guarantee, letter of credit, bond, letter of
comfort or working
-8-
<PAGE> 9
capital maintenance agreement obtained prior to the Distribution Date for
the benefit of the Chemicals Business or any member of the Chemicals Group.
23. CLAIMS ADMINISTRATION: the processing of claims made under the
Insurance Policies, including the reporting of claims to the insurance
carrier, management and defense of claims and providing for appropriate
releases upon settlement of claims.
24. CODE: the Internal Revenue Code of 1986, as amended, or any
successor legislation and the regulations promulgated thereunder.
25. CPR: the Center for Public Resources.
26. DGCL : the Delaware General Corporation Law, as amended.
27. DISTRIBUTION: the distribution to holders of shares of Monsanto
Common Stock to be effected pursuant to Article III on the basis of one
share of Chemicals Common Stock for every five (5) shares of Monsanto
Common Stock held of record as of the Record Date.
28. DISTRIBUTION DATE: the date, to be determined by the Board of
Directors of Monsanto, or such committee of the Board as shall be
designated by the Board of Directors, as of which the Distribution shall be
effected.
29. EMPLOYEE BENEFITS ALLOCATION AGREEMENT: an employee benefits and
compensation allocation agreement to be entered into between Monsanto and
Chemicals substantially in the form attached hereto as Exhibit 1.01(29),
with such changes as may be mutually satisfactory to Monsanto and
Chemicals.
30. ESCALATION NOTICE: as defined in Section 7.02(a) hereof.
31. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
32. EXCLUDED CHEMICALS ASSETS: (i) (a) the Joint Ownership Properties
and (b) that undivided interest in the P4 Joint Venture that is to continue
to be owned by Monsanto under the P4 Joint Venture Agreement; (ii) the
phosphorus trichloride facility and related Assets at Monsanto's plant in
Luling, Louisiana; (iii) cash and cash equivalents (as such term is used in
connection with the preparation of Monsanto's financial statements) in
excess of $75,000,000; (iv) Monsanto Enviro-Chem Systems, Inc.; (v) Leonard
Construction Company; (vi) any loan to, note of, or investment in Camelot
Superabsorbents Ltd.; (vii) all Assets of Monsanto's diamond coatings and
optical/vision business, including without limitation, all Assets which
were formerly owned, leased or controlled by Diamonex, Incorporated, its
subsidiaries and any entity in which it held at any time an equity
interest; (viii) agreements with Third Parties relating to Monsanto Assets,
including without limitation, operating agreements at Monsanto Facilities
which relate to businesses
-9-
<PAGE> 10
sold prior to the Distribution Date; (ix) all Assets of Monsanto's
industrial alginates business; and (x) those Assets listed on Schedule
1.01(32).
33. EXCLUDED CHEMICALS LIABILITIES: those Liabilities listed on
Schedule 1.01(33).
34. FINANCING FACILITY: (i) the commercial paper facility, including
the Issuing and Paying Agency and Assignment and Assumption Agreement, to
be entered into prior to the Distribution Date by Monsanto, Chemicals, and
an agent or co-agents selected by Monsanto, pursuant to which, prior to the
Distribution Date, Monsanto will issue assumable commercial paper such that
the sum of (x) the accreted principal amount on the Distribution Date of
commercial paper that Chemicals will assume on the Distribution Date and
(y) the principal amount, plus accrued interest, on the Distribution Date
of other Third Party indebtedness listed on Schedule 1.01(19)(b) that
Chemicals will assume on the Distribution Date (excluding indebtedness
relating to the Chemicals SIP Trust (as defined in the Employee Benefits
Allocation Agreement)) equals $1,000,000,000; and (ii) the credit agreement
or agreements to be entered into by Chemicals.
35. FOREIGN EXCHANGE RATE: with respect to any currency other than
United States dollars as of any date, the average of the bid and asked
rates at 9:00 a.m., New York City time, on such date at which such currency
may be exchanged for United States dollars as quoted by Citibank, N.A.,
except that, with respect to any Indemnifiable Loss covered by insurance,
the Foreign Exchange Rate for such currency shall be determined as set
forth in Section 4.03(d)(2).
36. FORMER CHEMICALS BUSINESS: those businesses and operations which
were formerly operated by Monsanto as part of its chemicals subsidiaries,
units or divisions and which have been sold, or otherwise disposed of, or
discontinued prior to the Distribution Date including but not limited to
those businesses and operations set forth on Schedule 1.01(36)(a) but
excluding, without limitation (except to the extent set forth on such
Schedule), (i) shut down or sold plant sites and businesses associated with
product families that continue in the Monsanto Group or in the P4 Joint
Venture; (ii) shut down or sold plant sites and businesses previously
closely integrated (supply chain) with upstream or downstream Monsanto
subsidiaries, units or divisions other than a chemicals subsidiary, unit or
division; (iii) businesses or operations relating to any of the following:
(a) health care or vision; (b) pharmaceuticals; (c) environmental products
(e.g., Brinks); (d) food products and additives; (e) feed products and
additives; (f) BST/animal hormones; (g) agricultural chemicals; (h)
pesticides (except for chlorinated cyanuric acids or its salts, 1, 4
dichlorobenzene, 1, 4 nitrophenol); (i) seed and fertilizer; (j) lawn &
garden products; (k) blasting products; (l) animal/plant farms; (m)
construction of sulfuric acid plants/catalysts; (n) Monsanto Enviro-Chem
Systems, Inc.; (o) Leonard Construction Company; (p) controls or control
valves (e.g., Fisher Controls); (q) electron beam accelerator; (r)
radiation service/products; (s) gas products (e.g., Matheson); (t) hollow
fibers (e.g., Permea); (u) the Dayton, Ohio plant site; (v) Pristine and
Hershberger offsites; (w) Research Triangle Park site; (x) oil and gas
production and exploration; (y) petroleum refining and retailing; (z)
Monsanto Research Corporation (e.g., Mound Labs); (aa) Hub Property -
Nitro; (bb)
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<PAGE> 11
Delmar Street; (cc) metalized fabrics; (dd) DDT; (ee) Phosphorus (P4); and
(ff) those sites and businesses listed on Schedule 1.01(36)(b).
37. GOVERNMENTAL AUTHORITY: any federal, state, local, foreign or
international court, government, department, commission, board, bureau,
agency, the NYSE or other regulatory, administrative or governmental
authority.
38. GROUP: the Monsanto Group or the Chemicals Group as the context
requires.
39. INDEMNIFIABLE LOSSES: all Losses which are subject to being
indemnified by Monsanto or Chemicals pursuant to Article IV.
40. INDEMNIFYING PARTY: a Person who or which is obligated under this
Agreement to provide indemnification.
41. INDEMNITEE: a Person who may seek indemnification under this
Agreement.
42. INDEMNITY PAYMENT: an amount that an Indemnifying Party is
required to pay to an Indemnitee pursuant to Article IV.
43. INFORMATION: all records, books, contracts, instruments, computer
data and other data and information.
44. INSURANCE ADMINISTRATION: with respect to each Insurance Policy,
(1) the accounting for retrospectively-rated premiums, defense costs,
indemnity payments, deductibles and retentions as appropriate under the
terms and conditions of each of the Insurance Policies, (2) the reporting
to excess insurance carriers of any losses or claims which may cause the
per-occurrence or aggregate limits of any Insurance Policy to be exceeded
and (3) the distribution of Insurance Proceeds as contemplated by this
Agreement.
45. INSURANCE POLICY: insurance policies and insurance contracts of
any kind that are owned or maintained by, or provide a benefit in favor of,
any member of either Group or any of its predecessors as the insured
interest, including without limitation, primary and excess policies;
comprehensive general liability policies; automobile insurance policies;
aviation and aircraft insurance policies; worker's compensation insurance
policies (including without limitation, occupational disease); property,
casualty and business interruption insurance policies; directors and
officers liability insurance policies; fiduciary insurance policies;
fidelity insurance policies; self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder;
and any insurance policy for directors and officers liability which has
been purchased to provide occurrence coverage for both continuing and
former directors, officers and employees for claims arising from or
relating to events, occurrences or other matters prior to or on the
Distribution Date. The term "Insurance Policy" expressly includes any
insurance policies or insurance contracts issued by Monsure Ltd. or Mongard
Ltd.
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46. INSURANCE PROCEEDS: those monies received by or on behalf of an
insured from an insurance carrier or paid by an insurance carrier on behalf
of the insured.
47. INSURED CLAIMS: those Liabilities and Losses that, individually
or in the aggregate, are covered within the terms and conditions of any of
the Insurance Policies, whether or not subject to deductibles, coinsurance,
uncollectibility or retrospectively-rated premium adjustments, but only to
the extent that such rights or Liabilities are within applicable Insurance
Policy limits, including aggregates.
48. IRB: the arrangements relating to or arising out of any one or
more of the following to the extent that it relates to a Chemicals Asset:
(i) Anniston, Ala. PCRBs, Series 1992; (ii) Anniston SWDA, SWRRRBs, Series
1992; (iii) Caribou County PCRBs, Series 1990; (iv) Caribou County PCRBs,
Series 1994A; (v) Caribou County PCRBs, Series 1994B; (vi) Southwest III
Devel. Auth. Series 1991 (callable 7/15/2004); (vii) Brazos River PCRBs,
Series 1990; (viii) Brazos River PCRBs, Series 1988; (ix) Brazos River
PCRBs, Series 1994; (x) Decatur IRBs, Series 1996; (xi) Decatur PCRBs,
Series 1990; (xii) Decatur PCRBs, Series 1992 Var.; (xiii) Decatur PCRBs,
Series 1994 Var.; (xiv) Escambia County Var. Rate Bonds 1993; (xv) Escambia
County Var. Rate Bonds 1994; (xvi) Gloucester County PCRBs, Series 1992
Var.; (xvii) Greenville IDRBs, Series 1990 (callable 10/01/2000); (xviii)
Missouri PCRBs, Series 1988; (xix) Missouri PCRBs, Var. Rate Series 1993;
(xx) Sauget PCRBs, Series 1996; (xxi) Sauget PCRBs, Series 1992; (xxii)
Sauget PCRBs, Series 1993; (xxiii) Springfield Adj. Rate PCRBs, Sers. 1984
(callable 11/01/1999); (xxiv) Southwest III Devel. Auth. Series 1989.
49. INTELLECTUAL PROPERTY AGREEMENTS: the Intellectual Property
Transfer Agreement, substantially in the form attached hereto as Exhibit
1.01(49), together with various agreements attached thereto as exhibits,
with such changes as may be mutually agreed, which have been or will be
entered into on or prior to the Distribution Date between Monsanto and
Chemicals or members of their respective Groups with respect to transfer
and licensing of intellectual property.
50. IRS: the Internal Revenue Service.
51. JOINT OWNERSHIP PROPERTIES: the properties listed on Schedule
1.01(51).
52. LEASE AGREEMENTS: the lease agreements which have been or will be
entered into on or prior to the Distribution Date between Monsanto and
Chemicals, or the appropriate members of the Monsanto Group and the
Chemicals Group, substantially in the form attached hereto as Exhibit
1.01(52) with respect to the facilities listed on Schedules 1.01(52).
53. LIABILITIES: all debts, liabilities and obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, and whether or
not the same would properly be reflected on a balance sheet, including all
costs and expenses relating thereto.
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<PAGE> 13
54. LITIGATION MATTERS: as defined in Section 6.06(a) hereof.
55. LOSSES: all losses, liabilities, damages, claims, demands,
judgments or settlements of any nature or kind, known or unknown, fixed,
accrued, absolute or contingent, liquidated or unliquidated, including all
reasonable costs and expenses (legal, accounting or otherwise as such costs
are incurred) relating thereto, suffered by an Indemnitee.
56. MONSANTO: as defined in the preamble to this Agreement.
57. MONSANTO ASSETS: all of the Assets other than the Chemicals
Assets held on the Distribution Date by any member of either Group,
including the Excluded Chemicals Assets.
58. MONSANTO BUSINESS: all of the businesses, other than the
Chemicals Business, the Former Chemicals Business or the P4 Business,
conducted on or prior to the Distribution Date by any member of either
Group.
59. MONSANTO CERTIFICATE AMENDMENTS: the amendments to Monsanto's
Certificate of Incorporation proposed by the Board of Directors of Monsanto
for consideration at the Special Meeting.
60. MONSANTO COMMON STOCK: the common stock, par value $2.00 per
share, of Monsanto.
61. MONSANTO DIRECTOR: any individual who is a member of the Board of
Directors of Monsanto following the Distribution Date.
62. MONSANTO FACILITIES: facilities which are Monsanto Assets.
63. MONSANTO GROUP: Monsanto and its Subsidiaries of which Monsanto
directly owns 100% of the stock or other equity interest entitled to vote
on the election of members to the board of directors or similar governing
body, other than members of the Chemicals Group.
64. MONSANTO LIABILITIES: except as expressly provided in the Other
Agreements, all of the Liabilities, other than the Chemicals Liabilities,
of any member of the Monsanto Group whether incurred or arising prior to or
after the Distribution Date, including the Excluded Chemicals Liabilities.
65. NOTICES: as defined in Section 10.05 hereof.
66. NYSE: the New York Stock Exchange, Inc.
67. OFFER OF SETTLEMENT: as defined in Section 7.02(c) hereof.
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<PAGE> 14
68. OFFEREE: as defined in Section 7.02(c) hereof.
69. OFFEROR: as defined in Section 7.02(c) hereof.
70. OPERATING AGREEMENTS: the operating agreements which have been or
will be entered into on or prior to the Distribution Date between members
of the Monsanto Group and members of the Chemicals Group, substantially in
the form attached hereto as Exhibit 1.01(70), with such changes as may be
mutually satisfactory, whereby one party will operate a facility listed on
Schedule 1.01(70) for the benefit of the other.
71. OTHER AGREEMENTS: all Transition Services Agreements, the
Employee Benefits Allocation Agreement, all Business Transfer Agreements,
the Tax Sharing Agreement, the Intellectual Property Agreements, the Lease
Agreements, the Raw Material Supply Agreements, the Plan and Agreement of
Reorganization, the Operating Agreements and the P4 Joint Venture
Agreement.
72. P4 BUSINESS: the mining of phosphorus rock and processing it into
elemental phosphorous together with related activities, including but not
limited to the coking operations at Rock Springs, Wyoming.
73. P4 JOINT VENTURE: the limited liability company created pursuant
to the P4 Joint Venture Agreement.
74. P4 JOINT VENTURE AGREEMENT: the joint venture agreements and
other related agreements which have been or will be entered into on or
prior to the Distribution Date among any of Monsanto, Chemicals and the P4
Joint Venture with respect to the Joint Ownership Properties and the P4
Business, substantially in the forms attached hereto as Exhibits
1.01(74)(a) through 1.01(74)(g), with such changes as may be satisfactory
to Monsanto and Chemicals.
75. PERSON: an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization or a government or any department or agency thereof.
76. PLAN: as defined in the Employee Benefits Allocation Agreement.
77. PLAN AND AGREEMENT OF REORGANIZATION: the Plan and Agreement of
Reorganization adopted by Monsanto.
78. PRIME RATE: the rate which Citibank N.A. (or any successor
thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate, as
in effect from time to time.
79. PRIVILEGED INFORMATION: as defined in Section 6.06(a) hereof.
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<PAGE> 15
80. PROXY STATEMENT: the Proxy Statement dated July 14, 1997 sent to
the holders of shares of Monsanto Common Stock in connection with the
Special Meeting.
81. RAW MATERIAL SUPPLY AGREEMENTS: the agreements which have been or
will be entered into on or prior to the Distribution Date between Monsanto
and Chemicals, substantially in the forms attached hereto as Exhibit
1.01(81)(a) through 1.01(81)(f), with such changes as may be mutually
satisfactory, in each case providing for the supply of raw materials to
members of the Monsanto Group by members of the Chemicals Group, or to
members of the Chemicals Group by members of the Monsanto Group.
82. RECORD DATE: the date determined by the Board of Directors of
Monsanto, or such committee of the Board as shall be designated by the
Board of Directors, as the record date for determining stockholders of
Monsanto entitled to receive the Distribution.
83. REGISTRATION STATEMENT: the registration statement on Form 10 to
effect the registration of the Chemicals Common Stock pursuant to the
Exchange Act.
84. REPRESENTATIVE: with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
85. SEC: the Securities and Exchange Commission.
86. SECURITIES ACT: the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
87. SECURITY INTEREST: means any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
88. SERVICE AGREEMENT: any third party administrator or claims
handling agreement of any kind or nature to which any member of either
Group is directly or indirectly a party, in effect as of the date hereof,
related to the handling of Chemicals Claims.
89. SPECIAL MEETING: the special meeting of stockholders of Monsanto
to consider the Distribution and any other matters set forth by the Board
of Directors of Monsanto in the notice of the Special Meeting.
90. SPECIAL MEETING DATE: the date determined by the Board of
Directors of Monsanto, or by such committee of the Board as designated by
the Board of Directors, for the Special Meeting.
91. SPECIAL MEETING RECORD DATE: the record date determined by the
Board of Directors of Monsanto, or by such committee of the Board as
designated by the Board of
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Directors, as the record date for determining stockholders of Monsanto
entitled to vote at the Special Meeting.
92. SUBSIDIARY: with respect to any specified Person, any corporation
or other legal entity of which such Person or any of its Subsidiaries
controls or owns, directly or indirectly, more than 50% of the stock or
other equity interest entitled to vote on the election of members to the
board of directors or similar governing body; PROVIDED, HOWEVER, that for
purposes of this Agreement, (1) the Chemicals Subsidiaries shall be deemed
to be Subsidiaries of Chemicals and (2) Chemicals and the Chemicals
Subsidiaries shall not be deemed to be Subsidiaries of Monsanto or any of
Monsanto's Subsidiaries.
93. TAX: as defined in the Tax Sharing Agreement.
94. TAX SHARING AGREEMENT: the tax sharing and indemnification
agreement which has been or will be entered into on or prior to the
Distribution Date between Monsanto and Chemicals substantially in the form
attached hereto as Exhibit 1.01(94), with such changes as may be mutually
satisfactory to Monsanto and Chemicals.
95. THIRD PARTY: a Person who is not a party hereto or a wholly-owned
Subsidiary thereof.
96. THIRD PARTY CLAIM: any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any arbitration
tribunal asserted by a Third Party.
97. TRANSITION SERVICES AGREEMENT: the transition services agreements
which have been or will be entered into on or prior to the Distribution
Date between the Monsanto Group and the Chemicals Group, substantially in
the form attached hereto as Exhibit 1.01(97), with such changes as may be
mutually satisfactory, providing for (1) the Monsanto Group to make
available certain personnel and services to the Chemicals Group and (2) the
Chemicals Group to make available certain personnel and services to the
Monsanto Group, in each case for a period of up to 18 months following the
Distribution Date.
1.02 REFERENCES TO TIME. All references in this Agreement to times of
the day shall be to St. Louis time, except as otherwise specifically provided
herein.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
2.01 SHARE PURCHASE RIGHTS PLAN; CERTIFICATE OF INCORPORATION; BYLAWS.
Prior to the Distribution Date, Chemicals shall adopt the Chemicals Rights Plan.
Monsanto and Chemicals shall take all action necessary so that, at the
Distribution Date, the Restated Certificate
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of Incorporation and Bylaws of Chemicals shall be in the forms attached hereto
as Exhibits 2.01(a) and 2.01(b), respectively.
2.02 ISSUANCE OF STOCK. Prior to or as of the Distribution Date, the
parties hereto shall take all steps necessary to reclassify the outstanding
shares of Chemicals Common Stock so that, except as otherwise contemplated by
this Agreement, immediately prior to or as of the Distribution Date the number
of shares of Chemicals Common Stock outstanding and held by Monsanto shall equal
the number of shares of Monsanto Common Stock outstanding on the Record Date
divided by five (rounded to the next highest whole share).
2.03 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. On or prior to
the Distribution Date, the parties hereto shall and shall cause their respective
wholly-owned Subsidiaries (1) to execute instruments of assignment and transfer
and to take such other corporate action as is necessary to transfer to Chemicals
and its wholly-owned Subsidiaries all of the right, title and interest of the
Monsanto Group in the Chemicals Assets; (2) to execute instruments of assignment
and transfer and to take such other corporate action as is necessary to transfer
to Chemicals a 40% ownership interest in the P4 Joint Venture subject to the
terms and conditions set forth in the P4 Joint Venture Agreement; and (3) to
take all action necessary to cause Chemicals or its wholly-owned Subsidiaries to
assume all of the Chemicals Liabilities. A global assignment and assumption
agreement along with Business Transfer Agreements for transfers of Chemicals
Assets and assumption of Chemicals Liabilities will be executed on or prior to
the Distribution Date; provided, however, that in the event of a conflict
between such agreements and this Agreement, this Agreement will control; and
provided further that the transfer of the operating Assets of the Chemicals
Business shall be substantially completed prior to the Special Meeting.
2.04 FINANCING ARRANGEMENTS. Each of the parties hereto agrees that it
will use reasonable efforts to arrange the Financing Facility and Chemicals
agrees that it will assume the obligations with respect to the commercial paper
issued thereunder on the Distribution Date with Monsanto becoming a guarantor of
the commercial paper obligations thereunder outstanding on the Distribution Date
but otherwise having no further liability. Each of the parties hereto agrees
that it will use reasonable efforts to obtain, prior to the Distribution Date,
all necessary consents, waivers or amendments to each bank credit agreement,
debt security or other financing facility to which it or any of its Subsidiaries
is a party or by which it or any of its Subsidiaries is bound, or to refinance
such agreement, security or facility, in each case on terms satisfactory to
Monsanto and Chemicals and to the extent necessary to permit the Distribution to
be consummated without any material breach of the terms of such agreement,
security or facility.
2.05 REGISTRATION AND LISTING. Prior to the Distribution Date:
1. Monsanto and Chemicals shall prepare the Proxy Statement and the
Registration Statement. Chemicals shall file the Registration Statement
with the SEC. Monsanto shall file the Proxy Statement with the SEC and
shall mail the Proxy Statement to the holders of Monsanto Common Stock as
of the Special Meeting Record Date. Monsanto and Chemicals shall use
reasonable efforts to cause the Registration Statement to become effective
under the Exchange Act as promptly as reasonably practicable.
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2. The parties hereto shall use their reasonable efforts to take all
such action as may be necessary or appropriate under state securities and
Blue Sky laws in connection with the transactions contemplated by this
Agreement.
3. Monsanto and Chemicals shall prepare, and Chemicals shall file and
seek to make effective, an application for the listing of the Chemicals
Common Stock on the NYSE, subject to official notice of issuance.
4. The parties hereto shall cooperate in preparing and filing with the
SEC the Proxy Statement and the Registration Statement, and causing to
become effective the Registration Statement and any other registration
statements or any amendments to any thereof which are necessary or
appropriate in order to effect the transactions contemplated hereby or to
reflect the establishment of, or amendments to, any Plans contemplated in
the Employee Benefits Allocation Agreement.
5. The parties hereto shall prepare and mail to the holders of
Monsanto Common Stock such other information or documentation as the
parties shall reasonably determine and as may be required by law. Monsanto
and Chemicals shall prepare, and Monsanto or Chemicals shall, as
applicable, file such documents, and any forms, schedules, or registration
statements and any no action letter requests which are required by
applicable law or which Monsanto determines are necessary or desirable to
effectuate the Distribution, and Monsanto and Chemicals shall each use its
reasonable efforts to obtain all necessary approvals from the SEC with
respect thereto as soon as practicable.
2.06 SPECIAL MEETING. The Board of Directors of Monsanto, or such
committee of the Board as shall be designated and so authorized by the Board of
Directors of Monsanto, shall establish the Special Meeting Record Date and the
Special Meeting Date, and shall take whatever other action such Board of
Directors or such designated committee of the Board deems necessary or
convenient with respect to the Special Meeting.
2.07 AMENDMENT OF MONSANTO CERTIFICATE OF INCORPORATION. At the
Special Meeting, there will be submitted to the Monsanto stockholders for their
vote the Monsanto Certificate Amendments as well as the Distribution.
ARTICLE III
THE DISTRIBUTION
3.01 RECORD DATE AND DISTRIBUTION DATE. Subject to the satisfaction or
waiver of the conditions set forth in Section 10.01(a), the Board of Directors
of Monsanto, or such committee of the Board as shall be authorized and
designated by the Board of Directors, shall establish the Record Date and the
Distribution Date and any appropriate procedures in connection with the
Distribution.
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3.02 THE AGENT. Prior to the Distribution Date, Monsanto shall enter
into an agreement with the Agent providing for, among other things, the payment
of the Distribution to the holders of Monsanto Common Stock in accordance with
this Article III.
3.03 DELIVERY OF SHARE CERTIFICATES TO THE AGENT. Prior to or as of
the Distribution Date, Monsanto shall deliver to the Agent a share certificate
representing all of the outstanding shares of Chemicals Common Stock to be
distributed in connection with the payment of the Distribution. After the
Distribution Date, upon the request of the Agent, Chemicals shall provide all
certificates for shares of Chemicals Common Stock or other evidence of ownership
that the Agent shall require in order to effect the Distribution.
3.04 DISTRIBUTION. Except as otherwise contemplated by this Agreement,
Monsanto shall instruct the Agent to distribute, as of the Distribution Date,
one share of Chemicals Common Stock in respect of every five (5) shares of
Monsanto Common Stock held by holders of record of Monsanto Common Stock on the
Record Date. All shares of Chemicals Common Stock issued in the Distribution
shall be duly authorized, validly issued, fully paid and nonassessable and the
holders thereof will not be entitled to preemptive rights. As soon as
practicable after the Distribution Date certificates for shares of Chemicals
Common Stock will be mailed by the Agent to such holders of record as of the
Record Date unless Chemicals uses a book entry system of stock record keeping in
which event no certificates for shares of Chemicals Common Stock will be issued
unless the stockholder so requests.
3.05 FRACTIONAL SHARES. No certificates or scrip representing
fractional interests in a share of Chemicals Common Stock will be issued.
Instead, if Chemicals does not adopt a book entry system, or if Chemicals does
adopt a book entry system but a stockholder requests a physical stock
certificate, the Agent, will, as soon as practicable after the Distribution
Date, (a) determine the number of whole shares and fractional shares of
Chemicals Common Stock allocable to each holder of record of Monsanto Common
Stock as of the Record Date, (b) aggregate all such fractional shares, and (c)
sell the whole shares attributable to the aggregate of the fractional shares at
the direction of the Agent, in open market transactions or otherwise, in each
case at then prevailing trading prices, and to cause to be distributed to each
such holder, in lieu of any fractional share, such holder's ratable share of the
proceeds of such sale, after making appropriate deductions of the amount
required, if any, to be withheld for United States federal income tax purposes.
ARTICLE IV
SURVIVAL, ASSUMPTION AND INDEMNIFICATION
4.01 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Agreement and all covenants and agreements of
the parties hereto and their respective wholly-owned Subsidiaries contained in
the Other Agreements shall survive the Distribution Date in accordance with
their respective terms and shall not be merged into any deeds or other transfer
or closing instruments or documents.
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4.02 TAXES. This Article IV shall not be applicable to any
Indemnifiable Losses or Liabilities related to (1) Taxes which shall be governed
by the Tax Sharing Agreement; or (2) which are otherwise expressly provided for
in those Other Agreements (excluding the Business Transfer Agreements).
4.03 ASSUMPTION AND INDEMNIFICATION.
(a) (i) Subject to Sections 4.02 and 4.03(c) and except as expressly
provided in the Other Agreements, from and after the Distribution Date, Monsanto
shall retain or assume, as the case may be, and shall indemnify, defend and hold
harmless each member of the Chemicals Group, and each of their Representatives
and Affiliates, from and against, (1) all Monsanto Liabilities and (2) all
Losses of any such member of the Chemicals Group, Representative or Affiliate
relating to, arising out of or due to the failure to pay, perform or discharge
in due course the Monsanto Liabilities by any member of the Monsanto Group who
has an obligation with respect thereto. Chemicals will use reasonable efforts
not to take and to cause its wholly-owned Subsidiaries not to take any action
outside the ordinary course of business after the Distribution Date which may
reasonably be expected to have the effect of increasing Monsanto's or its
wholly-owned Subsidiaries' Losses with respect to Monsanto Liabilities or the
indemnification provided hereunder, and Chemicals will use reasonable efforts to
take and to cause its wholly-owned Subsidiaries to take, at Monsanto's expense,
such reasonable action as Monsanto or its wholly-owned Subsidiaries may request
to mitigate all such Losses as may be incurred with respect to Monsanto
Liabilities for which Monsanto has agreed to indemnify Chemicals and provided
such actions do not unreasonably interfere with the conduct of Chemicals'
business.
(ii) (A) The Chemicals SpinCo combined financial statements contained
on pages F-1 through F-26 of the Proxy Statement (the "Chemicals Proxy
Financial Statements") are fairly stated in all material respects as of the
dates indicated therein and for the periods then ended and were prepared in
accordance with GAAP consistently applied except as noted therein.
(B) The Statement of Consolidated Income for Monsanto for the
three months and six months ended June 30, 1997, and the Statement of
Consolidated Financial Position as of June 30, 1997, included in the
Company's Quarterly Report on Form 10-Q, insofar as they relate to
Chemicals' assets, liabilities and results of operations, prepared on a
basis consistent with the first paragraph of the Basis of Presentation --
Combined Financial Statements footnote on page F-6 of the Proxy Statement
(the "Chemicals June 1997 Combined Financial Statements"), are fairly
stated in all material respects, except for the effect of certain interim
adjustments related to Chemicals required by Accounting Principles Board
Opinion No. 28 and agreed to by the Chemicals' independent auditor, as of
the dates indicated therein and for the periods then ended and were
prepared in accordance with GAAP consistently applied except as noted
therein.
(C) Management of Chemicals is not aware, except as noted in
paragraph 4.03(a)(ii) (B) above, as of the date hereof, of any fact or
circumstance that, had it existed prior to the preparation of the Chemicals
Proxy Financial Statements and the Chemicals
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June 1997 Combined Financial Statements, would have had a material adverse
effect on the results of operations or the financial position set forth in
such financial statements.
(iii) Due to the difficulty in ascertaining the precise amount of
actual damages which Monsanto would sustain as a result of Chemicals'
representations set forth in paragraph 4.03(a)(ii) above being untrue, the
parties hereby agree and stipulate that liquidated damages are appropriate.
The amount of liquidated damages shall be equal to $20,000,000, and the
parties agree that such sum is reasonable in light of the circumstances and
the nature of the damages that would accrue to Monsanto.
(b) Subject to Section 4.02 and 4.03(c) and except as expressly
provided in the Other Agreements, from and after the Distribution Date,
Chemicals shall retain or assume, as the case may be, and shall indemnify,
defend and hold harmless each member of the Monsanto Group, and each of their
Representatives and Affiliates, from and against, (1) all Chemicals Liabilities,
including without limitation, the indebtedness under the Financing Facility, and
(2) any and all Losses of any such member of the Monsanto Group, Representative
or Affiliate relating to, arising out of or due to the failure to pay, perform
or discharge in due course the Chemicals Liabilities by any member of the
Chemicals Group who has an obligation with respect thereto. Monsanto will use
reasonable efforts not to take and to cause its wholly-owned Subsidiaries not to
take any action outside the ordinary course of business after the Distribution
Date which may reasonably be expected to have the effect of increasing
Chemicals' or its wholly-owned Subsidiaries' Losses with respect to Chemicals
Liabilities or the indemnification provided hereunder and Monsanto will use
reasonable efforts to take and will cause its wholly-owned Subsidiaries to take
at Chemicals' expense such reasonable action as Chemicals or its wholly-owned
Subsidiaries may reasonably request to mitigate all such Losses as may be
incurred with respect to Chemicals Liabilities for which Chemicals has agreed to
indemnify Monsanto and provided such actions do not unreasonably interfere with
the conduct of Monsanto's business.
(c) The amount which an Indemnifying Party is required to pay to any
Indemnitee pursuant to Section 4.03(a) or (b) shall be reduced (including,
without limitation, retroactively) by any Insurance Proceeds and other amounts
(including, without limitation, amounts received from Third Parties in respect
of other indemnification or contribution obligations of Third Parties) actually
recovered by such Indemnitee in reduction of the related Indemnifiable Loss, it
being understood and agreed that each member of the Monsanto Group and the
Chemicals Group shall use its reasonable best efforts, at the expense of the
Indemnifying Party, to collect any such proceeds or other such amounts to which
it or any of its wholly-owned Subsidiaries is entitled, without regard to
whether it is the Indemnified Party hereunder. If an Indemnitee receives an
Indemnity Payment in respect of an Indemnifiable Loss and subsequently receives
Insurance Proceeds or other amounts in respect of such Indemnifiable Loss, then
such Indemnitee shall pay to such Indemnifying Party an amount equal to the
difference between (1) the sum of the amount of such Indemnity Payment and the
amount of such Insurance Proceeds or other amounts actually received and (2) the
amount of such Indemnifiable Loss. An insurer or a Third Party (including,
without limitation, purchasers under any assets purchase agreements, real estate
agreements or any other agreements relating to Chemicals Liabilities or Monsanto
Liabilities, including without limitation, those agreements set forth on
Schedule 4.03(c), who would otherwise be obligated to pay any claim shall not be
relieved of the responsibility with respect thereto, or, solely by virtue of
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the indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
Third Party shall be entitled to a "windfall" (i.e., a benefit they would not be
entitled to receive in the absence of the indemnification provisions set forth
herein) by virtue of the indemnification provisions hereof.
(d) If any Indemnity Payment required to be made hereunder or under
any Other Agreement is denominated in a currency other than United States
dollars, the amount of such payment, at the election of the Indemnifying Party,
may be reimbursed in local currency or shall be translated into United States
dollars using the Foreign Exchange Rate for such currency determined in
accordance with the following rules:
(1) with respect to an Indemnifiable Loss arising from payment by
a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the Foreign
Exchange Rate for such currency shall be determined as of the date on
which such financial institution is reimbursed;
(2) with respect to an Indemnifiable Loss covered by insurance,
the Foreign Exchange Rate for such currency shall be the Foreign
Exchange Rate employed by the insurance company providing such
insurance in settling such Indemnifiable Loss with the Indemnifying
Party; and
(3) with respect to an Indemnifiable Loss not described in clause
(1) or (2) of this Section 4.03(d), the Foreign Exchange Rate for such
currency shall be determined as of the date of payment to a Third
Party in the case of such payments or as of the date that notice of
the claim with respect to such other Indemnifiable Loss is given to
the Indemnitee.
(e) On the Distribution Date Chemicals shall assume (or shall cause
one of its wholly-owned Subsidiaries to assume) (i) the prosecution of all
claims which are Chemicals Assets and are pending on the Distribution Date; and
(ii) the defense against all Third Party Claims which are Chemicals Liabilities
and are pending on the Distribution Date. Monsanto shall use reasonable efforts
to make available and shall cause its wholly-owned Subsidiaries to use
reasonable efforts to make available to Chemicals and its wholly-owned
Subsidiaries, at Chemicals' expense, (i) any personnel or any books, records or
other documents within its control or which it otherwise has the ability to make
available that Chemicals or such Subsidiary reasonably believes are necessary or
appropriate for such prosecution or defense as provided in Article VI; and (ii)
such other assistance in support of the prosecution or defense of such
litigation as Chemicals or its wholly-owned Subsidiaries may reasonably request,
including without limitation, the right to assert in the name of Monsanto or any
of its wholly-owned Subsidiaries such rights, claims, counterclaims or defenses
that Monsanto or Monsanto's Subsidiary would be or would have been entitled to
assert in such litigation or in the prosecution of or defense against such claim
had the Distribution not occurred; PROVIDED, HOWEVER, that no member of the
Monsanto Group shall be required to take any action, refrain from taking any
action or make available any assistance if doing so would have the effect of
increasing Liabilities of the Monsanto Group. Monsanto will execute and will
cause its wholly-owned Subsidiaries to execute a power of attorney in the form
attached hereto as Exhibit 4.03(e).
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4.04 PROCEDURE FOR INDEMNIFICATION.
(a) If any Indemnitee receives notice of the assertion of any Third
Party Claim with respect to which an Indemnifying Party is obligated under this
Agreement to provide indemnification, such Indemnitee shall give such
Indemnifying Party notice thereof promptly after becoming aware of such Third
Party Claim; PROVIDED, HOWEVER, that the failure of any Indemnitee to give
notice as provided in this Section 4.04 shall not relieve any Indemnifying Party
of its obligations under this Article IV, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third Party Claim in reasonable detail and, if
practicable, shall indicate the estimated amount of the Indemnifiable Loss that
has been or may be sustained by such Indemnitee.
(b) An Indemnifying Party, at such Indemnifying Party's own expense
and through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably satisfactory to the Indemnitee), may elect to defend any Third Party
Claim. If an Indemnifying Party elects to defend a Third Party Claim, then,
within fifteen Business Days after receiving notice of such Third Party Claim or
sooner (but in no event less than five Business Days) if the nature of such
Third Party Claim so requires), such Indemnifying Party shall notify the
Indemnitee of its intent to do so. Such Indemnitee shall thereupon use
reasonable efforts to make available to such Indemnifying Party, at such
Indemnifying Party's expense, such assistance in support of the prosecution or
defense of such litigation as the Indemnifying Party may reasonably request,
including without limitation, the right to assert in the name of the Indemnitee
such rights, claims, counterclaims or defenses that such Indemnitee would be or
would have been permitted to assert in such litigation or in the prosecution of
a claim or counterclaim against a Third Party or in defense against such Third
Party Claim had the Distribution not occurred. The Indemnitee will execute a
power of attorney in favor of the Indemnifying Party with respect to such Third
Party Claims in substantially the form attached hereto as Exhibit 4.03(e). Such
Indemnifying Party shall pay such Indemnitee's reasonable out-of-pocket expenses
incurred in connection with such cooperation consistent with the provisions of
Article VI. Except as provided herein, after notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article IV for any legal or other expenses subsequently incurred by such
Indemnitee in connection with the defense thereof. If an Indemnifying Party
elects not to defend against a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in this Section 4.04 within the period of
fifteen (or five, if applicable) Business Days described above, such Indemnitee
may defend, compromise and settle such Third Party Claim; PROVIDED, HOWEVER,
that no such Indemnitee may compromise or settle any such Third Party Claim
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
(c) Notwithstanding the foregoing, the Indemnifying Party shall not,
without the prior written consent of the Indemnitee, settle or compromise any
Third Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the Indemnitee of a written release from all Liability in respect of such Third
Party Claim.
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(d) If an Indemnifying Party chooses to defend or to seek to
compromise any Third Party Claim, the related Indemnitee shall make available to
such Indemnifying Party any personnel or any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(e) Any claim on account of an Indemnifiable Loss arising out of or
due to the failure to pay, perform or discharge in due course its respective
Liabilities by any member of the Indemnifying Party's Group who has an
obligation with respect thereto but which does not result from a Third Party
Claim shall be asserted by written notice given by the Indemnitee to the related
Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after
the receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such 30-day period, such Indemnifying Party shall
be deemed to have refused to accept responsibility to make payment. If such
Indemnifying Party does not respond within such 30-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such remedies
as may be available to such party under Article VII of this Agreement.
(f) If the amount of any Indemnifiable Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim, including without
limitation, permitting the Indemnifying Party to bring suit against such Third
Party in the name of the Indemnitee.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.01 FURTHER ASSURANCES.
(a) In addition to the actions specifically provided for elsewhere in
this Agreement and unless otherwise expressly provided in this Agreement or an
Other Agreement, each of the parties hereto shall use its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws,
regulations and agreements to consummate and make effective the transactions
contemplated by this Agreement, to confirm Chemicals' title to all Chemicals
Assets and assumption of all Chemical Liabilities, to put Chemicals in actual
possession and operating control of Chemicals Assets and Chemicals Liabilities,
and to permit Chemicals to exercise all rights and to perform its obligations
with respect to Chemicals Assets and Chemicals Liabilities; PROVIDED, that
nothing herein shall be
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deemed to require the transfer of any Assets or the assumption of any
Liabilities which by their terms or operation of law cannot be transferred or
assumed. Without limiting the foregoing, each party hereto shall cooperate with
the other party, and execute and deliver, or use its reasonable efforts to cause
to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, consistent
with the terms of this Agreement, in order to effectuate the provisions and
purposes of this Agreement and the transfers of Assets and Liabilities and the
other transactions contemplated hereby. If any such transfer of Assets or
Liabilities, including but not limited to, assignments of contracts, is not
consummated prior to or at the Distribution Date for any reason, including but
not limited to, the absence of consents to assignment of contracts or approval
by Governmental Authorities for the transfer of permits, then the party hereto
retaining such Asset or Liability shall thereafter hold such Asset in trust for
the use and benefit of the party entitled thereto (at the expense of the party
entitled thereto), or shall retain such Liability for the account of the party
by whom such Liability is to be assumed pursuant hereto, as the case may be, and
shall take such other action as may be reasonably requested by the party to whom
such Asset is to be transferred, or by whom such Liability is to be assumed, as
the case may be, in order to place such party, insofar as reasonably possible,
in the same position as if such Asset or Liability had been transferred as
contemplated hereby. If and when any such Asset or Liability becomes
transferable, such transfer shall be effected forthwith. The parties hereto
agree that, as of the Distribution Date, as between the parties, Chemicals shall
be deemed to have acquired complete and sole beneficial ownership of all of the
Chemicals Assets, together with all rights, powers and privileges incident
thereto, and shall be deemed to have assumed in accordance with the terms of
this Agreement all of the Chemicals Liabilities, and all duties, obligations and
responsibilities incident thereto.
(b) Without limiting the generality of Section 5.01(a), Monsanto, as
the sole stockholder of Chemicals prior to the Distribution, shall ratify any
actions which are reasonably necessary or desirable to be taken by Chemicals to
effectuate the transactions contemplated by this Agreement or the Other
Agreements in a manner consistent with the terms of this Agreement or such Other
Agreements.
(c) In the event any registration, licenses, permits or other rights
granted by Governmental Authorities to the Monsanto Group must be transferred,
amended or issued in order to conduct operations of the Chemicals Business after
the Distribution Date, and such permit transfer, amendment or issuance has not
been accomplished as of such date, Monsanto shall permit Chemicals to use the
registration, license or permit of the Monsanto Group to continue to operate the
Chemicals Facilities until such transfer, amendment or issuance is accomplished,
at Chemicals' expense, if to so do would be permitted by and not violate the
terms of the registration, license or permit or any law, regulation, ordinance
or rule, until such permit is transferred or issued to Chemicals. Chemicals
shall use its reasonable efforts to obtain such registrations, licenses, permits
or other rights granted by Governmental Authorities as soon as reasonably
practicable. Chemicals shall indemnify and hold harmless Monsanto from and
against any and all Third Party Claims arising from or related to Chemicals' use
of the registration, license or permit or other rights granted to the Monsanto
Group by Governmental Authorities.
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(d) Schedule 1.01(11) to this Agreement includes among other items,
certain parcels of real estate which are Chemicals Assets but which, in some
cases, are subject to contracts for sale to Third Parties ("Sale Real Estate")
or which, in other cases, cannot be transferred without one party incurring a
substantial economic detriment which detriment could otherwise be deferred or
avoided ("Non-Sale Real Estate"). Monsanto and Chemicals agree that Monsanto
shall retain title to such Sale Real Estate and Non-Sale Real Estate following
the Distribution Date and shall not transfer to Chemicals the title or assign to
Chemicals the contract(s) for sale or any other permits, licenses or contracts
with respect to such real estate subject to the following terms and conditions:
(i) Monsanto from and after the Distribution Date will hold the Sale Real
Estate and the Non-Sale Real Estate in trust for the benefit of Chemicals;
(ii) Monsanto hereby irrevocably designates Chemicals as its
attorney-in-fact and agent for all purposes with respect to all such Sale Real
Estate and Non-Sale Real Estate, including without limitation, for all
remediation, monitoring and other activities, with respect to such Sale Real
Estate and Non-Sale Real Estate; for all filings, notices and any other
negotiations, activities or discussions with any Governmental Authority and/or
any branch, commission, board or other subdivision thereof; for all discussions,
negotiations or agreements with Third Parties with respect to, or arising from,
such Sale Real Estate and Non-Sale Real Estate; and for all purposes relating to
the execution, delivery and closing of contracts, agreements, documents or
instruments with respect the ownership, use, occupation, sale or lease of the
Sale Real Estate or Non-Sale Real Estate. In furtherance of such designation,
Monsanto will execute powers of attorney in the form attached hereto as Exhibit
5.01(d)(ii) for each site;
(iii) Monsanto will take no action without the prior written consent of
Chemicals which may have the effect of increasing Chemicals' liability with
respect to any Sale Real Estate or Non-Sale Real Estate; and will take such
action as is permitted by contract, in the absence of consent of the other
party, and by law to place Chemicals, insofar as reasonably possible, in the
same position as if such Sale Real Estate and Non-Sale Real Estate had been
transferred, or conveyed to Chemicals on the Distribution Date;
(iv) In the event any Sale Real Estate is not sold or conveyed to a Third
Party pursuant to a contract in existence on the Distribution Date or, at any
other time, upon the request of Chemicals with respect to any parcel of Sale
Real Estate or Non-Sale Real Estate, Monsanto shall transfer and convey title to
the affected parcel of real estate to Chemicals; and
(v) As between Monsanto and Chemicals, such Sale Real Estate and Non-Sale
Real Estate shall be treated as Chemicals Assets, and Liabilities related to or
arising from Sale Real Estate or Non-Sale Real Estate shall be Chemicals
Liabilities and subject to the indemnification provisions contained in Section
4.03(b) notwithstanding the fact that such Sale Real Estate or Non-Sale Real
Estate was not transferred to Chemicals.
(e) If Chemicals elects to pursue any claim or right relating to the
Chemicals Assets, the Chemicals Business or the Former Chemicals Business,
Monsanto, upon request and at Chemicals' expense, shall use reasonable efforts
to make available to Chemicals such assistance in support of
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the prosecution of such litigation as Chemicals may reasonably request,
including without limitation, the right to assert, as needed, in the name of
Monsanto or any member of the Monsanto Group such rights and claims that
Monsanto or such member would be or would have been permitted to assert in such
litigation had the Distribution not occurred; provided, however, that no member
of the Monsanto Group shall be required to take any action, refrain from taking
any action or make available any assistance if doing so would have the effect of
increasing Liabilities of the Monsanto Group. Monsanto or such member of the
Monsanto Group will execute a power of attorney in favor of Chemicals or such
member of the Chemicals Group in the form attached hereto as Exhibit 4.03(e).
5.02 CHEMICALS BOARD. Prior to, or simultaneously with, the
Distribution Date, Chemicals shall take such actions as are necessary such that
the Board of Directors of Chemicals is comprised of those individuals named as
directors of Chemicals in the Proxy Statement.
5.03 FINANCING. Effective as of the Distribution Date:
(a) The obligations under the assumable commercial paper portion of
the Financing Facility shall be assigned to, and assumed by, Chemicals, and
guaranteed by Monsanto, with the effect that Chemicals shall have the
primary obligation thereunder and Monsanto shall become the guarantor with
respect thereto;
(b) On the Distribution Date, Chemicals shall assume from Monsanto,
and indemnify Monsanto from, all Liabilities under the assumable commercial
paper portion of the Financing Facility and the Third Party indebtedness
specified on Schedule 5.03(b); and
(c) (i) Except as provided in Schedule 5.03(c)(i), (w) all
intercompany accounts receivables and payables between members of the
Groups in Europe and in South Africa, and all Third Party receivables and
payables owed to or by members of the Groups in Europe and in South Africa
that arose prior to June 1, 1997, will be treated in accordance with the
related Business Transfer Agreement, including without limitation, those
agreements on Intercompany Receivables and Payables and Bad Debts dated as
of September 1, 1997 between (1) Monsanto Chemicals Europe SA/NV and
Monsanto Europe SA/NV and (2) Monsanto p.l.c. and Monsanto Chemicals U.K.
Limited and certain other entities referred to collectively therein as
DSO's; (x) all intercompany accounts receivables and payables between
members of the Monsanto Group in Europe and in South Africa, and all Third
Party receivables and payables related to the Monsanto Business in Europe
and in South Africa that arose on or after June 1, 1997, will remain as
Monsanto Assets and Monsanto Liabilities; (y) all intercompany accounts
receivables and payables between members of the Chemicals Group in Europe
and in South Africa and all Third Party receivables and payables related to
the Chemicals Business in Europe and South Africa that arose on or after
June 1, 1997 shall remain as Chemicals Assets and Chemicals Liabilities;
and (z) any intercompany receivables and payables that arose after June 1,
1997 between members of the Monsanto Group in Europe and in South Africa
and members of the Chemicals Group in Europe and in South Africa shall
remain with each respective entity on whose books such receivable and
payable exists on the Distribution Date.
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(ii) All intercompany balances relating to products of the
Chemicals Business or Former Chemicals Business between the Monsanto Group
outside of Europe and South Africa and the Chemicals Group outside of
Europe and South Africa and all Third Party payables and receivables
related to the Chemicals Business, Former Chemicals Business or Chemicals
Assets will be transferred to the Chemicals Group as Chemicals Assets and
Chemicals Liabilities on the Distribution Date.
(iii) All intercompany loans or advances between a member of the
Chemicals Group and a member of the Monsanto Group shall remain with, or be
transferred to, the members of the Monsanto Group, it being the intent that
as of the Distribution Date neither Group shall have a continuing
obligation with respect to such loan or and advance to the other Group.
5.04 OTHER AGREEMENTS. Each of Monsanto and Chemicals shall use
reasonable efforts to enter into, or to cause the appropriate members of its
Group to enter into, the Other Agreements on or prior to the Distribution Date.
If there shall be a conflict or an inconsistency between the provisions of this
Agreement and the provisions of an Other Agreement (i) the provisions of this
Agreement shall control over the inconsistent provisions of a Business Transfer
Agreement as to matters within the scope of the Business Transfer Agreement; and
(ii) the provisions of the Other Agreement (other than any Business Transfer
Agreement) shall control over the inconsistent provisions of this Agreement as
to matters within the scope of such Other Agreement.
5.05 CHEMICALS SUPPORT AGREEMENTS. Effective as of the Distribution
Date, and unless otherwise agreed between Monsanto and Chemicals, Chemicals
shall use its reasonable best efforts to cause one or more members of the
Chemicals Group to be substituted in all respects for the Monsanto Group or any
member thereof in respect of all Chemicals Support Agreements. Subsequent to the
Distribution Date, with respect to any uncancelled Chemicals Support Agreement
for which no substitution has yet been effected, Chemicals shall indemnify the
Monsanto Group against any Liabilities under any such Chemicals Support
Agreement in accordance with the provisions of Article IV.
5.06 OFFICERS AND EMPLOYEES.
(a) Subject to the provisions of Section 5.06(b), officers and
employees of either Group who are employed in the Chemicals Business immediately
prior to the Distribution Date shall be officers and employees of the Chemicals
Group immediately following the Distribution Date; PROVIDED, HOWEVER, that
nothing herein shall give to any individual a right of employment, or continued
employment, by any member of the Chemicals Group.
(b) Except as otherwise agreed by the parties hereto, effective as of
the Distribution Date, (1) all officers or employees of the Monsanto Group who
are acting as directors or officers of the Chemicals Group and are not employed
in the Chemicals Business shall resign from such positions with the Chemicals
Group and (2) all officers or employees of the Chemicals Group who are acting as
directors or officers of the Monsanto Group and are not employed in the Monsanto
Business shall resign from such positions with the Monsanto Group.
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5.07 MONSANTO CITIZENSHIP FUND. Prior to the Distribution Date,
Chemicals will establish a political action committee consistent with the rules
of the Federal Election Commission for a separate segregated fund ("Chemicals
PAC") and the Monsanto Citizenship Fund will transfer to such Chemicals PAC
$16,951.00 plus any amounts held by the Monsanto Citizenship Fund for future
earmarking by Chemicals Employees which has been or may be agreed to.
5.08 RECEIVABLES COLLECTION AND OTHER PAYMENTS. If after the
Distribution Date, either party receives payments belonging to the other party,
the recipient shall promptly account for and remit same to the other party.
5.09 LIMITED LEASES, LICENSES AND BENEFITS OF CERTAIN ASSETS.
(a) With respect to sold or discontinued businesses for which
Chemicals has assumed a Chemicals Liability, Monsanto hereby grants a lease or
license, and shall cause its wholly-owned Subsidiaries to grant a lease or
license, to members of the Chemicals Group, without compensation and on a
non-exclusive basis, with respect to such Monsanto Assets (or the benefit of
such Monsanto Assets) relating to sold or discontinued businesses, including
without limitation, those rights under contracts, leases or licenses held on the
Distribution Date, in each case to the extent the use or benefit of such
Monsanto Assets is reasonably necessary to satisfy such Chemicals Liabilities
assumed by any member of the Chemicals Group pursuant to this Agreement or any
Other Agreement.
(b) With respect to a Former Chemicals Business for which Monsanto has
retained a Monsanto Liability, including without limitation, Monsanto
Liabilities under operating agreements with Third Parties, Chemicals hereby
grants a lease or license, and shall cause its wholly-owned Subsidiaries to
grant a lease or license, to members of the Monsanto Group, without compensation
and on a non-exclusive basis with respect to such Chemicals Assets (or the
benefit of such Chemicals Assets) relating to the Former Chemicals Business,
including without limitation, those rights under contracts, leases or licenses
held on the Distribution Date, in each case to the extent the use or benefit of
such Chemicals Assets is reasonably necessary to satisfy such Monsanto
Liabilities.
5.10 CHEMICALS' USE OF CHEMICALS ASSETS SUBJECT TO IRBS. Monsanto is
retaining as Monsanto Liabilities the IRBs and all obligations related to the
payment of principal and interest thereunder and is retaining as Monsanto Assets
all rights with respect to the IRBs except the right to the ownership or
occupancy of the property transferred to Chemicals as Chemicals Assets.
Chemicals, however, agrees that Chemicals shall comply with all of the covenants
and agreements set forth in the IRBs and any related agreements entered into in
connection with the IRBs that are applicable to the owner or operator of the
property or that affect the use of the property and shall not take any action
which, or fail to take any action the failure of which, could increase or
accelerate Monsanto's liabilities under the IRBs or adversely affect the
exclusion from gross income of interest on the IRBs. Chemicals shall not sell or
otherwise transfer any properties or assets relating to the IRBs unless the
transferee agrees to assume Chemicals' obligations under this Section 5.10
pursuant to an agreement reasonably satisfactory to Monsanto.
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Chemicals shall indemnify, defend and hold Monsanto harmless from any
Liabilities or Losses to the extent arising from its breach of its covenants in
this Section 5.10.
ARTICLE VI
ACCESS TO INFORMATION
6.01 PROVISION OF CORPORATE RECORDS. Prior to or as promptly as
practicable after the Distribution Date or from time to time as requested by the
Chemicals Group, the Monsanto Group shall deliver to the Chemicals Group: (i)
all corporate books and records of the Chemicals Group; (ii) originals or copies
of those corporate books and records of the Monsanto Group primarily relating to
the Chemicals Assets, the Chemicals Liabilities, the Chemicals Business or the
Former Chemicals Business; (iii) originals or, at Monsanto's election, copies of
all other corporate records and books of the Monsanto Group relating to the
Chemicals Group, Chemicals Assets, the Chemicals Liabilities, the Chemicals
Business, the Former Chemicals Business, the Joint Ownership Properties, the P4
Business, or the Other Agreements; including without limitation in each case,
all active agreements, active litigation files and government filings; and (iv)
copies of any and all Insurance Policies. From and after the Distribution Date,
all such books, records and copies (where copies are delivered in lieu of
originals) whether or not delivered shall be the property of the Chemicals
Group; provided, however, that all such Information contained in such books,
records or copies relating to the Monsanto Group, Monsanto Assets, the Monsanto
Liabilities, the Monsanto Business, the Joint Ownership Properties, the P4
Business, or the Other Agreements shall be subject to the applicable
confidentiality provisions and restricted use provisions, if any, contained in
this Agreement or the Other Agreements and any confidentiality restrictions
imposed by law. Monsanto, if it so elects, may retain copies of any original
books and records delivered to Chemicals along with those original books and
records of the Monsanto Group authorized herein to be retained (excluding books
and records to the extent relating to Chemicals Technology as defined in the
Intellectual Property Agreements or relating exclusively to Chemicals' use of
Shared Know How as defined in the Intellectual Property Agreements in the
Chemicals Business or Former Chemicals Business); provided, however, that all
such Information contained in such books, records or copies (whether or not
delivered to the Chemicals Group) relating to the Chemicals Group, the Chemicals
Assets, the Chemicals Liabilities, the Chemicals Business, the Former Chemicals
Business, the Joint Ownership Properties, the P4 Business, or the Other
Agreements shall be subject to the applicable confidentiality provisions and
restricted use provisions, if any, contained in this Agreement or the Other
Agreements and any confidentiality restrictions imposed by law.
6.02 ACCESS TO INFORMATION. In addition to the provisions set forth in
Section 6.01 above, from and after the Distribution Date and upon reasonable
notice, each of the Monsanto Group and the Chemicals Group shall afford to the
other and to the other's Representatives at the expense of the other party,
reasonable access and duplicating rights during normal business hours to all
Information developed or obtained prior to the Distribution Date within such
party's possession relating to the other party or its businesses, its former
businesses, its Assets, its Liabilities, the Joint Ownership Properties, the P4
Business, or the Other Agreements, insofar as such access is reasonably
requested by such other party, but subject to the applicable confidentiality
provisions
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and restricted use provisions, if any, contained in this Agreement or the Other
Agreements and any confidentiality restrictions imposed by law. In addition,
without limiting the foregoing, Information may be requested under this Section
6.02 for audit, accounting, claims, intellectual property protection, litigation
and Tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations. In each case, the requesting party agrees to cooperate with the
other party to minimize the risk of unreasonable interference with the other
party's business. In the event access to any Information otherwise required to
be granted herein or in the Other Agreements is restricted by law or otherwise,
the parties agree to take such actions as are reasonably necessary, proper or
advisable to have such restrictions removed or to seek an exemption therefrom or
to otherwise provide the requesting party with the benefit of the Information to
the same extent such actions would have been taken on behalf of the requesting
party had such a restriction existed and the Distribution not occurred.
6.03 LITIGATION SUPPORT AND PRODUCTION OF WITNESSES. After the
Distribution Date, each member of the Monsanto Group and the Chemicals Group
shall use reasonable efforts to provide assistance to the other with respect to
litigation and to make available to the other, upon written request: (i) such
employees who have expertise or knowledge with respect to the other party's
business or products or matters in litigation, for the purpose of consultation
and/or as a witness; and (ii) its directors, officers, other employees and
agents, as witnesses, in each case to the extent that the requesting party
believes any such Person may reasonably be useful or required in connection with
any legal, administrative or other proceedings in which the requesting party may
from time to time be involved. The employing party agrees that such consultant
or witness shall be made available to the requesting party upon reasonable
notice to the same extent that such employing party would have made such
consultant or witness available if the Distribution had not occurred. The
requesting party agrees to cooperate with the employing party in giving
consideration to business demands of such Persons.
6.04 REIMBURSEMENT. Except to the extent otherwise contemplated by
this Agreement or any Other Agreement, a party providing Information,
consultant, or witness services to the other party under this Article VI shall
be entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements, travel
expenses, and other out-of-pocket expenses (including the direct and indirect
costs of employees providing consulting and expert witness services in
connection with litigation, but excluding direct and indirect costs of employees
who provide Information or are fact witnesses) as may be reasonably incurred in
providing such Information, consulting or witness services.
6.05 RETENTION OF RECORDS. Except as otherwise required by law or
agreed in writing, or as otherwise provided in the Tax Sharing Agreement, each
member of the Monsanto Group and the Chemicals Group shall retain, for the
periods set forth in the Monsanto Company Records Retention Manual dated April,
1994 or such longer period as may be required by law, this Agreement or the
Other Agreements, all significant Information in such party's possession or
under its control relating to the business, former business, Assets or
Liabilities of the other party or the Joint Ownership Properties or the P4
Business or this Agreement or the Other Agreements and, after the expiration of
such applicable period, prior to destroying or disposing of any of such
Information, (a) the party proposing to dispose of or destroy any such
Information shall provide no less than 30 days' prior written notice to the
other party, specifying the Information proposed to be
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destroyed or disposed of, and (b) if, prior to the scheduled date for such
destruction or disposal, the other party requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such other
party, the party proposing to dispose of or destroy such Information promptly
shall arrange for the delivery of the requested Information to a location
specified by, and at the expense of, the requesting party.
6.06 PRIVILEGED INFORMATION. In furtherance of the rights and
obligations of the parties set forth in this Article VI:
(a) Each party hereto acknowledges that (1) each of the Monsanto Group
on the one hand, and the Chemicals Group on the other hand, has or may
obtain Information regarding a member of the other Group, or any of its
operations, employees, Assets or Liabilities (whether in documents or
stored in any other form or known to its employees or agents), as
applicable, that is or may be protected from disclosure pursuant to the
attorney-client privilege, the work product doctrine or other applicable
privileges ("Privileged Information"); (2) there are a number of actual,
threatened or future litigations, investigations, proceedings (including
arbitration proceedings), claims or other legal matters that have been or
may be asserted by or against, or otherwise affect, each or both of
Monsanto and Chemicals (or members of either Group) ("Litigation Matters");
(3) Monsanto and Chemicals have a common legal interest in Litigation
Matters, in the Privileged Information, and in the preservation of the
confidential status of the Privileged Information, in each case relating to
the Monsanto Business or the Chemicals Business or any former businesses,
the Assets or the Liabilities of each party or the Joint Ownership
Properties or the P4 Business as it or they existed prior to the
Distribution Date or relating to or arising in connection with the
relationship between the constituent elements of the Groups on or prior to
the Distribution Date; and (4) Monsanto and Chemicals intend that the
transactions contemplated by this Agreement and the Other Agreements and
any transfer of Privileged Information in connection herewith or therewith
shall not operate as a waiver of any potentially applicable privilege.
(b) Each of Monsanto and Chemicals agrees, on behalf of itself and
each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information
relating to the Monsanto Business or the Chemicals Business or any former
businesses or Assets or Liabilities of either party or the Joint Ownership
Properties or the P4 Business as they or it existed prior to the
Distribution Date, respectively, or relating to or arising in connection
with the relationship between the Groups on or prior to the Distribution
Date, without providing prompt written notice to and obtaining the prior
written consent of the other, which consent shall not be unreasonably
withheld and shall not be withheld if the other party certifies that such
disclosure is to be made in response to a likely threat of suspension or
debarment or similar action; PROVIDED, HOWEVER, that Monsanto and Chemicals
may make such disclosure or waiver with respect to Privileged Information
if such Privileged Information relates, in the case of Monsanto, solely to
the Monsanto Business, its former businesses (other than the Chemicals
Business or Former Chemicals Business or the P4 Business), the Monsanto
Assets or the Monsanto Liabilities as each existed prior to the
Distribution Date or, in the case of Chemicals, solely to the Chemicals
Business, the Former Chemicals Business, the Chemicals Assets or the
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Chemicals Liabilities, as each existed prior to the Distribution Date. In
the event of a disagreement between any member of the Monsanto Group and
any member of the Chemicals Group concerning the reasonableness of
withholding such consent, no disclosure shall be made prior to (i) a final,
nonappealable resolution of such disagreement by a court of competent
jurisdiction if such requirement to disclose is part of a pending judicial
proceeding; or (ii) a final determination by an arbitrator appointed
pursuant to Article VII if such requirement to disclose is not part of a
pending judicial proceeding.
(c) Upon any member of the Monsanto Group or any member of the
Chemicals Group receiving any subpoena or other compulsory disclosure
notice from a court, other governmental agency or otherwise which requests
disclosure of Privileged Information, in each case relating to the Monsanto
Business, its former businesses (other than the Chemicals Business or
Former Chemicals Business or the P4 Business), the Monsanto Assets or the
Monsanto Liabilities (in the case of the Chemical Group) or the Chemicals
Business, Former Chemicals Business, the Chemicals Assets or the Chemicals
Liabilities (in the case of the Monsanto Group) or the Joint Ownership
Properties or the P4 Business (in the case of either Group), as they or it
existed prior to the Distribution Date or relating to or arising in
connection with the relationship between the constituent elements of the
Groups on or prior to the Distribution Date, the recipient of the notice
shall promptly provide to Monsanto, in the case of receipt by a member of
the Chemicals Group, or to Chemicals, in the case of receipt by a member of
the Monsanto Group, a copy of such notice, the intended response, and all
materials or information relating to the other Group that might be
disclosed. In the event of a disagreement as to the intended response or
disclosure, unless and until the disagreement is resolved as provided in
paragraph (b) above, Monsanto and Chemicals shall cooperate to assert all
defenses to disclosure claimed by either Group, at the cost and expense of
the Group claiming such defense to disclosure, and shall not disclose any
disputed documents or information until all legal defenses and claims of
privilege have been finally determined.
6.07 CONFIDENTIALITY. From and after the Distribution Date, each of
Monsanto and Chemicals shall hold, and shall use its reasonable best efforts to
cause its employees, Affiliates and Representatives to hold, in strict
confidence all Information concerning or belonging to the other party obtained
by it prior to the Distribution Date or furnished to it by such other party
pursuant to this Agreement or the Other Agreements and shall not release or
disclose such Information to any other Person, except its Representatives, who
shall be bound by the provisions of this Section 6.07; PROVIDED, HOWEVER, that
Monsanto and Chemicals and their respective employees, Affiliates and
Representatives may disclose such Information to the extent that (a) disclosure
is compelled by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of law, or (b) such party can show that
such Information was (1) available to such party after the Distribution Date
from Third Party sources other than employees or former employees of either
party, their Affiliates, former Affiliates, Representatives or former
Representatives, on a nonconfidential basis prior to its disclosure to such
party after the Distribution Date by the other party, (2) in the public domain
through no fault of such party, (3) lawfully acquired by such party from Third
Party sources other than employees or former employees of either party, their
Affiliates, former Affiliates, Representatives or former Representatives, after
the time that it was furnished to such party pursuant to this Agreement or the
Other Agreements or (4) is independently discovered
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or developed after the Distribution Date by employees of such party.
Notwithstanding the foregoing, each of Monsanto and Chemicals and their
respective Representatives and Affiliates shall be deemed to have satisfied its
obligations under this Section 6.07 with respect to any Information if it
exercises the same care with regard to such Information as it takes to preserve
confidentiality for its own similar Information. Each party further covenants
that it shall not disclose to any Third Party (or any successor by merger or
otherwise) the fact that the other party uses Shared Know How (as defined in the
Intellectual Property Agreements) or if known, the particulars of such use.
ARTICLE VII
ARBITRATION; DISPUTE RESOLUTION
7.01 AGREEMENT TO ARBITRATE. Except as otherwise specifically provided
in any Other Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article VII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Other Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties as it relates to this
Agreement or such Other Agreement between or among any member of the Monsanto
Group and the Chemicals Group. Each party agrees on behalf of itself and each
member of its respective Group that the procedures set forth in this Article VII
shall be the sole and exclusive remedy in connection with any dispute,
controversy or claim relating to any of the foregoing matters and irrevocably
waives any right to commence any Action in or before any Governmental Authority,
except as expressly provided in Sections 7.07(b) and 7.08 and except to the
extent provided under the Arbitration Act in the case of judicial review of
arbitration results or awards.
7.02 ESCALATION.
(a) It is the intent of the parties to use their respective reasonable
best efforts to resolve expeditiously any dispute, controversy or claim between
or among them with respect to the matters covered hereby that may arise from
time to time on a mutually acceptable negotiated basis. In furtherance of the
foregoing, at the request of either party from time to time in a written notice
to the other party, the parties agree to negotiate in good faith to resolve any
controversies, claims or disputes under this Agreement or an Other Agreement. If
the parties cannot otherwise resolve the matter under consideration, then any
party involved in such a dispute, controversy or claim may deliver a notice (an
"Escalation Notice") demanding an in-person meeting of the Chief Executive
Officers (each, a "CEO") of Monsanto and Chemicals who shall meet with respect
to such matters, and who shall thereafter negotiate in good faith with each
other. Each party shall deliver, at the same time the Escalation Notice is
delivered pursuant to the preceding sentence, a copy of any such Escalation
Notice to the General Counsel of each other party involved in the dispute,
controversy or claim (which copy shall state that it is an Escalation Notice
pursuant to this Agreement). Any agenda, location or procedures for such
discussions or negotiations between the parties may be
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established by the parties from time to time; PROVIDED, HOWEVER, that the
parties shall use their reasonable efforts to meet within 30 days of the
delivery of the Escalation Notice.
(b) At any time, the parties may, by mutual consent, retain a mediator
to aid the parties in their discussions and negotiations by informally providing
advice to the parties. Any opinion expressed by the mediator shall be strictly
advisory and shall not be binding on the parties, nor shall any opinion
expressed by the mediator be admissible or be made known to the arbitrator in
any arbitration proceedings. The mediator may be chosen from a list of mediators
previously selected by the parties or by other agreement of the parties. Costs
of the mediation shall be borne equally by the parties involved in the matter,
except that each party shall be responsible for its own expenses. Mediation is
not a prerequisite to a demand for arbitration under Section 7.03.
(c) At any time after the delivery of the Escalation Notice, a party
(the "Offeror") may serve upon the other party (the "Offeree") an offer to
settle the dispute upon the payment or receipt of a specified sum (the "Offer of
Settlement"). If the Offer of Settlement is not accepted within thirty days of
receipt of such Offer or within such other longer period of time as may be
specified in the Offer of Settlement, if the Offeror made its CEO available for
a meeting or discussion and if the award or judgment finally obtained is not
more favorable to the Offeree than the Offer of Settlement, the Offeree must pay
the costs, including reasonable attorney's fees, incurred by the Offeror after
the making of the Offer of Settlement. The fact that an Offer of Settlement is
made and not accepted shall not preclude a subsequent offer by either party. The
Offer of Settlement shall be designated as such and copies of the Offer of
Settlement shall be given to the General Counsel and Chief Executive Officer of
each party involved in the dispute. The parties agree to keep confidential and
not to disclose to the arbitrator the fact or the amount of any Offer of
Settlement made.
7.03 DEMAND FOR ARBITRATION.
(a) At any time after the first to occur of (1) forty-five (45) days
after the date of the meeting actually held pursuant to the applicable
Escalation Notice or (2) ninety (90) days after the delivery of an Escalation
Notice (as applicable, the "Arbitration Demand Date"), any party involved in the
dispute, controversy or claim may make a written demand (the "Arbitration Demand
Notice") that the dispute be resolved by binding arbitration, which Arbitration
Demand Notice shall be given to the parties to the dispute, controversy or claim
in the manner set forth in Section 10.05. In the event that any party shall
deliver an Arbitration Demand Notice to another party, such other party may
itself deliver an Arbitration Demand Notice to such first party with respect to
any related dispute, controversy or claim without the requirement of delivering
an Escalation Notice. No party may assert that the failure to resolve any matter
during any discussions or negotiations or the course of conduct during the
discussions or negotiations in each case, as contemplated by Section 7.02, is a
prerequisite to a demand for arbitration under Section 7.03. In the event that
any party delivers an Arbitration Demand Notice with respect to any dispute,
controversy or claim that is the subject of any then-pending arbitration
proceeding or of a previously delivered Arbitration Demand Notice, all such
disputes, controversies and claims shall be resolved in the arbitration
proceeding for which an Arbitration Demand Notice was first delivered unless the
arbitrator in his or her sole discretion determines that it is impracticable or
otherwise inadvisable to do so.
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(b) The parties agree that the giving of an Escalation Notice or an
Arbitration Demand Notice followed by good faith discussions, negotiations,
mediations or arbitration between the parties pursuant to this Agreement or the
Other Agreements will toll the applicable statute of limitations during the time
period consumed in compliance with this Article VII with respect to such claims.
Subject to Sections 7.07(d) and 7.08, upon delivery of an Arbitration Demand
Notice pursuant to Section 7.03(a), the dispute, controversy or claim shall be
decided by a sole arbitrator in accordance with the rules set forth in this
Article VII.
7.04 ARBITRATORS.
(a) Within 15 days after a valid Arbitration Demand Notice is given,
the parties involved in the dispute, controversy or claim referenced therein
shall attempt to select a sole arbitrator satisfactory to all such parties.
(b) In the event that such parties are not able jointly to select a
sole arbitrator within such 15-day period, such parties shall each appoint an
arbitrator (who need not be disinterested as to the parties or the matter)
within 30 days after delivery of the Arbitration Demand Notice. If one party
appoints an arbitrator within such time period and the other party or parties
fail to appoint an arbitrator within such time period, the arbitrator appointed
by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected pursuant to
paragraph (a) or (b) above and, instead, two arbitrators are selected pursuant
to paragraph (b) above, the two arbitrators will, within 30 days after the
appointment of the later of them to be appointed, select an additional
arbitrator who shall act as the sole arbitrator of the dispute. After selection
of such sole arbitrator, the initial arbitrators shall have no further role with
respect to the dispute. In the event that the arbitrators so appointed do not,
within 30 days after the appointment of the later of them to be appointed, agree
on the selection of the sole arbitrator, any party involved in such dispute may
apply to CPR, New York, New York to select the sole arbitrator, which selection
shall be made by such organization within 30 days after such application. Any
arbitrator selected pursuant to this paragraph (c) shall be disinterested with
respect to any of the parties and the matter and shall be reasonably competent
in the applicable subject matter. In disputes involving the Tax Sharing
Agreement the arbitrator appointed shall be either a tax attorney or an
independent certified public accountant.
(d) The sole arbitrator selected pursuant to paragraph (a), (b) or (c)
above will set a time for the hearing of the matter which will commence no later
than 90 days after the date of appointment of the sole arbitrator pursuant to
paragraph (a), (b) or (c) above and which hearing will be no longer than 30 days
(unless in the judgment of the arbitrator the matter is unusually complex and
sophisticated and thereby requires a longer time, in which event such hearing
shall be no longer than 90 days). The final award of such arbitrator will be
rendered in writing to the parties not later than 60 days after the last hearing
date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be St. Louis,
Missouri, unless otherwise agreed by the parties.
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7.05 HEARINGS. Within the time period specified in Section 7.04(d),
the matter shall be presented to the arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously,
and responses, if necessary in the judgment of the arbitrator or both the
parties. The arbitrator shall actively manage the arbitration with a view to
achieving a just, speedy and cost-effective resolution of the dispute, claim or
controversy. The arbitrator may, in his or her discretion, set time and other
limits on the presentation of each party's case, its memoranda or other
submissions, and refuse to receive any proffered evidence which the arbitrator,
in his or her discretion, finds to be cumulative, unnecessary, irrelevant or of
low probative nature. Except as otherwise set forth herein, any arbitration
hereunder will be conducted in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes then prevailing (except that
the fee schedule of CPR will not apply unless CPR selects the arbitrator in
which event the relevant CPR Fee Schedule will apply). Except as expressly set
forth in Section 7.08(b), the decision of the arbitrator will be final and
binding on the parties, and judgment thereon may be had and will be enforceable
in any court having jurisdiction over the parties. Arbitration awards will bear
interest from the date of the arbitration award at an annual rate of the Prime
Rate per annum. To the extent that the provisions of this Agreement and the
prevailing rules of the CPR conflict, the provisions of this Agreement shall
govern.
7.06 DISCOVERY AND CERTAIN OTHER MATTERS.
(a) In addition to its rights of access to Information under
Article VI of this Agreement and any other rights to Information provided for in
this Agreement or an Other Agreement, any party involved in the applicable
dispute may request limited document production from the other party or parties
at any time following the original meeting request of relevant documents
containing Information developed after the Distribution Date and which
Information would not otherwise be available under Article VI, with the
reasonable expenses of the producing party incurred in such production paid by
the requesting party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 7.05 to be adjourned except upon consent of
all parties involved in the applicable dispute or upon a showing of cause
demonstrating that such adjournment is necessary to permit discovery essential
to a party to the proceeding. Depositions, interrogatories or other forms of
discovery (other than the document production set forth above) shall not occur
except by consent of the parties involved in the applicable dispute. Disputes
concerning the scope of document production and enforcement of the document
production requests will be determined by written agreement of the parties
involved in the applicable dispute or, failing such agreement, will be referred
to the arbitrator for resolution. All discovery requests for Information
developed after the Distribution Date will be subject to the parties' rights to
claim any applicable privilege. In addition to the parties confidentiality and
restricted use obligations with respect to Information contained in this
Agreement or the applicable Other Agreement, the arbitrator will adopt
procedures to protect the proprietary rights of the parties and to maintain the
confidential treatment of the arbitration proceedings (except as may be required
by law). Subject to the foregoing, the arbitrator shall have the power to issue
subpoenas to compel the production of documents relevant to the dispute,
controversy or claim.
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(b) The arbitrator shall have full power and authority to determine
issues of arbitrability but shall otherwise be limited to interpreting or
construing the applicable provisions of this Agreement or any Other Agreement,
and will have no authority or power to limit, expand, alter, amend, modify,
revoke or suspend any condition or provision of this Agreement or any Other
Agreement; it being understood, however, that the arbitrator will have full
authority to implement the provisions of this Agreement or any Other Agreement,
and to fashion appropriate remedies for breaches of this Agreement (including
interim or permanent injunctive relief); PROVIDED that the arbitrator shall not
have (1) any authority in excess of the authority a court having jurisdiction
over the parties and the controversy or dispute would have absent these
arbitration provisions or (2) any right or power to award punitive or treble
damages. It is the intention of the parties that in rendering a decision the
arbitrator give effect to the applicable provisions of this Agreement and the
Other Agreements and follow applicable law (it being understood and agreed that
this sentence shall not give rise to a right of judicial review of the
arbitrator's award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party involved in
the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party. Provided, however, that if an arbitration or court action is
commenced without a meeting of or discussion between the CEO's, the party who
did not make its CEO available for such meeting or discussion will pay all costs
of the arbitration or litigation. In addition, the arbitrator (or the Court in
any action under Article 7.08 or any action to enforce the award) shall be
entitled in his or her discretion to award reasonable attorney's fees to the
prevailing party if the arbitrator (or the Court) finds that the other party did
not make its CEO available for a meeting and that party (a) has asserted claims
or defenses that are frivolous or (b) has unnecessarily and unreasonably
expanded the scope of the proceedings.
7.07 CERTAIN ADDITIONAL MATTERS.
(a) Any arbitration award shall be a bare award limited to a holding
for or against a party and shall be without findings as to facts, issues or
conclusions of law (including with respect to any matters relating to the
validity or infringement of patents or patent applications) and shall be without
a statement of the reasoning on which the award rests, but must be in adequate
form so that a judgment of a court may be entered thereupon. Judgment upon any
arbitration award hereunder may be entered in any court having jurisdiction
thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant to
Section 7.04, any party may seek one or more temporary restraining orders in a
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein.
(c) Except as required by law, the parties shall hold, and shall cause
their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and
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result of mediation or arbitration in confidence in accordance with the
provisions of Article VI and except as may be required in order to enforce any
award. Each of the parties shall request that any mediator or arbitrator comply
with such confidentiality requirement.
(d) In the event that at any time the sole arbitrator shall fail to
serve as an arbitrator for any reason, the parties shall select a new arbitrator
who shall be disinterested as to the parties and the matter in accordance with
the procedures set forth herein for the selection of the initial arbitrator. The
extent, if any, to which testimony previously given shall be repeated or as to
which the replacement arbitrator elects to rely on the stenographic record (if
there is one) of such testimony shall be determined by the replacement
arbitrator.
7.08 LIMITED COURT ACTIONS.
(a) Notwithstanding anything herein to the contrary, in the event that
any party reasonably determines the amount in controversy in any dispute,
controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Other Agreement is, or is reasonably likely
to be, in excess of $10 million and if such party desires to commence an Action
in lieu of complying with the arbitration provisions of this Article, such party
shall so state in its Arbitration Demand Notice or by notice given to the other
parties within 20 days after receipt of an Arbitration Demand Notice with
respect thereto. If the other parties to the arbitration do not agree that the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $10 million, the arbitrator selected pursuant to Section 7.04 hereof
shall decide whether the amount in controversy in such dispute, controversy or
claim (or such series of related disputes, controversies or claims) is, or is
reasonably likely to be, in excess of $10 million. The arbitrator shall set a
date that is no later than ten days after the date of his or her appointment for
submissions by the parties with respect to such issue. Except for a party's
rights of access to Information as provided in this Agreement and the Other
Agreements, there shall not be any discovery in connection with such issue. The
arbitrator shall render his or her decision on such issue within five days of
such date so set by the arbitrator. In the event that the arbitrator determines
that the amount in controversy in such dispute, controversy or claim (or such
series of related disputes, controversies or claims) is or is reasonably likely
to be in excess of $10 million, the provisions of Sections 7.04(d) and (e),
7.05, 7.06, 7.07 and 7.10 hereof shall not apply and on or before (but, except
as expressly set forth in Section 7.08(b), not after) the tenth business day
after the date of such decision, any party to the arbitration may elect, in lieu
of arbitration, to commence an Action with respect to such dispute, controversy
or claim (or such series of related disputes, controversies or claims) in any
court of competent jurisdiction. If the arbitrator does not so determine, the
provisions of this Article VII (including with respect to time periods) shall
apply as if no determinations were sought or made pursuant to this Section
7.08(a).
(b) In the event that an arbitration award in excess of $10 million is
issued in any arbitration proceeding commenced hereunder, any party may, within
60 days after the date of such award, commence an Action in a court of competent
jurisdiction relating to the dispute, controversy or claim (or series of related
disputes, controversies or claims) giving rise thereto to a court of competent
jurisdiction, regardless of whether such party or any other party sought to
commence an Action in lieu of proceeding with arbitration in accordance with
Section 7.08(a). In such event,
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each party may present arguments to the court with respect to whether and to
what extent the record developed in arbitration shall be admissible into
evidence and whether any such additional discovery or evidence shall be
permitted.
(c) No party shall raise as a defense the statute of limitations or
repose or a claim of laches if the applicable Notice of Escalation was delivered
on or prior to the applicable statute of limitations or repose or the time
period required to assert a claim of laches and, if applicable, if the matter is
submitted to a court of competent jurisdiction within the 60-day period
specified in Section 7.08(b).
7.09 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Other Agreement during the course of
dispute resolution pursuant to the provisions of this Article VII with respect
to all matters not subject to such dispute, controversy or claim.
7.10 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article VII, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section
10.04.
ARTICLE VIII
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS
8.01 NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS. Chemicals
understands and agrees that no member of the Monsanto Group is, in this
Agreement or in any Other Agreement, representing or warranting to the Chemicals
Group in any way as to the Chemicals Assets, the Chemicals Liabilities, the
Chemicals Business, the Former Chemicals Business or the Chemicals Balance
Sheet, or as to any consents or approvals required in connection with the
consummation of the transactions contemplated by this Agreement, it being agreed
and understood as between the Groups, the members of the Chemicals Group shall
take all of the Chemicals Assets "as is, where is" and that, except as provided
in this Section 8.01 or in Section 5.01, the members of Chemicals Group shall
bear the economic and legal risk that conveyances of the Chemicals Assets shall
prove to be insufficient or that the title of any member of the Chemicals Group
to any Chemicals Assets shall be other than good and marketable and free from
encumbrances. Real property in the United States being transferred to Chemicals
will be conveyed by Special Warranty Deed, in recordable form and warranting
title to be free and clear from all lawful claims of those claiming by, through
or under Monsanto, but not otherwise; provided, however, such Special Warranty
Deed shall be subject to deed restrictions, easements, rights-of-way, and all
other matters of record.
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ARTICLE IX
INSURANCE
9.01 INSURANCE POLICIES AND RIGHTS.
(a) Without limiting the generality of the definition of Chemicals
Assets set forth in Section 1.01 or the effect of Section 2.03, the Chemicals
Assets shall include any and all rights of an insured party, including rights of
indemnity and the right to be defended by or at the expense of the insurer with
respect to all Chemicals Claims, under any Insurance Policies; PROVIDED,
HOWEVER, that nothing in this clause shall be deemed to constitute (or to
reflect) the assignment to Chemicals of any of the Insurance Policies. Except
for Insurance Proceeds paid to or on behalf of any member of the Monsanto Group
at the direction of Chemicals in satisfaction of a claim that would otherwise be
subject to indemnification by Chemicals under Article IV but subject to the
provisions of Section 4.03(c), and except for reimbursement received by Monsanto
for Chemicals Claims which are Monsanto Liabilities and were paid by the
Monsanto Group after the Distribution Date, Chemicals shall be entitled to
receive from the insurer or Monsanto any Insurance Proceeds with respect to any
Chemicals Claim under the Insurance Policies including without limitation,
reimbursement or payment for Chemicals Liabilities, for casualty or business
interruption with respect to the Chemicals Business or the Chemicals Assets, or
for costs or expenses related thereto.
(b) Without limiting the generality of the definition of Monsanto
Assets set forth in Section 1.01, the Monsanto Assets shall include any and all
rights of an insured party including rights of indemnity and the right to be
defended by or at the expense of the insurer, under any Insurance Policies other
than the rights under the Insurance Policies which are included in Chemicals
Assets pursuant to Section 9.01(a). Such rights include claims with respect to
the Joint Ownership Properties or the P4 Business to the extent of Monsanto's
rights or obligations under the P4 Joint Venture Agreement with respect to such
claims.
(c) Solely for purposes of this Article IX, "Monsanto Group" and
"Chemicals Group" shall include their consolidated entities to the extent such
entities were in existence on or prior to the Distribution Date or are set forth
on Schedule 1.01(21).
9.02 CLAIMS.
(a) The parties agree that on or prior to the Distribution Date,
Monsanto shall be deemed: (i) to have assigned to the Chemicals Group, without
need of further documentation, all of the Monsanto Group's rights, if any, as an
insured party, including rights of indemnity and the right to be defended by or
at the expense of the insurer, under all of the Insurance Policies with respect
to such Chemicals Claims as are pending on the Distribution Date, and (ii) to
the extent necessary to provide the Chemicals Group with the benefit of such
insurance with respect to Chemicals Claims, to designate Chemicals, without need
of further documentation, as the agent and attorney-in-fact to assert and to
collect any Insurance Proceeds under such Insurance Policies; provided, however,
that nothing in this Section 9.02 shall be deemed to constitute (or reflect) the
assignment of any of the Insurance Policies to the Chemicals Group. If,
subsequent to the Distribution Date, the Chemicals Group shall be entitled to
payment or reimbursement with respect to a Chemicals Claim or any
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Person shall assert a Chemicals Claim, then Monsanto shall at the time such
Chemicals Claim arises or is asserted be deemed: (i) to assign, without need of
further documentation, to the Chemicals Group all of the Monsanto Group's
rights, if any, as an insured party, including rights of indemnity and the right
to be defended by or at the expense of the insurer, under the applicable
Insurance Policy with respect to such Chemicals Claim; and (ii) to the extent
necessary to provide the Chemicals Group with the benefit of such insurance with
respect to Chemicals Claims, to designate Chemicals, without need of further
documentation, as the agent and attorney-in-fact to assert and to collect any
Insurance Proceeds under such Insurance Policies, PROVIDED, HOWEVER, that
nothing in this Section 9.02 shall be deemed to constitute (or to reflect) the
assignment of any of the Insurance Policies to the Chemicals Group. In the event
an insurer refuses to honor such agency or to pay such Insurance Proceeds to the
Chemicals Group, Monsanto shall collect such Insurance Proceeds and forward it
to Chemicals.
(b) In the event of payment of a Chemicals Claim by the Chemicals
Group after the Distribution Date or any payment of a Chemicals Claim prior to
the Distribution Agreement which is subject to reimbursement or payment by an
insurer or a Third Party, Chemicals, or the applicable member of the Chemicals
Group shall be subrogated to and stand in the place of Monsanto or the Monsanto
Group as to any rights, events or circumstances in respect of which Chemicals or
the applicable member of the Chemicals Group may have any right or claim under
this Agreement, any Other Agreement or otherwise against any such insurer or
Third Party relating to such Chemicals Claim. Monsanto shall cooperate with the
Chemicals Group in a reasonable manner in prosecuting any subrogated right or
claim, including granting Chemicals permission to sue in the name of Monsanto.
9.03 ADMINISTRATION AND RESERVES. Consistent with the provisions of
Article IV, from and after the Distribution Date:
(a) Monsanto shall be responsible for (1) Insurance Administration of
the Insurance Policies with respect to any Monsanto Liabilities, any
Monsanto Assets or any claims as to which the Monsanto Group has retained
rights of reimbursement or subrogation pursuant to this Agreement or any
Other Agreement; and (2) Claims Administration with respect to any Monsanto
Liabilities, any Monsanto Assets or any claims as to which the Monsanto
Group has retained rights of reimbursement or subrogation pursuant to this
Agreement or any Other Agreement. It is understood that the retention of
the Insurance Policies by Monsanto is in no way intended to limit, inhibit
or preclude any right to insurance coverage for any Insured Claim or any
other rights under the Insurance Policies, including without limitation,
claims of Chemicals and any of its operations, Subsidiaries and Affiliates
for insurance coverage, reimbursement, subrogation or otherwise; and
(b) Chemicals shall be responsible for (1) Insurance Administration of
the Insurance Policies with respect to any Chemicals Liabilities, any
Chemicals Assets, or any claims as to which the Chemicals Group has rights
of reimbursement or subrogation pursuant to this Agreement or any Other
Agreement, and (2) Claims Administration with respect to any Chemicals
Liabilities, any Chemicals Assets, or any claims as to which the Chemicals
Group has rights of reimbursement or subrogation pursuant to this Agreement
or an Other Agreement. Subject to the terms of the Transition Services
Agreement, Monsanto
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shall perform the Insurance Administration and provide assistance to the
Chemicals Group with respect to Claims Administration for claims as to
which Chemicals or the Chemicals Group has rights or obligations hereunder
as part of the insurance and risk management services it will perform for
the Chemicals Group after the Distribution Date.
9.04 RETROSPECTIVELY RATED INSURANCE PREMIUMS. Each party shall pay
its share of retrospectively rated premiums incurred after the Distribution Date
for coverage under the Insurance Policies with respect to their respective
Liabilities which are Insured Claims under the Insurance Policies. Such shares
will be determined consistent with the accounting principle in effect on the
Distribution Date which was used to determine shares of such retrospectively
rated premiums prior thereto. Either party shall have the right but not the
obligation to pay such premiums under the Insurance Policies with respect to the
other party's Liabilities which are Insured Claims under the Insurance Policies
to the extent that such other party does not pay such premiums, whereupon the
non-paying party shall forthwith reimburse the payor for any premiums paid by
the payor with respect to such non-paying party's Liabilities.
9.05 ALLOCATION OF INSURANCE PROCEEDS; COOPERATION. (a) Except as
otherwise provided in Section 4.03(c), Insurance Proceeds received with respect
to claims, costs and expenses under the Insurance Policies shall be paid to
Monsanto with respect to Monsanto Liabilities and to Chemicals with respect to
the Chemicals Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the Insurance Policies will be made to the
appropriate party upon receipt from the insurance carrier.
(b) Each of the parties hereto agree to use commercially
reasonable efforts to maximize available coverage under the Insurance Policies
for all Insured Claims whether or not such party is the expected beneficiary of
Insurance Proceeds under such Insurance Policies in respect of such Insured
Claim. As part of such efforts to maximize insurance coverage, each party agrees
to take all commercially reasonable steps to recover such amounts as are or
might be due from all other responsible parties in respect of an Insured Claim,
including but not limited to Insured Claims as to which coverage limits under
the Insurance Policies would be or would have been exceeded as a result of such
Insured Claim and whether or not such party is expected to benefit directly from
such efforts.
(c) Where Monsanto Liabilities and Chemicals Liabilities, as
applicable, are covered under the same Insurance Policies for periods prior to
the Distribution Date, or covering claims made after the Distribution Date with
respect to an event or an occurrence prior to the Distribution Date, then the
Monsanto Group and the Chemicals Group may claim coverage for Insured Claims
under such Insurance Policies as and to the extent that such insurance is
available up to the full extent of the applicable limits of liability or other
coverage of such Insurance Policies. Each party may receive Insurance Proceeds
in respect of its Insured Claims as and when payable under the terms of the
applicable Insurance Policies without regard to whether the Insured Claim covers
a Monsanto Liability or claim or a Chemicals Liability or claim, the relative
amount of deductible paid by either party after the Distribution Date with
respect to an Insured Claim for a Liability for which such party was responsible
or the amount of such Insurance Proceeds paid to either Group after the
Distribution Date with respect to its respective Liabilities. In the event that
the aggregate limits on any Insurance Policy is exceeded by the aggregate of
paid Insured Claims,
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there shall be no further allocation of previously paid deductibles, premiums or
Insurance Proceeds between the Groups and except as expressly provided in this
Agreement, neither Group shall be entitled to reimbursement from the other Group
for deductibles, premiums or Insurance Proceeds paid by an insurer to or on
behalf of such Group; provided, however, that in the event additional insurance
coverage for remaining unpaid Insured Claims may be purchased or reinstated, the
parties agree to share such costs of reinstatement (including premium penalty
adjustments) in the same proportion which the Insurance Proceeds under such
Insurance Policy (both received and expected to be received by such party after
the Distribution Date less deductible paid by such party after the Distribution
Date) bears to the total Insurance Proceeds paid (and payable to the party with
the pending claims under the new coverage limits).
9.06 REIMBURSEMENT OF EXPENSES. Chemicals shall reimburse the relevant
insurer or the relevant third-party administrator, to the extent required under
any Insurance Policy or Service Agreement for any services performed after the
Distribution Date with respect to any and all Chemicals Claims which are not
Monsanto Liabilities which are paid, settled, adjusted, defended and/or
otherwise handled by such insurer or third-party administrator pursuant to the
terms and conditions of such Insurance Policy or Service Agreement.
9.07 INSURER INSOLVENCY. Except for Chemicals Claims which are
Monsanto Liabilities or as otherwise provided in this Agreement, the Monsanto
Group shall not be obligated to reimburse the Chemicals Group for any Chemicals
Claim covered under any Insurance Policies which is not paid because of the
insolvency of such insurer or the refusal by any insurer to pay such Chemicals
Claim; provided, however, that Monsanto shall assign to Chemicals or any member
of the Chemicals Group all of its rights under such Insurance Policies with
respect to such Chemicals Claim and shall cooperate with Chemicals, at
Chemicals' option and expense, in pursuing collection of all or part of such
Chemicals Claim from such insurer or such other Third Parties who may have
liability for such Chemicals Claim (including without limitation, Governmental
Authorities, or others holding insurance reserves available for payment,
trustees in bankruptcy or liquidators of such insurers, etc.).
9.08 DIRECT RESPONSIBILITY FOR CLAIMS. Monsanto agrees to notify
insurers under the Insurance Policies of the Distribution and to seek an
endorsement by such insurers that the coverage provided by such Insurance
Policies will apply to the Monsanto Group and the Chemicals Group with the same
force and effect and subject to the same terms, conditions, and exclusions as if
the separation of Monsanto and the Distribution had not occurred. In the event
such endorsement is refused, Monsanto agrees to take such action as is necessary
to place the Chemicals Group in the same position as it would have been had such
endorsement been agreed upon by such insurers. Chemicals shall have the right to
make reasonable efforts to negotiate agreements with any and all insurers or
third-party administrators whereby Chemicals shall assume direct responsibility
for any and all Liabilities related to it under any Insurance Policies and/or
Service Agreements, and Monsanto shall provide reasonable assistance in this
effort.
9.09 NO REDUCTION OF COVERAGE. Except for such reduction in coverage
resulting from payment of claims paid in accordance with this Agreement or any
Other Agreement, neither party shall take any action to eliminate or reduce
coverage under any Insurance Policy or Service
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Agreement for any claims without the prior written consent of the other party
(which shall not be unreasonably withheld or delayed).
9.10 ASSISTANCE, WAIVER OF CONFLICT AND SHARED DEFENSE. Each of the
parties hereto agrees to provide reasonable assistance to the other parties
hereto as regards any dispute with any third party (including insurers,
third-party administrators and state guaranty funds) as to any matter related to
the Insurance Policies or Service Agreements. In the event that Insured Claims
of more than one Group exist relating to the same occurrence, the parties hereto
agree to defend such Insured Claims jointly and to waive any conflict of
interest necessary to the conduct of such joint defense. Nothing in this Section
9.10 shall be construed to limit or otherwise alter in any way the indemnity
obligations of the parties hereto, including those created by this Agreement or
by operation of law.
ARTICLE X
MISCELLANEOUS
10.01 CONDITIONS TO OBLIGATIONS.
(a) The obligations of the parties hereto to consummate the
Distribution are subject to the satisfaction, as determined by Monsanto in its
sole discretion, of each of the following conditions:
(1) The Distribution shall have been approved by the holders of a
majority of the shares of Monsanto Common Stock present in person or by
proxy at the Special Meeting;
(2) The Monsanto Certificate Amendment shall have been approved by the
holders of a majority of the outstanding shares of Monsanto Common Stock;
(3) The transactions contemplated by Sections 2.01, 2.02, 2.05 and
2.06 shall have been consummated and the transactions contemplated by
Section 2.03 shall have been consummated in all material respects;
(4) The Chemicals Common Stock shall have been approved for listing on
the NYSE, subject to official notice of issuance;
(5) The Registration Statement shall have been filed with the SEC and
shall have become effective, and no stop order with respect thereto shall
be in effect;
(6) All material authorizations, consents, approvals and clearances of
federal, state, local and foreign governmental agencies required to permit
the valid consummation by the parties hereto of the transactions
contemplated by this Agreement shall have been obtained; and no such
authorization, consent, approval or clearance shall contain any conditions
which would have a material adverse effect on (A) the Monsanto Business or
the Chemicals Business, (B) the Assets, results of operations or financial
condition of the Monsanto Group
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or the Chemicals Group, in each case taken as a whole, or (C) the ability of
Monsanto or Chemicals to perform its obligations under this Agreement; and all
statutory requirements for such valid consummation shall have been fulfilled.
(7) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the consummation of the
Distribution;
(8) The Financing Facility shall be in place and all conditions to
borrowing thereunder (other than any conditions concerning consummation of
the Distribution and the transfers of assets and liabilities described
hereunder) shall have been satisfied, and all necessary consents, waivers
or amendments to each bank credit agreement, debt security or other
financing facility to which any member of the Monsanto Group or the
Chemicals Group is a party or by which any such member is bound shall have
been obtained, or each such agreement, security or facility shall have been
refinanced, in each case on terms satisfactory to Monsanto and to the
extent necessary to permit the Distribution to be consummated without any
material breach of the terms of such agreement, security or facility; and
(9) Monsanto shall have received a ruling from the Internal Revenue
Service that the Distribution is tax-free for federal income tax purposes,
and such ruling shall be in form and substance satisfactory to Monsanto in
its sole discretion.
(b) The foregoing conditions are for the sole benefit of Monsanto and shall
not give rise to any duty on the part of Monsanto or its Board of Directors to
waive or not waive any such condition. Any determination made by the Board of
Directors of Monsanto in good faith on or prior to the Distribution Date
concerning the satisfaction or waiver of any or all of the conditions set forth
in Section 10.01(a) shall be conclusive.
10.02 COMPLETE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Other Agreements and the agreements and other documents referred to
herein shall constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter,
including without limitation, the "Spin Principles".
10.03 EXPENSES. All costs and expenses of any party hereto whether
incurred prior to or after the Distribution Date in connection with the
preparation, execution, delivery and implementation of this Agreement and with
the consummation of the transactions contemplated by this Agreement and the
Other Agreements, including but not limited to legal fees, accounting fees,
investment banking fees, and all such other costs and expenses shall be charged
to and paid by Monsanto. Monsanto will contribute to Chemicals all intangible
assets relating to Chemicals' investigatory, pre-opening, start-up and
organizational expenditures which are required to be capitalized for federal
income tax purposes.
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10.04 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (other than the laws
regarding choice of laws and conflicts of laws) as to all matters, including
matters of validity, construction, effect, performance and remedies.
10.05 NOTICES. All notices, requests, claims, demands and other
communications hereunder (collectively, "Notices") shall be in writing and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, telegram, facsimile, electronic mail or other standard form
of telecommunications (provided confirmation is delivered to the recipient the
next Business Day in the case of facsimile, electronic mail or other standard
form of telecommunications) or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to Monsanto: Robert W. Reynolds, Corporate Vice President
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MO 63167
Telephone: 314-694-4179
Facsimile: 314-694-4105
with a copy to: General Counsel
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MO 63167
Telephone: 314-694-9322
Facsimile: 314-694-6399
If to Chemicals: President
G Building
Solutia Inc.
10300 Olive Boulevard
P.O. Box 66760
St. Louis, MO 63166-6760
Telephone: 314-674-2210
Facsimile: 314-674-8425
with a copy to: General Counsel
G Building
Solutia Inc.
10300 Olive Boulevard
St. Louis, MO 63166-6760
Telephone: 314-674-3586
Facsimile: 314-674-2721
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<PAGE> 48
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 10.05.
10.06 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement signed by both of the
parties hereto.
10.07 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party (which consent shall not be unreasonably withheld or
delayed). Except for the provisions of Sections 4.03 and 4.04 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of the parties hereto and their Subsidiaries and
Affiliates and is not intended to confer upon any other Persons any rights or
remedies hereunder.
10.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.09 INTERPRETATION. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
10.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party acknowledges
that money damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
10.11 REFERENCES; CONSTRUCTION. References to any "Article",
"Exhibit", "Schedule" or "Section", without more, are to Appendices, Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the term "including" set forth examples
only and in no way limit the generality of the matters thus exemplified.
10.12 TERMINATION. Notwithstanding any provision hereof this Agreement
may be terminated and the Distribution abandoned at any time prior to the
Distribution Date by and in the sole discretion of the Board of Directors of
Monsanto without the approval of any other party hereto or of Monsanto's
stockholders. In the event of such termination, no party hereto shall have any
Liability to any Person by reason of this Agreement.
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<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
MONSANTO COMPANY,
a Delaware corporation
By: /s/ Nicholas L. Reding
______________________________________
Nicholas L. Reding
Vice Chairman
SOLUTIA INC.
a Delaware corporation
By: /s/ John C. Hunter III
______________________________________
John C. Hunter III
President
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<PAGE> 50
The following is an identification of the contents of all omitted schedules
and exhibits to the Distribution Agreement. Solutia Inc. will furnish
supplementally a copy of any omitted schedule or exhibit to the Securities
and Exchange Commission upon request.
DISTRIBUTION AGREEMENT
EXHIBITS:
1.01(29) - Form of Employee Benefits and Compensation Allocation Agreement
1.01(49) - Form of Intellectual Property Transfer Agreement
1.01(52) - Form of Lease Agreements
1.01(70) - Master Operating Agreement
1.01(74)(a) - (g) - P4 Joint Venture Agreements
1.01(81)(a) - (f) - Raw Material Supply Agreements
1.01(94) - Tax Sharing Agreement
1.01(97) - Transition Services Agreement
2.01(a) - Chemicals' Restated Certificate of Incorporation
2.01(b) - Chemicals' By-Laws
4.03(e) - Form of Power of Attorney - Existing Third Party Claims
5.01(d)(ii) - Form of Power of Attorney - Real Estate
5.01(e) - Form of Power of Attorney - Other
SCHEDULES:
1.01(11)(a) - Chemicals Assets: Real Property
1.01(11)(b) - Chemicals Assets: Partnership, Joint Venture and Other
Equity Interests
1.01(11)(c) - Chemicals Assets: Other
1.01(13) - Chemicals Business: Principal Chemicals Businesses and
Operations
1.01(19)(a) - Chemicals Liabilities: Environmental Remediation
1.01(19)(b) - Chemicals Liabilities: Third Party Indebtedness
1.01(19)(c) - Chemicals Liabilities: Other
1.01(21) - Chemicals Subsidiaries
1.01(32) - Excluded Chemicals Assets: Other
1.01(33) - Excluded Chemicals Liabilities
1.01(36)(a) - Former Chemicals Business: Discontinued Businesses
1.01(36)(b) - Former Chemicals Business: Other
1.01(51) - Joint Ownership Properties
1.01(52) - Lease Agreements: Facilities
1.01(70) - Operating Agreements: Facilities
4.03(c) - Assumption and Indemnification - Purchase Agreements
5.03(b) - Third Party Indebtedness
5.03(c)(i) - Intercompany Accounts - Europe/South Africa Exceptions
<PAGE> 1
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
SOLUTIA INC.
1. The name of the corporation (which is hereinafter referred to as
the "Corporation") is "Solutia Inc.".
2. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on April 1, 1997, under the name
Queeny Chemical Company.
3. This Restated Certificate of Incorporation which both restates
and further amends the provisions of the Corporation's Certificate of
Incorporation, was duly adopted in accordance with the provisions of Section 242
and 245 of the General Corporation Law of the State of Delaware and by the
written consent of the sole stockholder of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation of the Corporation
is hereby amended and restated to read in its entirety as follows:
ARTICLE I: NAME
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Solutia Inc.
ARTICLE II: OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III: PURPOSE
The purpose of the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
<PAGE> 2
ARTICLE IV: CAPITAL STOCK
The total number of shares of stock which the Corporation shall have
authority to issue is Six Hundred Ten Million (610,000,000), consisting of Ten
Million (10,000,000) shares of preferred stock, par value $.01 per share
(hereinafter referred to as "Preferred Stock"), and Six Hundred Million
(600,000,000) shares of common stock, par value $.01 per share (hereinafter
referred to as "Common Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(1) The designation of the series, which may be by distinguishing
number, letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding).
(3) The amounts payable on, and the preferences, if any, of shares
of the series in respect of dividends, and whether such dividends, if any, shall
be cumulative or noncumulative.
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of
the series.
(6) The terms and amount of any sinking fund providing for the
purchase or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of shares
of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other security, of
the Corporation or any other corporation or entity, and, if so, the
specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the
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<PAGE> 3
date or dates at which such shares shall be convertible or exchangeable and all
other terms and conditions upon which such conversion or exchange may be made.
(9) Restrictions on the issuance of shares of the same series or of
any other class or series.
(10) The voting rights and powers, if any, of the holders of shares
of the series.
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Except as may be provided in this
Certificate of Incorporation or in a Preferred Stock Designation, the holders of
shares of Common Stock shall be entitled to one vote for each such share upon
all questions presented to the stockholders, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
ARTICLE V: POWERS OF THE BOARD OF DIRECTORS
In furtherance of, and not in limitation of, the powers conferred by
law, the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the By-Laws of the Corporation;
provided, however, that the By-Laws adopted by the Board of Directors under the
powers hereby conferred may be amended or repealed by the Board of Directors or
by the stockholders having voting power with respect thereto, provided further
that, notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any series of
Preferred Stock required by law, this Certificate of Incorporation or any
Preferred Stock Designation, the affirmative vote of the holders of at least 80
percent of the voting power of the then outstanding Voting Stock (as defined
herein), voting together as a single class, shall be required in order for the
stockholders to adopt, amend or repeal any provision of the By-Laws; and
(2) from time to time to determine whether and to what extent, and
at what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account, book or
document of the Corporation other than such rights as may be conferred by
applicable law.
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<PAGE> 4
The Corporation may in its By-Laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with paragraph (1) of this Article V. For the purposes of this Certificate of
Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors.
ARTICLE VI: ACTION BY STOCKHOLDERS
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of at least 80 percent of the voting power of the then outstanding Voting
Stock, voting together as a single class, shall be required to amend, repeal or
adopt any provision inconsistent with this Article VI.
ARTICLE VII: ELECTION OF DIRECTORS
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed, and may be increased or decreased
from time to time in such a manner as may be prescribed by the By-Laws.
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock, shall be divided into three classes, as nearly
equal in number as possible. One class of directors shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 1998,
another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 1999, and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2000. Members of each class shall hold office until their successors are elected
and qualified. At each annual meeting of the stockholders of the Corporation
commencing with the 1998 annual meeting, (1) directors elected to succeed those
directors whose terms then expire shall be elected by a plurality vote of all
votes cast at such meeting to hold office for a term expiring at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (2) only if authorized by a resolution of the Board of
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Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and unless
the Board of Directors otherwise determines, vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of Directors,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires and until such director's successor shall have been
duly elected and qualified. No decrease in the number of authorized directors
constituting the total number of directors which the Corporation would have if
there were no vacancies shall shorten the term of any incumbent director.
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-Laws.
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, any director
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article VII.
ARTICLE VIII: INDEMNIFICATION
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
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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.
ARTICLE IX: LIABILITY OF DIRECTORS
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 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 X 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 X: AMENDMENTS
Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation or a Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article X;
provided, however, that any amendment or repeal of Article VIII or Article IX of
this Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
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IN WITNESS WHEREOF, said Solutia Inc. has caused this Restated
Certificate of Incorporation to be signed by its Senior Vice President, General
Counsel and Secretary this 29th day of August, 1997.
SOLUTIA INC.
By: /s/ Karl R. Barnickol
--------------------------------------
Karl R. Barnickol
Senior Vice President,
General Counsel and
Secretary
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Exhibit 3(b)
BY-LAWS
OF
SOLUTIA INC.
(THE "COMPANY")
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I.
OFFICES AND RECORDS
SECTION 1.1. Delaware Office. The name of the registered agent of the
Company is The Corporation Trust Company and the registered office of the
Company shall be located in the City of Wilmington, County of New Castle, State
of Delaware.
SECTION 1.2. Other Offices. The Company may have such other offices, either
within or without the State of Delaware, as the Board of Directors may designate
or as the business of the Company may from time to time require.
SECTION 1.3. Books and Records. The books and records of the Company may be
kept outside the State of Delaware at such place or places as may from time to
time be designated by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
SECTION 2.1. Annual Meeting. The annual meeting of the stockholders of the
Company shall be held on such date and at such place and time as may be fixed by
resolution of the Board of Directors.
SECTION 2.2. Special Meeting. Subject to the rights of the holders of any
series of stock having a preference over the Common Stock of the Company as to
dividends or upon liquidation ("Preferred Stock") with respect to such series of
Preferred Stock, special meetings of the stockholders may be called only by the
Chairman of the Board or the President or by the Board of Directors pursuant to
a resolution adopted by a majority of the total number of directors which the
Company would have if there were no vacancies (the "Whole Board").
<PAGE> 2
SECTION 2.3. Place of Meeting. The Board of Directors or the Chairman of
the Board, as the case may be, may designate the place of meeting for any annual
meeting or for any special meeting of the stockholders called by the Board of
Directors or the Chairman of the Board. If no designation is so made, the place
of meeting shall be the principal office of the Company.
SECTION 2.4. Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Company not less than ten (10) days
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Company. Such further
notice shall be given as may be required by law. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Meetings may be held
without notice if all stockholders entitled to vote are present, or if notice is
waived by those not present in accordance with Section 6.4 of these By-Laws. Any
previously scheduled meeting of the stockholders may be postponed, and (unless
the Restated Certificate of Incorporation, as it may be amended (the
"Certificate of Incorporation") otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given on or prior to the date previously scheduled for such
meeting of stockholders.
SECTION 2.5. Quorum and Adjournment. Except as otherwise provided by law or
by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Company entitled to vote generally in the election of
directors (the "Voting Stock"), represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the outstanding shares of such class or series shall
constitute a quorum of such class or series for the transaction of such
business. The Chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is such a
quorum. No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly called meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 2.6. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware) by the stockholder, or by his duly
authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Company and the proposal of business
to be considered by the stockholders may be made at an annual meeting of
stockholders (a) pursuant to the
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Company's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Company who was a stockholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company and such other business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Company not
later than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that with respect to the annual meeting to be
held in 1998, the first anniversary date shall be deemed for all purposes under
this Section 2.7 to be April 22, 1998, and provided, further, that in the event
that the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the Company. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the Company's
books, and of such beneficial owner and (ii) the class and number of shares of
the Company which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-Law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Company is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this By-Law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the Company
not later than the close of business on
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the 10th day following the day on which such public announcement is first
made by the Company.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Company's notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Company's
notice of meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Company who is a stockholder
of record at the time of giving of notice provided for in this By-Law, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law. In the event the Company calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Company's notice
of meeting, if the stockholder's notice required by paragraph (A)(2) of this
By-Law shall be delivered to the Secretary at the principal executive offices of
the Company not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Company with the Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the Company's proxy statement
pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any
series of Preferred Stock to elect directors under specified circumstances.
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SECTION 2.8. Procedure for Election of Directors; Required Vote. Election
of directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-Laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting shall be
the act of the stockholders.
SECTION 2.9. Inspectors of Elections; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Company in other
capacities, including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at the meeting.
SECTION 2.10. No Stockholder Action by Written Consent. Subject to the
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Company must be effected at an annual or special meeting of
stockholders of the Company and may not be effected by any consent in writing by
such stockholders.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 3.1. General Powers. The business and affairs of the Company shall
be managed under the direction of its Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon it, the Board
of Directors may exercise all powers of the Company and do all such lawful acts
and things as are not by law or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
SECTION 3.2. Number and Tenure. Subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, the
number of directors shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Whole Board. The directors, other than
those who may be elected by the holders of any series of Preferred Stock under
specified circumstances, shall be divided, with respect to the time for
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which they severally hold office, into three classes, as nearly equal in number
as is reasonably possible, with the term of office of the first class to expire
at the 1998 annual meeting of stockholders, the term of office of the second
class to expire at the 1999 annual meeting of stockholders and the term of
office of the third class to expire at the 2000 annual meeting of stockholders,
with each director to hold office until his or her successor shall have been
duly elected and qualified. At each annual meeting of stockholders, commencing
with the 1998 annual meeting, (i) directors elected to succeed those directors
whose terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
SECTION 3.3. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law on the same date, and at the
same place as, the Annual Meeting of Stockholders. The Board of Directors may,
by resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 3.4. Special Meetings. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
SECTION 3.5. Notice. Notice of any special meeting of directors shall be
given to each director at his business or residence in writing by hand delivery,
first class or overnight mail or other overnight or express delivery service,
telegram or facsimile transmission, by electronic mail or orally by telephone.
If mailed by first class mail, such notice shall be deemed adequately delivered
when deposited in the United States mails so addressed, with postage thereon
prepaid, at least five (5) days before such meeting. If by telegram, overnight
mail or courier service, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph company or the notice is delivered to
the overnight mail or other overnight or express delivery service company at
least twenty-four (24) hours before such meeting. If by facsimile transmission
or electronic mail, such notice shall be deemed adequately delivered when the
notice is transmitted at least twelve (12) hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least twelve (12)
hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-Laws, as provided under Section 9.1. A meeting may be
held at any time without notice if all the directors are present or if those not
present waive notice of the meeting in accordance with Section 6.4 of these
By-Laws.
SECTION 3.6. Action by Consent of Board of Directors. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be,
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consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
SECTION 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. Quorum. Subject to Section 3.9, one third of the whole number
of directors, but not less than two, shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 3.9. Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and not by stockholders. Directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Whole Board
shall shorten the term of any incumbent director.
SECTION 3.10. Executive and Other Committees. The Board of Directors may,
by resolution adopted by a majority of the Whole Board, designate an Executive
Committee to exercise, subject to any limitations provided by law, all the
powers of the Board in the management of the business and affairs of the Company
when the Board is not in session, including without limitation the power to
declare dividends, to authorize the issuance of the Company's capital stock and
to adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of the State of Delaware, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee and each such other committee shall consist of two or more directors
of the Company. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, other than the Executive
Committee (the powers of which are expressly provided for herein), may to the
extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified
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member. Each committee shall keep written minutes of its proceedings and shall
report such proceedings to the Board when required; but failure to keep such
minutes shall not affect the validity of any acts of the committee or
committees.
At any meeting of a committee, the presence of one third of its members,
but not less than two, shall constitute a quorum for the transaction of business
and the act of a majority of any committee may determine its action. Each
committee may provide for the holding of regular meetings, make provision for
the calling of special meetings and, except as otherwise provided in these
By-Laws or by resolution of the Board of Directors, make rules for the conduct
of its business. Notice of special meetings of committees shall be given to each
member of the committee in the manner provided for in Section 3.5 of these
By-Laws. The Board shall have power at any time to fill vacancies in, to change
the membership of, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Company; provided,
however, that no such committee shall have or may exercise any authority of the
Board.
SECTION 3.11. Removal. Subject to the rights of the holders of any series
of Preferred Stock with respect to such series of Preferred Stock, any director,
or the entire Board of Directors, may be removed from office at any time, but
only for cause and only by the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class.
SECTION 3.12. Records. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board
and of the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Company.
ARTICLE IV.
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the Company shall be
a Chairman of the Board of Directors, a President, a Secretary, a Treasurer, a
Controller, a number of Vice Presidents, and such other officers (including,
without limitation, a Chief Financial Officer) as the Board of Directors from
time to time may deem proper. The Chairman of the Board shall be chosen from
among the directors. All officers elected by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof. The Board may from time to time elect,
or the Chairman of the Board or President may appoint, such other officers
(including one or more Assistant Vice Presidents, Assistant Secretaries,
Assistant Treasurers, and Assistant Controllers) and such agents, as may be
necessary or desirable for the conduct of the business of the Company. Such
other officers and agents shall have such duties
-8-
<PAGE> 9
and shall hold their offices for such terms as shall be provided in these
By-Laws or as may be prescribed by the Board or by the Chairman of the Board or
President, as the case may be.
SECTION 4.2. Election and Term of Office. The elected officers of the
Company shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held on the date of the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Alternatively, at
the last regular meeting of the Board of Directors prior to an annual meeting of
stockholders, the Board of Directors may elect the officers of the Company,
contingent upon the election of the persons nominated to be directors by the
Board of Directors. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his earlier death,
resignation or removal.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the stockholders and of the Board of Directors and shall be
the Chief Executive Officer of the Company. The Chairman of the Board shall be
responsible for the general management of the affairs of the Company and shall
perform all duties incidental to his office which may be required by law and all
such other duties as are properly required of him by the Board of Directors. He
shall make reports to the Board of Directors and the stockholders, and shall see
that all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect. The Chairman of the Board may also serve as
President, if so elected by the Board.
SECTION 4.4. President. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Company's business and general supervision of its policies and
affairs. The President shall, in the absence of or because of the inability to
act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of Directors.
SECTION 4.5. Vice-Presidents. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of
Directors, the Chairman of the Board or the President.
SECTION 4.6. Chief Financial Officer. The Chief Financial Officer (if any)
shall be a Vice President and act in an executive financial capacity. He shall
assist the Chairman of the Board and the President in the general supervision of
the Company's financial policies and affairs.
SECTION 4.7. Treasurer. The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer
shall cause the funds of the Company to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositaries in the manner provided by resolution of the Board of Directors. He
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed upon him from time to time by these
By-Laws, the Board of Directors, the Chairman of the Board, the President or the
Chief Financial Officer.
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<PAGE> 10
SECTION 4.8. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders and record all votes and the minutes
of all proceedings in a book to be kept for that purpose. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors and, when appropriate, shall cause the
corporate seal to be affixed to any instruments executed on behalf of the
Company. The Secretary shall also perform all duties incident to the office of
Secretary and such other duties as may be assigned to him by these By-Laws, the
Board of Directors, the Chairman of the Board or the President.
SECTION 4.9. Controller. The Controller shall serve as the principal
accounting officer of the Company and shall keep full and accurate account of
receipts and disbursements in books of the Company and render to the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer, whenever requested, an account of all his transactions as Controller
and of the financial condition of the Company. The Controller shall also perform
all duties incident to the office of Controller and such other duties as may be
assigned to him by these By-Laws, the Board of Directors, the Chairman of the
Board, the President or the Chief Financial Officer.
SECTION 4.10. Assistant Secretaries, Assistant Treasurers and Assistant
Controllers. The Assistant Secretaries shall, during the absence of the
Secretary, perform the duties and functions and exercise the powers of the
Secretary. Each Assistant Secretary shall perform such other duties as may be
assigned to such Assistant Secretary by the Board of Directors, the Chairman of
the Board, the President or the Secretary. The Assistant Treasurers shall,
during the absence of the Treasurer, perform the duties and functions and
exercise the powers of the Treasurer. Each Assistant Treasurer shall perform
such other duties as may be assigned to the Assistant Treasurer by the Board of
Directors, the President, the Chief Financial Officer or the Treasurer. The
Assistant Controllers shall, during the absence of the Controller, perform the
duties and functions and exercise the powers of the Controller. Each Assistant
Controller shall perform such other duties as may be assigned to such officer by
the Board of Directors, the President, the Chief Financial Officer or the
Controller.
SECTION 4.11. Removal. Any officer or agent may be removed from office at
any time by the affirmative vote of a majority of the Whole Board or, except in
the case of an officer or agent elected by the Board, by the Chairman of the
Board or the President. Such removal shall be without prejudice to the
contractual rights, if any, of the person removed, provided that no elected
officer shall have any contractual rights against the Company for compensation
by virtue of his election as an officer beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise expressly provided in an employment contract or
under an employee deferred compensation plan.
SECTION 4.12. Vacancies. A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by
the Board of Directors for the unexpired portion of the term at any meeting of
the Board of Directors. Any vacancy in an office appointed by the Chairman of
the Board or the President because of death, resignation, or removal may be
filled by the Chairman of the Board or the President.
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<PAGE> 11
ARTICLE V.
STOCK CERTIFICATES, BOOK-ENTRY ACCOUNTS AND TRANSFERS
SECTION 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Company shall be evidenced by certificates or by registration
in book-entry accounts without certificates for shares of stock in such form as
the appropriate officers of the Company may from time to time prescribe. The
shares of the stock of the Company shall be transferred on the books of the
Company by the holder thereof in person or by his attorney, upon surrender for
cancellation of certificates for the same number of shares, with an assignment
and power of transfer endorsed thereon or attached thereto, duly executed, with
such proof of the authenticity of the transfer and payment of any applicable
transfer taxes as the Company or its agents may reasonably require or by
appropriate book-entry procedures.
Certificates of stock shall be signed, countersigned and registered in such
manner as the Board of Directors may by resolution prescribe, which resolution
may permit all or any of the signatures on such certificates to be in facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Company with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Certificates. No certificate for
shares of stock in the Company shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Company of a
bond of indemnity in such amount, upon such terms and secured by such surety, as
the Board of Directors or any officer may in its or his discretion require.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year. The fiscal year of the Company shall begin on the
first day of January and end on the thirty-first day of December of each year.
SECTION 6.2. Dividends. The Board of Directors may from time to time
declare, and the Company may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
SECTION 6.3. Seal. The corporate seal shall have enscribed thereon the
words "Corporate Seal," the year of incorporation and "Delaware" and around the
margin thereof the name of the Company.
SECTION 6.4. Waiver of Notice. Whenever any notice is required to be given
to any stockholder or director of the Company under the provisions of the
General Corporation Law of the State of Delaware or these By-Laws, a waiver
thereof in writing, signed by the person or
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<PAGE> 12
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
SECTION 6.5. Audits. The accounts, books and records of the Company shall
be audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.
SECTION 6.6. Resignations. Any director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board, the President, or the Secretary, and such
resignation shall be deemed to be effective as of the close of business on the
date said notice is received by the Chairman of the Board, the President, or the
Secretary, or at such later time as is specified therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
ARTICLE VII.
INDEMNIFICATION; ADVANCE OF EXPENSES
SECTION 7.1. Right of Indemnification Generally.
(A) Directors, Officers and Employees. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit,
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative is or was a director, officer or
employee of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, shall be indemnified and held harmless by the Company to
the fullest extent authorized by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith; provided, however,
that except as provided in Section 7.3 of this Article VII, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors.
(B) Advance of Expenses; Undertaking. Each person referred to in Section
7.1(A) of this Article VII shall be paid by the Company the expenses incurred in
connection with any proceeding described in Section 7.1(A) in advance of its
final disposition, such advances to be paid by the Company within 30 days after
the receipt by the Company of a statement or statements from the claimant
requesting such advance or advances from time to time; provided, however, that,
if the General Corporation Law of the State of Delaware requires, the
advancement of such expenses incurred by a director or officer in his or her
capacity as a director
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<PAGE> 13
or officer (and not, unless otherwise required by law, in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) prior to the
final disposition of a proceeding, shall be made only upon delivery to the
Company of an undertaking by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Article VII or
otherwise.
(C) Contract Right. The right to indemnification conferred in this Article
VII and the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final disposition conferred in this
Article VII each shall be a contract right.
SECTION 7.2. Written Request; Determination of Entitlement. To obtain
indemnification under this Article VII, a claimant shall submit to the Company a
written request, including therein or therewith such documentation and
information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware shall be made at the option of the person seeking indemnification, by
the directors as set forth in the General Corporation Law of the State of
Delaware or by independent legal counsel selected by such person with the
consent of the Company (which consent shall not unreasonably be withheld).
SECTION 7.3. Recovery of Unpaid Claim. If a claim under Section 7.1 of this
Article VII is not paid in full by the Company within 30 days after a written
claim pursuant to Section 7.2 of this Article VII has been received by the
Company, the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such action (other than actions brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Company) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Company. Neither
the failure of the Company (including its directors, independent legal counsel
or stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Company (including its directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
SECTION 7.4. Exclusivity; Subsequent Modification. The right to
indemnification and the payment of expenses incurred in connection with a
proceeding in advance of its
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<PAGE> 14
final disposition conferred in this Article VII shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or Directors or otherwise. No repeal or modification of this
Article VII shall in any way diminish or adversely affect the rights hereunder
of any director, officer or employee or of any agent who has been expressly
granted indemnification by the Company pursuant to Section 7.6 hereof in respect
of any occurrence or matter arising prior to any such repeal or modification.
SECTION 7.5. Insurance. The Company may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the General Corporation Law of the State of Delaware. To the extent that the
Company maintains any policy or policies providing such insurance, each such
director, officer or employee, and each such agent to which rights to
indemnification have been granted as provided in Section 7.6 of this Article VII
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
SECTION 7.6. Other Persons Granted Right of Indemnification. The Company
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification, and rights to be paid by the Company the expenses
incurred in defending any proceeding in advance of its final disposition, to any
agent of the Company to the fullest extent of the provisions of this Article VII
with respect to the indemnification and advancement of expenses of directors,
officers and employees of the Company.
SECTION 7.7. Illegality; Unenforceability. If any provision or provisions
of this Article VII shall be held to be invalid, illegal or unenforceable for
any reason whatsoever: (1) the validity, legality and enforceability of the
remaining provisions of this Article VII (including, without limitation, each
portion of any Section of this Article VII containing any such provision held to
be invalid, illegal or unenforceable, that is not itself held to be invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (2) to the fullest extent possible, the provisions of this Article VII
(including, without limitation, each such portion of any Section of this Article
VII containing any such provision held to be invalid, illegal or unenforceable)
shall be construed so as give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
SECTION 7.8. Form and Delivery of Communications. Any notice, request or
other communication required or permitted to be given to the Company under this
Article VII shall be in writing and either delivered in person or sent by
telecopy, telex, telegram, overnight mail or courier service, or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary of
the Company.
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<PAGE> 15
ARTICLE VIII.
CONTRACTS, PROXIES, ETC.
SECTION 8.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Company by such officer or officers of the Company as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Company. Subject to
any restrictions imposed by the Board of Directors or the Chairman of the Board,
the President or any Vice President of the Company may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 8.2. Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President, the Secretary or any Assistant Secretary, may from time to time
appoint an attorney or attorneys or agent or agents of the Company, in the name
and on behalf of the Company, to cast the votes which the Company may be
entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the Company,
at meetings of the holders of the stock or other securities of such other
corporation, or to consent in writing, in the name of the Company as such
holder, to any action by such other corporation, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Company and under its corporate seal or otherwise, all such written proxies
or other instruments as he may deem necessary or proper in the premises.
ARTICLE IX.
AMENDMENTS
SECTION 9.1. Amendments. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given not less than twelve hours prior to the meeting; provided, however, that,
in the case of amendment, repeal or adoption by stockholders, notwithstanding
any other provisions of these By-Laws or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any series of Preferred Stock required by law, the
Certificate of Incorporation, any Preferred Stock designation, or these By-Laws,
the affirmative vote of the holders of at least 80 percent of the voting power
of all the then outstanding shares of the Voting Stock, voting together as a
single class, shall be required for the stockholders to adopt, amend or repeal
any provision of these By-Laws.
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<PAGE> 1
Exhibit 5
To the Board of Directors of
Solutia Inc.
Re: Registration Statement of Solutia Inc.
(the "Company") on Form S-1
I have examined the Registration Statement on Form S-1 (the "Registration
Statement") to be filed with the Securities and Exchange Commission by Solutia
Inc. (the "Company") to register the $600,000,000 principal amount of debt
securities (the "Securities"). I am familiar with the proceedings heretofore
taken, and the additional proceedings proposed to be taken, by the Company in
connection with the authorization, registration, issuance and sale of the
Securities. I am also familiar with the corporate proceedings relative to the
incorporation and present corporate status of the Company.
Based on the foregoing, and subject to the proposed additional proceedings
being taken as now contemplated prior to the issue of the Securities, I am of
the opinion that the Securities, when sold, will, upon the issuance and sale
thereof in the manner set forth in the Registration Statement, be legally
issued and binding obligations of the Company.
I hereby consent to the use of this opinion as an Exhibit to the Registration
Statement relating to the Securities, to the use of my name under the heading
"Validity of Securities," and to the reference to Solutia's counsel in the
"Commitments and Contingencies" notes in the Notes to Combined Financial
Statements and Notes to Interim Combined Financial Statements in the related
Prospectus. In giving this consent I do not thereby admit that I am within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
KARL R. BARNICKOL
General Counsel
Solutia Inc.
St. Louis, Missouri
September 25, 1997
<PAGE> 1
Exhibit 10(a)
EMPLOYEE
BENEFITS
AND
COMPENSATION ALLOCATION AGREEMENT
BETWEEN
MONSANTO COMPANY
AND
SOLUTIA INC.
DATED AS OF SEPTEMBER 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS.................................................................1
1.1 General........................................................................1
ARTICLE II. U.S. PLANS AND STOCK PLANS.................................................8
2.1 Retirement Plans...............................................................8
2.2 The SIP........................................................................9
2.3 Welfare Plans.................................................................11
2.4 Stock Plans...................................................................12
2.5 Stock Purchase Plans..........................................................14
2.6 Nonqualified Plans and Programs...............................................16
ARTICLE III. FOREIGN PLANS AND TCN POLICY.............................................16
3.1 General Principles............................................................16
3.2 Exceptions to General Principles..............................................17
3.3 TCN Policy....................................................................17
ARTICLE IV. GENERAL PROVISIONS........................................................17
4.1 Employment Transfers; Severance Pay...........................................17
4.2 Other Liabilities.............................................................18
4.3 Recognition of Monsanto Employment Service, Etc...............................18
4.4 Indemnification...............................................................19
4.5 Transition Services...........................................................19
4.6 Workers Compensation Excluded.................................................19
4.7 P4 Joint Venture..............................................................19
ARTICLE V. MISCELLANEOUS..............................................................19
5.1 Guarantee of Subsidiaries' Obligations........................................19
5.2 Audits and Disputes...........................................................19
5.3 Sharing of Information........................................................20
5.4 Termination...................................................................21
5.5 Rights to Amend or Terminate Plans; No Third Party Beneficiaries..............21
5.6 Complete Agreement............................................................21
5.7 Governing Law.................................................................21
5.8 Notices.......................................................................21
5.9 Amendment and Modification....................................................21
5.10 Successors and Assigns.......................................................21
5.11 Counterparts.................................................................22
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
5.12 Interpretation...............................................................22
5.13 Legal Enforceability.........................................................22
5.14 References; Construction.....................................................22
</TABLE>
Schedule I
Schedule II
Schedule III
Exhibit A
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<PAGE> 4
EMPLOYEE BENEFITS AND COMPENSATION
ALLOCATION AGREEMENT
EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION
AGREEMENT, dated as of September 1, 1997, by and between Monsanto Company, a
Delaware corporation ("Monsanto"), and Solutia Inc., a newly formed Delaware
corporation ("Solutia").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Monsanto has determined that it is
appropriate and desirable to separate Monsanto and its subsidiaries into two
publicly traded organizations by: (1) consolidating into Solutia and its newly
formed subsidiaries certain of the businesses currently conducted by Monsanto
directly and through certain of its other subsidiaries and (2) distributing to
the holders of the issued and outstanding shares of common stock, par value
$2.00 per share, of Monsanto ("Monsanto Common Stock") all of the issued and
outstanding shares of common stock, par value $.01 per share, of Solutia
("Solutia Common Stock") (the "Distribution");
WHEREAS, the Distribution is intended to qualify as a tax-free spin-off
under Section 355 of the Internal Revenue Code of 1986, as amended;
WHEREAS, Monsanto and Solutia are entering into a Distribution Agreement of
even date herewith (the "Distribution Agreement"), which, among other things,
sets forth the principal corporate transactions required to effect the
Distribution and sets forth other agreements that will govern certain other
matters prior to and following the Distribution; and
WHEREAS, in connection with the Distribution and pursuant to the
Distribution Agreement, Monsanto and Solutia desire to provide for the
allocation of assets and liabilities and other matters relating to employee
benefit plans and compensation arrangements;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
1.1. GENERAL. Any capitalized terms that are used in this Agreement but not
defined herein (other than the names of Monsanto employee benefit plans) shall
have the meanings set forth in the Distribution Agreement, and, as used herein,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
Agreement: this Employee Benefits and Compensation Allocation Agreement,
including the Schedules and Exhibit hereto.
<PAGE> 5
Alternate Payee: an alternate payee under a domestic relations order which
has been determined by the appropriate Plan administrator to be qualified under
Section 414(p) of the Code and Section 206(d) of ERISA and which creates or
recognizes an alternate payee's right to, or assigns to an alternate payee, all
or a portion of the benefits payable to a participant under any Plan, or an
alternate recipient under a medical child support order which has been
determined by the appropriate Plan administrator to be qualified under Section
609(a) of ERISA and which creates or recognizes the existence of an alternate
recipient's right to, or assigns to an alternate recipient the right to, receive
benefits for which a participant or beneficiary is eligible under any Plan.
Assigned Split Dollar Policies: defined in Section 2.3(c).
Audit Liability: defined in Section 5.2(a)(i).
Beneficiary: a beneficiary, dependent or Alternate Payee of a participant
in a Plan or the estate of a deceased participant in a Plan, in each case, in
his, her or its capacity as such a beneficiary, dependent, Alternate Payee or
estate.
Benefit Uplift: as defined in Section 4.2.
Cash Incentive Plan: a Plan providing annual and/or long-term cash
incentive compensation.
Code: defined in the recitals.
Distribution: defined in the recitals.
Distribution Agreement: defined in the recitals.
Employee: with respect to any entity, an individual who is considered,
according to the payroll and other records of such entity, to be employed by
such entity, regardless of whether such individual is, at the relevant time,
actively at work or on leave of absence (including vacation, holiday, sick
leave, family and medical leave, disability leave, military leave, jury duty,
layoff with rights of recall, and any other leave of absence or similar
interruption of active employment that is not considered, according to the
policies or practices of such entity, to have resulted in a permanent
termination of such individual's employment).
Employer Securities: shares of Monsanto Common Stock that are held in the
Monsanto SIP immediately before the Distribution Date and the shares of Solutia
Common Stock distributed with respect thereto in the Distribution.
Enrolled Actuary: with respect to all U.S. Plans, Towers Perrin, and, with
respect to all Foreign Plans, an enrolled actuary or other party making
actuarial or similar determinations pursuant to this Agreement with respect to
assets or Liabilities relating to
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<PAGE> 6
a particular employee benefit plan selected by Monsanto with the approval of
Solutia, which approval shall not be unreasonably withheld.
ERISA: the Employee Retirement Income Security Act of 1974, as amended, or
any successor legislation, and the regulations promulgated thereunder.
ESOP Shares: shares of Employer Securities that were acquired with the
proceeds of any loans or are otherwise governed by the terms of Section 19 of
the Monsanto SIP or the corresponding provisions of the Solutia SIP.
Existing Monsanto ESOP Security: each of the Monsanto ESOP Notes, the
Monsanto ESOP Debentures and the Monsanto ESOP Loans.
Foreign Plan: any Plan maintained outside of the United States primarily
for the benefit of individuals substantially all of whom are nonresident aliens
with respect to the United States other than the TCN Policy.
Fraction: the ratio of the aggregate unpaid principal amount of the Solutia
ESOP Securities, determined immediately after the restructuring provided for in
Section 2.02(c), to the aggregate unpaid principal amount of the Existing
Monsanto ESOP Securities, determined immediately before such restructuring.
Hourly Pension Plan: the Monsanto Company Hourly-Paid Employees' Pension
Plan.
Improving Party: defined in Section 4.2(a).
Monsanto: defined in the preamble.
Monsanto Common Stock: defined in the recitals.
Monsanto Employee: any individual who is, as of the Distribution Date,
identified on the records of Monsanto as being an Employee of any member of the
Monsanto Group, other than those individuals working through the Retiree
Resources Corps.
Monsanto ESOP: the Monsanto Employee Stock Ownership Plan component of the
Monsanto SIP.
Monsanto ESOP Debentures: the 8.13% Guaranteed Amortizing ESOP Debentures
issued by the Monsanto SIP Trust.
Monsanto ESOP Loans: the $50,000,000 promissory note entered into on
December 16, 1991 between Monsanto and the Monsanto SIP Trust and the $3,675,800
promissory note entered into on December 27, 1996 between Monsanto and the
Monsanto SIP Trust.
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Monsanto ESOP Notes: the 7.09% Guaranteed Amortizing ESOP Notes due
December 15, 2000 issued by the Monsanto SIP Trust.
Monsanto ESOP Suspense Account: the ESOP Suspense Account established
pursuant to Section 19 of the Monsanto SIP.
Monsanto Foreign Plan: a Foreign Plan provided by, contributed to or
sponsored by one or more members of the Monsanto Group.
Monsanto Former Employee: any individual who was, at any time before the
Distribution Date, an Employee of any member of the Pre-Distribution Group, and
who is not a Monsanto Employee, a Solutia Employee or a Solutia Former Employee;
provided that, if at any time on or before December 31, 1997, Solutia and
Monsanto determine that any one or more individuals were identified as Monsanto
Former Employees in error and should have been identified as Solutia Former
Employees, and agree to correct such error, such individuals shall be considered
Solutia Former Employees, and Solutia and Monsanto shall use their reasonable
best efforts to implement the terms of this Agreement as they apply to such
individuals as if such individuals had been correctly identified as of the
Distribution Date.
Monsanto Incentive Plans: the Monsanto Company Management Incentive Plan of
1984, the Searle Monsanto Stock Option Plan of 1986, the Monsanto Company
Management Incentive Plan of 1988/I, the Monsanto Company Management Incentive
Plan of 1988/II, the NutraSweet/Monsanto Stock Plan of 1991, the Monsanto
Company Management Incentive Plan of 1994, the Searle/Monsanto Stock Plan of
1994, the NutraSweet/Monsanto Stock Plan of 1994, the Monsanto Management
Incentive Plan of 1996 and the Monsanto Shared Success Stock Option Plan.
Monsanto Option: an option to purchase shares of Monsanto Common Stock
granted pursuant to any of the Monsanto Incentive Plans.
Monsanto Participant: any individual who is a Monsanto Employee, a Monsanto
Former Employee, or a Beneficiary of such an individual.
Monsanto Pension Plan: the Monsanto Company Pension Plan.
Monsanto Ratio: the amount obtained by dividing (i) the average of the
daily high and low trading prices on the NYSE Composite Tape, as reported in The
Wall Street Journal, for the Monsanto Common Stock with due bills on each of the
five trading days prior to the Distribution Date, by (ii) the excess of (A) the
amount described in clause (i) over (B) one-fifth of the average of the daily
high and low trading prices on the NYSE Composite Tape, as reported in The Wall
Street Journal, for the Solutia Common Stock on a when-issued basis on each of
such five trading days.
Monsanto Restricted Stock: restricted shares of Monsanto Common Stock
granted pursuant to, and subject to forfeiture under, any of the Monsanto
Incentive Plans.
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Monsanto SAR: a stock appreciation right with respect to Monsanto Common
Stock granted pursuant to any of the Monsanto Incentive Plans.
Monsanto SIP: the Monsanto Savings and Investment Plan.
Monsanto SIP Trust: the Monsanto Defined Contribution and Employee Stock
Ownership Trust.
Monsanto U.S. Welfare Plan: any Monsanto Welfare Plan that is a U.S. Plan.
Monsanto Welfare Plan: any Welfare Plan of one or more members of the
Monsanto Group.
New Monsanto ESOP Security: defined in Section 2.2(c).
New Monsanto Option: defined in Section 2.4(b).
New Monsanto SAR: defined in Section 2.4(b).
Other Party: defined in Section 4.2(a).
Pension Plan Agreement: defined in Section 2.1(b)(i).
Plan: any written or unwritten plan, policy, program, payroll practice,
ongoing arrangement, trust, fund, contract, insurance policy or other agreement
or funding vehicle provided by, contributed to or sponsored by one or more
members of the Monsanto Group or the Solutia Benefits Group, providing benefits
to Monsanto Participants or Solutia Participants, regardless of whether it is
mandated under local law or negotiated or agreed to as a term or condition of
employment or otherwise, and regardless of whether it is governmental, private,
funded, unfunded, financed by the purchase of insurance, contributory or
noncontributory.
Pre-Adjustment Option: defined in Sections 2.4(c) and (d).
Pre-Adjustment SAR: defined in Sections 2.4(c) and (d).
Pre-Distribution Group: the Monsanto Group and the Solutia Benefits Group.
Qualified Plan: a Plan that is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA that constitutes, or is intended in good faith
to constitute, a qualified plan under Section 401(a) of the Code.
Retained Solutia Inactive Participant: any Solutia Former Employee who is
(i) a retired or terminated vested salaried participant in the Monsanto Pension
Plan whose termination under the Monsanto Pension Plan occurred after December
31, 1985 or (ii) a retired or terminated vested hourly participant in the
Monsanto Pension Plan whose
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termination under the Monsanto Pension Plan occurred after December 31, 1996, or
a Beneficiary of any such Solutia Former Employee.
Solutia: defined in the preamble.
Solutia Benefits Group: the Solutia Group, Advanced Elastomers Systems,
L.P. (U.S. operations) and Flexsys America L.P. (U.S. operations).
Solutia Common Stock: defined in the recitals.
Solutia Employee: any individual who is, as of the Distribution Date,
identified on the records of Solutia as being an Employee of any member of the
Solutia Benefits Group.
Solutia ESOP Loan: defined in Section 2.2(c).
Solutia ESOP Security: defined in Section 2.2(c).
Solutia Foreign Plan: a Foreign Plan provided by, contributed to or
sponsored by one or more members of the Solutia Benefits Group.
Solutia Former Employee: any individual who is, as of the Distribution
Date, identified on the records of Monsanto as being a Solutia Former Employee,
which identification shall have been made based upon a good faith determination
by Monsanto and Solutia that (i) such individual was, at any time before the
Distribution Date, an employee of any member of the Pre-Distribution Group, (ii)
such individual is not a Monsanto Employee or a Solutia Employee, and (iii) such
individual's most recent active employment with any such member was with a
Solutia Business or a Former Solutia Business; provided that, if at any time on
or before December 31, 1997, Solutia and Monsanto determine that any one or more
individuals were identified as Solutia Former Employees in error and should have
been identified as Monsanto Former Employees and agree to correct such error,
such individuals shall be considered Monsanto Former Employees and Solutia and
Monsanto shall use their reasonable best efforts to implement the terms of this
Agreement as they apply to such individuals as if such individuals had been
correctly identified as of the Distribution Date.
Solutia Option: an option to purchase from Solutia shares of Solutia Common
Stock provided to a Solutia Participant or Monsanto Participant pursuant to
Section 2.4.
Solutia Participant: any individual who is a Solutia Employee, a Solutia
Former Employee, or a Beneficiary of such an individual.
Solutia Ratio: the amount obtained by dividing (i) the average of the daily
high and low trading prices on the NYSE Composite Tape, as reported in The Wall
Street Journal, for the Monsanto Common Stock with due bills on each of the five
trading days prior to the Distribution Date by (ii) the average of the daily
high and low trading prices
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on the NYSE Composite Tape, as reported in The Wall Street Journal, for the
Solutia Common Stock on a when-issued basis on each of such five trading days.
Solutia Restricted Stock: defined in Section 2.4(f).
Solutia SAR: a stock appreciation right with respect to shares of Solutia
Common Stock provided to a Solutia Participant or Monsanto Participant pursuant
to Section 2.4.
Solutia SIP: a Qualified Plan established by Solutia pursuant to Section
2.2(a).
Solutia SIP Trust: defined in Section 2.2(a).
Solutia U.S. Welfare Plan: a Solutia Welfare Plan that is a U.S. Plan.
Solutia Welfare Plan: a Welfare Plan sponsored by one or more members of
the Solutia Benefits Group.
Special Effective Date: defined in Section 2.1(c)(ii).
Split Dollar Life Insurance Program: the Monsanto Executive Life Insurance
Program, including all individual life insurance contracts, split dollar
agreements and collateral assignments thereunder.
Successor Plan: defined in Section 2.1(b)(i).
Supplemental Retirement Agreement: any agreement between any member of the
Pre-Distribution Group and any single Monsanto Employee, Monsanto Former
Employee, Solutia Employee or Solutia Former Employee providing for
post-retirement income, pension or welfare benefits (other than pursuant to a
Welfare Plan, a Qualified Plan, a Supplemental Retirement Plan or the TCN
Policy).
Supplemental Retirement Plan: a U.S. Plan that is (i) an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA but is not a Qualified
Plan, or (ii) an excess benefit plan under ERISA, including the Monsanto Company
ERISA Parity Pension Plan, the Monsanto Company ERISA Parity Savings and
Investment Plan and the Monsanto Company Supplemental Retirement Plan.
TCN Policy: The Monsanto Company Third Country National Policy.
Transition Services Employee: defined in Section 4.5.
U.S. Deferred Compensation Plan: a U.S. Plan, other than a Qualified Plan
or a Supplemental Retirement Plan, providing deferred compensation.
U.S. Plan: any Plan that is not a Foreign Plan, other than the TCN Policy.
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Welfare Plan: any Foreign Plan or U.S. Plan that is an "employee welfare
benefit plan" as defined in Section 3(1) of ERISA (whether or not such plan is
subject to ERISA).
ARTICLE II.
U.S. PLANS AND STOCK PLANS
2.1. RETIREMENT PLANS. Monsanto and Solutia shall take all steps necessary
or appropriate so that the provisions of this Section 2.1 are implemented in a
timely fashion, as more fully set forth below.
(a) ASSUMPTION OF HOURLY PENSION PLAN BY SOLUTIA. Effective no later than
as of the Distribution Date, and subject to Section 5.2(a): (i) all Liabilities
to or with respect to Monsanto Participants under the Hourly Pension Plan shall
be transferred from the Hourly Pension Plan to the Monsanto Pension Plan, and
the Monsanto Pension Plan shall assume and be solely responsible for such
Liabilities; (ii) there shall be transferred from the master trust account for
the Hourly Pension Plan to the master trust account for the Monsanto Pension
Plan a pro rata portion thereof, representing the amount of assets required to
be transferred as a result of such transfer and assumption of Liabilities, as
reasonably and equitably determined by the Enrolled Actuary in accordance with
Section 414(l) of the Code; and (iii) Solutia shall assume sponsorship of the
Hourly Pension Plan. The steps taken pursuant to the foregoing shall include the
appointment or reappointment by Solutia (by action of its Board of Directors or
its delegee after the Distribution Date to approve or ratify such appointment or
reappointment) of all trustees, custodians, recordkeepers and other fiduciaries
and service providers to the Hourly Pension Plan, and the replacement of the
existing named fiduciary of the Hourly Pension Plan.
(b) SUCCESSOR PLAN.
(i) Monsanto and Solutia shall enter into, on or before the Distribution
Date, one or more written agreements (the "Pension Plan Agreement") providing
for the transfer to and assumption by a defined benefit pension plan that is a
Qualified Plan (the "Successor Plan") of certain assets and liabilities of the
Monsanto Pension Plan, as set forth in Section 2.1(b)(ii) below. The Successor
Plan shall consist of one or more Plans sponsored exclusively by Solutia and/or
any other member of the Solutia Benefits Group. All matters relating to
Liabilities and obligations with respect to the Successor Plan shall be governed
by the Pension Plan Agreement, except as otherwise specified below.
(ii) Except as specifically set forth in Section 5.2(a), subject to the
completion of the asset transfer described in the next sentence, and effective
as of the Distribution Date: (A) the Monsanto Pension Plan shall transfer to the
Successor Plan, and the Successor Plan and the members of the Solutia Benefits
Group shall assume and be responsible for, (I) all Liabilities of the Monsanto
Pension Plan with respect to benefits accrued by Solutia Employees through the
Distribution Date, and (II) all Liabilities of the Monsanto Pension Plan with
respect to Solutia Former Employees, other than Retained Solutia Inactive
Participants; and (B) the members of the Monsanto Group shall have no
responsibility for such Liabilities. As
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soon as practicable after the Distribution Date, there shall be transferred from
the trust funding the Monsanto Pension Plan to the trust designated to fund the
Successor Plan a pro rata portion of each of the assets thereof, representing
the amount of assets required to be transferred as a result of such transfer and
assumption of Liabilities, as reasonably and equitably determined by the
Enrolled Actuary in accordance with Section 414(l) of the Code.
(c) IMPLEMENTATION. Solutia and Monsanto shall, in connection with the
actions taken pursuant to this Section 2.1, cooperate in making any and all
appropriate filings required under the Code or ERISA, and the regulations
thereunder and any applicable securities laws, implementing all appropriate
communications with participants, transferring appropriate records, and taking
all such other actions as may be necessary and appropriate to implement the
provisions of this Section 2.1 in a timely manner.
2.2. THE SIP.
(a) Effective as of the Distribution Date, Solutia shall establish the
Solutia SIP and a related, separate trust (the "Solutia SIP Trust"), qualified
in accordance with Section 401(a) of the Code and exempt from taxation under
Section 501(a) of the Code, which Plan shall include an employee stock ownership
plan qualified as such under Section 4975 of the Code, to assume Liabilities of
and receive the transfer of assets from the Monsanto SIP and the Monsanto SIP
Trust as provided for in this Section 2.2.
(b) Monsanto and Solutia shall take all actions as may be necessary or
appropriate in order to effect the transfer to the Solutia SIP and the Solutia
SIP Trust, on or as soon as practicable after the Distribution Date, of the
balances of all accounts established pursuant to and/or governed by the Monsanto
SIP of the participants in the Monsanto SIP who are, as of the date of transfer,
Solutia Participants other than Retained Solutia Inactive Participants. The
transfer of such accounts shall be made (i) in kind, to the extent the assets
thereof consist of Employer Securities, and (ii) otherwise in cash, securities,
other property or a combination thereof, as agreed by Monsanto and Solutia, but
shall be effected, where practicable, in kind, so as to preserve each such
participant's investment elections as in effect on the date of such transfer. To
the extent the assets transferred to the Solutia SIP in accordance with the
foregoing consist of Employer Securities, the portion of such Employer
Securities that shall be ESOP Shares shall equal the number of such Employer
Securities multiplied by a fraction, the numerator of which is the number of
ESOP Shares held in the Monsanto SIP immediately before the Distribution Date
and the denominator of which is the number of Shares of Employer Securities held
in the Monsanto SIP immediately before the Distribution Date.
(c) Effective as of or as soon as practicable after the Distribution Date,
one or more of the Existing Monsanto ESOP Securities shall be restructured into
two separate obligations, with one of such obligations (each, a "Solutia ESOP
Security") being assumable or issued by the Solutia SIP and the remainder
thereof (each, a "New Monsanto ESOP Security") being issued by the Monsanto SIP.
The aggregate principal amount of the Solutia ESOP Securities shall be as nearly
as possible equal to 20 percent of the aggregate principal amount of the
Existing Monsanto ESOP Securities immediately before such restructuring, and the
aggregate
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principal amount of the New Monsanto ESOP Securities and any Existing Monsanto
ESOP Securities that are not so restructured shall equal the excess of (i) the
aggregate principal amount of the Existing Monsanto ESOP Securities immediately
before such restructuring over (ii) the aggregate principal amount of the
Solutia ESOP Securities. The Solutia ESOP Securities may include one or more
loans from Solutia and/or one or more loans from Monsanto that are assignable to
Solutia (collectively, the "Solutia ESOP Loan"). Monsanto and Solutia shall use
their reasonable best efforts to cause the terms of the Solutia ESOP Securities
and New Monsanto ESOP Securities to be as favorable to Solutia and the Solutia
SIP Trust and to Monsanto and the Monsanto SIP Trust, respectively, as the terms
of the Existing Monsanto ESOP Securities, to the extent possible. As soon as
practicable after the Distribution Date: (i) the Solutia SIP Trust shall assume
all obligations of the Monsanto SIP Trust (if any) under the Solutia ESOP
Securities; (ii) Monsanto shall be released from any guarantees it has given
with respect to the Solutia ESOP Securities, and Solutia shall provide such
guarantees; and (iii) Monsanto shall assign all of its rights (if any) under the
Solutia ESOP Loan to Solutia. Subject to and upon the completion of the
restructuring, assumption, release and assignment described in the preceding
sentences of this Section 2.2(c), the trustee of the Monsanto SIP Trust shall
transfer to the Solutia SIP Trust a pro rata portion of each of the assets held
in each of the ESOP Interim Account, the ESOP Payment Account and the Monsanto
ESOP Suspense Account, representing a percentage of such assets equal to the
Fraction, and such accounts shall be accepted by such plan and trust; provided
that the cash reserves held in the Monsanto ESOP Suspense Account shall be so
transferred and accepted only if, and to the extent that, (i) the amount of cash
determined by multiplying the Fraction times the total such cash reserves,
determined after the payment of any amounts attributable to interest with
respect to Existing Monsanto ESOP Securities that are restructured into Solutia
ESOP Securities in connection with such restructuring, exceeds (ii) the amount
paid from such cash reserves that is attributable to the premium paid in
connection with such restructuring.
(d) Solutia and Monsanto shall cooperate in making all appropriate filings
required under the Code or ERISA, and the regulations thereunder and any
applicable securities laws, implementing all appropriate communications with
participants, maintaining and transferring appropriate records, and taking all
such other actions as may be necessary and appropriate to implement the
provisions of this Section 2.2 and to cause the transfers of assets pursuant to
Sections 2.2(b) and 2.2(c) to take place as soon as practicable after the
Distribution Date; provided, however, that such transfers shall not take place
until as soon as practicable after the receipt of an opinion of counsel
satisfactory to Monsanto to the effect that the Solutia SIP is in form qualified
under Section 401(a) of the Code, the employee stock ownership plan portion
thereof is qualified under Section 4975 of the Code and the related trust is in
form exempt under Section 501(a) of the Code.
(e) Except as specifically set forth in this Section 2.2 or in Section
5.2(a), subject to the completion of the transfer provided for in Section
2.2(a), and effective as of the Distribution Date, the members of the Solutia
Benefits Group and the Solutia SIP shall assume or retain, as the case may be,
and shall be solely responsible for, all Liabilities of the Pre-Distribution
Group to or with respect to Solutia Participants other than Retained Solutia
Inactive Participants under the Monsanto SIP. The members of the Solutia
Benefits Group and the
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Solutia SIP shall be solely responsible for all Liabilities arising out of or
relating to the Solutia SIP.
2.3. WELFARE PLANS.
(a) Except as specifically set forth in this Section 2.3, Solutia shall
take, and shall cause the other members of the Solutia Benefits Group to take,
all actions necessary or appropriate to establish, on or before the Distribution
Date, Solutia U.S. Welfare Plans to provide each Solutia Participant in the
United States with benefits substantially similar to the benefits provided to
him or her under the Monsanto U.S. Welfare Plans. From and after the
Distribution Date, except as specifically set forth in Section 5.2(a), the
members of the Solutia Benefits Group shall assume or retain, as the case may
be, and shall be solely responsible for, all Liabilities of the Pre-Distribution
Group in connection with claims by or in respect of Solutia Participants in the
United States for benefits under the Monsanto U.S. Welfare Plans and the Solutia
U.S. Welfare Plans, whether incurred before, on or after the Distribution Date.
Monsanto agrees to provide Solutia or its designated representative with such
information (in the possession of a member of the Monsanto Group and not already
in the possession of a member of the Solutia Benefits Group) as may be
reasonably requested by Solutia in order to carry out the requirements of this
Section 2.3.
(b) Prior to the Distribution Date, Solutia shall establish a flexible
spending account Plan to assume Liabilities of and receive the transfer of
assets from the Monsanto Flexible Spending Account Plan, and Monsanto and
Solutia shall take all other action necessary or appropriate so that, effective
as of the Distribution Date, Solutia shall assume and be solely responsible for
all Liabilities to Solutia Employees under the Monsanto Flexible Spending
Account Plan.
(c) Monsanto and Solutia shall take all actions necessary or appropriate to
assign to Solutia, effective as of the Distribution Date, all of the rights and
interests of the Pre-Distribution Group in the split dollar life insurance
policies insuring the lives of Solutia Participants pursuant to the Split Dollar
Life Insurance Program (such policies, the "Assigned Split Dollar Policies").
Such actions shall include Solutia's acceptance of any collateral assignments,
policy endorsements or such other documentation executed by or on behalf of such
Solutia Participants or any trustee of any trust to which any Solutia
Participant's policy rights or incidents of ownership under the Assigned Split
Dollar Policies have been assigned, and Solutia's entering into such agreements
as may be necessary to fulfill any obligations of Monsanto to any insurance
company or insurance agent or broker under the Assigned Split Dollar Policies.
From and after the date of the assignment of any Assigned Split Dollar Policy to
Solutia, Solutia shall assume and be solely responsible for all Liabilities, and
shall be entitled to all benefits, of the Pre-Distribution Group to the
applicable Solutia Participant under the Split Dollar Life Insurance Program,
including under such policy and any related agreements entered into by such
Solutia Participant or any such trustee.
(d) Monsanto and Solutia shall take all action necessary or appropriate to
cause Metropolitan Life Insurance Company to partition between Monsanto and
Solutia, effective as of
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the Distribution Date, the rate stabilization reserves maintained in connection
with the Monsanto Company Salaried and Non-Union Hourly Employees' Term Life
Insurance Plan, the Monsanto Company Salaried and Non-Union Employees' Dependent
Term Life Insurance Plan, the Monsanto Company Hourly-Paid Employees' Group Life
Insurance and Sickness Plan -- Union, and the Monsanto Company Optional Life
Insurance Plan -- Union, based upon the relative dollar amount of premiums to be
paid by each of them with respect to the coverage to which such reserves relate,
determined immediately after the Distribution Date.
2.4. STOCK PLANS. Monsanto and Solutia shall take all action necessary or
appropriate so that each Monsanto Option or Monsanto SAR is adjusted and/or
replaced as set forth below.
(a) This Section 2.4(a) sets forth the treatment in the Distribution of
each Monsanto Option and Monsanto SAR granted during calendar year 1997 that is,
as of the Distribution Date, outstanding and held by a Solutia Employee. Each
such Monsanto Option and Monsanto SAR shall be replaced with a Solutia Option or
Solutia SAR, as applicable, (i) with respect to a number of shares of Solutia
Common Stock equal to the number of shares subject to such Monsanto Option or
Monsanto SAR, as applicable, immediately before such replacement, times the
Solutia Ratio (and then, if any resultant fractional share of Solutia Common
Stock exists, rounded up to the nearest whole share), and (ii) with a per-share
exercise price equal to the per-share exercise price of such Monsanto Option or
Monsanto SAR, as applicable, immediately before such replacement, divided by the
Solutia Ratio (and then, if necessary, rounded down to the nearest whole cent).
(b) This Section 2.4(b) sets forth the treatment in the Distribution of
each of the following Monsanto Options and Monsanto SARs: (i) each Monsanto
Option and Monsanto SAR granted during calendar year 1997 that is, as of the
Distribution Date, outstanding and held by a Monsanto Participant; (ii) each
other Monsanto Option and Monsanto SAR held by a Monsanto Participant who is an
Employee of a member of the Monsanto Group other than Monsanto; and (iii) each
Monsanto Option that is held by a Monsanto Former Employee, a Solutia Former
Employee or a Beneficiary of a Monsanto Former Employee or a Solutia Former
Employee. Each such Monsanto Option and Monsanto SAR shall be adjusted to
constitute an option (a "New Monsanto Option") or stock appreciation right (a
"New Monsanto SAR"), as applicable, (i) with respect to a number of shares of
Monsanto Common Stock equal to the number of shares subject to such Monsanto
Option or Monsanto SAR, as applicable, immediately before such adjustment, times
the Monsanto Ratio (and then, if any resultant fractional share of Monsanto
Common Stock exists, rounded up to the nearest whole share), and (ii) with a
per-share exercise price equal to the per-share exercise price of such Monsanto
Option or Monsanto SAR, as applicable, immediately before such adjustment,
divided by the Monsanto Ratio (and then, if necessary, rounded down to the
nearest whole cent).
(c) This Section 2.4(c) sets forth the treatment in the Distribution of
each Monsanto Option and Monsanto SAR granted before calendar year 1997 that is,
as of the Distribution Date, outstanding and held by (i) a Monsanto Participant
who is an Employee of Monsanto, (ii) a Solutia Employee who is not listed on
Schedule I hereto, or (iii) an individual
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listed on Schedule II hereto. Each such Monsanto Option or Monsanto SAR (each a
"Pre-Adjustment Option" or "Pre-Adjustment SAR," as applicable) shall be
replaced with two options or stock appreciation rights, as applicable (one a New
Monsanto Option or New Monsanto SAR, as applicable, and the other a Solutia
Option or Solutia SAR, as applicable), as follows. With respect to each such New
Monsanto Option or New Monsanto SAR, as applicable, (i) the number of shares of
Monsanto Common Stock subject to such New Monsanto Option or New Monsanto SAR,
as applicable, shall equal the number of shares of Monsanto Common Stock subject
to the Pre-Adjustment Option or Pre-Adjustment SAR, as applicable, and (ii) the
per-share exercise price of such New Monsanto Option or New Monsanto SAR, as
applicable, shall equal the per-share exercise price of such Pre-Adjustment
Option or Pre-Adjustment SAR, as applicable, divided by the Monsanto Ratio (if
necessary, rounded down to the nearest whole cent). With respect to each such
Solutia Option or Solutia SAR, as applicable, (i) the number of shares of
Solutia Common Stock subject to such Solutia Option or Solutia SAR, as
applicable, shall equal one-fifth of the number of shares of Monsanto Common
Stock subject to the Pre-Adjustment Option or Pre-Adjustment SAR, as applicable
(if necessary, rounded up to the nearest whole share), and (ii) the per-share
exercise price of such New Solutia Option or New Solutia SAR, as applicable,
shall equal the per-share exercise price of such Pre-Adjustment Option or
Pre-Adjustment SAR, as applicable, divided by the Solutia Ratio (and then, if
necessary, rounded down to the nearest whole cent).
(d) This Section 2.4(d) sets forth the treatment in the Distribution of
each Monsanto Option and Monsanto SAR granted before calendar year 1997 that is,
as of the Distribution Date, outstanding and held by a Solutia Employee listed
on Schedule I hereto. Each such Monsanto Option or Monsanto SAR (each a
"Pre-Adjustment Option" or "Pre-Adjustment SAR," as applicable) shall be
replaced with two options or stock appreciation rights, as applicable (one a New
Monsanto Option or New Monsanto SAR, as applicable, and the other a Solutia
Option or Solutia SAR, as applicable), as follows. With respect to each such New
Monsanto Option or New Monsanto SAR, as applicable, (i) the number of shares of
Monsanto Common Stock subject to such New Monsanto Option or New Monsanto SAR,
as applicable, shall equal the number of shares of Monsanto Common Stock subject
to such Pre-Adjustment Option or Pre-Adjustment SAR, as applicable, times the
Monsanto Ratio times 0.76 (and then, if any resultant fractional share of
Monsanto Common Stock exists, rounded up to the nearest whole share) and (ii)
the per-share exercise price of such New Monsanto Option or New Monsanto SAR, as
applicable, shall equal the per-share exercise price of such Pre-Adjustment
Option or Pre-Adjustment SAR, as applicable, divided by the Monsanto Ratio (and
then, if necessary, rounded down to the nearest whole cent). With respect to
each such Solutia Option or Solutia SAR, as applicable, (i) the number of shares
of Solutia Common Stock subject to such Solutia Option or Solutia SAR, as
applicable, shall equal the number of shares of Monsanto Common Stock subject to
such Pre-Adjustment Option or Pre-Adjustment SAR, as applicable, times the
Solutia Ratio times 0.24 (and then, if any resultant fractional share of Solutia
Common Stock exists, rounded up to the nearest whole share), and (ii) the
per-share exercise price of such New Solutia Option or New Solutia SAR, as
applicable, shall equal the per-share exercise price of such Pre-Adjustment
Option or Pre-Adjustment SAR, as applicable, divided by the Solutia Ratio (and
then, if necessary, rounded down to the nearest whole cent).
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(e) The terms and conditions of each New Monsanto Option, New Monsanto SAR,
Solutia Option and Solutia SAR issued pursuant to this Section 2.4 shall be the
same as those of the Monsanto Option or Monsanto SAR it replaces, except as
otherwise specifically provided in this Section 2.4 and except that (i) in the
case of such options and SARs issued to Solutia Employees, references to
employment with or termination of employment with Monsanto and its affiliates
shall be changed to references to employment with or termination of employment
with Solutia and its affiliates, and (ii) other references to Monsanto and its
affiliates shall be changed to references to Solutia and its affiliates as
appropriate. Solutia may, in its discretion, adjust any associated performance
goals as may be appropriate to reflect the effects of the Distribution.
(f) Effective as of the Distribution Date, (i) Solutia shall assume and be
solely responsible for all Liabilities (whether accrued, contingent or
otherwise) of the Pre-Distribution Group with respect to dividend equivalent
units on New Monsanto Options, New Monsanto SARs and awards of Monsanto
Restricted Stock held by Solutia Participants (although such dividend equivalent
units shall continue to accrue based upon the payment of dividends by Monsanto),
and (ii) Monsanto shall assume or retain, as applicable, and be solely
responsible for all Liabilities (whether accrued, contingent or otherwise) of
the Pre-Distribution Group with respect to dividend equivalent units on Solutia
Options and Solutia SARs issued to Monsanto Participants pursuant to this
Section 2.4 and shares of Solutia Stock distributed with respect to awards of
Monsanto Restricted Stock ("Solutia Restricted Stock") held by Monsanto
Participants (although such dividend equivalent units shall accrue based upon
the payment of dividends by Solutia). Except as provided in the preceding
sentence, effective as of the Distribution Date, Solutia shall assume and be
solely responsible for all Liabilities of the Pre-Distribution Group with
respect to Solutia Options, Solutia SARs and Solutia Restricted Stock, and
Monsanto shall retain and be solely responsible for all Liabilities of the
Pre-Distribution Group to or with respect to Monsanto Options, Monsanto SARs and
Monsanto Restricted Stock and New Monsanto Options and New Monsanto SARs.
(g) Notwithstanding the foregoing provisions of this Section 2.4, the
number of shares subject to a Solutia Option, Solutia SAR, New Monsanto Option
or New Monsanto SAR issued to an individual listed on Schedule III hereto shall
be rounded to the nearest whole share (whether up or down) rather than up to the
nearest whole share.
(h) Notwithstanding the foregoing provisions of this Section 2.4, if either
Monsanto or Solutia determines that because of legal, accounting, tax, and/or
regulatory rules or requirements applicable to options, stock appreciation
rights or restricted stock in any jurisdiction outside the United States,
compliance with any of its obligations under this Section 2.4 with respect to
options, stock appreciation rights or restricted stock held by or to be issued
to any individual employed outside the United States would be impossible,
illegal, impracticable or unreasonably expensive, it shall so notify the other
party, and Solutia and Monsanto shall use their best efforts to agree to
appropriate alternative arrangements.
2.5. STOCK PURCHASE PLANS.
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(a) Monsanto has taken, or shall take as soon as practicable after the date
hereof, such actions as may necessary or appropriate to accomplish the following
with respect to the Monsanto Employee Stock Purchase Plan.
(i) Monsanto has suspended the acceptance of applications by Monsanto
Employees and Solutia Employees to participate in the Monsanto Employee Stock
Purchase Plan as of July 18, 1997, pending completion of the Distribution.
(ii) Each Monsanto Employee and each Solutia Employee who has any
outstanding application under the Monsanto Employee Stock Purchase Plan
immediately before the record date for the Distribution shall be given the
opportunity to choose among the following alternatives with respect to such
application: (A) such application may be settled in full before the record date
for the Distribution if such Employee pays the purchase price for the remaining
unpurchased shares of Monsanto Common Stock thereunder in full before the record
date, in which event such Employee shall become the owner of such Monsanto
Common Stock before the record date and will, accordingly, be entitled to
receive the Distribution with respect thereto (assuming such Employee remains
the owner of such Monsanto Common Stock as of the record date for the
Distribution); (B) such application may be cancelled without penalty before the
Distribution Date; or (C) such application may continue in effect following the
Distribution Date, subject to adjustment as provided in the next sentence. Each
application under the Monsanto Employee Stock Purchase Plan that is outstanding
as of the Distribution Date shall be adjusted, immediately after the
Distribution Date, so that it (I) covers a number of shares of Monsanto Common
Stock equal to the number of shares covered by such application immediately
before such adjustment, times the Monsanto Ratio (and then, if necessary,
rounded up to the nearest one-thousandth of a whole share), and (II) has a
per-share purchase price equal to the per-share purchase price of such
application, immediately before such adjustment, divided by the Monsanto Ratio
(and then, if necessary, rounded down to the nearest whole cent).
(iii) From and after the Distribution Date, Solutia Employees shall be
permitted to complete the purchase of Monsanto Common Stock pursuant to
applications under the Monsanto Employee Stock Purchase Plan that continue in
effect pursuant to clause (C) of Section 2.5(a)(ii), in accordance with the
terms and conditions of such applications and the Monsanto Employee Stock
Purchase Plan, except that (A) such terms and conditions shall be adjusted
pursuant to the last sentence of said Section 2.5(a)(ii) and (B) employment with
any member of the Solutia Benefits Group shall be treated as if it were
employment with Monsanto. From and after the Distribution Date, Solutia shall
make all payroll deductions required with respect to such applications of
Solutia Employees and shall remit such deductions to Monsanto on their behalf in
satisfaction of the purchase price of shares of Monsanto Common Stock after the
Distribution Date.
(b) Notwithstanding any other provision of this Agreement, for purposes of
the Monsanto Executive Stock Purchase Incentive Plan, the Distribution shall be
considered to result in a termination of the employment of Solutia Employees
effective as of the Distribution Date, and Monsanto shall retain and be solely
responsible for all Liabilities under such Monsanto Executive Stock Purchase
Incentive Plan.
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<PAGE> 19
2.6. NONQUALIFIED PLANS AND PROGRAMS.
(a) Except as specifically set forth in Section 5.2(a) and effective as of
the Distribution Date, the members of the Solutia Benefits Group shall assume
and be solely responsible for all Liabilities of the Pre-Distribution Group to
or relating to Solutia Participants under all Cash Incentive Plans. Solutia and
Monsanto shall cooperate in taking all actions necessary or appropriate to
adjust the performance goals and other terms and conditions of awards under the
Cash Incentive Plans for performance periods that begin before and end after the
Distribution Date as appropriate to reflect the Distribution, including amending
any Cash Incentive Plan or grant thereunder, and obtaining any necessary
consents of affected participants.
(b) Except as specifically set forth in Section 5.2(a) and effective as of
the Distribution Date, Solutia shall assume and be solely responsible for all
Liabilities of the Pre-Distribution Group to or relating to (i) Solutia
Participants under the Supplemental Retirement Plans, except for Liabilities
with respect to benefits under the Monsanto Company ERISA Pension Parity Plan
and the Monsanto Company ERISA Parity Savings and Investment Plan of Retained
Solutia Inactive Participants, and (ii) Supplemental Retirement Agreements with
Solutia Employees. Solutia and Monsanto shall cooperate in taking all actions
necessary or appropriate to implement the foregoing, including amending any
Supplemental Retirement Plan or Supplemental Retirement Agreement and obtaining
any necessary consents of affected individuals.
(c) Except as specifically set forth in Section 5.2(a) and effective as of
the Distribution Date, Solutia shall assume and be solely responsible for all
Liabilities of the Pre-Distribution Group to or relating to Solutia Participants
under all U.S. Deferred Compensation Plans.
ARTICLE III.
FOREIGN PLANS AND TCN POLICY
3.1. GENERAL PRINCIPLES. This Section 3.1 sets forth certain general
principles relating to Foreign Plans; however, exceptions may be made to those
general principles as set forth in Section 3.12. Monsanto and Solutia shall take
all actions necessary or appropriate so that, effective no later than the
Distribution Date, all Foreign Plans have been divided and/or new Foreign Plans
established (to the extent necessary) so that all benefits of Monsanto
Participants under Foreign Plans (whether accrued or payable before, on or after
the Distribution Date) are provided by Monsanto Foreign Plans, and all benefits
of Solutia Participants under Foreign Plans (whether accrued or payable before,
on or after the Distribution Date) are provided by Solutia Foreign Plans. If any
Foreign Plan that is separated into a Monsanto Foreign Plan and a Solutia
Foreign Plan in connection with or in anticipation of the Distribution is funded
through a trust, insurance contract or other funding vehicle, then such funding
vehicle shall be divided between such Monsanto Foreign Plan and Solutia Foreign
Plan in proportion to the relative projected benefit obligations of such two
Plans, determined immediately after such separation takes place. Except as
specifically provided in Section 5.2(a), from and after the Distribution Date:
(i) the
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<PAGE> 20
members of the Monsanto Group and the Monsanto Foreign Plans shall
assume or retain, as applicable, and shall be solely responsible for, all
Liabilities of the Pre-Distribution Group arising out of or relating to the
Monsanto Foreign Plans; and (ii) the members of the Solutia Benefits Group and
the Solutia Foreign Plans shall assume or retain, as applicable, and shall be
solely responsible for, all Liabilities arising out of or relating to the
Solutia Foreign Plans.
3.2. EXCEPTIONS TO GENERAL PRINCIPLES. Monsanto and Solutia recognize that
it is possible that, in certain cases, applicable law may prohibit the
implementation of the general principles set forth in Section 3.1, or that there
may be special circumstances making such implementation inadvisable or
impractical. In all such cases, such general principles shall not be implemented
and Monsanto and Solutia shall use best efforts to develop and implement an
alternative approach, and shall enter into such additional agreements as may be
necessary or appropriate in connection therewith. Exhibit A hereto also sets
forth certain exceptions to the general principles set forth in Section 3.1.
3.3. TCN POLICY. From and after the Distribution Date, the members of the
Solutia Benefits Group shall assume and be solely responsible for all
Liabilities of the Pre-Distribution Group to or relating to benefits accrued
through the Distribution Date by or with respect to Solutia Employees under the
TCN Policy, and the members of the Monsanto Group shall retain and be solely
responsible for all other Liabilities under the TCN Policy.
ARTICLE IV.
GENERAL PROVISIONS
4.1. EMPLOYMENT TRANSFERS; SEVERANCE PAY.
(a) Solutia and Monsanto shall take all steps necessary and appropriate so
that, on or immediately after the Distribution Date, all individuals who have
been selected to be Solutia Employees are employed, or (where employment does
not continue by operation of law) are offered employment, by a member of the
Solutia Benefits Group, and all individuals who have been selected to be
Monsanto Employees are employed, or (where employment does not continue by
operation of law) are offered employment, by a member of the Monsanto Group.
Such steps shall include, where necessary or appropriate under local law, making
employment offers and/or transferring contracts of employment.
(b) Solutia and Monsanto agree that, except as specifically provided by law
or otherwise in this Agreement, individuals who, in connection with the
Distribution, cease to be Monsanto Employees and become Solutia Employees shall
not be deemed to have experienced a termination or severance of employment from
Monsanto and its subsidiaries for purposes of any Monsanto Plan that provides
for the payment of severance, redundancy, salary continuation or similar
benefits.
(c) Solutia and the other members of the Solutia Benefits Group shall
assume and be solely responsible for all Liabilities of the Pre-Distribution
Group in connection with claims
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<PAGE> 21
made by or on behalf of the following individuals in respect of severance,
redundancy and similar pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such individual's employment
before, on or after the Distribution Date: (i) Solutia Employees and Solutia
Former Employees; and (ii) Employees who have been designated as employed in the
Solutia Business who do not become Solutia Employees because they exercise their
rights, under local law, to refuse to transfer to the employment of a member of
the Solutia Benefits Group. Notwithstanding any other provision of this
Agreement, individuals described in clause (ii) of the preceding sentence shall
be considered to be Solutia Former Employees from and after the date they cease
to be Employees of Monsanto and/or the other members of the Monsanto Group.
4.2. OTHER LIABILITIES. If at any time after the Distribution Date, as a
result of any increase or improvement by the Monsanto Group or the Solutia Group
(the "Improving Party") after the Distribution Date to the benefits that it
provides to any Monsanto Former Employees or Solutia Former Employees or any
Beneficiaries thereof pursuant to any Plan (other than such an increase or
improvement required by any agreement in effect on the Distribution Date or by
applicable law or regulation) (a "Benefit Uplift"), any Solutia Participant or
Monsanto Participant asserts a claim that he or she is entitled to a
corresponding Benefit Uplift for which the Solutia Group or the Monsanto Group
(the "Other Party") would, absent this Section 4.2, be responsible pursuant to
this Agreement, then notwithstanding any other provision of this Agreement, the
Improving Party shall indemnify the Other Party and hold it harmless from and
against any Liabilities resulting from such claim, which Liabilities shall be an
Indemnifiable Loss governed by Article IV of the Distribution Agreement;
provided that the Improving Party and the Other Party shall cooperate in
satisfying any such Liabilities and accomplishing such indemnification in a
reasonable, tax-efficient manner while at the same time keeping the Other Party
whole on a net after-tax basis, taking into account the effect of any tax
benefits and tax detriments to the Improving Party and the Other Party as a
result of the manner in which such Liabilities are satisfied and such
indemnification is accomplished.
4.3. RECOGNITION OF MONSANTO EMPLOYMENT SERVICE, ETC. The Solutia Plans
shall, to the extent permitted by applicable law, recognize service before the
Distribution with the Pre-Distribution Group as service with the Solutia
Benefits Group. Each Solutia Welfare Plan shall, to the extent permitted by
applicable law, provide benefits to Solutia Participants without interruption or
change solely as a result of the transition from the corresponding Monsanto
Welfare Plans, and, without limiting the generality of the foregoing: (i) shall,
to the extent applicable, recognize all amounts applied to deductibles,
out-of-pocket maximums and lifetime maximum benefits with respect to Solutia
Participants under the corresponding Monsanto Welfare Plan for the plan year
that includes the Distribution Date and for prior periods (if applicable); (ii)
shall, to the extent applicable, not impose any limitations on coverage of
preexisting conditions of Solutia Participants except to the extent such
limitations applied to such Solutia Participants under the corresponding
Monsanto Welfare Plan immediately before such Solutia Welfare Plan became
effective; and (iii) shall not impose any other conditions (such as proof of
good health, evidence of insurability or a requirement of a physical
examination) upon the participation by Solutia Participants who were
participating in the corresponding Monsanto Welfare Plan immediately before such
Solutia Welfare Plan became effective.
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<PAGE> 22
4.4. INDEMNIFICATION. All Liabilities retained or assumed by or allocated
to Solutia or any other members of the Solutia Benefits Group pursuant to this
Agreement shall be deemed to be Solutia Liabilities pursuant to the Distribution
Agreement, and all Liabilities retained or assumed by or allocated to Monsanto
or any other members of the Monsanto Group pursuant to this Agreement shall be
deemed to be Monsanto Liabilities pursuant to the Distribution Agreement, and,
in each case, shall be subject to the indemnification provisions set forth in
Article IV of the Distribution Agreement.
4.5. TRANSITION SERVICES. Certain Monsanto Employees and certain Solutia
Employees ("Transition Services Employees") will be employed, after the
Distribution, in providing transition services to the Solutia Benefits Group and
the Monsanto Group, respectively, pursuant to certain transition services
agreements between Monsanto and Solutia. If any Transition Services Employee
terminates employment with Monsanto or Solutia, as applicable, during or at the
expiration of the term of the applicable transition services agreement as a
result of the elimination of his or her position, and becomes an employee of any
member of the Solutia Benefits Group or any member of the Monsanto Group, as
applicable, within 90 days after such termination of employment, then Monsanto
and Solutia shall use reasonable best efforts to provide such Transition
Services Employee with a smooth transition with respect to such Transition
Services Employee's employee benefits. Without limiting the generality of the
foregoing, Section 4.3 shall apply to each Transition Services Employee
described in the preceding sentence as if he or she had been a Solutia Employee
or a Monsanto Employee, as applicable.
4.6. WORKERS COMPENSATION EXCLUDED. Notwithstanding any other provision of
this Agreement, this Agreement shall have no application to, and shall not
govern the allocation of, any Liabilities for or relating to workers'
compensation, which are governed by the Distribution Agreement.
4.7. P4 JOINT VENTURE. To the extent that any provision of this Agreement
is inconsistent with the provisions of the P4 Joint Venture Agreement as it
relates to Employees or former Employees of the P4 Joint Venture and their
compensation and benefits under Plans, the P4 Joint Venture Agreement shall
prevail.
ARTICLE V.
MISCELLANEOUS
5.1. GUARANTEE OF SUBSIDIARIES' OBLIGATIONS. Each of the parties hereto
shall cause to be performed, and hereby guarantees the performance and payment
of, all actions, agreements, obligations and liabilities set forth herein to be
performed or paid by any subsidiary of such party which is contemplated by the
Distribution Agreement to be a subsidiary of such party on or after the
Distribution Date.
5.2. AUDITS AND DISPUTES.
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(a) (i) If any audit, examination or similar proceeding with respect to any
Monsanto Plan by the U.S. Internal Revenue Service, the U.S. Department of Labor
or any other governmental authority, or any litigation arising out of such an
audit, examination or similar proceeding, that pertains (in whole or in part) to
a period before the Distribution Date results in the imposition of any
Liability, then the portion of such Liability that pertains to a period before
the Distribution Date (an "Audit Liability") shall be allocated between Solutia
and Monsanto as set forth in this Section 5.2, provided that the term "Audit
Liability" shall not include any portion of such a Liability that results from
the loss of any compensation deduction or any related interest or penalties
(which shall be governed by the Tax Sharing Agreement).
(ii) To the extent that an Audit Liability takes the form of a
payment to any Solutia Participant or of a benefit under a Plan or a
contribution to a trust or other funding vehicle relating to a Plan, or interest
on such a payment or contribution, there shall be allocated to Solutia the
portion of such Audit Liability that is attributable to Solutia Participants.
(iii) Any Audit Liability that takes the form of a penalty, fine or
other liability imposed as a result of the manner in which a Plan was
administered (including as a result of the failure to make a required filing or
participant communication) and that is not described in Section 5.2(a)(ii) shall
be allocated between Solutia and Monsanto in accordance with their past practice
before the Distribution.
(iv) If an Audit Liability arises, the allocation of which is not
addressed in Section 5.2(a)(ii) or (iii), or if there arises any other dispute
concerning the allocation of Audit Liabilities, such allocation or dispute shall
be subject to Article VII of the Distribution Agreement.
(b) In any case in which Solutia or Monsanto shall disagree with the
determination of an amount which this Agreement requires to be made by the
Enrolled Actuary, each such disagreeing party shall have the right, within 30
days after receipt of notice of such determination, to engage, at its own
expense, an independent expert to make the determination of such amount. If the
amount determined by such independent experts should differ, such amount shall
be reasonably and equitably determined by another independent expert selected by
agreement between or among the Enrolled Actuary and such independent experts.
(c) Any other dispute, controversy or claim arising out of or relating to
this Agreement shall be governed by Article VII of the Distribution Agreement.
5.3. SHARING OF INFORMATION. Each of Monsanto and Solutia shall, and shall
cause each of the other members of their respective Groups to, provide to the
other all such information in its possession as the other may reasonably request
to enable it to administer its employee benefit plans and programs, and to
determine the scope of, and fulfill, its obligations under this Agreement. Such
information shall, to the extent reasonably practicable, be provided in the
format and at the times and places requested, but in no event shall the party
providing such information be obligated to incur any direct expense not
reimbursed by the party making such request, nor to make such information
available outside its normal business hours and premises. The right of the
parties to receive information hereunder shall, without limiting the generality
of
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the foregoing, extend to any and all reports, and the data underlying such
reports, prepared by the Enrolled Actuary in making any determination under this
Agreement or by any third party engaged pursuant to Section 5.2, and to
information necessary to determine whether performance goals and other terms and
conditions relating to awards adjusted pursuant to Section 2.4 have been
satisfied after the Distribution.
5.4. TERMINATION. This Agreement shall be terminated in the event that the
Distribution Agreement is terminated and the Distribution abandoned prior to the
Distribution Date. In the event of such termination, neither party shall have
any liability of any kind to the other party.
5.5. RIGHTS TO AMEND OR TERMINATE PLANS; NO THIRD PARTY BENEFICIARIES. No
provision of this Agreement shall be construed (i) to limit the right of
Monsanto, any other member of the Monsanto Group, Solutia or any other member of
the Solutia Benefits Group to amend any Plan or terminate any Plan, or (ii) to
create any right or entitlement whatsoever in any Employee, former Employee or
Beneficiary, including a right to continued employment or to any benefit under a
Plan or any other compensation. This Agreement is solely for the benefit of the
parties hereto and their respective subsidiaries and should not be deemed to
confer upon third parties any remedy, claim, liability, reimbursement, claim of
action or other right in excess of those existing without reference to this
Agreement.
5.6. COMPLETE AGREEMENT. This Agreement, the Schedules hereto and the
agreements and other documents referred to herein shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.
5.7. GOVERNING LAW. Subject to applicable U.S. federal law, this Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware (other than the laws regarding choice of laws and conflicts of laws) as
to all matters, including matters of validity, construction, effect, performance
and remedies.
5.8. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be given in accordance with the provisions of
Section 10.5 of the Distribution Agreement.
5.9. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written agreement signed by both of the parties hereto.
5.10. SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their successors and permitted assigns, but neither this Agreement nor any of
the rights, interests and obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party (which consent shall
not be unreasonably withheld or delayed).
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5.11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.12. INTERPRETATION. The Article and Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
5.13. LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party acknowledges
that money damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
5.14. REFERENCES; CONSTRUCTION. References to any "Article," "Schedule,"
"Section" or "Exhibit" without more, are to Articles, Schedules, Sections and
Exhibits to or of this Agreement. Unless otherwise expressly stated, clauses
beginning with the term "including" set forth examples only and in no way limit
the generality of the matters thus exemplified.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
MONSANTO COMPANY
By: /s/ Nicholas L. Reding
---------------------------------------
Name: Nicholas L. Reding
Title: Vice Chairman
SOLUTIA INC.
By: /s/ John C. Hunter III
---------------------------------------
Name: John C. Hunter III
Title: President
<PAGE> 1
Exhibit 10(b)
TAX SHARING AND INDEMNIFICATION AGREEMENT
Tax Sharing and Indemnification Agreement (the "Agreement"), dated as
of September 1, 1997, by and between Monsanto Company, a Delaware corporation
("LS") and Solutia Inc., a Delaware corporation ("Solutia").
WHEREAS, LS has been engaged through various divisions in, among other
things, the manufacture and sale of chemical products which comprise the
Transferred Businesses (as hereinafter defined);
WHEREAS, the Board of Directors of LS has determined that the
interests of its businesses would be best served by separating its businesses
into two separate companies, one consisting of the life sciences businesses and
the other consisting of the chemical business;
WHEREAS, as set forth in the Distribution Agreement, dated as of
September 1, 1997 ("Distribution Agreement"), and subject to the terms and
conditions thereof, LS wishes to transfer and assign to Solutia substantially
all the assets of the chemical businesses, in exchange for (i) the assumption by
Solutia of substantially all the liabilities and obligations relating to the
chemical businesses, and (ii) the issuance to LS by Solutia of shares of Solutia
common stock, (the "Solutia Common Stock"), all as more fully set forth in the
Distribution Agreement;
WHEREAS, LS intends to distribute substantially all of the outstanding
shares of Solutia Common Stock, on a pro rata basis, to the holders of the
common stock of LS, subject to the terms and conditions of the Distribution
Agreement;
WHEREAS, in contemplation of the Distribution (as hereinafter defined)
pursuant to which Solutia and its subsidiaries will cease to be members of the
LS Group (as hereinafter defined), the parties hereto have determined to enter
into this Agreement, setting forth their agreement with respect to certain tax
matters;
WHEREAS, this Agreement also creates certain indemnification
obligations between the parties hereto if the actions of either a member of the
Solutia Group or the LS Group have an adverse effect on the tax-free nature of
the Distribution or of any of the transactions related to the Distribution that
were otherwise intended to be tax free.
NOW THEREFORE, in consideration of the premises set forth above and
the terms and conditions set forth below, the parties hereto agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
a. "ADJUSTMENT" shall mean any proposed or final change in the tax
liability of any member of the Solutia Group or the LS Group.
<PAGE> 2
b. "AFFILIATED GROUP" shall mean an affiliated group of corporations
within the meaning of Code Section 1504(a).
c. "AGREEMENT" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
d. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
e. "SOLUTIA" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
f. "SOLUTIA AFFILIATED GROUP" shall mean, for each taxable period, the
Affiliated Group of which Solutia or its successor is the common parent
corporation.
g. "SOLUTIA CARRYBACK" shall have the meaning ascribed to such term in
Section 2(b)(i) hereof.
h. "SOLUTIA COMMON STOCK" shall have the meaning ascribed to such term
in the third WHEREAS clause hereof.
i. "SOLUTIA GROUP" shall mean, for each taxable period, (i) the
corporations that are members of the Solutia Affiliated Group, and (ii) the
corporations that would be members of the Solutia Affiliated Group, but for the
fact that they are not includable corporations under Code Section 1504(b).
j. "CURRENT STRADDLE INCOME TAX LIABILITIES" shall mean Income Tax
Liabilities relating to Straddle Period Income Tax returns required to be filed
by Solutia pursuant to Section 3 hereof to the extent that such Income Tax
Liabilities are attributable to earnings accrued during such Straddle Periods on
or before the Distribution Date.
k. "DISPUTE" shall have the meaning ascribed to such term in Section
14(a) hereof.
l. "DISTRIBUTION" shall mean the pro rata distribution of all of the
Solutia Common Stock to the holders of the common stock of LS, pursuant to the
terms and conditions of the Distribution Agreement.
m. "DISTRIBUTION DATE" shall mean the date of the Distribution.
n. "FINAL DETERMINATION" shall mean the final resolution of any tax
matter occurring after the Distribution Date. A Final Determination shall result
from the first to occur of:
(i) the expiration of 30 days after the IRS' acceptance of a waiver
of restrictions on assessment and collection of deficiency in tax and acceptance
of overassessment on federal revenue (Form 870 or 870-AD (the "Waiver")) or any
successor comparable form,
2
<PAGE> 3
except as to reserved matters specified therein, or the expiration of 30 days
after acceptance by any other taxing authority of a comparable agreement or form
under the laws of any other jurisdiction, including State, local, and foreign;
unless, within such period, the taxpayer gives notice to the other party to this
Agreement of the taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review (by appeal
or otherwise) and has become final;
(iii) the execution of a closing agreement under Code Section 7121,
or the acceptance by the IRS of an offer in compromise under Code Section 7122,
or comparable agreements under the laws of any other jurisdiction, including
State, local, and foreign, except as to reserved matters specified therein;
(iv) the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund that was disallowed in
whole or part by the IRS or any other taxing authority;
(v) the expiration of the applicable statute of limitations; or
(vi) an agreement by the parties hereto that a Final Determination
has been made.
o. "FIRST PARTY" shall have the meaning ascribed to such term in
Section 6(g) hereof.
p. "INCOME TAXES" shall mean all Federal, State, local and foreign
taxes imposed upon, or measured, in whole or in part, by net income or a taxable
base in the nature of net income, including without limitations, environmental
and alternative or add-on minimum taxes (including the alternative minimum tax
imposed under Code Section 55), and such related franchise, excise, and similar
taxes as have been customarily included in the provision for income taxes or
charged to the income tax liability account on LS's financial statements,
together with all related interest, penalties, and additions to tax.
q. "INCOME TAX LIABILITY" shall mean the net amount of Income Taxes
due and paid or payable for any taxable period, determined after applying all
tax credits and all applicable carrybacks or carryovers for net operating
losses, net capital losses, unused general business tax credits, or any other
relevant adjustments.
r. "INDEMNIFYING PARTY" shall mean any party that is required to pay
any other party pursuant to the terms and conditions of this Agreement.
s. "INDEMNIFIED PARTY" shall mean any party who is entitled to receive
payments from an Indemnifying Party pursuant to the terms and conditions of this
agreement.
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t. "IRS" shall mean the United States Internal Revenue Service or any
successor thereto, including but not limited to its agents, representatives, and
attorneys.
u. "LS" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
v. "LS AFFILIATED GROUP" shall mean, for each taxable period, the
Affiliated Group of which LS or its successor is the common parent corporation.
w. "LS CARRYBACK" shall have the meaning ascribed to such term in
Section 2(b)(i) hereof.
x. "LS GROUP" shall mean, for each taxable period, (i) the
corporations that comprise the LS Affiliated Group, and (ii) the corporations
that would be members of the LS Affiliated Group, but for the fact that they are
not includable corporations under Code Section 1504(b).
y. "LS TAX REDUCTION" shall have the meaning ascribed to such term in
Section 2(b)(i).
z. "MATERIAL DISPOSITION" shall mean the sale or other transfer by
Solutia of assets of the Saflex or Fibers Divisions which alone or in the
aggregate exceed $200 million.
z-1 "OTHER TAX LIABILITIES" shall mean the net amount of Other Taxes
due and paid or payable for any taxable period or transaction, after applying
all tax offsets and credits.
z-2 "OTHER TAXES" shall mean any and all taxes other than Income
Taxes, including, without limitation, gross income, gross receipts, sales, use,
transfer, franchise, license, withholding, payroll, value added, employment,
excise, severance, stamp, occupations, premium, windfall profits, custom, duty,
or other charge of any kind whatsoever, together with all related interest,
penalties, and additions to tax, or additional amount imposed by any taxing
authority. Expressly excluded from "Other Taxes" are all property and ad valorem
taxes.
z-3 "STRADDLE PERIOD" shall have the meaning ascribed to such term in
Section 3(a)(ii) hereof.
z-4 "TAX BENEFIT" shall mean a reduction in the Income Tax Liability
of a party to this Agreement (or of the Affiliated Group of which it is a
member) if any portion of such reduction is actually realized or projected to be
realized in any taxable period ending on or before December 31, 2007. Except as
otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been
realized or received from a Tax Item in a taxable period only if and to the
extent that the Income Tax Liability of the party (or of the Affiliated Group of
which it is a member) for such period, after taking into account the effect of
the Tax Item on the Income Tax Liability of such party in all prior periods, is
less than it would have been if such Income Tax Liability were determined
without regard to such Tax Item. In determining the
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amount of the Tax Benefit, the marginal tax rate, without regard to alternative
minimum tax, shall be utilized, net operating loss carryforwards shall be
ignored, and net present value calculations shall not be made. A Tax Item that
results in additional tax basis to a non-depreciable, non-amortizable asset
shall not be treated as resulting in a Tax Benefit until a reduction in Income
Tax Liability is actually realized on a Tax Return.
z-5 "TAX DETRIMENT" shall mean an increase in the Income Tax Liability
of a party to this Agreement (or of the Affiliated Group of which it is a
member) for any taxable period. Except as otherwise provided in this Agreement,
a Tax Detriment shall be deemed to have been realized or suffered from a Tax
Item in a taxable period, only if and to the extent that the Income Tax
Liability of the party (or the Affiliated Group of which it is a member) for
such period, after taking into account the effect of the Tax Item on the Income
Tax Liability of such party in all prior periods, is greater than it would have
been if such Income Tax Liability were determined without regard to such Tax
Item.
z-6 "TAX ITEM" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which may have the effect of
increasing or decreasing Income Tax Liability.
z-7 "TAX PERIOD" shall mean, with respect to any tax, the period for
which the tax is reported as provided under the Code or other applicable laws.
z-8 "TAX RETURNS" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required to be
filed in connection with any Income Taxes or Other Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
z-9 "TRANSACTION TAXES" shall have the meaning ascribed to that term
in Section 4(c) hereof.
z-10 "DISTRIBUTION AGREEMENT" shall have the meaning ascribed to that
term in the third WHEREAS clause hereof.
z-11 "TRANSFERRED BUSINESSES" shall have the same meaning ascribed to
the term "Chemicals Assets" in the Distribution Agreement.
z-12 "TREASURY REGULATIONS" shall mean the Treasury Regulations
promulgated under the Code.
z-13 "WAIVER" shall have the meaning ascribed to such term in Section
1(n)(i) hereof.
Section 2. PREPARATION OF TAX RETURNS.
a. MANNER OF PREPARATION. All Tax Returns filed after the Distribution
Date
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shall be prepared on a basis that is consistent with the rulings obtained from
the IRS or any other governmental authority in connection with the Distribution
(in the absence of a controlling change in law or circumstances) and shall be
filed on a timely basis (including pursuant to extensions) by the party
responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances, or except as otherwise provided in
this Agreement or agreed in writing by LS and Solutia, all Tax Returns filed
after the date of this Agreement shall be prepared on a basis consistent with
the elections, accounting methods, conventions, and principles of taxation used
for the most recent taxable periods for which Tax Returns involving similar Tax
Items have been filed, except that, with respect to Tax Items not relating to
the Distribution, one party may take an inconsistent position to the extent such
position does not create a Tax Detriment to the other party. Subject to the
provisions of this Agreement, all decisions relating to the preparation of Tax
Returns shall be made in the sole discretion of the party responsible under this
Agreement for such preparation. Unless the parties hereto otherwise mutually
agree in writing no election shall be made by either LS or Solutia under
Treasury Regulation Section 1.1502-76(b)(2)(ii) or (iii).
b. CARRYBACK REPORTING.
(i) If the Income Taxes of the LS Group are reduced for a taxable
period beginning before the Distribution Date (and, in the case of separate
state and local Income Tax Returns and foreign Income Tax Returns, ending on or
before the Distribution Date), (the "LS Tax Reduction"), by reason of a Solutia
loss or other Income Tax attribute arising on or after the Distribution Date (a
"Solutia Carryback"), LS shall pay to Solutia an amount equal to the portion of
the LS Tax Reduction that is attributable to the Solutia Carryback. If both a
Solutia Carryback and a LS loss or other Income Tax attribute arising on or
after the Distribution Date (a "LS Carryback") exist, the absorption rules of
Treasury Regulation Section 1.1502-21A(b)(3) or 1.1502-21T(b)(1), as applicable,
shall be applied to determine the portion of the LS Tax Reduction attributable
to the Solutia Carryback and the LS Carryback, respectively. Nothing herein
shall require either Solutia or LS to carry back a loss or other Income Tax
attribute that it generates. Any payment required to be made pursuant to this
Section 2(b)(i) shall be made no later than ten days after the LS Tax Reduction
is actually received, credited, or otherwise utilized by LS.
(ii) Neither the LS Group nor the Solutia Group shall be obligated to
make a payment to any member of the other group as a result of utilizing a net
operating loss or other Income Tax attribute relating to a period beginning
prior to the Distribution Date.
c. ALLOCATION OF EARNINGS AND PROFITS. Except as otherwise
specifically provided herein, pre-Distribution earnings and profits shall be
allocated in accordance with Treasury Regulation Section 1.312-10(a).
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d. REPORTING OF FOREIGN RESTRUCTURING. The pre-Distribution
restructuring transactions involving Monsanto do Brasil, Ltd, Mopar, Ltd,
Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto, PLC,
shall be reported for United States Federal income tax purposes as transactions
qualifying under Code Section 355 and the parties hereto will apply the
principles of Temporary Treasury Regulation Section 7.367(b)-10 in respect of
those restructuring transactions.
Section 3. FILING OF INCOME AND OTHER TAX RETURNS.
a. LS RESPONSIBILITIES FOR INCOME AND OTHER TAX RETURNS. LS shall
prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect to all
members of the LS Group for all periods ending on or prior to the Distribution
Date; and
(ii) all Income and Other Tax Returns of or with respect to all
members of the LS Group for all periods beginning on or prior to the
Distribution Date and ending after the Distribution Date ("Straddle Periods")
other than Straddle Period Income and Other Tax Returns of those corporations
that will be members of the Chem Group following the Distribution.
b. SOLUTIA RESPONSIBILITIES FOR INCOME AND OTHER TAX RETURNS. Solutia
shall prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect to members
of the Solutia Group for all periods beginning on or after the Distribution
Date; and
(ii) all Income and Other Tax Returns of or with respect to all
corporations that will be members of the Solutia Group following the
Distribution for all Straddle Periods.
Section 4. PAYMENT OF INCOME AND OTHER TAXES.
a. LS OBLIGATIONS. LS shall (except as provided in Sections 2(b),
4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and hold harmless
Solutia against all Income and Other Tax Liabilities that relate to all Tax
Returns that LS is required to prepare and file, or cause to be prepared and
filed, pursuant to Section 3 of this Agreement; and
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(ii) be entitled to all refunds of Income and Other Taxes related
thereto.
b. SOLUTIA OBLIGATIONS. Solutia shall (except as provided in Sections
4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and hold harmless
LS against all Income and Other Tax Liabilities that relate to all Tax Returns
that Solutia is required to prepare and file, or cause to be prepared and filed,
pursuant to Section 3 of this Agreement; and
(ii) be entitled to all refunds of Income and Other Taxes related
thereto.
c. TRANSACTION TAXES. Any sales, use, value added, gross receipts,
retailer's occupation, real estate transfer tax arising out of the transfer of
assets or liabilities to any member of the LS or Solutia Group in contemplation
of the Distribution, and any stock transfer tax and other similar taxes and fees
arising out of the Distribution (collectively, "Transaction Taxes") shall be
borne 100% by the LS Group and the LS Group shall indemnify the Solutia Group
against any such Transaction Taxes.
d. SPECIAL INDEMNITY PAYMENT. Within 60 days after the Distribution
Date, LS shall pay to Solutia an amount equal to the Current Straddle Period
Income Tax Liabilities.
Section 5. PROPERTY TAXES.
a. PRE-DISTRIBUTION PROPERTY TAXES. If the failure to make any ad
valorem or property tax payment on or before the Distribution Date on property
owned by any member of the LS Group, including assets to be transferred to the
Solutia Group, would cause (i) the tax to be delinquent, or (ii) the forfeiture
of a cash discount, the tax shall be paid by the member of the LS Group which
owns such property. The LS Group shall indemnify and hold harmless Solutia and
members of the Solutia Group from and against all property and ad valorem taxes
allocated to the LS Group hereunder.
b. POST-DISTRIBUTION PROPERTY TAXES. Any property or ad valorem tax
payments on Transferred Assets that would become delinquent after the
Distribution Date shall be paid by the Solutia Group. The Solutia Group shall
indemnify and hold harmless LS and members of the LS Group from and against all
property and ad valorem taxes allocated to the Solutia Group hereunder.
c. RETURN PREPARATION. Preparation and timely filing of all tax
returns in respect of Pre and Post Distribution property or ad valorem taxes, on
property owned by any member of the LS or Solutia Group, shall be the
responsibility of the LS or Solutia Group member owning such property at the
time the property or ad valorem tax returns are due.
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Section 6. AUDITS AND TAX CONTROVERSIES AND ADJUSTMENTS.
a. AUDIT RESPONSIBILITY AND CONTROL. Except as otherwise provided in
this Agreement, LS shall have sole responsibility for and control over all
audits with respect to any Tax Return that it is required to file under Sections
3 and 5 hereof. Solutia shall have sole responsibility and control over all
audits with respect to any Tax Return that it is required to file under Sections
3 and 5 hereof.
b. NOTICE; CONTEST. Whenever LS or Solutia receives in writing from
the IRS or any other taxing authority notice of an Adjustment which may give
rise to a payment from the other party under this Agreement, LS or Solutia (as
the case may be) shall give notice of the Adjustment to the other party within
30 days of becoming aware of such receipt, but in no case less than 30 days
before LS or Solutia, as the case may be, is required to respond to the IRS or
any other taxing authority. The Indemnifying Party shall, at its cost and
expense, have control over all matters with respect to which such party has an
indemnification or payment obligation pursuant to this Agreement (other than
Section 6(g) hereof). The foregoing notwithstanding, the Indemnified Party and
its representatives, at the Indemnified Party's expense, shall be entitled to
participate in all conferences, meetings, and proceedings with respect thereto
and shall be entitled to consult with the Indemnifying Party with respect to all
such matters. Notwithstanding the foregoing, if the IRS or any other taxing
authority proposes to disallow any of the deductions required to be taken by a
member of the LS or Solutia Group pursuant to Section 7 of this Agreement, LS or
Solutia, as the case may be, shall contest such proposed disallowance, or shall
cause such disallowance to be contested to a Final Determination unless
otherwise agreed by the parties in writing.
c. CONSULTATION WITH SOLUTIA. LS may consult with Solutia, and Solutia
agrees to fully cooperate with LS, in the negotiation, settlement, or litigation
of any liability for taxes of any member of the LS Group regardless of the
effect of any such negotiation, settlement, or litigation on the liability for
taxes of any member of the Solutia Group.
d. CONSULTATION WITH LS. Solutia may consult with LS, and LS agrees to
fully cooperate with Solutia, in the negotiation, settlement, or litigation of
any liability for taxes of any member of the Solutia Group regardless of the
effect of any such negotiation, settlement, or litigation on the liability for
taxes of any member of the LS Group.
e. TAX BASIS ADJUSTMENTS. LS will notify Solutia in writing of any
adjustments to the tax basis of the assets of the Transferred Businesses,
specifying the nature of the adjustments, such that the Solutia Group will be
able to reflect the revised basis in its tax books and records for periods
beginning on or after the Distribution Date or in any Straddle Period Tax
Returns.
f. EARNINGS AND PROFITS ADJUSTMENTS. LS will notify Solutia of any
redetermination of the earnings and profits and related amounts of creditable
foreign taxes of any of the foreign corporations that are transferred by LS to
Solutia following their acquisition by the LS Group in a transaction intended to
qualify under Code Section 355(a).
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g. CERTAIN ADJUSTMENTS. Except as otherwise provided in this
Agreement, if a Final Determination with respect to any Tax Item (including,
without limitation, any Tax Item relating to depreciation or amortization) of
one party (the "First Party") results in a Tax Detriment to the First Party and,
if as a result of such Final Determination, (i) the other party becomes entitled
to take a reporting position with respect to the same Tax Item that may result
in a Tax Benefit to such other party, on an appropriate Tax Return, including an
amended Tax Return, or (ii) the other party has already taken a reporting
position consistent with such Final Determination on an appropriate tax return,
and, in the case of both (i) and (ii), such reporting position will result in
the realization of a Tax Benefit for the other party, then such other party
shall, within 30 days after notification and documentation of such Final
Determination, pay to the First Party the aggregate amount of such Tax Detriment
(not including interest or penalties) suffered by the First Party but limited to
an amount not greater than the Tax Benefit to be realized by the other party.
For purposes of this Section, the term party shall refer to any member
of the LS Group and any member of the Solutia Group, as the case may be.
h. TRANSACTION TAXES REFUNDED. If one party or a member of such
party's Group (the "First Party") pays Transaction Taxes and the other party or
a member of such other party's Group (the "Other Party") has a right to receive
a refund of such Transaction Taxes ("Refund Amount") and receives such Refund
Amount after the Distribution Date, such Other Party shall reimburse the Refund
Amount to the First Party.
Section 7. TAXABILITY AND REPORTING OF NONQUALIFIED STOCK OPTIONS.
Each of LS and Solutia shall be responsible for making all reports
required to be made to any relevant tax authority with respect to any grants or
exercises of nonqualified stock options with respect to their respective stocks.
LS (or the appropriate member of the LS Group) shall take all tax deductions
arising by reason of exercises of such nonqualified stock options to purchase
shares of LS stock. Solutia (or the appropriate member of the Solutia Group)
shall take all tax deductions arising by reason of exercises of nonqualified
stock options to purchase shares of Solutia stock. If, pursuant to a Final
Determination, all or any part of a tax deduction taken pursuant to this Section
7 is disallowed to LS, then, to the extent permitted by law, the appropriate
member of the Solutia Group shall take such deduction. If a member of the
Solutia Group receives a Tax Benefit in any period as a result of any deduction
taken by a member of the Solutia Group in respect of options exercised against
LS stock, Solutia shall pay the amount of such Tax Benefit to LS. If, pursuant
to a Final Determination, all or any part of a tax deduction taken pursuant to
this Section 7 is disallowed to Solutia, then, to the extent permitted by law,
the appropriate member of the LS Group shall take such deduction. If a member of
the LS Group receives a Tax Benefit in any period as a result of any deduction
taken by a member of the LS Group in respect of options exercised against
Solutia stock, LS shall pay the amount of such Tax Benefit to Solutia.
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Section 8. LIABILITY OF SOLUTIA GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS.
a. GENERAL. (i) Solutia shall, and shall cause each member of the
Solutia Group to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by LS in respect of the Distribution, from any such taxing authority
with respect to any transaction contemplated by the Distribution Agreement and
(ii) neither Solutia nor any member of the Solutia Group shall for a period of
two years following the Distribution Date (A) make a Material Disposition
(including transfers from one member of the Solutia Group to another member of
the Solutia Group), or cessation of operations by means of a sale or exchange of
assets or capital stock, a distribution to stockholders, or otherwise, of
assets; (B) repurchase or issue any Solutia capital stock that in the aggregate
exceeds twenty percent (20%) of the issued and outstanding stock of Solutia
immediately following the Distribution; (C) liquidate or merge with any other
corporation (including a member of the Solutia Group); or (D) cease to engage in
the active conduct of a trade or business within the meaning of Code
Section 355(b)(2), unless, in each of cases (A), (B), (C), and (D), pursuant to
a favorable supplemental ruling letter from the appropriate taxing authority,
reasonably satisfactory to LS, such act or omission would not adversely affect
the tax consequences of the Distribution to LS, Solutia, or the stockholders of
LS or unless LS consents in writing to any such transactions. Solutia has no
present intention to take any such actions.
b. INTRAGROUP TRANSFERS. Notwithstanding Section 8(a), the Solutia
Group (other than Solutia), shall be allowed to make intragroup transfers of
assets, PROVIDED, HOWEVER, such transfers may be made within two years after the
Distribution Date to or from the Solutia Group successors to assets of Monsanto
do Brasil, Ltd., Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto,
PLC, only if LS consents to such transfers in writing or if, in the opinion of
tax counsel to Solutia, or pursuant to a favorable supplemental ruling letter
from the appropriate taxing authority, such transfer would not adversely affect
the tax consequences of the Distribution to LS, Solutia, or the stockholders of
LS. Any opinion required to be obtained under this subsection 8(b) shall be from
a nationally recognized law firm and shall be in a form reasonably acceptable to
LS.
c. OTHER TRANSACTIONS.
(i) Solutia represents that as of the Distribution Date, it does not
have any plan, agreement, arrangement, or any other intention to enter into a
transaction (or a series of related transactions) whereby a Person would acquire
greater than 50 percent of the vote or value of any class of stock of Solutia;
(ii) Neither Solutia nor any member of the Solutia Group shall for a
period of two years following the Distribution Date enter into a transaction (or
series of related transactions) whereby a Person would acquire greater than 50
percent of the vote or value of any class of stock of Solutia (or any successor
of Solutia), unless Solutia receives a favorable supplementary ruling letter
from the appropriate taxing authority, reasonably satisfactory to LS that such
transaction (or series of related transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Solutia, or
the stockholders of LS or
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unless LS consents in writing to any such transaction (or
series of related transactions);
(iii) For purposes of this Section 8(c): (A) a Person shall have
the meaning ascribed to such term in Code Section 7701(a)(1); (B) all Persons
related to such Person within the meaning of Code Sections 267(b) or 707(b)(1)
shall be treated as one Person; (C) two or more Persons acting pursuant to a
plan or arrangement with respect to the acquisition of any class of Solutia
stock shall be treated as one Person; and (D) Code Section 318(a)(2) shall apply
in determining whether a Person holds stock in Solutia, except that Code
Section 318(a)(2)(C) shall be applied without regard to the phrase "50 percent
or more in value" for such purposes; and
(iv) The provisions of this Section 8(c) are intended to prevent the
Solutia Group from entering into post-Distribution transactions which under
proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely affect
the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither Solutia nor any member of the Solutia Group shall undertake any
transaction or series of transactions that could be construed as falling within
the scope of such revised legislation unless Solutia receives a favorable
supplementary ruling letter from the appropriate taxing authority, reasonably
satisfactory to LS that such transaction (or series of transactions) would not
adversely affect the tax-free status of the Distribution and related
transactions to LS, Solutia, or the stockholders of LS or unless LS consents in
writing to any such transaction (or series of related transactions).
d. SPECIAL SOLUTIA INDEMNITY OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, if, as a result of any event,
action, or failure to act wholly or partially within the control of any member
of the Solutia Group, any Income Taxes are imposed on, or other losses
(including, without limitation, attorneys' fees and expenses and losses suffered
by the LS Group as a result of actions instituted by shareholders of LS or
Solutia ("LS Losses")) are suffered by, any member of the LS Group with respect
to the Distribution or any such event, action or failure to act on the
transactions related to the Distribution, including, without limitation, the
transactions in various foreign jurisdictions that were intended to be tax free
under Code Sections 355 and 368 for United States Income Tax purposes, then
Solutia shall indemnify and hold harmless each member of the LS Group with
respect to any such Income Taxes or LS Losses (including any Income Taxes
payable by LS on amounts received by LS from Solutia pursuant to this Section
8(d)). Solutia shall make such indemnification payment no later than 7 days
after receiving written notice from any member of the LS Group of a Final
Determination with respect to such Income Taxes, which notice shall be
accompanied by a computation of the amount due.
e. OTHER REMEDIES. Solutia recognizes that failure to comply with
its obligations under this Section 8 may result in irreparable harm to LS and
its shareholders and that LS and its shareholders may be inadequately
compensated by monetary damages for such failure. If Solutia shall fail to
comply with its obligations under this Section 8, LS shall be entitled to
injunctive relief and specific performance in addition to all other remedies.
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Section 9. LIABILITY OF LS GROUP FOR UNDERTAKING CERTAIN TRANSACTIONS.
a. GENERAL.
(i)LS represents that as of the Distribution Date, it does not have
any plan, agreement, arrangement, or any other intention to enter into a
transaction (or a series of related transactions) whereby a Person would acquire
greater than 50 percent of the vote or value of any class of stock of LS;
(ii) Neither LS nor any member of the LS Group shall for a period
of two years following the Distribution Date enter into a transaction (or series
of related transactions) whereby a Person would acquire greater than 50 percent
of the vote or value of any class of stock of LS (or any successor of LS),
unless LS receives a favorable supplementary ruling letter from the appropriate
taxing authority, reasonably satisfactory to Solutia that such transaction (or
series of related transactions) would not adversely affect the tax-free status
of the Distribution and related transactions to LS, Solutia, or the stockholders
of LS or unless Solutia consents in writing to any such transaction (or series
of related transactions);
(iii) For purposes of this Section 9(a): (A) a Person shall have
the meaning ascribed to such term in Code Section 7701(a)(1); (B) all Persons
related to such Person within the meaning of Code Sections 267(b) or 707(b)(1)
shall be treated as one Person; (C) two or more Persons acting pursuant to a
plan or arrangement with respect to the acquisition of any class of LS stock
shall be treated as one Person; and (D) Code Section 318(a)(2) shall apply in
determining whether a Person holds stock in LS, except that Code Section
318(a)(2)(C) shall be applied without regard to the phrase "50 percent or more
in value" for such purposes; and
(iv) The provisions of this Section 9(a) are intended to prevent
the LS Group from entering into post-Distribution transactions which under
proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely affect
the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither LS nor any member of the LS Group shall undertake any transaction or
series of transactions that could be construed as falling within the scope of
such revised legislation unless LS receives a favorable supplementary ruling
letter from the appropriate taxing authority, reasonably satisfactory to Solutia
that such transaction (or series of transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Solutia, or
the stockholders of LS or unless Solutia consents in writing to any such
transaction (or series of related transactions).
b. SPECIAL LS INDEMNITY OBLIGATION. If, as a result of LS's failure to
comply with its obligations under this Section 9, any Income Taxes are imposed
on, or other losses (including, without limitation, attorneys' fees and expenses
and losses suffered by the Solutia Group as a result of actions instituted by
shareholders of LS or Solutia ("Solutia Losses")) are suffered by, any member of
the Solutia Group with respect to such failure to comply, then LS shall
indemnify and hold harmless each member of the Solutia Group with respect to any
such
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Income Tax or Solutia Losses (including any Income Taxes payable by Solutia
on amounts received by Solutia from LS pursuant to this Section 9(b)). LS shall
make such indemnification payment no later than seven (7) days after receiving
written notice from any member of the Solutia Group of a Final Determination
with respect to such Income Taxes, which notice shall be accompanied by a
computation of the amount due.
Section 10. PARTNERSHIP ITEMS.
On or before September 30, 1998, the Solutia Group shall pay to the LS
Group an amount equal to the excess of (i) the federal and state income tax
liability (utilizing a tax rate of 36%) imposed on the LS Group as a result of
including the various items of income, deductions and credits passed through
from AES, L.P. and Flexsys, L.P. for taxable periods beginning on January 1,
1997 and ending on the Distribution Date, over (ii) the sum of the aggregate of
the cash distributions made by AES, L.P. and Flexsys, L.P. to a member of the LS
Group in respect of the period January 1, 1997 through the Distribution Date
plus the Tax Benefit realized by the LS Group from utilization of MISCO by each
of the partnerships. To the extent such amount in (ii) as relates to
distributions against 1997 taxes exceeds the amount in (i) above, the LS Group
shall pay to the Solutia Group such excess by such date.
Section 11. INDEMNIFICATION.
a. TIMING IN GENERAL Unless otherwise specified in this Agreement, all
indemnification and other payments to be made pursuant to this Agreement shall
be made within 30 days of written notice of a request for indemnification or
payment by the Indemnified Party, which notice shall be accompanied by a
computation of the amount due.
b. SPECIAL TIMING RULES. If any indemnification or other payment is
required to be made under Section 7 of this Agreement upon the realization by
the Indemnifying Party of a Tax Benefit, such payment shall be made no later
than 30 days after the earlier of (a) the filing or (b) the due date
(including extensions) of the Tax Return with respect to which such Tax Benefit
is realized. The parties shall cooperate in good faith in enforcing the
provisions of this Section 11(b), which cooperation shall include the provision
of reasonable access to the Tax Returns of the Indemnifying party by the
Indemnified Party in order to determine the amount of any indemnification or
other payment to be made pursuant to this Section 11(b).
c. INTEREST. If any indemnification payment required to be made
pursuant to this agreement is not made when due, such payment shall bear
interest at the prevailing federal short-term interest rate as determined under
Section 6621 of the Code.
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<PAGE> 15
Section 12. COOPERATION AND EXCHANGE OF INFORMATION.
a. TAX RETURN INFORMATION.
(i) Solutia shall, and shall cause each appropriate member of the
Solutia Group to, provide at Solutia's cost and expense LS with all information
and other assistance reasonably requested by LS to enable the members of the LS
Group to prepare and file the Tax Returns required to be filed by them pursuant
to this Agreement.
(ii) LS shall, and shall cause each appropriate member of the LS
Group to, provide at LS's cost and expense Solutia with all information and
other assistance reasonably requested by Solutia to enable the members of the
Solutia Group to file the Tax Returns required to be filed by them pursuant to
this Agreement.
(iii) Within 5 days of filing a Tax Return that affects the
liability or the determination of the liability for taxes of any member of the
Solutia Group by a member of the LS Group, such member of the LS Group shall
provide Solutia with a copy of only that portion of such Tax Return which is
relevant to a member of the Solutia Group.
(iv) In addition to the foregoing, LS and Solutia agree to fully
cooperate with each other in connection with the preparation of all Tax Returns
required to be filed by them. Such cooperation shall include making personnel
and records available promptly and within 20 days (or such other period as may
be reasonable under the circumstances) after a request for such personnel or
records is made by the taxing authority or the other party. If any member of LS
Group or the Solutia Group, as the case may be, unreasonably fails to provide
any information required pursuant to this Section, then the requesting party
shall have the right to engage an independent certified public accountant of its
choice to gather such information. LS or Solutia, as the case may be, agrees to
permit any such independent certified public accountant full
access to the Tax Return information in the possession of any member of the LS
Group or Solutia Group, as the case may be, during reasonable business hours,
and to reimburse or pay directly all costs and expenses in connection with the
engagement of such independent certified public accountant.
(v) LS shall indemnify and hold harmless each member of the
Solutia Group and its officers and employees, and Solutia shall indemnify and
hold harmless each member of the LS Group and its officers and employees,
against any cost, fine, penalty, or other expenses of any kind attributable to
the negligence of a member of the LS Group or the Solutia Group, as the case
may be, in supplying a member of the other group with inaccurate or incomplete
information, in connection with the preparation of any Tax Return.
(b) Solutia PAYROLL AND UNEMPLOYMENT COMPENSATION TAXES FOR PERIODS
ENDING ON OR AFTER THE DISTRIBUTION DATE. LS shall make available to Solutia
sufficient data to facilitate a determination of the desirability of the
transfer to the Solutia Group of any payroll tax experience and/or any
favorable unemployment compensation tax experience rating of LS; and at
Solutia's election, LS shall cooperate to effect a transfer of such payroll tax
experience and/or such favorable unemployment compensation experience rating
(including state
15
<PAGE> 16
unemployment reserves) to the Solutia Group within one hundred and twenty (120)
days after Solutia's written request therefor.
(c) RESEARCH TAX CREDIT INFORMATION. LS will timely furnish the
Solutia Group the base period information the Solutia Group will need, pursuant
to Code Section 41, to properly compute its research tax credits for years
beginning after the Distribution Date.
Section 13. RETENTION OF RECORDS.
a. GENERAL. LS and Solutia agree to retain the appropriate records
which may affect the determination of the liability for taxes of any member of
the LS Group or the Solutia Group, respectively, until such time as there has
been a Final Determination with respect to such liability for taxes.
b. NOTICE OF WAIVERS. LS and Solutia will notify each other in
writing of any waivers or extensions of the applicable statute of limitations
that may affect the period for which any materials, records, or documents must
be retained.
Section 14. RESOLUTION OF DISPUTES.
a. GENERAL. Any claim, dispute, difference or controversy between the
parties which may arise out of, in relation to, or in connection with this
Agreement (a "Dispute") which cannot be settled by mutual understanding of the
parties shall be submitted initially for resolution to the respective chief
executive officers of each of Solutia and LS. Such officers shall meet and use
reasonable efforts to resolve said Dispute.
b. ARBITRATION. If the parties are, after negotiation in good faith as
described in paragraph (a) of this Section 14, unable to agree upon the
appropriate application of this Agreement, the controversy shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association.
c. PROCEDURES. Upon written notice by any party to the other party
that the controversy is to be submitted to arbitration, each party shall appoint
an independent arbitrator (who shall be a tax attorney or independent certified
public accountant) within 30 days, and two arbitrators so appointed shall
appoint a third arbitrator within 30 days after the appointment of the last
arbitrator appointed within the initial 30 day period. If any party fails to
appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two arbitrators
are unable to agree on a third arbitrator within 30 days, any party may apply to
the American Arbitration Association to make such appointment, and all parties
shall be bound by any appointment so made.
d. SITUS. The locale of the arbitration shall be St. Louis, Missouri,
or any other location mutually agreed on by all parties.
e. FINALITY. The award of the arbitrators (or arbitrator) shall be
final, and
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<PAGE> 17
judgment upon the award rendered may be entered in any court having
jurisdiction.
f. EXPENSES. The expenses of the arbitration procedure shall be borne
in equal parts by the parties, unless the arbitration award specifies otherwise.
Section 15. MISCELLANEOUS.
a. TERM OF THE AGREEMENT. This Agreement shall become effective as of
the date of its execution and, except as otherwise expressly provided herein,
shall continue in full force and effect until the expiration of the latest
applicable statute of limitations period.
b. ELECTIONS UNDER CODE SECTION 1552. Nothing in this Agreement is
intended to change or otherwise affect any election made by or on behalf of the
LS Affiliated Group with respect to the calculation of earnings and profits
under Code Section 1552. LS is authorized to seek any change in the method of
calculating earnings and profits as it deems desirable.
c. CODE SECTION 367 NOTICES. Each member of the LS and Solutia Group
required under Temporary Treasury Regulation Section 7.367(b)-1(c) to file a
notice or notices in respect of any pre-Distribution restructuring transaction
referred to in Section 2(d) hereof, shall timely file such notice in proper
form.
d. SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions set forth herein shall remain in full force and effect, and shall
in no way be affected, impaired, or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants, and restrictions without including any
of such which may be hereafter declared invalid, void, or unenforceable. In the
event that any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the parties hereto shall use their best efforts
to find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant, or
restriction.
e. ASSIGNMENT. Except by operation of law or in connection with the
sale of all or substantially all the assets of a party hereto, this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the advance written consent of the other party; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and permitted assigns.
f. FURTHER ASSURANCES. Subject to the provisions hereof, the parties
hereto shall make, execute, acknowledge, and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this
17
<PAGE> 18
Agreement and to consummate the transactions contemplated hereby. Subject to the
provisions hereof, each of the parties shall, in connection with entering into
this Agreement, performing its obligations hereunder and taking any and all
actions relating hereto, comply with all applicable laws, regulations, orders,
and decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative agency,
commission or similar authority, and promptly provide the other parties with all
such information as they may reasonably request in order to be able to comply
with the provisions of this sentence.
g. PARTIES IN INTEREST. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm, or corporation other than the
parties and their respective successors and permitted assigns.
h. WAIVERS, ETC. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise or any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
i. SETOFF. All payments to be made by any party under this Agreement
shall be made without setoff, counterclaim, or withholding, all of which are
expressly waived.
j. CHANGE OF LAW. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
k. CONFIDENTIALITY. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party agrees that it shall keep strictly confidential, any information which it
or any of its employees or agents may require pursuant to, or in the course of
performing its obligations under, any provision of this Agreement.
l. HEADINGS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
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<PAGE> 19
m. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
n. NOTICES. All notices, consents, requests, instructions, approvals,
and other communications provided for herein shall be validly given, made, or
served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, or by facsimile transmission to:
If to LS, to it at:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
with a copy to:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Vice President - Tax
If to Solutia, to it at:
Solutia Inc.
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
with a copy to:
Solutia Inc.
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Vice President - Tax
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five calendar days after the date the same is mailed.
Notice given by facsimile transmission shall be deemed delivered on the day of
transmission provided telephone confirmation or receipt is obtained promptly
after completion of transmission.
o. COSTS AND EXPENSES. Unless otherwise specifically provided herein,
each
19
<PAGE> 20
party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
p. CANCELLATION OF TAX ALLOCATION OR TAX-SHARING AGREEMENTS. On or
prior to the Distribution Date, LS shall cancel or cause to be canceled all
agreements (other than this Agreement and the Distribution Agreement) providing
for the allocation or sharing of Income or Other Taxes to which any member of
the LS Group would otherwise be bound following the Distribution.
q. TREATMENT OF PAYMENTS. The parties agree that, in the absence of
any change in law or fact, any indemnification payments made under this
agreement shall be reported for tax purposes by the payor and the recipient as
capital contributions or dividends, as appropriate, relating back to the Tax
Period beginning before the Distribution Date.
Section 16. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO ANY CHOICE OR CONFLICT OF LAWS, RULES, OR
PROVISIONS THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF
ANY OTHER JURISDICTION.
20
<PAGE> 21
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the day and year first above written.
Monsanto Company
By: /s/ Nicholas L. Reding
--------------------------
Title: Vice Chairman
-----------------------
Solutia Inc.
By: /s/ John C. Hunter III
--------------------------
Title: President
-----------------------
21
<PAGE> 1
Exhibit 10(c)
SOLUTIA INC. MANAGEMENT INCENTIVE REPLACEMENT PLAN
I. Purpose of the Plan
The purpose of the Solutia Inc. Management Incentive Replacement Plan (the
"Plan") is to provide for the issuance and administration of certain awards
relating to the common stock of Solutia Inc., a Delaware corporation, (the
"Company") issued to certain employees and officers of Monsanto Company
("Monsanto"), the Company, Subsidiaries, and Associated Companies in connection
with the distribution by Monsanto to its stockholders of all of the issued and
outstanding common stock of the Company (the "Distribution").
II. Definitions
Except where the context otherwise indicates, the following definitions apply:
"Adjusted Monsanto Stock Option" means a Monsanto Stock Option which, as a
result of the Distribution, has been adjusted by the Monsanto ECDC as to its
exercise price and/or the number of shares of Monsanto Common Stock it covers.
"Associated Company" means any corporation (or partnership, joint venture, or
other enterprise) of which the Company owns or controls, directly or indirectly,
10% or more, but less than 50% of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable equity
participation and voting power).
"Award" means any Stock Option, Restricted Shares, or other award granted under
this Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the ECDC, or its permitted delegate.
"Company Common Stock" means the common stock of the Company, $0.01 par value.
"Company Ratio" means the amount obtained by dividing (i) the average of the
daily high and low trading prices on the NYSE Composite Tape, as reported in The
Wall Street Journal, for the Monsanto Common Stock with due bills on each of the
five trading days prior to the Distribution Date by (ii)
<PAGE> 2
2
the average of the daily high and low trading prices on the NYSE Composite Tape,
as reported in The Wall Street Journal, for the Company Common Stock on a
when-issued basis on each of such five trading days.
"Company Stock Option" means a Stock Option granted pursuant to Section VI of
this Plan.
"Compensation Committee" means one or more committees appointed by the ECDC
composed of one or more senior managers of the Company or a Subsidiary to whom
the ECDC may delegate its powers (or a portion thereof) to administer this Plan
pursuant to Section IV.A. of this Plan.
"Distribution Date" means the effective date of the Distribution.
"ECDC" means the Executive Compensation and Development Committee or such other
committee consisting of two or more members of the Board as may be appointed by
the Board to administer this plan pursuant to Section IV of this Plan.
"Eligible Participant" means an officer or other salaried employee (including a
director who is a salaried employee) of the Company, a Subsidiary, or an
Associated Company, or an officer of other salaried employee (including a
director who is a salaried employee) of Monsanto, who, on the Distribution Date,
holds an outstanding Monsanto Stock Option or on the Record Date has issued and
outstanding in his or her name Monsanto Restricted Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Fair Market Value" means, with respect to any given day, the average of the
high and low trading prices of a share of stock reported as the New York Stock
Exchange-Composite Transactions for such day, or if the stock was not traded on
the New York Stock Exchange on such day, then on the next preceding day on which
the stock was traded, all as reported by The Wall Street Journal under the
heading New York Stock Exchange-Composite Transactions or by such other source
as the Committee may select.
"Monsanto Common Stock" means the common stock of Monsanto, $2.00 par value.
"Monsanto ECDC" means the Executive Compensation and Development Committee of
the board of directors of Monsanto.
"Monsanto Plan" means the Monsanto Management Incentive Plan of 1984, as
amended; the Searle Monsanto Stock Option Plan of 1986, as amended;
<PAGE> 3
3
the Monsanto Management Incentive Plan of 1988/I, as amended; the Monsanto
Management Incentive Plan of 1988/II, as amended; the NutraSweet/Monsanto Stock
Plan of 1991, as amended; the NutraSweet/Monsanto Stock Plan of 1994, as
amended; the Monsanto Management Incentive Plan of 1994, as amended; the
Searle/Monsanto Stock Plan of 1994, as amended; or the Monsanto Management
Incentive Plan of 1996, as amended.
"Monsanto Restricted Stock" means a share of Monsanto Common Stock granted
pursuant to a Monsanto Plan that is subject to restrictions under such plan on
the Record Date.
"Monsanto Stock Option" means a Stock Option to purchase Monsanto Common Stock
granted under a Monsanto Plan which, on the Distribution Date, is outstanding
and unexercised and held by an officer or salaried employee of Monsanto, the
Company, a Subsidiary, or an Associated Company.
"Participant" means an Eligible Participant who is granted an Award under the
Plan.
"Record Date" means August 20, 1997.
"Reporting Person" means a person subject to the reporting requirements of
Section 16(a) of the Exchange Act (or any law, rule, regulation or other
provision that may replace such statute) with respect to Shares.
"Restricted Shares" means Shares that were distributed as part of the
Distribution that are subject to restrictions in accordance with Section VII of
this Plan.
"Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange Act or
any successor rule or regulation thereto as in effect from time to time.
"SEC" means the Securities and Exchange Commission.
"Shares" means shares of Company Common Stock and any shares of stock or other
securities received as a result of a Share adjustment as the Committee may at
any time designate.
"Stock Option" or "Option" means a stock option which is not an incentive stock
option under Section 422 of the Code.
"Subsidiary" means any corporation (or partnership, joint venture, or other
enterprise) of which the Company owns or controls, directly or indirectly, 50%
<PAGE> 4
4
or more of the outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation and voting power).
"Termination of Employment" means the discontinuance of employment of a
Participant for any reason other than a Transfer or, with respect to a
Participant employed by Monsanto, other than a Transfer or a transfer to the
Company, its Subsidiary, or Associated Company in connection with the
Distribution.
"Transfer" means, (i) for the purpose of a Company Stock Option or Restricted
Shares held by a Participant employed by the Company, a Subsidiary, or an
Associated Company, a change of employment of a Participant within the group
consisting of the Company and its Subsidiaries, or, if the Committee so
determines, a change of employment of a Participant within the group consisting
of the Company, its Subsidiaries and Associated Companies and (ii) for the
purpose of a Company Stock Option or Restricted Shares held by a Participant
employed by Monsanto a change of employment as set forth in the associated
Adjusted Monsanto Stock Option or Monsanto Plan.
III. Effective Date and Duration
This Plan shall become effective as of the Distribution Date. Subject to Section
V.B., no Award shall be granted under the Plan except the Awards provided for in
Sections VI and VII. Awards granted hereunder shall continue until their
respective expiration dates.
IV. Administration of the Plan
A. The Plan shall be administered by the ECDC, except to the extent that
the ECDC delegates administration pursuant to this section. The ECDC may
delegate all or a portion of the administration of this Plan to one or more
Compensation Committees and may authorize further delegation by the Compensation
Committee(s) to senior managers of the Company or its Subsidiaries, provided
that determinations regarding any Award to a Reporting Person shall be made only
by the ECDC. No person shall be eligible or continue to serve as a member of the
ECDC unless such person is (i) a "non-employee director" within the meaning of
Rule 16b-3 and (ii) an "outside director" within the meaning of Section 162(m)
of the Code.
B. Subject to the terms of the Plan and applicable law, and in addition to
other express powers and authorizations conferred on the Committee by the Plan,
the Committee shall have full power and authority to interpret and administer
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; establish, amend, suspend or waive such
<PAGE> 5
5
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and make any other determination and take
any other action that the Committee deems necessary or desirable for the
administration of the Plan. The Committee shall have no discretion relating to
the timing, price and size of Awards granted under the Plan, which shall be
determined in accordance with the provisions of Sections VI and VII. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive and binding upon the Company, any Subsidiary
or Associated Company, any Participant, any beneficiary of any Award, and any
stockholder of the Company. The authority of the Committee to administer,
interpret, amend, alter, adjust, suspend, discontinue, or terminate, in
accordance with the provisions of the Plan, any Award or to waive any conditions
or rights under any Award shall extend until the expiration date of such Award.
V. Shares Subject to the Plan
A. Subject to adjustment as provided in Section V.C. the number of Shares
with respect to which Awards may be granted under the Plan shall be such number
of Shares as results from the application of the formulas set forth in Sections
VI and VII. If, after the effective date of the Plan, an Award granted under the
Plan expires or is exercised, forfeited, cancelled or terminated without the
delivery of Shares, then the Shares covered by such Award or to which such Award
relates, or the number of Shares otherwise to which Awards may be granted, to
the extent of any such expiration, exercise, forfeiture, cancellation or
termination, shall not thereafter be available for grants or Awards under the
Plan.
Any Shares delivered pursuant to an Award may consist of authorized and
unissued Shares, Shares held in the Company's treasury, or Shares acquired in
the open market or otherwise obtained by the Company.
B. Notwithstanding any other provisions of this Plan, the Committee is
authorized to take such action as it determines to be necessary or advisable,
and fair and equitable to Participants, with respect to Awards in the event of:
a merger of the Company with, consolidation of the Company into, or the
acquisition of the Company by, another corporation; a sale or transfer of all or
substantially all of the assets of the Company to another corporation or any
other person or entity; a separation from the Company, including any spinoff or
other distribution to stockholders other than an ordinary cash dividend; a
tender or exchange offer for Shares made by any corporation, person or entity
(other than the Company); or other reorganization in which the Company will not
survive as an independent,
<PAGE> 6
6
publicly owned corporation. Such action may include (but shall not be limited
to) establishing, amending or waiving the forms, terms, conditions and duration
of Stock Options, Awards of Restricted Shares and other Awards so as to provide
for earlier, later, extended or additional times for exercise or payments,
differing methods for calculating payments, alternate forms and amounts of
payment, accelerated release of restrictions or other modifications. The
Committee may take such actions pursuant to this Section V.B. by adopting rules
and regulations of general applicability to all Participants or to certain
categories of Participants, by including, amending or waiving terms and
conditions in Awards (including, without limitation, agreements with respect to
Restricted Shares), or by taking action with respect to individual Participants.
The Committee may take such actions as part of the Awards, or before or after
the public announcement of any such merger, consolidation, acquisition, sale or
transfer of assets, separation, tender or exchange offer or other
reorganization.
C. In the event that at any time or from time to time after the Effective
Date a stock dividend, stock split, recapitalization, merger, consolidation, or
other change in capitalization, or a sale by the Company of all or part of its
assets, or a separation from the Company, including any spinoff or other
distribution to stockholders other than an ordinary cash dividend, results in
(a) the outstanding Shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of shares of stock
or other securities of the Company, or for shares of stock or other securities
of any other corporation; or (b) new, different or additional shares or other
securities of the Company or of any other corporation being received by the
holders of outstanding Shares, then,
(i) the total number of Shares authorized for Awards under this
Plan;
(ii) the number and class of Shares (A) that may be subject to
Stock Options, (B) which have not been issued or transferred
under outstanding Stock Options, and (C) which have been
awarded but are undelivered under this Plan; and
(iii) the purchase price to be paid per Share under outstanding
Stock Options
shall in each case be appropriately adjusted by the Committee in its discretion.
<PAGE> 7
7
VI. Stock Options
A. As soon as practicable following the Distribution Date, each Eligible
Participant shall receive a Company Stock Option in accordance with the
following:
1. Each officer or salaried employee of the Company or a Subsidiary
or Associated Company on the Distribution Date who holds an outstanding Monsanto
Stock Option granted during calendar year 1997 shall receive as replacement for
such Monsanto Stock Option a Company Stock Option (i) with respect to a number
Shares equal to the number of shares subject to such Monsanto Stock Option
immediately before such replacement, times the Company Ratio (and then, if any
resultant fractional share of Company Common Stock exists, rounded up to the
nearest whole Share), and (ii) with a per-share exercise price equal to the
per-share exercise price of such Monsanto Stock Option immediately before such
replacement, divided by the Company Ratio (and then, if necessary, rounded down
to the nearest whole cent).
2. Each Eligible Participant other than those listed on Schedule I
hereto, who holds an outstanding Monsanto Stock Option granted prior to calendar
year 1997 shall receive as replacement for such Monsanto Stock Option (in
addition to an Adjusted Monsanto Stock Option from Monsanto) a Company Stock
Option (i) with respect to a number of Shares equal to one-fifth of the number
of shares of Monsanto Common Stock subject to the Monsanto Stock Option (and
then, if necessary, rounded up to the nearest whole share), and (ii) with a
per-share exercise price equal to the per-share exercise price of such Monsanto
Stock Option immediately before such replacement divided by the Company Ratio
(and then, if necessary, rounded down to the nearest whole cent).
3. Each officer or salaried employee of the Company or a Subsidiary
or Associated Company listed on Schedule I hereto who holds an outstanding
Monsanto Stock Option granted prior to calendar year 1997 shall receive as
replacement for such Monsanto Stock Option (in addition to an Adjusted Monsanto
Stock Option from Monsanto) a Company Stock Option (i) with respect to a number
of Shares equal to the number of shares of Monsanto Common Stock subject to such
Monsanto Stock Option times the Company Ratio times 0.24 (and then, if any
resultant fractional share of Company Common Stock exists, rounded up to the
nearest whole share), and (ii) with a per-share exercise price equal to the
per-share exercise price of such Monsanto Stock Option immediately before such
replacement divided by the Company Ratio (and then, if necessary, rounded down
to the nearest whole cent).
<PAGE> 8
8
4. The terms and conditions of each Company Stock Option issued
pursuant to this Section VI shall be the same as those of the Monsanto Stock
Option it replaces, except as otherwise specifically provided in this Section VI
and except that, (i) with respect to Company Options held by Participants
employed by the Company, its Subsidiaries and Associated Companies, references
to employment with or Termination of Employment with Monsanto, its subsidiaries,
and its associated companies shall be changed to references to employment with
or Termination of Employment with the Company, its Subsidiaries, and Associated
Companies, and, (ii) in the case of Company Options held by any Participants,
other references to Monsanto shall be changed to references to the Company as
appropriate. The Company may, in its discretion, adjust any associated
performance goals as may be appropriate to reflect the effects of the
Distribution.
5. Notwithstanding the foregoing provisions of this Section VI, the
number of Shares subject to a Company Stock Option issued to an individual
listed on Schedule II hereto shall be rounded to the nearest whole Share
(whether up or down) rather than up to the nearest whole Share.
VII. Restricted Shares
Holders of unvested Monsanto Restricted Stock who are employees of the Company,
its Subsidiaries, its Associated Companies, or Monsanto on the Distribution Date
shall have issued in their name by operation of law a number of Restricted
Shares equal to one-fifth the number of shares of Monsanto Restricted Stock
issued and outstanding in their name on the Record Date. The Restricted Shares
shall have the same remaining vesting period and other terms and conditions
contained in the related Monsanto Restricted Stock agreement and shall vest to
the same extent and at the same rate as the shares of Monsanto Restricted Stock
from which they were derived, with such changes and modifications as necessary
to substitute the Company for Monsanto as the issuer of the Restricted Shares.
VIII. Amendments to Plan and Awards
The Board may amend, suspend or terminate the Plan or any portion thereof at any
time, provided that no amendment shall be made without stockholder approval if
such approval is necessary to comply with any tax or regulatory requirement. No
amendment to or discontinuance of this Plan or any provision thereof by the
Board or the stockholders of the Company shall, without the written consent of
the Participant, adversely affect any Stock Option or Restricted Shares
theretofore granted to such Participant under this Plan. Notwithstanding
anything to the contrary contained herein, the Committee may amend the Plan in
such manner, or in its discretion grant
<PAGE> 9
9
such substitute Awards under the Plan, as may be necessary to conform with local
rules and regulations in any jurisdiction outside the United States.
IX. Miscellaneous
A. Nothing contained in the Plan shall prevent the Company from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of Options, restricted stock, and other types of
awards provided for hereunder, and such arrangements may be either generally
applicable or applicable only in specific cases.
B. The grant of any Award shall not be construed as giving a Participant
the right to be engaged or employed by or retained in the employ of the Company
or any Subsidiary or Associated Company.
C. The validity, construction, and effect of the Plan, and of any rules
and regulations relating to the Plan, shall, to the extent not governed by
federal law, be determined in accordance with the laws of the State of Delaware.
D. If any provision of the Plan or any Award is or becomes or is deemed to
be invalid, illegal, or unenforceable in any jurisdiction or as to any
Participant, other person, or Award, or would disqualify the Plan or any Award
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Participant, other person, or Award and the
remainder of the Plan and any such Award shall remain in full force and effect.
E. Nothing contained herein shall require the Company to segregate any
monies from its general funds, or to create any trusts, or to make any special
deposits for any immediate or deferred amounts payable to any Participant.
F. No shares of Restricted Stock shall be sold, exchanged, transferred,
pledged, or otherwise disposed of during the restricted period. No Stock Options
granted under this Plan shall be transferable by a Participant otherwise than by
will, by the laws of descent and distribution, or pursuant to a written
beneficiary designation. If any Participant makes a transfer in violation
hereof, any obligation of the Company with respect to such Stock Option shall
forthwith terminate.
<PAGE> 10
10
G. It shall be a condition to the obligation of the Company to deliver
Shares upon the exercise of a Stock Option or upon the vesting of Restricted
Stock that the Participant pay to the Company cash in an amount equal to all
federal, state, local and foreign withholding taxes required to be collected in
respect thereof. Notwithstanding the foregoing, to the extent permitted by law
and pursuant to such rules as the Committee may adopt, a Participant may
authorize the Company to satisfy any such withholding requirement by directing
the Company to withhold from any shares of Company Common Stock to be issued, or
of Restricted Shares to become unforfeitable, all or a portion of such number of
shares as shall be sufficient to satisfy the withholding obligation.
H. Shares purchased upon exercise of a Stock Option shall be paid for in
such amounts, at such times and upon such terms as specified in the grant of the
Option or as determined from time to time by the Committee. Without limiting the
foregoing, and subject to such rules as the Committee may adopt, the Participant
may deliver Shares (or other evidence of ownership of Shares satisfactory to the
Company) with a Fair Market Value equal to the exercise price as payment.
<PAGE> 1
Exhibit 10(d)
SOLUTIA INC.
1997 STOCK-BASED INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers and employees and to provide the
Company and its Subsidiaries and Associated Companies with a stock plan
providing incentives directly linked to the profitability of the Company's
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Associated Company" means any corporation (or partnership, joint
venture, or other enterprise), of which the Company owns or controls, directly
or indirectly, 10% or more, but less than 50% of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity
participation and voting power).
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, unrestricted share of Common Stock, dividend equivalent, interest
equivalent or other award granted under this Plan.
c. "Board" means the Board of Directors of the Company.
d. "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 9(b) and (c), respectively.
e. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
f. "Commission" means the Securities and Exchange Commission or any
successor agency.
g. "Committee" means the Executive Compensation and Development Committee
referred to in Section 2.
h. "Common Stock" means common stock, par value $0.01 per share, of the
Company.
i. "Company" means Solutia Inc., a Delaware corporation.
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j. "Compensation Committee" means one or more committees appointed by the
Executive Compensation and Development Committee composed of one or more senior
managers of the Company or a Subsidiary or Affiliated Company to whom the
Executive Compensation and Development Committee may delegate its powers (or a
portion thereof) to administer this Plan pursuant to Section 2.
k. "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
l. "Disability" means permanent and total disability as determined by the
Committee for purposes of the Plan.
m. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
n. "Fair Market Value" means, as of any given date, the average of the
highest and lowest sales prices of the Common Stock reported as the New York
Stock Exchange-Composite Transactions for such day, or if the Common Stock was
not traded on the New York Stock Exchange on such day, then on the next
preceding day on which the Common Stock was traded, all as reported by The Wall
Street Journal under the heading New York Stock Exchange-Composite Transactions
or by such other source as the Committee may select.
o. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
p. "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
q. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
r. "Qualified Performance-Based Award" means an Award of Restricted Stock
designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee" within
the meaning of Section 162(m)(3) of the Code in the year in which the Company
would expect to be able to claim a tax deduction with respect to such
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<PAGE> 3
Restricted Stock and (ii) the Committee wishes such Award to qualify for the
Section 162(m) Exemption.
s. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock. In the case of
Qualified Performance-Based Awards, (i) such goals shall be based on the
attainment of specified levels of one or more of the following measures:
earnings per share, sales, net profit after tax, gross profit, operating profit,
cash generation, economic value added, unit volume, return on equity, change in
working capital, return on capital or shareholder return, and (ii) such
Performance Goals shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
t. "Plan" means the Solutia Inc. 1997 Stock-Based Incentive Plan, as set
forth herein and as hereinafter amended from time to time.
u. "Restricted Stock" means an Award granted under Section 7.
v. "Retirement" means retirement from employment with the Company, a
Subsidiary or an Associated Company as determined by the Committee for purposes
of an Award under the Plan.
w. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
x. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
y. "Stock Appreciation Right" means an Award granted under Section 6.
z. "Stock Option" means an Award granted under Section 5.
aa. "Subsidiary" means: (i) for the purpose of an Incentive Stock Option,
any corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the Incentive
Stock Option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain;
and (ii) for the purposes of a NonQualified Stock Option, a Stock Appreciation
Right or Restricted Stock
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<PAGE> 4
Award, any corporation (or partnership, joint venture, or other enterprise) of
which the Company owns or controls, directly or indirectly, 50% or more of the
outstanding shares of stock normally entitled to vote for the election of
directors (or comparable equity participation and voting power).
bb. "Termination of Employment" means the termination of the participant's
employment with the Company and any Subsidiary or Associated Company. A
participant employed by a Subsidiary or an Associated Company shall also be
deemed to incur a Termination of Employment if the Subsidiary or Associated
Company ceases to be such a Subsidiary or Associated Company, as the case may
be, and the participant does not immediately thereafter become an employee of
the Company or another Subsidiary or Associated Company. Temporary absences from
employment because of illness, vacation or leave of absence and transfers among
the Company and its Subsidiaries, or, if the Committee so determines, among the
group consisting of the Company, its Subsidiaries and Associated Companies,
shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Executive Compensation and
Development Committee or such other committee of the Board as the Board may from
time to time designate (the "Committee"), which shall be composed of not less
than two Non-Employee Directors, each of whom shall be an "outside director" for
purposes of Section 162(m)(4) of the Code, and shall be appointed by and serve
at the pleasure of the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan or, in the Committee's discretion, in connection with awards
under other bonus plans or programs of the Company, to officers and employees of
the Company and its Subsidiaries and Associated Companies.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the officers and employees to whom Awards may from time to
time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights
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<PAGE> 5
and Restricted Stock, or any combination thereof, are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)) or
base price, as applicable, any vesting condition, restriction or limitation
(which may be related to the performance of the participant, the Company or any
Subsidiary or Associated Company) and any vesting acceleration or forfeiture
waiver regarding any Award and the shares of Common Stock relating thereto,
based on such factors as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not adjust upwards the amount payable
with respect to a Qualified Performance-Based Award or waive or alter the
Performance Goals associated therewith;
(f) To determine under what circumstances an Award may be settled in cash
or Common Stock under Sections 5(g) and 6(d)(ii); and
(g) To determine under what circumstances dividends, dividend equivalents
or interest equivalents with respect to an Award shall be paid.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any award certificate relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may delegate all or a portion of the
administration of the Plan to one or more Compensation Committees and authorize
further delegation by the Compensation Committees to senior managers of the
Company or its Subsidiaries (provided that no such delegation may be made that
would cause Awards or other transactions under the Plan to cease to be exempt
from Section 16(b) of the Exchange Act or not to
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<PAGE> 6
qualify for, or cease to qualify for, the Section 162(m) Exemption).
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriate
delegate pursuant to the provisions of the Plan shall be final and binding on
all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Award or transaction to become subject to (or lose an exemption under)
the short-swing profit recovery provisions of Section 16 of the Exchange Act or
cause an award designated as a Qualified Performance-Based Award not to qualify
for, or to cease to qualify for, the Section 162(m) Exemption. To the extent
that any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall not exceed 7,800,000. No participant may be granted
Awards covering in excess of 500,000 shares of Common Stock in any calendar
year. Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares, or both.
If any shares of Restricted Stock are forfeited, or if any Stock Option or
Stock Appreciation Right terminates without being exercised, or if any Stock
Appreciation Right (whether granted alone or in conjunction with a Stock Option)
is exercised for cash, shares subject to such Awards shall again be available
for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property (without regard
to the payment of any cash dividends by the Company in the ordinary course) of
the Company, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the
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<PAGE> 7
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments in the aggregate number and kind
of shares reserved for issuance under the Plan, in the maximum number of shares
with respect to which any participant may be granted Awards in any calendar
year, in the number, kind and option price or base price, as applicable, of
shares subject to outstanding Stock Options and Stock Appreciation Rights, in
the number and kind of shares subject to other outstanding Awards granted under
the Plan and/or such other equitable substitution or adjustments as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of shares subject to any Award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right associated with any
Stock Option.
SECTION 4. ELIGIBILITY
Officers and employees of the Company, a Subsidiary or an Associated
Company who are responsible for or contribute to the growth and profitability of
the business of the Company, a Subsidiary or an Associated Company are eligible
to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and NonQualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or, even if so designated, does not qualify as an
Incentive Stock Option, it shall constitute a NonQualified Stock Option.
Stock Options shall be evidenced by option award certificates, the terms
and provisions of which may differ. An option
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<PAGE> 8
award certificate shall indicate on its face whether it is intended to be an
award certificate for an Incentive Stock Option or a NonQualified Stock Option.
The grant of a Stock Option shall occur on the date the Committee by resolution
selects an individual to be a participant in any grant of a Stock Option,
determines the number of shares of Common Stock to be subject to such Stock
Option to be granted to such individual and specifies the terms and provisions
of the Stock Option, or on such later date as is specified by the Committee
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in the
option award certificate, and shall not be less than the Fair Market Value of
the Common Stock subject to the Stock Option on the date of grant. The option
price per share shall not be decreased thereafter except pursuant to Section 3
of this Plan.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of
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<PAGE> 9
exercise, or notice in accordance with such other procedures as may be
established from time to time, to the Company or its designated agent specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price
in cash or by certified or cashier's check or such other instrument as the
Company may accept. If approved by the Committee, payment, in full or in part,
may also be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock Option
is exercised); provided, however, that, in the case of an Incentive Stock
Option, the right to make a payment in the form of already owned shares of
Common Stock of the same class as the Common Stock subject to the Stock Option
may be authorized only at the time the Stock Option is granted and provided,
further, that, in the case of either an Incentive Stock Option or a NonQualified
Stock Option, such already owned shares have been held by the optionee for at
least six months at the time of exercise.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds necessary to
pay the purchase price, and, if requested, by the amount of any federal, state,
local or foreign withholding taxes. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Company or its
designated agent to withhold a number of such shares having a Fair Market Value
on the date of exercise equal to the aggregate exercise price of such Stock
Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. An optionee shall have all of the rights of a shareholder of the
Company holding the class or series of Common Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 12(a).
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(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, or, in the Committee's discretion, pursuant to a written
beneficiary designation. All Stock Options shall be exercisable, subject to the
terms of this Plan, only by the optionee or guardian or legal representative or
beneficiary of the optionee, it being understood that the terms "holder" and
"optionee" include any such guardian, legal representative or beneficiary.
(f) Termination of Employment. The Stock Option and its related Stock
Appreciation Right, if any, may be exercised in full or in part from time to
time within ten years from the date of the grant, or such shorter period as may
be specified by the Committee in the award certificate, provided that in any
event each shall lapse and cease to be exercisable upon, or within such period
following, Termination of Employment as shall have been determined by the
Committee and as specified in the Stock Option or Stock Appreciation Right award
certificate; provided, however, that such period following Termination of
Employment shall not exceed twelve months unless employment shall have
terminated:
(i) as a result of Retirement or Disability, in which event such
period shall not exceed --
(A) in the case of a Stock Option, the original term of the
Stock Option; and
(B) in the case of a Stock Appreciation Right, one year after
such Retirement or Disability or after resignation as an
officer or employee of the Company, whichever shall last
occur; or
(ii) as a result of death, or death shall have occurred following
Termination of Employment and while the Stock Option or Stock
Appreciation Right was still exercisable, in which event such
period shall not exceed the original term of the Stock Option;
and
provided, further, that such period following Termination of Employment shall in
no event exceed the original exercise period of the Stock Option or related
Stock Appreciation Right, if any.
(g) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Common Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Common Stock, equal to the excess of the Fair
Market
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Value of the Common Stock over the option price times the number of shares of
Common Stock for which the Option is being exercised on the effective date of
such cash-out.
(h) Change in Control Cash-Out. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at the time
of grant, an optionee shall have the right, whether or not the Stock Option is
fully exercisable and in lieu of the payment of the exercise price for the
shares of Common Stock being purchased under the Stock Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Stock Option to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the Change in Control
Price per share of Common Stock on the date of such election shall exceed the
exercise price per share of Common Stock under the Stock Option (the "Spread")
multiplied by the number of shares of Common Stock granted under the Stock
Option as to which the right granted under this Section 5(k) shall have been
exercised. Notwithstanding the foregoing, if any right granted pursuant to this
Section 5(k) would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of such
grant would otherwise be eligible for such accounting treatment, the Committee
shall have the ability to substitute for the cash payable pursuant to such right
Common Stock with a Fair Market Value equal to the cash that would otherwise be
payable hereunder.
SECTION 6. STOCK APPRECIATION RIGHT
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. In addition, Stock Appreciation Rights may be granted without
relationship to a Stock Option to employees residing in foreign jurisdictions,
where the grant of a Stock Option is impossible or impracticable because of
securities or tax laws or other governmental regulations.
(b) Freestanding Stock Appreciation Rights. A Stock Appreciation Right
granted without relationship to a Stock Option, pursuant to Section 6(a), shall
be exercisable as determined by the Committee, but in no event after ten years
from the date of
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grant. The base price of a Stock Appreciation Right granted without relationship
to a Stock Option shall be the Fair Market Value of a share of Common Stock on
the date of grant. A Stock Appreciation Right granted without relationship to a
Stock Option shall entitle the holder, upon receipt of such right, to a cash
payment determined by multiplying (i) the difference between the base price of
the Stock Appreciation Right and the Fair Market Value of a share of Common
Stock on the date of exercise of the Stock Appreciation Right, by (ii) the
number of shares of Common Stock as to which Stock Appreciation Right shall have
been exercised. A freestanding Stock Appreciation Right may be exercised by
giving written notice of exercise to the Company or its designated agent
specifying the number of shares of Common Stock as to which such Stock
Appreciation Right is being exercised.
(c) Tandem Stock Appreciation Rights. A Stock Appreciation Right granted
in conjunction with a Stock Option may be exercised by an optionee in accordance
with Section 6(d) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(d). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised. A Stock Appreciation Right shall
terminate and no longer be exercisable upon the termination or exercise of the
related Stock Option.
(d) Terms and Conditions. Stock Appreciation Rights granted in
conjunction with a Stock Option shall be subject to such terms and conditions as
shall be determined by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate
are exercisable in accordance with the provisions of Section 5 and this
Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, equal to the excess of
the Fair Market Value of one share of Common Stock over the option price
per share specified in the related Stock Option multiplied by the number
of shares in respect of which the Stock Appreciation Right shall have
been exercised.
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(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 on the number of shares of Common Stock to be
issued under the Plan, but only to the extent of the number of shares
covered by the Stock Appreciation Right at the time of exercise based on
the value of the Stock Appreciation Right at such time.
SECTION 7. BONUS SHARES AND RESTRICTED STOCK
(a) Administration. Awards of shares of Common Stock or Restricted Stock
may be made either alone or in addition to other Awards granted under the Plan.
In addition, a participant may receive unrestricted shares of Common Stock or
Restricted Stock in lieu of certain cash payments awarded under other plans or
programs of the Company. The Committee shall determine the officers and
employees to whom and the time or times at which grants of unrestricted shares
of Common Stock and Restricted Stock will be awarded, the number of shares to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3 in the case of Qualified
Performance-Based Awards), the conditions for vesting, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Awards of unrestricted shares of Common
Stock and Restricted Stock shall be evidenced in such manner as the Committee
may deem appropriate, including, book-entry registration or delivery of one or
more stock certificates to the participant, or, in the case of Restricted Stock,
a custodian or escrow agent. Any stock certificate issued in respect of
unrestricted shares or shares of Restricted Stock shall be registered in the
name of such participant. The Committee may require that the stock certificates
evidencing shares of Restricted Stock be held in custody or escrow by the
Company or its designated agent until the restrictions thereon shall have lapsed
and that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
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(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an
Award of Restricted Stock as a Qualified Performance-Based Award, in which
event it shall condition the grant or vesting, as applicable, of such
Restricted Stock upon the attainment of Performance Goals. If the
Committee does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting
thereof upon the attainment of Performance Goals. Regardless of whether an
Award of Restricted Stock is a Qualified Performance-Based Award, the
Committee may also condition the grant or vesting thereof upon the
continued service of the participant. The conditions for grant or vesting
and the other provisions of Restricted Stock Awards (including without
limitation any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that
is a Qualified Performance-Based Award, the applicable Performance Goals
have been satisfied.
(ii) Subject to the provisions of the Plan and the terms of the
Restricted Stock Award, during the period, if any, set by the Committee,
commencing with the date of such Award for which such participant's
continued service is required (the "Restriction Period"), and until the
later of (A) the expiration of the Restriction Period and (B) the date the
applicable Performance Goals (if any) are satisfied, the participant shall
not be permitted to sell, assign, transfer, pledge or otherwise encumber
shares of Restricted Stock; provided that the foregoing shall not prevent
a participant from pledging Restricted Stock as security for a loan, the
sole purpose of which is to provide funds to pay the option price for
Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i) and
7(c)(ii) and the terms of the Restricted Stock Award, the participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class or series of
Common Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any cash
dividends. If so determined by the Committee under the applicable terms of
the Restricted
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Stock Award and subject to Section 12(e) of the Plan, (A) cash dividends
on the class or series of Common Stock that is the subject of the
Restricted Stock Award shall be automatically deferred and reinvested in
additional Restricted Stock, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals applicable
only to dividends, and (B) dividends payable in Common Stock shall be paid
in the form of Restricted Stock of the same class as the Common Stock with
which such dividend was paid, held subject to the vesting of the
underlying Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends.
(iv) Except to the extent otherwise provided under the applicable terms
of the Restricted Stock Award and Sections 7(c)(i), 7(c)(ii), 7(c)(v) and
9(a)(ii), upon a participant's Termination of Employment for any reason
during the Restriction Period or before the applicable Performance Goals
are satisfied, all shares still subject to restriction shall be forfeited
by the participant.
(v) Except to the extent otherwise provided in Section 9(a)(ii), in the
event of a participant's Termination of Employment by reason of
Retirement, the Committee shall have the discretion to waive, in whole or
in part, any or all remaining restrictions (other than, in the case of
Restricted Stock with respect to which a participant is a Covered
Employee, satisfaction of the applicable Performance Goals unless the
participant's employment is terminated by reason of death or Disability)
with respect to any or all of such participant's shares of Restricted
Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted
Stock, unlegended certificates for such shares shall be delivered to the
participant upon surrender of the legended certificates, or the
restrictions on such shares shall be removed from the book-entry
registration.
SECTION 8. DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) The Committee may provide that a participant to whom a Stock Option
has been awarded, which is exercisable in whole or in part at a future time for
shares of Common Stock (such shares, the "Option Shares") shall be entitled to
receive an amount per Option Share, equal in value to the cash dividends, if
any, paid
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<PAGE> 16
per share of Common Stock on issued and outstanding shares, as of the dividend
record dates occurring during the period between the date of the Award and the
time each such Option Share is delivered pursuant to the exercise of such Stock
Option. Such amounts (herein called "dividend equivalents") may, in the
discretion of the Committee, be:
(i) paid in cash or shares of Common Stock from time to time prior to or
at the time of the delivery of such shares of Common Stock or upon
expiration of the Stock Option if it shall not have been fully exercised
(except that payment of the dividend equivalents on an Incentive Stock
Option may not be made prior to exercise); or
(ii) converted into contingently credited shares of Common Stock (with
respect to which dividend equivalents shall accrue) in such manner, at
such value, and deliverable at such time or times, as may be determined
by the Committee.
Such shares of Common Stock (whether delivered or contingently credited) shall
be charged against the limitations set forth in Section 3.
(b) The Committee, in its discretion, may authorize payment of interest
equivalents on any portion of any Award payable at a future time in cash, an
interest equivalents on dividend equivalents which are payable in cash at a
future time.
SECTION 9. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred, and which are
not then exercisable and vested, shall become fully exercisable and vested
to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free
of all restrictions and become fully vested and transferable to the full
extent of the original grant.
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(b) Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(i) The acquisition by any individual, entity or group (with the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that, for purposes of this
subsection (i), the following acquisitions shall not constitute a Change
of Control: (1) any acquisition directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 9; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of
assets or stock of another corporation (a "Business Combination"), in each
case, unless, following such Business Combination, (A) all or
sub-
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stantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding
any corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (ii) if the Change in Control is the result of a tender
or exchange offer or a Corporate Transaction, the highest price per share of
Common Stock paid in such tender or exchange offer or Corporate Transaction;
provided, however, that in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the
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Change in Control Price shall be in all cases the Fair Market Value of the
Common Stock on the date such Incentive Stock Option or Stock Appreciation Right
is exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration shall
be determined in the sole discretion of the Board.
SECTION 10. AMENDMENT AND TERMINATION
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under any Award theretofore granted without the optionee's or
recipient's consent, except such an amendment made to cause the Plan to qualify
for any exemption provided by Rule 16b-3. In addition, no such amendment shall
be made without the approval of the Company's shareholders to the extent such
approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 11. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
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<PAGE> 20
SECTION 12. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend, or, in the case of
book-entry registration any notation, which the Committee deems appropriate to
reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or certificates made
pursuant thereto, the Company shall not be required to issue or deliver any
stock certificate or certificates for shares of Common Stock, or account for
such shares by book-entry registration, under the Plan prior to fulfillment of
all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Company under any state, federal or foreign law or regulation, or the
maintaining in effect of any such registration or other qualification
which the Committee shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state
or federal governmental agency or foreign governmental body which the
Committee shall, in its absolute discretion after receiving the advice of
counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Associated Company from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Company or a Subsidiary or an Associated Company to terminate the employment of
any employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the
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Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Company, withholding obligations may
be settled with Common Stock, including Common Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Subsidiaries or Associated Companies shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the participant. The Committee may establish such procedures as
it deems appropriate, including making irrevocable elections, for the settlement
of withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time
of any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(f) The Committee, in its sole discretion, may establish such procedures
as it deems appropriate for a participant to designate a beneficiary to whom any
amounts payable in the event of the participant's death are to be paid or by
whom any rights of the participant, after the participant's death, may be
exercised.
(g) In the case of a grant of an Award to any employee of a Subsidiary or
Affiliated Company, the Company may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
Subsidiary or Affiliated Company, for such lawful consideration as the Committee
may specify, upon the condition or understanding that the Subsidiary or
Affiliated Company will transfer the shares of Common Stock to the employee in
accordance with the terms of the Award specified by the Committee pursuant to
the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
SECTION 13. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of September 1, 1997.
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Exhibit 10(e)
SOLUTIA INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
1. NAME OF PLAN. This plan shall be known as the "Solutia Inc. Non-Employee
Director Compensation Plan" and is hereinafter referred to as the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to increase the ownership
interest in Solutia Inc., a Delaware corporation (the "Company"), by
Non-Employee Directors whose services are considered essential to the Company's
continued progress and to provide a further incentive to serve as directors of
the Company.
3. EFFECTIVE DATE AND TERM. The Plan is effective as of September 3, 1997 (the
"Effective Date"). The Plan shall remain in effect until terminated by action of
the Board, or until no shares of Common Stock remain available under the Plan,
if earlier.
4. DEFINITIONS. The following terms shall have the meanings set forth below:
"Administrator" has the meaning set forth in Section 20(a).
"Annual Meeting" means an annual meeting of the shareholders of the
Company.
"Annual Retainer" means the amount a Non-Employee Director will be
entitled to receive for serving as a director in a Plan Year, on an
annualized basis, as determined by and set forth in resolutions of the
Board, but shall not include reimbursement for expenses, fees associated
with service on any committee of the Board, the retainer payable for
serving as the chairman of any committee of the Board, or fees with
respect to any other services to be provided to the Company.
"Board" means the Board of Directors of the Company.
"Business Combination" has the meaning set forth in subparagraph (c) of
the definition of "Change of Control."
"Change of Control" means any of the following events:
(a) The acquisition by any person, entity or "group", within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act") (a "Person"), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock")
or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 1
<PAGE> 2
Company or any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (as of
the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of
assets or stock of another corporation (a "Business Combination"),
in each case unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be; (ii) no Person
(excluding any corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior
to the Business Combination; and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 2
<PAGE> 3
"Change of Control Consideration" means, for purposes of this Plan, (i)
the amount of any cash, plus the value of any securities and other noncash
consideration, constituting the most valuable consideration per share of
Common Stock paid to any shareholder in the transaction or series of
transactions that results in a Change of Control or (ii) if no
consideration per share of Common Stock is paid to any shareholder in the
transaction or series of transactions that results in a Change of Control,
the highest reported sale price of a share of Common Stock on the New York
Stock Exchange composite tape (or if the Common Stock is not listed on
such exchange, on any other national securities exchange on which the
Common Stock is listed or the NASDAQ Stock Market) during the 60-day
period prior to and including the date of a Change of Control. To the
extent that such consideration consists all or in part of securities or
other noncash consideration, the value of such securities or other noncash
consideration shall be determined by the Committee in good faith.
"Change of Control Date" has the meaning set forth in Section 19(b).
"Code" has the meaning set forth in Section 9.
"Committee" means the committee that supervises the Plan, as more fully
defined in Section 20(a).
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company" has the meaning set forth in Section 2.
"Deferred Cash Account" means a bookkeeping account maintained by the
Company for a Non-Employee Director representing the Elective Cash Amount,
if any, credited to such account pursuant to Section 6.
"Deferred Stock Account" means a bookkeeping account maintained by the
Company for a Non-Employee Director representing the Non-Employee
Director's interest in the Stock Amount and the Elective Stock Amount, if
any, credited to such account pursuant to Section 6.
"Delivery Date" has the meaning set forth in Section 7.
"Discretionary Amount" means with respect to each Plan Year, the dollar
amount equal to 50% of the Annual Retainer for such Plan Year, all or any
portion (in percentage increments determined by the Administration) of
which the Non-Employee Director may, but is not required to, elect to have
credited to his or her Deferred Stock Account in the form of an Elective
Stock Amount and/or his or her Deferred Cash Account in the form of an
Elective Cash Amount.
"Dividend Equivalent" for a given dividend or distribution means a number
of shares of Common Stock having a Value, as of the date such Dividend
Equivalent is credited to a Deferred Stock Account, equal to the amount of
cash, plus the fair market value on the date of distribution of any
property, that is distributed with respect to one share of Common Stock
pursuant to such dividend or distribution; such fair market value to be
determined by the Committee in good faith.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 3
<PAGE> 4
"Effective Date" has the meaning set forth in Section 3.
"Election Amount" for each Non-Employee Director who has made a Plan Year
Deferral Election pursuant to Section 5 shall be, with respect to each
Plan Year, (i) the percentage that is set forth in the Non-Employee
Director's Plan Year Deferral Election Notice multiplied by (ii) the
Discretionary Amount.
"Elective Cash Amount" means that portion of the Election Amount which the
Non-Employee Director designated in his or her Plan Year Deferral Election
Notice to be credited to his or her Deferred Cash Account.
"Elective Stock Amount" means that portion of the Election Amount which
the Non-Employee Director designated in his or her Plan Year Deferral
Election Notice to be credited to his or her Deferred Stock Account in the
form of Common Stock.
"Exchange Act" has the meaning set forth in subparagraph (a) of the
definition of "Change of Control."
"Fraction," with respect to a person who is a Non-Employee Director during
part, but not all, of a Plan Quarter, means the amount obtained by
dividing (i) the number of calendar months during such Plan Quarter that
such person was a Non-Employee Director by (ii) 3; provided, that for
purposes of the foregoing, a partial calendar month shall be treated as a
whole month.
"Incumbent Board" has the meaning set forth in subparagraph (b) of the
definition of "Change of Control."
The "Interest Rate" means Moody's Baa Bond Index Rate, as in effect from
time to time.
"Non-Employee Director" means any director of the Company who is not an
employee of the Company or any subsidiary thereof on the date of any award
made or granted to such person hereunder.
"Option" means an award to purchase Common Stock granted to a Non-Employee
Director pursuant to the terms of Section 8.
"Outstanding Company Common Stock" has the meaning set forth in
subparagraph (a) of the definition of "Change of Control."
"Outstanding Company Voting Securities" has the meaning set forth in
subparagraph (a) of the definition of "Change of Control."
"Partial Quarter Notice Period" has the meaning set forth in Section 5.
"Partial Year Fraction," with respect to a person who is a Non-Employee
Director during part, but not all of a Plan Year, means the amount
obtained by dividing (i) the number of calendar months during such Plan
Year that such person was a Non-
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 4
<PAGE> 5
Employee Director by (ii) 12; provided, that for the purposes of the
foregoing, a partial calendar month shall be treated as a whole month.
"Person" has the meaning set forth in subparagraph (a) of the definition
of "Change of Control."
"Plan" has the meaning set forth in Section 1.
"Plan Quarter" means the 3 month period commencing on the first Trading
Day in May, August, November or February, as applicable, during a Plan
Year.
"Plan Year" means the year commencing on the date of an Annual Meeting and
ending on the day before the next succeeding Annual Meeting; provided,
that the first Plan Year shall begin on the Effective Date and end on the
day before the first Annual Meeting and provided further, that the last
Plan Year with respect to a Non-Employee Director who ceases to be a
Non-Employee Director during a Plan Year, shall begin on the first day of
such Plan Year and end on the day such Non-Employee Director ceases to be
a Non-Employee Director.
"Plan Year Deferral Election" means the irrevocable election to defer, for
any Plan Year, all or any part (in percentage increments determined by the
Administrator) of the Discretionary Amount for the next Plan Year such
that the deferred portion becomes the Election Amount. Any Plan Year
Deferral Election Notice shall remain in effect for that Plan Year and for
all subsequent Plan Years unless and until such Non-Employee Director
delivers to the Administrator, no later than the last business day prior
to the commencement of the next succeeding Plan Year, a new Plan Year
Deferral Election Notice setting forth a different Plan Year Deferral
Election.
"Plan Year Deferral Election Notice" means the notice of the Plan Year
Deferral Election delivered to the Administrator.
"Rule 16b-3" has the meaning set forth in Section 20(a).
"Stock Amount" means with respect to each Plan Year, the dollar amount
equal to 50% of the Annual Retainer for such Plan Year which will be
automatically and mandatorily credited to the Non-Employee Director's
Deferred Stock Account in the form of Common Stock determined in the
manner set forth in Section 6(b).
"Trading Day" means any day on which there are sales of Common Stock
reported on the New York Stock Exchange composite tape, or if the Common
Stock is not listed on such exchange, on any other national securities
exchange on which the Common Stock is listed or the Nasdaq Stock Market.
The "Value" of a share of Common Stock as of any given date (including the
date a Deferred Stock Account is credited, or, in the case of Options, the
date the Option is granted) means the average of the highest and lowest
sales prices of a share of Common Stock reported on the New York Stock
Exchange Composite Transactions for such day, or, if shares of Common
Stock were not traded on the New York Stock Exchange on such date, then on
the next preceding date on which such shares were
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 5
<PAGE> 6
traded, all as reported by The Wall Street Journal under the heading "New
York Stock Exchange - Composite Transactions" or by such other source as
the Committee may select.
5. ELECTION TO RECEIVE SHARES OR DEFER CASH IN LIEU OF CASH COMPENSATION. (a) In
order to make a Plan Year Deferral Election pursuant to this Section 5, a
Non-Employee Director who is a Non-Employee Director prior to the Effective Date
must deliver to the Administrator, no later than September 30, 1997, his or her
Plan Year Deferral Election Notice.
(b) Except for the Plan Year Deferral Election due by September 30, 1997
as set forth in Section 5(a) and except for persons who first become
Non-Employee Directors on a date other than an Annual Meeting Date (to which
Section 5(c) applies), each Non-Employee Director (and each nominee for a
position on the Board who would, if elected by the Company's shareholders at the
next succeeding Annual Meeting, be a Non-Employee Director) may make a Plan Year
Deferral Election for the next succeeding Plan Year by delivering to the
Administrator, no later than the last business day prior to the commencement of
the next succeeding Plan Year, a Plan Year Deferral Election Notice.
(c) Except for the Plan Year Deferral Election due by September 30, 1997
as set forth in Section 5(a), each person who becomes a Non-Employee Director on
a date other than the date of an Annual Meeting must deliver his or her Plan
Year Deferral Election Notice within thirty days of the date he or she first
becomes a Non-Employee Director (the "Partial Quarter Notice Period").
6. ACCOUNTS; CREDIT OF SHARES AND CASH. (a) The Company shall maintain a
Deferred Stock Account and a Deferred Cash Account for each Non-Employee
Director. As part of the compensation payable to each Non-Employee Director for
service on the Board, the Deferred Stock Account of each Non-Employee Director
shall be credited with shares of Common Stock as set forth in this Section 6 and
the Deferred Cash Account of each Non-Employee Director may, at the Non-Employee
Director's election, be credited with cash as set forth in this Section 6. The
shares credited to the Deferred Stock Account pursuant to this Section 6 may
represent fractional as well as whole shares of Common Stock.
(b) Except as set forth in Section 6(e), as of the first day of each Plan
Quarter (or in the case of a Non-Employee Director who becomes a Non-Employee
Director on a date other than on the date of an Annual Meeting, the first
Trading Day in a Plan Quarter on which he or she becomes a Non-Employee
Director), the Deferred Stock Account of each Non-Employee Director shall be
credited with a number of shares of Common Stock having a Value equal to 25% of
the Stock Amount, multiplied by the Fraction, if applicable.
(c) Except as set forth in Section 6(e), as of the first day of each Plan
Quarter (or in the case of a Non-Employee Director who first becomes a
Non-Employee Director on a date other than on the date of an Annual Meeting, on
the first Trading Day following the conclusion of the Partial Quarter Notice
Period), the Deferred Stock Account of each Non-Employee Director who has a Plan
Year Deferral Election for Common Stock in effect on such date shall be credited
with (i) a number of shares of Common Stock having a Value equal to 25% of the
Elective Stock Amount, multiplied by the Fraction, if applicable.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 6
<PAGE> 7
(d) Except as set forth in Section 6(f), as of the first day of each Plan
Quarter (or in the case of a Non-Employee Director who first becomes a
Non-Employee Director on a date other than on the date of an Annual Meeting, on
the first Trading Day following the conclusion of the Partial Quarter Notice
Period), the Deferred Cash Account of each Non-Employee Director who has a Plan
Year Deferral Election for cash in effect on such date shall be credited with
(i) an amount equal to 25% of the Elective Cash Amount, multiplied by the
Fraction, if applicable.
(e) On September 4, 1997, the Deferred Stock Account of each Non-Employee
Director who becomes a Non-Employee Director prior to the Effective Date shall
be credited with a number of shares of Common Stock having a Value equal to 25%
of the Stock Amount, multiplied by the Fraction. In addition, the Deferred Stock
Account of each Non-Employee Director who becomes a Non-Employee Director prior
to the Effective Date and who has a Plan Year Deferral Election for Common Stock
in effect on October 1, 1997, shall be credited with a number of shares of
Common Stock having a Value equal to 25% of the Elective Stock Amount,
multiplied by the Fraction.
(f) On October 1, 1997, the Deferred Cash Account of each Non-Employee
Director who becomes a Non-Employee Director prior to the Effective Date and who
has a Plan Year Deferral Election for cash in effect on October 1, 1997, shall
be credited with an amount equal to 25% of the Elective Cash Amount, multiplied
by the Fraction.
(g) Whenever a dividend is paid or other distribution made with respect to
the Common Stock, each Deferred Stock Account shall be credited with a number of
shares equal to (i) the number of shares of Common Stock in such Deferred Stock
Account as of the record date for such dividend or other distribution,
multiplied by (ii) the Dividend Equivalent for such dividend paid or other
distribution made.
(h) Each Deferred Cash Account shall accrue interest on the balance
therein at the Interest Rate, such interest to be credited at least monthly.
7. DELIVERY OF SHARES AND DEFERRED CASH. The shares of Common Stock in a
Non-Employee Director's Deferred Stock Account and the cash balance in a
Non-Employee Director's Deferred Cash Account as of the date the Non-Employee
Director ceases to be a Non-Employee Director for any reason (the "Delivery
Date") shall begin to be delivered in accordance with this Section 7 as soon as
practicable after the Delivery Date. The shares and cash balance shall be
delivered in two equal installments with the first installment being delivered
as soon as practicable after the Delivery Date and the second installment on the
first anniversary of the Delivery Date. If the number of shares to be delivered
at one time includes a fractional share, such number shall be rounded to the
nearest whole number of shares. If any such shares or cash are to be delivered
after the Non-Employee Director has died or become legally incompetent, they
shall be delivered to the Non-Employee Director's estate, legal guardian or
beneficiary designated pursuant to Section 21(a), as the case may be, as soon as
practicable. References to a Non-Employee Director in this Plan shall be deemed
to refer to the Non-Employee Director's estate, legal guardian or beneficiary
designated pursuant to Section 21(a), where appropriate. The Non-Employee
Director shall become the holder of record of the shares of Common Stock upon
delivery.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 7
<PAGE> 8
8. GRANT OF OPTIONS. (a) Except as set forth in Section 8(d), each Non-Employee
Director shall receive, on the date such person becomes a Non-Employee Director,
an initial Option to purchase 8,000 shares of Common Stock.
(b) Each person who becomes a Non-Employee Director on the date of, or who
remains a Non-Employee Director on the date of and immediately following each
Annual Meeting held after the Effective Date hereof, shall receive, as of such
date, an annual Option to purchase 2,000 shares of Common Stock.
(c) Except as set forth in Section 8(d), each person who becomes a
Non-Employee Director on a date other than on an Annual Meeting date, shall
receive, as of such date, an Option to purchase that number of shares of Common
Stock equal to 2,000 multiplied by the Partial Year Fraction.
(d) Persons who become Non-Employee Directors prior to the Effective Date
shall receive, on the same date as the Committee makes the first option grants
to management personnel of the Company, an Option to purchase 9,334 shares of
Common Stock, 8,000 of which constitute the initial grant that would have
otherwise been granted pursuant to Section 8(a) but for this Section 8(d), and
1,334 of which constitute the prorated annual Option grant for the first Plan
Year calculated in accordance with Section 8(c).
9. TYPE OF OPTIONS. All Options granted under the Plan shall be "nonqualified"
stock options subject to the provisions of Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"). All Options granted under the Plan shall
be subject to the terms and conditions set forth in the certificate attached as
Exhibit A hereto.
10. EXERCISE PRICE. The exercise price per share of Common Stock purchasable
under all Options granted pursuant to the Plan shall be the Value of a share of
Common Stock on the Option Grant Date.
11. EXERCISE RIGHTS. Each Option granted hereunder shall become exercisable,
during the Option term set forth in Section 12, in three equal installments
commencing on the first anniversary of the Option Grant Date and annually
thereafter, provided that the Non-Employee Director continues in the service of
the Company as a director through such anniversaries. Each Option may be
exercised in full share lots only.
12. OPTION TERM. The Option term will expire at the end of the day next
preceding ten years from the Option Grant Date, or at the end of the day next
preceding two years from the date the Non-Employee Director ceases to be a
director of the Company for any reason, whichever occurs first.
13. METHOD OF EXERCISE. The Option shall be exercised by (a) written notice or
notice in such other form as may be prescribed from time to time, given to the
Company or its designee (at the address specified by the Company from time to
time) specifying the date the Option was granted and the number of shares of
Common Stock as to which the Option is being exercised, plus (b) payment to the
Company in full for the Shares so specified. Within a reasonable time after
exercise of the Option, the Company shall deliver shares of Common Stock to the
Non-Employee Director in respect of which the Option shall have been exercised
and shall pay all stamp taxes in respect thereof, provided that upon or prior to
the delivery of
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 8
<PAGE> 9
such shares, provision (as specified by the Company from time to time) shall be
made by the Non-Employee Director for the payment to the Company of any and all
taxes which it shall be required to withhold in connection with the exercise of
the Option by any law or regulation of any government, whether federal, state or
local, and whether domestic or foreign. The Non-Employee Director shall have the
right to pay the Option exercise price by delivery of shares of Common Stock (or
other evidence of ownership of shares satisfactory to the Company) already owned
by the Non-Employee Director with a Value equal to the Option exercise price as
payment, provided that such shares have been held by the Non-Employee Director
for at least six months on the date of exercise.
14. DELIVERY OF SHARES, VOTING AND OTHER RIGHTS. The Non-Employee Director shall
have no rights as a stockholder with respect to any Option shares or the shares
of Common Stock credited to his or her Deferred Stock Account unless and until
the Non-Employee Director becomes the holder of record of such shares and,
subject to the provisions of Sections 6 and 19 hereof, no adjustment shall be
made for dividends, ordinary or extraordinary (whether in cash or securities or
property), or other distributions, or other rights in respect of such shares as
to which the record date is prior to the date upon which the Non-Employee
Director shall have become the holder of record thereof. Shares delivered under
the Plan shall be in book entry form unless the Non-Employee Director has
requested in the written notice specified in Section 13 that they be issued in
certificate form.
15. TAX WITHHOLDING. The Company shall have the right to require, prior to the
delivery of any shares of Common Stock pursuant to the Plan, that a Non-Employee
Director make arrangements satisfactory to the Company for the withholding of
any taxes required by law to be withheld with respect to the delivery of such
shares, including without limitation by the withholding of shares that would
otherwise be so delivered, by withholding from any other payment due to the
Non-Employee Director, or by a cash payment to the Company by the Non-Employee
Director.
16. NO TRUST OR FUND CREATED. The Plan shall not create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Company or any of its subsidiaries and a Non-Employee Director or any other
person or entity. To the extent that any person acquires a right to receive
payments from the Company or any of its affiliates pursuant to the Plan, such
right shall be no greater than the right of any unsecured general creditor of
the Company or any of its subsidiaries.
17. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of the Plan,
the Company shall not be required to deliver any shares of Common Stock under
the Plan prior to fulfillment of all of the following conditions:
(i) Any registration or other qualification of such shares under any
state, federal, or foreign law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Administrator shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
(ii) Obtaining any other consent, approval, or permit from any state
or federal governmental agency which the Administrator shall, in its
absolute discretion after receiving the advice of counsel, determine
to be necessary or advisable.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 9
<PAGE> 10
(b) Nothing contained in the Plan shall prevent the Company from adopting
other or additional compensation arrangements for Non-Employee Directors.
18. SHARES AVAILABLE. Subject to Section 19 below, 175,000 shares of Common
Stock may be delivered under the Plan. Shares of Common Stock deliverable under
the Plan may be taken from treasury shares of the Company or purchased on the
open market.
19. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event of any
change in corporate capitalization, such as a stock split or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property (without regard to the
payment of any cash dividends by the Company in the ordinary course) of the
Company, any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company, the Committee or Board may make such substitution or
adjustments in the aggregate number and kind of shares to be delivered under the
Plan, in the number, kind and Option exercise price of shares subject to
outstanding Options, in the number and kind of shares held in the Deferred Stock
Accounts or subject to Options and/or such other equitable substitution or
adjustments as it may determine to be appropriate in its sole discretion;
provided, however, that the number of shares held in the Deferred Stock Accounts
or subject to Options shall always be a whole number.
(b) Without limiting the generality of the foregoing, and notwithstanding
any other provision of this Plan, in the event of a Change of Control, the
following shall occur on the date of the Change of Control (the "Change of
Control Date"): (i) the last day of the then current Plan Year shall be deemed
to occur on the Change of Control Date; (ii) the Company shall immediately pay
to each Non-Employee Director in a lump sum the Change of Control Consideration
multiplied by the number of shares of Common Stock held in each Non-Employee
Director's Deferred Stock Account immediately before such Change of Control;
(iii) The Company shall immediately pay to each Non-Employee Director in a lump
sum the balance in his or her Deferred Cash Account; (iv) the Options shall
become fully exercisable by the Non-Employee Director without regard to Section
11; and (v) the Plan shall be terminated. Notwithstanding the foregoing, if the
payment of cash with respect to Deferred Stock Accounts pursuant to the
preceding sentence would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of such
grant would otherwise be eligible for such accounting treatment, the Committee
shall have the ability to substitute for such cash Common Stock or other equity
securities with a Value equal to the amount of such cash.
(c) If the shares of Common Stock credited to the Deferred Stock Accounts
and subject to Options are converted pursuant to this Section 19 into another
form of property, references in the Plan to the Common Stock shall be deemed,
where appropriate, to refer to such other form of property, with such other
modifications as may be required for the Plan to operate in accordance with its
purposes. Without limiting the generality of the foregoing, references to the
delivery of shares of Common Stock shall be deemed to refer to delivery of cash
and the incidents of ownership of any other property held in the Deferred Stock
Accounts and subject to Options.
20. ADMINISTRATION; AMENDMENT. (a) The Board shall have the power to amend
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 10
<PAGE> 11
or terminate the Plan. The Executive Compensation and Development Committee or
any other committee of the Board (the "Committee") designated by the Board that
will satisfy Rule 16b-3 of the Exchange Act, including any successor rule ("Rule
16b-3"), shall supervise the Plan. The Plan shall be administered by the Vice
President - Human Resources, or such other person or persons designated by the
Committee (the Administrator"). The Committee shall consist solely of two or
more "non-employee directors" of the Company who shall be appointed by the
Board. A member of the Board shall be deemed to be a "non-employee director" for
the purposes of this Section 20 only if he satisfies such requirements as the
Securities and Exchange Commission may establish for "non-employee directors"
under Rule 16b-3. Members of the Board receive no additional compensation for
their services in connection with the administration of the Plan.
(b) Any act that the Committee is authorized to perform hereunder may
instead be performed by the Board at its discretion, and to the extent the Board
so acts, references in the Plan to the Committee shall refer to the Board as so
applicable. Anything to the contrary herein notwithstanding, to the extent that
any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
(c) The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. All questions of interpretation of the Plan
or of any shares delivered under it shall be determined by the Committee and
such determination shall be final and binding upon all persons having an
interest in the Plan.
(d) Notwithstanding any other provision of the Plan, no amendment or
termination of the Plan shall adversely affect the interest of any Non-Employee
Director in Options granted to him or her, in shares previously credited to such
Non-Employee Director's Deferred Stock Account, or in cash previously credited
to such Non-Employee Director's Deferred Cash Account without that Non-Employee
Director's express written consent.
21. TRANSFERABILITY. (a) In the event of a Non-Employee Director's death, all of
such person's rights with respect to his or her Deferred Stock Account and
Deferred Cash Account will transfer to the maximum extent permitted by law to
such person's beneficiary. Each Non-Employee Director may name, from time to
time, any beneficiary or beneficiaries (which may be named contingently or
successively) as his or her beneficiary for receiving delivery of the shares of
Common Stock from the Deferred Stock Account and the cash from the Deferred Cash
Account under this Plan. Each designation shall be on a form prescribed by the
Administrator, will be effective only when delivered to the Company and when
effective will revoke all prior designations by the Non-Employee Director. If a
Non-Employee Director dies with no such beneficiary designation in effect, such
person's beneficiary shall be his or her estate and such person's payments will
be transferable by will or pursuant to laws of descent and distribution
applicable to such person.
(b) Each Option granted under the Plan by its terms shall not be
transferable by the Non-Employee Director otherwise than by will, or by the laws
of descent and distribution, and shall be exercised during the lifetime of the
Non-Employee Director only by him or her. No Option or interest therein may be
transferred, assigned, pledged or hypothecated by the Non-Employee Director
during his or her lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 11
<PAGE> 12
22. MISCELLANEOUS. Nothing in the Plan shall be deemed to create any obligation
on the part of the Board to nominate any Non-Employee Director for reelection by
the Company's shareholders or to limit the rights of the shareholders to remove
any director.
23. GOVERNING LAW. The Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 12
<PAGE> 13
EXHIBIT A
CERTIFICATE FOR OPTIONS
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 13
<PAGE> 14
EXHIBIT A
FORM OF
SOLUTIA INC.
1997
NON-QUALIFIED STOCK OPTION
(NOT TRANSFERABLE)
CERTIFICATE
Grant to
[insert Name of Optionee]
(The "Optionee")
to purchase from Solutia Inc. (the "Company")
[insert Number of shares]
shares of its common stock
par value $0.01 per share (the "Optioned Shares")
at the price of
[insert Option Price]
per share
pursuant to and subject to the provisions of the
Solutia Inc. Non-Employee Director Compensation Plan (the "Plan")
and to the Terms and Conditions set forth on the reverse hereof
Option Grant Date: [insert grant date]
<PAGE> 15
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
DEFINITIONS.
The terms "Administrator", "Value", and "Common Stock" when used
herein, shall have the meanings set forth in the Plan.
EXERCISE RIGHTS.
The Option shall become exercisable, during the Option term set forth
in the third paragraph hereof and subject to the other terms and conditions
hereof, as to one-third of the Optioned Shares on the first anniversary of the
Option Grant Date, as to an additional one-third of the Optioned shares on the
second anniversary of the Option Grant Date, and as to any or all of the
Optioned Shares on the third anniversary of the Option Grant Date, provided
that the Optionee continues in the service of the Company as a director through
such anniversaries. Notwithstanding the foregoing, but subject to the third
paragraph hereof, an Option shall become fully and immediately exercisable upon
the occurrence of a Change in Control as set forth in Section 19 of the Plan.
The Option may be exercised in full share lots only.
OPTION TERM.
The Option term will expire at the end of the day next preceding ten
years from the date the Option was granted, or at the end of the day next
preceding two years from the date the Optionee ceases to be a director of the
Company for any reason, whichever first occurs.
METHOD OF EXERCISE.
The Option shall be exercised by (a) written notice, or notice in such
other form as may be prescribed from time to time, given to the Company or its
designee (at the address specified by the Company from time to time) specifying
the date the Option was granted and the number of shares of Common Stock as to
which the Option is being exercised, plus (b) payment to the Company in full
for the shares so specified. Within a reasonable time after exercise of the
Option, the Company shall deliver shares of Common Stock to the Optionee in
respect of which the Option shall have been exercised and shall pay all stamp
taxes in respect thereof, provided that upon or prior to the delivery of such
shares of Common Stock, provision (as specified by the Company from time to
time) shall be made by the Optionee for the payment to the Company of any and
all taxes which it shall be required to withhold in connection with exercise of
the Option, by any law or regulation of any government, whether federal, state
or local and whether domestic or foreign. Payment may be made by delivery of
shares of Common Stock (or other evidence of ownership of shares of Common
Stock satisfactory to the Company) with a Value equal to the Option exercise
price, provided that such shares have been held by the Optionee for at least
six months at the time of exercise.
<PAGE> 16
STOCKHOLDER STATUS.
The Optionee shall have no rights as a stockholder with respect to any
shares of Common Stock subject to an Option unless and until the Optionee shall
have become the holder of record of such underlying shares of Common Stock and,
subject to the provisions of the sixth paragraph hereof, no adjustment shall be
made for dividends, ordinary or extraordinary (whether in cash or securities or
other property), or other distributions, or other rights in respect of such
shares of Common Stock as to which the record date is prior to the date upon
which the Optionee shall have become the holder of record thereof.
SHARE AND PRICE ADJUSTMENT.
In the event of any adjustments in the outstanding shares of Common
Stock, as provided for in Section 19 of the Plan, the Executive Compensation
and Development Committee of the Board of Directors of the Company may make
such substitution or adjustments in the aggregate number and kind of shares to
be delivered under the Plan, in the number, kind and Option exercise price of
shares subject to outstanding Options and/or such other equitable substitution
or adjustments as it may determine to be appropriate in its sole discretion.
The Optionee shall be notified of any such adjustment and any adjustment, or
failure to adjust, shall be final and binding upon the Company and the
Optionee.
SERVICE AS A DIRECTOR.
The grant of this Option is a separate inducement in connection with
the Optionee's service as a director of the Company. Neither the Option nor any
provision hereof shall be deemed to create any obligation on the part of the
Board of Directors of the Company to nominate any Optionee for reelection to
the Company's Board of Directors by the Company's shareholders or to limit the
rights of the shareholders to remove any director.
OPTION SUBJECT TO LAWS AND REGULATION.
Each exercise of the Option shall be subject to all requirements as to
(a) any registration or other qualifications of such shares under any state,
federal, or foreign law or regulation, or the maintaining in effect of any such
registration or other qualification which the Administrator shall, in his or
her absolute discretion upon the advice of counsel, deem necessary or
advisable, and (b) obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Administrator shall, in his or
her absolute discretion after receiving advice of counsel, determine to be
necessary or advisable. Anything herein to the contrary notwithstanding, the
Option may not be exercised, in whole or in part, unless and until the Company
shall have been able to comply with all such requirements and regulations free
of any conditions not acceptable to the Company. As a condition to the
exercise of the Option, either in whole or in part, the Optionee shall execute
such documents and take such action as the Company in its sole discretion deems
necessary or advisable to assist the Company in compliance
<PAGE> 17
with any such requirements, and Optionee shall comply with all requirements of
any regulatory authority having control or supervision.
GENERAL PROVISIONS.
The Option is not transferable by the Optionee otherwise than by will
or by the laws of descent and distribution, and during the lifetime of the
Optionee shall be exercisable only by the Optionee.
The validity, interpretation, performance and enforcement of this
Option shall be governed by the laws of the State of Delaware.
Each and every provision of the Option shall be administered, construed
and interpreted so that the Option shall in all respects conform to the
provisions of the Plan, a copy of which has been delivered to the Optionee, and
any provision that cannot be so administered shall be deemed appropriately
modified, or, if necessary, disregarded. In no event shall this Option be
deemed to be an Incentive Stock Option under Section 422 of the Internal
Revenue Code of 1986, as amended.
<PAGE> 1
Exhibit 10(f)
CONFORMED COPY
=======================================
U.S. $800,000,000
CREDIT AGREEMENT
Dated as of August 14, 1997,
Among
SOLUTIA INC,
(formerly known as Queeny Chemical Company)
as Borrower
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Syndication Agent
and
CITIBANK, N.A.,
as Administrative Agent
=======================================
[Exhibits D and E are photocopies of the opinions as delivered.]
<PAGE> 2
T A B L E O F C O N T E N T S
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms................................. 1
SECTION 1.02. Computation of Time Periods........................... 19
SECTION 1.03. Accounting Terms and Determinations................... 19
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances........................................ 19
SECTION 2.02. Making the A Advances................................. 19
SECTION 2.03. The B Advances........................................ 21
SECTION 2.04. Fees.................................................. 25
SECTION 2.05. Termination, Reduction, Extension and Increase of the
Commitments.......................................... 25
SECTION 2.06. Repayment of Advances................................. 30
SECTION 2.07. Interest on A Advances................................ 30
SECTION 2.08. Interest Rate Determination; Changes in Rating Systems 31
SECTION 2.09. Optional Conversion of A Advances..................... 32
SECTION 2.10. Prepayments, Etc...................................... 33
SECTION 2.11. Increased Costs....................................... 33
SECTION 2.12. Illegality............................................ 35
SECTION 2.13. Payments and Computations............................. 36
SECTION 2.14. Notations on the A Notes.............................. 37
SECTION 2.15. Taxes................................................. 38
SECTION 2.16. Sharing of Payments, Etc.............................. 40
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing............. 41
SECTION 3.02. Conditions Precedent to Each A Borrowing.............. 42
SECTION 3.03. Conditions Precedent to Each B Borrowing.............. 43
SECTION 3.04. Determinations Under Section 3.01..................... 44
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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(i)
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<S> <C>
SECTION 4.01. Representations and Warranties of the Borrower........ 44
SECTION 4.02. Representation and Warranty of the Lenders............ 48
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants................................. 48
SECTION 5.02. Negative Covenants.................................... 52
SECTION 5.03. Financial Covenants................................... 55
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default..................................... 55
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action.............................. 57
SECTION 7.02. Administrative Agent's Reliance, Etc.................. 57
SECTION 7.03. Citibank and Affiliates............................... 58
SECTION 7.04. Lender Credit Decision................................ 58
SECTION 7.05. Indemnification....................................... 58
SECTION 7.06. Successor Administrative Agent........................ 59
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc....................................... 60
SECTION 8.02. Notices, Etc.......................................... 61
SECTION 8.03. No Waiver, Remedies................................... 62
SECTION 8.04. Costs and Expenses.................................... 62
SECTION 8.05. Right of Set-off...................................... 63
SECTION 8.06. Binding Effect........................................ 63
SECTION 8.07. Assignments and Participations, Register.............. 63
SECTION 8.08. Governing Law......................................... 67
SECTION 8.09. Execution in Counterparts............................. 67
SECTION 8.10. Jurisdiction, Etc..................................... 67
</TABLE>
SCHEDULES
Schedule 1 - Certain Existing Liens
(ii)
<PAGE> 4
EXHIBITS
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Form of Notice of A Borrowing
Exhibit B-2 - Form of Notice of B Borrowing
Exhibit C-1 - Form of Assignment and Acceptance
Exhibit C-2 - Form of Assumption and Acceptance
Exhibit D - Form of Opinion of General Counsel for the Borrower
Exhibit E - Form of Opinion of Special New York Counsel to the
Administrative Agent
(iii)
<PAGE> 5
CREDIT AGREEMENT dated as of August 14, 1997 among QUEENY CHEMICAL
COMPANY, a Delaware corporation whose name is to be changed (the
"Borrower"), the banks (each an "Initial Lender" and, collectively, the "Initial
Lenders") listed on the signature pages hereof, BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Syndication Agent (in such capacity, together with
its successors in such capacity, the "Syndication Agent") and CITIBANK, N.A.
("Citibank"), as administrative agent (in such capacity, together with its
successors in such capacity, the "Administrative Agent") as herein provided.
Prior to the date hereof, Monsanto Company ("Monsanto") formed the
Borrower, as a wholly owned Subsidiary of Monsanto, to hold and operate
Monsanto's chemicals business. Monsanto has proposed to distribute 100% of the
outstanding common stock of the Borrower to Monsanto's shareholders in a
tax-free transaction (the "Spin-Off"). The Borrower has requested that the
Lenders make loans to it in an aggregate principal amount not exceeding
$800,000,000 at any one time outstanding solely to finance the working capital
needs and other general corporate purposes of the Borrower, including to support
the Borrower's commercial paper program, and the Lenders are prepared to make
such loans upon the terms and conditions hereof. Accordingly, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A Advance" means an advance by a Lender to the Borrower as part of
an A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate
Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type made by each of the Lenders pursuant to Section
2.01.
"A Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the A Advances made by such Lender.
<PAGE> 6
- 2 -
"Acceptance" means an Assignment and Acceptance and/or an Assumption
and Acceptance.
"Adjusted EBITDA" means, for any period, the sum, for the Borrower
and its Consolidated Subsidiaries (determined on a Consolidated basis
without duplication in accordance with GAAP), of the following: (a) net
income (calculated before taxes, Interest Expense, extraordinary and
unusual items and income or loss attributable to equity in Affiliates
(other than Affiliates that are Specified Joint Ventures or Consolidated
Subsidiaries)) for such period plus (b) depreciation and amortization (to
the extent deducted in determining net income) for such period; provided
that charges taken (including cash charges in an aggregate amount not
exceeding $60,000,000) and reserves established by the Borrower and its
Consolidated Subsidiaries (whether in connection with the Spin-Off or
otherwise) on or prior to December 31, 1998 in an aggregate amount not
exceeding $225,000,000 shall be added back to net income for such period
(to the extent such charges and reserves were deducted in determining net
income for such period).
"Administrative Agent" has the meaning specified in the recital of
parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with Citibank
at its office at 399 Park Avenue, New York, New York 10043, Account No.
36852248, Attention: Guss Kalloudis.
"Administrative Questionnaire" means an administrative questionnaire
in a form supplied by the Administrative Agent.
"Advance" means an A Advance or a B Advance.
"Affected Lender" has the meaning specified in Section 2.12.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
<PAGE> 7
- 3 -
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender
notified by such Lender to the Administrative Agent as its Applicable
Lending Office with respect to such B Advance.
"Applicable Margin" means, for any A Advance that is a Eurodollar
Rate Advance, for any period during which the Rated Securities are within
any Rating Level set forth below, the rate set forth below opposite the
reference to such Rating Level:
<TABLE>
<CAPTION>
Rating Level Applicable Margin (p.a.)
------------ ------------------------
<S> <C>
Rating Level 1 0.135%
Rating Level 2 0.150%
Rating Level 3 0.165%
Rating Level 4 0.220%
Rating Level 5 0.225%
Rating Level 6 0.225%;
</TABLE>
provided that, if the ratings of the Rated Securities established by S&P
and Moody's shall fall within different Rating Levels, the Applicable
Margin shall be determined by reference to the higher of the two Rating
Levels (except that, if the lower such Rating Level is more than one
Rating Level below the higher such Rating Level, the Applicable Margin
shall be determined by reference to the Rating Level that is one Rating
Level higher than the lower such Rating Level). Each change in the
Applicable Margin resulting from a Rating Level Change shall be effective
on the effective date of such Rating Level Change.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C-1 hereto.
"Assuming Lender" means, at any time, an Eligible Assignee not
previously a Lender which becomes a Lender hereunder pursuant to Section
2.05(d).
"Assumption and Acceptance" means an assumption and acceptance
entered into by an Eligible Assignee, and accepted by the Administrative
Agent, in substantially the form of Exhibit C-2 hereto.
<PAGE> 8
- 4 -
"B Advance" means an advance by a Lender to the Borrower as part of
a B Borrowing resulting from the auction bidding procedure described in
Section 2.03.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances from each of the Lenders whose offer to make one or more B
Advances as part of such borrowing has been accepted by the Borrower under
the auction bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from
a B Advance made by such Lender.
"B Reduction" has the meaning specified in Section 2.01.
"Bank of America" means Bank of America National Trust and Savings
Association.
"Base Rate" means a fluctuating interest rate per annum in effect
from time to time, which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) 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) 1/2
of 1% per annum, 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, such three-week
moving average (adjusted to the basis of a year of 360 days) being
determined weekly on each Monday (or, if such day is not a Business
Day, on the next succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Citibank from three New York certificate of deposit
dealers of recognized standing selected by Citibank, 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 (or any successor) for determining the
maximum reserve
<PAGE> 9
- 5 -
requirement (including, but not limited to, any emergency,
supplemental or other marginal 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; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means an A Advance that bears interest as
provided in Section 2.07(a)(i).
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Combination" means any reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Borrower or the acquisition of assets or stock of
another corporation.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, an obligation of such Person to pay rent or other amounts
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP; and the amount of such obligation shall
be the capitalized amount shown on the balance sheet of such Person as
determined in accordance with GAAP.
"Change of Control" means the occurrence of any of the following
events:
(a) the acquisition by any individual, entity or group (within the
meanings of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person
or Group") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Borrower (the "Outstanding
Borrower Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the
<PAGE> 10
- 6 -
Borrower entitled to vote generally in the election of directors (the
"Outstanding Borrower Voting Securities"); provided that, for purposes of
this paragraph (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisitions directly from the Borrower, (ii)
any acquisition by the Borrower, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Borrower or
any corporation controlled by the Borrower or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of paragraph (c) below; or
(b) individuals who, as of the date hereof, constitute the Board of
Directors of the Borrower (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Borrower;
provided that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Borrower's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors; or
(c) consummation by the Borrower of a Business Combination, in each
case unless following such Business Combination: (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Borrower Common Stock and Outstanding
Borrower Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Borrower or all
or substantially all of the Borrower's assets either directly or through
one or more Subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Borrower Common Stock and Outstanding Borrower Voting
Securities, as the case may be, (ii) no Person or Group (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Borrower or such corporation
resulting from such Business Combination)
<PAGE> 11
- 7 -
beneficially owns, directly or indirectly, 30% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board of Directors, providing for such Business
Combination; or
(d) approval by the shareholders of the Borrower of a complete
liquidation or dissolution of the Borrower.
The Spin-Off shall be deemed not to constitute a Change of Control for
purposes hereof.
"Citibank" has the meaning specified in the recital of parties to
this Agreement.
"Closing Date" means the earliest date as of which the conditions
precedent to effectiveness set forth in Section 3.01 shall have been
satisfied or waived.
"Commitment" means, as to each Lender, the obligation of such Lender
to make A Advances in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set opposite the name of
such Lender on the signature pages hereof under the caption "Commitment"
or, in the case of a Person that becomes a Lender pursuant to an
assignment permitted under Section 8.07, or pursuant to an assumption of
obligations under Section 2.05, as specified in the Register (as such
Commitment may be reduced from time to time pursuant hereto). The original
aggregate principal amount of the Commitments is $800,000,000.
"Commitment Increase" has the meaning specified in Section 2.05(d).
"Commitment Increase Date" has the meaning specified in Section
2.05(d).
"Commitment Termination Date" means August 13, 2002 or, in the case
of any Lender whose Commitment is extended pursuant to Section 2.05(c),
the date to which such Commitment is extended; provided in each case that
if any such date is not a Business Day, the relevant Commitment
Termination Date of such Lender shall be the immediately preceding
Business Day. When the term "Commitment Termination Date" is used
<PAGE> 12
- 8 -
herein without reference to any particular Lender, such term shall, in
such instance, be deemed to be a reference to the latest Commitment
Termination Date of any of the Lenders then in effect hereunder.
"Consolidated" refers to the consolidation of the accounts of the
Borrower and its Subsidiaries in accordance with generally accepted
accounting principles, including principles of consolidation, consistent
with those applied in the preparation of the financial statements referred
to in Section 4.01(e)(ii).
"Consolidated Net Tangible Assets" means, at any time, for the
Borrower and its Consolidated Subsidiaries (determined on a Consolidated
basis without duplication in accordance with GAAP), Consolidated Tangible
Assets at such time after deducting therefrom all current liabilities,
other than current liabilities in respect of (a) notes and loans payable,
(b) current maturities of long-term debt and (c) current maturities of the
principal component of Capitalized Lease Obligations.
"Consolidated Net Worth" means, at any time, the sum for the
Borrower and its Consolidated Subsidiaries (determined on a Consolidated
basis without duplication in accordance with GAAP), the amount of capital
stock plus the amount of surplus and retained earnings (or, in the case of
a surplus or retained earnings deficit, minus the amount of such deficit).
"Consolidated Subsidiary" means a Subsidiary of the Borrower, the
accounts of which in accordance with generally accepted accounting
principles are consolidated with those of the Borrower.
"Consolidated Tangible Assets" means, at any time, for the Borrower
and its Consolidated Subsidiaries (determined on a Consolidated basis
without duplication in accordance with GAAP), the aggregate amount of all
assets (less applicable reserves and other properly deductible items)
after deducting therefrom all goodwill, trade names, trademarks, patents,
unamortized debt discount and expenses (to the extent included in said
aggregate amount of assets) and other like intangibles.
"Convert", "Conversion" and "Converted" each refers to a conversion
of A Advances of one Type into A Advances of the other Type pursuant to
Section 2.08 or 2.09.
"Debt" of any Person means, without duplication: (a) indebtedness of
such Person for borrowed money, (b) obligations of such Person evidenced
by bonds, debentures,
<PAGE> 13
- 9 -
notes or other similar instruments, (c) obligations of such Person to pay
the deferred purchase price of property or services (other than trade
accounts payable arising, and accrued expenses incurred, in the ordinary
course of business so long as such trade accounts payable are payable on
customary trade terms or on other trade terms that are more advantageous
to the Borrower), (d) Capitalized Lease Obligations of such Person and (e)
obligations of such Person under direct or indirect guaranties in respect
of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses
(a) through (d) above.
"Debt to Adjusted EBITDA Ratio" means, at any date, the ratio of:
(a) Debt of the Borrower and its Consolidated Subsidiaries on
a Consolidated basis as of such date to
(b) (i) Adjusted EBITDA for the Rolling Period ending on or
most recently ended prior to such date multiplied by (ii) a
fraction, the numerator of which is equal to four and the
denominator of which is equal to the number of calendar quarters in
such Rolling Period.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" in the
Administrative Questionnaire of such Lender or in the Acceptance pursuant
to which it became a Lender, or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the
Administrative Agent.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$5,000,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and
having total assets in excess of $3,000,000,000; (v) a commercial bank
organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development or has concluded
special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow or of the Cayman
Islands, or a political subdivision of any such country, and having total
assets in excess of
<PAGE> 14
- 10 -
$5,000,000,000, so long as such bank is acting through a branch or agency
located in the country in which it is organized or another country that is
described in this clause (v); (vi) a finance company, insurance company or
other financial institution or fund (whether a corporation, partnership,
trust or other entity) that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and
having total assets in excess of $3,000,000,000; and (vii) any other
Person approved by the Administrative Agent and the Borrower, such
approval not to be unreasonably withheld or delayed; provided that neither
the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible
Assignee.
"Environmental Laws" means any and all applicable laws and
regulations relating to the protection of the environment, including laws
relating to emissions, discharges, releases, spills and disposal of
material into the environment (e.g., air, surface water, groundwater and
the land).
"Environmental Permit" means any permit, license or other
governmental approval required under any Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the Borrower's controlled group, or under common
control with the Borrower, within the meaning of Section 414 of the
Internal Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, that would have a Material Adverse
Effect with respect to any Plan unless the 30-day notice requirement with
respect to such event has been waived by the PBGC; (b) the application for
a minimum funding waiver with respect to a Plan; (c) the provision by the
administrator of any Plan of a notice of intent to terminate such Plan
pursuant to Section 4041(c) of ERISA; (d) the cessation of operations at a
facility of the Borrower or any of its ERISA Affiliates in the
circumstances described in Section 4062(e) of ERISA; (e) the failure by
the Borrower or any of its ERISA Affiliates to make a payment to a Plan if
the conditions for the imposition of a lien under Section 302(f)(1) of
ERISA are satisfied; (f) the adoption of an amendment to a Plan requiring
the provision of security to such Plan, pursuant to Section 307 of ERISA;
or (g) the institution by the PBGC of proceedings to terminate a Plan,
pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that
<PAGE> 15
- 11 -
could constitute grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" in the
Administrative Questionnaire of such Lender or in the Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the
Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar
Rate Advance comprising part of the same Borrowing, an interest rate per
annum equal to the rate per annum obtained by dividing (a) the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if
such average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are offered by the principal office of each of
the Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period in an amount substantially equal to such
Reference Bank's Eurodollar Rate Advance comprising part of such Borrowing
to be outstanding during such Interest Period and for a period equal to
such Interest Period by (b) a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage for such Interest Period. The
Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance
comprising part of the same Borrowing shall be determined by the
Administrative Agent on the basis of applicable rates furnished to and
received by the Administrative Agent from the Reference Banks two Business
Days before the first day of such Interest Period, subject, however, to
the provisions of Section 2.08.
"Eurodollar Rate Advance" means an A Advance that bears interest as
provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing means
the reserve percentage applicable two Business Days before the first day
of such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal
<PAGE> 16
- 12 -
Reserve System in New York City with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities (or with respect to
any other category of liabilities that includes deposits by reference to
which the interest rate on Eurodollar Rate Advances is determined) having
a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Representations" means the representations and warranties
set forth in Section 4.01(e)(iii), Section 4.01(f) (excluding clause (ii)
thereof) and the second sentence of Section 4.01(c).
"Facility Fee" has the meaning specified in Section 2.04(a).
"Facility Fee Rate" means, for any period during which the Rated
Securities are within any Rating Level set forth below, the rate set forth
below opposite the reference to such Rating Level:
<TABLE>
<CAPTION>
Rating Level Facility Fee Rate (p.a.)
------------ ------------------------
<S> <C>
Rating Level 1 0.065%
Rating Level 2 0.075%
Rating Level 3 0.085%
Rating Level 4 0.105%
Rating Level 5 0.125%
Rating Level 6 0.175%;
</TABLE>
provided that, if the ratings of the Rated Securities established by S&P
and Moody's shall fall within different Rating Levels, the Facility Fee
Rate shall be determined by reference to the higher of the two Rating
Levels (except that, if the lower such Rating Level is more than one
Rating Level below the higher such Rating Level, the Facility Fee Rate
shall be determined by reference to the Rating Level that is one Rating
Level higher than the lower such Rating Level). Each change in the
Facility Fee Rate resulting from a Rating Level Change shall be effective
on the effective date of such Rating Level Change.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System
<PAGE> 17
- 13 -
arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
"Floating Rate Advances" has the meaning specified in Section
2.03(a)(i).
"GAAP" has the meaning specified in Section 1.03.
"Increasing Lender" has the meaning specified in Section 2.05(d).
"Indemnified Party" has the meaning specified in Section 8.04(b).
"Information" has the meaning specified in Section 4.01(j)(i).
"Interest Coverage Ratio" means, at any date, the ratio of (a)
Adjusted EBITDA for the Rolling Period ending on or most recently ended
prior to such date to (b) Interest Expense for such Rolling Period.
"Interest Expense" means, for any period, the sum, for the Borrower
and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of all interest in respect
of Debt (including, without limitation, the interest component of any
payments in respect of Capitalized Lease Obligations) accrued or
capitalized during such period (whether or not actually paid during such
period).
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same A Borrowing, the period commencing on the date of such
Eurodollar Rate Advance or the date of the Conversion of any Base Rate
Advance into such Eurodollar Rate Advance and ending on the last day of
the period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three or six
months, as the Borrower may, upon notice received by the Administrative
Agent not later
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than 11:00 A.M. (New York City time) on the third Business Day prior to
the first day of such Interest Period, select; provided that:
(i) the Borrower may not select any Interest Period that ends
after the Commitment Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same A Borrowing
shall be of the same duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, provided that, if such extension would
cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Lenders" means the Initial Lenders listed on the signature pages
hereof and each institution that shall become a party hereto pursuant to
Section 2.05 or Section 8.07(a), (b) or (d).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Majority Lenders" means at any time Lenders owed at least 66-2/3%
of the then aggregate unpaid principal amount of the A Advances owing to
Lenders, or, if no such principal amount is then outstanding, Lenders
having at least 66-2/3% of the Commitments.
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"Margin Stock" has the meaning specified in Regulation U of the
Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on (a) the
financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole (it being understood that the transactions
relating to the Spin-Off described in the Proxy Statement shall not be
deemed to constitute such a material adverse effect) or (b) the legality,
validity or enforceability of this Agreement or any Note.
"Material Contract" means any contractual, legal or other obligation
binding upon the Borrower or a Material Subsidiary under which a default
in payment by the Borrower or such Material Subsidiary would have a
Material Adverse Effect.
"Material Subsidiary" means, at any time, any Consolidated
Subsidiary that, on a consolidated basis with its Subsidiaries, has:
(a) at least 5% (in the case of Queeny U.K. and Queeny
Belgium) or 10% (in the case of each other Consolidated Subsidiary)
of the total Consolidated assets of the Borrower and its
Consolidated Subsidiaries (determined as of the last day of the most
recent fiscal quarter of the Borrower); or
(b) at least 5% (in the case of Queeny U.K. and Queeny
Belgium) or 10% (in the case of each other Consolidated Subsidiary)
of the Consolidated net sales of the Borrower and its Consolidated
Subsidiaries for the twelve-month period ending on the last day of
the most recent fiscal quarter of the Borrower.
"Monsanto" has the meaning specified in the Preliminary Statements
hereof.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any of its ERISA
Affiliates is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is
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maintained for employees of the Borrower (or its predecessor's chemicals
business) or any of its ERISA Affiliates and at least one Person other
than the Borrower (or its predecessor's chemicals business) and its ERISA
Affiliates or (b) was so maintained and in respect of which the Borrower
(or its predecessor's chemicals business) or any of its ERISA Affiliates
could have liability under Section 4064 or 4069 of ERISA in the event such
plan has been or were to be terminated.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.03(a)(i).
"Ownership Interest" in (or of) any corporation, partnership, joint
venture, limited liability company, trust or estate means (a) issued and
outstanding capital stock having ordinary voting power in the election of
the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b) an
interest in the capital or profits of such partnership, joint venture or
limited liability company or (c) a beneficial interest in such trust or
estate.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Post-Closing Date Information" has the meaning specified in Section
4.01(j)(iv).
"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, the gross
book value of which on the date as of which such determination is being
made exceeds 1% of the gross property, plant and equipment of the Borrower
as shown in its Consolidated financial statements, provided that any
<PAGE> 21
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property which, in the opinion of the Borrower, is not of material
importance to the business of the Borrower and its Consolidated
Subsidiaries, taken as a whole, shall not be deemed to be a Principal
Property.
"Proxy Statement" means the proxy statement of Monsanto filed with
the Securities and Exchange Commission on July 14, 1997 relating to the
Spin-Off, as amended from time to time (without prejudice to Section
5.02(e)).
"Queeny Belgium" means Monsanto Chemicals Europe S.A., an indirect
wholly owned Consolidated Subsidiary of the Borrower whose name is to be
changed after the date hereof.
"Queeny U.K." means Monsanto Chemicals U.K. Limited, an indirect
wholly owned Consolidated Subsidiary of the Borrower whose name is to be
changed after the date hereof.
"Rated Securities" means, at any time, the long-term senior
unsecured, unguaranteed debt securities of the Borrower outstanding at
such time.
"Rating Level" means Rating Level 1, Rating Level 2, Rating Level 3,
Rating Level 4, Rating Level 5 or Rating Level 6. For purposes hereof,
Rating Level 1 shall be deemed to be the highest Rating Level and Rating
Level 6 shall be deemed to be the lowest Rating Level.
"Rating Level 1" means a rating of the Rated Securities better than
or equal to A2 by Moody's or better than or equal to A by S&P.
"Rating Level 2" means a rating of the Rated Securities equal to A3
by Moody's or A- by S&P.
"Rating Level 3" means a rating of the Rated Securities equal to
Baa1 by Moody's or BBB+ by S&P.
"Rating Level 4" means a rating of the Rated Securities equal to
Baa2 by Moody's or BBB by S&P.
"Rating Level 5" means a rating of the Rated Securities equal to
Baa3 by Moody's or BBB- by S&P.
"Rating Level 6" means a rating of the Rated Securities less than
Baa3 by Moody's and less than BBB- by S&P. If Moody's or S&P shall not
have in effect a rating for the Rated Securities at any time, then the
Rated Securities shall be deemed to be rated by Moody's or S&P, as the
case may be, in Rating Level 6.
<PAGE> 22
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"Rating Level Change" means a change in the rating of the Rated
Securities by either or both of Moody's and S&P (other than as a result of
a change in the rating system of such rating agency) that results in the
change from one Rating Level to another, which Rating Level Change shall
be effective on the date on which the relevant change in the rating of the
Rated Securities is first announced by Moody's or S&P, as the case may be.
"Reference Banks" means Citibank, Bank of America and Societe
Generale; provided that the Borrower may at any time substitute another
Lender as one of the Reference Banks, but such substitution shall
terminate after 30 days if within such period the Majority Lenders shall
have notified the Administrative Agent of their objection to such
substitution.
"Register" has the meaning specified in Section 8.07(c).
"Registration Statement" means the registration statement on Form 10
of the Borrower to effect the registration of the Borrower's common stock
pursuant to the Exchange Act, as amended from time to time (without
prejudice to Section 5.02(e)).
"Rolling Period" means:
(a) with respect to determinations made prior to September 30, 1997,
the period commencing on January 1, 1997 and ending on June 30, 1997;
(b) with respect to determinations made on or after September 30,
1997 but prior to December 31, 1997, the period commencing on January 1,
1997 and ending on September 30, 1997; and
(c) with respect to determinations made on or after December 31,
1997, the period of four consecutive calendar quarters ending on or most
recently ended prior to such date.
"S&P" means Standard & Poor's Ratings Services, presently a division
of The McGraw-Hill Companies, Inc., and its successors.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower (or its predecessor's chemicals business) or any of its ERISA
Affiliates and no Person other than the Borrower (or its predecessor's
chemicals business) and its ERISA Affiliates or (b) was so maintained and
in respect of which the Borrower (or its predecessor's chemicals business)
or any of its ERISA Affiliates could have
<PAGE> 23
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liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"Solvent" means, with respect to any Person on a particular date,
that on such date (a) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (b) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as
such debts and liabilities mature and (c) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would be unreasonably small
in relation to such business or such transaction.
"Specified Joint Venture" means a joint venture or other Person
(other than a Consolidated Subsidiary of the Borrower) of which (or in
which) at least 50% of the Ownership Interests thereof is at the time
directly or indirectly owned by the Borrower, by the Borrower and one or
more of its Consolidated Subsidiaries or by one or more of the Borrower's
Consolidated Subsidiaries, provided that the Borrower's joint venture
partners in such joint venture or other Person do not, in the aggregate,
control (or possess the ability to control) such joint venture or other
Person. For purposes of this definition, a "joint venture partner" means a
Person that owns any Ownership Interests in the related joint venture or
other Person and that is not the Borrower or one of its Consolidated
Subsidiaries.
"Spin-Off" has the meaning specified in the Preliminary Statements
to this Agreement.
"Spin-Off Documents" means, collectively, (a) the Proxy Statement,
(b) the Registration Statement, (c) the Distribution Agreement dated as of
a date on or prior to the Closing Date by and between Monsanto and the
Borrower, (d) the Employee Benefits and Compensation Allocation Agreement
dated as of a date on or prior to the Closing Date by and between Monsanto
and the Borrower and (e) the Tax Sharing and Indemnification Agreement
dated as of a date on or prior to the Closing Date by and between Monsanto
and the Borrower, in each case as amended from time to time (without
prejudice to Section 5.02(e)).
"Spin-Off Properties" means the properties and businesses
contemplated to be transferred to or purchased by the Borrower and its
Subsidiaries under the Spin-Off Documents.
<PAGE> 24
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"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of the Ownership Interests thereof is at the time directly
or indirectly owned or controlled by such Person, by such Person and one
or more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Syndication Agent" has the meaning specified in the recital of
parties to this Agreement.
"Taxes" has the meaning specified in Section 2.15(a).
"Threshold Amount" means, at any time: (a) if the Borrower's
Consolidated Net Worth at such time is greater than zero, $35,000,000; and
(b) at any other time, $25,000,000.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening
of such a contingency.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms and Determinations. All accounting
terms not specifically defined herein shall be construed in accordance with
generally accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(e)(ii)
("GAAP"). All determinations of Adjusted EBITDA, Consolidated Net Tangible
Assets, Consolidated Net Worth, Consolidated Tangible Assets and Interest
Expense shall be made on the basis of the financial statements most recently
delivered pursuant to Section 4.01(e)(i) and Sections 5.01(i)(i), (ii) and
(iii). In the event that, after the date of this Agreement, there are any
changes in GAAP, the Lenders will consider a request by the Borrower to amend
this Agreement to take account of such changes.
<PAGE> 25
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make A Advances to the Borrower
from time to time on any Business Day during the period from the Closing Date to
and including the Commitment Termination Date in an aggregate amount not to
exceed at any time outstanding the amount of such Lender's Commitment; provided
that the aggregate amount of the Commitments of the Lenders shall be deemed used
from time to time to the extent of the aggregate amount of the B Advances then
outstanding and such deemed use of the aggregate amount of the Commitments shall
be allocated among the Lenders ratably according to their respective Commitments
(such deemed use of the aggregate amount of the Commitments being a "B
Reduction"). Each A Borrowing shall be in an aggregate amount of $10,000,000 or
an integral multiple of $1,000,000 in excess thereof, or the aggregate amount of
the unused portion of the Lenders' Commitments; provided that any A Borrowing in
an aggregate amount less than $10,000,000 shall consist solely of Base Rate
Advances. In addition, each A Borrowing shall consist of A Advances of the same
Type and having the same Interest Period made on the same day by the Lenders
ratably according to their respective Commitments. Within the limits of each
Lender's Commitment, the Borrower may borrow under this Section 2.01, prepay
pursuant to Section 2.10 and, on or prior to the Commitment Termination Date,
reborrow under this Section 2.01.
SECTION 2.02. Making the A Advances.
(a) Each A Borrowing shall be made on notice, given not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed A Borrowing (in the case of an A Borrowing to be comprised of
Eurodollar Rate Advances), or by 11:00 A.M. (New York City time) on the day of
the proposed A Borrowing (in the case of an A Borrowing to be comprised of Base
Rate Advances), by the Borrower to the Administrative Agent, which shall give to
each Lender prompt notice thereof by telecopier or by telex. Each such notice of
an A Borrowing (a "Notice of A Borrowing") shall be by telecopier or by telex,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, specifying therein the requested (i) date of such A Borrowing, (ii) Type
of A Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) in the case of an A Borrowing consisting of Eurodollar Rate
Advances, the initial Interest Period for each such A Advance. Each Lender shall
on the date of such A Borrowing, before 11:00 A.M. (New York City time), in the
case of an A Borrowing to be comprised of Eurodollar Rate Advances, and before
1:00 P.M. (New York City time), in the case of an A Borrowing to be comprised of
Base Rate Advances, make
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available for the account of its Applicable Lending Office to the Administrative
Agent at its address referred to in Section 8.02, in same day funds, such
Lender's ratable portion of such A Borrowing. After the Administrative Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Administrative Agent will make such funds available to
the Borrower at the Administrative Agent's aforesaid address.
(b) Anything in subsection (a) above to the contrary
notwithstanding, the Borrower may not select Eurodollar Rate Advances for any A
Borrowing if the obligation of the Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.08 or 2.12 (except as otherwise
provided in Section 2.12(b)(ii)).
(c) Each Notice of A Borrowing shall be binding on the Borrower. In
the case of any A Borrowing that the related Notice of A Borrowing specifies is
to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any revocation of such Notice of A Borrowing by the Borrower or any failure to
fulfill on or before the date specified in such Notice of A Borrowing for such A
Borrowing the applicable conditions set forth in Article III, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the A
Advance to be made by such Lender as part of such A Borrowing when such A
Advance, as a result of such revocation or failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any A Borrowing (in the case of an A Borrowing to
be comprised of Eurodollar Rate Advances) and not later than 12:00 Noon (New
York City time) on the Business Day of the proposed A Borrowing (in the case of
an A Borrowing to be comprised of Base Rate Advances) that such Lender will not
make available to the Administrative Agent such Lender's ratable portion of such
A Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such A Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount; provided that nothing in this subsection (d) shall
be construed to relieve any Lender from any obligation hereunder to make
available to the Administrative Agent its ratable portion of such A Borrowing in
accordance with subsection (a) of this Section 2.02. If and to the extent that
such Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such
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amount is made available to the Borrower until the date such amount is repaid to
the Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable at such time to the A Advances comprising such A Borrowing and (ii)
in the case of such Lender, the Federal Funds Rate. If such Lender shall repay
to the Administrative Agent such corresponding amount, such amount so repaid
shall constitute such Lender's A Advance as part of such A Borrowing for
purposes of this Agreement.
(e) The failure of any Lender to make the A Advance to be made by it
as part of any A Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances.
(a) Each Lender severally agrees that the Borrower may make B
Borrowings under this Section 2.03 from time to time on any Business Day during
the period from the Closing Date until the date occurring seven days prior to
the Commitment Termination Date in the manner set forth below; provided that,
following the making of each B Borrowing, (X) the aggregate amount of the B
Advances of all Lenders then outstanding shall not exceed the aggregate amount
of the Commitments of the Lenders, and (Y) the aggregate amount of all Advances
then outstanding shall not exceed the aggregate amount of the Commitments of the
Lenders.
(i) The Borrower may request a B Borrowing under this Section
2.03 by delivering to the Administrative Agent, by telecopier or telex,
confirmed immediately in writing, a notice of a B Borrowing (a "Notice of
B Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
therein:
(1) the date of such proposed B Borrowing;
(2) the aggregate amount of such proposed B Borrowing;
(3) the maturity date for repayment of each B Advance to be
made as part of such B Borrowing (which maturity date may not be
earlier than the date occurring thirty days after the date of such B
Borrowing or later than the Commitment Termination Date);
(4) the interest payment date or dates relating thereto; and
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(5) whether such B Borrowing is to be comprised of Fixed Rate
Advances or Floating Rate Advances; and
(6) any other terms to be applicable to such B Borrowing,
not later than 10:00 A.M. (New York City time) (A) at least one Business
Day prior to the date of the proposed B Borrowing, if the Borrower shall
specify in the Notice of B Borrowing that the rates of interest to be
offered by the Lenders shall be fixed rates per annum (the B Advances
comprising any such B Borrowing being referred to herein as "Fixed Rate
Advances") and (B) at least four Business Days prior to the date of the
proposed B Borrowing, if the Borrower shall instead specify in the Notice
of B Borrowing the basis to be used by the Lenders in determining the
rates of interest to be offered by them (the B Advances comprising such B
Borrowing being referred to herein as "Floating Rate Advances"). The
Administrative Agent shall in turn promptly notify each Lender of each
request for a B Borrowing received by it from the Borrower by sending such
Lender a copy of the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more B Advances to the Borrower as
part of such proposed B Borrowing at a rate or rates of interest specified
by such Lender in its sole discretion, by notifying the Administrative
Agent (which shall give prompt notice thereof to the Borrower), before
10:00 A.M. (New York City time) on the date of such proposed B Borrowing,
in the case of a B Borrowing consisting of Fixed Rate Advances and three
Business Days before the date of such proposed B Borrowing, in the case of
a B Borrowing consisting of Floating Rate Advances, of the minimum amount
and maximum amount of each B Advance which such Lender would be willing to
make as part of such proposed B Borrowing (which amounts may, subject to
the proviso to the first sentence of this Section 2.03(a), exceed such
Lender's Commitment, if any), the rate or rates of interest therefor and
such Lender's Applicable Lending Office with respect to such B Advance;
provided that if the Administrative Agent in its capacity as a Lender
shall, in its sole discretion, elect to make any such offer, it shall
notify the Borrower of such offer before 9:00 A.M. (New York City time) on
the date on which notice of such election is to be given to the
Administrative Agent by the other Lenders. If any Lender shall elect not
to make such an offer, such Lender shall so notify the Administrative
Agent, before 10:00 A.M. (New York City time) on the date on which notice
of such election is to be given to the Administrative Agent by the other
Lenders, and such Lender shall not be obligated to, and shall not, make
any B Advance as part of such B Borrowing;
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provided that the failure by any Lender to give such notice shall not
cause such Lender to be obligated to make any B Advance as part of such
proposed B Borrowing.
(iii) The Borrower shall, in turn, before 12:00 Noon (New York
City time) on the date of such proposed B Borrowing, in the case of a B
Borrowing consisting of Fixed Rate Advances, and before 1:00 P.M. (New
York City time) three Business Days before the date of such proposed B
Borrowing, in the case of a B Borrowing consisting of Floating Rate
Advances, either:
(x) cancel such B Borrowing by giving the Administrative Agent
notice to that effect, or
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above, in order of the lowest to
highest rates of interest or margins (or, if two or more Lenders bid
at the same rate of interest, and the amount of accepted offers is
less than the aggregate amount of such offers, the amount to be
borrowed from such Lenders as part of such B Borrowing shall be
allocated among such Lenders pro rata on the basis of the maximum
amount offered by such Lenders at such rates or margin in connection
with such B Borrowing), by giving notice to the Administrative Agent
of the amount of each B Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the
maximum amount, notified to the Borrower by the Administrative Agent
on behalf of such Lender for such B Advance pursuant to paragraph
(ii) above) to be made by each Lender as part of such B Borrowing,
and reject any remaining offers made by Lenders pursuant to
paragraph (ii) above by giving the Administrative Agent notice to
that effect.
(iv) If the Borrower notifies the Administrative Agent that such
B Borrowing is canceled pursuant to paragraph (iii)(x) above, the
Administrative Agent shall give prompt notice thereof to the Lenders and
such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by
any Lender or Lenders pursuant to paragraph (iii)(y) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that
has made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Lender pursuant to paragraph (ii) above have been
accepted by the Borrower, (B) each Lender that is to make a B Advance as
part of such B Borrowing, of the amount of
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each B Advance to be made by such Lender as part of such B Borrowing, and
(C) each Lender that is to make a B Advance as part of such B Borrowing,
upon receipt, that the Administrative Agent has received forms of
documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make a B Advance as part of such B
Borrowing shall, before 1:00 P.M. (New York City time) on the date of such
B Borrowing specified in the notice received from the Administrative Agent
pursuant to clause (A) of the preceding sentence or any later time when
such Lender shall have received notice from the Administrative Agent
pursuant to clause (C) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Administrative Agent at
the Administrative Agent's Account, in same day funds, such Lender's
portion of such B Borrowing. Upon fulfillment of the applicable conditions
set forth in Article III and after receipt by the Administrative Agent of
such funds, the Administrative Agent will make such funds available to the
Borrower at the Administrative Agent's address referred to in Section
8.02. Promptly after each B Borrowing the Administrative Agent will notify
each Lender of the amount of the B Borrowing, the consequent B Reduction
and the dates upon which such B Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of $10,000,000
or an integral multiple of $1,000,000 in excess thereof, or the aggregate amount
of the unused portion of the Lenders' Commitments and, following the making of
each B Borrowing, the Borrower shall be in compliance with the limitations set
forth in the proviso to the first sentence of subsection (a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, the Borrower may from time to time borrow under this Section 2.03,
repay pursuant to subsection (d) below, and reborrow under this Section 2.03;
provided that a B Borrowing shall not be made within three Business Days of the
date of any other B Borrowing.
(d) The Borrower shall repay to the Administrative Agent for the
account of each Lender that has made a B Advance, on the maturity date of each B
Advance (such maturity date being that specified by the Borrower for repayment
of such B Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above and provided in the B Note evidencing such B Advance),
the then unpaid principal amount of such B Advance. The Borrower shall not have
the right to prepay any B Advance.
(e) The Borrower shall pay interest on the unpaid principal amount
of each B Advance from the date of such B Advance to the date the principal
amount of such B Advance is paid in full, at the rate of interest for such B
Advance specified by the Lender
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making such B Advance in its notice with respect thereto delivered pursuant to
subsection (a)(ii) above, payable (i) on the interest payment date or dates
specified by the Borrower for such B Advance in the related Notice of B
Borrowing delivered pursuant to subsection (a)(i) above, as provided in the B
Note evidencing such B Advance, and (ii) on the date such B Advance shall be
paid in full. Upon the occurrence and during the continuance of any Event of
Default, the Borrower shall pay interest on the amount of unpaid principal of
each B Advance owing to a Lender, payable in arrears on the date or dates
interest is payable thereon, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid on such B Advance under the
terms of the B Note evidencing such B Advance unless otherwise agreed in such B
Note.
(f) The indebtedness of the Borrower resulting from each B Advance
made to the Borrower as part of a B Borrowing shall be evidenced by a separate B
Note of the Borrower payable to the order of the Lender making such B Advance.
(g) The Borrower shall pay to the Administrative Agent for its own
account the Competitive Bid Administration Fee described in Section 2.04(b) with
each request for a B Borrowing whether or not any B Borrowing is in fact made.
SECTION 2.04. Fees.
(a) Facility Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a facility fee (the "Facility Fee") on the
aggregate amount (whether used or unused) of such Lender's Commitment from the
date hereof (in the case of each Initial Lender) and from the effective date
specified in the Acceptance pursuant to which it became a Lender (in the case of
each other Lender) until the Commitment Termination Date of such Lender at a
rate per annum equal to the Facility Fee Rate in effect from time to time. The
Facility Fee shall be payable quarterly in arrears on the last Business Day of
each March, June, September and December and, for each Lender, on the Commitment
Termination Date of such Lender.
(b) Competitive Bid Administration Fee. The Borrower shall pay to
the Administrative Agent for its own account a fee in an amount heretofore
agreed between the Borrower and the Administrative Agent with each request for a
B Borrowing whether or not any B Borrowing is in fact made.
SECTION 2.05. Termination, Reduction, Extension and Increase of the
Commitments.
(a) Commitment Reductions. The Commitment of each Lender shall be
automatically reduced to zero on the Commitment Termination Date of such Lender.
In addition, the Borrower shall
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have the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders, provided that (i) the aggregate
amount of the Commitments of the Lenders shall not be reduced to an amount which
is less than the aggregate principal amount of the Advances then outstanding;
and (ii) each partial reduction shall be in an aggregate amount of $10,000,000
or an integral multiple of $1,000,000 in excess thereof. Once terminated, a
Commitment cannot be reinstated.
(b) Closing Date. On October 31, 1997, the Commitment of each Lender
shall be automatically reduced to zero if the Closing Date shall not have
occurred on or prior to such date.
(c) Commitment Extensions.
(i) The Borrower may, by notice to the Administrative Agent (which
shall promptly notify the Lenders) not more than 60 days and not less than
40 days prior to each anniversary (each such anniversary, an "Anniversary
Date") of the date hereof, request that each Lender extend such Lender's
Commitment Termination Date to the date (the "New Commitment Termination
Date") that is one year after the then Commitment Termination Date.
(ii) Each Lender, acting in its sole and individual discretion,
shall, by notice to the Administrative Agent given not more than 30 days
immediately prior to the Anniversary Date but in any event no later than
the date (the "Notice Date") that is 20 days immediately prior to the
Anniversary Date, advise the Administrative Agent whether or not such
Lender agrees to such extension (and each Lender that determines not to so
extend its Commitment Termination Date (a "Non-Extending Lender") shall
notify the Administrative Agent (which shall notify the other Lenders) of
such fact promptly after such determination (but in any event no later
than the Notice Date) and any Lender that does not so advise the
Administrative Agent on or before the Notice Date shall be deemed to be a
Non-Extending Lender. The election of any Lender to agree to such
extension shall not obligate any other Lender to so agree.
(iii) The Administrative Agent shall notify the Borrower of each
Lender's determination under this Section 2.05(c) no later than the date
15 days prior to the Anniversary Date (or, if such date is not a Business
Day, on the next preceding Business Day).
(iv) The Borrower shall have the right on or before the Anniversary
Date to replace each Non-Extending Lender with, and add as "Lenders" under
this Agreement in place thereof,
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one or more Eligible Assignees (each, an "Additional Commitment Lender")
with the approval of the Administrative Agent and the Syndication Agent
(which approvals shall not be unreasonably withheld), each of which
Additional Commitment Lenders shall have entered into an Assumption and
Acceptance pursuant to which such Additional Commitment Lender shall,
effective as of the Anniversary Date, undertake a Commitment (and, if any
such Additional Commitment Lender is already a Lender, its Commitment
shall be in addition to such Lender's Commitment hereunder on such date).
(v) If (and only if) the total of the Commitments of the Lenders
that have agreed so to extend their Commitment Termination Date and the
additional Commitments of the Additional Commitment Lenders shall be equal
to 100% of the aggregate amount of the Commitments in effect on the
Anniversary Date, then, effective as of the Anniversary Date: (x) the
Commitment Termination Date of each Extending Lender and of each
Additional Commitment Lender shall be extended to the New Commitment
Termination Date and each Additional Commitment Lender shall thereupon
become a "Lender" for all purposes of this Agreement; and (y) the
Commitment Termination Date of each Non-Extending Lender shall be changed
to such Anniversary Date. Notwithstanding anything in this Agreement to
the contrary, no Non-Extending Lender shall participate in any Eurodollar
Rate Advances or B Advances made after the related Notice Date.
(vi) Notwithstanding the foregoing, the extension of the Commitment
Termination Date pursuant to this Section 2.05(c) shall not be effective
with respect to any Lender unless:
(x) no Default shall have occurred and be continuing on either
of the date of the notice requesting such extension or the
Anniversary Date; and
(y) each Non-Extending Lender shall have been paid in full by
the Borrower all amounts owing to such Lender hereunder on or before
the Anniversary Date.
(d) Commitment Increase.
(i) The Borrower may at any time, by notice to the Administrative
Agent, propose that the aggregate amount of the Commitments be increased
(a "Commitment Increase"), effective as of a date (such date or such other
date as agreed to by the Administrative Agent and the Borrower being the
"Commitment Increase Date") that shall be (A) prior to the Commitment
Termination Date and (B) at least 15 Business Days after the date of such
notice; provided that:
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(1) the Borrower may not propose more than one Commitment
Increase during any period of 12 consecutive months;
(2) the minimum proposed Commitment Increase for each
Commitment Increase Date shall be $100,000,000;
(3) in no event shall the aggregate amount of the Commitments
at any time exceed $1,000,000,000; and
(4) no Default or Event of Default has occurred and is
continuing on such Commitment Increase Date.
The Administrative Agent shall notify the Lenders promptly upon its
receipt of any such notice. It shall be in each Lender's sole discretion
whether to increase its Commitment hereunder in connection with a proposed
Commitment Increase. No later than 10 Business Days after its receipt of
the Borrower's notice, each Lender that is willing to increase its
Commitment hereunder (an "Increasing Lender") shall deliver to the
Administrative Agent a notice, in which such Lender shall set forth the
maximum increase in its Commitment to which such Lender is willing to
agree, and the Administrative Agent shall promptly provide to the Borrower
a copy of such Increasing Lender's notice. The Administrative Agent shall
cooperate with the Borrower in discussions with the Lenders and Eligible
Assignees with a view to arranging the proposed Commitment Increase
through the increase of the Commitments of one or more of the Lenders
and/or the addition as Assuming Lenders of one or more Eligible Assignees
acceptable to the Borrower, the Syndication Agent and the Administrative
Agent and as parties to this Agreement, provided that (X) the minimum
Commitment of each such Assuming Lender that becomes a party to this
Agreement pursuant to this Section 2.05(d) shall be $25,000,000 and (Y)
any allocations of Commitments shall be determined by the Borrower
(provided that allocations of increases in Commitments among Increasing
Lenders shall be based on the ratio of each existing Lender's proposed
increased Commitment, if any, to the aggregate of all of the existing
Lenders' proposed increased Commitments). If agreement is reached prior to
the Commitment Increase Date with the Increasing Lenders and Assuming
Lenders, if any, as to a Commitment Increase (the amount of which may be
less than that specified in the applicable notice from the Borrower), the
Borrower shall deliver, no later than one day prior to the Commitment
Increase Date, a notice to the Administrative Agent (and the
Administrative Agent shall give notice thereof to the Lenders (including
any Assuming Lenders)).
On the Commitment Increase Date, the Assuming Lenders, if any, shall
become Lenders hereunder as of the Commitment
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Increase Date and the Commitments of such Increasing Lenders and such
Assuming Lenders shall become or be, as the case may be, as of the
Commitment Increase Date the amounts specified in the notice delivered by
the Borrower to the Administrative Agent; provided that:
(x) the Administrative Agent shall have received on or prior
to 9:00 A.M. (New York City time) on the Commitment Increase Date
(A) a duly executed A Note for each Assuming Lender and each
Increasing Lender, in each case in an amount equal to the Commitment
of each such Assuming Lender and each such Increasing Lender after
giving effect to such Commitment Increase and (B) an opinion of
counsel for the Borrower in substantially the form of Exhibit D
hereto (except for the opinion in paragraph 6 thereof), dated such
Commitment Increase Date, together with a copy, certified on the
Commitment Increase Date by the Secretary, an Assistant Secretary or
a comparable official of the Borrower, of the resolutions adopted by
the Board of Directors of the Borrower, authorizing such Commitment
Increase (with copies for each Lender, including each Assuming
Lender);
(y) with respect to each Assuming Lender, the Administrative
Agent shall have received, on or prior to 9:00 A.M. (New York City
time) on the Commitment Increase Date, an appropriate Assumption and
Acceptance, duly executed by such Assuming Lender, the Borrower and
the Administrative Agent; and
(z) each Increasing Lender that proposes to increase its
Commitment in connection with such Commitment Increase shall have
delivered, on or prior to 9:00 A.M. (New York City time) on the
Commitment Increase Date, confirmation in writing satisfactory to
the Administrative Agent as to its increased Commitment and a copy
of such confirmation to the Borrower.
(ii) Upon its receipt of notice from a Lender that it is increasing
its Commitment hereunder, together with the appropriate A Notes and
opinions referred to in clause (x) above, the Administrative Agent shall
(I) record the information contained therein in the Register and (II) give
prompt notice thereof to the Borrower. Upon its receipt of an Assumption
and Acceptance executed by an Assuming Lender representing that it is an
Eligible Assignee, together with the appropriate A Notes and opinions
referred to in clause (x) above, the Administrative Agent shall, if such
Assumption and Acceptance has been completed, (i) accept such Assumption
and Acceptance, (ii) record the information contained therein in
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the Register and (iii) give prompt notice thereof to the Borrower.
(iii) In the event that the Administrative Agent shall not have
received notice from the Borrower as to such agreement on or prior to the
Commitment Increase Date or the Borrower shall, by notice to the
Administrative Agent prior to the Commitment Increase Date, withdraw such
proposal or any of the actions provided for in clauses (x) through (z)
above shall not have occurred by the Commitment Increase Date, such
proposal by the Borrower shall be deemed not to have been made. In such
event, the actions theretofore taken under clauses (x) through (z) above
shall be deemed to be of no effect, and all the rights and obligations of
the parties shall continue as if no such proposal had been made.
(iv) In the event that the Administrative Agent shall have received
notice from the Borrower as to such agreement on or prior to the
Commitment Increase Date and the action provided for in clauses (x)
through (z) above shall have occurred by 9:00 A.M. (New York City time) on
the Commitment Increase Date, the Administrative Agent shall notify the
Lenders (including the Assuming Lenders) of the occurrence of the
Commitment Increase Date promptly and in any event by 10:00 A.M. (New York
City time) on such date by telecopier, telex or cable. Each Increasing
Lender and each Assuming Lender shall, before 11:00 A.M. (New York City
time) on the Commitment Increase Date, make available for the account of
its Applicable Lending Office to the Administrative Agent at its address
referred to in Section 8.02, in same day funds, an amount equal to such
Increasing Lender's or Assuming Lender's ratable portion of the A
Borrowings then outstanding (calculated based on its Commitment as a
percentage of the aggregate Commitments outstanding after giving effect to
the relevant Commitment Increase). After the Administrative Agent's
receipt of such funds, the Administrative Agent will promptly thereafter
cause to be distributed like funds to the Lenders for the account of their
respective Applicable Lending Offices in an amount to each Lender such
that the aggregate amount of the outstanding A Advances owing to each
Lender after giving effect to such distribution equals such Lender's
ratable portion of the A Borrowings then outstanding (calculated based on
its Commitment as a percentage of the aggregate Commitments outstanding
after giving effect to the relevant Commitment Increase). If the
Commitment Increase Date shall occur on a date that is not the last day of
the Interest Period for all Eurodollar Rate Advances then outstanding, (a)
the Borrower shall pay any amounts owing pursuant to Section 8.04(c) as a
result of the distributions to Lenders under this Section 2.05(d)(iv) and
(b) for each A Borrowing comprised of Eurodollar Rate Advances, the
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respective Advances made by the Increasing Lenders and the Assuming
Lenders pursuant to this Section 2.05(d)(iv) shall be Base Rate Advances
until the last day of the then existing Interest Period for such A
Borrowing.
SECTION 2.06. Repayment of Advances.
(a) A Advances. The Borrower shall repay the principal amount of
each A Advance made by each Lender, and each A Advance made by such Lender shall
mature, on the Commitment Termination Date of such Lender.
(b) B Advances. The Borrower shall repay the principal amount of
each B Advance made by each Lender as provided in Section 2.03(e).
SECTION 2.07. Interest on A Advances.
(a) Scheduled Interest. The Borrower shall pay interest on the
unpaid principal amount of each A Advance owing to each Lender from the date of
such A Advance until such principal amount shall be paid in full, at the
following rates per annum:
(i) Base Rate Advances. During such periods as such A Advance is a
Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable in arrears quarterly on the last day of
each March, June, September and December during such periods and on the
date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such A Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest Period for such A Advance to the sum of (x) the Eurodollar
Rate for such Interest Period for such Advance plus (y) the Applicable
Margin in effect from time to time, payable in arrears on the last day of
such Interest Period and, if such Interest Period has a duration of more
than three months, on each day that occurs during such Interest Period
every three months from the first day of such Interest Period and on the
date such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance
of any Event of Default, the Borrower shall pay interest on the unpaid principal
amount of each A Advance owing to each Lender, payable in arrears on the dates
referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on such A
Advance pursuant to clause (a)(i) or (a)(ii) above.
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SECTION 2.08. Interest Rate Determination; Changes in Rating
Systems.
(a) Each Reference Bank agrees to furnish to the Administrative
Agent timely information for the purpose of determining each Eurodollar Rate. If
any one or more of the Reference Banks shall not furnish such timely information
to the Administrative Agent for the purpose of determining any such interest
rate, the Administrative Agent shall determine such interest rate on the basis
of timely information furnished by the remaining Reference Banks. The
Administrative Agent shall give prompt notice to the Borrower and the Lenders of
the applicable interest rate determined by the Administrative Agent for purposes
of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference
Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate
Advance will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance, and (ii) the obligation of the
Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall
be suspended until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $10,000,000, such Advances shall
automatically Convert into Base Rate Advances and on and after such date the
right of the Borrower to Convert such A Advances shall terminate.
(e) Upon the occurrence and during the continuance of any Event of
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation
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of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances
shall be suspended.
(f) If fewer than two Reference Banks furnish timely information to
the Administrative Agent for determining the Eurodollar Rate for any Eurodollar
Rate Advances,
(i) the Administrative Agent shall forthwith notify the Borrower and
the Lenders that the interest rate cannot be determined for such
Eurodollar Rate Advances,
(ii) each such A Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate Advance
(or if such Advance is then a Base Rate Advance, will continue as a Base
Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert A
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(g) If the rating system of either Moody's or S&P shall change, or
if either such rating agency shall cease to be in the business of rating
corporate debt obligations, the Borrower and the Administrative Agent (on behalf
of the Lenders) shall negotiate in good faith to amend the references to
specific ratings in this Agreement to reflect such changed rating system or the
non-availability of ratings from such rating agency (provided that any such
amendment to such specific ratings shall in no event be effective without the
approval of the Majority Lenders).
SECTION 2.09. Optional Conversion of A Advances. The Borrower may on
any Business Day, upon notice given to the Administrative Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12,
Convert all A Advances of one Type comprising the same Borrowing into A Advances
of the other Type; provided that any Conversion of Eurodollar Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period for
such Eurodollar Rate Advances. Each such notice of a Conversion shall, within
the restrictions specified above, specify (i) the date of such Conversion, (ii)
the A Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for each such A
Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower.
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SECTION 2.10. Prepayments, Etc.
(a) Optional Payments of A Advances. The Borrower may, upon notice
to the Administrative Agent stating the proposed date and aggregate principal
amount of the prepayment, given to the Administrative Agent not later than 11:00
A.M. (New York City time) on the proposed date in the case of Base Rate Advances
and at least two Business Days prior to the proposed date in the case of
Eurodollar Rate Advances, and if such notice is given the Borrower shall, prepay
the outstanding principal amount of the A Advances comprising part of the same
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided that (x) each
partial prepayment shall be in an aggregate principal amount of $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and (y) in the event of any
such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to Section 8.04(c).
(b) Change of Control. If any Change of Control shall occur, then,
upon notice to the Borrower by the Administrative Agent (acting at the request,
or with the consent, of the Majority Lenders) to such effect and stating that
the same is a "Change of Control Prepayment Notice", the Commitments shall be
automatically reduced to zero and the Borrower shall prepay the Advances in
full.
SECTION 2.11. Increased Costs.
(a) If due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), in each case, after the date hereof,
there shall be any increase in the cost to any Lender of agreeing to make or
making, funding or maintaining Eurodollar Rate Advances or Floating Rate
Advances, then such Lender may from time to time give notice of such
circumstances to the Borrower (with a copy to the Administrative Agent);
provided that each Lender agrees, before giving any such notice, to use its best
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased costs and would not be disadvantageous to such Lender. The amount
sufficient to compensate such Lender in light of such increase in costs to such
Lender or any corporation controlling such Lender shall be determined by such
Lender in good faith on a basis that allocates the amounts sufficient to
compensate such Lender in light of such increase ratably among all applicable
Advances. A certificate specifying the event referred to in this Section
2.11(a), the amount sufficient to compensate such Lender and the basis of its
computation (which shall be
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reasonable), submitted in good faith to the Borrower and the Administrative
Agent by such Lender, shall be conclusive and binding for all purposes absent
manifest error. Each Lender agrees to provide reasonably prompt notice to the
Borrower of the occurrence of any event referred to in the first sentence of
this Section 2.11(a).
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) after the date
hereof affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type, then,
such Lender may from time to time give notice of such circumstances to the
Borrower (with a copy to the Administrative Agent); provided that each Lender
agrees, before giving any such notice, to use its best efforts (consistent with
its internal policy and legal and regulatory restrictions) to designate a
different Applicable Lending Office if the making of such a designation would
avoid the need for, or reduce the amount of, the cost to the Lender of such
increase in the amount of capital maintained by such Lender and would not be
disadvantageous to such Lender. The amount sufficient to compensate such Lender
in light of such increase in the amount of capital maintained by such Lender or
any corporation controlling such Lender shall be determined by such Lender in
good faith to the extent that such Lender reasonably determines such increase in
capital to be allocable to the existence of such Lender's commitment to lend
hereunder. A certificate specifying the event referred to in this Section
2.11(b), the amount sufficient to compensate such Lender and the basis of its
computation (which shall be reasonable), submitted in good faith to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding for
all purposes absent manifest error. Each Lender agrees to provide reasonably
prompt notice to the Borrower of the occurrence of any event referred to in the
first sentence of this Section 2.11(b).
(c) The Borrower shall, within five days of receiving a notice from
any Lender pursuant to clause (a) or (b) of this Section 2.11, elect (and shall
notify such Lender and the Administrative Agent of such election) to:
(i) pay to the Administrative Agent for the account of such Lender,
from time to time commencing on the date of notice by such Lender and as
specified by such Lender, (A) the amount such Lender has set forth in the
certificate which such Lender has delivered to the Borrower pursuant to
clause (a) of this Section 2.11 or (B) the amount such Lender has set
forth
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in the certificate which such Lender has delivered to the Borrower
pursuant to clause (b) of this Section 2.11; or
(ii) if no Default shall have occurred and be continuing, require
that such Lender assign to the Borrower's designated assignee or
assignees, in accordance with the terms of Section 8.07, all Advances then
owing to such Lender and all rights and obligations of such Lender
hereunder; provided that (A) each such assignment shall be either an
assignment of all of the rights and obligations of the assigning Lender
under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or assignments
which together cover all of the rights and obligations of the assigning
Lender under this Agreement, (B) no Lender shall be obligated to make any
such assignment as a result of a demand by the Borrower pursuant to this
Section 2.11(c) unless and until such Lender shall have received one or
more payments from either the Borrower or one or more assignees in an
aggregate amount at least equal to the aggregate outstanding principal
amount of the A Advances owing to such Lender, together with accrued
interest thereon to the date of payment of such principal amount, all
Facility Fees and other fees payable to such Lender and all other amounts
payable to such Lender under this Agreement (including, but not limited
to, any increased costs or other additional amounts (computed in
accordance with this Section 2.11), and any Taxes, incurred by such Lender
prior to the effective date of such assignment and amounts payable under
Section 8.04(a)) and (C) each such assignment shall be made pursuant to an
Assignment and Acceptance; provided that such assignment shall not be
effective if, after giving effect to such assignment, the aggregate amount
of the Commitments so assigned or terminated under this Section 2.11,
Section 2.12(b) and Section 2.15(g) during the term of this Agreement
would exceed 25% of the aggregate amount of the Commitments as of the
Closing Date. Upon such payments and prepayments, the obligations of such
Lender hereunder, by the provisions hereof, shall be released and
discharged; provided that such Lender's rights under Sections 2.11, 2.15
and 8.04(b), and its obligations under Section 7.05, shall survive such
release and discharge as to matters occurring prior to the date of
termination of such Lender's Commitment.
SECTION 2.12. Illegality.
(a) Notwithstanding any other provision of this Agreement, if any
Lender (any such Lender being referred to herein as an "Affected Lender") shall
notify the Administrative Agent that the introduction of or any change in or in
the interpretation of any law or regulation makes it unlawful, or any central
bank or
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other governmental authority asserts that it is unlawful, for any Lender
or its Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or Floating Rate Advances or to fund or maintain
Eurodollar Rate Advances or Floating Rate Advances hereunder, the obligation of
the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances
shall be suspended until the Administrative Agent shall notify the Borrower and
the Lenders that the circumstances causing such suspension no longer exist;
provided that such suspension shall not become effective in the event the
Borrower requires the assignment of the Affected Lender's Advances owing to it
and its other rights and obligations hereunder pursuant to clause (b)(ii) below.
The Borrower's right to require an assignment in accordance with clause (b)(ii)
below shall not be effective to the extent that Lenders representing a majority
of the Commitments then outstanding shall be "Affected Lenders".
(b) The Borrower shall, within five days of receiving a notice from
any Affected Lender pursuant to clause (a) of this Section 2.12, elect (and
shall notify such Affected Lender and the Administrative Agent of such election)
to:
(i) prepay in full all Eurodollar Rate Advances or Floating Rate
Advances then outstanding, together with interest thereon, unless the
Borrower, within five Business Days of notice from the Administrative
Agent Converts all Eurodollar Rate Advances or Floating Rate Advances of
all Lenders then outstanding into Base Rate Advances in accordance with
Section 2.09; or
(ii) if no Default shall have occurred and be continuing, require
that such Affected Lender assign to the Borrower's designated assignee or
assignees, in accordance with the terms of Section 8.07, all Advances then
owing to such Affected Lender and all rights and obligations of such
Affected Lender hereunder; provided that (A) each such assignment shall be
either an assignment of all of the rights and obligations of the assigning
Affected Lender under this Agreement or an assignment of a portion of such
rights and obligations made concurrently with another such assignment or
assignments which together cover all of the rights and obligations of the
assigning Affected Lender under this Agreement, (B) no Affected Lender
shall be obligated to make any such assignment as a result of a demand by
the Borrower pursuant to this Section 2.12(b) unless and until such
Affected Lender shall have received one or more payments from either the
Borrower or one or more assignees in an aggregate amount at least equal to
the aggregate outstanding principal amount of the A Advances owing to such
Affected Lender, together with accrued interest thereon to the date of
payment of such principal amount, all Facility Fees and other fees payable
to such Affected Lender
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and all other amounts payable to such Affected Lender under this Agreement
(including, but not limited to, any increased costs or other additional
amounts (computed in accordance with Section 2.11), and any Taxes,
incurred by such Affected Lender prior to the effective date of such
assignment and amounts payable under Section 8.04(a)) and (C) each such
assignment shall be made pursuant to an Assignment and Acceptance;
provided that such assignment shall not be effective if, after giving
effect to such assignment, the aggregate amount of the Commitments so
assigned or terminated under this Section 2.12(b), Section 2.11 and
Section 2.15(g) during the term of this Agreement would exceed 25% of the
aggregate amount of the Commitments as of the Closing Date. Upon such
payments and prepayments, the obligations of such Affected Lender
hereunder, by the provisions hereof, shall be released and discharged;
provided that such Affected Lender's rights under Sections 2.11, 2.15 and
8.04(b), and its obligations under Section 7.05, shall survive such
release and discharge as to matters occurring prior to the date of
termination of such Affected Lender's Commitment.
SECTION 2.13. Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the
Notes not later than 12:00 noon (New York City time) on the day when due in U.S.
dollars to the Administrative Agent at the Administrative Agent's Account in
same day funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest or
Facility Fees ratably (other than amounts payable pursuant to Sections 2.03,
2.04(b), 2.05(c), 2.05(d), 2.11, 2.12, 2.15 or 8.04(c)) to the Lenders for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 8.07(c) from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate
or the Federal Funds Rate and of Facility Fees shall be made by the
Administrative Agent on the
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basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or Facility Fees are payable. Each determination by the
Administrative Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or Facility Fee, as
the case may be; provided that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances or Floating Rate Advances
to be made in the next following calendar month, such payment shall be made on
the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.14. Notations on the A Notes. All A Advances made by each
Lender to the Borrower pursuant to this Agreement and all payments made on
account of principal thereof shall be recorded by such Lender and, prior to any
assignment by such Lender of the A Note issued to it, all unpaid A Advances
shall be endorsed on the grid attached to such A Note; provided, however, that
the failure of such Lender to make any such notations shall not limit or
otherwise affect the Borrower's obligations to such Lender with respect to such
A Advances. Upon the payment in full of any Lender's A Advances then outstanding
and the termination in full of such Lender's Commitment, such Lender shall
cancel and return such Lender's A Note to the Borrower and be fully responsible
for any claims or liabilities arising in connection with or resulting from any
sale of participations therein.
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SECTION 2.15. Taxes.
(a) Any and all payments by the Borrower hereunder or under the
Notes shall be made, in accordance with Section 2.13, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Administrative Agent, taxes
imposed on its income, and franchise taxes imposed on it in lieu of income
taxes, by the jurisdiction under the laws of which such Lender or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
income, and franchise taxes imposed on it in lieu of income taxes, by the
jurisdiction of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.15) such Lender or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Notes or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.15) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Administrative Agent (as
the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing payment
thereof. In the case of any payment hereunder or under the Notes by or on behalf
of
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the Borrower through an account or branch outside the United States or on behalf
of the Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to the Administrative Agent, at
such address, an opinion of counsel acceptable to the Administrative Agent
stating that such payment is exempt from Taxes. For purposes of this subsection
(d) and subsection (e), the terms "United States" and "United States person"
shall have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement (in the case of each Initial Lender) and on the date of the Acceptance
pursuant to which it becomes a Lender (in the case of each other Lender), and
from time to time thereafter if requested in writing by the Borrower (but only
so long as such Lender remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender is exempt from or entitled to a reduced rate of United States
withholding tax on payments of interest pursuant to this Agreement or the Notes.
If the form provided by a Lender at the time such Lender first becomes a party
to this Agreement indicates a United States interest withholding tax rate in
excess of zero, withholding tax at such rate shall be considered excluded from
"Taxes" as defined in Section 2.15(a). If any form or document referred to in
this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information required by the
versions of Internal Revenue Service Form 1001 or 4224 in effect on the date
hereof, that the Lender reasonably considers to be confidential, the Lender
shall give notice thereof to the Borrower and shall not be obligated to include
in such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form described in Section 2.15(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided, or if such form
otherwise is not required under the first sentence of subsection (e) above),
such Lender shall not be entitled to indemnification under Section 2.15(a) with
respect to Taxes imposed by the United States; provided that should a Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
(g) So long as no Default shall have occurred and be continuing, if
the Borrower shall be required by law to deduct any
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Taxes from or in respect of any sum payable hereunder or under any Note to any
Lender or shall be required to indemnify any Lender for any Taxes under Section
2.15(c) (each such Lender, a "Specified Lender"), the Borrower may, within five
days of receiving a notice from any Specified Lender pursuant to clause (a) of
this Section 2.15, elect (and shall notify such Specified Lender and the
Administrative Agent of such election) to require that such Specified Lender
assign to the Borrower's designated assignee or assignees, in accordance with
the terms of Section 8.07, all Advances then owing to such Specified Lender and
all rights and obligations of such Specified Lender hereunder; provided that (A)
each such assignment shall be either an assignment of all of the rights and
obligations of the assigning Specified Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or assignments which together cover all of the rights
and obligations of the assigning Specified Lender under this Agreement, (B) no
Specified Lender shall be obligated to make any such assignment as a result of a
demand by the Borrower pursuant to this Section 2.15(g) unless and until such
Specified Lender shall have received one or more payments from either the
Borrower or one or more assignees in an aggregate amount at least equal to the
aggregate outstanding principal amount of the A Advances owing to such Specified
Lender, together with accrued interest thereon to the date of payment of such
principal amount, all Facility Fees and other fees payable to such Specified
Lender and all other amounts payable to such Specified Lender under this
Agreement (including, but not limited to, any increased costs or other
additional amounts (computed in accordance with Section 2.11), and any Taxes,
incurred by such Specified Lender prior to the effective date of such assignment
and amounts payable under Section 8.04(a)) and (C) each such assignment shall be
made pursuant to an Assignment and Acceptance; provided that such assignment
shall not be effective if, after giving effect to such assignment, the aggregate
amount of the Commitments so assigned or terminated under this Section 2.15(g),
Section 2.11 and Section 2.12 during the term of this Agreement would exceed 25%
of the aggregate amount of the Commitments as of the Closing Date. Upon such
payments and prepayments, the obligations of such Specified Lender hereunder, by
the provisions hereof, shall be released and discharged; provided that such
Specified Lender's rights under Sections 2.11, 2.12, 2.15 and 8.04(b), and its
obligations under Section 7.05, shall survive such release and discharge as to
matters occurring prior to the date of termination of such Specified Lender's
Commitment.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the A Advances owing to it (other than
pursuant to Sections 2.05(c), 2.05(d), 2.11, 2.12, 2.15 or 8.04(c)) in excess of
its ratable share of payments on account of the A Advances obtained by
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all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participation in the A Advances owing to them as shall be necessary to
cause such purchasing Lender to share the excess payment ratably with each of
them; provided that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and each such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the amount of such
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.16 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing. The
obligation of each Lender to make an Advance on the occasion of the initial
Borrowing is subject to the condition precedent that the Administrative Agent
shall have received, on or prior to October 31, 1997, the following, each
(unless otherwise specified below) dated the Closing Date, in form and substance
satisfactory to the Administrative Agent (and, to the extent specified below,
each Lender) and (except for the Notes) in sufficient copies for each Lender:
(a) A Notes. The A Notes to the order of the Lenders, respectively.
(b) Charter Documents, Etc.
(1) Certified copies of (x) the charter and by-laws of the
Borrower, (y) the resolutions of the Board of Directors of the
Borrower authorizing and approving this Agreement and the Notes, and
(z) all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement and
the Notes.
(2) A certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names and true signatures of the
officers of the Borrower authorized to
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sign this Agreement and the Notes and the other documents to be
delivered hereunder.
(3) A certificate from the Secretary of State of the State of
Delaware dated a date reasonably close to the Closing Date as to the
good standing of and charter documents filed by the Borrower.
(c) Opinions.
(1) A favorable opinion of the General Counsel of the
Borrower, substantially in the form of Exhibit D.
(2) A favorable opinion of Milbank, Tweed, Hadley & McCloy,
special New York counsel for the Administrative Agent, substantially
in the form of Exhibit E.
(d) Solvency. A certificate of a senior financial officer of the
Borrower to the effect that the Borrower (both individually and
collectively with its Consolidated Subsidiaries) is Solvent.
(e) Spin-Off Matters.
(1) Spin-Off Resolutions, Etc. Certified copies of the
resolutions of the Board of Directors of Monsanto and the Borrower
authorizing and approving the Spin-Off and the transactions
contemplated thereby.
(2) Spin-Off Documents, Etc. Certified copies of each Spin-Off
Document, each as amended and in effect on the Closing Date.
(3) Spin-Off Effectiveness, Etc. Evidence that (i) all
Spin-Off Properties (other than intangible properties and contract
rights that, in the aggregate, are immaterial to the business of the
Borrower and its Subsidiaries, taken as a whole) have been (or
simultaneously with the occurrence of the Closing Date shall be)
transferred to or purchased by the Borrower and its Subsidiaries in
accordance with the Spin-Off Documents; and (ii) the Spin-Off shall
otherwise have been (or simultaneously with the occurrence of the
Closing Date shall be) consummated in all material respects in
accordance with the terms of the Spin-Off Documents (without any
waiver or amendment that is materially adverse to the Borrower
and/or the Lenders in connection with the financing not consented to
by the Lenders), and in compliance with applicable law.
<PAGE> 51
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(f) Representations, Etc. A certificate signed by a duly authorized
officer of the Borrower stating that:
(1) the representations and warranties contained in Section
4.01 are correct on and as of the Closing Date, and
(2) no event has occurred and is continuing that constitutes a
Default.
(g) Other. Such other approvals, opinions and documents relating to
material ERISA, environmental and Spin-Off matters as the Administrative
Agent or any Lender may, through the Administrative Agent, reasonably
request.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The
obligation of each Lender to make an A Advance on the occasion of each A
Borrowing shall be subject to the conditions precedent that the Closing Date
shall have occurred and on the date of such A Borrowing:
(a) the following statements shall be true (and each of the giving
of the applicable Notice of A Borrowing and the acceptance by the Borrower
of the proceeds of such A Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such A Borrowing such
statements are true):
(i) the representations and warranties contained in Section
4.01 (except the Excluded Representations) are correct on and as of
the date of such A Borrowing, before and after giving effect to such
A Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result
from such A Borrowing or from the application of the proceeds
therefrom, that constitutes a Default; and
(b) the Administrative Agent shall have received such other
approvals, opinions or documents as any Lender through the Administrative
Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Lender that is to make a B Advance on the occasion of each B
Borrowing to make such B Advance as part of such B Borrowing is subject to the
conditions precedent that the Closing Date shall have occurred and (a) the
Administrative Agent shall have received the Notice of B Borrowing with respect
thereto, (b) on or before the date of such B Borrowing, but prior to such B
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Borrowing, the Administrative Agent shall have received a B Note payable to the
order of such Lender for each of the one or more B Advances to be made by such
Lender as part of such B Borrowing, in a principal amount equal to the principal
amount of the B Advance to be evidenced thereby and otherwise on such terms as
were agreed to for such B Advance in accordance with Section 2.03, and (c) on
the date of such B Borrowing the following statements shall be true (and each of
the giving of the applicable Notice of B Borrowing and the acceptance by the
Borrower of the proceeds of such B Borrowing shall constitute a representation
and warranty by the Borrower that on the date of such B Borrowing such
statements are true):
(i) the representations and warranties contained in Section
4.01 (except the Excluded Representations) are correct on and as of
the date of such B Borrowing, before and after giving effect to such
B Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result
from such B Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the proposed
Closing Date (as notified by the Borrower or the Administrative Agent to the
Lenders) specifying its objection thereto. The Administrative Agent shall
promptly notify the Lenders of the occurrence of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Incorporation; Good Standing. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
(b) Corporate Authority; No Breach. The execution, delivery and
performance by the Borrower of this Agreement and
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the Notes, and the consummation of the Spin-Off and the other transactions
contemplated hereby, are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene
(i) the Borrower's charter or bylaws or (ii) law or any contractual
restriction binding on or affecting the Borrower.
(c) No Consents or Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or any other third party is required for the due
execution, delivery and performance by the Borrower of this Agreement or
the Notes, other than those authorizations, approvals, notices, filings
and actions that have been obtained, filed or taken on or before the
Closing Date by the Borrower. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or
regulatory body or any other third party is required for the consummation
of the Spin-Off or the transactions contemplated thereby, except for the
authorizations, approvals, actions, notices and filings (i) the failure to
obtain would not have a Material Adverse Effect or (ii) which have been
(or, prior to the Closing Date, will be) duly obtained, taken, given or
made and are in full force and effect.
(d) Enforceable Obligations, Etc. This Agreement has been, and each
of the Notes when delivered hereunder will have been, duly executed and
delivered by the Borrower. This Agreement is, and each of the Notes when
delivered hereunder will be, the legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with their
respective terms.
(e) Financial Statements, Etc.
(i) The pro forma statement of financial position of the Borrower as
at March 31, 1997, and the pro forma statements of income of the Borrower
for the three months ended March 31, 1997 and for the year ended December
31, 1996, in each case as presented in the Proxy Statement (a copy of
which has been furnished to each Lender) present fairly, in all material
respects (subject, in the case of such statement of financial position as
at March 31, 1997 and such statement of income for the three-months then
ended, to year-end audit adjustments) the pro forma financial condition of
the Borrower as at such date (determined as if the Spin-Off had occurred
on such date) and the pro forma results of operations of the Borrower for
the periods ended on such dates (determined as if the Spin-Off had
occurred as of the beginning of the periods presented); it being
understood that, although the pro forma adjustments made in the
preparation of such statements were made based upon
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methods and data the Borrower believes to be reasonable and accurate,
actual results (had the Spin-Off occurred on the dates referred to above)
during the period covered by such financial statements could have differed
from those set forth in such financial statements.
(ii) The historical statement of financial position of the Borrower
as at December 31, 1996 and the related historical statements of income
and cash flows of the Borrower for the twelve months then ended,
accompanied by an opinion of Deloitte & Touche LLP, independent public
accountants, and the historical balance sheet of the Borrower as at March
31, 1997 and the related historical statements of income and cash flows of
the Borrower for the three months then ended, as presented in the Proxy
Statement (copies of which have been made available to each Lender)
present fairly, in all material respects (subject, in the case of said
balance sheet as at March 31, 1997, and said statements of income and cash
flows for the three months then ended, to year-end audit adjustments) the
historical financial condition of the Borrower as at such dates and the
historical results of the operations of the Borrower for the periods ended
on such dates, all in accordance with generally accepted accounting
principles applied on a consistent basis (other than the change in
accounting for certain environmental remediation liabilities as discussed
in footnote 2 on page F-25 of the Proxy Statement).
(iii) Since December 31, 1996, there has been no material adverse
change in the financial condition or results of operations of the Borrower
and its Subsidiaries, taken as a whole (it being understood that the
transactions relating to the Spin-Off described in the Proxy Statement
shall not be deemed to constitute such a material adverse change).
(f) No Litigation, Etc. Except as set forth in the Proxy Statement,
there is no pending or, to the best of the Borrower's knowledge,
threatened action or proceeding affecting the Borrower or any of its
Consolidated Subsidiaries before any court, or governmental agency or
arbitrator which (i) would have a Material Adverse Effect, (ii) purports
to affect, or would affect, the legality, validity or enforceability of
this Agreement or any Note or (iii) would affect the legality, validity or
enforceability of the consummation of the Spin-Off or the other
transactions contemplated thereby.
(g) ERISA. No ERISA Event that would have a Material Adverse Effect
has occurred or is reasonably expected to occur with respect to any Plan.
As of the Closing Date, neither the Borrower nor any ERISA Affiliate
participates in any Multiple
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Employer Plan or in any Multiemployer Plan with respect to which the
Borrower or any ERISA Affiliate has any Withdrawal Liability or other
liability (other than the ordinary liability of a sponsor for
contributions to or benefits under such Plan) that, in either case, would
have a Material Adverse Effect.
(h) Environmental Laws. The Borrower (i) is in substantial
compliance with any and all applicable Environmental Laws, (ii) has (to
the best of its knowledge) received, applied for or been assigned all
required Environmental Permits and (iii) is in substantial compliance with
all terms and conditions of any such Environmental Permits, except where
any such noncompliance with Environmental Laws, failure to receive, apply
for or be assigned an Environmental Permit, or failure to comply with the
terms and conditions of an Environmental Permit, would not have a Material
Adverse Effect.
(i) Investment Company; Public Utility. Neither the Borrower nor any
of its Material Subsidiaries is an "investment company", or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940,
as amended. Neither the Borrower nor any of its Material Subsidiaries is a
"holding company", or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(j) Accuracy of Information.
(i) All written information, reports, financial statements, exhibits
and schedules (except as to assumptions, statements, estimates and
projections with respect to anticipated future performance or events)
concerning the operations, business, financial condition, properties and
prospects of the Borrower and its Subsidiaries ("Information") furnished
by or on behalf of the Borrower to the Administrative Agent, the
Syndication Agent or any Lender on or prior to the Closing Date in
connection with the negotiation, preparation or delivery of this Agreement
or included herein or delivered pursuant to Article III, when taken as a
whole, as of the date of such Information, does not contain any untrue
statement of material fact or, to the best of the Borrower's knowledge,
omit to state any material fact necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
(ii) All Post-Closing Date Information furnished by or on behalf of
the Borrower to the Administrative Agent or any
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Lender after the Closing Date, when taken as a whole, as of the date of
such Post-Closing Date Information, will not contain any untrue statement
of material fact or, to the best of the Borrower's knowledge, omit to
state any material fact necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
(iii) Financial projections and pro forma adjustments contained in
the Information may be based on estimates and assumptions about
circumstances and events that have not taken place at the time of delivery
thereof; although such information reflects the Borrower's good faith
projections and estimates as of the date thereof, based upon methods and
data the Borrower believes to be reasonable and accurate, actual results
during the period covered by such projections and pro forma adjustments
may differ materially from the projections and pro forma adjustments.
(iv) For purposes of this Section 4.01(j), "Post-Closing Date
Information" means:
(x) all Information furnished by the Borrower and its
Subsidiaries after the date hereof under Sections 5.01(i)(i) through
(viii), inclusive; and
(y) all Information furnished by the Borrower and its
Subsidiaries after the date hereof under Section 5.01(i)(ix),
provided that the request for such information is made in writing
and delivered to the Borrower, at the address specified in Section
8.02, to the attention of the Borrower's Treasurer and stating that
such request is being made in connection with this Agreement.
(k) Margin Stock. The Borrower is not principally engaged in the
business of extending credit for the purpose of purchasing or carrying
Margin Stock, and no proceeds of any Advance will be used for any purpose
which violates the provisions of the regulations of the Board of Governors
of the Federal Reserve System. After applying the proceeds of each
Advance, not more than 25% of the value of the assets of the Borrower and
the Borrower's Subsidiaries (as determined in good faith by the Borrower)
that are subject to Section 5.02(a) will consist of or be represented by
Margin Stock. If requested by any Lender or the Administrative Agent, the
Borrower will furnish to the Administrative Agent and each Lender a
statement in conformity with the requirements of Federal Reserve Form U-1
referred to in Regulation U, the statements made in which shall be such,
in the opinion of each Lender, as to permit the transactions contemplated
hereby in accordance with Regulation U.
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SECTION 4.02. Representation and Warranty of the Lenders. Each
Lender represents and warrants that in good faith it has not relied, and will
not rely, upon any Margin Stock as collateral in the making and maintaining of
its Advances hereunder.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:
(a) Preservation of Corporate Existence, Etc. 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 that the Borrower shall not be required to preserve any such
right or franchise if it shall determine that the preservation thereof is
no longer desirable in the conduct of its business. Cause each Material
Subsidiary of the Borrower to do or cause to be done all things necessary
to preserve and keep in full force and effect the corporate existence,
rights (charter and statutory) and franchises of such Material Subsidiary,
except in each case if the Borrower shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Borrower and its Subsidiaries, taken as a whole.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Consolidated Subsidiaries to comply, in all material respects, with all
applicable laws, rules, regulations and orders, such compliance to
include, without limitation, compliance with ERISA and all applicable
Environmental Laws, except such noncompliance as would not have a Material
Adverse Effect.
(c) Payment of Taxes. Duly pay and discharge, and cause each of its
Consolidated Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges whatsoever and by whomsoever imposed upon it or
against its properties prior to the date on which penalties are attached
thereto, unless and to the extent only that the same (i) shall be
contested in good faith and by appropriate proceedings by the Borrower or
(ii) are not of material importance to the business, financial condition
or operating results of the Borrower and its Consolidated Subsidiaries.
(d) Payment of Material Obligations, Etc. Pay, and cause each of its
Material Subsidiaries to pay, all obligations under Material Contracts.
Perform, and cause each
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of its Material Subsidiaries to perform, each other obligation (other than
obligations that the Borrower determines, in good faith and upon the
advice of its counsel, not to be binding on it) of the Borrower or such
Material Subsidiary, as the case may be, under the Material Contracts
except where the failure to do so would not (either individually or in the
aggregate) have a Material Adverse Effect.
(e) Visitation. Permit, and cause each of its Material Subsidiaries
to permit, the Administrative Agent or any of the Lenders or any agents or
representatives thereof (at any reasonable time and as may be reasonably
requested from time to time and, so long as no Default shall have occurred
and is continuing, upon reasonable advance notice):
(i) to visit the properties of the Borrower and any of its
Material Subsidiaries in the presence of an appropriate officer or
representative of the Borrower;
(ii) if any Default shall have occurred and then be
continuing, to examine and make copies of and abstracts from the
records and books of account of the Borrower and any of its Material
Subsidiaries (other than trade secrets and information and materials
subject to confidentiality agreements with third parties) in the
presence of an appropriate officer or representative of the
Borrower); and
(iii) to discuss the affairs, finances and accounts of the
Borrower and any of its Material Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Consolidated
Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Consolidated Subsidiary
in accordance with generally accepted accounting standards in effect from
time to time.
(g) Properties. Cause all Principal Properties to be maintained and
kept in good condition, repair and working order, and cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereto, in each case as in the judgment of the Borrower may be necessary
so that the business carried on in connection therewith may be properly
and advantageously conducted at all times, provided that nothing in this
paragraph (g) shall prevent the Borrower or any of its Subsidiaries from
discontinuing the operation and maintenance of any such Principal
Properties or from
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omitting to make any repairs, renewals, replacements, betterments or
improvements if such discontinuance or omission is, in the judgment of the
Borrower, desirable in the conduct of the business of the Borrower and its
Subsidiaries taken as a whole.
(h) Maintenance of Insurance. From and after the Closing Date,
maintain insurance, and cause each of its Consolidated Subsidiaries to
maintain insurance, with financially sound and reputable insurers, with
respect to such of its properties, against such risks, casualties and
contingencies and in such types and amounts as are consistent with sound
business practice, it being understood that this paragraph (h) shall not
prevent the use of deductible or excess loss insurance and shall not
prevent (i) the Borrower or any of its Subsidiaries from acting as a
self-insurer or maintaining insurance with another Subsidiary or
Subsidiaries of the Borrower so long as such action is consistent with
sound business practice or (ii) the Borrower from obtaining and owning
insurance policies covering activities of its Consolidated Subsidiaries.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event by no later than 80
days after the end of the fiscal quarters ending on June 30, 1997
and September 30, 1997, pro forma Consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such quarter
(determined as if the Spin-Off had occurred on December 31, 1996),
and pro forma Consolidated statements of income and cash flows of
the Borrower and its Subsidiaries for such quarter and for the
period commencing at the end of the previous fiscal year and ending
with the end of such quarter (in each case determined as if the
Spin-Off had occurred on December 31, 1996), duly certified (subject
to year-end audit adjustments) by the Controller, Assistant
Controller or other authorized financial officer of the Borrower as
presenting fairly, in all material respects, the pro forma financial
position of the Borrower and its Subsidiaries as at said dates and
for such periods, together with (A) a certificate of said officer
stating that no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature
thereof, and (B) a schedule in form and substance satisfactory to
the Administrative Agent of the computations used by the Borrower in
determining compliance with the covenants contained in Section 5.03
(it being understood that, although the pro forma adjustments made
in the preparation of such statements shall be made based upon
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methods and data the Borrower believes to be reasonable and
accurate, actual results (had the Spin-Off occurred on the dates
referred to above) during the periods covered by such financial
statements could have differed from those set forth in such
financial statements).
(ii) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of the Borrower (commencing with the fiscal year of the
Borrower beginning January 1, 1998), Consolidated balance sheets of
the Borrower and its Subsidiaries as of the end of such quarter and
Consolidated statements of income and cash flows of the Borrower and
its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, duly
certified (subject to year-end audit adjustments) by the Controller,
Assistant Controller or other authorized financial officer of the
Borrower as having been prepared in accordance with GAAP, together
with (A) a certificate of said officer stating that no Default has
occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof, and (B) a schedule
in form and substance satisfactory to the Administrative Agent of
the computations used by the Borrower in determining compliance with
the covenants contained in Section 5.03;
(iii) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of the
annual audit report for such year for the Borrower and its
Subsidiaries, containing Consolidated balance sheets of the Borrower
and its Subsidiaries as of the end of such fiscal year and
Consolidated statements of income, shareowners' equity and cash
flows of the Borrower and its Subsidiaries for such fiscal year, in
each case accompanied by an opinion acceptable to the Majority
Lenders by Deloitte & Touche LLP or other independent public
accountants of recognized national standing, together with (a) a
certificate of the Controller, Assistant Controller or other
authorized financial officer of the Borrower stating that no Default
has occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof, and (B) a schedule
in form and substance satisfactory to the Administrative Agent of
the computations used by the Borrower in determining compliance with
the covenants contained in Section 5.03;
(iv) as soon as possible and in any event within five Business
Days after the determination by the Borrower that a Default has
occurred and is continuing on
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the date of such statement, a statement of either the Chief
Financial Officer, Treasurer, Controller, Assistant Controller or
other authorized financial officer of the Borrower setting forth
details of such Default and the action that the Borrower has taken
and proposes to take with respect thereto;
(v) promptly and in any event within 30 days after the
Borrower knows or has reason to know that any ERISA Event that would
have a Material Adverse Effect has occurred, a statement of an
authorized financial officer of the Borrower describing such ERISA
Event and the action, if any, that the Borrower or such ERISA
Affiliate has taken and proposes to take with respect thereto;
(vi) promptly and in any event within ten Business Days after
receipt thereof by the Borrower or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any
such Plan;
(vii) promptly and in any event within 45 days after the
receipt thereof by the Borrower or any of its ERISA Affiliates, a
copy of the latest annual actuarial report for each Plan if the
ratio of the fair market value of the assets of such Plan to its
current liability (as defined in Section 412 of the Internal Revenue
Code) is less than 80%;
(viii) as soon as possible and in any event within five days
after the determination by the Borrower that a Change of Control has
occurred, the Borrower shall deliver to the Administrative Agent
(which shall forward a copy thereof to each Lender promptly) notice
thereof, together with such other information as the Administrative
Agent or any Lender (through the Administrative Agent) may
reasonably request; and
(ix) such other information (excluding trade secrets)
respecting the financial condition and operations of the Borrower
and its Subsidiaries as the Administrative Agent or any Lender may
from time to time reasonably request (which information shall
constitute "Post-Closing Date Information" only to the extent
provided in Section 4.01(j)).
(j) Use of Proceeds. Use the proceeds of the Advances hereunder
solely to finance the working capital needs and other general corporate
purposes of the Borrower (including to support the Borrower's commercial
paper program, to finance acquisitions, treasury stock purchases and
capital
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investments), in each case in compliance with all applicable legal and
regulatory requirements; provided that neither the Administrative Agent
nor any Lender shall have any responsibility as to the use of any such
proceeds.
(k) Protection and Enforcement of Material Rights Under Spin-Off
Documents. Perform and observe all of the material terms and provisions of
each Spin-Off Document to be performed or observed by it, maintain each
such Spin-Off Document in full force and effect and enforce its material
rights under such Spin-Off Document, in each case in the manner and to the
extent the Borrower believes to be in the best interests of its business.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Consolidated Subsidiaries to create or suffer to exist, any Lien on or with
respect to any of its properties (other than, in the case of the Borrower, the
Borrower's treasury stock), whether now owned or hereafter acquired, or assign,
or permit any of its Subsidiaries to assign, any right to receive income in
order to secure Debt, other than:
(i) (A) Liens for taxes, assessments, governmental charges or levies
or other amounts owed to governmental entities other than for borrowed
money; (B) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar Liens arising
in the ordinary course of business securing obligations that are not
overdue for a period of more than 30 days or that are being contested in
good faith; (C) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations; (D) easements, rights of way and other encumbrances on title
to real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes; and (E) Liens in favor of a landlord
arising in the ordinary course of business,
(ii) purchase money Liens upon or in any property, assets or stock
acquired or held by the Borrower or any Subsidiary in the ordinary course
of business to secure the purchase price or construction cost of such
property or to secure Debt incurred solely for the purpose of financing
the acquisition or construction of such property whether incurred prior or
subsequent to such acquisition or construction, or Liens existing on such
property at the time of its acquisition
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(other than any such Lien created in contemplation of such acquisition) or
extensions, renewals or replacements of any of the foregoing for the same
or a lesser amount, provided that no such Lien shall extend to or cover
any property other than the property being acquired, and no such
extension, renewal or replacement shall extend to or cover any property
not theretofore subject to the Lien being extended, renewed or replaced,
(iii) Liens securing Debt, judgments and ERISA claims existing on
the date hereof and identified on Schedule 1, and other Liens existing on
the date hereof,
(iv) other Liens or assignments in an aggregate principal amount at
any time outstanding not to exceed 10% of Consolidated Net Tangible
Assets,
(v) the replacement, extension or renewal of any Lien permitted by
clauses (ii) and (iii) above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without increase
in the amount or change in any direct or contingent obligor) of the amount
secured thereby, and
(vi) intercompany Liens.
(b) Mergers, Etc. Merge or consolidate with or into (or permit any
of its Material Subsidiaries to merge or consolidate with or into), or convey,
transfer, lease or otherwise dispose of (or permit any of its Material
Subsidiaries to convey, transfer, lease or otherwise dispose of), whether in one
transaction or in a series of related transactions, all or substantially all of
the assets (whether now owned or hereafter acquired) of the Borrower or such
Material Subsidiary to, any Person, except that:
(i) any Material Subsidiary of the Borrower may merge or consolidate
with or into (or convey, transfer, lease or otherwise dispose of any or
all the assets of such Material Subsidiary to) the Borrower or any wholly
owned Material Subsidiary of the Borrower; provided that the Borrower or a
wholly owned Material Subsidiary is the survivor of any such merger or
consolidation; and
(ii) the Borrower may merge or consolidate with or into any other
Person so long as (x) immediately after giving effect to such transaction,
no Default would exist and (y) the Borrower is the surviving corporation.
(c) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting
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policies or reporting practices, except as required or permitted by generally
accepted accounting principles.
(d) Change in Nature of Business. Change the nature of the business
of the Borrower and its Subsidiaries, taken as a whole, such that such business
differs materially from the lines of business engaged in on the Closing Date and
lines of business related thereto; provided that the foregoing shall not
prohibit the Borrower and its Subsidiaries from engaging in other lines of
business (or investing in joint ventures engaged in other lines of business) so
long as the aggregate book value of assets of the Borrower and its Subsidiaries
directly relating to such other lines of business does not exceed 20% of the
aggregate book value of the Consolidated assets of the Borrower and its
Consolidated Subsidiaries as at the last day of the fiscal quarter most recently
ended prior to the date of determination.
(e) Amendment of Spin-Off Documents. Cancel or terminate any
Spin-Off Document or consent to or accept any cancellation or termination
thereof; amend, modify or change in any manner any material term or condition of
any Spin-Off Document; or agree in any manner to any other amendment,
modification or change of any material term or condition of any Spin-Off
Document; provided that this paragraph (e) shall not restrict the ability of the
Borrower to take any of the actions described in this paragraph (e) if such
actions would not be materially adverse to the interests of the Lenders.
(f) Margin Stock. Permit more than 25%, after the making of each
Advance and giving effect to the use of the proceeds thereof, of the value of
the assets of the Borrower and its Subsidiaries (as determined in good faith by
the Borrower) that are subject to Section 5.02(a) to consist of or be
represented by Margin Stock.
(g) Transactions with Affiliates. Other than the Spin-Off Documents
and the transactions contemplated thereby and transactions with Specified Joint
Ventures, enter into, or permit any of its Subsidiaries to enter into, any
transaction with an Affiliate of the Borrower (other than the Borrower's
Subsidiaries) that would be material in relation to the Borrower and its
Subsidiaries, taken as a whole, even if otherwise permitted under this
Agreement, except on terms determined by the Borrower to be fair and reasonable
to the Borrower and its Subsidiaries and in the best interests of the Borrower
(considered as a whole in conjunction with all other existing arrangements and
relationships with such Affiliate).
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SECTION 5.03. Financial Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
shall not:
(a) Debt to Adjusted EBITDA. Permit the Debt to Adjusted EBITDA
Ratio at any time to exceed 3.50 to 1.00.
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio at
any time to be less than 4.50 to 1.00.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable; or the Borrower shall fail to pay any
interest on any Advance or make any other payment under this Agreement or
any Note within five Business Days after the same becomes due and payable;
or
(b) Any representation or warranty made or deemed to have been made
by the Borrower herein or in connection with this Agreement shall prove to
have been incorrect in any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 5.01(a), 5.01(i)(iv), 5.01(j),
5.02 or 5.03; or (ii) the Borrower shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement on its part
to be performed or observed if such failure shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower by
the Administrative Agent or any Lender (other than any failure by the
Borrower to comply with the terms of Section 5.01(i)(v), (vi) or (vii));
or
(d) the Borrower or any of its Material Subsidiaries shall fail to
pay any principal of, premium or interest on or any other amount payable
in respect of any Debt that is outstanding in a principal or notional
amount of at least the Threshold Amount (or such lower amount as provided
for in the proviso to this clause (d)) in the aggregate (but excluding
Debt outstanding hereunder) of the Borrower or such Material Subsidiary
(as the case may be), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall
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continue after the applicable grace period, if any, specified in the
applicable agreement; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such event or condition is
to accelerate, or to permit the acceleration of, the maturity of such Debt
or otherwise to cause, or to permit the holder or holders (or an agent or
trustee on its or their behalf) thereof to cause, such Debt to mature; or
any such Debt shall be declared to be due and payable or required to be
prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Debt shall be required to be made, in
each case prior to the stated maturity thereof; provided that if the
Borrower in any agreement or instrument relating to any such Debt, shall
have agreed to, or shall agree to, a lesser threshold of the kind
specified this clause (d) with respect to itself or any of its Material
Subsidiaries, then, in such event, the amount provided for above shall be
reduced to such lesser amount(s) with respect to such entity; or
(e) Any judgment or order for the payment of money in excess of the
Threshold Amount shall be rendered against the Borrower or any of its
Material Subsidiaries and not timely satisfied or discharged, and either
(i) proceedings to attach or levy upon any assets of the Borrower or such
Material Subsidiary shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(f) The Borrower or any of its Material Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against the Borrower or any of its Material Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 60 days, or any of the actions
sought in such
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proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its
property) shall occur; or the Borrower or any of its Material Subsidiaries
shall take any corporate action to authorize any of the actions set forth
above in this subsection (e);
(g) Any ERISA Event that would result in a Lien in an amount in
excess of $30,000,000 on the properties or assets of the Borrower or any
of its Subsidiaries shall have occurred and shall not have been remedied
within 90 days;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the Notes, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided that in the event of an
actual or deemed entry of an order for relief with respect to the Borrower under
the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders
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and all holders of Notes; provided that the Administrative Agent shall not be
required to take any action that exposes the Administrative Agent to personal
liability or that is contrary to this Agreement or applicable law. The
Administrative Agent agrees to give to each Lender prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07;
(ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Borrower or
to inspect the property (including the books and records) of the Borrower; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, this Agreement or any other instrument
or document furnished pursuant hereto; and (vi) shall incur no liability under
or in respect of this Agreement by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telecopier, telegram or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries
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and any Person who may do business with or own securities of the Borrower or any
such Subsidiary, all as if Citibank were not the Administrative Agent and
without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Administrative Agent or any
other Lender and based on the financial statements referred to in Section 4.01
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent and the Syndication Agent (each, an "Agent") (in each case
to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding or if any Notes are held by Persons that are
not Lenders, ratably according to the respective amounts of their Commitments),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by such Agent under this Agreement, provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Administrative Agent is not reimbursed for such expenses
by the Borrower.
SECTION 7.06. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving five Business Days' written notice
thereof to the Lenders and the Borrower and may be removed at any time with or
without cause (i) by the Majority Lenders with the Borrower's approval, which
approval shall not unreasonably be withheld, or (ii) by the Borrower, subject
to the approval of the Majority Lenders, which approval shall not
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unreasonably be withheld. Upon any such resignation or removal, the
Borrower shall have the right to appoint a successor Administrative Agent,
subject to the Majority Lenders' approval, which approval shall not be
unreasonably withheld; provided that upon and during the continuance of an
Event of Default, the Majority Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative
Agent, the provisions of this Article VII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent
under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided that:
(a) no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following:
(1) waive any of the conditions specified in Section 3.01 or
3.02;
(2) increase the Commitments of the Lenders or subject the
Lenders to any additional obligations (other
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than as permitted by Sections 2.05(c) and 2.05(d) to the extent any
Lender consents thereunder);
(3) reduce the principal of, or interest on, the A Notes or
any fees or other amounts payable hereunder;
(4) postpone any date fixed for any payment of principal of,
or interest on, the A Notes or any fees or other amounts payable
hereunder (excluding any amounts payable in connection with the B
Notes);
(5) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the A Notes, or the number of
Lenders, that shall be required for the Lenders or any of them to
take any action hereunder; or
(6) amend this Section 8.01;
(b) no amendment, waiver or consent shall, unless in writing and
signed by the Administrative Agent in addition to the Lenders required
above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement or any Note;
(c) no amendment, waiver or consent shall, unless in writing and
signed by the Syndication Agent in addition to the Lenders required above
to take such action, affect the rights or duties of the Syndication Agent
under this Agreement or any Note; and
(d) this Section 8.01 shall not apply to changes in Commitments
pursuant to Section 2.05, 2.11 or any other Section of this Agreement.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and mailed,
telecopied or delivered by hand:
(a) if to the Borrower:
Queeny Chemical Company
10300 Olive Boulevard
P.O. Box 66760
St. Louis, Missouri 63166-6760
Attention: Treasurer
Telephone No.: 314-674-8250
Telecopier No.: 314-674-8425
(b) if to the Administrative Agent:
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Citibank, N.A.
2 Penns Way
New Castle Delaware, 19720
Attention: Guss Kalloudis
Telephone No.: (302) 894-6030
Telecopier No.: (302) 894-6120;
(c) if to the Syndication Agent:
Bank of America NT & SA
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Raju Patel
Telephone No.: (312) 828-7225
Telecopier No.: (312) 987-0303; and
(d) if to any Lender, at the Domestic Lending Office specified in
the Administrative Questionnaire of such Lender,
or, as to the Borrower, the Administrative Agent or the Syndication Agent, at
such other address as shall be designated by such party in a written notice to
the other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall be deemed to
have been duly given or made (i) in the case of hand deliveries, when delivered
by hand, (ii) in the case of mailed notices, when received, and (iii) in the
case of telecopier notice, when transmitted and confirmed during normal business
hours (or, if delivered after the close of normal business hours, at the
beginning of business hours on the next Business Day), except that notices and
communications to the Administrative Agent pursuant to Article II or VII shall
not be effective until received by the Administrative Agent.
SECTION 8.03. No Waiver, Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
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SECTION 8.04. Costs and Expenses.
(a) The Borrower agrees to pay on demand all out-of-pocket costs and
expenses of the Administrative Agent in connection with the preparation,
execution, delivery, modification and amendment of this Agreement, the Notes and
the other documents to be delivered hereunder, including, without limitation,
the reasonable fees and expenses of counsel for the Administrative Agent with
respect thereto and with respect to advising the Administrative Agent as to its
rights and responsibilities under this Agreement. The Borrower further agrees to
pay on demand all costs and expenses of the Administrative Agent and the
Lenders, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement, the Notes and the other
documents to be delivered hereunder, including, without limitation, reasonable
fees and expenses of counsel for the Administrative Agent and each Lender in
connection with the enforcement of rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, the Syndication Agent and each Lender and each of their
Affiliates and their officers, directors, employees, agents and advisors (each,
an "Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with the actual or proposed use of the proceeds of the Advances, in
each case whether or not such investigation, litigation or proceeding is brought
by the Borrower, its directors, shareholders or creditors or an Indemnified
Party or any other Person or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated hereby are consummated, except
to the extent such claim, damage, loss, liability or expense is found by a court
of competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
Commitment Increase pursuant to Section 2.05(d), a prepayment or Conversion
pursuant to Sections 2.05(c), 2.08(d) or (e), 2.10 or 2.12, acceleration of the
maturity of the Notes pursuant to Section 6.01 or for any other reason, the
Borrower shall, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender any amounts
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required to compensate such Lender for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.15 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Set-off. Nothing herein shall derogate any
Lender's right, if any, if and to the extent payment owed to such Lender is not
made when due hereunder or under any B Note held by such Lender, to set off from
time to time against any or all of the Borrower's deposit (general or special,
time or demand, provisional or final) accounts with such Lender any amount so
due. Each Lender agrees promptly to notify the Borrower after any such set-off
and application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section 8.05 are in addition to other rights and
remedies which such Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified by each Initial
Lender that such Initial Lender has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Administrative Agent and each
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations, Register.
(a) Each Lender may (and shall if requested to do so by the Borrower
pursuant to Section 2.11, Section 2.12 or 2.15) assign to one or more Persons
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the A Advances owing to
it and the A Note held by it, but excluding the B Advances owing to it and the B
Note or B Notes held by it (other than with respect to an assignment pursuant to
Section 2.11, 2.12 or 2.15)); provided that:
(i) other than in the case of an assignment to an Affiliate of such
Lender or assignments of the type described in subsection (g) below, such
Lender shall have obtained the
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prior written consent of the Borrower, the Syndication Agent and the
Administrative Agent, no such consent to be unreasonably withheld;
(ii) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this Agreement;
(iii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender, or an assignment by a
Lender to an Affiliate of such Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall in no event be less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof;
(iv) each such assignment shall be to an Eligible Assignee; and
(v) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any A Note subject
to such assignment and a processing and recordation fee of $3,500.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution and delivery thereof to
the Administrative Agent, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or
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in connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
By executing and delivering an Assumption and Acceptance, the Person
assuming a Commitment hereunder confirms to and agrees with the parties hereto
as follows: (i) neither the Administrative Agent, the Syndication Agent nor any
other Lender makes any representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (ii) such Person
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assumption and Acceptance; (iii) such Person will,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (iv) such Person confirms that it is an Eligible
Assignee; (v) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental
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thereto; and (vi) such Person agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred
to in Section 8.02 a copy of each Acceptance delivered to and accepted by it and
a register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the A Advances owing to each such Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon the Administrative Agent's receipt of an Acceptance
(executed, in the case of an Assignment and Acceptance, by an assigning Lender
and an assignee representing that it is an Eligible Assignee and accompanied by
any A Note subject to such assignment, and executed, in the case of an
Assumption and Acceptance, by the Person assuming a Commitment hereunder), the
Administrative Agent shall, if such Acceptance has been completed and is in
substantially the form of Exhibit C-1 or C-2, as applicable, (i) accept such
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent:
(x) In the case of an assignment, in exchange for the surrendered A
Note a new A Note payable to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such Acceptance
and, if the assigning Lender has retained a Commitment hereunder, a new A
Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new A Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered A Note, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit
A hereto.
(y) In the case of an assumption of a Commitment hereunder, a new A
Note payable to the order of the Person so assuming a Commitment
hereunder, in an amount equal to the Commitment assumed by it pursuant to
such Acceptance. Such
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new A Note shall be dated the effective date of such Acceptance and shall
otherwise be in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it); provided
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Note for all purposes of this Agreement, (iv) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by the
Borrower therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation. Upon the sale of a
participation pursuant to this Section 8.07(e), such Lender shall promptly
provide notice to the Borrower of the sale of a participation (other than a sale
of a participation pursuant to Section 2.16); provided that the failure by such
Lender to provide such notice shall not invalidate the sale of such
participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Lender; provided further that the Borrower
shall have consented in advance to the disclosure of any non-public information.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Notes held by it) in favor of any Federal Reserve Bank in
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accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
(h) Each Lender agrees that it will not assign any Note or Notes or
sell any participation in any manner or under any circumstances that would
require registration, qualification or filings under the securities laws of the
United States of America, of any state or of any country.
SECTION 8.08. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.10. Jurisdiction, Etc.
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
Notes, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State or, to the extent permitted by law, in such federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Notes in the courts of
any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any New York State or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
QUEENY CHEMICAL COMPANY
By/s/ R.L. BISHOP
-----------------------------------------
Title: VICE PRESIDENT AND TREASURER
CITIBANK, N.A.,
as Administrative Agent
By/s/ STEVEN R. VICTORIN
-----------------------------------------
Title: ATTORNEY-IN-FACT
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Syndication Agent
By/s/ RAJU N. PATEL
-----------------------------------------
Title: VICE PRESIDENT
<PAGE> 81
- 78 -
<TABLE>
<CAPTION>
Commitment INITIAL LENDERS
- ---------- ---------------
<S> <C>
$78,333,333.33 CITIBANK, N.A.
By/s/ STEVEN R. VICTORIN
-------------------------------------
Title: ATTORNEY-IN-FACT
$78,333,333.33 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By/s/ RAJU N. PATEL
-------------------------------------
Title: VICE PRESIDENT
$46,666,666.67 THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By/s/ HAJIME WATANABE
-------------------------------------
Title: DEPUTY GENERAL MANAGER
$46,666,666.67 THE CHASE MANHATTAN BANK
By/s/ ROBERT T. SACKS
-------------------------------------
Title: MANAGING DIRECTOR
</TABLE>
<PAGE> 82
- 79 -
<TABLE>
<S> <C>
$46,666,666.67 KREDIETBANK N.V.,
GRAND CAYMAN BRANCH
By/s/ RAYMOND F. MURRAY
-------------------------------------
Title: VICE PRESIDENT
By/s/ MICHAEL V. CURRAN
-------------------------------------
Title: VICE PRESIDENT
$46,666,666.67 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By/s/ JOHN H. CHAPLIN
-------------------------------------
Title: ASSOCIATE
$46,666,666.67 NATIONSBANK, N.A.
By/s/ PHILIP V. HANEL
-------------------------------------
Title: SENIOR VICE PRESIDENT
$46,666,666.67 THE NORTHERN TRUST COMPANY
By/s/ MAUREEN L. CAREY
-------------------------------------
Title: VICE PRESIDENT
$46,666,666.67 ROYAL BANK OF CANADA
By/s/ D.S. BRYSON
-------------------------------------
Title: SENIOR MANAGER
</TABLE>
<PAGE> 83
- 80 -
<TABLE>
<S> <C>
$46,666,666.67 WACHOVIA BANK, N.A.
By/s/ WALTER R. GILLIKIN
-------------------------------------
Title: VICE PRESIDENT
$30,000,000.00 BANKBOSTON, N.A.
By/s/ DEBORAH HUNTER MILLS
-------------------------------------
Title: VICE PRESIDENT, MULTINATIONAL BANKING
$30,000,000.00 COMMERZBANK AKTIENGESELLSCHAST
CHICAGO BRANCH
By/s/ MARK MONSON
-------------------------------------
Title: VICE PRESIDENT
By/s/ MARIE CUALOPING
-------------------------------------
Title: ASSISTANT TREASURER
$30,000,000.00 CREDIT AGRICOLE
By/s/ DAVID BOUHL, F.V.P.
-------------------------------------
Title: HEAD OF CORPORATE BANKING CHICAGO
$30,000,000.00 THE FIRST NATIONAL BANK OF CHICAGO
By/s/ ROBERT D. LOWRIE
-------------------------------------
Title: SENIOR VICE PRESIDENT
</TABLE>
<PAGE> 84
- 81 -
<TABLE>
<S> <C>
$30,000,000.00 MARINE MIDLAND BANK
By/s/ WILLIAM M. HOLLAND
-------------------------------------
Title: VICE PRESIDENT
$30,000,000.00 MELLON BANK, N.A.
By/s/ GEORGE B. DAVIS
-------------------------------------
Title: VICE PRESIDENT
$30,000,000.00 MERCANTILE BANK N.A.
By/s/ DAVID F. HIGBEE
-------------------------------------
Title: VICE PRESIDENT
$30,000,000.00 SOCIETE GENERALE, CHICAGO BRANCH
By/s/ SETH F. ASOFKY
-------------------------------------
Title: VICE PRESIDENT
$30,000,000.00 THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By/s/ HIROYUKI IWAMI
-------------------------------------
Title: JOINT GENERAL MANAGER
$800,000,000.00 Total of Commitments
===============
</TABLE>
<PAGE> 1
Exhibit 10(g)
=======================================
U.S. $400,000,000
CREDIT AGREEMENT
Dated as of August 14, 1997,
Among
SOLUTIA INC.,
(formerly known as Queeny Chemical Company)
as Borrower
-----------
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders
------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Syndication Agent
--------------------
and
CITIBANK, N.A.,
as Administrative Agent
-----------------------
=======================================
[Exhibits D and E are photocopies of the opinions as delivered.]
<PAGE> 2
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms................................................................... 1
SECTION 1.02. Computation of Time Periods............................................................. 18
SECTION 1.03. Accounting Terms and Determinations..................................................... 18
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances.......................................................................... 19
SECTION 2.02. Making the A Advances................................................................... 19
SECTION 2.03. The B Advances.......................................................................... 21
SECTION 2.04. Fees.................................................................................... 24
SECTION 2.05. Termination, Reduction and Extensions of the Commitments................................ 25
SECTION 2.06. Repayment of Advances; Term Loans....................................................... 27
SECTION 2.07. Interest on A Advances.................................................................. 27
SECTION 2.08. Interest Rate Determination; Changes in Rating Systems.................................. 28
SECTION 2.09. Optional Conversion of A Advances....................................................... 29
SECTION 2.10. Prepayments, Etc........................................................................ 30
SECTION 2.11. Increased Costs......................................................................... 30
SECTION 2.12. Illegality.............................................................................. 32
SECTION 2.13. Payments and Computations............................................................... 34
SECTION 2.14. Notations on the A Notes................................................................ 35
SECTION 2.15. Taxes................................................................................... 35
SECTION 2.16. Sharing of Payments, Etc................................................................ 37
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing............................................... 38
SECTION 3.02. Conditions Precedent to Each A Borrowing................................................ 40
SECTION 3.03. Conditions Precedent to Each B Borrowing................................................ 40
SECTION 3.04. Determinations Under Section 3.01....................................................... 41
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
SECTION 4.01. Representations and Warranties of the Borrower.......................................... 41
SECTION 4.02. Representation and Warranty of the Lenders.............................................. 45
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants................................................................... 45
SECTION 5.02. Negative Covenants...................................................................... 49
SECTION 5.03. Financial Covenants..................................................................... 52
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default....................................................................... 52
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action................................................................ 54
SECTION 7.02. Administrative Agent's Reliance, Etc.................................................... 55
SECTION 7.03. Citibank and Affiliates................................................................. 55
SECTION 7.04. Lender Credit Decision.................................................................. 55
SECTION 7.05. Indemnification......................................................................... 56
SECTION 7.06. Successor Administrative Agent.......................................................... 56
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc......................................................................... 57
SECTION 8.02. Notices, Etc............................................................................ 58
SECTION 8.03. No Waiver, Remedies..................................................................... 59
SECTION 8.04. Costs and Expenses...................................................................... 59
SECTION 8.05. Right of Set-off........................................................................ 60
SECTION 8.06. Binding Effect.......................................................................... 60
SECTION 8.07. Assignments and Participations, Register................................................ 60
SECTION 8.08. Governing Law........................................................................... 64
SECTION 8.09. Execution in Counterparts............................................................... 64
SECTION 8.10. Jurisdiction, Etc....................................................................... 65
SCHEDULES
Schedule 1 - Certain Existing Liens
</TABLE>
(ii)
<PAGE> 4
EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Form of Notice of A Borrowing
Exhibit B-2 - Form of Notice of B Borrowing
Exhibit B-3 - Form of Notice of Election of Term Option
Exhibit C-1 - Form of Assignment and Acceptance
Exhibit C-2 - Form of Assumption and Acceptance
Exhibit D - Form of Opinion of General Counsel for the Borrower
Exhibit E - Form of Opinion of Special New York Counsel to the
Administrative Agent
</TABLE>
(iii)
<PAGE> 5
CREDIT AGREEMENT dated as of August 14, 1997 among QUEENY
CHEMICAL COMPANY, a Delaware corporation whose name is to be changed (the
"Borrower"), the banks (each an "Initial Lender" and, collectively, the "Initial
Lenders") listed on the signature pages hereof, BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Syndication Agent (in such capacity, together with
its successors in such capacity, the "Syndication Agent") and CITIBANK, N.A.
("Citibank"), as administrative agent (in such capacity, together with its
successors in such capacity, the "Administrative Agent") as herein provided.
Prior to the date hereof, Monsanto Company ("Monsanto") formed
the Borrower, as a wholly owned Subsidiary of Monsanto, to hold and operate
Monsanto's chemicals business. Monsanto has proposed to distribute 100% of the
outstanding common stock of the Borrower to Monsanto's shareholders in a
tax-free transaction (the "Spin-Off"). The Borrower has requested that the
Lenders make loans to it in an aggregate principal amount not exceeding
$400,000,000 at any one time outstanding solely to finance the working capital
needs and other general corporate purposes of the Borrower, including to support
the Borrower's commercial paper program, and the Lenders are prepared to make
such loans upon the terms and conditions hereof. Accordingly, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Lender to the Borrower as
part of an A Borrowing and refers to a Base Rate Advance or a
Eurodollar Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type made by each of the Lenders pursuant to
Section 2.01.
"A Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit A-1
hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the A Advances made by such Lender.
<PAGE> 6
- 2 -
"Acceptance" means an Assignment and Acceptance and/or an
Assumption and Acceptance.
"Adjusted EBITDA" means, for any period, the sum, for the
Borrower and its Consolidated Subsidiaries (determined on a
Consolidated basis without duplication in accordance with GAAP), of the
following: (a) net income (calculated before taxes, Interest Expense,
extraordinary and unusual items and income or loss attributable to
equity in Affiliates (other than Affiliates that are Specified Joint
Ventures or Consolidated Subsidiaries)) for such period plus (b)
depreciation and amortization (to the extent deducted in determining
net income) for such period; provided that charges taken (including
cash charges in an aggregate amount not exceeding $60,000,000) and
reserves established by the Borrower and its Consolidated Subsidiaries
(whether in connection with the Spin-Off or otherwise) on or prior to
December 31, 1998 in an aggregate amount not exceeding $225,000,000
shall be added back to net income for such period (to the extent such
charges and reserves were deducted in determining net income for such
period).
"Administrative Agent" has the meaning specified in the
recital of parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with
Citibank at its office at 399 Park Avenue, New York, New York 10043,
Account No. 36852248, Attention: Guss Kalloudis.
"Administrative Questionnaire" means an administrative
questionnaire in a form supplied by the Administrative Agent.
"Advance" means an A Advance or a B Advance.
"Affected Lender" has the meaning specified in Section 2.12.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 5% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
<PAGE> 7
- 3 -
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of a Base
Rate Advance and such Lender's Eurodollar Lending Office in the case of
a Eurodollar Rate Advance and, in the case of a B Advance, the office
of such Lender notified by such Lender to the Administrative Agent as
its Applicable Lending Office with respect to such B Advance.
"Applicable Margin" means, for any A Advance that is a
Eurodollar Rate Advance: (a) prior to the Term-Out Effective Date,
0.245% per annum; and (b) from and after the Term-Out Effective Date,
for any period during which the Rated Securities are within any Rating
Level set forth below, the rate set forth below opposite the reference
to such Rating Level:
<TABLE>
<CAPTION>
Rating Level Applicable Margin (p.a.)
------------ ------------------------
<S> <C> <C>
Rating Level 1 0.200%
Rating Level 2 0.225%
Rating Level 3 0.250%
Rating Level 4 0.325%
Rating Level 5 0.350%
Rating Level 6 0.400%;
</TABLE>
provided that, if the ratings of the Rated Securities established by
S&P and Moody's shall fall within different Rating Levels, the
Applicable Margin shall be determined by reference to the higher of the
two Rating Levels (except that, if the lower such Rating Level is more
than one Rating Level below the higher such Rating Level, the
Applicable Margin shall be determined by reference to the Rating Level
that is one Rating Level higher than the lower such Rating Level). Each
change in the Applicable Margin resulting from a Rating Level Change
shall be effective on the effective date of such Rating Level Change.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C-1 hereto.
"Assumption and Acceptance" means an assumption and acceptance
entered into by an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C-2 hereto.
"B Advance" means an advance by a Lender to the Borrower as
part of a B Borrowing resulting from the auction bidding procedure
described in Section 2.03.
<PAGE> 8
- 4 -
"B Borrowing" means a borrowing consisting of simultaneous B
Advances from each of the Lenders whose offer to make one or more B
Advances as part of such borrowing has been accepted by the Borrower
under the auction bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit A-2
hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from a B Advance made by such Lender.
"B Reduction" has the meaning specified in Section 2.01.
"Bank of America" means Bank of America National Trust and
Savings Association.
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate;
(b) 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) 1/2 of 1% per annum, 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, such three-week moving average (adjusted
to the basis of a year of 360 days) being determined weekly on
each Monday (or, if such day is not a Business Day, on the
next succeeding Business Day) for the three-week period ending
on the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected
by Citibank, 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 (or any successor) for determining the maximum
reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or
including (among other liabilities)
<PAGE> 9
- 5 -
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; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means an A Advance that bears interest as
provided in Section 2.07(a)(i).
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Combination" means any reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Borrower or the acquisition of assets or stock of
another corporation.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings are carried on in the London interbank market.
"Capitalized Lease Obligation" means, with respect to any
Person for any period, an obligation of such Person to pay rent or
other amounts under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP; and the amount of
such obligation shall be the capitalized amount shown on the balance
sheet of such Person as determined in accordance with GAAP.
"Change of Control" means the occurrence of any of the
following events:
(a) the acquisition by any individual, entity or group (within
the meanings of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person or Group") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then outstanding shares of common stock of the Borrower (the
"Outstanding Borrower Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Borrower entitled to
vote generally in the election of directors (the "Outstanding Borrower
Voting Securities"); provided that, for purposes of this paragraph (a),
the following acquisitions shall not constitute a Change of
<PAGE> 10
- 6 -
Control: (i) any acquisitions directly from the Borrower, (ii) any
acquisition by the Borrower, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Borrower
or any corporation controlled by the Borrower or (iv) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of paragraph (c) below; or
(b) individuals who, as of the date hereof, constitute the
Board of Directors of the Borrower (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors
of the Borrower; provided that any individual becoming a director
subsequent to the date hereof whose election, or nomination for
election by the Borrower's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors;
or
(c) consummation by the Borrower of a Business Combination, in
each case unless following such Business Combination: (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Borrower Common
Stock and Outstanding Borrower Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Borrower or all or substantially
all of the Borrower's assets either directly or through one or more
Subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Borrower Common Stock and Outstanding Borrower Voting Securities, as
the case may be, (ii) no Person or Group (excluding any corporation
resulting from such Business Combination or any employee benefit plan
(or related trust) of the Borrower or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly,
30% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting
<PAGE> 11
- 7 -
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board of Directors, providing for such Business Combination; or
(d) approval by the shareholders of the Borrower of a complete
liquidation or dissolution of the Borrower.
The Spin-Off shall be deemed not to constitute a Change of Control for
purposes hereof.
"Citibank" has the meaning specified in the recital of parties
to this Agreement.
"Closing Date" means the earliest date as of which the
conditions precedent to effectiveness set forth in Section 3.01 shall
have been satisfied or waived.
"Commitment" means, as to each Lender, the obligation of such
Lender to make A Advances in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount set opposite the
name of such Lender on the signature pages hereof under the caption
"Commitment" or, in the case of a Person that becomes a Lender pursuant
to an assignment permitted under Section 8.07, or pursuant to an
assumption of obligations under Section 2.05(c), as specified in the
Register (as such Commitment may be reduced from time to time pursuant
hereto). The original aggregate principal amount of the Commitments is
$400,000,000.
"Commitment Termination Date" means August 13, 1998 or, in the
case of any Lender whose Commitment is extended pursuant to Section
2.05(c), the date to which such Commitment is extended; provided in
each case that if any such date is not a Business Day, the relevant
Commitment Termination Date of such Lender shall be the immediately
preceding Business Day. When the term "Commitment Termination Date" is
used herein without reference to any particular Lender, such term
shall, in such instance, be deemed to be a reference to the latest
Commitment Termination Date of any of the Lenders then in effect
hereunder.
"Consolidated" refers to the consolidation of the accounts of
the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles, including principles of consolidation,
consistent with those applied in
<PAGE> 12
- 8 -
the preparation of the financial statements referred to in Section
4.01(e)(ii).
"Consolidated Net Tangible Assets" means, at any time, for the
Borrower and its Consolidated Subsidiaries (determined on a
Consolidated basis without duplication in accordance with GAAP),
Consolidated Tangible Assets at such time after deducting therefrom all
current liabilities, other than current liabilities in respect of (a)
notes and loans payable, (b) current maturities of long-term debt and
(c) current maturities of the principal component of Capitalized Lease
Obligations.
"Consolidated Net Worth" means, at any time, the sum for the
Borrower and its Consolidated Subsidiaries (determined on a
Consolidated basis without duplication in accordance with GAAP), the
amount of capital stock plus the amount of surplus and retained
earnings (or, in the case of a surplus or retained earnings deficit,
minus the amount of such deficit).
"Consolidated Subsidiary" means a Subsidiary of the Borrower,
the accounts of which in accordance with generally accepted accounting
principles are consolidated with those of the Borrower.
"Consolidated Tangible Assets" means, at any time, for the
Borrower and its Consolidated Subsidiaries (determined on a
Consolidated basis without duplication in accordance with GAAP), the
aggregate amount of all assets (less applicable reserves and other
properly deductible items) after deducting therefrom all goodwill,
trade names, trademarks, patents, unamortized debt discount and
expenses (to the extent included in said aggregate amount of assets)
and other like intangibles.
"Convert", "Conversion" and "Converted" each refers to a
conversion of A Advances of one Type into A Advances of the other Type
pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication: (a)
indebtedness of such Person for borrowed money, (b) obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments, (c) obligations of such Person to pay the deferred
purchase price of property or services (other than trade accounts
payable arising, and accrued expenses incurred, in the ordinary course
of business so long as such trade accounts payable are payable on
customary trade terms or on other trade terms that are more
advantageous to the Borrower), (d) Capitalized Lease Obligations of
such Person and (e) obligations of such Person under direct or indirect
guaranties in respect of, and
<PAGE> 13
- 9 -
obligations (contingent or otherwise) to purchase or otherwise acquire,
or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (a) through (d) above.
"Debt to Adjusted EBITDA Ratio" means, at any date, the ratio
of:
(a) Debt of the Borrower and its Consolidated
Subsidiaries on a Consolidated basis as of such date to
(b) (i) Adjusted EBITDA for the Rolling Period ending
on or most recently ended prior to such date multiplied by
(ii) a fraction, the numerator of which is equal to four and
the denominator of which is equal to the number of calendar
quarters in such Rolling Period.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office" in
the Administrative Questionnaire of such Lender or in the Acceptance
pursuant to which it became a Lender, or such other office of such
Lender as such Lender may from time to time specify to the Borrower and
the Administrative Agent.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$5,000,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof,
and having total assets in excess of $3,000,000,000; (v) a commercial
bank organized under the laws of any other country that is a member of
the Organization for Economic Cooperation and Development or has
concluded special lending arrangements with the International Monetary
Fund associated with its General Arrangements to Borrow or of the
Cayman Islands, or a political subdivision of any such country, and
having total assets in excess of $5,000,000,000, so long as such bank
is acting through a branch or agency located in the country in which it
is organized or another country that is described in this clause (v);
(vi) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other
entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having
total assets in excess of $3,000,000,000; and (vii) any other Person
approved
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by the Administrative Agent and the Borrower, such approval not to be
unreasonably withheld or delayed; provided that neither the Borrower
nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Laws" means any and all applicable laws and
regulations relating to the protection of the environment, including
laws relating to emissions, discharges, releases, spills and disposal
of material into the environment (e.g., air, surface water, groundwater
and the land).
"Environmental Permit" means any permit, license or other
governmental approval required under any Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the Borrower's controlled group, or under
common control with the Borrower, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, that would have a Material
Adverse Effect with respect to any Plan unless the 30-day notice
requirement with respect to such event has been waived by the PBGC; (b)
the application for a minimum funding waiver with respect to a Plan;
(c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(c) of ERISA; (d)
the cessation of operations at a facility of the Borrower or any of its
ERISA Affiliates in the circumstances described in Section 4062(e) of
ERISA; (e) the failure by the Borrower or any of its ERISA Affiliates
to make a payment to a Plan if the conditions for the imposition of a
lien under Section 302(f)(1) of ERISA are satisfied; (f) the adoption
of an amendment to a Plan requiring the provision of security to such
Plan, pursuant to Section 307 of ERISA; or (g) the institution by the
PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that could constitute grounds for the termination of, or
the appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar
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Lending Office" in the Administrative Questionnaire of such Lender or
in the Acceptance pursuant to which it became a Lender (or, if no such
office is specified, its Domestic Lending Office), or such other office
of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the average (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a multiple) of the
rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England to
prime banks in the London interbank market at 11:00 A.M. (London time)
two Business Days before the first day of such Interest Period in an
amount substantially equal to such Reference Bank's Eurodollar Rate
Advance comprising part of such Borrowing to be outstanding during such
Interest Period and for a period equal to such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
for such Interest Period. The Eurodollar Rate for any Interest Period
for each Eurodollar Rate Advance comprising part of the same Borrowing
shall be determined by the Administrative Agent on the basis of
applicable rates furnished to and received by the Administrative Agent
from the Reference Banks two Business Days before the first day of such
Interest Period, subject, however, to the provisions of Section 2.08.
"Eurodollar Rate Advance" means an A Advance that bears
interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Eurodollar Rate Advances comprising part of the same Borrowing
means the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other
category of liabilities that includes deposits by reference to which
the interest rate on Eurodollar Rate Advances is determined) having a
term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Representations" means the representations and
warranties set forth in Section 4.01(e)(iii), Section 4.01(f)
(excluding clause (ii) thereof) and the second sentence of Section
4.01(c).
"Facility Fee" has the meaning specified in Section 2.04(a).
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"Final Maturity Date" means the date that is the earlier of
(x) the first anniversary of the Term-Out Effective Date and (y) the
date specified in the related Notice of Election of Term Option;
provided that if such date is not a Business Day, then the Final
Maturity Date shall be the immediately preceding Business Day.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
"Floating Rate Advances" has the meaning specified in Section
2.03(a)(i).
"GAAP" has the meaning specified in Section 1.03.
"Indemnified Party" has the meaning specified in Section
8.04(b).
"Information" has the meaning specified in Section 4.01(j)(i).
"Interest Coverage Ratio" means, at any date, the ratio of (a)
Adjusted EBITDA for the Rolling Period ending on or most recently ended
prior to such date to (b) Interest Expense for such Rolling Period.
"Interest Expense" means, for any period, the sum, for the
Borrower and its Consolidated Subsidiaries (determined on
<PAGE> 17
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a consolidated basis without duplication in accordance with GAAP), of
all interest in respect of Debt (including, without limitation, the
interest component of any payments in respect of Capitalized Lease
Obligations) accrued or capitalized during such period (whether or not
actually paid during such period).
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same A Borrowing, the period commencing on the
date of such Eurodollar Rate Advance or the date of the Conversion of
any Base Rate Advance into such Eurodollar Rate Advance and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six months, as the Borrower may, upon notice
received by the Administrative Agent not later than 11:00 A.M. (New
York City time) on the third Business Day prior to the first day of
such Interest Period, select; provided that:
(i) prior to the Commitment Termination Date, the
Borrower may not select any Interest Period that ends after
the Commitment Termination Date;
(ii) the Borrower may not select any Interest Period
that ends after the Final Maturity Date;
(iii) Interest Periods commencing on the same date
for Eurodollar Rate Advances comprising part of the same A
Borrowing shall be of the same duration;
(iv) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that, if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day; and
(v) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
<PAGE> 18
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"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Lenders" means the Initial Lenders listed on the signature
pages hereof and each institution that shall become a party hereto
pursuant to Section 2.05(c) or Section 8.07(a), (b) or (d).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"Majority Lenders" means at any time Lenders owed at least
66-2/3% of the then aggregate unpaid principal amount of the A Advances
owing to Lenders, or, if no such principal amount is then outstanding,
Lenders having at least 66-2/3% of the Commitments.
"Margin Stock" has the meaning specified in Regulation U of
the Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on
(a) the financial condition or results of operations of the Borrower
and its Subsidiaries, taken as a whole (it being understood that the
transactions relating to the Spin-Off described in the Proxy Statement
shall not be deemed to constitute such a material adverse effect) or
(b) the legality, validity or enforceability of this Agreement or any
Note.
"Material Contract" means any contractual, legal or other
obligation binding upon the Borrower or a Material Subsidiary under
which a default in payment by the Borrower or such Material Subsidiary
would have a Material Adverse Effect.
"Material Subsidiary" means, at any time, any Consolidated
Subsidiary that, on a consolidated basis with its Subsidiaries, has:
(a) at least 5% (in the case of Queeny U.K. and
Queeny Belgium) or 10% (in the case of each other Consolidated
Subsidiary) of the total Consolidated assets of the Borrower
and its Consolidated Subsidiaries (determined as of the last
day of the most recent fiscal quarter of the Borrower); or
<PAGE> 19
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(b) at least 5% (in the case of Queeny U.K. and
Queeny Belgium) or 10% (in the case of each other Consolidated
Subsidiary) of the Consolidated net sales of the Borrower and
its Consolidated Subsidiaries for the twelve-month period
ending on the last day of the most recent fiscal quarter of
the Borrower.
"Monsanto" has the meaning specified in the Preliminary
Statements hereof.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any of its ERISA
Affiliates is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower (or its predecessor's chemicals business) or
any of its ERISA Affiliates and at least one Person other than the
Borrower (or its predecessor's chemicals business) and its ERISA
Affiliates or (b) was so maintained and in respect of which the
Borrower (or its predecessor's chemicals business) or any of its ERISA
Affiliates could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.03(a)(i).
"Notice of Election of Term Option" has the meaning specified
in Section 2.06(a).
"Ownership Interest" in (or of) any corporation, partnership,
joint venture, limited liability company, trust or estate means (a)
issued and outstanding capital stock having ordinary voting power in
the election of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class
or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) an interest in the capital
<PAGE> 20
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or profits of such partnership, joint venture or limited liability
company or (c) a beneficial interest in such trust or estate.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Post-Closing Date Information" has the meaning specified in
Section 4.01(j)(iv).
"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, the gross
book value of which on the date as of which such determination is being
made exceeds 1% of the gross property, plant and equipment of the
Borrower as shown in its Consolidated financial statements, provided
that any property which, in the opinion of the Borrower, is not of
material importance to the business of the Borrower and its
Consolidated Subsidiaries, taken as a whole, shall not be deemed to be
a Principal Property.
"Proxy Statement" means the proxy statement of Monsanto filed
with the Securities and Exchange Commission on July 14, 1997 relating
to the Spin-Off, as amended from time to time (without prejudice to
Section 5.02(e)).
"Queeny Belgium" means Monsanto Chemicals Europe S.A., an
indirect wholly owned Consolidated Subsidiary of the Borrower whose
name is to be changed after the date hereof.
"Queeny U.K." means Monsanto Chemicals U.K. Limited, an
indirect wholly owned Consolidated Subsidiary of the Borrower whose
name is to be changed after the date hereof.
"Rated Securities" means, at any time, the long-term senior
unsecured, unguaranteed debt securities of the Borrower outstanding at
such time.
"Rating Level" means Rating Level 1, Rating Level 2, Rating
Level 3, Rating Level 4, Rating Level 5 or Rating Level 6. For purposes
hereof, Rating Level 1 shall be deemed to be
<PAGE> 21
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the highest Rating Level and Rating Level 6 shall be deemed to be the
lowest Rating Level.
"Rating Level 1" means a rating of the Rated Securities better
than or equal to A2 by Moody's or better than or equal to A by S&P.
"Rating Level 2" means a rating of the Rated Securities equal
to A3 by Moody's or A- by S&P.
"Rating Level 3" means a rating of the Rated Securities equal
to Baa1 by Moody's or BBB+ by S&P.
"Rating Level 4" means a rating of the Rated Securities equal
to Baa2 by Moody's or BBB by S&P.
"Rating Level 5" means a rating of the Rated Securities equal
to Baa3 by Moody's or BBB- by S&P.
"Rating Level 6" means a rating of the Rated Securities less
than Baa3 by Moody's and less than BBB- by S&P. If Moody's or S&P shall
not have in effect a rating for the Rated Securities at any time, then
the Rated Securities shall be deemed to be rated by Moody's or S&P, as
the case may be, in Rating Level 6.
"Rating Level Change" means a change in the rating of the
Rated Securities by either or both of Moody's and S&P (other than as a
result of a change in the rating system of such rating agency) that
results in the change from one Rating Level to another, which Rating
Level Change shall be effective on the date on which the relevant
change in the rating of the Rated Securities is first announced by
Moody's or S&P, as the case may be.
"Reference Banks" means Citibank, Bank of America and Societe
Generale; provided that the Borrower may at any time substitute another
Lender as one of the Reference Banks, but such substitution shall
terminate after 30 days if within such period the Majority Lenders
shall have notified the Administrative Agent of their objection to such
substitution.
"Register" has the meaning specified in Section 8.07(c).
"Registration Statement" means the registration statement on
Form 10 of the Borrower to effect the registration of the Borrower's
common stock pursuant to the Exchange Act, as amended from time to time
(without prejudice to Section 5.02(e)).
"Rolling Period" means:
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(a) with respect to determinations made prior to September 30,
1997, the period commencing on January 1, 1997 and ending on June 30,
1997;
(b) with respect to determinations made on or after September
30, 1997 but prior to December 31, 1997, the period commencing on
January 1, 1997 and ending on September 30, 1997; and
(c) with respect to determinations made on or after December
31, 1997, the period of four consecutive calendar quarters ending on or
most recently ended prior to such date.
"S&P" means Standard & Poor's Ratings Services, presently a
division of The McGraw-Hill Companies, Inc., and its successors.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower (or its predecessor's chemicals business) or
any of its ERISA Affiliates and no Person other than the Borrower (or
its predecessor's chemicals business) and its ERISA Affiliates or (b)
was so maintained and in respect of which the Borrower (or its
predecessor's chemicals business) or any of its ERISA Affiliates could
have liability under Section 4069 of ERISA in the event such plan has
been or were to be terminated.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) the present fair salable value of the
assets of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they
become absolute and matured, (b) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature and (c)
such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would be unreasonably small in relation to such business or
such transaction.
"Specified Joint Venture" means a joint venture or other
Person (other than a Consolidated Subsidiary of the Borrower) of which
(or in which) at least 50% of the Ownership Interests thereof is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more of its Consolidated Subsidiaries or by one or more of the
Borrower's Consolidated Subsidiaries, provided that the Borrower's
joint venture partners in such joint venture or other Person do not, in
the aggregate, control (or possess the ability to control) such
<PAGE> 23
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joint venture or other Person. For purposes of this definition, a
"joint venture partner" means a Person that owns any Ownership
Interests in the related joint venture or other Person and that is not
the Borrower or one of its Consolidated Subsidiaries.
"Spin-Off" has the meaning specified in the Preliminary
Statements to this Agreement.
"Spin-Off Documents" means, collectively, (a) the Proxy
Statement, (b) the Registration Statement, (c) the Distribution
Agreement dated as of a date on or prior to the Closing Date by and
between Monsanto and the Borrower, (d) the Employee Benefits and
Compensation Allocation Agreement dated as of a date on or prior to the
Closing Date by and between Monsanto and the Borrower and (e) the Tax
Sharing and Indemnification Agreement dated as of a date on or prior to
the Closing Date by and between Monsanto and the Borrower, in each case
as amended from time to time (without prejudice to Section 5.02(e)).
"Spin-Off Properties" means the properties and businesses
contemplated to be transferred to or purchased by the Borrower and its
Subsidiaries under the Spin-Off Documents.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of the Ownership Interests thereof is at the
time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries.
"Syndication Agent" has the meaning specified in the recital
of parties to this Agreement.
"Taxes" has the meaning specified in Section 2.15(a).
"Term-Out Effective Date" has the meaning assigned to such
term in Section 2.06(a).
"Threshold Amount" means, at any time: (a) if the Borrower's
Consolidated Net Worth at such time is greater than zero, $35,000,000;
and (b) at any other time, $25,000,000.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even
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if the right so to vote has been suspended by the happening of such a
contingency.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms and Determinations. All
accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles consistent with those
applied in the preparation of the financial statements referred to in Section
4.01(e)(ii) ("GAAP"). All determinations of Adjusted EBITDA, Consolidated Net
Tangible Assets, Consolidated Net Worth, Consolidated Tangible Assets and
Interest Expense shall be made on the basis of the financial statements most
recently delivered pursuant to Section 4.01(e)(i) and Sections 5.01(i)(i), (ii)
and (iii). In the event that, after the date of this Agreement, there are any
changes in GAAP, the Lenders will consider a request by the Borrower to amend
this Agreement to take account of such changes.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to the
Borrower from time to time on any Business Day during the period from the
Closing Date to and including the Commitment Termination Date in an aggregate
amount not to exceed at any time outstanding the amount of such Lender's
Commitment; provided that the aggregate amount of the Commitments of the Lenders
shall be deemed used from time to time to the extent of the aggregate amount of
the B Advances then outstanding and such deemed use of the aggregate amount of
the Commitments shall be allocated among the Lenders ratably according to their
respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate
amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof,
or the aggregate amount of the unused portion of the Lenders' Commitments;
provided that any A Borrowing in an aggregate amount less than $10,000,000 shall
consist solely of Base Rate Advances. In addition, each A Borrowing shall
consist of A Advances of the same Type and having the same Interest Period made
on the same day by the Lenders ratably according to their
<PAGE> 25
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respective Commitments. Within the limits of each Lender's Commitment, the
Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10
and, on or prior to the Commitment Termination Date, reborrow under this Section
2.01.
SECTION 2.02. Making the A Advances.
(a) Each A Borrowing shall be made on notice, given not later
than 11:00 A.M. (New York City time) on the third Business Day prior to the date
of the proposed A Borrowing (in the case of an A Borrowing to be comprised of
Eurodollar Rate Advances), or by 11:00 A.M. (New York City time) on the day of
the proposed A Borrowing (in the case of an A Borrowing to be comprised of Base
Rate Advances), by the Borrower to the Administrative Agent, which shall give to
each Lender prompt notice thereof by telecopier or by telex. Each such notice of
an A Borrowing (a "Notice of A Borrowing") shall be by telecopier or by telex,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, specifying therein the requested (i) date of such A Borrowing, (ii) Type
of A Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) in the case of an A Borrowing consisting of Eurodollar Rate
Advances, the initial Interest Period for each such A Advance. Each Lender shall
on the date of such A Borrowing, before 11:00 A.M. (New York City time), in the
case of an A Borrowing to be comprised of Eurodollar Rate Advances, and before
1:00 P.M. (New York City time), in the case of an A Borrowing to be comprised of
Base Rate Advances, make available for the account of its Applicable Lending
Office to the Administrative Agent at its address referred to in Section 8.02,
in same day funds, such Lender's ratable portion of such A Borrowing. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Borrower at the Administrative Agent's
aforesaid address.
(b) Anything in subsection (a) above to the contrary
notwithstanding, the Borrower may not select Eurodollar Rate Advances for any A
Borrowing if the obligation of the Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.08 or 2.12 (except as otherwise
provided in Section 2.12(b)(ii)).
(c) Each Notice of A Borrowing shall be binding on the
Borrower. In the case of any A Borrowing that the related Notice of A Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any revocation of such Notice of A Borrowing by the Borrower or
any failure to fulfill on or before the date specified in such Notice of A
Borrowing for such A Borrowing the applicable conditions set forth in Article
III, including, without limitation, any loss, cost
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or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund the A Advance to be made by such
Lender as part of such A Borrowing when such A Advance, as a result of such
revocation or failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any A Borrowing (in the case of an A
Borrowing to be comprised of Eurodollar Rate Advances) and not later than 12:00
Noon (New York City time) on the Business Day of the proposed A Borrowing (in
the case of an A Borrowing to be comprised of Base Rate Advances) that such
Lender will not make available to the Administrative Agent such Lender's ratable
portion of such A Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date
of such A Borrowing in accordance with subsection (a) of this Section 2.02 and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount; provided that nothing in
this subsection (d) shall be construed to relieve any Lender from any obligation
hereunder to make available to the Administrative Agent its ratable portion of
such A Borrowing in accordance with subsection (a) of this Section 2.02. If and
to the extent that such Lender shall not have so made such ratable portion
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of the Borrower, the
interest rate applicable at such time to the A Advances comprising such A
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to the Administrative Agent such corresponding amount, such
amount so repaid shall constitute such Lender's A Advance as part of such A
Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the A Advance to be made by such other Lender on the date of any
A Borrowing.
SECTION 2.03. The B Advances.
(a) Each Lender severally agrees that the Borrower may make B
Borrowings under this Section 2.03 from time to time on any Business Day during
the period from the Closing Date until the date occurring seven days prior to
the Commitment Termination Date in the manner set forth below; provided that,
following the making of
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each B Borrowing, (X) the aggregate amount of the B Advances of all Lenders then
outstanding shall not exceed the aggregate amount of the Commitments of the
Lenders, and (Y) the aggregate amount of all Advances then outstanding shall not
exceed the aggregate amount of the Commitments of the Lenders.
(i) The Borrower may request a B Borrowing under this
Section 2.03 by delivering to the Administrative Agent, by telecopier
or telex, confirmed immediately in writing, a notice of a B Borrowing
(a "Notice of B Borrowing"), in substantially the form of Exhibit B-2
hereto, specifying therein:
(1) the date of such proposed B Borrowing;
(2) the aggregate amount of such proposed B
Borrowing;
(3) the maturity date for repayment of each B Advance
to be made as part of such B Borrowing (which maturity date
may not be earlier than the date occurring thirty days after
the date of such B Borrowing or later than the Commitment
Termination Date);
(4) the interest payment date or dates relating
thereto; and
(5) whether such B Borrowing is to be comprised of
Fixed Rate Advances or Floating Rate Advances; and
(6) any other terms to be applicable to such B
Borrowing,
not later than 10:00 A.M. (New York City time) (A) at least one
Business Day prior to the date of the proposed B Borrowing, if the
Borrower shall specify in the Notice of B Borrowing that the rates of
interest to be offered by the Lenders shall be fixed rates per annum
(the B Advances comprising any such B Borrowing being referred to
herein as "Fixed Rate Advances") and (B) at least four Business Days
prior to the date of the proposed B Borrowing, if the Borrower shall
instead specify in the Notice of B Borrowing the basis to be used by
the Lenders in determining the rates of interest to be offered by them
(the B Advances comprising such B Borrowing being referred to herein as
"Floating Rate Advances"). The Administrative Agent shall in turn
promptly notify each Lender of each request for a B Borrowing received
by it from the Borrower by sending such Lender a copy of the related
Notice of B Borrowing.
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(ii) Each Lender may, if, in its sole discretion, it
elects to do so, irrevocably offer to make one or more B Advances to
the Borrower as part of such proposed B Borrowing at a rate or rates of
interest specified by such Lender in its sole discretion, by notifying
the Administrative Agent (which shall give prompt notice thereof to the
Borrower), before 10:00 A.M. (New York City time) on the date of such
proposed B Borrowing, in the case of a B Borrowing consisting of Fixed
Rate Advances and three Business Days before the date of such proposed
B Borrowing, in the case of a B Borrowing consisting of Floating Rate
Advances, of the minimum amount and maximum amount of each B Advance
which such Lender would be willing to make as part of such proposed B
Borrowing (which amounts may, subject to the proviso to the first
sentence of this Section 2.03(a), exceed such Lender's Commitment, if
any), the rate or rates of interest therefor and such Lender's
Applicable Lending Office with respect to such B Advance; provided that
if the Administrative Agent in its capacity as a Lender shall, in its
sole discretion, elect to make any such offer, it shall notify the
Borrower of such offer before 9:00 A.M. (New York City time) on the
date on which notice of such election is to be given to the
Administrative Agent by the other Lenders. If any Lender shall elect
not to make such an offer, such Lender shall so notify the
Administrative Agent, before 10:00 A.M. (New York City time) on the
date on which notice of such election is to be given to the
Administrative Agent by the other Lenders, and such Lender shall not be
obligated to, and shall not, make any B Advance as part of such B
Borrowing; provided that the failure by any Lender to give such notice
shall not cause such Lender to be obligated to make any B Advance as
part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, before 12:00 Noon (New
York City time) on the date of such proposed B Borrowing, in the case
of a B Borrowing consisting of Fixed Rate Advances, and before 1:00
P.M. (New York City time) three Business Days before the date of such
proposed B Borrowing, in the case of a B Borrowing consisting of
Floating Rate Advances, either:
(x) cancel such B Borrowing by giving the
Administrative Agent notice to that effect, or
(y) accept one or more of the offers made by any
Lender or Lenders pursuant to paragraph (ii) above, in order
of the lowest to highest rates of interest or margins (or, if
two or more Lenders bid at the same rate of interest, and the
amount of accepted offers is less than the aggregate amount of
such offers, the amount to be borrowed from such Lenders as
part of such B Borrowing shall be allocated among such Lenders
pro rata on the
<PAGE> 29
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basis of the maximum amount offered by such Lenders at such
rates or margin in connection with such B Borrowing), by
giving notice to the Administrative Agent of the amount of
each B Advance (which amount shall be equal to or greater than
the minimum amount, and equal to or less than the maximum
amount, notified to the Borrower by the Administrative Agent
on behalf of such Lender for such B Advance pursuant to
paragraph (ii) above) to be made by each Lender as part of
such B Borrowing, and reject any remaining offers made by
Lenders pursuant to paragraph (ii) above by giving the
Administrative Agent notice to that effect.
(iv) If the Borrower notifies the Administrative Agent
that such B Borrowing is canceled pursuant to paragraph (iii)(x) above,
the Administrative Agent shall give prompt notice thereof to the
Lenders and such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers
made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that
has made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Lender pursuant to paragraph (ii) above have been
accepted by the Borrower, (B) each Lender that is to make a B Advance
as part of such B Borrowing, of the amount of each B Advance to be made
by such Lender as part of such B Borrowing, and (C) each Lender that is
to make a B Advance as part of such B Borrowing, upon receipt, that the
Administrative Agent has received forms of documents appearing to
fulfill the applicable conditions set forth in Article III. Each Lender
that is to make a B Advance as part of such B Borrowing shall, before
1:00 P.M. (New York City time) on the date of such B Borrowing
specified in the notice received from the Administrative Agent pursuant
to clause (A) of the preceding sentence or any later time when such
Lender shall have received notice from the Administrative Agent
pursuant to clause (C) of the preceding sentence, make available for
the account of its Applicable Lending Office to the Administrative
Agent at the Administrative Agent's Account, in same day funds, such
Lender's portion of such B Borrowing. Upon fulfillment of the
applicable conditions set forth in Article III and after receipt by the
Administrative Agent of such funds, the Administrative Agent will make
such funds available to the Borrower at the Administrative Agent's
address referred to in Section 8.02. Promptly after each B Borrowing
the Administrative Agent will notify each Lender of the amount of the B
Borrowing, the consequent B Reduction and the dates upon which such B
Reduction commenced and will terminate.
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(b) Each B Borrowing shall be in an aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, or the
aggregate amount of the unused portion of the Lenders' Commitments and,
following the making of each B Borrowing, the Borrower shall be in compliance
with the limitations set forth in the proviso to the first sentence of
subsection (a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, the Borrower may from time to time borrow under this Section 2.03,
repay pursuant to subsection (d) below, and reborrow under this Section 2.03;
provided that a B Borrowing shall not be made within three Business Days of the
date of any other B Borrowing.
(d) The Borrower shall repay to the Administrative Agent for
the account of each Lender that has made a B Advance, on the maturity date of
each B Advance (such maturity date being that specified by the Borrower for
repayment of such B Advance in the related Notice of B Borrowing delivered
pursuant to subsection (a)(i) above and provided in the B Note evidencing such B
Advance), the then unpaid principal amount of such B Advance. The Borrower shall
not have the right to prepay any B Advance.
(e) The Borrower shall pay interest on the unpaid principal
amount of each B Advance from the date of such B Advance to the date the
principal amount of such B Advance is paid in full, at the rate of interest for
such B Advance specified by the Lender making such B Advance in its notice with
respect thereto delivered pursuant to subsection (a)(ii) above, payable (i) on
the interest payment date or dates specified by the Borrower for such B Advance
in the related Notice of B Borrowing delivered pursuant to subsection (a)(i)
above, as provided in the B Note evidencing such B Advance, and (ii) on the date
such B Advance shall be paid in full. Upon the occurrence and during the
continuance of any Event of Default, the Borrower shall pay interest on the
amount of unpaid principal of each B Advance owing to a Lender, payable in
arrears on the date or dates interest is payable thereon, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid
on such B Advance under the terms of the B Note evidencing such B Advance unless
otherwise agreed in such B Note.
(f) The indebtedness of the Borrower resulting from each B
Advance made to the Borrower as part of a B Borrowing shall be evidenced by a
separate B Note of the Borrower payable to the order of the Lender making such B
Advance.
(g) The Borrower shall pay to the Administrative Agent for its
own account the Competitive Bid Administration Fee described in Section 2.04(b)
with each request for a B Borrowing whether or not any B Borrowing is in fact
made.
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SECTION 2.04. Fees.
(a) Facility Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee (the
"Facility Fee") on the aggregate amount (whether used or unused) of such
Lender's Commitment from the date hereof (in the case of each Initial Lender)
and from the effective date specified in the Acceptance pursuant to which it
became a Lender (in the case of each other Lender) until the Commitment
Termination Date of such Lender at a rate per annum equal to 0.080% per annum.
The Facility Fee shall be payable quarterly in arrears on the last Business Day
of each March, June, September and December and, for each Lender, on the
Commitment Termination Date of such Lender.
(b) Competitive Bid Administration Fee. The Borrower shall pay
to the Administrative Agent for its own account a fee in an amount heretofore
agreed between the Borrower and the Administrative Agent with each request for a
B Borrowing whether or not any B Borrowing is in fact made.
SECTION 2.05. Termination, Reduction and Extensions of the
Commitments.
(a) Commitment Reductions. The Commitment of each Lender
shall be automatically reduced to zero on the Commitment Termination Date of
such Lender. In addition, the Borrower shall have the right, upon at least three
Business Days' notice to the Administrative Agent, to terminate in whole or
reduce ratably in part the unused portions of the respective Commitments of the
Lenders, provided that (i) the aggregate amount of the Commitments of the
Lenders shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding; and (ii) each partial
reduction shall be in an aggregate amount of $10,000,000 or an integral multiple
of $1,000,000 in excess thereof. Once terminated, a Commitment cannot be
reinstated.
(b) Closing Date. On October 31, 1997, the Commitment of each
Lender shall be automatically reduced to zero if the Closing Date shall not have
occurred on or prior to such date.
(c) Commitment Extensions.
(i) The Borrower may, by notice to the Administrative Agent
(which shall promptly notify the Lenders) not more than 60 days and not
less than 40 days prior to the Commitment Termination Date then in
effect hereunder (the "Existing Commitment Termination Date"), request
that each Lender extend such Lender's Commitment Termination Date for
an additional 364 days from the Existing Commitment Termination Date.
<PAGE> 32
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(ii) Each Lender, acting in its sole and individual
discretion, shall, by notice to the Administrative Agent given not more
than 30 days immediately prior to the Existing Commitment Termination
Date but in any event no later than the date (the "Notice Date") that
is 20 days prior to the Existing Commitment Termination Date, advise
the Administrative Agent whether or not such Lender agrees to such
extension (and each Lender that determines not to so extend its
Commitment Termination Date (a "Non-Extending Lender") shall notify the
Administrative Agent (which shall notify the other Lenders) of such
fact promptly after such determination (but in any event no later than
the Notice Date) and any Lender that does not so advise the
Administrative Agent on or before the Notice Date shall be deemed to be
a Non-Extending Lender. The election of any Lender to agree to such
extension shall not obligate any other Lender to so agree.
(iii) The Administrative Agent shall notify the Borrower of
each Lender's determination under this Section 2.05(c) no later than
the date 15 days prior to the Existing Commitment Termination Date (or,
if such date is not a Business Day, on the next preceding Business
Day).
(iv) The Borrower shall have the right on or before the
Existing Commitment Termination Date to replace each Non-Extending
Lender with, and add as "Lenders" under this Agreement in place
thereof, one or more Eligible Assignees (each, an "Additional
Commitment Lender") with the approval of the Administrative Agent and
the Syndication Agent (which approvals shall not be unreasonably
withheld), each of which Additional Commitment Lenders shall have
entered into an Assumption and Acceptance pursuant to which such
Additional Commitment Lender shall, effective as of the Existing
Commitment Termination Date, undertake a Commitment (and, if any such
Additional Commitment Lender is already a Lender, its Commitment shall
be in addition to such Lender's Commitment hereunder on such date).
(v) If (and only if) the total of the Commitments of the
Lenders that have agreed so to extend their Commitment Termination Date
and the additional Commitments of the Additional Commitment Lenders
shall be more than 51% of the aggregate amount of the Commitments in
effect immediately prior to the Existing Commitment Termination Date,
then, effective as of the Existing Commitment Termination Date, the
Commitment Termination Date of each Extending Lender and of each
Additional Commitment Lender shall be extended to the date falling 364
days after the Existing Commitment Termination Date (except that, if
such date is not a Business Day, such Commitment Termination Date as so
extended shall be the next preceding Business Day) and each Additional
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Commitment Lender shall thereupon become a "Lender" for all purposes of
this Agreement.
(vi) Notwithstanding the foregoing, the extension of the
Commitment Termination Date pursuant to this Section 2.05(c) shall not
be effective with respect to any Lender unless:
(x) no Default shall have occurred and be continuing
on either of the date of the notice requesting such extension
or the Existing Commitment Termination Date;
(y) each Non-Extending Lender shall have been paid in
full by the Borrower all amounts owing to such Lender
hereunder on or before the Commitment Termination Date of such
Lender; and
(z) the Borrower shall not have delivered a Notice of
Election of Term Option pursuant to Section 2.06(a).
SECTION 2.06. Repayment of Advances; Term Loans.
(a) A Advances. The Borrower shall repay the principal amount
of each A Advance made by each Lender, and each A Advance made by such Lender
shall mature, on the Commitment Termination Date of such Lender; provided that
the Borrower may, subject to:
(i) the delivery to the Administrative Agent of a notice (a
"Notice of Election of Term Option") in substantially the form of
Exhibit B-3 hereto not more than 30 days nor less than 15 days prior to
the Commitment Termination Date then in effect (the "Term-Out Effective
Date"),
(ii) the condition that, both on the date on which such Notice
of Election of Term Option is given and on the Term-Out Effective Date,
no Default shall have occurred and be continuing, and
(iii) the condition that the aggregate principal amount of
outstanding the A Advances shall be not less than $10,000,000,
elect to repay the A Advances of all (but not less than all) of the Lenders on
the Final Maturity Date; and, if the Borrower does make such election in
accordance with this Section 2.06(a), the Borrower shall repay the principal
amount of each A Advance made by each Lender, and each A Advance made by such
Lender shall mature, on the Final Maturity Date.
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(b) B Advances. The Borrower shall repay the principal amount
of each B Advance made by each Lender as provided in Section 2.03(e).
SECTION 2.07. Interest on A Advances.
(a) Scheduled Interest. The Borrower shall pay interest on the
unpaid principal amount of each A Advance owing to each Lender from the date of
such A Advance until such principal amount shall be paid in full, at the
following rates per annum:
(i) Base Rate Advances. During such periods as such A Advance
is a Base Rate Advance, a rate per annum equal at all times to the Base
Rate in effect from time to time, payable in arrears quarterly on the
last day of each March, June, September and December during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(ii) Eurodollar Rate Advances. During such periods as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such A Advance to the sum of (x)
the Eurodollar Rate for such Interest Period for such Advance plus (y)
the Applicable Margin in effect from time to time, payable in arrears
on the last day of such Interest Period and, if such Interest Period
has a duration of more than three months, on each day that occurs
during such Interest Period every three months from the first day of
such Interest Period and on the date such Eurodollar Rate Advance shall
be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of any Event of Default, the Borrower shall pay interest on the
unpaid principal amount of each A Advance owing to each Lender, payable in
arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate
per annum equal at all times to 2% per annum above the rate per annum required
to be paid on such A Advance pursuant to clause (a)(i) or (a)(ii) above.
SECTION 2.08. Interest Rate Determination; Changes in Rating
Systems.
(a) Each Reference Bank agrees to furnish to the
Administrative Agent timely information for the purpose of determining each
Eurodollar Rate. If any one or more of the Reference Banks shall not furnish
such timely information to the Administrative Agent for the purpose of
determining any such interest rate, the Administrative Agent shall determine
such interest rate on the basis of timely information furnished by the remaining
Reference Banks. The Administrative Agent shall give prompt notice to the
Borrower and the Lenders of the applicable interest rate determined by the
Administrative Agent for purposes
<PAGE> 35
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of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference
Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the
Majority Lenders notify the Administrative Agent that the Eurodollar Rate for
any Interest Period for such Advances will not adequately reflect the cost to
such Majority Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances for such Interest Period, the Administrative Agent
shall forthwith so notify the Borrower and the Lenders, whereupon (i) each
Eurodollar Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance, and (ii) the
obligation of the Lenders to make, or to Convert A Advances into, Eurodollar
Rate Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
(c) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount
of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $10,000,000, such Advances
shall automatically Convert into Base Rate Advances and on and after such date
the right of the Borrower to Convert such A Advances shall terminate.
(e) Upon the occurrence and during the continuance of any
Event of Default, (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance and (ii) the obligation of the Lenders to make, or to Convert A Advances
into, Eurodollar Rate Advances shall be suspended.
(f) If fewer than two Reference Banks furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be determined
for such Eurodollar Rate Advances,
(ii) each such A Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert
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into a Base Rate Advance (or if such Advance is then a Base Rate
Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert A
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(g) If the rating system of either Moody's or S&P shall
change, or if either such rating agency shall cease to be in the business of
rating corporate debt obligations, the Borrower and the Administrative Agent (on
behalf of the Lenders) shall negotiate in good faith to amend the references to
specific ratings in this Agreement to reflect such changed rating system or the
non-availability of ratings from such rating agency (provided that any such
amendment to such specific ratings shall in no event be effective without the
approval of the Majority Lenders).
SECTION 2.09. Optional Conversion of A Advances. The Borrower
may on any Business Day, upon notice given to the Administrative Agent not later
than 11:00 A.M. (New York City time) on the third Business Day prior to the date
of the proposed Conversion and subject to the provisions of Sections 2.08 and
2.12, Convert all A Advances of one Type comprising the same Borrowing into A
Advances of the other Type; provided that any Conversion of Eurodollar Rate
Advances into Base Rate Advances shall be made only on the last day of an
Interest Period for such Eurodollar Rate Advances. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the A Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for each such A Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
SECTION 2.10. Prepayments, Etc.
(a) Optional Payments of A Advances. The Borrower may, upon
notice to the Administrative Agent stating the proposed date and aggregate
principal amount of the prepayment, given to the Administrative Agent not later
than 11:00 A.M. (New York City time) on the proposed date in the case of Base
Rate Advances and at least two Business Days prior to the proposed date in the
case of Eurodollar Rate Advances, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the A Advances comprising part
of the same Borrowing in whole or ratably in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid;
provided that (x) each partial prepayment shall be in an aggregate principal
amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof
and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the
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Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant
to Section 8.04(c).
(b) Change of Control. If any Change of Control shall occur,
then, upon notice to the Borrower by the Administrative Agent (acting at the
request, or with the consent, of the Majority Lenders) to such effect and
stating that the same is a "Change of Control Prepayment Notice", the
Commitments shall be automatically reduced to zero and the Borrower shall prepay
the Advances in full.
SECTION 2.11. Increased Costs.
(a) If due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law), in each case, after the date hereof,
there shall be any increase in the cost to any Lender of agreeing to make or
making, funding or maintaining Eurodollar Rate Advances or Floating Rate
Advances, then such Lender may from time to time give notice of such
circumstances to the Borrower (with a copy to the Administrative Agent);
provided that each Lender agrees, before giving any such notice, to use its best
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased costs and would not be disadvantageous to such Lender. The amount
sufficient to compensate such Lender in light of such increase in costs to such
Lender or any corporation controlling such Lender shall be determined by such
Lender in good faith on a basis that allocates the amounts sufficient to
compensate such Lender in light of such increase ratably among all applicable
Advances. A certificate specifying the event referred to in this Section
2.11(a), the amount sufficient to compensate such Lender and the basis of its
computation (which shall be reasonable), submitted in good faith to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding for
all purposes absent manifest error. Each Lender agrees to provide reasonably
prompt notice to the Borrower of the occurrence of any event referred to in the
first sentence of this Section 2.11(a).
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) after the date
hereof affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type, then,
such Lender may from time to time give notice of such
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circumstances to the Borrower (with a copy to the Administrative Agent);
provided that each Lender agrees, before giving any such notice, to use its best
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, the
cost to the Lender of such increase in the amount of capital maintained by such
Lender and would not be disadvantageous to such Lender. The amount sufficient to
compensate such Lender in light of such increase in the amount of capital
maintained by such Lender or any corporation controlling such Lender shall be
determined by such Lender in good faith to the extent that such Lender
reasonably determines such increase in capital to be allocable to the existence
of such Lender's commitment to lend hereunder. A certificate specifying the
event referred to in this Section 2.11(b), the amount sufficient to compensate
such Lender and the basis of its computation (which shall be reasonable),
submitted in good faith to the Borrower and the Administrative Agent by such
Lender, shall be conclusive and binding for all purposes absent manifest error.
Each Lender agrees to provide reasonably prompt notice to the Borrower of the
occurrence of any event referred to in the first sentence of this Section
2.11(b).
(c) The Borrower shall, within five days of receiving a notice
from any Lender pursuant to clause (a) or (b) of this Section 2.11, elect (and
shall notify such Lender and the Administrative Agent of such election) to:
(i) pay to the Administrative Agent for the account of such
Lender, from time to time commencing on the date of notice by such
Lender and as specified by such Lender, (A) the amount such Lender has
set forth in the certificate which such Lender has delivered to the
Borrower pursuant to clause (a) of this Section 2.11 or (B) the amount
such Lender has set forth in the certificate which such Lender has
delivered to the Borrower pursuant to clause (b) of this Section 2.11;
or
(ii) if no Default shall have occurred and be continuing,
require that such Lender assign to the Borrower's designated assignee
or assignees, in accordance with the terms of Section 8.07, all
Advances then owing to such Lender and all rights and obligations of
such Lender hereunder; provided that (A) each such assignment shall be
either an assignment of all of the rights and obligations of the
assigning Lender under this Agreement or an assignment of a portion of
such rights and obligations made concurrently with another such
assignment or assignments which together cover all of the rights and
obligations of the assigning Lender under this Agreement, (B) no Lender
shall be obligated to make any such assignment as a result of a demand
by the Borrower pursuant to this Section 2.11(c) unless and until such
Lender shall have received one
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or more payments from either the Borrower or one or more assignees in
an aggregate amount at least equal to the aggregate outstanding
principal amount of the A Advances owing to such Lender, together with
accrued interest thereon to the date of payment of such principal
amount, all Facility Fees and other fees payable to such Lender and all
other amounts payable to such Lender under this Agreement (including,
but not limited to, any increased costs or other additional amounts
(computed in accordance with this Section 2.11), and any Taxes,
incurred by such Lender prior to the effective date of such assignment
and amounts payable under Section 8.04(a)) and (C) each such assignment
shall be made pursuant to an Assignment and Acceptance; provided that
such assignment shall not be effective if, after giving effect to such
assignment, the aggregate amount of the Commitments so assigned or
terminated under this Section 2.11, Section 2.12(b) and Section 2.15(g)
during the term of this Agreement would exceed 25% of the aggregate
amount of the Commitments as of the Closing Date. Upon such payments
and prepayments, the obligations of such Lender hereunder, by the
provisions hereof, shall be released and discharged; provided that such
Lender's rights under Sections 2.11, 2.15 and 8.04(b), and its
obligations under Section 7.05, shall survive such release and
discharge as to matters occurring prior to the date of termination of
such Lender's Commitment.
SECTION 2.12. Illegality.
(a) Notwithstanding any other provision of this Agreement, if
any Lender (any such Lender being referred to herein as an "Affected Lender")
shall notify the Administrative Agent that the introduction of or any change in
or in the interpretation of any law or regulation makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
any Lender or its Eurodollar Lending Office to perform its obligations hereunder
to make Eurodollar Rate Advances or Floating Rate Advances or to fund or
maintain Eurodollar Rate Advances or Floating Rate Advances hereunder, the
obligation of the Lenders to make, or to Convert A Advances into, Eurodollar
Rate Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist; provided that such suspension shall not become effective in the
event the Borrower requires the assignment of the Affected Lender's Advances
owing to it and its other rights and obligations hereunder pursuant to clause
(b)(ii) below. The Borrower's right to require an assignment in accordance with
clause (b)(ii) below shall not be effective to the extent that Lenders
representing a majority of the Commitments then outstanding shall be "Affected
Lenders".
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(b) The Borrower shall, within five days of receiving a notice
from any Affected Lender pursuant to clause (a) of this Section 2.12, elect (and
shall notify such Affected Lender and the Administrative Agent of such election)
to:
(i) prepay in full all Eurodollar Rate Advances or Floating
Rate Advances then outstanding, together with interest thereon, unless
the Borrower, within five Business Days of notice from the
Administrative Agent Converts all Eurodollar Rate Advances or Floating
Rate Advances of all Lenders then outstanding into Base Rate Advances
in accordance with Section 2.09; or
(ii) if no Default shall have occurred and be continuing,
require that such Affected Lender assign to the Borrower's designated
assignee or assignees, in accordance with the terms of Section 8.07,
all Advances then owing to such Affected Lender and all rights and
obligations of such Affected Lender hereunder; provided that (A) each
such assignment shall be either an assignment of all of the rights and
obligations of the assigning Affected Lender under this Agreement or an
assignment of a portion of such rights and obligations made
concurrently with another such assignment or assignments which together
cover all of the rights and obligations of the assigning Affected
Lender under this Agreement, (B) no Affected Lender shall be obligated
to make any such assignment as a result of a demand by the Borrower
pursuant to this Section 2.12(b) unless and until such Affected Lender
shall have received one or more payments from either the Borrower or
one or more assignees in an aggregate amount at least equal to the
aggregate outstanding principal amount of the A Advances owing to such
Affected Lender, together with accrued interest thereon to the date of
payment of such principal amount, all Facility Fees and other fees
payable to such Affected Lender and all other amounts payable to such
Affected Lender under this Agreement (including, but not limited to,
any increased costs or other additional amounts (computed in accordance
with Section 2.11), and any Taxes, incurred by such Affected Lender
prior to the effective date of such assignment and amounts payable
under Section 8.04(a)) and (C) each such assignment shall be made
pursuant to an Assignment and Acceptance; provided that such assignment
shall not be effective if, after giving effect to such assignment, the
aggregate amount of the Commitments so assigned or terminated under
this Section 2.12(b), Section 2.11 and Section 2.15(g) during the term
of this Agreement would exceed 25% of the aggregate amount of the
Commitments as of the Closing Date. Upon such payments and prepayments,
the obligations of such Affected Lender hereunder, by the provisions
hereof, shall be released and discharged; provided that such Affected
Lender's rights under Sections 2.11, 2.15 and 8.04(b), and its
obligations
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under Section 7.05, shall survive such release and discharge as to
matters occurring prior to the date of termination of such Affected
Lender's Commitment.
SECTION 2.13. Payments and Computations.
(a) The Borrower shall make each payment hereunder and under
the Notes not later than 12:00 noon (New York City time) on the day when due in
U.S. dollars to the Administrative Agent at the Administrative Agent's Account
in same day funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest or
Facility Fees ratably (other than amounts payable pursuant to Sections 2.03,
2.04(b), 2.05(c), 2.11, 2.12, 2.15 or 8.04(c)) to the Lenders for the account of
their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender to such Lender for the account
of its Applicable Lending Office, in each case to be applied in accordance with
the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance
and recording of the information contained therein in the Register pursuant to
Section 8.07(c) from and after the effective date specified in such Assignment
and Acceptance, the Administrative Agent shall make all payments hereunder and
under the Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall
be made by the Administrative Agent on the basis of a year of 365 or 366 days,
as the case may be, and all computations of interest based on the Eurodollar
Rate or the Federal Funds Rate and of Facility Fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or Facility Fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or Facility Fee, as
the case may be; provided that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances or Floating Rate Advances
to be made in the next following calendar month, such payment shall be made on
the next preceding Business Day.
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(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.14. Notations on the A Notes. All A Advances made by
each Lender to the Borrower pursuant to this Agreement and all payments made on
account of principal thereof shall be recorded by such Lender and, prior to any
assignment by such Lender of the A Note issued to it, all unpaid A Advances
shall be endorsed on the grid attached to such A Note; provided, however, that
the failure of such Lender to make any such notations shall not limit or
otherwise affect the Borrower's obligations to such Lender with respect to such
A Advances. Upon the payment in full of any Lender's A Advances then outstanding
and the termination in full of such Lender's Commitment, such Lender shall
cancel and return such Lender's A Note to the Borrower and be fully responsible
for any claims or liabilities arising in connection with or resulting from any
sale of participations therein.
SECTION 2.15. Taxes.
(a) Any and all payments by the Borrower hereunder or under
the Notes shall be made, in accordance with Section 2.13, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Administrative Agent, taxes
imposed on its income, and franchise taxes imposed on it in lieu of income
taxes, by the jurisdiction under the laws of which such Lender or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
income, and franchise taxes imposed on it in lieu of income taxes, by the
jurisdiction of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender or the
Administrative Agent, (i) the sum payable
<PAGE> 43
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shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.15) such Lender or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.15) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be made within 30 days from the date such Lender or
the Administrative Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing payment
thereof. In the case of any payment hereunder or under the Notes by or on behalf
of the Borrower through an account or branch outside the United States or on
behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this Agreement (in the case of each Initial Lender) and on the date of the
Acceptance pursuant to which it becomes a Lender (in the case of each other
Lender), and from time to time thereafter if requested in writing by the
Borrower (but only so long as such Lender remains lawfully able to do so), shall
provide the Borrower with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor or other form prescribed
<PAGE> 44
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by the Internal Revenue Service, certifying that such Lender is exempt from or
entitled to a reduced rate of United States withholding tax on payments of
interest pursuant to this Agreement or the Notes. If the form provided by a
Lender at the time such Lender first becomes a party to this Agreement indicates
a United States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from "Taxes" as defined in Section
2.15(a). If any form or document referred to in this subsection (e) requires the
disclosure of information, other than information necessary to compute the tax
payable and information required by the versions of Internal Revenue Service
Form 1001 or 4224 in effect on the date hereof, that the Lender reasonably
considers to be confidential, the Lender shall give notice thereof to the
Borrower and shall not be obligated to include in such form or document such
confidential information.
(f) For any period with respect to which a Lender has failed
to provide the Borrower with the appropriate form described in Section 2.15(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided, or if such form
otherwise is not required under the first sentence of subsection (e) above),
such Lender shall not be entitled to indemnification under Section 2.15(a) with
respect to Taxes imposed by the United States; provided that should a Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
(g) So long as no Default shall have occurred and be
continuing, if the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Note to any Lender or shall
be required to indemnify any Lender for any Taxes under Section 2.15(c) (each
such Lender, a "Specified Lender"), the Borrower may, within five days of
receiving a notice from any Specified Lender pursuant to clause (a) of this
Section 2.15, elect (and shall notify such Specified Lender and the
Administrative Agent of such election) to require that such Specified Lender
assign to the Borrower's designated assignee or assignees, in accordance with
the terms of Section 8.07, all Advances then owing to such Specified Lender and
all rights and obligations of such Specified Lender hereunder; provided that (A)
each such assignment shall be either an assignment of all of the rights and
obligations of the assigning Specified Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or assignments which together cover all of the rights
and obligations of the assigning Specified Lender under this Agreement, (B) no
Specified Lender shall be obligated to make any such assignment as a result of a
demand by the Borrower pursuant to this Section 2.15(g) unless and until such
Specified Lender shall have received
<PAGE> 45
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one or more payments from either the Borrower or one or more assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the A Advances owing to such Specified Lender, together with accrued interest
thereon to the date of payment of such principal amount, all Facility Fees and
other fees payable to such Specified Lender and all other amounts payable to
such Specified Lender under this Agreement (including, but not limited to, any
increased costs or other additional amounts (computed in accordance with Section
2.11), and any Taxes, incurred by such Specified Lender prior to the effective
date of such assignment and amounts payable under Section 8.04(a)) and (C) each
such assignment shall be made pursuant to an Assignment and Acceptance; provided
that such assignment shall not be effective if, after giving effect to such
assignment, the aggregate amount of the Commitments so assigned or terminated
under this Section 2.15(g), Section 2.11 and Section 2.12 during the term of
this Agreement would exceed 25% of the aggregate amount of the Commitments as of
the Closing Date. Upon such payments and prepayments, the obligations of such
Specified Lender hereunder, by the provisions hereof, shall be released and
discharged; provided that such Specified Lender's rights under Sections 2.11,
2.12, 2.15 and 8.04(b), and its obligations under Section 7.05, shall survive
such release and discharge as to matters occurring prior to the date of
termination of such Specified Lender's Commitment.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the A Advances owing to it (other
than pursuant to Sections 2.05(c), 2.11, 2.12, 2.15 or 8.04(c)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participation in the A Advances owing to them as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of them;
provided that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and each such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the amount of such
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.16 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
<PAGE> 46
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing. The
obligation of each Lender to make an Advance on the occasion of the initial
Borrowing is subject to the condition precedent that the Administrative Agent
shall have received, on or prior to October 31, 1997, the following, each
(unless otherwise specified below) dated the Closing Date, in form and substance
satisfactory to the Administrative Agent (and, to the extent specified below,
each Lender) and (except for the Notes) in sufficient copies for each Lender:
(a) A Notes. The A Notes to the order of the Lenders,
respectively.
(b) Charter Documents, Etc.
(1) Certified copies of (x) the charter and by-laws
of the Borrower, (y) the resolutions of the Board of Directors
of the Borrower authorizing and approving this Agreement and
the Notes, and (z) all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
(2) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Agreement and the Notes and the other documents to be
delivered hereunder.
(3) A certificate from the Secretary of State of the
State of Delaware dated a date reasonably close to the Closing
Date as to the good standing of and charter documents filed by
the Borrower.
(c) Opinions.
(1) A favorable opinion of the General Counsel of the
Borrower, substantially in the form of Exhibit D.
(2) A favorable opinion of Milbank, Tweed, Hadley &
McCloy, special New York counsel for the Administrative Agent,
substantially in the form of Exhibit E.
(d) Solvency. A certificate of a senior financial officer of
the Borrower to the effect that the Borrower (both individually and
collectively with its Consolidated Subsidiaries) is Solvent.
<PAGE> 47
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(e) Spin-Off Matters.
(1) Spin-Off Resolutions, Etc. Certified copies of
the resolutions of the Board of Directors of Monsanto and the
Borrower authorizing and approving the Spin-Off and the
transactions contemplated thereby.
(2) Spin-Off Documents, Etc. Certified copies of each
Spin-Off Document, each as amended and in effect on the
Closing Date.
(3) Spin-Off Effectiveness, Etc. Evidence that (i)
all Spin-Off Properties (other than intangible properties and
contract rights that, in the aggregate, are immaterial to the
business of the Borrower and its Subsidiaries, taken as a
whole) have been (or simultaneously with the occurrence of the
Closing Date shall be) transferred to or purchased by the
Borrower and its Subsidiaries in accordance with the Spin-Off
Documents; and (ii) the Spin-Off shall otherwise have been (or
simultaneously with the occurrence of the Closing Date shall
be) consummated in all material respects in accordance with
the terms of the Spin-Off Documents (without any waiver or
amendment that is materially adverse to the Borrower and/or
the Lenders in connection with the financing not consented to
by the Lenders), and in compliance with applicable law.
(f) Representations, Etc. A certificate signed by a duly
authorized officer of the Borrower stating that:
(1) the representations and warranties contained in
Section 4.01 are correct on and as of the Closing Date, and
(2) no event has occurred and is continuing that
constitutes a Default.
(g) Other. Such other approvals, opinions and documents
relating to material ERISA, environmental and Spin-Off matters as the
Administrative Agent or any Lender may, through the Administrative
Agent, reasonably request.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The
obligation of each Lender to make an A Advance on the occasion of each A
Borrowing shall be subject to the conditions precedent that the Closing Date
shall have occurred and on the date of such A Borrowing:
(a) the following statements shall be true (and each of the
giving of the applicable Notice of A Borrowing and the
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acceptance by the Borrower of the proceeds of such A Borrowing shall
constitute a representation and warranty by the Borrower that on the
date of such A Borrowing such statements are true):
(i) the representations and warranties contained in
Section 4.01 (except the Excluded Representations) are correct
on and as of the date of such A Borrowing, before and after
giving effect to such A Borrowing and to the application of
the proceeds therefrom, as though made on and as of such date;
and
(ii) no event has occurred and is continuing, or
would result from such A Borrowing or from the application of
the proceeds therefrom, that constitutes a Default; and
(b) the Administrative Agent shall have received such other
approvals, opinions or documents as any Lender through the
Administrative Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Lender that is to make a B Advance on the occasion of each B
Borrowing to make such B Advance as part of such B Borrowing is subject to the
conditions precedent that the Closing Date shall have occurred and (a) the
Administrative Agent shall have received the Notice of B Borrowing with respect
thereto, (b) on or before the date of such B Borrowing, but prior to such B
Borrowing, the Administrative Agent shall have received a B Note payable to the
order of such Lender for each of the one or more B Advances to be made by such
Lender as part of such B Borrowing, in a principal amount equal to the principal
amount of the B Advance to be evidenced thereby and otherwise on such terms as
were agreed to for such B Advance in accordance with Section 2.03, and (c) on
the date of such B Borrowing the following statements shall be true (and each of
the giving of the applicable Notice of B Borrowing and the acceptance by the
Borrower of the proceeds of such B Borrowing shall constitute a representation
and warranty by the Borrower that on the date of such B Borrowing such
statements are true):
(i) the representations and warranties contained in
Section 4.01 (except the Excluded Representations) are correct
on and as of the date of such B Borrowing, before and after
giving effect to such B Borrowing and to the application of
the proceeds therefrom, as though made on and as of such date;
and
(ii) no event has occurred and is continuing, or
would result from such B Borrowing or from the application of
the proceeds therefrom, that constitutes a Default.
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SECTION 3.04. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the proposed
Closing Date (as notified by the Borrower or the Administrative Agent to the
Lenders) specifying its objection thereto. The Administrative Agent shall
promptly notify the Lenders of the occurrence of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Incorporation; Good Standing. The Borrower is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) Corporate Authority; No Breach. The execution, delivery
and performance by the Borrower of this Agreement and the Notes, and
the consummation of the Spin-Off and the other transactions
contemplated hereby, are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Borrower's charter or bylaws or (ii) law or any
contractual restriction binding on or affecting the Borrower.
(c) No Consents or Approvals. No authorization or approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other third party is required for
the due execution, delivery and performance by the Borrower of this
Agreement or the Notes, other than those authorizations, approvals,
notices, filings and actions that have been obtained, filed or taken on
or before the Closing Date by the Borrower. No authorization or
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or any other third party is
required for the consummation of the Spin-Off or the transactions
contemplated thereby, except for the authorizations, approvals,
actions, notices and filings (i) the failure to obtain would not have a
Material Adverse Effect or (ii) which have been (or, prior to the
Closing Date, will be) duly obtained, taken, given or made and are in
full force and effect.
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(d) Enforceable Obligations, Etc. This Agreement has been, and
each of the Notes when delivered hereunder will have been, duly
executed and delivered by the Borrower. This Agreement is, and each of
the Notes when delivered hereunder will be, the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with their respective terms.
(e) Financial Statements, Etc.
(i) The pro forma statement of financial position of the
Borrower as at March 31, 1997, and the pro forma statements of income
of the Borrower for the three months ended March 31, 1997 and for the
year ended December 31, 1996, in each case as presented in the Proxy
Statement (a copy of which has been furnished to each Lender) present
fairly, in all material respects (subject, in the case of such
statement of financial position as at March 31, 1997 and such statement
of income for the three-months then ended, to year-end audit
adjustments) the pro forma financial condition of the Borrower as at
such date (determined as if the Spin-Off had occurred on such date) and
the pro forma results of operations of the Borrower for the periods
ended on such dates (determined as if the Spin-Off had occurred as of
the beginning of the periods presented); it being understood that,
although the pro forma adjustments made in the preparation of such
statements were made based upon methods and data the Borrower believes
to be reasonable and accurate, actual results (had the Spin-Off
occurred on the dates referred to above) during the period covered by
such financial statements could have differed from those set forth in
such financial statements.
(ii) The historical statement of financial position of the
Borrower as at December 31, 1996 and the related historical statements
of income and cash flows of the Borrower for the twelve months then
ended, accompanied by an opinion of Deloitte & Touche LLP, independent
public accountants, and the historical balance sheet of the Borrower as
at March 31, 1997 and the related historical statements of income and
cash flows of the Borrower for the three months then ended, as
presented in the Proxy Statement (copies of which have been made
available to each Lender) present fairly, in all material respects
(subject, in the case of said balance sheet as at March 31, 1997, and
said statements of income and cash flows for the three months then
ended, to year-end audit adjustments) the historical financial
condition of the Borrower as at such dates and the historical results
of the operations of the Borrower for the periods ended on such dates,
all in accordance with generally accepted accounting principles applied
on a consistent basis (other than the change in accounting for certain
environmental remediation
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liabilities as discussed in footnote 2 on page F-25 of the Proxy
Statement).
(iii) Since December 31, 1996, there has been no material
adverse change in the financial condition or results of operations of
the Borrower and its Subsidiaries, taken as a whole (it being
understood that the transactions relating to the Spin-Off described in
the Proxy Statement shall not be deemed to constitute such a material
adverse change).
(f) No Litigation, Etc. Except as set forth in the Proxy
Statement, there is no pending or, to the best of the Borrower's
knowledge, threatened action or proceeding affecting the Borrower or
any of its Consolidated Subsidiaries before any court, or governmental
agency or arbitrator which (i) would have a Material Adverse Effect,
(ii) purports to affect, or would affect, the legality, validity or
enforceability of this Agreement or any Note or (iii) would affect the
legality, validity or enforceability of the consummation of the
Spin-Off or the other transactions contemplated thereby.
(g) ERISA. No ERISA Event that would have a Material Adverse
Effect has occurred or is reasonably expected to occur with respect to
any Plan. As of the Closing Date, neither the Borrower nor any ERISA
Affiliate participates in any Multiple Employer Plan or in any
Multiemployer Plan with respect to which the Borrower or any ERISA
Affiliate has any Withdrawal Liability or other liability (other than
the ordinary liability of a sponsor for contributions to or benefits
under such Plan) that, in either case, would have a Material Adverse
Effect.
(h) Environmental Laws. The Borrower (i) is in substantial
compliance with any and all applicable Environmental Laws, (ii) has (to
the best of its knowledge) received, applied for or been assigned all
required Environmental Permits and (iii) is in substantial compliance
with all terms and conditions of any such Environmental Permits, except
where any such noncompliance with Environmental Laws, failure to
receive, apply for or be assigned an Environmental Permit, or failure
to comply with the terms and conditions of an Environmental Permit,
would not have a Material Adverse Effect.
(i) Investment Company; Public Utility. Neither the Borrower
nor any of its Material Subsidiaries is an "investment company", or an
"affiliated person" of, or "promoter" or "principal underwriter" for,
an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended. Neither the Borrower nor any of its
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Material Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company",
within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(j) Accuracy of Information.
(i) All written information, reports, financial statements,
exhibits and schedules (except as to assumptions, statements, estimates
and projections with respect to anticipated future performance or
events) concerning the operations, business, financial condition,
properties and prospects of the Borrower and its Subsidiaries
("Information") furnished by or on behalf of the Borrower to the
Administrative Agent, the Syndication Agent or any Lender on or prior
to the Closing Date in connection with the negotiation, preparation or
delivery of this Agreement or included herein or delivered pursuant to
Article III, when taken as a whole, as of the date of such Information,
does not contain any untrue statement of material fact or, to the best
of the Borrower's knowledge, omit to state any material fact necessary
to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(ii) All Post-Closing Date Information furnished by or on
behalf of the Borrower to the Administrative Agent or any Lender after
the Closing Date, when taken as a whole, as of the date of such
Post-Closing Date Information, will not contain any untrue statement of
material fact or, to the best of the Borrower's knowledge, omit to
state any material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(iii) Financial projections and pro forma adjustments
contained in the Information may be based on estimates and assumptions
about circumstances and events that have not taken place at the time of
delivery thereof; although such information reflects the Borrower's
good faith projections and estimates as of the date thereof, based upon
methods and data the Borrower believes to be reasonable and accurate,
actual results during the period covered by such projections and pro
forma adjustments may differ materially from the projections and pro
forma adjustments.
(iv) For purposes of this Section 4.01(j), "Post-Closing Date
Information" means:
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(x) all Information furnished by the Borrower and its
Subsidiaries after the date hereof under Sections 5.01(i)(i)
through (viii), inclusive; and
(y) all Information furnished by the Borrower and its
Subsidiaries after the date hereof under Section 5.01(i)(ix),
provided that the request for such information is made in
writing and delivered to the Borrower, at the address
specified in Section 8.02, to the attention of the Borrower's
Treasurer and stating that such request is being made in
connection with this Agreement.
(k) Margin Stock. The Borrower is not principally engaged in
the business of extending credit for the purpose of purchasing or
carrying Margin Stock, and no proceeds of any Advance will be used for
any purpose which violates the provisions of the regulations of the
Board of Governors of the Federal Reserve System. After applying the
proceeds of each Advance, not more than 25% of the value of the assets
of the Borrower and the Borrower's Subsidiaries (as determined in good
faith by the Borrower) that are subject to Section 5.02(a) will consist
of or be represented by Margin Stock. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative
Agent and each Lender a statement in conformity with the requirements
of Federal Reserve Form U-1 referred to in Regulation U, the statements
made in which shall be such, in the opinion of each Lender, as to
permit the transactions contemplated hereby in accordance with
Regulation U.
SECTION 4.02. Representation and Warranty of the Lenders. Each
Lender represents and warrants that in good faith it has not relied, and will
not rely, upon any Margin Stock as collateral in the making and maintaining of
its Advances hereunder.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Preservation of Corporate Existence, Etc. 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 that the Borrower shall not be required to
preserve any such right or franchise if it shall determine that the
preservation thereof is no
<PAGE> 54
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longer desirable in the conduct of its business. Cause each Material
Subsidiary of the Borrower to do or cause to be done all things
necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of such
Material Subsidiary, except in each case if the Borrower shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower and its Subsidiaries, taken as
a whole.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Consolidated Subsidiaries to comply, in all material respects, with all
applicable laws, rules, regulations and orders, such compliance to
include, without limitation, compliance with ERISA and all applicable
Environmental Laws, except such noncompliance as would not have a
Material Adverse Effect.
(c) Payment of Taxes. Duly pay and discharge, and cause each
of its Consolidated Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges whatsoever and by whomsoever
imposed upon it or against its properties prior to the date on which
penalties are attached thereto, unless and to the extent only that the
same (i) shall be contested in good faith and by appropriate
proceedings by the Borrower or (ii) are not of material importance to
the business, financial condition or operating results of the Borrower
and its Consolidated Subsidiaries.
(d) Payment of Material Obligations, Etc. Pay, and cause each
of its Material Subsidiaries to pay, all obligations under Material
Contracts. Perform, and cause each of its Material Subsidiaries to
perform, each other obligation (other than obligations that the
Borrower determines, in good faith and upon the advice of its counsel,
not to be binding on it) of the Borrower or such Material Subsidiary,
as the case may be, under the Material Contracts except where the
failure to do so would not (either individually or in the aggregate)
have a Material Adverse Effect.
(e) Visitation. Permit, and cause each of its Material
Subsidiaries to permit, the Administrative Agent or any of the Lenders
or any agents or representatives thereof (at any reasonable time and as
may be reasonably requested from time to time and, so long as no
Default shall have occurred and is continuing, upon reasonable advance
notice):
(i) to visit the properties of the Borrower and any
of its Material Subsidiaries in the presence of an appropriate
officer or representative of the Borrower;
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(ii) if any Default shall have occurred and then be
continuing, to examine and make copies of and abstracts from
the records and books of account of the Borrower and any of
its Material Subsidiaries (other than trade secrets and
information and materials subject to confidentiality
agreements with third parties) in the presence of an
appropriate officer or representative of the Borrower); and
(iii) to discuss the affairs, finances and accounts
of the Borrower and any of its Material Subsidiaries with any
of their officers or directors and with their independent
certified public accountants.
(f) Keeping of Books. Keep, and cause each of its Consolidated
Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Consolidated
Subsidiary in accordance with generally accepted accounting standards
in effect from time to time.
(g) Properties. Cause all Principal Properties to be
maintained and kept in good condition, repair and working order, and
cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereto, in each case as in the judgment
of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at
all times, provided that nothing in this paragraph (g) shall prevent
the Borrower or any of its Subsidiaries from discontinuing the
operation and maintenance of any such Principal Properties or from
omitting to make any repairs, renewals, replacements, betterments or
improvements if such discontinuance or omission is, in the judgment of
the Borrower, desirable in the conduct of the business of the Borrower
and its Subsidiaries taken as a whole.
(h) Maintenance of Insurance. From and after the Closing Date,
maintain insurance, and cause each of its Consolidated Subsidiaries to
maintain insurance, with financially sound and reputable insurers, with
respect to such of its properties, against such risks, casualties and
contingencies and in such types and amounts as are consistent with
sound business practice, it being understood that this paragraph (h)
shall not prevent the use of deductible or excess loss insurance and
shall not prevent (i) the Borrower or any of its Subsidiaries from
acting as a self-insurer or maintaining insurance with another
Subsidiary or Subsidiaries of the Borrower so long as such action is
consistent with sound business practice or (ii) the Borrower from
obtaining
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and owning insurance policies covering activities of its Consolidated
Subsidiaries.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event by no later
than 80 days after the end of the fiscal quarters ending on
June 30, 1997 and September 30, 1997, pro forma Consolidated
balance sheets of the Borrower and its Subsidiaries as of the
end of such quarter (determined as if the Spin-Off had
occurred on December 31, 1996), and pro forma Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for such quarter and for the period commencing at
the end of the previous fiscal year and ending with the end of
such quarter (in each case determined as if the Spin-Off had
occurred on December 31, 1996), duly certified (subject to
year-end audit adjustments) by the Controller, Assistant
Controller or other authorized financial officer of the
Borrower as presenting fairly, in all material respects, the
pro forma financial position of the Borrower and its
Subsidiaries as at said dates and for such periods, together
with (A) a certificate of said officer stating that no Default
has occurred and is continuing or, if a Default has occurred
and is continuing, a statement as to the nature thereof, and
(B) a schedule in form and substance satisfactory to the
Administrative Agent of the computations used by the Borrower
in determining compliance with the covenants contained in
Section 5.03 (it being understood that, although the pro forma
adjustments made in the preparation of such statements shall
be made based upon methods and data the Borrower believes to
be reasonable and accurate, actual results (had the Spin-Off
occurred on the dates referred to above) during the periods
covered by such financial statements could have differed from
those set forth in such financial statements).
(ii) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Borrower (commencing with the fiscal year
of the Borrower beginning January 1, 1998), Consolidated
balance sheets of the Borrower and its Subsidiaries as of the
end of such quarter and Consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, duly certified (subject to
year-end audit adjustments) by the Controller, Assistant
Controller or other authorized financial officer of the
Borrower as having been prepared in accordance with GAAP,
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together with (A) a certificate of said officer stating that
no Default has occurred and is continuing or, if a Default has
occurred and is continuing, a statement as to the nature
thereof, and (B) a schedule in form and substance satisfactory
to the Administrative Agent of the computations used by the
Borrower in determining compliance with the covenants
contained in Section 5.03;
(iii) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a copy
of the annual audit report for such year for the Borrower and
its Subsidiaries, containing Consolidated balance sheets of
the Borrower and its Subsidiaries as of the end of such fiscal
year and Consolidated statements of income, shareowners'
equity and cash flows of the Borrower and its Subsidiaries for
such fiscal year, in each case accompanied by an opinion
acceptable to the Majority Lenders by Deloitte & Touche LLP or
other independent public accountants of recognized national
standing, together with (a) a certificate of the Controller,
Assistant Controller or other authorized financial officer of
the Borrower stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof, and (B) a schedule in form
and substance satisfactory to the Administrative Agent of the
computations used by the Borrower in determining compliance
with the covenants contained in Section 5.03;
(iv) as soon as possible and in any event within five
Business Days after the determination by the Borrower that a
Default has occurred and is continuing on the date of such
statement, a statement of either the Chief Financial Officer,
Treasurer, Controller, Assistant Controller or other
authorized financial officer of the Borrower setting forth
details of such Default and the action that the Borrower has
taken and proposes to take with respect thereto;
(v) promptly and in any event within 30 days after the
Borrower knows or has reason to know that any ERISA Event that
would have a Material Adverse Effect has occurred, a statement
of an authorized financial officer of the Borrower describing
such ERISA Event and the action, if any, that the Borrower or
such ERISA Affiliate has taken and proposes to take with
respect thereto;
(vi) promptly and in any event within ten Business Days
after receipt thereof by the Borrower or any of its ERISA
Affiliates, copies of each notice from the PBGC
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stating its intention to terminate any Plan or to have a
trustee appointed to administer any such Plan;
(vii) promptly and in any event within 45 days after the
receipt thereof by the Borrower or any of its ERISA
Affiliates, a copy of the latest annual actuarial report for
each Plan if the ratio of the fair market value of the assets
of such Plan to its current liability (as defined in Section
412 of the Internal Revenue Code) is less than 80%;
(viii) as soon as possible and in any event within five
days after the determination by the Borrower that a Change of
Control has occurred, the Borrower shall deliver to the
Administrative Agent (which shall forward a copy thereof to
each Lender promptly) notice thereof, together with such other
information as the Administrative Agent or any Lender (through
the Administrative Agent) may reasonably request; and
(ix) such other information (excluding trade secrets)
respecting the financial condition and operations of the
Borrower and its Subsidiaries as the Administrative Agent or
any Lender may from time to time reasonably request (which
information shall constitute "Post-Closing Date Information"
only to the extent provided in Section 4.01(j)).
(j) Use of Proceeds. Use the proceeds of the Advances
hereunder solely to finance the working capital needs and other general
corporate purposes of the Borrower (including to support the Borrower's
commercial paper program, to finance acquisitions, treasury stock
purchases and capital investments), in each case in compliance with all
applicable legal and regulatory requirements; provided that neither the
Administrative Agent nor any Lender shall have any responsibility as to
the use of any such proceeds.
(k) Protection and Enforcement of Material Rights Under
Spin-Off Documents. Perform and observe all of the material terms and
provisions of each Spin-Off Document to be performed or observed by it,
maintain each such Spin-Off Document in full force and effect and
enforce its material rights under such Spin-Off Document, in each case
in the manner and to the extent the Borrower believes to be in the best
interests of its business.
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SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of
its Consolidated Subsidiaries to create or suffer to exist, any Lien on or with
respect to any of its properties (other than, in the case of the Borrower, the
Borrower's treasury stock), whether now owned or hereafter acquired, or assign,
or permit any of its Subsidiaries to assign, any right to receive income in
order to secure Debt, other than:
(i) (A) Liens for taxes, assessments, governmental
charges or levies or other amounts owed to governmental entities other
than for borrowed money; (B) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 30
days or that are being contested in good faith; (C) pledges or deposits
to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; (D)
easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property
for its present purposes; and (E) Liens in favor of a landlord arising
in the ordinary course of business,
(ii) purchase money Liens upon or in any property,
assets or stock acquired or held by the Borrower or any Subsidiary in
the ordinary course of business to secure the purchase price or
construction cost of such property or to secure Debt incurred solely
for the purpose of financing the acquisition or construction of such
property whether incurred prior or subsequent to such acquisition or
construction, or Liens existing on such property at the time of its
acquisition (other than any such Lien created in contemplation of such
acquisition) or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such Lien
shall extend to or cover any property other than the property being
acquired, and no such extension, renewal or replacement shall extend to
or cover any property not theretofore subject to the Lien being
extended, renewed or replaced,
(iii) Liens securing Debt, judgments and ERISA claims
existing on the date hereof and identified on Schedule 1, and other
Liens existing on the date hereof,
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(iv) other Liens or assignments in an aggregate
principal amount at any time outstanding not to exceed 10% of
Consolidated Net Tangible Assets,
(v) the replacement, extension or renewal of any Lien
permitted by clauses (ii) and (iii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the amount secured thereby, and
(vi) intercompany Liens.
(b) Mergers, Etc. Merge or consolidate with or into (or permit
any of its Material Subsidiaries to merge or consolidate with or into), or
convey, transfer, lease or otherwise dispose of (or permit any of its Material
Subsidiaries to convey, transfer, lease or otherwise dispose of), whether in one
transaction or in a series of related transactions, all or substantially all of
the assets (whether now owned or hereafter acquired) of the Borrower or such
Material Subsidiary to, any Person, except that:
(i) any Material Subsidiary of the Borrower may merge or
consolidate with or into (or convey, transfer, lease or otherwise
dispose of any or all the assets of such Material Subsidiary to) the
Borrower or any wholly owned Material Subsidiary of the Borrower;
provided that the Borrower or a wholly owned Material Subsidiary is the
survivor of any such merger or consolidation; and
(ii) the Borrower may merge or consolidate with or into any
other Person so long as (x) immediately after giving effect to such
transaction, no Default would exist and (y) the Borrower is the
surviving corporation.
(c) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices, except as required or permitted by generally accepted accounting
principles.
(d) Change in Nature of Business. Change the nature of the
business of the Borrower and its Subsidiaries, taken as a whole, such that such
business differs materially from the lines of business engaged in on the Closing
Date and lines of business related thereto; provided that the foregoing shall
not prohibit the Borrower and its Subsidiaries from engaging in other lines of
business (or investing in joint ventures engaged in other lines of business) so
long as the aggregate book value of assets of the Borrower and its Subsidiaries
directly relating to such other lines of business does not exceed 20% of the
aggregate book value of the Consolidated assets of the Borrower and its
Consolidated
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Subsidiaries as at the last day of the fiscal quarter most recently ended prior
to the date of determination.
(e) Amendment of Spin-Off Documents. Cancel or terminate any
Spin-Off Document or consent to or accept any cancellation or termination
thereof; amend, modify or change in any manner any material term or condition of
any Spin-Off Document; or agree in any manner to any other amendment,
modification or change of any material term or condition of any Spin-Off
Document; provided that this paragraph (e) shall not restrict the ability of the
Borrower to take any of the actions described in this paragraph (e) if such
actions would not be materially adverse to the interests of the Lenders.
(f) Margin Stock. Permit more than 25%, after the making of
each Advance and giving effect to the use of the proceeds thereof, of the value
of the assets of the Borrower and its Subsidiaries (as determined in good faith
by the Borrower) that are subject to Section 5.02(a) to consist of or be
represented by Margin Stock.
(g) Transactions with Affiliates. Other than the Spin-Off
Documents and the transactions contemplated thereby and transactions with
Specified Joint Ventures, enter into, or permit any of its Subsidiaries to enter
into, any transaction with an Affiliate of the Borrower (other than the
Borrower's Subsidiaries) that would be material in relation to the Borrower and
its Subsidiaries, taken as a whole, even if otherwise permitted under this
Agreement, except on terms determined by the Borrower to be fair and reasonable
to the Borrower and its Subsidiaries and in the best interests of the Borrower
(considered as a whole in conjunction with all other existing arrangements and
relationships with such Affiliate).
SECTION 5.03. Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower shall not:
(a) Debt to Adjusted EBITDA. Permit the Debt to Adjusted
EBITDA Ratio at any time to exceed 3.50 to 1.00.
(b) Interest Coverage Ratio. Permit the Interest Coverage
Ratio at any time to be less than 4.50 to 1.00.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable; or the Borrower shall
fail to pay any interest on any Advance or make any other payment under
this Agreement or any Note within five Business Days after the same
becomes due and payable; or
(b) Any representation or warranty made or deemed to have been
made by the Borrower herein or in connection with this Agreement shall
prove to have been incorrect in any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any
term, covenant or agreement contained in Sections 5.01(a), 5.01(i)(iv),
5.01(j), 5.02 or 5.03; or (ii) the Borrower shall fail to perform or
observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if such failure shall
remain unremedied for 30 days after written notice thereof shall have
been given to the Borrower by the Administrative Agent or any Lender
(other than any failure by the Borrower to comply with the terms of
Section 5.01(i)(v), (vi) or (vii)); or
(d) the Borrower or any of its Material Subsidiaries shall
fail to pay any principal of, premium or interest on or any other
amount payable in respect of any Debt that is outstanding in a
principal or notional amount of at least the Threshold Amount (or such
lower amount as provided for in the proviso to this clause (d)) in the
aggregate (but excluding Debt outstanding hereunder) of the Borrower or
such Material Subsidiary (as the case may be), when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the applicable
agreement; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt
or otherwise to cause, or to permit the holder or holders (or an agent
or trustee on its or their behalf) thereof to cause, such Debt to
mature; or any such Debt shall be declared to be due and payable or
required to be prepaid or
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redeemed (other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; provided that if the
Borrower in any agreement or instrument relating to any such Debt,
shall have agreed to, or shall agree to, a lesser threshold of the kind
specified this clause (d) with respect to itself or any of its Material
Subsidiaries, then, in such event, the amount provided for above shall
be reduced to such lesser amount(s) with respect to such entity; or
(e) Any judgment or order for the payment of money in excess
of the Threshold Amount shall be rendered against the Borrower or any
of its Material Subsidiaries and not timely satisfied or discharged,
and either (i) proceedings to attach or levy upon any assets of the
Borrower or such Material Subsidiary shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period
of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(f) The Borrower or any of its Material Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any of its Material
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a
period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property)
shall occur; or the Borrower or any of its Material Subsidiaries shall
take any corporate action to authorize any of the actions set forth
above in this subsection (e);
(g) Any ERISA Event that would result in a Lien in an amount
in excess of $30,000,000 on the properties or assets of
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the Borrower or any of its Subsidiaries shall have occurred and shall
not have been remedied within 90 days;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the Notes, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided that in the event of an
actual or deemed entry of an order for relief with respect to the Borrower under
the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Administrative Agent by the terms hereof, together with
such powers and discretion as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Lenders,
and such instructions shall be binding upon all Lenders and all holders of
Notes; provided that the Administrative Agent shall not be required to take any
action that exposes the Administrative Agent to personal liability or that is
contrary to this Agreement or applicable law. The Administrative Agent agrees to
give to each Lender prompt notice of each notice given to it by the Borrower
pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither
the Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken
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or omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Administrative Agent: (i) may
treat the payee of any Note as the holder thereof until the Administrative Agent
receives and accepts an Assignment and Acceptance entered into by the Lender
that is the payee of such Note, as assignor, and an Eligible Assignee, as
assignee, as provided in Section 8.07; (ii) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Borrower or to inspect the property (including the
books and records) of the Borrower; (v) shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of, or the perfection or priority of any lien or security
interest created or purported to be created under or in connection with, this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries and any Person who may do business
with or own securities of the Borrower or any such Subsidiary, all as if
Citibank were not the Administrative Agent and without any duty to account
therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent or
any other Lender and based on the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate, made
its
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own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Administrative Agent and the Syndication Agent (each, an "Agent") (in each
case to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding or if any Notes are held by Persons that are
not Lenders, ratably according to the respective amounts of their Commitments),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by such Agent under this Agreement, provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Administrative Agent is not reimbursed for such expenses
by the Borrower.
SECTION 7.06. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving five Business Days'
written notice thereof to the Lenders and the Borrower and may be removed at any
time with or without cause (i) by the Majority Lenders with the Borrower's
approval, which approval shall not unreasonably be withheld, or (ii) by the
Borrower, subject to the approval of the Majority Lenders, which approval shall
not unreasonably be withheld. Upon any such resignation or removal, the Borrower
shall have the right to appoint a successor Administrative Agent, subject to the
Majority Lenders' approval, which approval shall not be unreasonably withheld;
provided that upon and during the continuance of an Event of Default, the
Majority Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the
Majority Lenders, and shall have accepted such appointment, within 30 days after
the retiring Administrative Agent's giving of notice of resignation or the
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Majority Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized or licensed
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, discretion, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided that:
(a) no amendment, waiver or consent shall, unless in writing
and signed by all the Lenders, do any of the following:
(1) waive any of the conditions specified in Section
3.01 or 3.02;
(2) increase the Commitments of the Lenders or
subject the Lenders to any additional obligations (other than
as permitted by Sections 2.05(c) to the extent any Lender
consents thereunder);
(3) reduce the principal of, or interest on, the A
Notes or any fees or other amounts payable hereunder;
(4) postpone any date fixed for any payment of
principal of, or interest on, the A Notes or any fees or other
amounts payable hereunder (excluding any amounts payable in
connection with the B Notes);
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(5) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the A Notes, or the
number of Lenders, that shall be required for the Lenders or
any of them to take any action hereunder; or
(6) amend this Section 8.01;
(b) no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent in addition to the Lenders
required above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement or any Note;
(c) no amendment, waiver or consent shall, unless in writing
and signed by the Syndication Agent in addition to the Lenders required
above to take such action, affect the rights or duties of the
Syndication Agent under this Agreement or any Note; and
(d) this Section 8.01 shall not apply to changes in
Commitments pursuant to Section 2.05, 2.11 or any other Section of this
Agreement.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier)
and mailed, telecopied or delivered by hand:
(a) if to the Borrower:
Queeny Chemical Company
10300 Olive Boulevard
P.O. Box 66760
St. Louis, Missouri 63166-6760
Attention: Treasurer
Telephone No.: 314-674-8250
Telecopier No.: 314-674-8425
(b) if to the Administrative Agent:
Citibank, N.A.
2 Penns Way
New Castle, Delaware 19720
Attention: Guss Kalloudis
Telephone No.: (302) 894-6030
Telecopier No.: (302) 894-6120;
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(c) if to the Syndication Agent:
Bank of America NT & SA
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Raju Patel
Telephone No.: (312) 828-7225
Telecopier No.: (312) 987-0303; and
(d) if to any Lender, at the Domestic Lending Office specified
in the Administrative Questionnaire of such Lender,
or, as to the Borrower, the Administrative Agent or the Syndication Agent, at
such other address as shall be designated by such party in a written notice to
the other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall be deemed to
have been duly given or made (i) in the case of hand deliveries, when delivered
by hand, (ii) in the case of mailed notices, when received, and (iii) in the
case of telecopier notice, when transmitted and confirmed during normal business
hours (or, if delivered after the close of normal business hours, at the
beginning of business hours on the next Business Day), except that notices and
communications to the Administrative Agent pursuant to Article II or VII shall
not be effective until received by the Administrative Agent.
SECTION 8.03. No Waiver, Remedies. No failure on the part of
any Lender or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses.
(a) The Borrower agrees to pay on demand all out-of-pocket
costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery, modification and amendment of this Agreement,
the Notes and the other documents to be delivered hereunder, including, without
limitation, the reasonable fees and expenses of counsel for the Administrative
Agent with respect thereto and with respect to advising the Administrative Agent
as to its rights and responsibilities under this Agreement. The Borrower further
agrees to pay on demand all
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costs and expenses of the Administrative Agent and the Lenders, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable fees and expenses
of counsel for the Administrative Agent and each Lender in connection with the
enforcement of rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, the Syndication Agent and each Lender and each of their
Affiliates and their officers, directors, employees, agents and advisors (each,
an "Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with the actual or proposed use of the proceeds of the Advances, in
each case whether or not such investigation, litigation or proceeding is brought
by the Borrower, its directors, shareholders or creditors or an Indemnified
Party or any other Person or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated hereby are consummated, except
to the extent such claim, damage, loss, liability or expense is found by a court
of competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct.
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, a
prepayment or Conversion pursuant to Sections 2.05(c), 2.08(d) or (e), 2.10 or
2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, the Borrower shall, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender any amounts required to compensate such Lender for
any additional losses, costs or expenses that it may reasonably incur as a
result of such payment or Conversion, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in Sections 2.11, 2.15 and 8.04 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the Notes.
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SECTION 8.05. Right of Set-off. Nothing herein shall derogate any
Lender's right, if any, if and to the extent payment owed to such Lender is not
made when due hereunder or under any B Note held by such Lender, to set off from
time to time against any or all of the Borrower's deposit (general or special,
time or demand, provisional or final) accounts with such Lender any amount so
due. Each Lender agrees promptly to notify the Borrower after any such set-off
and application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section 8.05 are in addition to other rights and
remedies which such Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified by each Initial
Lender that such Initial Lender has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Administrative Agent and each
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations, Register.
(a) Each Lender may (and shall if requested to do so by the Borrower
pursuant to Section 2.11, Section 2.12 or 2.15) assign to one or more Persons
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the A Advances owing to
it and the A Note held by it, but excluding the B Advances owing to it and the B
Note or B Notes held by it (other than with respect to an assignment pursuant to
Section 2.11, 2.12 or 2.15)); provided that:
(i) other than in the case of an assignment to an Affiliate of such
Lender or assignments of the type described in subsection (g) below, such
Lender shall have obtained the prior written consent of the Borrower, the
Syndication Agent and the Administrative Agent, no such consent to be
unreasonably withheld;
(ii) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this Agreement;
(iii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender, or an assignment by a
Lender to an Affiliate of such Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning
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Lender being assigned pursuant to each such assignment (determined as of
the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $10,000,000 or an integral multiple of
$1,000,000 in excess thereof;
(iv) each such assignment shall be to an Eligible Assignee; and
(v) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any A Note subject
to such assignment and a processing and recordation fee of $3,500.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution and delivery thereof to
the Administrative Agent, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance;
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(iv) such assignee will, independently and without reliance upon the
Administrative Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Agreement are required to
be performed by it as a Lender.
By executing and delivering an Assumption and Acceptance, the Person
assuming a Commitment hereunder confirms to and agrees with the parties hereto
as follows: (i) neither the Administrative Agent, the Syndication Agent nor any
other Lender makes any representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (ii) such Person
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assumption and Acceptance; (iii) such Person will,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (iv) such Person confirms that it is an Eligible
Assignee; (v) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vi) such Person agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred
to in Section 8.02 a copy of each Acceptance delivered to and accepted by it and
a register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the A Advances owing to each such Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders
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may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(d) Upon the Administrative Agent's receipt of an Acceptance
(executed, in the case of an Assignment and Acceptance, by an assigning Lender
and an assignee representing that it is an Eligible Assignee and accompanied by
any A Note subject to such assignment, and executed, in the case of an
Assumption and Acceptance, by the Person assuming a Commitment hereunder), the
Administrative Agent shall, if such Acceptance has been completed and is in
substantially the form of Exhibit C-1 or C-2, as applicable, (i) accept such
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent:
(x) In the case of an assignment, in exchange for the surrendered A
Note a new A Note payable to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such Acceptance
and, if the assigning Lender has retained a Commitment hereunder, a new A
Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new A Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered A Note, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit
A hereto.
(y) In the case of an assumption of a Commitment hereunder, a new A
Note payable to the order of the Person so assuming a Commitment
hereunder, in an amount equal to the Commitment assumed by it pursuant to
such Acceptance. Such new A Note shall be dated the effective date of such
Acceptance and shall otherwise be in substantially the form of Exhibit A
hereto.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it); provided
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such
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Lender shall remain the holder of any such Note for all purposes of this
Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement, and (v) no
participant under any such participation shall have any right to approve any
amendment or waiver of any provision of this Agreement or any Note, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation. Upon the
sale of a participation pursuant to this Section 8.07(e), such Lender shall
promptly provide notice to the Borrower of the sale of a participation (other
than a sale of a participation pursuant to Section 2.16); provided that the
failure by such Lender to provide such notice shall not invalidate the sale of
such participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Lender; provided further that the Borrower
shall have consented in advance to the disclosure of any non-public information.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
(h) Each Lender agrees that it will not assign any Note or Notes or
sell any participation in any manner or under any circumstances that would
require registration, qualification or filings under the securities laws of the
United States of America, of any state or of any country.
SECTION 8.08. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
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SECTION 8.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.10. Jurisdiction, Etc.
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
Notes, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State or, to the extent permitted by law, in such federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Notes in the courts of
any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any New York State or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
<PAGE> 77
- 73 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
QUEENY CHEMICAL COMPANY
By/s/ R.L. BISHOP
------------------------------------------
Title: VICE PRESIDENT AND TREASURER
CITIBANK, N.A.,
as Administrative Agent
By/s/ STEVEN R. VICTORIN
------------------------------------------
Title: ATTORNEY-IN-FACT
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Syndication Agent
By/s/ RAJU N. PATEL
------------------------------------------
Title: VICE PRESIDENT
<PAGE> 78
- 74 -
<TABLE>
<CAPTION>
Commitment INITIAL LENDERS
- ---------- ---------------
<S> <C>
$39,166,666.67 CITIBANK, N.A.
By/s/ STEVEN R. VICTORIN
----------------------------------
Title: ATTORNEY-IN-FACT
$39,166,666.67 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By/s/ RAJU N. PATEL
----------------------------------
Title: VICE PRESIDENT
$23,333,333.33 THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By/s/ HAJIME WATANABE
----------------------------------
Title: DEPUTY GENERAL MANAGER
$23,333,333.33 THE CHASE MANHATTAN BANK
By/s/ ROBERT T. SACKS
----------------------------------
Title: MANAGING DIRECTOR
</TABLE>
<PAGE> 79
- 75 -
<TABLE>
<S> <C>
$23,333,333.33 KREDIETBANK N.V.,
GRAND CAYMAN BRANCH
By/s/ RAYMOND F. MURRAY
----------------------------------
Title: VICE PRESIDENT
By/s/ MICHAEL V. CURRAN
----------------------------------
Title: VICE PRESIDENT
$23,333,333.33 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By/s/ JOHN H. CHAPLIN
----------------------------------
Title: ASSOCIATE
$23,333,333.33 NATIONSBANK, N.A.
By/s/ PHILIP V. HANEL
----------------------------------
Title: SENIOR VICE PRESIDENT
$23,333,333.33 THE NORTHERN TRUST COMPANY
By/s/ MAUREEN L. CAREY
----------------------------------
Title: VICE PRESIDENT
$23,333,333.33 ROYAL BANK OF CANADA
By/s/ D.S. BRYSON
----------------------------------
Title: SENIOR MANAGER
</TABLE>
<PAGE> 80
- 76 -
<TABLE>
<S> <C>
$23,333,333.33 WACHOVIA BANK, N.A.
By/s/ WALTER R. GILLIKIN
----------------------------------
Title: VICE PRESIDENT
$15,000,000.00 BANKBOSTON, N.A.
By/s/ DEBORAH HUNTER MILLS
----------------------------------
Title: VICE PRESIDENT, MULTINATIONAL BANKING
$15,000,000.00 COMMERZBANK AKTIENGESELLSCHAST
CHICAGO BRANCH
By/s/ MARK MONSON
----------------------------------
Title: VICE PRESIDENT
By/s/ MARIE CUALOPING
----------------------------------
Title: ASSISTANT TREASURER
$15,000,000.00 CREDIT AGRICOLE
By/s/ DAVID BOUHL, F.V.P.
----------------------------------
Title: HEAD OF CORPORATE BANKING CHICAGO
$15,000,000.00 THE FIRST NATIONAL BANK OF CHICAGO
By/s/ ROBERT D. LOWRIE
----------------------------------
Title: SENIOR VICE PRESIDENT
</TABLE>
<PAGE> 81
- 77 -
<TABLE>
<S> <C>
$15,000,000.00 MARINE MIDLAND BANK
By/s/ WILLIAM M. HOLLAND
----------------------------------
Title: VICE PRESIDENT
$15,000,000.00 MELLON BANK, N.A.
By/s/ GEORGE B. DAVIS
----------------------------------
Title: VICE PRESIDENT
$15,000,000.00 MERCANTILE BANK N.A.
By/s/ DAVID F. HIGBEE
----------------------------------
Title: VICE PRESIDENT
$15,000,000.00 SOCIETE GENERALE, CHICAGO BRANCH
By/s/ SETH F. ASOFSKY
----------------------------------
Title: VICE PRESIDENT
$15,000,000.00 THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By/s/ HIROYUKI IWAMI
----------------------------------
Title: JOINT GENERAL MANAGER
$400,000,000 Total of Commitments
==============
</TABLE>
<PAGE> 1
Exhibit 10(h)
FORM
OF
EMPLOYMENT AGREEMENT
AGREEMENT by and between Monsanto Company, a Delaware
corporation (the "Company"), and (the "Executive"), dated as
of the ___ day of _______, 1997.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated by the Company prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
<PAGE> 2
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
(c) An "Alternative Change of Control" shall mean a Change of
Control as defined in Section 2, except that the references in such definition
to "20%" shall be deemed to be references to "50%."
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by
any corporation pursuant to a transaction which complies with clauses
(i), (ii) and (iii) of subsection (c) of this Section 2; or
2
<PAGE> 3
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets or stock of
another corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors
3
<PAGE> 4
of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period (the "Employment Period") commencing on the Effective Date and ending
on the earlier of the third anniversary of such date and the first day of the
month following the month in which the executive attains age 65 (the Executive's
"Normal Retirement Date").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 35
miles from such location, unless the Executive is on international assignment on
the Effective Date and is relocated as a result of the Executive's being
repatriated pursuant to the terms of his international assignment agreement as
in effect before the Effective Date.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed
4
<PAGE> 5
that to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any base salary which
has been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Bonuses. In addition to Annual Base Salary, the
Executive shall be awarded the following bonuses. For each fiscal year ending
during the Employment Period, the Executive shall be awarded an annual bonus
(the "Annual Bonus") in cash at least equal to the average of the Executive's
bonuses under the Company's Annual Incentive Program, or any comparable bonus
under any predecessor or successor plan(s), for the last three full fiscal years
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus. In addition, during the Employment Period, the Executive shall be
entitled to participate in all long-term and other incentive plans, practices,
policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to
5
<PAGE> 6
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable) less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iii) Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies. Without
limiting the generality of the foregoing, the Company and its affiliated
companies shall continue to honor any individual agreements between any of them
and the Executive regarding the provision of supplemental retirement benefits
such as (but not limited to) post-retirement income and/or welfare benefits
(each of which is hereafter referred to as an "Individual SERP").
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the
6
<PAGE> 7
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
7
<PAGE> 8
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the Executive's long-term
disability for purposes of any reasonable occupation as determined under the
Company's disability plan that is applicable to the Executive.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall
8
<PAGE> 9
not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to
the Effective Date, unless the Executive is on international assignment
on the Effective Date and the relocation is as a result of the
Executive's being repatriated pursuant to the terms of his
international assignment agreement as in effect before the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
9
<PAGE> 10
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of an Alternative
Change of Control shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
10
<PAGE> 11
6. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (3)
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2) and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) the lesser
of three and the number of years and fractions thereof
remaining between the Date of Termination and the Executive's
Normal Retirement Date (such lesser number, the "Multiplier")
and (2) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the
aggregate benefit under the Monsanto Pension Plan and any
successor thereto, and any other qualified defined benefit
retirement plans of the Company
11
<PAGE> 12
and its affiliated companies in which the Executive
participates (collectively, the "Retirement Plan") and the
Monsanto Company ERISA Parity Pension Plan, the Monsanto
Company Supplemental Retirement Plan, and any successors
thereto, any other "top hat," excess or supplemental defined
benefit retirement plans of the Company and its affiliated
companies in which the Executive participates, and any
Individual SERP (collectively, the "SERP") which the Executive
would have accrued (whether or not vested) if the Executive's
employment had continued for a number of years after the Date
of Termination equal to the Multiplier, and (b) the actual
vested benefit, if any, of the Executive under the Retirement
Plan and the SERP, determined as of the Date of Termination
(with the foregoing amounts to be computed on an actuarial
present value basis, based on the assumption that the
Executive's compensation during such period of deemed
continued employment after the Date of Termination was that
required by Section 4(b)(i) and Section 4(b)(ii), and using
actuarial assumptions no less favorable to the Executive than
the most favorable of those in effect for purposes of
computing benefit entitlements under the Retirement Plan and
the SERP at any time from the day before the Effective Date)
through the Date of Termination;
(ii) for a number of years after the Executive's Date of
Termination equal to the Multiplier, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility; and for purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed
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<PAGE> 13
until the end of a number of years after the Date of Termination equal
to the Multiplier and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider
of which shall be selected by the Executive in the Executive's sole
discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of
13
<PAGE> 14
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the Executive shall
be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor, subject to Section 12(f),
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. Notwithstanding the foregoing, from and after the
Effective Date, the compensation and benefits provided for pursuant to Sections
5, 8 and 9 hereof shall be in lieu of any severance or separation pay or
benefits to which the Executive
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<PAGE> 15
might otherwise be entitled under any plan, program, policy or arrangement of
the Company and its affiliates.
8. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and except as specifically provided in Section 6(a)(ii), such amounts shall not
be reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up
15
<PAGE> 16
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions
of this Section 9(a), if it shall be determined that the Executive is entitled
to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
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<PAGE> 17
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such
17
<PAGE> 18
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. As used herein, "Confidential
Information" means all technical and business information of the Company and its
Subsidiaries, whether patentable or not, which is of a confidential, trade
secret and/or proprietary character and which is either developed by the
Executive (alone or with others) or to which the Executive has had access during
the Executive's employment. "Confidential Information" shall also include
confidential evaluations of, and the confidential use or non-use by the Company
or any Subsidiary of, technical or business information in the public domain.
The Executive shall use the Executive's best efforts and
diligence both during and after employment by the Company to protect the
confidential, trade secret and/or proprietary character of all Confidential
Information. The Executive shall
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<PAGE> 19
not, directly or indirectly, use (for the Executive or another) or disclose any
Confidential Information, for so long as it shall remain proprietary or
protectible as confidential or trade secret information, except as may be
necessary for the performance of the Executive's duties with the Company.
The Executive shall deliver promptly to the Company, at the
termination of the Executive's employment, or at any other time at the Company's
request, without retaining any copies, all documents and other material in the
Executive's possession relating, directly or indirectly, to any Confidential
Information.
Each of the Executive's obligations in this Section shall also
apply to the confidential, trade secret and proprietary information learned or
acquired by the Executive during the Executive's employment from others with
whom the Company or any Subsidiary has a business relationship.
The Executive understands that the Executive is not to
disclose to the Company or any Subsidiary, or use for its benefit, any of the
confidential, trade secret or proprietary information of others, including any
of the Executive's former employers. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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<PAGE> 20
(d) The parties acknowledge that at the time this Agreement is
entered into, the Company is in the process, subject to certain contingencies,
of separating itself and its subsidiaries into two companies by (1)
consolidating into Solutia Inc., a separate wholly owned subsidiary of the
Company ("Solutia") and the wholly owned subsidiaries of Solutia certain of the
businesses currently conducted by the Company directly and through certain of
its subsidiaries and (2) distributing to the holders of the issued and
outstanding shares of common stock, par value $2.00 per share, of the Company
all of the issued and outstanding shares of common stock of Solutia (the
"Distribution"). The parties further acknowledge that the Executive will become
an Employee of Solutia in connection with the Distribution. From and after the
date of the Distribution, Solutia shall be the successor to the Company for
purposes of this Agreement, and the Company will require Solutia to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place, and from and after such assumption, references in this
Agreement, other than in this Section 11(d), to the "Company" shall mean
Solutia, and the Company shall be released from and have no further obligations
hereunder. Notwithstanding any other provision of this Agreement, this Agreement
shall terminate and be of no further force and effect on the sixth-month
anniversary of the Distribution, unless at any time before that date and after
the date of the Distribution, either (i) there shall have occurred a Change of
Control of Solutia or (ii) the Board of Directors of Solutia shall have
determined that this Agreement shall not terminate.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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<PAGE> 21
If to the Executive:
-----------------------------
-----------------------------
If to the Company:
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith, and in the case of Solutia, to its general
counsel at the address of its current headquarters, if different from the above
address. Notice and communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. Upon its
execution by both parties hereto, this Agreement shall supersede the Key
Executive Employment Agreement previously entered into by the Executive and the
Company. From and after the Effective
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<PAGE> 22
Date this Agreement shall supersede any prior employment agreement between the
parties, but shall have no effect on any Individual SERP or on the Executive's
rights under any plan, program, policy or practice provided by the Company or
any of its affiliated companies except as specifically provided in Section 7
above.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
_________________________________
[NAME OF EXECUTIVE]
MONSANTO COMPANY
By_______________________________
22
<PAGE> 1
Exhibit 10(i)
FORM OF
EMPLOYMENT AGREEMENT
AGREEMENT by and between Monsanto Company, a Delaware corporation
(the "Company"), and ________________ (the "Executive"), dated as of the ___ day
of _______, 1997.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated by the Company prior to
the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of
<PAGE> 2
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or
2
<PAGE> 3
the acquisition of assets or stock of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period (the "Employment Period") commencing on the Effective Date and ending on
the earlier of the third anniversary of such date and the first day of the month
following the month in which the executive attains age 65 (the Executive's
"Normal Retirement Date").
3
<PAGE> 4
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 35
miles from such location, unless the Executive is on international assignment on
the Effective Date and is relocated as a result of the Executive's being
repatriated pursuant to the terms of his international assignment agreement as
in effect before the Effective Date.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date
4
<PAGE> 5
and thereafter at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Bonuses. In addition to Annual Base Salary, the Executive
shall be awarded the following bonuses. For each fiscal year ending during
the Employment Period, the Executive shall be awarded an annual bonus (the
"Annual Bonus") in cash at least equal to the average of the Executive's
bonuses under the Company's Annual Incentive Program, or any comparable bonus
under any predecessor or successor plan(s), for the last three full fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus. In addition, during the Employment
Period, the Executive shall be entitled to participate in all long-term and
other incentive plans, practices, policies and programs applicable generally
to other peer executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable) less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective
Date or if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iii) Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all savings and retirement
plans, practices, policies and programs applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with
savings opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than
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the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies. Without limiting the
generality of the foregoing, the Company and its affiliated companies shall
continue to honor any individual agreements between any of them and the
Executive regarding the provision of supplemental retirement benefits such as
(but not limited to) post-retirement income and/or welfare benefits (each of
which is hereafter referred to as an "Individual SERP").
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with
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the most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the Executive's long-term disability for purposes of any
reasonable occupation as determined under the Company's disability plan that is
applicable to the Executive.
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(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position
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(including status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date, unless the Executive is on international assignment on the Effective
Date and the relocation is as a result of the Executive's being repatriated
pursuant to the terms of his international assignment agreement as in effect
before the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the
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termination date (which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product
of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year consisting
of less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most recently
completed fiscal year during the Employment Period, if any (such higher
amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365, and (3) any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of
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the amounts described in clauses (1), (2) and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) the lesser of two and
the number of years and fractions thereof remaining between the Date of
Termination and the Executive's Normal Retirement Date (such lesser
number, the "Multiplier") and (2) the sum of (x) the Executive's Annual
Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate
benefit under the Monsanto Pension Plan and any successor thereto, and
any other qualified defined benefit retirement plans of the Company and
its affiliated companies in which the Executive participates
(collectively, the "Retirement Plan") and the Monsanto Company ERISA
Parity Pension Plan, the Monsanto Company Supplemental Retirement Plan,
and any successors thereto, any other "top hat," excess or supplemental
defined benefit retirement plans of the Company and its affiliated
companies in which the Executive participates, and any Individual SERP
(collectively, the "SERP") which the Executive would have accrued
(whether or not vested) if the Executive's employment had continued for
a number of years after the Date of Termination equal to the
Multiplier, and (b) the actual vested benefit, if any, of the Executive
under the Retirement Plan and the SERP, determined as of the Date of
Termination (with the foregoing amounts to be computed on an actuarial
present value basis, based on the assumption that the Executive's
compensation during such period of deemed continued employment after
the Date of Termination was that required by Section 4(b)(i) and
Section 4(b)(ii), and using actuarial assumptions no less favorable to
the Executive than the most favorable of those in effect for purposes
of computing benefit entitlements under the Retirement Plan and the
SERP at any time from the day before the Effective Date) through the
Date of Termination;
(ii) for a number of years after the Executive's Date of Termination
equal to the Multiplier, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs,
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practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility; and for purposes of determining
eligibility of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until the end of a number of years after the Date of
Termination equal to the Multiplier and to have retired on the last day of
such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with
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respect to other peer executives and their beneficiaries at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice
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provided by the Company or any of its affiliated companies for which the
Executive may qualify, nor, subject to Section 12(f), shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. Notwithstanding the foregoing, from and after the
Effective Date, the compensation and benefits provided for pursuant to Sections
5, 8 and 9 hereof shall be in lieu of any severance or separation pay or
benefits to which the Executive might otherwise be entitled under any plan,
program, policy or arrangement of the Company and its affiliates.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (whether such contest is between the Company
and the Executive or between either of them and any third party, and including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f) (2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms
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of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not
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have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo
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any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. As used herein, "Confidential
Information" means all technical and business information of the Company and its
Subsidiaries, whether patentable or not, which is of a confidential, trade
secret and/or proprietary character and which is either developed by the
Executive (alone or with others) or to which the Executive has had access
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during the Executive's employment. "Confidential Information" shall also include
confidential evaluations of, and the confidential use or non-use by the Company
or any Subsidiary of, technical or business information in the public domain.
The Executive shall use the Executive's best efforts and diligence both
during and after employment by the Company to protect the confidential, trade
secret and/or proprietary character of all Confidential Information. The
Executive shall not, directly or indirectly, use (for the Executive or another)
or disclose any Confidential Information, for so long as it shall remain
proprietary or protectible as confidential or trade secret information, except
as may be necessary for the performance of the Executive's duties with the
Company.
The Executive shall deliver promptly to the Company, at the termination
of the Executive's employment, or at any other time at the Company's request,
without retaining any copies, all documents and other material in the
Executive's possession relating, directly or indirectly, to any Confidential
Information.
Each of the Executive's obligations in this Section shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by the Executive during the Executive's employment from others with whom the
Company or any Subsidiary has a business relationship.
The Executive understands that the Executive is not to disclose to the
Company or any Subsidiary, or use for its benefit, any of the confidential,
trade secret or proprietary information of others, including any of the
Executive's former employers. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
18
<PAGE> 19
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(d) The parties acknowledge that at the time this Agreement is entered
into, the Company is in the process, subject to certain contingencies, of
separating itself and its subsidiaries into two companies by (1) consolidating
into Solutia Inc., a separate wholly owned subsidiary of the Company ("Solutia")
and the wholly owned subsidiaries of Solutia certain of the businesses currently
conducted by the Company directly and through certain of its subsidiaries and
(2) distributing to the holders of the issued and outstanding shares of common
stock, par value $2.00 per share, of the Company all of the issued and
outstanding shares of common stock of Solutia (the "Distribution"). The parties
further acknowledge that the Executive will become an Employee of Solutia in
connection with the Distribution. From and after the date of the Distribution,
Solutia shall be the successor to the Company for purposes of this Agreement,
and the Company will require Solutia to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place, and from and
after such assumption, references in this Agreement, other than in this Section
11(d), to the "Company" shall mean Solutia, and the Company shall be released
from and have no further obligations hereunder. Notwithstanding any other
provision of this Agreement, this Agreement shall terminate and be of no further
force and effect on the sixth-month anniversary of the Distribution, unless at
any time before that date and after the date of the Distribution, either (i)
there shall have occurred a Change of Control of Solutia or (ii) the Board of
Directors of Solutia shall have determined that this Agreement shall not
terminate.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
19
<PAGE> 20
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
_________________________
_________________________
If to the Company:
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith, and in the case of Solutia, to its general
counsel at the address of its current headquarters, if different from the above
address. Notice and communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the
20
<PAGE> 21
Effective Date, in which case the Executive shall have no further rights under
this Agreement. Upon its execution by both parties hereto, this Agreement shall
supersede the Key Executive Employment Agreement previously entered into by the
Executive and the Company. From and after the Effective Date this Agreement
shall supersede any prior employment agreement between the parties, but shall
have no effect on any Individual SERP or on the Executive's rights under any
plan, program, policy or practice provided by the Company or any of its
affiliated companies except as specifically provided in Section 7 above.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
____________________________________
[Name of Executive]
MONSANTO COMPANY
By__________________________________
21
<PAGE> 1
Exhibit 12
SOLUTIA INC.
COMPUTATION OF THE PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Pro forma income from continuing operations
before provision for income taxes (1) $154 $ 9
Add
Fixed charges 39 74
Less capitalized interest (2) (5)
Less equity income (add equity loss)
of affiliated companies (17) (13)
---- ----
Income as adjusted $174 $ 65
==== ====
Fixed charges
Interest expense $ 34 $ 64
Portion of rents representative
of interest factor 5 10
---- ----
Fixed charges $ 39 $ 74
==== ====
Pro forma ratio of earnings to fixed charges 4.5 0,9
==== ====
</TABLE>
(1) Includes restructuring and other unusual items of $12 million and $256
million for the six months ended June 30, 1997 and the year ended December 31,
1996, respectively. Excluding these items, the pro forma ratio of earnings to
fixed charges would have been 4.8 for the six months ended June 30, 1997 and
4.3 for the year ended December 31, 1996.
<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.
Solutia International Sales, Inc.
Beamer Road Management Company
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 Registration Statement of Solutia Inc. on
Form S-1 of our report 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 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, relating to the financial statement
schedule 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
September 24, 1997
<PAGE> 1
Exhibit 24(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert G. Potter, of St. Louis County, State of Missouri,
Chairman and Chief Executive Officer (Principal Executive Officer) and Director
of Solutia Inc. (the "Company"), a Delaware corporation with its general offices
in the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 29th day of August, 1997.
/s/ Robert G. Potter
------------------------
Robert G. Potter
STATE OF MISSOURI )
) SS
COUNTY OF ST. LOUIS )
On this 29th day of August, 1997, before me personally appeared Robert
G. Potter, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Mary K. McBride
------------------------
Notary Public
My Commission Expires: 2-12-98
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, John C. Hunter III, of St. Louis County, State of Missouri,
President, Chief Operating Officer and Director of Solutia Inc. (the "Company"),
a Delaware corporation with its general offices in the County of St. Louis,
Missouri, do by these presents make, constitute and appoint Karl R. Barnickol
and Karen L. Knopf, both of St. Louis County, Missouri, or either of them acting
alone, to be my true and lawful attorneys for me and in my name, place and
stead, to execute and sign (i) the Registration Statement on Form S-8 and any
Amendments thereto to be filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), covering
the registration of the Company's securities to be issued under the Solutia Inc.
compensation plan for non-employee directors; and (ii) the Registration
Statement on Form S-1 and any Amendments thereto to be filed with the Commission
under the Act, covering the registration of debt securities to be issued by the
Company after the Registration Statement becomes effective; giving and granting
unto said attorneys full power and authority to do and perform such actions as
fully as I might have done or could do if personally present and executing any
of said documents.
Witness my hand this 28th day of August, 1997.
/s/ John C. Hunter III
------------------------
John C. Hunter III
STATE OF MISSOURI )
) SS
COUNTY OF ST. LOUIS )
On this 28th day of August, 1997, before me personally appeared John C.
Hunter III, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Mary K. McBride
---------------------
Notary Public
My Commission Expires: 2-12-98
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert A. Clausen, of St. Louis County, State of Missouri,
Senior Vice President and Chief Financial Officer ("Principal Financial
Officer") of Solutia Inc. (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, do by these presents make,
constitute and appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis
County, Missouri, or either of them acting alone, to be my true and lawful
attorneys for me and in my name, place and stead, to execute and sign (i) the
Registration Statement on Form S-8 and any Amendments thereto to be filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), covering the registration of the Company's
securities to be issued under the Solutia Inc. compensation plan for
non-employee directors; and (ii) the Registration Statement on Form S-1 and any
Amendments thereto to be filed with the Commission under the Act, covering the
registration of debt securities to be issued by the Company after the
Registration Statement becomes effective; giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have done or could do if personally present and executing any of said
documents.
Witness my hand this 29th day of August, 1997.
/s/ Robert A. Clausen
------------------------
Robert A. Clausen
STATE OF MISSOURI )
) SS
COUNTY OF ST. LOUIS )
On this 29 day of August, 1997, before me personally appeared Robert A.
Clausen, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Mary K. McBride
------------------------
Notary Public
My Commission Expires: 2-12-98
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Roger S. Hoard, of St. Louis County, State of Missouri, Vice
President and Controller of Solutia Inc. (the "Company"), a Delaware corporation
with its general offices in the County of St. Louis, Missouri, do by these
presents make, constitute and appoint Karl R. Barnickol and Karen L. Knopf, both
of St. Louis County, Missouri, or either of them acting alone, to be my true and
lawful attorneys for me and in my name, place and stead, to execute and sign (i)
the Registration Statement on Form S-8 and any Amendments thereto to be filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), covering the registration of the
Company's securities to be issued under the Solutia Inc. compensation plan for
non-employee directors; and (ii) the Registration Statement on Form S-1 and any
Amendments thereto to be filed with the Commission under the Act, covering the
registration of debt securities to be issued by the Company after the
Registration Statement becomes effective; giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have done or could do if personally present and executing any of said
documents.
Witness my hand this 2 day of September, 1997.
/s/ Roger S. Hoard
------------------------
Roger S. Hoard
STATE OF MISSOURI )
) SS
COUNTY OF ST. LOUIS )
On this 2nd day of September, 1997, before me personally appeared Roger
S. Hoard, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Mary K. McBride
------------------------
Notary Public
My Commission Expires: 2-12-98
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert T. Blakely, of Greenwich, State of Connecticut, Director
of Solutia Inc. (the "Company"), a Delaware corporation with its general offices
in the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 28 day of August, 1997.
/s/ Robert T. Blakely
------------------------
Robert T. Blakely
STATE OF CONNECTICUT )
) SS
COUNTY OF FAIRFIELD )
On this 28th day of August, 1997, before me personally appeared Robert
T. Blakely, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Nancy Mangano
------------------------
Notary Public
Nancy Mangano
Commissioner of Deeds
My Commission Expires: State of Connecticut
Commission Expires May 5, 1998
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert H. Jenkins, of Rockford, State of Illinois, Director of
Solutia Inc. (the "Company"), a Delaware corporation with its general offices in
the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 28 day of August, 1997.
/s/ Robert H. Jenkins
------------------------
Robert H. Jenkins
STATE OF ILLINOIS )
) SS
COUNTY OF WINNEBAGO )
On this 28th day of August, 1997, before me personally appeared Robert
H. Jenkins, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Carolyn J. Thomas
------------------------
Notary Public
My Commission Expires: Jan. 18, 1999
"OFFICIAL SEAL"
CAROLYN J. THOMAS
Notary Public, State of Illinois
My Commission Expires 1/18/99
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Howard M. Love, of Pittsburgh, Commonwealth of Pennsylvania,
Director of Solutia Inc. (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, do by these presents make,
constitute and appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis
County, Missouri, or either of them acting alone, to be my true and lawful
attorneys for me and in my name, place and stead, to execute and sign (i) the
Registration Statement on Form S-8 and any Amendments thereto to be filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), covering the registration of the Company's
securities to be issued under the Solutia Inc. compensation plan for
non-employee directors; and (ii) the Registration Statement on Form S-1 and any
Amendments thereto to be filed with the Commission under the Act, covering the
registration of debt securities to be issued by the Company after the
Registration Statement becomes effective; giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have done or could do if personally present and executing any of said
documents.
Witness my hand this 29 day of August, 1997.
/s/ Howard M. Love
------------------------
Howard M. Love
State of New York )
) SS
ESSEX )
On this 29 day of August, 1997, before me personally appeared Howard M.
Love, to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed the same as his free act and deed.
SARA LAHART
Notary Public in the State of New York
Qualified in Essex County No. 4982401
My Commission Expires June 3, 1999
Notary Public
/s/ Sara Lahart
My Commission Expires: 6-3-99
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Frank A. Metz, Jr., of Sloatsburg, State of New York, Director
of Solutia Inc. (the "Company"), a Delaware corporation with its general offices
in the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 28th day of August, 1997.
/s/ Frank A. Metz, Jr.
------------------------
Frank A. Metz, Jr.
STATE OF NEW YORK )
) SS
COUNTY OF ROCKLAND )
On this 28th day of August, 1997, before me personally appeared Frank
A. Metz, Jr., to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Mary Alice Conway
------------------------
Notary Public
MARY ALICE CONWAY
My Commission Expires: ________________ Notary Public, State of New York
No. 5007249
Qualified in Orange County
Commission Expires January 25, 1999
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, William D. Ruckelshaus, of Medina, State of Washington,
Director of Solutia Inc. (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, do by these presents make,
constitute and appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis
County, Missouri, or either of them acting alone, to be my true and lawful
attorneys for me and in my name, place and stead, to execute and sign (i) the
Registration Statement on Form S-8 and any Amendments thereto to be filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), covering the registration of the Company's
securities to be issued under the Solutia Inc. compensation plan for
non-employee directors; and (ii) the Registration Statement on Form S-1 and any
Amendments thereto to be filed with the Commission under the Act, covering the
registration of debt securities to be issued by the Company after the
Registration Statement becomes effective; giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have done or could do if personally present and executing any of said
documents.
Witness my hand this 29th day of August, 1997.
/s/ William D. Ruckelshaus
------------------------------
William D. Ruckelshaus
STATE OF WASHINGTON )
) SS
COUNTY OF KING )
On this 29th day of August, 1997, before me personally appeared William
D. Ruckelshaus, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Weam L. Hodgson
------------------------
Notary Public
My Commission Expires: 11/12/97
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, John B. Slaughter, of Pasadena, State of California, Director
of Solutia Inc. (the "Company"), a Delaware corporation with its general offices
in the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 28th day of August, 1997.
/s/ John B. Slaughter
------------------------
John B. Slaughter
STATE OF CALIFORNIA )
) SS
COUNTY OF LOS ANGELES )
On this 28th day of August, 1997, before me personally appeared John B.
Slaughter, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Kay Lynn Fujiwara
------------------------
Notary Public
My Commission Expires: ________________ [State
Seal of
California]
Kay Lynn Fujiwara
Commission #1149223
Notary Public - California
Los Angeles County
My Comm. Expires Jul. 31, 2001
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Joan T. Bok, of Boston, Commonwealth of Massachusetts, Director
of Solutia Inc. (the "Company"), a Delaware corporation with its general offices
in the County of St. Louis, Missouri, do by these presents make, constitute and
appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis County,
Missouri, or either of them acting alone, to be my true and lawful attorneys for
me and in my name, place and stead, to execute and sign (i) the Registration
Statement on Form S-8 and any Amendments thereto to be filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering the registration of the Company's securities to be
issued under the Solutia Inc. compensation plan for non-employee directors; and
(ii) the Registration Statement on Form S-1 and any Amendments thereto to be
filed with the Commission under the Act, covering the registration of debt
securities to be issued by the Company after the Registration Statement becomes
effective; giving and granting unto said attorneys full power and authority to
do and perform such actions as fully as I might have done or could do if
personally present and executing any of said documents.
Witness my hand this 3rd day of September, 1997.
/s/ Joan T. Bok
------------------------
Joan T. Bok
COMMONWEALTH OF MASSACHUSETTS )
) SS
COUNTY OF SUFFOLK )
On this 3rd day of September, 1997, before me personally appeared Joan
T. Bok, to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that she executed the same as her free act and
deed.
/s/ Donna M. Mitton
------------------------
Notary Public
DONNA M. MITTON
My Commission Expires: 4/08/98 Notary Public, State of New York
No. 01MI55058515
Qualified in Kings County
Commission Expires April 8, 1998
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Paul H. Hatfield, of St. Louis County, State of Missouri,
Director of Solutia Inc. (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, do by these presents make,
constitute and appoint Karl R. Barnickol and Karen L. Knopf, both of St. Louis
County, Missouri, or either of them acting alone, to be my true and lawful
attorneys for me and in my name, place and stead, to execute and sign (i) the
Registration Statement on Form S-8 and any Amendments thereto to be filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), covering the registration of the Company's
securities to be issued under the Solutia Inc. compensation plan for
non-employee directors; and (ii) the Registration Statement on Form S-1 and any
Amendments thereto to be filed with the Commission under the Act, covering the
registration of debt securities to be issued by the Company after the
Registration Statement becomes effective; giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have done or could do if personally present and executing any of said
documents.
Witness my hand this 3rd day of September, 1997.
/s/ Paul H. Hatfield
------------------------
Paul H. Hatfield
STATE OF MISSOURI )
) SS
COUNTY OF ST. LOUIS )
On this 3rd day of September, 1997, before me personally appeared Paul
H. Hatfield, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Donna M. Mitton
------------------------
Notary Public
My Commission Expires: 4/08/98 DONNA M. MITTON
Notary Public, State of New York
No. 01MI55058515
Qualified in Kings County
Commission Expires April 8, 1998
<PAGE> 1
Exhibit 25
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
SOLUTIA INC.
(Exact name of obligor as specified in its charter)
DELAWARE 45-1781797
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
10300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63166-6760
(Address of principal executive offices) (Zip Code)
---------------------------------------------
% Notes due 2002
% Debentures due 2027
% Debentures due 2037
(Title of the indenture securities)
---------------------------------------------
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
-2-
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4
to Form T-1 filed in connection with Registration Statement No. 333-06249,
which is incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 22ND day of SEPTEMBER, 1997.
THE CHASE MANHATTAN BANK
By /s/ Timothy E. Burke
---------------------
Timothy E. Burke
Second Vice President
-3-
<PAGE> 4
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 22ND day of SEPTEMBER, 1997.
THE CHASE MANHATTAN BANK
By /s/Timothy E. Burke
-----------------------
Timothy E. Burke
Second Vice President
-3-
<PAGE> 5
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1997, in
accordance with a call made by the Federal Reserve
Bank of this District pursuant to the provisions of
the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................................... $ 13,892
Interest-bearing balances............................................ 4,282
Securities:
Held to maturity securities............................................... 2,857
Available for sale securities............................................. 34,091
Federal Funds sold and securities purchased under
agreements to resell ................................................ 29,970
Loans and lease financing receivables:
Loans and leases, net of unearned income................ $124,827
Less: Allowance for loan and lease losses............... 2,753
Less: Allocated transfer risk reserve................... 13
--------
Loans and leases, net of unearned income,
allowance, and reserve .............................................. 122,061
Trading Assets ........................................................... 56,042
Premises and fixed assets (including capitalized
leases).............................................................. 2,904
Other real estate owned................................................... 306
Investments in unconsolidated subsidiaries and
associated companies................................................. 232
Customers' liability to this bank on acceptances
outstanding ......................................................... 2,092
Intangible assets ........................................................ 1,532
Other assets ............................................................. 10,448
--------
TOTAL ASSETS.............................................................. $280,709
========
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits
In domestic offices ..................................................... $ 91,249
Noninterest-bearing ................................... $38,157
Interest-bearing....................................... 53,092
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's................................................................ 70,192
Noninterest-bearing ........................................ $ 3,712
Interest-bearing....................................... 66,480
Federal funds purchased and securities sold under agree-
ments to repurchase .......................................................... 35,185
Demand notes issued to the U.S. Treasury...................................... 1,000
Trading liabilities........................................................... 42,307
Other Borrowed money (includes mortgage indebtedness and obligations under
calitalized leases):
With a remaining maturity of one year or less............................ 4,593
With a remaining maturity of more than one year.
through three years............................................... 260
With a remaining maturity of more than three years....................... 146
Bank's liability on acceptances executed and outstanding...................... 2,092
Subordinated notes and debentures............................................. 5,715
Other liabilities............................................................. 11,373
TOTAL LIABILITIES............................................................. 264,112
--------
EQUITY CAPITAL
Perpetual Preferred stock and related surplus 0
Common stock.................................................................. 1,211
Surplus (exclude all surplus related to preferred stock)..................... 10,283
Undivided profits and capital reserves........................................ 5,280
Net unrealized holding gains (Losses)
on available-for-sale securities ............................................. (193)
Cumulative foreign currency translation adjustments........................... 16
TOTAL EQUITY CAPITAL.......................................................... 16,597
--------
TOTAL LIABILITIES AND EQUITY CAPITAL.......................................... $280,709
========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Combined Income of Solutia Inc. for the six months ended June 30,
1997, and the Statement of Combined Financial Position as of June 30, 1997.
Such information is qualified in its entirety by reference to such combined
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 438
<ALLOWANCES> 8
<INVENTORY> 288
<CURRENT-ASSETS> 936
<PP&E> 3,156
<DEPRECIATION> 2,249
<TOTAL-ASSETS> 2,529
<CURRENT-LIABILITIES> 611
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 859
<TOTAL-LIABILITY-AND-EQUITY> 2,529
<SALES> 1,489
<TOTAL-REVENUES> 1,489
<CGS> 1,124
<TOTAL-COSTS> 1,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 193
<INCOME-TAX> 66
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Historical earnings per share have not been presented as Solutia Inc. was
wholly owned by Monsanto Company.
</FN>
</TABLE>
