-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JHRHBGNg2zgzix5mjwEv3+m1G+oZUBllWNbBqx35mJoDe8isehjychw8x9tq+dBB zJWxoKgAGryZs8i8seg2pw== 0001068800-00-000073.txt : 20000313 0001068800-00-000073.hdr.sgml : 20000313 ACCESSION NUMBER: 0001068800-00-000073 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLUTIA INC CENTRAL INDEX KEY: 0001043382 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 431781797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13255 FILM NUMBER: 565040 BUSINESS ADDRESS: STREET 1: 575 MARYVILLE CENTRE DRIVE STREET 2: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 BUSINESS PHONE: 3146741000 MAIL ADDRESS: STREET 1: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 FORMER COMPANY: FORMER CONFORMED NAME: QUEENY CHEMICAL CO DATE OF NAME CHANGE: 19970804 10-K405 1 SOLUTIA INC. FORM 10-K ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-13255 --------- SOLUTIA INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-1781797 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760 - --------------------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 674-1000 -------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- $.01 PAR VALUE COMMON STOCK NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ---- (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [ ] NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT: APPROXIMATELY $1.4 BILLION AS OF THE CLOSE OF BUSINESS ON FEBRUARY 28, 2000. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 109,459,778 SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF THE CLOSE OF BUSINESS ON FEBRUARY 28, 2000. DOCUMENTS INCORPORATED BY REFERENCE 1. PORTIONS OF SOLUTIA INC.'S ANNUAL REPORT TO SECURITY HOLDERS FOR THE YEAR ENDED DECEMBER 31, 1999 (PART I, PART II AND PART IV OF FORM 10-K). 2. PORTIONS OF SOLUTIA INC.'S NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT DATED MARCH 9, 2000 (PART III OF FORM 10-K). ==================================================================== We make statements in this Annual Report on Form 10-K and the documents incorporated by reference that are considered forward-looking statements under the federal securities laws. We consider all statements about the following to be forward-looking statements: * Our expected future financial position, results of operations, and cash flows; * dividends; * financing plans; * business strategy; * budgets; * projected costs and capital expenditures; * competitive positions; * growth opportunities for existing products; * benefits from new technology; * price increases; * share repurchases; * plans and objectives of management for future operations; and * effect of changes in accounting due to recently issued accounting standards. These statements are not guarantees of our future performance. They represent our estimates and assumptions only on the date they were made. There are risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we may project. These risks, uncertainties and factors include: * Customer acceptance of new products; * efficacy of new technology and facilities; * general economic, business and market conditions that affect us because some of our customers are in cyclical businesses; * competitive position; * changes in foreign laws and regulations; * shortages or pricing of raw materials and energy; * lower prices for our products or a decline in our market share due to competition or price pressure by customers; and * integration of acquired companies into our business. PART I ITEM 1. BUSINESS. Solutia Inc. and its subsidiaries produce and market a variety of high performance chemical-based materials. Solutia's strategic focus is built on key strengths, including: * complex manufacturing capabilities; * process engineering expertise; * polymer chemistry; * fiber technology; * technical service; and * customer problem solving. These world-class skills are applied to create solutions and products for customers in the consumer, household, automotive and industrial products industries. Solutia's products include: * SAFLEX(R) plastic interlayer; adhesives; and window and industrial films; * Liquid, powder and waterborne resins; and * VYDYNE(R) and ASCEND(TM) nylon polymers; chemical intermediates; and nylon fibers. 1 Solutia was incorporated in Delaware in April 1997 as a wholly-owned subsidiary of Monsanto Company, and by September 1, 1997, most of Monsanto's chemical businesses were transferred to Solutia. On September 1, 1997, the "Distribution Date," Monsanto distributed all of the outstanding shares of Solutia common stock as a dividend to Monsanto's stockholders, and Solutia became an independent publicly-held company listed on the New York Stock Exchange. This event is called the "Spinoff." Monsanto and Solutia entered into a number of agreements regarding the separation of the companies and to provide mechanisms for an orderly transition following the separation. Solutia has completed the transition to services independent of Monsanto, although operating agreements for Solutia's manufacturing facilities located at Monsanto plant sites and Monsanto manufacturing facilities located at a Solutia plant site continue for longer terms. RECENT DEVELOPMENTS On April 30, 1999, Solutia announced an agreement with FMC Corporation to form a joint venture to manufacture and market phosphorus chemicals. Solutia will contribute its phosphorus-based chemicals business to the joint venture and will hold a 50% ownership share. The formation of the joint venture, to be named Astaris LLC, is being reviewed by the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. On December 22, 1999, Solutia acquired Vianova Resins from Morgan Grenfell Private Equity Ltd., a private equity syndicate, and minority holders for a total of approximately DM 1.2 billion (about $640 million). Vianova Resins is a leading European producer of resins and additives for coatings and technical applications. SEGMENTS; PRINCIPAL PRODUCTS For 1999, Solutia reported its business under three segments: * Performance Films; * Specialty Products; and * Integrated Nylon. This is a change from past years, for which Solutia reported its businesses under the Chemicals, Fibers, and Polymers and Resins segments. This change corresponds with Solutia's refinement of its management structure in December 1999 to align with its growth strategy. Solutia's management is now organized around four strategic business platforms: Performance Films, Resins and Additives, Specialties, and Integrated Nylon. Resins and Additives and Specialties have been aggregated into the Specialty Products segment because of their similar economic characteristics, as well as their similar products and services, production processes, types of customers, and methods of distribution. The following tables categorize our principal products by major end-use markets within the segments for 1999. The tabular and narrative information contained in Note 19 of "Notes to Consolidated Financial Statements" appearing on pages 45 through 47 of the 1999 Annual Report is incorporated herein by reference. 2 PERFORMANCE FILMS
Major End-Use Major End-Use Products & Major Raw Markets Major Products Applications Major Competitors Materials Major Plants - --------------------------------------------------------------------------------------------------------------------------------- CONSTRUCTION AND HOME Polyvinyl butyral Products to DuPont; Material Butyraldehyde; Ghent, Belgium; FURNISHINGS for KEEPSAFE(R), increase the safety Science Corp. ethanol; polyvinyl Springfield, MA; SAFLEX INSIDE(TM), and security of (MSC); Lintec; 3M alcohol; vinyl Trenton, MI; and KEEPSAFE MAXI- architectural glass acetate monomer; Martinsville, VA; MUM(TM) laminated for residential and polyester film Bridgeport, NJ window glass; SAN- commercial TICIZER(R) plasti- structures; cizers; LLUMAR(R) resilient sheet and and VISTA(R) pro- tile flooring; fessional window after-market films films and GILA(R) for solar con- retail window films trol, security and safety - --------------------------------------------------------------------------------------------------------------------------------- VEHICLES SAFLEX(R) plastic Automotive glass; DuPont; MSC; Butyraldehyde; Ghent, Belgium; interlayer; solar control Lintec; Madico ethanol; polyvinyl Springfield, MA; LLUMAR(R), FORMULA alcohol; vinyl Trenton, MI; ONE(R) and GILA(R) acetate monomer; Martinsville, VA retail window films polyester film - --------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL GELVA(R) pressure Packaging; medical DuPont; Akzo Nobel; Ethanol; formalde- Ghent, Belgium; APPLICATIONS sensitive adhesives; devices; tapes and Bayer; Lintec; MSC; hyde; maleic anhy- Springfield, MA; industrial films; graphic arts 3M; Southwall; dride; melamine; Trenton, MI; release liners and Rexam; IST; polyester film; Martinsville, VA deep-dyed films National Starch butanol; chlorine - --------------------------------------------------------------------------------------------------------------------------------- ELECTRONICS Performance films; Computer touch 3M; Lintec; MSC; Ethanol; formalde- Martinsville, VA; conductive and anti- screens; elec- Southwall; Sheldahl hyde; maleic anhy- Canoga Park, CA reflective coated troluminescent dis- dride; melamine; films plays and watches; polyester film cathode ray tube monitors - --------------------------------------------------------------------------------------------------------------------------------- 3 SPECIALTY PRODUCTS Major End-Use Major End-Use Products & Major Raw Markets Major Products Applications Major Competitors Materials Major Plants - ---------------------------------------------------------------------------------------------------------------------------------- CAPITAL EQUIPMENT THERMINOL(R) heat Heat transfer Dow Chemical Co.; Benzene; phenol; Alvin, TX; transfer fluids; fluids; water Nippon Steel phosphorus Anniston, AL; DEQUEST(R) water treatment; oil Chemical Co.; trichloride Newport, Wales (UK) treatment chemicals field chemicals Albright & Wilson plc; Bayer A.G. - ---------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL MODAFLOW(R) flow and Coatings and Cytec Industries; Acrylate esters; Springfield, MA; APPLICATIONS leveling agents; adhesives; caulks Neste butanol; Fechenheim, RESIMENE(R) and sealants; formaldehyde; Germany; Rayong, crosslinkers; paints; coated melamine; Thailand; Romano d' MAPRENAL(R)and fabric; wire and Ezzelino, Italy MADURIT resins cable; liquid coating systems; fiberboard; technical laminates; paper coatings - ---------------------------------------------------------------------------------------------------------------------------------- AVIATION/ SKYDROL(R) aviation Hydraulic fluids ExxonMobil Phosphorus St. Louis, MO TRANSPORTATION hydraulic fluids; for commercial oxychloride; SKYKLEEN(R) aviation aircraft; methanol solvents environmentally- friendly cleaning fluids for aviation maintenance - ---------------------------------------------------------------------------------------------------------------------------------- CHEMICALS Industrial Oil additives; Albright & Wilson Elemental Augusta, GA; phosphates; pesticides; mining plc; FMC Corp.; phosphorus St. Louis, MO; phosphoric acid; chemicals; chemical Rhodia Sauget, IL; phosphorus intermediates; fire Trenton, MI pentasulfide; retardants phosphorus trichloride; PHOS-CHEK(R) fire- fighting agents - ---------------------------------------------------------------------------------------------------------------------------------- PERSONAL PRODUCTS Oral care Dentifrices; water Albright & Wilson Elemental Augusta, GA; phosphates; conditioners; plc; FMC Corp.; phosphorus Newport, Wales industrial dishwasher Rhodia (UK); St. Louis, phosphates detergents MO; Sao Jose dos Compos, Brazil; Trenton, MI - ---------------------------------------------------------------------------------------------------------------------------------- FOOD AND BEVERAGE LEVN-LITE(R), Leavening agents FMC Corp.; Rhodia Elemental St. Louis, MO; PAN-O-LITE(R), and for bakery goods; phosphorus Sao Jose dos LEVERAGE(R) agents used in Compos, Brazil; phosphate; curing and Trenton, MI NUTRIFOS(R) STP; processing meats KATCH(R) seafood and poultry; agents phosphate; for extending shelf phosphoric acid life of meats, poultry and fish; soft drink additives - ---------------------------------------------------------------------------------------------------------------------------------- VEHICLES MODAFLOW(R) flow and Coatings and Cytec Industries; Acrylate esters; Springfield, MA; leveling agents; adhesives; caulks DSM; Cray butanol; Fechenheim, Hamburg RESIMENE(R) and sealants; Valley/Total formaldehyde; and Wiesbaden, crosslinkers; paints; coated melamine Germany; Rayong, VIACRYL(R), fabric; wire and Thailand; Romano d' MACRYNAL(R) cable; industrial Ezzelino, Italy VIALKYD(R), DUROXIN, and decorative VIAKTIN(R), VIAMIN coatings; and HOSTAFLEX environmentally- resins; RESYDROL(R) friendly solvents waterborne resins; ALFTALAT(R), SYNTHACRYL(R) and VIAKTIN(R) solid resins - ---------------------------------------------------------------------------------------------------------------------------------- 4 INTEGRATED NYLON SEGMENT Major End-Use Major End-Use Products & Major Raw Markets Major Products Applications Major Competitors Materials Major Plants - ---------------------------------------------------------------------------------------------------------------------------------- CONSTRUCTION AND HOME Nylon carpet staple; WEAR-DATED(R) DuPont; Honeywell; Acrylonitrile; Pensacola, FL; FURNISHINGS nylon bulk residential and BASF ammonia; Greenwood, SC; continuous filament; ULTRON VIP(R) cyclohexane; Decatur and ACRILAN(R) acrylic commercial carpet; propylene Foley, AL fiber; ASCEND(TM) area rugs; bath nylon polymer mats; WEAR-DATED(R) upholstery fabrics; blankets; non-woven reinforcement and linings - ---------------------------------------------------------------------------------------------------------------------------------- PERSONAL PRODUCTS ACRILAN(R) acrylic Sweaters; knit Sterling Chemicals; Acrylonitrile; Pensacola, FL; fiber; ASCEND(TM) apparel; half-hose; Acordis; DuPont, ammonia; Decatur, AL; nylon polymer active wear; craft Radici cyclohexane; Greenwood, SC yarns; hand-knit propylene yarns; apparel; dental floss; intimate apparel; bedding; shoes - ---------------------------------------------------------------------------------------------------------------------------------- VEHICLES Nylon filament; Tires; air bags; DuPont; Acordis; Acrylonitrile; Pensacola, FL; VYDYNE(R) nylon brakes; convertible Rhodia; Asahi ammonia; Decatur, AL; molding resins; tops; automotive Chemical cyclohexane; Greenwood, SC ASCEND(TM) nylon interior, exterior propylene polymer; ACRILAN(R) and under-the-hood acrylic fiber molded parts; carpet; non-woven reinforcement and linings - ---------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL ACRILAN(R) acrylic Sewing thread; Acordis; DuPont; Acrylonitrile; Pensacola, FL; APPLICATIONS fiber; ASCEND(TM) conveyer belts; Honeywell; BASF ammonia; Decatur, AL; nylon polymer; awnings and tents; cyclohexane; Greenwood, SC industrial nylon nylon film cooking propylene fiber bags; specialized food packaging - ---------------------------------------------------------------------------------------------------------------------------------- INTERMEDIATE Nylon salt; adipic Nylon and acrylic DuPont; Rhodia; Natural gas; Anniston and CHEMICALS acid; hexamethylene fiber; nylon BASF; Asahi propylene; benzene; Decatur, AL; Alvin, diamine; plastics; Chemical chlorine; TX; Greenwood, SC; adiponitrile; herbicides; feed cyclohexane Sauget, IL; acrylonitrile; supplements Pensacola, FL chlorobenzenes - ----------------------------------------------------------------------------------------------------------------------------------
5 PRINCIPAL EQUITY AFFILIATES Solutia participates in a number of joint ventures in which it shares management control with other companies. Solutia's equity earnings from affiliates were $36 million, $25 million and $31 million in 1999, 1998 and 1997, respectively. Principal joint ventures include Flexsys, L.P., Advanced Elastomer Systems, L.P., and the P4 joint venture. The Flexsys joint venture, headquartered in Belgium, is a leading supplier of process chemicals to the rubber industry. Its product line includes a number of branded accelerators (SANTOCURE(R), THIOFIDE(R) and THIOTAX(R)), pre-vulcanization inhibitors (SANTOGARD(R)), antidegradants and antioxidants (FLECTOL(R) and SANTOWHITE(R)) and insoluble sulphur (CRYSTEX(R)). Flexsys is a 50/50 joint venture between Solutia and Akzo Nobel. Advanced Elastomer Systems, headquartered in the United States, produces and sells thermoplastic elastomers--materials that combine the processability of thermoplastics 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 Solutia and ExxonMobil. The P4 joint venture, principally located at Soda Springs, Idaho, mines phosphate rock and produces elemental phosphorus. This joint venture was formed during the Spinoff, with Solutia obtaining a 40% interest and Monsanto retaining the remaining 60%. Solutia operates the joint venture under an operating agreement. The elemental phosphorus produced by the P4 joint venture is sold to both Monsanto and Solutia generally at cost with certain adjustments to reflect ownership. Monsanto has priority for a certain percentage of the production volume. Solutia uses the elemental phosphorus as a raw material in the manufacture of phosphorus derivatives, which Solutia then sells, and it sells elemental phosphorus to other users. In the event of a change of control of Solutia or the sale of the phosphorus derivative business (including Solutia's interest in the P4 joint venture), Monsanto has an option to acquire Solutia's interest in the P4 joint venture at the then book value. Monsanto is paying Solutia an annual fee for this option. By letter agreement dated April 1, 1999, Solutia has the right to require Monsanto to acquire Solutia's interest in the P4 joint venture at the then book value. This right expires April 1, 2000. SALE OF PRODUCTS Solutia's products are sold directly to end users in various industries, principally by Solutia's own sales force, and, to a lesser extent, by distributors. Under a marketing alliance between Solutia and Dow Plastics, a business unit of The Dow Chemical Company, Dow markets Solutia's VYDYNE(R) nylon 6,6 molding resins for injection molding applications worldwide. Solutia'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 Solutia's scheduled production. In general, Solutia does not manufacture its products against a backlog of firm orders; production is scheduled to meet the level of incoming orders and the projections of future demand. Solutia 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 state or local, or foreign government. In general, Solutia's sales are not subject to seasonality. While no single customer or customer group accounts for ten percent or more of Solutia's net sales, sales to the carpet mill industry and the European auto glass industry each represent a significant portion of Solutia's net sales. COMPETITION Solutia encounters substantial competition in 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, Solutia regards its principal product groups as competitive with many other products of other producers and believes that it is an important producer of many of these product groups. For information regarding competition in specific markets, see "Segments; Principal Products." 6 RAW MATERIALS AND ENERGY RESOURCES Solutia is a significant purchaser of basic, commodity raw materials, including propylene, cyclohexane, benzene and natural gas. Major requirements for key raw materials and energy are typically purchased pursuant to long-term contracts. Solutia is not dependent on any one supplier for a material amount of its raw materials or energy requirements, but certain important raw materials are obtained from a few major suppliers. In general, where Solutia 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 in the chart under "Segments; Principal Products." While temporary shortages of raw materials and energy 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 Solutia's business as a whole or in specific world areas cannot be accurately predicted. PATENTS AND TRADEMARKS Solutia 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. Solutia owns a considerable number of established trademarks in many countries under which it markets its products. These patents and trademarks in the aggregate are of material importance in the operations of Solutia and to its Performance Films, Specialty Products, and Integrated Nylon segments. RESEARCH AND DEVELOPMENT Research and development constitute an important part of Solutia's activities. In recent years, Solutia's research and development expenses amounted to approximately $80 million in 1999, $83 million in 1998 and $87 million in 1997, or about 3% of sales on average. Solutia focuses its research and development expenditures on process improvements and select product development. Products launched recently as a result of internal development include an enhanced surface topography plastic interlayer, SAFLEX SV, a new adhesive for under-the-hood automotive applications, an adhesive for low surface-energy surfaces, an adhesive containing a built-in latent crosslinking agent, and a new defoamer for lubricant oils where efficient and stable high temperature performance is required. Solutia is developing environmentally-benign biodegradable adhesives that will allow the U.S. Postal Service to improve the paper recycling process. In addition, Solutia has introduced new nylon 6,6 grades to support Solutia's marketing alliance with Dow Plastics and higher performance extrusion grades of Ascend(TM) nylon polymer. Solutia also actively pursues technologies which can lead to new products or processes. Products resulting from nylon industrial spinning technology licensed from Toray in Japan became fully commercialized in tire reinforcement, automotive air bags, and high strength belts. ENVIRONMENTAL MATTERS The narrative information appearing under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters" on pages 27 and 28 of the 1999 Annual Report is incorporated by reference. EMPLOYEE RELATIONS On December 31, 1999, Solutia had approximately 10,600 employees worldwide. Satisfactory relations have prevailed between Solutia and its employees. Solutia uses self-directed work teams, incentive programs and other initiatives to keep employees actively involved in the success of the business. Approximately 20% of Solutia's workforce is represented by various labor unions. 7 INTERNATIONAL OPERATIONS Solutia and its subsidiaries are engaged in manufacturing, sales and research and development in areas outside the United States, including Europe, Canada, Latin America and Asia. Nearly 30% of Solutia's overall 1999 sales were made into markets outside the United States. With the acquisition of the Vianova Resins business, Solutia expects the percentage of ex-U.S. sales to increase significantly. 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 companies doing business abroad. Solutia's Performance Films and Specialty Products segments are particularly dependent upon their international operations. Approximately two-thirds and one-third of their 1999 sales, respectively, were made into markets outside the United States. ITEM 2. PROPERTIES. Solutia's general offices are located in a leased facility in St. Louis County, Missouri. Solutia's European headquarters are located in Louvain La Neuve, Belgium, in premises leased from the University of Louvain. Solutia also has research laboratories, research centers and manufacturing locations worldwide. Information about Solutia's major manufacturing locations worldwide and segments that used these locations on January 1, 2000, appears under "Segments; Principal Products" in Item 1 of this Report and is incorporated herein by reference. Solutia'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. Solutia has plans in place to expand facilities that are anticipated to reach capacity in 2001. Solutia owns most of its principal plants. However, at Antwerp, Belgium and Sao Jose dos Campos, Brazil, both of which are Monsanto sites, Solutia owns certain buildings and production equipment and leases the underlying land. In addition, Solutia leases the land for its Vianova Resins facilities at Suzano, Brazil and Fechenheim, Germany from Clariant or a subsidiary of Clariant and the land for its facilities at Wiesbaden, Germany from Hoechst with site services provided by a subsidiary of Hoechst. Monsanto and Solutia have entered into certain operating agreements with respect to each of the two Monsanto facilities listed above and Solutia's Chocolate Bayou facility in Alvin, Texas. Under these operating agreements, Solutia is the guest and Monsanto is the operator at the facilities except the Chocolate Bayou facility, at which Monsanto is the guest and Solutia is the operator. 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. Solutia operates several facilities for third parties in addition to Monsanto, principally within the Chocolate Bayou; Sauget, Illinois; Pensacola, Florida; and Newport, Wales (U.K.) sites, under long-term lease and operating agreements. Solutia expects to complete construction of a world-scale acrylonitrile production facility at Chocolate Bayou in the third quarter of 2000. The facility will employ Solutia's proprietary catalyst system and is expected to be capable of producing approximately 500 million pounds annually. Solutia has product sale agreements with three customers, Bayer, Novus International Inc. and Asahi, who made advance payments in connection with this project. In addition, Solutia plans to undertake two other construction projects during 2000 and 2001. These include a phenol processing facility at the Pensacola, Florida site to produce intermediates in the nylon manufacturing process and an expansion of the adiponitrile production facility at the Decatur, Alabama site. Solutia is an active participant in the safety and health Voluntary Protection Program ("VPP") administered by the Occupational Safety and Health Administration for sites in the U.S., and implemented by Solutia for sites outside the U.S. Currently, 13 Solutia sites in the U.S. qualify for the OSHA VPP 8 "Star" designation, a rating designating full compliance. Three other Solutia sites, two in Europe and one in Canada, have achieved the Solutia "Star" designation, which is an internal equivalent to the OSHA designation. ITEM 3. LEGAL PROCEEDINGS. At the time of the Spinoff, Solutia assumed from Monsanto, under an agreement known as the Distribution Agreement, liabilities related to specified legal proceedings. As a result, although Monsanto remains the named defendant, Solutia is required to manage the litigation and indemnify Monsanto for costs, expenses and judgments arising from the 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, Solutia does not believe these matters or their ultimate disposition will have a material adverse effect on Solutia's consolidated financial position, profitability or liquidity in any one year. The following paragraphs describe several proceedings to which Solutia is a party or to which Monsanto is a party and for which Solutia assumed any liabilities. 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 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 three cases brought in Harris County District Court or in U.S. District Court for the Southern District of Texas on behalf of 116 plaintiffs who owned homes or lived in subdivisions near the Brio 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. Plaintiffs seek compensatory and punitive damages in an unspecified amount. (2) Monsanto is one of a number of defendants in one additional action brought in Harris County District Court on behalf of 412 plaintiffs who are former employees of the owners/operators of the Brio site or members of the employees' families. Plaintiffs claim physical and emotional injury and seek compensatory and punitive damages in an unspecified amount. Solutia believes that there are meritorious defenses to all of these lawsuits including lack of proximate cause, lack of negligent or improper conduct on the part of Monsanto or Solutia and negligence of plaintiffs (or their parents) and/or of the builders and developers of the Southbend subdivisions. 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 alleged release of polychlorinated biphenyls ("PCBs") and other materials from its Anniston, Alabama, plant site. The following matters are currently pending: (1) Monsanto is a defendant in two cases pending in Circuit Court in St. Clair County, Alabama which have been consolidated and certified as a class action on behalf of all property owners in a specified area along waterways near the plant. In April 1999 Solutia reached an agreement in principle, subject to Court approval, to settle these matters for a cash payment to members of the class of $23 million and a guarantee that Solutia will spend at least $18 million over a period of approximately 6 years, in addition to $3 million already expended, on remediation activities directed to the waterways at issue. On July 30, 1999, the Alabama Supreme Court stayed all proceedings in these cases after a small group of class members opposed to the settlement filed a petition for a writ of mandamus. The settlement opponents claim that the amount of cash to be paid to class members is inadequate and that the proposed agreement does not assure that Solutia will clean up the waterways involved. Solutia has argued to the Alabama Supreme Court that the settlement is fair and adequate and that Solutia will diligently perform the remedial activities agreed upon with the Alabama Department of Environmental Management after appropriate studies are completed. The parties are awaiting the court's decision. (2) Monsanto is a defendant in an additional action brought in Circuit Court in Shelby County, Alabama on behalf of a purported class of property owners farther downstream along waterways near the plant. Plaintiffs seek compensatory and punitive damages in an unspecified amount for an 9 alleged increased risk of physical injury or illness, emotional distress caused by fear of future injury or illness, medical monitoring and diminishment in the value of their properties and their riparian rights. On October 5, 1999, the trial court granted Solutia's motion for summary judgment, holding that plaintiffs had, in an action not involving Monsanto or Solutia, recovered for the damages they claim in this action. In addition the court found that plaintiffs' claims were barred by the statute of limitations. Plaintiffs' motion for reconsideration of the trial court's order was denied on January 6, 2000, and plaintiffs have appealed to the Alabama Supreme Court. (3) Monsanto is a defendant in an additional 12 cases brought in Circuit Court in Calhoun County, Circuit Court in St. Clair County, Circuit Court in Talladega County or in U.S. District Court for the Northern District of Alabama on behalf of 5,528 plaintiffs who own or rent homes, own or operate businesses, attend churches or who have otherwise resided or visited in neighborhoods near the plant or who own or operate businesses along waterways near the plant. 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 properties or commercial injury. They seek compensatory and punitive damages of $3 million or in unspecified amounts for each plaintiff. On March 8, 1999, the Alabama Supreme Court stayed all proceedings in several consolidated cases pending in Circuit Court in Calhoun County brought on behalf of 2,712 plaintiffs after Solutia filed a petition for a writ of mandamus. Solutia sought the intervention of the Alabama Supreme Court on a number of grounds, including the failure of the trial court to rule on Solutia's motions for change of venue, for exclusion of certain evidence that lacks a valid scientific basis, for specification of procedures to govern trial of plaintiffs' claims, including procedures governing jury selection, and other relief. The parties are awaiting the court's decision. On February 11, 2000, Solutia arrived at an agreement in principle to settle one of the cases brought in U.S. District Court on behalf of the owners of a business located near the plant. (4) Monsanto is a defendant in one additional case brought in Circuit Court in Calhoun County on behalf of a purported class of all Alabama residents who have been exposed to PCBs or other materials allegedly released from the Anniston plant. Plaintiffs claim to suffer from unspecified personal injuries and seek compensatory and punitive damages in an unspecified amount. Solutia 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 the part of Solutia or Monsanto. These actions are being vigorously defended. Monsanto is one of several defendants added on February 7, 1997, to Pennsylvania Department of General Services, et al. v. United States Mineral Products Company, et al., a case then pending in the Commonwealth Court of Pennsylvania. This action was originally filed against United States Mineral Products Company in 1990 by the Commonwealth of Pennsylvania, seeking damages caused by the presence of asbestos fireproofing in the Transportation and Safety Building ("T&S Building"), which was part of the Commonwealth's Capital Complex in Harrisburg, Pennsylvania. In June 1994 a fire broke out in the T&S Building. Testing following the fire revealed the presence of low levels of PCBs at various locations in the building, which the Commonwealth alleges necessitated its demolition. The Commonwealth seeks recovery of costs it allegedly incurred in testing, monitoring, cleanup, demolition and relocation caused by the alleged contamination. In addition, the Commonwealth seeks the cost of constructing a new building on the site of the T&S Building. Trial of this action began with the selection of a jury in April 1999, and is continuing. Solutia believes that there are meritorious defenses to this action, including lack of any hazard or danger to occupants or visitors caused by the presence of PCBs in the building; a determination by the Pennsylvania Department of Health that the building was safe for use and occupancy; the failure of the Commonwealth to act prudently following the fire to mitigate its alleged damages; the impropriety of using replacement cost as a measure of damages; and the fact that most of plaintiff's damages would have been incurred during the removal of asbestos fireproofing and the installation of fire sprinklers required to comply with applicable fire safety codes. This action is being vigorously defended. On December 4, 1998, the U.S. Environmental Protection Agency ("EPA") issued a notice of violation to Solutia, Monsanto and P4 Production, L.L.C., alleging violations of the Wyoming Environmental Quality Act, the Wyoming Air Quality Standards & Regulations and a permit issued in 1994 by the Wyoming Department of Environmental Quality to Sweetwater Resources, Inc., a former subsidiary of 10 Monsanto, for a coal coking facility in Rock Springs, Wyoming. This facility is currently owned by P4 Production, a joint venture formed in conjunction with the spinoff of Solutia by Monsanto on September 1, 1997. P4 Production is owned 40 percent by Solutia and 60 percent by Monsanto and is operated by Solutia under an operating agreement with P4 Production. The alleged violations arise out of the same facts that formed the basis of a consent order with Monsanto issued by the Wyoming Environmental Quality Council on March 6, 1997 (the "1997 Consent Order"). At that time neither the EPA nor the Wyoming Department of Environmental Quality sought to impose a penalty. As a result of the December 4, 1998 notice of violation, Solutia, Monsanto, and P4 Production began discussions with the EPA and the Wyoming Department of Environmental Quality. These discussions culminated in the negotiation of a judicial settlement with the Wyoming Department of Environmental Quality that incorporated the terms and conditions of the 1997 Consent Order and assessed a penalty in the amount of $200,000. A consent decree was entered with the First Judicial District Court of Laramie County, Wyoming on June 25, 1999. On November 22, 1999, the United States, on behalf of the EPA, demanded $2,500,000 from P4 Production, Solutia, and Monsanto and injunctive relief ensuring compliance with permit requirements by P4 Production's Rock Springs, Wyoming coal coking facility. The issues are the same matters that were resolved by the June 25, 1999 consent decree between the three companies and the State of Wyoming. On January 18, 2000, P4 Production, Solutia and Monsanto filed a complaint for declaratory relief in the United States District Court for the District of Wyoming against the EPA. The companies are seeking a determination that the action the EPA is threatening against them is precluded by the doctrine of res judicata, among other things. RISK MANAGEMENT Solutia has evaluated risk retention and insurance levels for product liability, property damage and other potential areas of risk. Solutia 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 which it has retained are consistent with those of other companies in the chemical industry. There can be no assurance that Solutia will not incur losses beyond the limits, or outside the coverage, of its insurance. Solutia's consolidated financial position, profitability and liquidity are not expected to be affected materially by the levels of risk retention that it accepts. Under the Distribution Agreement that Solutia and Monsanto entered into at the time of the Spinoff, Solutia is entitled to the benefit of liability insurance coverage under certain Monsanto policies, to the extent coverage existed and coverage limits are not exhausted, for claims for which Solutia assumed responsibility. That insurance coverage generally is shared with Monsanto for other liabilities existing prior to the Distribution Date which Monsanto has retained, on an as available basis, without allocation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Solutia did not submit any matters to the security holders during the fourth quarter of 1999. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The narrative and tabular information regarding the market for Solutia's common equity and related stockholder matters appearing under "Quarterly Data--Unaudited" on page 47 and "Financial Summary" on page 20 of the 1999 Annual Report is incorporated by reference. The declaration and payment of dividends is made at the discretion of Solutia's Board of Directors. The Board's current policy is to pay cash dividends on an annual basis in December. The Board anticipates that the current 4 cent annual dividend will remain unchanged for the foreseeable future. Solutia's stock is traded principally on the New York Stock Exchange under the symbol "SOI." ITEM 6. SELECTED FINANCIAL DATA. The tabular information under "Financial Summary" appearing on page 20 of the 1999 Annual Report, is incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information appearing under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 29 of the 1999 Annual Report is incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information appearing under "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Derivative Financial Instruments" on pages 28 and 29 of the 1999 Annual Report is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Solutia's consolidated financial statements appearing on pages 30 through 47 and the Report of Independent Auditors appearing on page 19 of the 1999 Annual Report are incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information about directors and executive officers appearing under "Election of Directors" on pages 4 through 6 of Solutia's Notice of Annual Meeting and Proxy Statement dated March 9, 2000, is incorporated by reference. The following information about Solutia's executive officers on March 1, 2000, is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K:
Year First Became an Executive Name-Age Present Position with Registrant Officer Other Business Experience since January 1, 1995 - ------------------------------------------------------------------------------------------------------------------------------- John C. Hunter III, 53 Chairman, President, Chief 1997 President and Chief Operating Officer, 1997-1999. Executive Officer and Director President, Fibers Business Unit, Monsanto, 1995-1997. Vice President and General Manager, Fibers Division and Asia-Pacific, The Chemical Group of Monsanto, 1993-1995. Karl R. Barnickol, 58 Senior Vice President, General 1997 Associate General Counsel and Assistant Secretary Counsel and Secretary of Monsanto, 1985-1997. Rodney L. Bishop, 59 Vice President and Treasurer 1997 General Auditor of Monsanto, 1993-1997. A. Hameed Bhombal, 54 Vice President, Technology and 1999 Vice President and General Manager, Nylon Chief Technical Officer Industrial Fibers, 1997-1999. Director, Technology, Fibers Business Unit, Monsanto, 1993-1997. Dennis L. Cavner, 45 Vice President, Operations 1997 Director, Manufacturing, SAFLEX(R) Plastic Excellence and Environment, Interlayer, Monsanto, 1996-1997. Director, Safety and Health Manufacturing, Phosphorus and Derivatives, Monsanto, 1995-1996. Plant Manager of Monsanto's Muscatine, Iowa facility, 1992-1995. Robert A. Clausen, 55 Senior Vice President and Chief 1997 President, Monsanto Business Services, 1994-1997. Financial Officer; Advisory Director Sheila B. Feldman, 45 Vice President, Human Resources 1997 Director, Human Resources, Monsanto Business and Communications Services and Stewardship, 1995-1997. Director, Human Resources, The Chemical Group of Monsanto, 1993-1995. John J. Ferguson, 47 Senior Vice President, 1998 Senior Vice President, Shared Services and Supply Integrated Nylon Chain, 1998-1999. Vice President and General Manager, SAFLEX(R) Plastic Interlayer, 1997-1998. President, SAFLEX(R) Plastic Interlayer, Monsanto, 1994-1997. 13 Year First Became an Executive Name-Age Present Position with Registrant Officer Other Business Experience since January 1, 1995 - ------------------------------------------------------------------------------------------------------------------------------- Victoria M. Holt, 42 Vice President and General 1999 Vice President and General Manager, Acrilan Manager, Saflex Business Unit, 1997-1998. Business Director, Acrilan Business Unit, Monsanto, 1996-1997. Assistant to Monsanto's Chief Executive Officer, 1995-1996. Commercial Manager, Plastics Division, The Chemical Group of Monsanto, 1994-1995. Michael E. Miller, 58 Vice Chairman, Chief Operating 1997 Vice Chairman and Advisory Director, 1998-1999; Officer, and Director Senior Vice President, Chief Administrative Officer, and Advisory Director, 1997-1998. President, Specialty Products Business Unit, Monsanto, 1995-1997. Group Vice President, Industrial Products, Monsanto, 1993-1995. Senior Vice President, Operations, The Chemical Group of Monsanto, 1993-1995. Robert B. Toth, 39 Vice President and General 1999 Vice President and General Manager, Polymer Manager, Resins and Additives Modifiers and Resins, 1998-1999. Vice President and General Manager, Polymer Modifiers, 1997-1998. Director, Global Strategy for Crop Business Unit of Monsanto, 1996-1997. Director, Protiva Business Unit and Chemical Business Unit of Monsanto Canada, 1994-1995.
The above listed individuals are elected to the offices set opposite their names to hold office until their successors are duly elected and have qualified, or until their earlier death, resignation or removal. ITEM 11. EXECUTIVE COMPENSATION. Information appearing under "Compensation of Directors" on page 8 and under "Summary Compensation Table," "Option Grants in 1999," "Aggregated Option Exercises in 1999 and Year-End Option Values," "Pension Plans," and "Change-of-Control Agreements" on pages 14 through 18 of Solutia's 2000 Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information appearing under "Ownership of Company Common Stock" on pages 9 and 10 of Solutia's 2000 Proxy Statement is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information appearing under "Relationships and Transactions" on page 19 of Solutia's 2000 Proxy Statement is incorporated by reference. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this Report: 1. The financial statements set forth at pages 30 through 47 and the Report of Independent Auditors on page 19 of the 1999 Annual Report (See Exhibit 13 under Paragraph (a)3 of this Item 14) 2. Financial Statement Schedules The following supplemental schedule for the years ended December 31, 1999, 1998 and 1997: II--Valuation and Qualifying Accounts All other supplemental schedules are omitted because of the absence of the conditions under which they are required. 3. Exhibits--See the Exhibit Index beginning at page 20 of this Report. For a listing of all management contracts and compensatory plans or arrangements required to be filed as Exhibits to this Form 10-K, see the Exhibits listed under Exhibit Nos. 10(a), 10(b), 10(d), 10(e), 10(f), 10(h), 10(i), 10(j), 10(k) and 10(l) on pages 20 and 21 of the Exhibit Index. The following Exhibits listed in the Exhibit Index are filed with this Report: 10(g) U.S. $800,000,000 Amended and Restated Five Year Credit Agreement, dated as of November 23, 1999, among Solutia, the initial lenders named therein, Bank of America N.A., as Syndication Agent and Citibank, N.A., as Administrative Agent 10(m) U.S. $300,000,000 364-Day Multicurrency Credit Agreement, dated as of November 23, 1999, among Solutia, the lenders named therein, Bank of America, N.A., as Syndication Agent and Citibank N.A., as Administrative Agent 13 Solutia's 1999 Annual Report to Stockholders 21 Subsidiaries of the Registrant (see page 22) 23 Consent of Independent Auditors (see page 23) 24(a) Powers of Attorney submitted by John C. Hunter III, Robert A. Clausen, James M. Sullivan, Michael E. Miller, Robert T. Blakely, Joan T. Bok, Paul H. Hatfield, Robert H. Jenkins, Howard M. Love, Frank A. Metz, Jr., J. Patrick Mulcahy, Robert G. Potter, William D. Ruckelshaus and John B. Slaughter 24(b) Certified copy of Board resolution authorizing Form 10-K filing utilizing powers of attorney 27 Financial Data Schedule (part of electronic submission only) (b) Reports on Form 8-K during the quarter ended December 31, 1999: Solutia filed a Report on Form 8-K on November 12, 1999, announcing its agreement to acquire Morgan Grenfell Private Equity Ltd.'s ownership of Vianova Resins. 15 REPORT OF INDEPENDENT AUDITORS Solutia Inc.: We have audited the statements of consolidated financial position of Solutia Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related statements of consolidated income, comprehensive income, cash flow and shareholders' equity (deficit) for each of the three years in the period ended December 31, 1999 and have issued our opinion thereon dated February 23, 2000 (which includes an explanatory paragraph as to a change in method of accounting in 1997); such financial statements and opinion are included in your 1999 Annual Report to shareholders and are incorporated herein by reference. Our audits also comprehended the schedule of Solutia Inc. and Subsidiaries, listed in Item 14(a)2. This schedule is the responsibility of Solutia's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Saint Louis, Missouri February 23, 2000 16 SCHEDULE II SOLUTIA INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- -------- -------- -------- -------- Additions ---------------------- (1) (2) Balance at Charged to Charged Balance at beginning costs and to other end Description of year expenses accounts Deductions of period ----------- ---------- ---------- -------- ---------- ---------- YEAR ENDED DECEMBER 31, 1999 Valuation accounts for doubtful receivables $ 8 $-- $ 7 $ 3 $ 12 Restructuring reserves 55 28 -- 63 20 YEAR ENDED DECEMBER 31, 1998 Valuation accounts for doubtful receivables $ 7 $ 2 $-- $ 1 $ 8 Restructuring reserves 104 -- -- 49 55 YEAR ENDED DECEMBER 31, 1997 Valuation accounts for doubtful receivables $ 9 $ 1 $-- $ 3 $ 7 Restructuring reserves 201 -- -- 97 104
17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SOLUTIA INC. By: /s/ JAMES M. SULLIVAN -------------------------------- James M. Sullivan Vice President and Controller (Principal Accounting Officer) Date: March 9, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman, President, Chief Executive Officer March 9, 2000 - --------------------------------------------- and Director (Principal Executive Officer) John C. Hunter III Senior Vice President and March 9, 2000 - --------------------------------------------- Chief Financial Officer Robert A. Clausen (Principal Financial Officer) /s/ JAMES M. SULLIVAN Vice President and Controller March 9, 2000 - --------------------------------------------- (Principal Accounting Officer) James M. Sullivan Vice Chairman, Chief Operating March 9, 2000 - --------------------------------------------- Officer and Director Michael E. Miller Director March 9, 2000 - --------------------------------------------- Robert T. Blakely Director March 9, 2000 - --------------------------------------------- Joan T. Bok Director March 9, 2000 - --------------------------------------------- Paul H. Hatfield 18 SIGNATURE TITLE DATE --------- ----- ---- Director March 9, 2000 ------------------------------------ Robert H. Jenkins Director March , 2000 ------------------------------------ Howard M. Love Director March 9, 2000 ------------------------------------ Frank A. Metz, Jr. Director March 9, 2000 ------------------------------------ J. Patrick Mulcahy Director March 9, 2000 ------------------------------------ Robert G. Potter Director March 9, 2000 ------------------------------------ William D. Ruckelshaus Director March 9, 2000 ------------------------------------ John B. Slaughter 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 Form 10-K.
/s/ KARL R. BARNICKOL -------------------------------- Karl R. Barnickol Attorney-in-Fact 19 EXHIBIT INDEX These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description - ----------- ----------- 2 Distribution Agreement (incorporated by reference to Exhibit 2 of Solutia's Registration Statement on Form S-1 (333-36355) filed September 25, 1997) 3(a) Restated Certificate of Incorporation of Solutia (incorporated by reference to Exhibit 3(a) of Solutia's Registration Statement on Form S-1 (333-36355) filed September 25, 1997) 3(b) By-Laws of Solutia Inc., as amended April 28, 1999 (incorporated by reference to Exhibit 3(ii) of Solutia's Form 10-Q for the quarter ended March 31, 1999) 4(a) Rights Agreement (incorporated by reference to Exhibit 4 of Solutia's Registration Statement on Form 10 filed on August 7, 1997) 4(b) Indenture dated as of October 1, 1997, between Solutia Inc. and The Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.1 of Solutia's Form 10-Q for the quarter ended September 30, 1997) 4(c) 6.5% Notes due 2002 in the principal amount of $150,000,000 (incorporated by reference to Exhibit 4.2 of Solutia's Form 10-Q for the quarter ended September 30, 1997) 4(d) 7.375% Debentures due 2027 in the principal amount of $200,000,000 (incorporated by reference to Exhibit 4.3 of Solutia's Form 10-Q for the quarter ended September 30, 1997) 4(e) 7.375% Debentures due 2027 in the principal amount of $100,000,000 (incorporated by reference to Exhibit 4.4 of Solutia's Form 10-Q for the quarter ended September 30, 1997) 4(f) 6.72% Debentures due 2037 in the principal amount of $150,000,000 (incorporated by reference to Exhibit 4.5 of Solutia's Form 10-Q for the quarter ended September 30, 1997) 4(g) Registrant agrees to furnish to the Securities and Exchange Commission upon request copies of instruments defining the rights of holders of certain unregistered long-term debt of the registrant and its consolidated subsidiaries. 9 Omitted--Inapplicable 10(a) Financial Planning and Tax Preparation Services Program for the Executive Leadership Team (incorporated by reference to Exhibit 10(a) of Solutia's Form 10-K for the year ended December 31, 1997) 10(b) Employee Benefits Allocation Agreement (incorporated by reference to Exhibit 10(a) of Solutia's Registration Statement on Form S-1 (333-36355) filed September 25, 1997) 10(c) Tax Sharing and Indemnification Agreement (incorporated by reference to Exhibit 10(b) of Solutia's Registration Statement on Form S-1 (333-36355) filed September 25, 1997) 10(d) Solutia Inc. Management Incentive Replacement Plan as amended on April 28, 1999 (incorporated by reference to Exhibit 10(2) of Solutia's Form 10-Q for the quarter ended June 30, 1999) 10(e) Solutia Inc. 1997 Stock-Based Incentive Plan as amended on April 28, 1999 (incorporated by reference to Exhibit 10(1) of Solutia's Form 10-Q for the quarter ended June 30, 1999) 10(f) Solutia Inc. Non-Employee Director Compensation Plan, as amended February 24, 1999 (incorporated by reference to Exhibit 10 of Solutia's Form 10-Q for the quarter ended March 31, 1999) 10(g) U.S. $800,000,000 Amended and Restated Five Year Credit Agreement, dated as of November 23, 1999, among Solutia, the initial lenders named therein, Bank of America N.A., as Syndication Agent and Citibank, N.A., as Administrative Agent 20 EXHIBIT INDEX (CONT'D) Exhibit No. Description - ----------- ----------- 10(h) Form of Employment Agreement with Named Executive Officers (incorporated by reference to Exhibit 10(1) of Solutia's Form 10-Q for the quarter ended March 31, 1998) 10(i) Form of Employment Agreement with other executive officers (incorporated by reference to Exhibit 10(2) of Solutia's Form 10-Q for the quarter ended March 31, 1998) 10(j) Solutia Inc. Annual Incentive Plan (incorporated by reference to Appendix A of the Solutia Inc. Notice of Annual Meeting and Proxy Statement dated March 11, 1998) 10(k) Solutia Inc. 1998-1999 Long-Term Incentive Plan (incorporated by reference to Appendix B of the Solutia Inc. Notice of Annual Meeting and Proxy Statement dated March 11, 1998) 10(l) Solutia Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10 of Solutia's Form 10-Q for the quarter ended September 30, 1998) 10(m) U.S. $300,000,000 364-Day Multicurrency Credit Agreement, dated as of November 23, 1999, among Solutia, the lenders named therein, Bank of America, N.A., as Syndication Agent and Citibank N.A., as Administrative Agent. 10(n) Agreement, dated 10th November, 1999, for the sale and purchase of class A shares, preference shares and loan stock and the cancellation of warrants in Viking Resins Group Holdings B.V. between (a) Solutia Inc., as purchaser, (b) the holders of the A shares, preference shares and loan stock as sellers, and (c) the warrantholders, plus identification of contents of omitted schedules and agreement to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request (incorporated by reference to Exhibit 2.1 of Solutia's Form 8-K filed on January 4, 2000) 11 Omitted--Inapplicable; see "Statement of Consolidated Income" on page 30 of the 1999 Annual Report 12 Omitted--Inapplicable 13 Solutia's 1999 Annual Report to shareholders. (The electronic submission includes only the financial report section of the Annual Report, consisting of pages 18 through 47 of that Report.) Only those portions expressly incorporated by reference into this Form 10-K are deemed "filed"; other portions are furnished only for the information of the Commission. 16 Omitted--Inapplicable 18 Preferability Letter from Deloitte & Touche LLP, dated February 25, 1998 (incorporated by reference to Exhibit 18 of Solutia's Form 10-K for the year ended December 31, 1997). 21 Subsidiaries of the Registrant (see page 22) 22 Omitted--Inapplicable 23 Consent of Independent Auditors (see page 23) 24(a) Powers of Attorney submitted by John C. Hunter III, Robert A. Clausen, James M. Sullivan, Michael E. Miller, Robert T. Blakely, Joan T. Bok, Paul H. Hatfield, Robert H. Jenkins, Howard M. Love, Frank A. Metz, Jr., J. Patrick Mulcahy, Robert G. Potter, William D. Ruckelshaus and John B. Slaughter 24(b) Certified copy of Board resolution authorizing Form 10-K filing utilizing powers of attorney 27 Financial Data Schedule (part of electronic submission only) - ------- Only Exhibits Nos. 21 and 23 have been included in the printed copy of this Report.
21 EX-10.(G) 2 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT CONFORMED COPY ======================================================================= U.S. $800,000,000 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT Dated as of November 23, 1999, Among SOLUTIA INC., as Borrower THE INITIAL LENDERS NAMED HEREIN, as Initial Lenders BANK OF AMERICA, N.A. as Syndication Agent and CITIBANK, N.A., as Administrative Agent ======================================================================= T A B L E O F C O N T E N T S - - - - - - - - - - - - - - -
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms 1 SECTION 1.02. Computation of Time Periods 15 SECTION 1.03. Accounting Terms and Determinations 15 SECTION 1.04. Currencies; Currency Equivalents 15 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances 15 SECTION 2.02. Making the A Advances 16 SECTION 2.03. The B Advances 17 SECTION 2.04. Fees 20 SECTION 2.05. Termination, Reduction, Extension and Increase of Commitments 21 SECTION 2.06. Repayment of Advances; Evidence of Debt 24 SECTION 2.07. Interest on A Advances 25 SECTION 2.08. Interest Rate Determination; Changes in Rating Systems 25 SECTION 2.09. Optional Conversion of A Advances 26 SECTION 2.10. Prepayments, Etc. 27 SECTION 2.11. Increased Costs 28 SECTION 2.12. Illegality 29 SECTION 2.13. Payments and Computations 30 SECTION 2.14. Notations on the A Notes 31 SECTION 2.15. Taxes 32 SECTION 2.16. Sharing of Payments, Etc 34 SECTION 2.17. Borrowings by Designated Borrowers 34 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Amendment and Restatement 35 SECTION 3.02. Conditions Precedent to Each A Borrowing 36 SECTION 3.03. Conditions Precedent to Each B Borrowing 36 SECTION 3.04. Determinations Under Section 3.01 36 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Company 37 SECTION 4.02. Representation and Warranty of the Lenders 39 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. Affirmative Covenants 39 SECTION 5.02. Negative Covenants 42 SECTION 5.03. Financial Covenants 44 -i- Page ---- ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default 44 ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action 46 SECTION 7.02. Administrative Agent's Reliance, Etc. 46 SECTION 7.03. Citibank and Affiliates 47 SECTION 7.04. Lender Credit Decision 47 SECTION 7.05. Indemnification 47 SECTION 7.06. Successor Administrative Agent 47 SECTION 7.07. The Syndication Agent 48 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. 48 SECTION 8.02. Notices, Etc. 49 SECTION 8.03. No Waiver, Remedies 49 SECTION 8.04. Costs and Expenses 50 SECTION 8.05. Right of Set-off 50 SECTION 8.06. Binding Effect 51 SECTION 8.07. Assignments and Participations, Register 51 SECTION 8.08. Governing Law 54 SECTION 8.09. Execution in Counterparts 54 SECTION 8.10. Jurisdiction, Etc. 54 SECTION 8.11. Judgment Currency 55 ARTICLE IX GUARANTEE SECTION 9.01. The Guarantee 55 SECTION 9.02. Obligations Unconditional 55 SECTION 9.03. Reinstatement 56 SECTION 9.04. Subrogation 56 SECTION 9.05. Remedies 56 SECTION 9.06. Instrument for the Payment of Money 57 SECTION 9.07. Continuing Guarantee 57 -ii- SCHEDULES --------- Schedule 1 - Certain Existing Liens Schedule 2A - Pricing Grid Schedule 2B - Summary Version of Pricing Grid 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 Company Exhibit E - Form of Opinion of Special New York Counsel to the Administrative Agent Exhibit F-1 - Form of Designation Letter Exhibit F-2 - Form of Termination Letter
-iii- AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 23, 1999 among SOLUTIA INC., a Delaware corporation (the "Company"), ------- the banks (each an "Initial Lender" and, collectively, the "Initial -------------- ------- Lenders") listed on the signature pages hereof, BANK OF AMERICA, N.A., - ------- 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. PRELIMINARY STATEMENTS Capitalized terms used in these Preliminary Statements and not otherwise defined have the meanings assigned to them in Section 1.01. (a) The Company, the Initial Lenders, the Syndication Agent and the Administrative Agent are parties to a Credit Agreement dated as of August 14, 1997 (as amended to and in effect on the Restatement Date, the "Existing Credit Agreement") providing, subject to the terms and ------------------------- conditions thereof, for the making of advances in an aggregate principal amount not exceeding $800,000,000 at any one time outstanding. (b) The Company has also requested that the Initial Lenders amend the Existing Credit Agreement, among other things to permit Designated Borrowers to borrow hereunder, to permit borrowings denominated in Euros, to modify certain covenants and to make certain other changes to the Existing Credit Agreement, all on the terms and conditions set forth herein, it being the intention of the parties hereto that the Advances outstanding under the Existing Credit Agreement on the Restatement Date shall continue and remain outstanding and not be repaid on the Restatement Date. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree that the Existing Credit Agreement shall (subject to the satisfaction of the conditions precedent specified in Section 3.01) be amended and restated to read as set forth herein. 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 a Borrower as --------- part of an A Borrowing and refers to a Base Rate Advance or a Eurocurrency 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 a Borrower payable to ------ the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the A Advances made by such Lender to such Borrower. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -2- "Acceptance" means an Assignment and Acceptance and/or an ---------- Assumption and Acceptance. "Adjusted EBITDA" means, for any period, the sum, for the --------------- Company 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 $44,000,000) and reserves established by the Company and its Consolidated Subsidiaries in connection with (x) the Astaris LLC phosphate joint venture that Solutia is in the process of establishing with FMC Corporation, (y) acquisitions and (z) restructuring of existing operations (all on or prior to December 31, 2000) in an aggregate amount not exceeding $60,000,000 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, for each Currency, ------------------------------ an account in respect of such Currency designated by the Administrative Agent in a notice to the Company and the Lenders. "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. "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 Eurocurrency Lending Office in the case of a Eurocurrency 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" has the meaning assigned to such term in ----------------- Schedule 2A. "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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -3- "Assuming Lender" means, at any time, an Eligible Assignee --------------- not previously a Lender which becomes a Lender hereunder pursuant to Section 2.05(c). "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 a 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 Company under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of a Borrower payable to ------ the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from a B Advance made by such Lender to such Borrower. "B Reduction" has the meaning specified in Section 2.01. ----------- "Bank of America" means Bank of America, N.A. --------------- "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) 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -4- (c) 1/2 of 1% 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). "Borrowers" means, at any time, collectively, the Company --------- (both as a Borrower and as guarantor under Article IX of Advances made to the Designated Borrowers) and each Designated Borrower. "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 Company 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 Eurocurrency Rate Advances denominated in any Currency, on which dealings are carried on in the London interbank market for such Currency. "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 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 that, for purposes of this paragraph (a), ---------- the following acquisitions shall not constitute a Change of Control: (i) any acquisitions 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 paragraph (c) below; or (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease --------------- for any reason to constitute at least a majority of the Board of Directors of the Company; provided 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 of Directors; or AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -5- (c) consummation by the Company 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 Company Common Stock and Outstanding Company 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 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 or Group (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, 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 Company of a complete liquidation or dissolution of the Company. "Citibank" has the meaning specified in the recital of -------- parties to this Agreement. "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(c). "Commitment Increase Date" has the meaning specified in ------------------------ Section 2.05(c). "Commitment Termination Date" means August 13, 2002 or, in --------------------------- the case of any Lender whose Commitment is extended pursuant to Section 2.05(b), 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 Company and its Subsidiaries in accordance with generally accepted accounting principles, including principles of AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -6- consolidation, consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e)(i). "Consolidated Net Tangible Assets" means, at any time, for -------------------------------- the Company 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 ---------------------- Company 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 Company, ----------------------- the accounts of which in accordance with generally accepted accounting principles are consolidated with those of the Company. "Consolidated Tangible Assets" means, at any time, for the ---------------------------- Company 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 denominated in Dollars into A Advances of the other Type denominated in Dollars pursuant to Section 2.08 or 2.09. "Currency" means Dollars or Euros. -------- "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 Company), (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 Company and its Consolidated Subsidiaries on a Consolidated basis as of such date to -- (b) Adjusted EBITDA for the Rolling Period ending on or most recently ended prior to such date. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -7- "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. "Designated Borrower" means any wholly owned Subsidiary of ------------------- the Company as to which a Designation Letter has been delivered to the Administrative Agent and as to which a Termination Letter has not been delivered to the Administrative Agent in accordance with Section 2.17. "Designation Letter" has the meaning specified in ------------------ Section 2.17(a). "Dollar Equivalent" means with respect to any Borrowing ----------------- denominated in Euros, the amount of Dollars that would be required to purchase the amount of Euros of such Borrowing on the date two Business Days prior to the date of such Borrowing (or, in the case of any determination made under Section 2.10(c) or redenomination under Section 2.13(e), on the date of determination or redenomination therein referred to), based upon the spot selling rate at which the Administrative Agent offers to sell Euros for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time, for delivery two Business Days later. "Dollars" or "$" refers to lawful money of the United States ------- - of America. "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 Company 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 by the Administrative Agent and the Company, such approval not to be unreasonably withheld or delayed; provided that neither the Company nor an Affiliate of the Company 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -8- "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 Company's controlled group, or under common control with the Company, 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 Company or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the failure by the Company 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. "Euro Equivalent" means with respect to any amount in --------------- Dollars, the amount of Euros that could be purchased with such amount of Dollars using the reciprocal of the foreign exchange rate(s) specified in the definition of "Dollar Equivalent", as determined by the Administrative Agent. "Eurocurrency Lending Office" means, with respect to any --------------------------- Lender, the office of such Lender specified as its "Eurocurrency 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 Company and the Administrative Agent. "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. "Eurocurrency Rate" means: ----------------- (a) For any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Dollars, an interest rate per annum equal to the rate per annum obtained by dividing (i) 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 Eurocurrency Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (ii) a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage for such Interest Period. The Eurocurrency Rate for any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Dollars shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -9- Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08; (b) For any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Euros, an interest rate per annum equal to the rate per annum obtained by dividing (i) the rate appearing on the Screen at approximately 11:00 a.m., London time, two Business Days before the first day of such Interest Period, as the Eurocurrency Rate for deposits denominated in Euros with a maturity compatible to such Interest Period, by (ii) a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage for such Interest Period. In the event that such rate is not available on the Screen at such time for any reason, then the Eurocurrency Rate for such Interest Period shall be the rate at which deposits in Euros in the amount of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days before the first day of such Interest Period. "Eurocurrency Rate Advance" means an A Advance that bears ------------------------- interest as provided in Section 2.07(a)(ii). "Eurocurrency Rate Reserve Percentage" for any Interest ------------------------------------ Period for all Eurocurrency 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 Eurocurrency Rate Advances is determined) having a term equal to such Interest Period. "Euros" means the single currency of participating member ----- states of the European Union. "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)(ii), Section 4.01(f) (excluding clause (ii) thereof) and the second sentence of Section 4.01(c). "Existing Credit Agreement" has the meaning specified in the ------------------------- Preliminary Statements to this Agreement. "Facility Fee" has the meaning specified in Section 2.04(a). ------------ "Facility Fee Rate" has the meaning assigned to such term in ----------------- Schedule 2A. "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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -10- 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. ---- "Guaranteed Obligations" has the meaning specified in ---------------------- Section 9.01. "Increasing Lender" has the meaning assigned to such term in ----------------- Section 2.05(c). "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 ---------------- Company 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 Eurocurrency Rate Advance --------------- comprising part of the same A Borrowing, the period commencing on the date of such Eurocurrency Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurocurrency Rate Advance and ending on the last day of the period selected by the Company 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 Company pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months (or, with respect to such portion of any Eurocurrency Advance denominated in Euros that is scheduled to be repaid on the Commitment Termination Date, a period of less than one month's duration) commencing on the date of such Advance and ending on the Commitment Termination Date, as the Company (on its own behalf and on behalf of all other Borrowers) 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) the Company may not select any Interest Period that ends after the Commitment Termination Date; (ii) Interest Periods commencing on the same date for Eurocurrency Rate Advances comprising part of the same A Borrowing shall be of the same duration; AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -11- (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, other than an Interest Period pertaining to a Eurocurrency Borrowing denominated in Euros that ends on the Commitment Termination Date that is permitted to be of less than one month's duration as provided in this definition, 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. "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 Company and its Subsidiaries, taken as a whole 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 Company or a Material Subsidiary under which a default in payment by the Company 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 Solutia UK Ltd. and Solutia Europe S.A./N.V.) or 10% (in the case of each other Consolidated Subsidiary) of the total Consolidated assets of the Company and its Consolidated Subsidiaries (determined as of the last day of the most recent fiscal quarter of the Company); or (b) at least 5% (in the case of Solutia UK Ltd. and Solutia Europe S.A./N.V.) or 10% (in the case of each other Consolidated Subsidiary) of the Consolidated net sales of AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -12- the Company and its Consolidated Subsidiaries for the twelve-month period ending on the last day of the most recent fiscal quarter of the Company. "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 Company 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 Company (or its predecessor's chemicals business) or any of its ERISA Affiliates and at least one Person other than the Company (or its predecessor's chemicals business) and its ERISA Affiliates or (b) was so maintained and in respect of which the Company (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-Restatement 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 Company as shown in its Consolidated financial statements, provided that any property which, in the opinion of the Company, is not of material importance to the business of the Company and its Consolidated Subsidiaries, taken as a whole, shall not be deemed to be a Principal Property. "Rated Securities" means, at any time, the long-term senior ---------------- unsecured, unguaranteed debt securities of the Company outstanding at such time. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -13- "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. "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 Company (on its own behalf and on behalf of the other Borrowers) 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). -------- "Restatement Date" has the meaning assigned to such term in ---------------- Section 3.01. "Rolling Period" means 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. "Screen" means Telerate Page 3750 (or such other page as may ------ replace such Telerate Page 3750 for purposes of displaying the Eurocurrency Rate for Euros); provided that, if the Administrative Agent determines that there is no such relevant display page on the Telerate Service for the Eurocurrency Rate for Euros, "Screen" shall mean the relevant display page for the AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -14- Eurocurrency Rate for Euros (as determined by the Administrative Agent) on the Reuter Monitor Money Rates Service. "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 Company (or its predecessor's chemicals business) or any of its ERISA Affiliates and no Person other than the Company (or its predecessor's chemicals business) and its ERISA Affiliates or (b) was so maintained and in respect of which the Company (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 Company) of which (or in which) at least 50% of the Ownership Interests thereof is at the time directly or indirectly owned by the Company, by the Company and one or more of its Consolidated Subsidiaries or by one or more of the Company's Consolidated Subsidiaries, provided that the Company'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 Company or one of its Consolidated Subsidiaries. "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 Company's ---------------- Consolidated Net Worth at such time is greater than zero, $50,000,000; 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -15- 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)(i) ("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) and (ii). In the event that, after the date of this Agreement, there are any changes in GAAP, the Lenders will consider a request by the Company to amend this Agreement to take account of such changes. SECTION 1.04. Currencies; Currency Equivalents. At any -------------------------------- time, any reference in the definition of the term "Euros" or in any other provision of this Agreement to the currency of the participating member states of the European Union means the lawful currency of such participating member states at such time whether the name of such currency is the same as it was on the date hereof. Except as provided in Section 2.10(c) and Section 2.13(e), for purposes of determining (i) whether the amount of any Borrowing, together with all other Borrowings then outstanding or to be borrowed at the same time as such Borrowing, would exceed the aggregate amount of the Commitments, (ii) the aggregate unutilized amount of the Commitments and (iii) the outstanding aggregate principal amount of Borrowings, the outstanding principal amount of any Borrowing that is denominated in Euros shall be deemed to be the Dollar Equivalent of the amount of Euros of such Borrowing determined as of the date of such Borrowing. Wherever in this Agreement in connection with a Borrowing or Advance an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing or Advance is denominated in Euros, such amount shall be the relevant Euro Equivalent of such Dollar amount (rounded to the nearest 1,000 units of Euros). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances. -------------- (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Company and any Designated Borrower (in Dollars or in Euros, at the election of the Company on its own behalf or on behalf of the applicable Borrower) from time to time on any Business Day during the period from the Restatement 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 Dollar Equivalent 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"). ----------- On the Restatement Date all outstanding A Advances of each Lender shall automatically, without any action on the part of any Person, be deemed to be A Advances of the Company hereunder. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -16- (b) 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 Currency 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 Borrowers 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 consist of Eurocurrency 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 consist of Base Rate Advances), by the Company (on its own behalf and on behalf of the other Borrowers) 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 (i) the date of such A Borrowing, (ii) the Type of A Advances comprising such A Borrowing, (iii) the aggregate amount of such A Borrowing and the Currency thereof (except that Base Rate Advances must be denominated in Dollars), (iv) in the case of an A Borrowing consisting of Eurocurrency Rate Advances, the initial Interest Period for each such A Advance and (v) the name of the Borrower of such A Advance (which shall be the Company or a Designated Borrower). 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 consist of Eurocurrency Rate Advances, and before 1:00 P.M. (New York City time), in the case of an A Borrowing to consist 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 the relevant Currency and 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 Company at the Administrative Agent's aforesaid address (or, in the case of an A Borrowing by a Designated Borrower, the Administrative Agent will make such funds available to the relevant Borrower in such manner as the Administrative Agent and the Company may agree). (b) Anything in subsection (a) above to the contrary notwithstanding (1) no Borrower may select Eurocurrency Rate Advances for any A Borrowing if the obligation of the Lenders to make Eurocurrency Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 (except as otherwise provided in Section 2.12(b)(ii)) and (2) Base Rate Advances shall be denominated solely in Dollars. (c) Each Notice of A Borrowing shall be binding on the Company and each Designated Borrower. In the case of any A Borrowing that the related Notice of A Borrowing specifies is to consist of Eurocurrency Rate Advances, the Company (and, if a Designated Borrower is the borrower of the related A Advances, such Designated 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 Company (or such Designated 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -17- (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 consist of Eurocurrency 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 consist 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 relevant 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 relevant 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 relevant Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of such 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, on the terms and conditions hereinafter set forth, that the Company and any Designated Borrower may make B Borrowings in Dollars or in Euros (at the election of the Company on its own behalf or on behalf of the applicable Borrower) under this Section 2.03 from time to time on any Business Day during the period from the Restatement 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 Dollar Equivalent of 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 Dollar Equivalent of the aggregate amount of all Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders. On the Restatement Date all outstanding B Advances of each Lender shall automatically, without any action on the part of any Person, be deemed to be B Advances of the Company hereunder. (i) The Company (on its own behalf and on behalf of the other Borrowers) 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 and the Currency thereof; AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -18- (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; (5) whether such B Borrowing is to consist of Fixed Rate Advances or Floating Rate Advances; (6) the name of the applicable Borrower (which shall be the Company or a Designated Borrower); and (7) any other terms to be applicable to such B Borrowing, not later than 10:00 A.M. (New York City time) in the case of B Advances to be denominated in Dollars, and not later than 10:00 A.M. (London time) in the case of B Advances to be denominated in Euros, (A) at least one Business Day prior to the date of the proposed B Borrowing, if the Company 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 (in the case of B -------- Advances to be denominated in Dollars), or five Business Days (in the case of B Advances to be denominated in Euros) prior to the date of the proposed B Borrowing, if the Company 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 Company 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 applicable 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 Company), before 10:00 A.M. (New York City time) in the case of B Advances to be denominated in Dollars, and not later than 10:00 A.M. (London time) in the case of B Advances to be denominated in Euros, 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 Company of such offer before 9:00 A.M. (New York City time or London time, as applicable) 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 or London time, as applicable) 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -19- (iii) The Company (on its own behalf and on behalf of the other Borrowers) shall, in turn, before 12:00 Noon (New York City time) in the case of B Advances consisting of Fixed Rate Advances to be denominated in Dollars, and not later than 12:00 Noon (London time) in the case of B Advances consisting of Fixed Rate Advances to be denominated in Euros, on the date of such proposed B Borrowing, and before 1:00 P.M. (New York City time) in the case of B Advances consisting of Floating Rate Advances to be denominated in Dollars, and not later than 1:00 P.M. (London time) in the case of B Advances consisting of Floating Rate Advances to be denominated in Euros, three Business Days before the date of such proposed B Borrowing, 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 Company 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 Company 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 Company (on its own behalf or on behalf of another 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 so accepted by the Company, (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) in the case of B Advances to be denominated in Dollars, and not later than 1:00 P.M. (London time) in the case of B Advances to be denominated in Euros, 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 the relevant Currency and 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 Company at the Administrative Agent's address referred to in Section 8.02 (or, in the case of a B Borrowing by a Designated Borrower, the Administrative Agent will make such funds available to the relevant Borrower in such manner as the AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -20- Administrative Agent and the Company may agree). 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 Company 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 Company 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) Each Borrower shall repay to the Administrative Agent for the account of each Lender that has made a B Advance to such Borrower, on the maturity date of each B Advance made to such Borrower (such maturity date being that specified by the Company 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. No Borrower shall have the right to prepay any B Advance. (e) Each Borrower shall pay interest on the unpaid principal amount of each B Advance made to such Borrower from the date of such B Advance to the date the principal amount of such B Advance is paid in full, in the applicable Currency and 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 Company 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, each Borrower shall pay interest on the amount of unpaid principal of each B Advance made to such Borrower 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) If requested by a Lender making a B Advance, the indebtedness of each Borrower resulting from each B Advance made to such Borrower as part of a B Borrowing shall be evidenced by a separate B Note of such Borrower payable to the order of the Lender making such B Advance. (g) The Company (on its own behalf and on behalf of the other Borrowers) 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 Company agrees to pay to the ------------ Administrative Agent for the account of each Lender a facility fee (the "Facility Fee") in Dollars 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 Restatement Date (or 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -21- 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 Company ---------------------------------- shall pay to the Administrative Agent for its own account a fee in Dollars an amount heretofore agreed between the Company 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 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 Company (on its own behalf and on behalf of the other Borrowers) 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) Commitment Extensions. --------------------- (i) The Company (on its own behalf and on behalf of the other Borrowers) 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 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 Company of each Lender's determination under this Section 2.05(b) 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 Company (on its own behalf and on behalf of the other Borrowers) 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, 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -22- 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 Eurocurrency 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(b) 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 Company or any Designated Borrower all amounts owing to such Lender hereunder on or before the Anniversary Date. (c) Commitment Increase. ------------------- (i) The Company (on its own behalf or on behalf of the other Borrowers) 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 Company 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: (1) the Company 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 Company'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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -23- Administrative Agent shall promptly provide to the Company a copy of such Increasing Lender's notice. The Administrative Agent shall cooperate with the Company 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 Company, 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(c) shall be $25,000,000 and (Y) any allocations of Commitments shall be determined by the Company (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 Company), the Company 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 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 Company 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 that has requested such A Notes in accordance with Section 2.06(c), 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 Company 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 Company, of the resolutions adopted by the Board of Directors of the Company, 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 Company (on its own behalf or on the behalf of the other Borrowers) 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 Company. (ii) Upon its receipt of notice from a Lender that it is increasing its Commitment hereunder, together with the appropriate A Notes (if applicable) 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 Company. Upon its receipt of an Assumption and Acceptance executed AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -24- by an Assuming Lender representing that it is an Eligible Assignee, together with the appropriate A Notes (if applicable) 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 the Register and (iii) give prompt notice thereof to the Company. (iii) In the event that the Administrative Agent shall not have received notice from the Company as to such agreement on or prior to the Commitment Increase Date or the Company 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 Company 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 Company 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 of each Borrower 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 of each Borrower owing to each Lender after giving effect to such distribution equals such Lender's ratable portion of the A Borrowings of each Borrower 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 Eurocurrency Rate Advances then outstanding, (a) the Company (on its own behalf or on behalf of the other Borrowers) shall pay any amounts owing pursuant to Section 8.04(c) as a result of the distributions to Lenders under this Section 2.05(c)(iv) and (b) for each A Borrowing comprised of Eurocurrency Rate Advances, the respective Advances made by the Increasing Lenders and the Assuming Lenders pursuant to this Section 2.05(c)(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; Evidence of Debt. --------------------------------------- (a) A Advances. Each Borrower shall repay the principal ---------- amount of each A Advance made by each Lender to such Borrower, in the Currency of such A Advance, and each A Advance made by such Lender shall mature, on the Commitment Termination Date of such Lender. (b) B Advances. Each Borrower shall repay the principal ---------- amount of each B Advance made by each Lender to such Borrower as provided in Section 2.03(e). AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -25- (c) Note Option. Any Lender may request that the A ----------- Advances made or to be made by it to a Borrower to be evidenced by an A Note payable by such Borrower. In such event, the Company (on its own behalf and on behalf of the other Borrowers) shall prepare, have executed by the relevant Borrower and deliver to such Lender an A Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns). If a Lender whose A Advances are so evidenced by an A Note thereafter assigns such A Advances, such A Advances will be evidenced by an A Note only if the assignee so requests in accordance with this Section 2.06(c) and Section 8.07 SECTION 2.07. Interest on A Advances. ---------------------- (a) Scheduled Interest. Each Borrower shall pay interest ------------------ on the unpaid principal amount of each A Advance owing by such Borrower to each Lender, in the Currency in which such A Advance is denominated, 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) Eurocurrency Rate Advances. During such periods as -------------------------- such A Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times during each Interest Period for such A Advance to the sum of (x) the Eurocurrency 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 Eurocurrency Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the ---------------- continuance of any Event of Default, each Borrower shall pay interest on the unpaid principal amount of each A Advance owing by such Borrower to each Lender, in the Currency in which such A Advance is denominated, 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 the Eurocurrency Rate for Advances denominated in Dollars. 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 Company 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 Eurocurrency Rate Advances denominated in any Currency, the Majority Lenders notify the Administrative Agent that the Eurocurrency Rate for any Interest Period for such Advances in such Currency will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurocurrency Rate Advances in such Currency for such Interest Period, the Administrative Agent shall forthwith so notify the Company and the Lenders, whereupon (i) if such Currency is Euros, the related Notice of Borrowing shall be ineffective, (ii) if such Currency is Dollars, such AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -26- Eurocurrency Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (iii) regardless of Currency, the obligation of the Lenders to make, or (in the case of Dollars) to Convert A Advances into, Eurocurrency Rate Advances shall be suspended until the Administrative Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. (c) If the Company shall fail to select the duration of any Interest Period for any Eurocurrency 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 Company 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 Eurocurrency 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 Borrowers to Convert such A Advances shall terminate. (e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurocurrency Rate Advance denominated in Dollars 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 denominated in Dollars into, Eurocurrency Rate Advances shall be suspended. (f) If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurocurrency Rate for any Eurocurrency Rate Advances denominated in Dollars, (i) the Administrative Agent shall forthwith notify the Company and the Lenders that the interest rate cannot be determined for such Eurocurrency 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, Eurocurrency Rate Advances shall be suspended until the Administrative Agent shall notify the Company 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 Company (on its own behalf and on behalf of the other Borrowers) 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 Company --------------------------------- (on its own behalf and on behalf of the other Borrowers) 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 Dollar-denominated A Advances of one Type comprising the same Borrowing by a Borrower into Dollar- denominated A Advances owing by such Borrower of the other Type; provided that any Conversion of Dollar-denominated Eurocurrency Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurocurrency Rate Advances. Each such notice of a Conversion shall, within the restrictions AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -27- specified above, specify (i) the date of such Conversion, (ii) the A Advances to be Converted, and (iii) if such Conversion is into Eurocurrency 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 Company and each other Borrower. SECTION 2.10. Prepayments, Etc. ----------------- (a) Optional Payments of A Advances. Each Borrower may, ------------------------------- upon notice by the Company 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 Eurocurrency Rate Advances, and if such notice is given by the Company the applicable Borrower shall, prepay the outstanding principal amount of the A Advances owing by such Borrower 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 Eurocurrency Rate Advance, the applicable Borrower and the Company shall be jointly and severally 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 Company 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 each Borrower shall prepay the Advances made to such Borrower in full. (c) Changes in Dollar/Euro Exchange Rate. ------------------------------------ (i) Determination of Amount Outstanding. On the last ----------------------------------- Business Day of each March, June, September and December and promptly upon the receipt by the Administrative Agent of a Currency Valuation Notice (as defined below), the Administrative Agent shall determine the aggregate outstanding principal amount of the Advances. For the purpose of this determination, the outstanding principal amount of any Advance that is denominated in Euros shall be deemed to be the Dollar Equivalent of the amount in Euros of such Advance, determined as of such date or, in the case of a Currency Valuation Notice received by the Administrative Agent prior to 11:00 a.m., New York City time, on a Business Day, on such Business Day or, in the case of a Currency Valuation Notice otherwise received, on the first Business Day after such Currency Valuation Notice is received. Upon making such determination, the Administrative Agent shall promptly notify the Lenders and the Company thereof. (ii) Prepayment. If, on the date of such determination the ---------- aggregate outstanding principal amount of the Advances exceeds 105% of the aggregate amount of the Commitments as then in effect, the Company shall, if requested by the Majority Lenders (through the Administrative Agent), cause the Borrowers to prepay the Advances in such amount as shall be necessary so that after giving effect thereto the aggregate outstanding principal amount of the Advances does not exceed the Commitments. For purposes hereof, "Currency Valuation Notice" means a notice given ------------------------- by the Majority Lenders to the Administrative Agent stating that such notice is a "Currency Valuation Notice" and requesting that the Administrative Agent determine the aggregate outstanding principal amount of the Advances. The Administrative Agent shall not be required to make more than one valuation determination pursuant to Currency Valuation Notices within any rolling three month period. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -28- (d) If (i) the obligations of the Company under Article IX with respect to any outstanding Guaranteed Obligations owing by any Designated Borrower (herein, the "Affected Borrower") shall for any ----------------- reason (x) be terminated, (y) cease to be in full force and effect or (z) not be the legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms, and (ii) such condition continues unremedied for 15 days after written notice thereof shall have been given to the Company by the Administrative Agent or any Lender, then the Affected Borrower shall, no later than the 15th day after the date of such notice, prepay (and the Company shall cause to be prepaid) the full principal of and interest on the Advances owing by, and the Notes payable by, such Affected Borrower and all other amounts whatsoever payable hereunder by such Affected Borrower (including, without limitation, all amounts payable under Section 8.04(c) as a result of such prepayment). 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 Eurocurrency Rate Advances or Floating Rate Advances, then such Lender may from time to time give notice of such circumstances to the Company (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 Company 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 Company 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 Company (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 Company 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 Company of the occurrence of any event referred to in the first sentence of this Section 2.11(b). AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -29- (c) The Company 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 in Dollars 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 Company 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 Company 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 Company'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 Company pursuant to this Section 2.11(c) unless and until such Lender shall have received one or more payments from either the Company 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 Restatement 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 Eurocurrency Lending Office to perform its obligations hereunder to make Eurocurrency Rate Advances or Floating Rate Advances in any Currency or to fund or maintain Eurocurrency Rate Advances or Floating Rate Advances in any Currency hereunder, the obligation of the Lenders to make, or to Convert A Advances into, Eurocurrency Rate Advances in such Currency shall be suspended until the Administrative Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist; provided that such suspension shall not become effective in the event the Company 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 Company's right to require an assignment in accordance with clause (b)(ii) below shall not be effective to the AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -30- extent that Lenders representing a majority of the Commitments then outstanding shall be "Affected Lenders". (b) The Company 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 Eurocurrency Rate Advances or Floating Rate Advances in such Currency then outstanding, together with interest thereon, unless the Company, within five Business Days of notice from the Administrative Agent Converts all Eurocurrency 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 Company'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 Company pursuant to this Section 2.12(b) unless and until such Affected Lender shall have received one or more payments from either the Borrowers 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 Restatement 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 Borrowers 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 the relevant Currency to the Administrative Agent at the Administrative Agent's Account for such Currency 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(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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -31- 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 Eurocurrency 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 Eurocurrency 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 Company prior to the date on which any payment is due to the Lenders hereunder that a Borrower will not make such payment in full, the Administrative Agent may assume that each 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 a 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. (e) All amounts owing under this Agreement (including payments required under Section 2.11, and payments required under Section 8.04(c) relating to any Advance denominated in Dollars, but not including principal of, and interest on, any Advance denominated in Euros or payments relating to any such Advance required under Section 8.04(c), which are payable in Euros) are payable in Dollars. Notwithstanding the foregoing, if a Borrower shall fail to pay any principal of any Advance when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), the unpaid portion of such Advance shall, if such Advance is not denominated in Dollars, automatically be redenominated in Dollars on the due date thereof (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such principal shall be payable on demand; and if a Borrower shall fail to pay any interest on any Advance that is not denominated in Dollars, such interest shall automatically be redenominated in Dollars on the due date therefor (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such interest shall be payable on demand. SECTION 2.14. Notations on the A Notes. Each Borrower and each ------------------------ Lender whose A Advances are evidenced by an A Note agree that (a) all A Advances made by such Lender to such 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -32- be endorsed on the grid attached to such A Note; provided that the failure of such Lender to make any such notations shall not limit or otherwise affect such Borrower's obligations to such Lender with respect to such A Advances and (b) 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 Company (on its own behalf and on behalf of the other Borrowers) 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 Borrowers 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 any 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) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Company (on its own behalf and on behalf of the other Borrowers) 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 Borrowers 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 Company (on its own behalf and on behalf of the other Borrowers) 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 a Borrower through an account or branch outside the United States or on behalf of a Borrower by a payor that is not a United States person, if the Company determines that no Taxes are payable in respect thereof, the Company 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -33- (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 Company (but only so long as such Lender remains lawfully able to do so), shall provide the Company 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 Company 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 Company 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 Company 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 a 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 Company ---------------- 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 Company'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 Company pursuant to this Section 2.15(g) unless and until such Specified Lender shall have received one or more payments from either the Borrowers 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 Restatement 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -34- 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(b), 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. Each 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 such Borrower in the amount of such participation. SECTION 2.17. Borrowings by Designated Borrowers. ---------------------------------- (a) The Company may, at any time or from time to time, designate one or more wholly owned Subsidiaries of the Company as "Borrowers" hereunder by furnishing to the Administrative Agent a letter (a "Designation Letter") in duplicate, in substantially ------------------ the form of Exhibit F-1, duly completed and executed by the Company and such Subsidiary. Upon any such designation of a Subsidiary, such Subsidiary shall be a Designated Borrower and a Designated Borrower entitled to borrow A Advances and B Advances on and subject to the terms and conditions of this Agreement. (b) So long as all principal of and interest on all Advances made to any Designated Borrower have been paid in full, the Company may terminate the status of such Designated Borrower as a Designated Borrower hereunder by furnishing to the Administrative Agent a letter (a "Termination Letter") in ------------------ substantially the form of Exhibit F-2, duly completed and executed by the Company. Any Termination Letter furnished hereunder shall be effective upon receipt by the Administrative Agent, which shall promptly notify the Lenders, whereupon the Lenders shall promptly deliver to the Company (through the Administrative Agent) the Notes, if any, of such former Designated Borrower. Notwithstanding the foregoing, the delivery of a Termination Letter with respect to any Designated Borrower shall not terminate (i) any obligation of such Designated Borrower that remains unpaid at the time of such delivery (including without limitation any obligation arising thereafter in respect of such Designated Borrower under Section 2.15 or 2.11) or (ii) the obligations of the Company under Article IX with respect to any such unpaid obligations. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -35- ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Amendment and ------------------------------------- Restatement. The Existing Credit Agreement shall be amended and - ----------- restated to read in full as set forth herein on the date (the "Restatement Date") on which the Administrative Agent shall have ---------------- received the following, each (unless otherwise specified below) dated the Restatement 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) Charter Documents, Etc. ----------------------- (1) Certified copies of (x) the charter and by-laws of the Company, (y) the resolutions of the Board of Directors of the Company 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 Company certifying the names and true signatures of the officers of the Company 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 Restatement Date as to the good standing of and charter documents filed by the Company. (b) Opinions. -------- (1) A favorable opinion of the General Counsel of the Company, substantially in the form of Exhibit D. (2) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel for the Administrative Agent, substantially in the form of Exhibit E. (c) Solvency. A certificate of a senior financial officer -------- of the Company to the effect that the Company (both individually and collectively with its Consolidated Subsidiaries) is Solvent. (d) Representations, Etc. A certificate signed by a duly --------------------- authorized officer of the Company stating that: (1) the representations and warranties contained in Section 4.01 are correct on and as of the Restatement Date, and (2) no event has occurred and is continuing that constitutes a Default. (e) Other. Such other approvals, opinions and documents ----- relating to material ERISA and, environmental matters as the Administrative Agent or any Lender may, through the Administrative Agent, reasonably request. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -36- 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 Restatement 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 relevant Borrower of the proceeds of such A Borrowing shall constitute a representation and warranty by the Company 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; (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request; and (c) in the case of the first Borrowing by a Designated Borrower, such Borrower shall have furnished to the Administrative Agent such corporate documents, resolutions and legal opinions relating to such Designated Borrower as the Administrative Agent may reasonably require. 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 Restatement Date shall have occurred and (a) the Administrative Agent shall have received the Notice of B Borrowing with respect thereto, (b) if (and only if) requested by such Lender, 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 relevant Borrower of the proceeds of such B Borrowing shall constitute a representation and warranty by the Company 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -37- notice from such Lender prior to the Restatement Date (as notified by the Company or the Administrative Agent to the Lenders) specifying its objection thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the ------------------------------------- Company. The Company represents and warrants as follows: - ------- (a) Incorporation; Good Standing. The Company 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 Company of this Agreement and the Notes, and the other transactions contemplated hereby, are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Company's charter or bylaws or (ii) law or any contractual restriction binding on or affecting the Company. (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 Company 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 Restatement Date by the Company. 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 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 Restatement 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 Company. This Agreement is, and each of the Notes when delivered hereunder will be, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with their respective terms. (e) Financial Statements, Etc. -------------------------- (i) The statement of financial position of the Company as at December 31, 1998 and the related statements of income and cash flows of the Company for the twelve months then ended, accompanied by an opinion of Deloitte & Touche LLP, independent public accountants, and the balance sheet of the Company as at June 30, 1999 and the related statements of income and cash flows of the Company for the six months then ended, 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 June 30, 1999, and said statements of income and cash flows for the six months then ended, to year-end audit adjustments) the financial condition of the Company as at such dates and the results of the operations of the Company for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis. (ii) Since December 31, 1998, there has been no material adverse change in the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -38- (f) No Litigation, Etc. Except as described in the ------------------- Company's Report on Form 10-K for the fiscal year ended December 31, 1998 or in the Company's Report on Form 10-Q for the fiscal quarter ended September 30, 1999, there is no pending or, to the best of the Company's knowledge, threatened action or proceeding affecting the Company or any of its Consolidated Subsidiaries before any court, or governmental agency or arbitrator which (i) would have a Material Adverse Effect or (ii) purports to affect, or would affect, the legality, validity or enforceability of this Agreement or any Note. (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 Restatement Date, neither the Company nor any ERISA Affiliate participates in any Multiple Employer Plan or in any Multiemployer Plan with respect to which the Company 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 Company (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 ---------------------------------- Company 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 Company 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 Company and its Subsidiaries ("Information") furnished by or on behalf of ----------- the Company to the Administrative Agent, the Syndication Agent or any Lender on or prior to the Restatement 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 Company'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-Restatement Date Information furnished by or on behalf of the Company to the Administrative Agent or any Lender after the Restatement Date, when taken as a whole, as of the date of such Post-Restatement Date Information, will not contain any untrue statement of material fact or, to the best of the Company'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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -39- time of delivery thereof; although such information reflects the Company's good faith projections and estimates as of the date thereof, based upon methods and data the Company 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- ----- Restatement Date Information" means: ---------------------------- (x) all Information furnished by the Company and its Subsidiaries after the date hereof under Sections 5.01(i)(i) through (vii), inclusive; and (y) all Information furnished by the Company and its Subsidiaries after the date hereof under Section 5.01(i)(viii), provided that the request for such information is made in writing and delivered to the Company, at the address specified in Section 8.02, to the attention of the Company's Treasurer and stating that such request is being made in connection with this Agreement. (k) Margin Stock. The Company 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 Company and the Company's Subsidiaries (as determined in good faith by the Company) 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 Company 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 COMPANY SECTION 5.01. Affirmative Covenants. So long as any --------------------- Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company 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 Company 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 Company 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 Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -40- (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 Company or (ii) are not of material importance to the business, financial condition or operating results of the Company 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 Company determines, in good faith and upon the advice of its counsel, not to be binding on it) of the Company 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 Company and any of its Material Subsidiaries in the presence of an appropriate officer or representative of the Company; (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 Company 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 Company); and (iii) to discuss the affairs, finances and accounts of the Company 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 Company 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 Company 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 Company 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 Company, desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -41- (h) Maintenance of Insurance. From and after the ------------------------ Restatement 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 Company or any of its Subsidiaries from acting as a self-insurer or maintaining insurance with another Subsidiary or Subsidiaries of the Company so long as such action is consistent with sound business practice or (ii) the Company 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 within 60 days after the end of each of the first three quarters of each fiscal year of the Company, Consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows of the Company 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 Company 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 Company in determining compliance with the covenants contained in Section 5.03; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing Consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income, shareowners' equity and cash flows of the Company 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 Company 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 Company in determining compliance with the covenants contained in Section 5.03; (iii) as soon as possible and in any event within five Business Days after the determination by the Company 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 Company setting forth details of such Default and the action that the Company has taken and proposes to take with respect thereto; (iv) promptly and in any event within 30 days after the Company 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 Company describing such AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -42- ERISA Event and the action, if any, that the Company or such ERISA Affiliate has taken and proposes to take with respect thereto; (v) promptly and in any event within ten Business Days after receipt thereof by the Company 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; (vi) promptly and in any event within 45 days after the receipt thereof by the Company 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%; (vii) as soon as possible and in any event within five days after the determination by the Company that a Change of Control has occurred, the Company 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 (viii) such other information (excluding trade secrets) respecting the financial condition and operations of the Company and its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request (which information shall constitute "Post-Restatement 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 Borrowers (including to support the commercial paper programs of the respective Borrowers, 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. SECTION 5.02. Negative Covenants. So long as any Advance ------------------ shall remain unpaid or any Lender shall have any Commitment hereunder, the Company 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 Company, the Company'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 Company or any Subsidiary in the ordinary course of business to secure the purchase price or AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -43- 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, (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 Company or such Material Subsidiary to, any Person, except that: (i) any Material Subsidiary of the Company 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 Company or any wholly owned Material Subsidiary of the Company; provided that the Company or a wholly owned Material Subsidiary is the survivor of any such merger or consolidation; and (ii) the Company 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 Company 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 Company and its Subsidiaries, taken as a whole, such that such business differs materially from the lines of business engaged in on the Restatement Date and lines of business related thereto; provided that the foregoing shall not prohibit the Company 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 Company 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 Company and its Consolidated Subsidiaries as at the last day of the fiscal quarter most recently ended prior to the date of determination. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -44- (e) 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 Company and its Subsidiaries (as determined in good faith by the Company) that are subject to Section 5.02(a) to consist of or be represented by Margin Stock. (f) Transactions with Affiliates. Other than the ---------------------------- transactions with Specified Joint Ventures, enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Company (other than the Company's Subsidiaries) that would be material in relation to the Company and its Subsidiaries, taken as a whole, even if otherwise permitted under this Agreement, except on terms determined by the Company to be fair and reasonable to the Company and its Subsidiaries and in the best interests of the Company (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 Company 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) Any Borrower shall fail to pay any principal of any Advance owing by such Borrower when the same becomes due and payable; or any Borrower shall fail to pay any interest on any Advance owing by such Borrower 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 Company herein or in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) (i) The Company shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(a), 5.01(i)(iii), 5.01(j), 5.02 or 5.03; or (ii) the Company 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 Company by the Administrative Agent or any Lender (other than any failure by the Company to comply with the terms of Section 5.01(i)(iv), (v) or (vi)); or (d) the Company 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 Company or such Material Subsidiary (as the case may be), when the same becomes due and payable AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -45- (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 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company (on its own behalf and on behalf of the other Borrowers), 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 Company, declare the Advances, the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, 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 Company and the other Borrowers; provided that in the event of an actual or deemed entry of an order for relief with respect to the Company under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -46- automatically be terminated and (B) the Advances, 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 Company and the other Borrowers. Notwithstanding anything to the contrary set forth in this Agreement, in the event of an entry of an order for relief with respect to a Designated Borrower under the Federal Bankruptcy Code (or under any analogous law applicable to such Designated Borrower, if such Designated Borrower is not organized under the laws of the United States or any state thereof), (A) the obligation of each Lender to make Advances to such Designated Borrower shall automatically be terminated, (B) on the date that is three Business Days after the Company becomes aware of the entry of such order for relief, the Advances, the Notes, all interest and all other amounts owing by such Designated Borrower 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 Company and such Designated Borrower and (C) such Designated Borrower shall cease to be a Designated Borrower hereunder. 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 Company 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 Company), 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 Borrowers or to inspect the property (including the books and records) of the Borrowers; (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, AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -47- 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 Company, any of its Subsidiaries and any Person who may do business with or own securities of the Company 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 Company), ----- 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 Company. 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 Company and may be removed at any time with or without cause (i) by the Majority Lenders with the Company's approval, which approval shall not unreasonably be withheld, or (ii) by the Company, subject to the approval of the Majority Lenders, which approval shall not unreasonably be withheld. Upon any such resignation or removal, the Company 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -48- 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. SECTION 7.07. The Syndication Agent. Except as expressly --------------------- provided herein, the Syndication Agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, the Syndication Agent shall not have or be deemed to have any fiduciary relationship with any other Lender in connection herewith. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. 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 Company 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(b) and 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); (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; (6) amend this Section 8.01; or (7) release the Company from any of its obligations under Article IX; AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -49- (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 Company or any other Borrower: Solutia Inc. 575 Maryville Centre Drive St. Louis, Missouri 63141 Attention: Treasurer Telephone No.: (314) 674-8250 Telecopier No.: (314) 674-6755 (b) If to the Administrative Agent: Citibank, N.A. 2 Penns Way New Castle Delaware, 19720 Attention: Anne Hieronimus Telephone No.: (302) 894-6034 Telecopier No.: (302) 894-6120 (c) If to any Lender, at the Domestic Lending Office specified in the Administrative Questionnaire of such Lender, or, as to the Company (or any other Borrower) or the Administrative 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 Company 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -50- 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 Company 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 Company 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 Company 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 Company, 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 Eurocurrency Rate Advance is made by any 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(c), or if any payment of principal of any B Advance consisting of a Fixed Rate Advance is made by any Borrower to or for the account of a Lender other than on the maturity date of such Advance, as a result of a prepayment or Conversion pursuant to Sections 2.05(b), 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 Company and such Borrower jointly and severally agree, upon demand by such Lender (with a copy of such demand to the Administrative Agent), to 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 Company or the other Borrowers hereunder, the agreements and obligations of the Company and the other Borrowers 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 A Note or B AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -51- Note held by such Lender, to set off from time to time against any or all of the Company's or the relevant Borrowers' respective 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 Company (on its own behalf and on behalf of the relevant Borrower, if applicable) 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 Company 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 Company, the Administrative Agent and each Lender and their respective successors and assigns, except that no Borrower shall 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 Company 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 Company, 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 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -52- (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 Company or the other Borrowers or the performance or observance by the Company or the other Borrowers of any of their respective 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 Company or the other Borrowers or the performance or observance by the Company or the other Borrowers 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 each 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 Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -53- (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 Company. Within five Business Days after its receipt of such notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent: (x) In the case of an assignment where (1) A Advances of the assigning Lender are evidenced by an A Note and (2) the assigning Lender has retained a Commitment hereunder, in exchange for the surrendered A Note a new A Note payable to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder; (y) In the case of an assignment to an Eligible Assignee where such Eligible Assignee has requested that its A Advances be evidenced by an A Note in accordance with Section 2.06(c), an A Note payable to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Acceptance. (z) In the case of an assumption of a Commitment hereunder, where the Person assuming the relevant Commitment hereunder has requested that its A Advances be evidenced by an A Note in accordance with Section 2.06(c), a new A Note payable to the order of such Person in an amount equal to the Commitment assumed by it pursuant to such Acceptance. The new A Notes to be executed and delivered by a Borrower under clauses (x) and (y) above shall be in an aggregate principal amount equal to the aggregate principal amount of the A Note surrendered in connection with the related assignment, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 hereto. The new A Note to be executed and delivered under clause (z) above shall be dated the effective date of such Acceptance and shall otherwise be in substantially the form of Exhibit A-1 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/or the Note or Notes held by it); provided that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment 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 Company, each other 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 Company or any other 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 Company of the sale of a participation (other than a AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -54- 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 Company or any other Borrower furnished to such Lender by or on behalf of the Company or such 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 Company and the other Borrowers received by it from such Lender; provided further that the Company (on its own behalf and on behalf of the other Borrowers) 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. 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 (and each Designated Borrower, by its acceptance of the proceeds of Advances made to it) 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 and each Designated Borrower 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 and each Designated Borrower 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 and each Designated Borrower 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 and each Designated Borrower 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. AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -55- SECTION 8.11. Judgment Currency. This is an ----------------- international loan transaction in which the specification of Dollars or Euros, as the case may be (the "Specified Currency"), and payment in ------------------ New York City or the country of the Specified Currency, as the case may be (the "Specified Place"), is of the essence, and the Specified --------------- Currency shall be the currency of account in all events relating to Advances denominated in the Specified Currency. The payment obligations of the Company and the other Borrowers under this Agreement shall not be discharged or satisfied by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transfer to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in the Specified Currency into another currency (the "Second Currency"), the rate of exchange --------------- that shall be applied shall be the rate at which in accordance with normal banking procedures the Administrative Agent could purchase the Specified Currency with the Second Currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of the Company and the other Borrowers in respect of any such sum due from it to the Administrative Agent or any Lender hereunder (in this Section called an "Entitled Person") shall, notwithstanding the rate of --------------- exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Second Currency such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Second Currency so adjudged to be due; and the Company and the applicable Borrower hereby, as a separate obligation and notwithstanding any such judgment, jointly and severally agree to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, the amount (if any) by which the sum originally due to such Entitled Person in the Specified Currency hereunder exceeds the amount of the Specified Currency so purchased and transferred. ARTICLE IX GUARANTEE SECTION 9.01. The Guarantee. The Company hereby ------------- guarantees to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Advances made by the Lenders to each Designated Borrower and all other amounts from time to time owing to the Lenders or the Administrative Agent by any Designated Borrower under this Agreement and by the Company under any of the other Notes, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The ---------------------- Company hereby further agrees that if any Designated Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations owing by such Designated Borrower, the Company will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. SECTION 9.02. Obligations Unconditional. The obligations ------------------------- of the Company under Section 9.01 are irrevocable, absolute and unconditional irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of any of the Designated Borrowers under this Agreement or any other agreement or instrument referred to herein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -56- by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Article IX that the obligations of the Company hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Company hereunder, which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Company, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Company hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any of the Designated Borrowers under this Agreement or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 9.03. Reinstatement. The obligations of the ------------- Company under this Article IX shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any of the Designated Borrowers in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Company agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 9.04. Subrogation. The Company hereby agrees ----------- that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments of the Lenders under this Agreement it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 9.01, whether by subrogation or otherwise, against any Designated Borrower or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. SECTION 9.05. Remedies. The Company agrees that, as -------- between the Company and the Lenders, the obligations of the Designated Borrowers under this Agreement may be declared to be forthwith due and payable as provided in Article VI (and shall be deemed to have become automatically due and payable in the circumstances provided in Article VI) for purposes of Section 9.01 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -57- notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against any of the Designated Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by such Designated Borrower) shall forthwith become due and payable by the Company for purposes of Section 9.01. SECTION 9.06. Instrument for the Payment of Money. The ----------------------------------- Company hereby acknowledges that the guarantee in this Article IX constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Administrative Agent, at its sole option, in the event of a dispute by the Company in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. SECTION 9.07. Continuing Guarantee. The guarantee in -------------------- this Article IX is a continuing guarantee of payment (and not of collection), and shall apply to all Guaranteed Obligations whenever arising. [remainder of page intentionally blank] AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -58- 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. SOLUTIA INC. By /s/ R.L. Bishop ------------------------------- Name: R.L. Bishop Title: Vice President & Treasurer CITIBANK, N.A., as Administrative Agent By /s/ Eileen G. Ogimachi ------------------------------- Name: Eileen G. Ogimachi Title: Attorney-in-Fact BANK OF AMERICA, N.A., as Syndication Agent By /s/ David Noda ------------------------------- Name: David Noda Title: Managing Director AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -59- Commitment INITIAL LENDERS - ---------- --------------- $78,333,333.31 CITIBANK, N.A. By /s/ Eileen G. Ogimachi --------------------------------- Name: Eileen G. Ogimachi Title: Attorney-in-Fact $125,000,000.00 BANK OF AMERICA, N.A. By /s/ David Noda --------------------------------- Name: David Noda Title: Managing Director $46,666,666.67 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Hisashi Miyashiro --------------------------------- Name: Hisashi Miyashiro Title: Deputy General Manager $46,666,666.67 THE CHASE MANHATTAN BANK By /s/ Lawrence Palumbo, Jr. --------------------------------- Name: Lawrence Palumbo, Jr. Title: Vice President $46,666,666.67 KBC BANK N.V. By /s/ Robert Snauffer --------------------------------- Name: Robert Snauffer Title: First Vice President By /s/ Raymond F. Murray --------------------------------- Name: Raymond F. Murray Title: First Vice President AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -60- $46,666,666.67 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Dennis Wilczek --------------------------- Name: Dennis Wilczek Title: Associate $46,666,666.67 THE NORTHERN TRUST COMPANY By /s/ Lisa M. Taylor --------------------------- Name: Lisa M. Taylor Title: Second Vice President $46,666,666.67 ROYAL BANK OF CANADA By /s/ D. S. Bryson --------------------------- Name: D. S. Bryson Title: Senior Manager $46,666,666.67 WACHOVIA BANK, N.A. By /s/ Walter R. Gilikin --------------------------- Name: Walter R. Gilikin Title: Senior Vice President $30,000,000.00 BANKBOSTON, N.A. By /s/ Esteban Arrondo --------------------------- Name: Esteban Arrondo Title: Vice President AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -61- $30,000,000.00 BANK ONE, N.A. By /s/ William J. Oleferchik ------------------------------- Name: William J. Oleferchik Title: Vice President $30,000,000.00 COMMERZBANK AKTIENGESELLSCHAST NEW YORK AND GRAND CAYMAN BRANCH By /s/ Mark Monson ------------------------------- Name: Mark Monson Title: Vice President By /s/ Albert Morrow ------------------------------- Name: Albert Morrow Title: Assistant Treasurer $30,000,000.00 CREDIT AGRICOLE INDOSUEZ By /s/ Paul A. Dytrych ------------------------------- Name: Paul A. Dytrych Title: Vice President - Senior Relationship Manager By /s/ Larry Materi ------------------------------- Name: Larry Materi Title: Vice President $30,000,000.00 HSBC BANK USA By /s/ Christopher M. Samms ------------------------------- Name: Christopher M. Samms Title: Vice President - Officer #9426 $30,000,000.00 MELLON BANK, N.A. By /s/ Jeffrey R. Dickson ------------------------------- Name: Jeffrey R. Dickson Title: Vice President AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT -62- $30,000,000.00 MERCANTILE BANK NATIONAL ASSOCIATION By /s/ Gregory L. Dryden ---------------------------------- Name: Gregory L. Dryden Title: Vice President $30,000,000.00 SOCIETE GENERALE By /s/ Steven R. Fercho ---------------------------------- Name: Steven R. Fercho Title: Director $30,000,000.00 THE SUMITOMO BANK, LIMITED By /s/ John H. Kemper ---------------------------------- Name: John. H. Kemper Title: Senior Vice President $800,000,000.00 Total of Commitments =============== AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT SCHEDULE 1 Existing Liens -------------- By a Deed of Trust and Security Agreement dated as of August 26, 1999 and a Funding, Mortgage and Lease Agreement of the same date, made by Solutia Inc., Solutia granted a lien upon and security interest in Solutia rights as lessee in and against an office building (which is Solutia's new headquarters) consisting of approximately 270,000 square feet and other fixtures and improvements located on the site at 575 Maryville Centre, St. Louis County, Missouri. This is a synthetic lease with State Street Bank and Trust of Missouri NA as lessor and Solutia as Lessee. SCHEDULE 2A Pricing Grid ------------ "Applicable Margin" means, for any A Advance (whether ----------------- denominated in Dollars or Euros) that is a Eurocurrency 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: Rating Level Applicable Margin (p.a.) ------------ ------------------------ 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%; 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. "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: Rating Level Facility Fee Rate (p.a.) ------------ ------------------------ 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%; 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. SCHEDULE 2B SOLUTIA INC. $800MM 5 YEAR REVOLVING CREDIT FACILITY PRICING GRID - -----------------------------------------------------------------------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5 LEVEL 6 BASIS FOR Long Term Senior Long Term Senior Long Term Senior Long Term Senior Long Term Senior Long Term Senior PRICING Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Rated At Least A Rated Less Than Rated Less Than Rated Less Than Rated Less Than Rated Lower Than By Standard & Level 1 But At Level 2 But At Level 3 But At Level 4 But At Level 5 Or Not Poor's or A2 Least A- By Least BBB+ By Least BBB By Least BBB- By Rated. -- By Moody's Standard & Poor's Standard & Poor's Standard & Poor's Standard & Poor's or A3 By or Baa1 By or Baa2 By or Baa3 By -- -- -- -- Moody's Moody's Moody's Moody's - ----------------------------------------------------------------------------------------------------------------------------------- FACILITY FEE 6.5 bps 7.5 bps 8.5 bps 10.5 bps 12.5 bps 17.5 bps - ----------------------------------------------------------------------------------------------------------------------------------- APPLICABLE 13.5 bps 15.0 bps 16.5 bps 22.0 bps 22.5 bps 22.5 bps MARGIN - ----------------------------------------------------------------------------------------------------------------------------------- DRAWN COST LIBOR + 20.0 bps LIBOR + 22.5 bps LIBOR + 25.0 bps LIBOR + 32.5 bps LIBOR + 35.0 bps LIBOR + 40.0 bps - ----------------------------------------------------------------------------------------------------------------------------------- This pricing grid is intended to be a summary of the Applicable Margin, Facility Fee Rate and Rating Level definitions in the Credit Agreement. In the event of any inconsistency between this pricing grid and the actual terms of the Credit Agreement (including the definitions set forth on Schedule 2A), the terms of the Credit Agreement shall control and govern. If Solutia Inc. is split-rated and the ratings fall in different Rating Levels, the higher of the two Rating Levels will apply (except that, if the lower such Rating Level is more than one Rating Level below the higher such Rating Level, the Rating Level that is one Rating Level higher than the lower such Rating Level will apply). Facility Fee plus Applicable Margin.
EXHIBIT A-1 [Form of A Note] U.S. $___________ Dated: __________ FOR VALUE RECEIVED, the undersigned, [insert name of Borrower], a [insert type of entity] organized under the laws of [insert jurisdiction] (the "Borrower"), HEREBY PROMISES TO PAY to the -------- order of __________ (the "Lender") for the account of its Applicable ------ Lending Office the principal sum of [INSERT DOLLARS AND CENTS IN WORDS] (or, to the extent of any A Advances that are denominated in Euros, the aggregate principal amount thereof in such Currency) or such lesser amount as shall equal the aggregate unpaid principal amount of the A Advances made by the Lender to the Borrower under the Credit Agreement, in immediately available funds, on the dates, in such Currency and in the principal amounts provided in the Credit Agreement referred to below. Terms used in this Note and not otherwise defined have the meanings assigned to them in the Credit Agreement referred to below. The Borrower promises to pay interest on the unpaid principal amount of each A Advance made to the Borrower from the date of such A Advance until such principal amount is paid in full, at such interest rates, in such Currency, and payable at such times, as are specified in the Credit Agreement. Both principal and interest of each A Advance are payable in the Currency in which such A Advance is denominated to Citibank, N.A. ("Citibank"), as Administrative Agent, at the Administrative Agent's -------- Account, in same day funds. Each A Advance made by the Lender to the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Note is one of the A Notes referred to in, and is entitled to the benefits of, the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as from time to time amended, the "Credit Agreement") among Solutia Inc. (the "Company"), the ---------------- ------- Lender and certain other lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, as Administrative Agent for the Lender and such other lenders. The Credit Agreement, among other things, (i) provides for the making of advances (the "A Advances") by ---------- the Lender to the Borrower from time to time in Dollars and Euros in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount (or Dollar Equivalent) first above mentioned, the indebtedness of the Borrower resulting from each such A Advance being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. [Pursuant to Article IX of the Credit Agreement, this Note is absolutely and unconditionally guaranteed by the Company.] The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. [FN] - ------------------------ For A Notes for the Company as Borrower, insert "SOLUTIA INC., a corporation organized under the laws of the State of Delaware". For A Notes for a Designated Borrower as Borrower, insert analogous information. Include in Notes of Designated Borrowers. -2- This Note shall be governed by, and construed in accordance with, the law of the State of New York, United States. [NAME OF BORROWER] By -------------------------------- Name: Title: ADVANCES AND PAYMENTS OF PRINCIPAL =============================================================================================================================
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EXHIBIT A-2 [Form of B Note] [U.S.$] [EUROS] Dated: ----------- ---------- FOR VALUE RECEIVED, the undersigned, [insert name of Borrower], a [insert type of entity] organized under the laws of [insert jurisdiction] (the "Borrower"), HEREBY PROMISES TO PAY to the -------- order of (the "Lender") for the account of its Applicable ---------- ------ Lending Office the principal sum of [INSERT DOLLARS AND CENTS (OR EUROS) IN WORDS] on [ , ]. Terms used in this Note and not -------- -- ---- otherwise defined have the meanings assigned to them in the Credit Agreement referred to below. The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, in the Currency, at the interest rate and payable on the interest payment date or dates provided below: Currency: [Dollars][Euros] Interest Rate: % per annum (calculated ----- on the basis of a year of days for the actual ----- number of days elapsed). Interest Payment Date or Dates: ---------------------------------- Both principal and interest are payable in [Dollars] [Euros] to Citibank, N.A. ("Citibank"), as Administrative Agent, at the -------- Administrative Agent's Account, in same day funds, free and clear of and without any deduction, with respect to the payee named above, for any and all present and future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, as set forth in the Credit Agreement. This Note is one of the B Notes referred to in, and is entitled to the benefits of, the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as from time to time amended, the "Credit Agreement") among Solutia Inc. (the "Company"), the ---------------- ------- Lender and certain other lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, as Administrative Agent for the Lender and such other lenders. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. [Pursuant to Article IX of the Credit Agreement, this Note is absolutely and unconditionally guaranteed by the Company.] The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. [FN] - ------------------------ For A Notes for the Company as Borrower, insert "SOLUTIA INC., a corporation organized under the laws of the State of Delaware". For A Notes for a Designated Borrower as Borrower, insert analogous information. Include in Notes of Designated Borrowers. -2- This Note shall be governed by, and construed in accordance with, the law of the State of New York, United States. [NAME OF BORROWER] By --------------------------- Name: Title: EXHIBIT B-1 [Form of Notice of A Borrowing] [Date] Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: The undersigned, Solutia Inc., refers to the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement", the terms defined ---------------- therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests an A Borrowing (the "Proposed A Borrowing") under the Credit Agreement, and in that -------------------- connection sets forth below the information relating to the Proposed A Borrowing as required by Section 2.02(a) of the Credit Agreement: (1) The Business Day of the Proposed A Borrowing is , . -------- ---- (2) The Type of Advances comprising the Proposed A Borrowing is [Base Rate Advances] [Eurocurrency Rate Advances]. (3) The Currency of the Proposed A Borrowing is [Dollars][Euros]. (4) The aggregate amount of the Proposed A Borrowing is [U.S. $] [Euros] . ---------- (5) The initial Interest Period for each Eurocurrency Rate Advance made as part of the Proposed A Borrowing is [ ] month[s]. -- (6) the Borrower of the A Advances to be made as part of the Proposed A Borrowing is [the Company][the following Designated Borrower: ]. ------------------ The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed A Borrowing: (A) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the Excluded Representations) are correct, before and after giving effect to the Proposed A Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and [FN] - ------------------------ Include in borrowing notices relating to Eurocurrency Rate Advances. -2- (B) no event has occurred and is continuing, or would result from such Proposed A Borrowing or from the application of the proceeds therefrom, that constitutes a Default. Very truly yours, SOLUTIA INC. [on behalf of the Designated Borrower referred to above] By -------------------------------- Name: Title: [FN] - ------------------------ Insert if applicable. EXHIBIT B-2 [Form of Notice of B Borrowing] [Date] Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: The undersigned, Solutia Inc., refers to the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement", the terms defined ---------------- therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a B Borrowing (the "Proposed B Borrowing") under the Credit Agreement, and in that -------------------- connection sets forth the terms on which the Proposed B Borrowing is requested to be made: (1) Date of B Borrowing: ----------------------- (2) Amount of B Borrowing: ----------------------- (3) Currency of B Borrowing: [Dollars][Euros] (4) Maturity Date of B Borrowing: ----------------------- (5) Interest Rate Basis: ----------------------- (6) Interest Payment Date(s) ----------------------- (7) Type of B Borrowing: [Fixed Rate Advance][Floating Rate Advance] (8) Name of Borrower: [the Company][The following Designated Borrower: ] ------------- (9) Other Terms: ----------------------------- ----------------------------- The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed B Borrowing: [FN] - ------------------------ Maturity date may not be earlier than the date occurring thirty days after the date of the Proposed B Borrowing or later than the Commitment Termination Date. -2- (a) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the Excluded Representations) are correct, before and after giving effect to the Proposed B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (b) no event has occurred and is continuing, or would result from the Proposed B Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (c) in compliance with Section 2.03(a) of the Credit Agreement, the aggregate amount of the Proposed B Borrowing in Dollars or in Euros and all other Borrowings to be made on the same day under the Credit Agreement is within the aggregate amount of the unused Commitments of the Lenders. The undersigned hereby confirms that the Proposed B Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of the Credit Agreement. Very truly yours, SOLUTIA INC. [on behalf of the Designated Borrower referred to above] By -------------------------------- Name: Title: [FN] - ------------------------ Insert if applicable. EXHIBIT C-1 [Form of Assignment and Acceptance] Reference is made to the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement") among Solutia Inc., a Delaware ---------------- corporation (the "Company"), the Lenders (as defined in the Credit ------- Agreement), Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as administrative agent for the Lenders (the "Administrative -------------- Agent"). Terms defined in the Credit Agreement are used herein with - ----- the same meaning unless otherwise defined herein. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of B Advances and B Notes) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations of the Assignor under the Credit Agreement (other than in respect of B Advances and B Notes) including, without limitation, such interest in the Assignor's Commitment, the A Advances owing to the Assignor and any A Notes held by the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the A Advances owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company (or any other Borrower) or the performance or observance by the Company (or any other Borrower) of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; [and] (iv) represents and warrants that the assignment being made hereby shall not require registration, qualification or any filings to be made under the securities laws of the United States of America, of any state or of any country; [and (v) attaches the A Note of each Borrower held by the Assignor and requests that the Administrative Agent exchange such A Notes for new A Notes payable by the respective Borrowers to the order of the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, as specified on Schedule 1 hereto]. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Syndication Agent, the Assignor 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 the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the [FN] - ------------------------ Include bracketed text if the Assignor is retaining a Commitment under the Credit Agreement and holds A Notes executed pursuant to a request made by such Assignor under Section 2.06(c) of the Credit Agreement. -2- Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.15 of the Credit Agreement; [and (vi) requests, in accordance with Section 2.06(c) of the Credit Agreement, that its A Advances to each Borrower be evidenced by an A Note payable by such Borrower to the order of the Assignee in an amount equal to the Commitment assumed by it, as specified on Schedule 1 hereto]. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date for this Assignment and Acceptance (the "Effective --------- Date") shall be the date of acceptance hereof by the ---- Administrative Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the A Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and Facility Fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the A Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the law of the State of New York. 8. This Assignment and Acceptance 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 Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. [FN] - ------------------------ Include bracketed text if the Assignee requests that its A Advances be evidenced by promissory notes in accordance with Section 2.06(c) of the Credit Agreement. Schedule 1 to Assignment and Acceptance Percentage interest assigned: % ------- Assignee's Commitment: $ ------------ Aggregate outstanding principal amount of A Advances assigned: $ ------------ and Euros ------------ Principal amount of A Note of each Borrower payable to Assignee: $ ------------ Principal amount of A Note of each Borrower payable to Assignor: $ ------------ Effective Date (if other than date of acceptance by the Administrative Agent): , ------------ ---- Dated: , [NAME OF ASSIGNOR], as Assignor ------------- ---- By ------------------------------ Name: Title: Dated: , --------------- ---- [NAME OF ASSIGNEE], as Assignee By ------------------------------ Name: Title: Domestic Lending Office: [Address] Eurocurrency Lending Office: [Address] [FN] - ------------------------ This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Administrative Agent. -2- Accepted [and consented to] this day of , 19 - -- ------ -- CITIBANK, N.A., as Administrative Agent By ----------------------------------------- Name: Title [Consented to: BANK OF AMERICA, N.A., as Syndication Agent By ----------------------------------------- Name: Title:] [Consented to this day -- of , ---------- ---- SOLUTIA INC., on its own behalf and on behalf of each of the Designated Borrowers By ----------------------------------------- Name: Title:] [FN] - ------ Required if the assignment is other than to an Affiliate of the Assignor or pursuant to the terms of Section 8.07(g) of the Credit Agreement. EXHIBIT C-2 [Form of Assumption and Acceptance] Dated , -------------- ---- Solutia Inc. Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: Reference is made to the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement") among Solutia Inc., a Delaware ---------------- corporation (the "Company"), the Lenders (as defined in the Credit ------- Agreement), Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as administrative agent for the Lenders (the "Administrative -------------- Agent"). Terms defined in the Credit Agreement are used herein with - ----- the same meaning unless otherwise defined herein. 1. [INSERT NAME OF ADDITIONAL COMMITMENT LENDER OR ASSUMING LENDER] (the "[Additional Commitment]/[Assuming] Lender") agrees ---------------------------------------- to become a party to the Credit Agreement and to have the rights and perform the obligations of a Lender under the Credit Agreement, and to be bound in all respects by the terms of the Credit Agreement. 2. The [Additional Commitment]/[Assuming] Lender hereby agrees to a Commitment of [INSERT AMOUNT OF PROPOSED COMMITMENT] (the "Proposed Commitment"). ------------------- 3. The [Additional Commitment]/[Assuming] Lender (i) agrees that no Lender has made any representation or warranty, or assumes any responsibility with respect to, (x) any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto or (y) the financial condition of the Company (or any other Borrower) or the performance or observance by the Company (or any other Borrower) of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assumption and Acceptance; (iii) agrees that it will, independently and without reliance upon the Administrative Agent, the Syndication 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 the Credit Agreement; (iv) confirms that it is an Eligible Assignee; (v) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and -2- discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vii) attaches any U.S. Internal Revenue Service forms required under Section 2.15 of the Credit Agreement. 4. The effective date for this Acceptance shall be [ , ] (the "Assumption Date"); provided that -------------- ---- --------------- this Acceptance has been fully executed and delivered to the Administrative Agent for acceptance and recording by the Administrative Agent on or prior to such Assumption Date. 5. Upon such execution, delivery, acceptance and recording and as of the Assumption Date, the [Additional Commitment]/[Assuming] Lender shall be a party to the Credit Agreement with a Commitment equal to the Proposed Commitment and, to the extent provided in this Acceptance, have the rights and obligations of a Lender thereunder. 6. Upon such acceptance and recording, from and after the Assumption Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the Proposed Commitment provided for in this Acceptance (including, without limitation, all payments of principal, interest and Facility Fees with respect thereto) to the [Additional Commitment]/[Assuming] Lender. 7. This Acceptance shall be governed by and construed in accordance with the law of the State of New York. 8. This Acceptance may be signed in any number of counterparts, each of which shall be an original, with the same as if the signatures were upon the same instrument. [remainder of page intentionally blank] -3- IN WITNESS WHEREOF, the Additional Commitment Lender has caused Acceptance to be executed by its officers thereunto duly authorized as of the date specified above. [NAME OF ADDITIONAL COMMITMENT OR ASSUMING LENDER] By -------------------------------------- Name: Title: Domestic Lending Office: [Address] Eurocurrency Lending Office: [Address] This Assumption and Acceptance is hereby acknowledged and agreed on as of the date set forth above. SOLUTIA INC. By ----------------------------------------- Name: Title: CITIBANK, N.A., as Administrative Agent By ----------------------------------------- Name: Title: BANK OF AMERICA, N.A., as Syndication Agent By ----------------------------------------- Name: Title: EXHIBIT D [Form of Opinion of Counsel for the Company] November 23, 1999 To the Lenders party to the Credit Agreement referred to below Citibank, N.A., as Administrative Agent 399 Park Avenue New York, New York 10043 Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.01(b)(1) of the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (the "Credit Agreement"), ---------------- among Solutia Inc., a Delaware corporation (the "Company"), the ------- Lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined. I am General Counsel of the Company and am familiar with the preparation, execution and delivery of the Credit Agreement. In that connection, I or persons under my supervision have examined or are familiar with: (1) the Credit Agreement, the A Notes and the form of the B Note; (2) the documents furnished by the Company pursuant to Article III of the Credit Agreement; (3) the certificate of incorporation of the Company and all amendments thereto (the "Charter"); (4) the by-laws of the Company and all amendments thereto ------- (the "By-laws"); and (5) a certificate of the Secretary of State of ------- Delaware, dated November 23, 1999, certifying as to the continued corporate existence and good standing of the Company in that State. In addition, I or persons under my supervision have examined or are familiar with the originals, or copies certified to my satisfaction, of such other corporate records of the Company, certificates of public officials and of officers of the Company, and agreements, instruments and other documents, and made such other investigations and review of relevant documents as I have deemed necessary as a basis of the opinions expressed below. I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent. I am qualified to practice law in the State of Missouri. My opinions expressed below are limited to the law of the State of Missouri, the General Corporation Law of the State of Delaware and the Federal law of the United States. Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. The execution, delivery and performance by the Company of the Credit Agreement and the Notes, and the other transactions contemplated by the Credit Agreement, are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do -2- not contravene (i) the Charter or the By-laws, (ii) any law, rule or regulation applicable to the Company (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (iii) to the best of my knowledge, any contractual or legal restriction contained in any indenture or other agreement or instrument to which the Company or any of its Consolidated Subsidiaries is a party or is bound. The Credit Agreement, and the Notes delivered today, have been duly executed and delivered on behalf of the Company. 3. No authorization, 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 Company of the Credit Agreement and the Notes. 4. The Credit Agreement is, and each Note of the Company when delivered under the Credit Agreement will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 5. In any action or proceeding arising out of or relating to the Credit Agreement or the Notes in any court of the State of Missouri or in any Federal court sitting in the State of Missouri, such court would recognize and give effect to the provisions of Section 8.08 of the Credit Agreement wherein the parties thereto agree that the Credit Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. Without limiting the generality of the foregoing, a court of the State of Missouri or a Federal court sitting in the State of Missouri would apply the usury law of the State of New York to the Credit Agreement and the Notes. However, if a court were to hold that the Credit Agreement and the Notes are governed by, and to be construed in accordance with, the law of the State of Missouri, the Credit Agreement and the Notes of the Company would be, under the laws of the State of Missouri, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 6. Except as described in the Company's Report on Form 10-K for the fiscal year ended December 31, 1998 or in the Company's Report on Form 10-Q for the fiscal quarter ended September 30, 1999, there is no pending or overtly threatened action or proceeding affecting the Company or any of its Consolidated Subsidiaries before any court, governmental agency or arbitrator which (i) would have a Material Adverse Effect or (ii) purports to affect, or would affect, the legality, validity or enforceability of the Credit Agreement or any Note. 7. Neither the Company 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 Company 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. References herein to the Credit Agreement include the guarantee by the Company of obligations of Designated Borrowers set forth in Article IX of the Credit Agreement. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 8.04(b) of the Credit Agreement (and any other similar provisions therein) may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct. -3- (B) Clause (iii) of the second sentence of Section 9.02 of the Credit Agreement may not be enforceable to the extent that the Guaranteed Obligations are materially modified. (C) The enforceability of provisions in the Credit Agreement and the Notes to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (D) I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of Missouri) that limit the interest, fees or other charges such Lender may impose, (ii) the second sentence of Section 2.16 of the Credit Agreement, (iii) the first sentence of Section 8.10(a) of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of any federal court sitting in New York City to adjudicate any controversy related to the Credit Agreement and the Notes, (iv) the second sentence of Section 8.10(a), (v) the waiver of inconvenient forum set forth in Section 8.10(b) of the Credit Agreement with respect to proceedings in any federal court sitting in New York City, (vi) Section 8.11 of the Credit agreement and (vii) Section 9.06 of the Credit Agreement. (E) My opinion in paragraph 4 above as to the enforceability of the Credit Agreement and the Notes is subject to the effect of (a) any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfer or preferential transfers), reorganization, moratorium or similar law affecting creditors' rights generally and (b) general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Very truly yours, EXHIBIT E [Form of Opinion of Special New York Counsel to the Administrative Agent] November 23, 1999 To the Lenders party to the Credit Agreement referred to below Citibank, N.A., as Administrative Agent 399 Park Avenue New York, New York 10043 Ladies and Gentlemen: We have acted as special New York counsel to the Administrative Agent in connection with the Amended and Restated Five Year Credit Agreement dated as of November 23, 1999 (the "Credit ------ Agreement") among Solutia Inc. (the "Company"), the Lenders parties - --------- ------- thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent, providing for loans to be made by said Lenders to the Company and the Designated Borrowers in an aggregate principal amount not exceeding $800,000,000. Terms defined in the Credit Agreement are used herein as defined therein. This opinion is being delivered pursuant to Section 3.01(b)(2) of the Credit Agreement. In rendering the opinions expressed below, we have examined the Credit Agreement and the Notes being executed and delivered on the date hereof (the "Notes" and collectively with the Credit Agreement, ----- the "Loan Documents"). -------------- In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. In rendering the opinions expressed below, we have assumed, with respect to the Loan Documents, that: (i) the Loan Documents have been duly authorized by, have been duly executed and delivered by, and (except to the extent set forth in the opinions below as to the Company) constitute legal, valid, binding and enforceable obligations of, all of the parties thereto; (ii) all signatories to the Loan Documents have been duly authorized; and (iii) all of the parties to the Loan Documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform the Loan Documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that each Loan Document constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, -2- fraudulent conveyance or transfer or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of such Loan Document is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 8.04(b) of the Credit Agreement (and any other similar provisions therein) may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct. (B) Clause (iii) of the second sentence of Section 9.02 of the Credit Agreement may not be enforceable to the extent that the Guaranteed Obligations are materially modified. (C) The enforceability of provisions in the Loan Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (D) We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) the second sentence of Section 2.16 of the Credit Agreement, (iii) the first sentence of Section 8.10(a) of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of any federal court sitting in New York City to adjudicate any controversy related to the Loan Documents, (iv) the second sentence of Section 8.10(a), (v) the waiver of inconvenient forum set forth in Section 8.10(b) of the Credit Agreement with respect to proceedings in any federal court sitting in New York City, (vi) Section 8.11 of the Credit Agreement and (vii) Section 9.06 of the Credit Agreement. (E) We point out with reference to obligations stated to be payable in a currency other than Dollars that (i) a New York statute provides that a judgment rendered by a court of the State of New York in respect of an obligation denominated in any such other currency would be rendered in such other currency and would be converted into Dollars at the rate of exchange prevailing on the date of entry of the judgment and (ii) a judgment rendered by a Federal court sitting in the State of New York in respect of an obligation denominated in any such other currency may be expressed in Dollars, but we express no opinion as to the rate of exchange such Federal court would apply. The foregoing opinions are limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. This opinion letter is, pursuant to Section 3.01(b)(2) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Administrative Agent and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, EKM/RJW EXHIBIT F-1 FORM OF DESIGNATION LETTER , ------------ -- ---- Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: We refer to the Amended and Restated Five Year Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of November 23, ---------------- 1999 among Solutia Inc. (the "Company"), the Lenders party thereto, ------- Bank of America, N.A., as Syndication Agent, and Citibank, as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby designates [____________] (the "Designated Borrower"), a wholly owned Subsidiary of the Company and a ------------------- [corporation duly incorporated under the laws of [_____________]], as a Borrower in accordance with Section 2.17 of the Credit Agreement until such designation is terminated in accordance with said Section 2.17. The Designated Borrower hereby accepts the above designation and hereby expressly and unconditionally accepts the obligations of a Borrower under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, upon your execution and return to the Company of the enclosed copy of this letter, it shall be a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as a Borrower. The Designated Borrower hereby authorizes and empowers the Company to act as its representative and attorney-in-fact for the purposes of signing documents and giving and receiving notices (including notices of Borrowing under the Credit Agreement) and other communications in connection with the Credit Agreement and the transactions contemplated thereby and for the purposes of modifying or amending any provision of the Credit Agreement and further agrees that the Administrative Agent, the Syndication Agent and each Lender may conclusively rely on the foregoing authorization. The Company hereby represents and warrants to the Administrative Agent and each Lender that, before and after giving effect to this Designation Letter, (i) the representations and warranties set forth in Section 4.01 of the Credit Agreement (except the Excluded Representations) are true and correct on the date hereof as if made on and as of the date hereof and (ii) no Default has occurred and is continuing. The Designated Borrower represents and warrants that each of the representations and warranties set forth in Section 4.01 (a), (b), (c) and (d) of the Credit Agreement are true as if each reference therein to the Company were a reference to the Designated Borrower and as if each reference therein to the Credit Agreement and the Notes were a reference to this Designation Letter and the Notes executed by the Designated Borrower in connection herewith. -2- The Designated Borrower hereby agrees that this Designation Letter, the Credit Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. The Designated Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Designation Letter, the Credit Agreement or the transactions contemplated thereby. The Designated Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Designated Borrower further agrees that service of process in any such action or proceeding brought in New York may be made upon it by service upon the Company at the "Address for Notices" specified below its name on the signature pages to the Credit Agreement. THE DESIGNATED BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS DESIGNATION LETTER, THE CREDIT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. Very truly yours, SOLUTIA INC. By ----------------------------------- Name: Title: [NAME OF DESIGNATED BORROWER] By ----------------------------------- Name: Title: ACCEPTED: CITIBANK, N.A., as Administrative Agent By ----------------------------- Name: Title: EXHIBIT F-2 FORM OF TERMINATION LETTER , ---------- -- ---- To Citibank, N.A., as Administrative Agent Attention: Anne Hieronimus Ladies and Gentlemen: We refer to the Amended and Restated Five Year Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of November 23, ---------------- 1999 among Solutia Inc., the Lenders party thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby terminates the status as a Designated Borrower of [_________________], a [corporation incorporated under the laws of [_______________]], in accordance with Section 2.17 of the Credit Agreement, effective as of the date of receipt of this notice by the Administrative Agent. The undersigned hereby represent and warrant that all principal of and interest on all Advances of the above- referenced Designated Borrower and all other amounts payable by such Designated Borrower pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Termination Letter shall not affect any obligation which by the terms of the Credit Agreement survives termination thereof. Very truly yours, SOLUTIA INC. By ------------------------------------ Name: Title: EX-10.(M) 3 364-DAY MULTICURRENCY CREDIT AGREEMENT CONFORMED COPY ====================================================================== U.S. $300,000,000 364-DAY MULTICURRENCY CREDIT AGREEMENT Dated as of November 23, 1999, Among SOLUTIA INC., as Borrower THE INITIAL LENDERS NAMED HEREIN, as Initial Lenders BANK OF AMERICA, N.A. as Syndication Agent and CITIBANK, N.A., as Administrative Agent ====================================================================== T A B L E O F C O N T E N T S - - - - - - - - - - - - - - - Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms.........................................1 SECTION 1.02. Computation of Time Periods................................. 14 SECTION 1.03. Accounting Terms and Determinations......................... 14 SECTION 1.04. Currencies; Currency Equivalents............................ 14 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances.............................................. 15 SECTION 2.02. Making the A Advances....................................... 15 SECTION 2.03. The B Advances.............................................. 16 SECTION 2.04. Fees........................................................ 20 SECTION 2.05. Termination, Reduction and Extension of Commitments......... 20 SECTION 2.06. Repayment of Advances; Evidence of Debt..................... 21 SECTION 2.07. Interest on A Advances...................................... 22 SECTION 2.08. Interest Rate Determination; Changes in Rating Systems...... 22 SECTION 2.09. Optional Conversion of A Advances........................... 23 SECTION 2.10. Prepayments, Etc............................................ 24 SECTION 2.11. Increased Costs............................................. 25 SECTION 2.12. Illegality.................................................. 26 SECTION 2.13. Payments and Computations................................... 27 SECTION 2.14. Notations on the A Notes.................................... 28 SECTION 2.15. Taxes....................................................... 29 SECTION 2.16. Sharing of Payments, Etc.................................... 31 SECTION 2.17. Borrowings by Designated Borrowers.......................... 31 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Initial Borrowing................... 31 SECTION 3.02. Conditions Precedent to Each A Borrowing.................... 32 SECTION 3.03. Conditions Precedent to Each B Borrowing.................... 33 SECTION 3.04. Determinations Under Section 3.01........................... 33 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Company............... 34 SECTION 4.02. Representation and Warranty of the Lenders.................. 36 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. Affirmative Covenants....................................... 36 SECTION 5.02. Negative Covenants.......................................... 39 SECTION 5.03. Financial Covenants......................................... 41 -i- Page ---- ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default........................................... 41 ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action.................................... 43 SECTION 7.02. Administrative Agent's Reliance, Etc........................ 43 SECTION 7.03. Citibank and Affiliates..................................... 44 SECTION 7.04. Lender Credit Decision...................................... 44 SECTION 7.05. Indemnification............................................. 44 SECTION 7.06. Successor Administrative Agent.............................. 44 SECTION 7.07. The Syndication Agent....................................... 45 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc............................................. 45 SECTION 8.02. Notices, Etc................................................ 46 SECTION 8.03. No Waiver, Remedies......................................... 46 SECTION 8.04. Costs and Expenses.......................................... 47 SECTION 8.05. Right of Set-off............................................ 47 SECTION 8.06. Binding Effect.............................................. 48 SECTION 8.07. Assignments and Participations, Register.................... 48 SECTION 8.08. Governing Law............................................... 51 SECTION 8.09. Execution in Counterparts................................... 51 SECTION 8.10. Jurisdiction, Etc........................................... 51 SECTION 8.11. Judgment Currency........................................... 52 ARTICLE IX GUARANTEE SECTION 9.01. The Guarantee............................................... 52 SECTION 9.02. Obligations Unconditional................................... 52 SECTION 9.03. Reinstatement............................................... 53 SECTION 9.04. Subrogation................................................. 53 SECTION 9.05. Remedies.................................................... 53 SECTION 9.06. Instrument for the Payment of Money......................... 54 SECTION 9.07. Continuing Guarantee........................................ 54 -ii- SCHEDULES --------- Schedule 1 - Certain Existing Liens Schedule 2A - Pricing Grid Schedule 2B - Copy of Pricing Grid from Bank Book 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 Company Exhibit E - Form of Opinion of Special New York Counsel to the Administrative Agent Exhibit F-1 - Form of Designation Letter Exhibit F-2 - Form of Termination Letter
-iii- 364-DAY MULTICURRENCY CREDIT AGREEMENT dated as of November 23, 1999 among SOLUTIA INC., a Delaware corporation (the "Company"), ------- the banks (each an "Initial Lender" and, collectively, the "Initial -------------- ------- Lenders") listed on the signature pages hereof, BANK OF AMERICA, N.A., - ------- 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. The Company has requested that the Lenders make loans to the Borrowers in an aggregate principal amount not exceeding $300,000,000 at any one time outstanding solely to finance the working capital needs and other general corporate purposes of the Borrowers, including to support the Borrowers' respective commercial paper programs, 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 a Borrower as --------- part of an A Borrowing and refers to a Base Rate Advance or a Eurocurrency 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 a Borrower payable to ------ the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the A Advances made by such Lender to such Borrower. "Acceptance" means an Assignment and Acceptance and/or an ---------- Assumption and Acceptance. "Adjusted EBITDA" means, for any period, the sum, for the --------------- Company 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 $44,000,000) and reserves established by the Company and its Consolidated Subsidiaries in connection with (x) the Astaris LLC phosphate joint venture that Solutia is in the process of establishing with FMC Corporation, (y) acquisitions and (z) restructuring of existing operations (all on or prior to December 31, 2000) in an aggregate amount not exceeding $60,000,000 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). 364-DAY CREDIT AGREEMENT -2- "Administrative Agent" has the meaning specified in the -------------------- recital of parties to this Agreement. "Administrative Agent's Account" means, for each Currency, ------------------------------ an account in respect of such Currency designated by the Administrative Agent in a notice to the Company and the Lenders. "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. "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 Eurocurrency Lending Office in the case of a Eurocurrency 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" has the meaning assigned to such term in ----------------- Schedule 2A. "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 a 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 Company under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of a Borrower payable to ------ the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from a B Advance made by such Lender to such Borrower. "B Reduction" has the meaning specified in Section 2.01. ----------- 364-DAY CREDIT AGREEMENT -3- "Bank of America" means Bank of America, N.A. --------------- "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) 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 1% 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). "Borrowers" means, at any time, collectively, the Company --------- (both as a Borrower and as guarantor under Article IX of Advances made to the Designated Borrowers) and each Designated Borrower. "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 Company 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 Eurocurrency Rate Advances denominated in any Currency, on which dealings are carried on in the London interbank market for such Currency. 364-DAY CREDIT AGREEMENT -4- "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 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 that, for purposes of this paragraph (a), ---------- the following acquisitions shall not constitute a Change of Control: (i) any acquisitions 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 paragraph (c) below; or (b) individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease --------------- for any reason to constitute at least a majority of the Board of Directors of the Company; provided 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 of Directors; or (c) consummation by the Company 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 Company Common Stock and Outstanding Company 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 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 or Group (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, 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 364-DAY CREDIT AGREEMENT -5- 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 Company of a complete liquidation or dissolution of the Company. "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 $300,000,000. "Commitment Termination Date" means November 21, 2000 or, in --------------------------- the case of any Lender whose Commitment is extended pursuant to Section 2.05(b), 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 Company 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)(i). "Consolidated Net Tangible Assets" means, at any time, for -------------------------------- the Company 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 ---------------------- Company 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 Company, ----------------------- the accounts of which in accordance with generally accepted accounting principles are consolidated with those of the Company. "Consolidated Tangible Assets" means, at any time, for the ---------------------------- Company and its Consolidated Subsidiaries (determined on a Consolidated basis without duplication in accordance 364-DAY CREDIT AGREEMENT -6- 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 denominated in Dollars into A Advances of the other Type denominated in Dollars pursuant to Section 2.08 or 2.09. "Currency" means Dollars or Euros. -------- "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 Company), (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 Company and its Consolidated Subsidiaries on a Consolidated basis as of such date to -- (b) Adjusted EBITDA for the Rolling Period ending on or most recently ended prior to such date. "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. "Designated Borrower" means any wholly owned Subsidiary of ------------------- the Company as to which a Designation Letter has been delivered to the Administrative Agent and as to which a Termination Letter has not been delivered to the Administrative Agent in accordance with Section 2.17. "Designation Letter" has the meaning specified in ------------------ Section 2.17(a). "Dollar Equivalent" means with respect to any Borrowing ----------------- denominated in Euros, the amount of Dollars that would be required to purchase the amount of Euros of such Borrowing on the date two Business Days prior to the date of such Borrowing (or, in the case of any determination made under Section 2.10(c) or redenomination under Section 2.13(e), on the date of determination or redenomination therein referred to), based upon the spot selling rate at which the Administrative Agent offers to sell Euros for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time, for delivery two Business Days later. "Dollars" or "$" refers to lawful money of the United ------- - States of America. 364-DAY CREDIT AGREEMENT -7- "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 Company 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 by the Administrative Agent and the Company, such approval not to be unreasonably withheld or delayed; provided that neither the Company nor an Affiliate of the Company 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 Company's controlled group, or under common control with the Company, 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 Company or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the failure by the Company 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. 364-DAY CREDIT AGREEMENT -8- "Euro Equivalent" means with respect to any amount in --------------- Dollars, the amount of Euros that could be purchased with such amount of Dollars using the reciprocal of the foreign exchange rate(s) specified in the definition of "Dollar Equivalent", as determined by the Administrative Agent. "Eurocurrency Lending Office" means, with respect to any --------------------------- Lender, the office of such Lender specified as its "Eurocurrency 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 Company and the Administrative Agent. "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. "Eurocurrency Rate" means: ----------------- (a) For any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Dollars, an interest rate per annum equal to the rate per annum obtained by dividing (i) 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 Eurocurrency Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (ii) a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage for such Interest Period. The Eurocurrency Rate for any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Dollars 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; (b) For any Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing denominated in Euros, an interest rate per annum equal to the rate per annum obtained by dividing (i) the rate appearing on the Screen at approximately 11:00 a.m., London time, two Business Days before the first day of such Interest Period, as the Eurocurrency Rate for deposits denominated in Euros with a maturity compatible to such Interest Period, by (ii) a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage for such Interest Period. In the event that such rate is not available on the Screen at such time for any reason, then the Eurocurrency Rate for such Interest Period shall be the rate at which deposits in Euros in the amount of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days before the first day of such Interest Period. "Eurocurrency Rate Advance" means an A Advance that bears ------------------------- interest as provided in Section 2.07(a)(ii). "Eurocurrency Rate Reserve Percentage" for any Interest ------------------------------------ Period for all Eurocurrency Rate Advances comprising part of the same Borrowing means the reserve percentage applicable 364-DAY CREDIT AGREEMENT -9- 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 Eurocurrency Rate Advances is determined) having a term equal to such Interest Period. "Euros" means the single currency of participating member ----- states of the European Union. "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)(ii), 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" has the meaning assigned to such term in ----------------- Schedule 2A. "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. "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. ---- "Guaranteed Obligations" has the meaning specified in ---------------------- Section 9.01. "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 ---------------- Company 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 364-DAY CREDIT AGREEMENT -10- 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 Eurocurrency Rate Advance --------------- comprising part of the same A Borrowing, the period commencing on the date of such Eurocurrency Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurocurrency Rate Advance and ending on the last day of the period selected by the Company 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 Company pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months (or, with respect to such portion of any Eurocurrency Advance denominated in Euros that is scheduled to be repaid on the Commitment Termination Date, a period of less than one month's duration) commencing on the date of such Advance and ending on the Commitment Termination Date, as the Company (on its own behalf and on behalf of all other Borrowers) 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) the Company may not select any Interest Period that ends after the Commitment Termination Date; (ii) Interest Periods commencing on the same date for Eurocurrency 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, other than an Interest Period pertaining to a Eurocurrency Borrowing denominated in Euros that ends on the Commitment Termination Date that is permitted to be of less than one month's duration as provided in this definition, 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. 364-DAY CREDIT AGREEMENT -11- "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 Company and its Subsidiaries, taken as a whole 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 Company or a Material Subsidiary under which a default in payment by the Company 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 Solutia UK Ltd. and Solutia Europe S.A./N.V.) or 10% (in the case of each other Consolidated Subsidiary) of the total Consolidated assets of the Company and its Consolidated Subsidiaries (determined as of the last day of the most recent fiscal quarter of the Company); or (b) at least 5% (in the case of Solutia UK Ltd. and Solutia Europe S.A./N.V.) or 10% (in the case of each other Consolidated Subsidiary) of the Consolidated net sales of the Company and its Consolidated Subsidiaries for the twelve-month period ending on the last day of the most recent fiscal quarter of the Company. "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 Company 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 Company (or its predecessor's chemicals business) or any of its ERISA Affiliates and at least one Person other than the Company (or its predecessor's chemicals business) and its ERISA Affiliates or (b) was so maintained and in respect of which the Company (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 364-DAY CREDIT AGREEMENT -12- 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 Company as shown in its Consolidated financial statements, provided that any property which, in the opinion of the Company, is not of material importance to the business of the Company and its Consolidated Subsidiaries, taken as a whole, shall not be deemed to be a Principal Property. "Rated Securities" means, at any time, the long-term senior ---------------- unsecured, unguaranteed debt securities of the Company 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. 364-DAY CREDIT AGREEMENT -13- "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 Company (on its own behalf and on behalf of the other Borrowers) 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). -------- "Rolling Period" means 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. "Screen" means Telerate Page 3750 (or such other page as may ------ replace such Telerate Page 3750 for purposes of displaying the Eurocurrency Rate for Euros); provided that, if the Administrative Agent determines that there is no such relevant display page on the Telerate Service for the Eurocurrency Rate for Euros, "Screen" shall mean the relevant display page for the Eurocurrency Rate for Euros (as determined by the Administrative Agent) on the Reuter Monitor Money Rates Service. "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 Company (or its predecessor's chemicals business) or any of its ERISA Affiliates and no Person other than the Company (or its predecessor's chemicals business) and its ERISA Affiliates or (b) was so maintained and in respect of which the Company (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 Company) of which (or in which) at least 50% of the Ownership Interests thereof is at the time directly or indirectly owned by the Company, by the Company and one or more of its Consolidated Subsidiaries or by one or more of the Company's Consolidated Subsidiaries, provided that the Company'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 Company or one of its Consolidated Subsidiaries. 364-DAY CREDIT AGREEMENT -14- "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 ---------------- Company's Consolidated Net Worth at such time is greater than zero, $50,000,000; and (b) at any other time, $25,000,000. "Utilization Fee" has the meaning specified in Section 2.04(c). --------------- "Utilization Fee Rate" has the meaning assigned to such term -------------------- in Schedule 2A. "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)(i) ("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) and (ii). In the event that, after the date of this Agreement, there are any changes in GAAP, the Lenders will consider a request by the Company to amend this Agreement to take account of such changes. SECTION 1.04. Currencies; Currency Equivalents. At any time, -------------------------------- any reference in the definition of the term "Euros" or in any other provision of this Agreement to the currency of the participating member states of the European Union means the lawful currency of such participating member states at such time whether the name of such currency is the same as it was on the date hereof. Except as provided in Section 2.10(c) and Section 2.13(e), for purposes of determining (i) whether the amount of any Borrowing, together with all other Borrowings then outstanding or to be borrowed at the same time as such Borrowing, would exceed the aggregate amount of the Commitments, (ii) the aggregate unutilized amount of the Commitments and (iii) the outstanding aggregate principal amount of Borrowings, the outstanding principal amount of any Borrowing that is denominated in Euros shall be deemed to be the Dollar Equivalent of the amount of Euros of such Borrowing determined as of the date of such Borrowing. Wherever in this Agreement in connection with a Borrowing or Advance an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing or Advance 364-DAY CREDIT AGREEMENT -15- is denominated in Euros, such amount shall be the relevant Euro Equivalent of such Dollar amount (rounded to the nearest 1,000 units of Euros). 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 Company and any Designated Borrower (in Dollars or in Euros, at the election of the Company on its own behalf or on behalf of the applicable 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 Dollar Equivalent 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 Currency 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 Borrowers 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 consist of Eurocurrency 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 consist of Base Rate Advances), by the Company (on its own behalf and on behalf of the other Borrowers) 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 (i) the date of such A Borrowing, (ii) the Type of A Advances comprising such A Borrowing, (iii) the aggregate amount of such A Borrowing and the Currency thereof (except that Base Rate Advances must be denominated in Dollars), (iv) in the case of an A Borrowing consisting of Eurocurrency Rate Advances, the initial Interest Period for each such A Advance and (v) the name of the Borrower of such A Advance (which shall be the Company or a Designated Borrower). 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 consist of Eurocurrency Rate Advances, and before 1:00 P.M. (New York City time), in the case of an A Borrowing to consist 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 the relevant Currency and 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 Company at the Administrative Agent's aforesaid address (or, in the case of an A Borrowing by a Designated Borrower, the Administrative Agent will make such funds available to the relevant Borrower in such manner as the Administrative Agent and the Company may agree). 364-DAY CREDIT AGREEMENT -16- (b) Anything in subsection (a) above to the contrary notwithstanding (1) no Borrower may select Eurocurrency Rate Advances for any A Borrowing if the obligation of the Lenders to make Eurocurrency Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 (except as otherwise provided in Section 2.12(b)(ii)) and (2) Base Rate Advances shall be denominated solely in Dollars. (c) Each Notice of A Borrowing shall be binding on the Company and each Designated Borrower. In the case of any A Borrowing that the related Notice of A Borrowing specifies is to consist of Eurocurrency Rate Advances, the Company (and, if a Designated Borrower is the borrower of the related A Advances, such Designated 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 Company (or such Designated 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 consist of Eurocurrency 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 consist 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 relevant 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 relevant 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 relevant Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of such 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 Borrowers may make B Borrowings in Dollars or in Euros 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 Dollar Equivalent of 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 Dollar Equivalent of the aggregate amount of all Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders. 364-DAY CREDIT AGREEMENT -17- (i) The Company (on its own behalf and on behalf of the other Borrowers) 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 and the Currency thereof; (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; (5) whether such B Borrowing is to consist of Fixed Rate Advances or Floating Rate Advances; (6) the name of the applicable Borrower (which shall be the Company or a Designated Borrower); and (7) any other terms to be applicable to such B Borrowing, not later than 10:00 A.M. (New York City time) in the case of B Advances to be denominated in Dollars, and not later than 10:00 A.M. (London time) in the case of B Advances to be denominated in Euros, (A) at least one Business Day prior to the date of the proposed B Borrowing, if the Company 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 (in the case of B -------- Advances to be denominated in Dollars), or five Business Days (in the case of B Advances to be denominated in Euros) prior to the date of the proposed B Borrowing, if the Company 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 Company 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 applicable 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 Company), before 10:00 A.M. (New York City time) in the case of B Advances to be denominated in Dollars, and not later than 10:00 A.M. (London time) in the case of B Advances to be denominated in Euros, 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 Company of such offer before 9:00 364-DAY CREDIT AGREEMENT -18- A.M. (New York City time or London time, as applicable) 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 or London time, as applicable) 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 Company (on its own behalf and on behalf of the other Borrowers) shall, in turn, before 12:00 Noon (New York City time) in the case of B Advances consisting of Fixed Rate Advances to be denominated in Dollars, and not later than 12:00 Noon (London time) in the case of B Advances consisting of Fixed Rate Advances to be denominated in Euros, on the date of such proposed B Borrowing, and before 1:00 P.M. (New York City time) in the case of B Advances consisting of Floating Rate Advances to be denominated in Dollars, and not later than 1:00 P.M. (London time) in the case of B Advances consisting of Floating Rate Advances to be denominated in Euros, three Business Days before the date of such proposed B Borrowing, 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 Company 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 Company 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 Company (on its own behalf or on behalf of another 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 so accepted by the Company, (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) in the case of B Advances to be denominated in Dollars, and not later than 1:00 P.M. (London time) in the case of B Advances to be denominated in Euros, on the date of such B Borrowing specified in the notice received from the 364-DAY CREDIT AGREEMENT -19- 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 the relevant Currency and 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 Company at the Administrative Agent's address referred to in Section 8.02 (or, in the case of a B Borrowing by a Designated Borrower, the Administrative Agent will make such funds available to the relevant Borrower in such manner as the Administrative Agent and the Company may agree). 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 Company 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 Company 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) Each Borrower shall repay to the Administrative Agent for the account of each Lender that has made a B Advance to such Borrower, on the maturity date of each B Advance made to such Borrower (such maturity date being that specified by the Company 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. No Borrower shall have the right to prepay any B Advance. (e) Each Borrower shall pay interest on the unpaid principal amount of each B Advance made to such Borrower from the date of such B Advance to the date the principal amount of such B Advance is paid in full, in the applicable Currency and 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 Company 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, each Borrower shall pay interest on the amount of unpaid principal of each B Advance made to such Borrower 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) If requested by a Lender making a B Advance, the indebtedness of each Borrower resulting from each B Advance made to such Borrower as part of a B Borrowing shall be evidenced by a separate B Note of such Borrower payable to the order of the Lender making such B Advance. (g) The Company (on its own behalf and on behalf of the other Borrowers) 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. 364-DAY CREDIT AGREEMENT -20- SECTION 2.04. Fees. ---- (a) Facility Fee. The Company agrees to pay to the ------------ Administrative Agent for the account of each Lender a facility fee (the "Facility Fee") in Dollars 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 Company ---------------------------------- shall pay to the Administrative Agent for its own account a fee in Dollars an amount heretofore agreed between the Company and the Administrative Agent with each request for a B Borrowing whether or not any B Borrowing is in fact made. (c) Utilization Fee. The Company agrees to pay a utilization --------------- fee (the "Utilization Fee") in Dollars to the Administrative Agent for --------------- account of each Lender, which shall accrue at the Utilization Fee Rate on the daily aggregate outstanding principal amount of the Advances of such Lender for each day on which the aggregate outstanding principal amount of the Advances (including all B Advances) equals or exceeds an amount equal to 33% of the Commitments. The Utilization Fee shall be payable monthly in arrears on the last Business Day of month and, for each Lender, on the Commitment Termination Date of such Lender. SECTION 2.05. Termination, Reduction and Extension of --------------------------------------- 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 Company (on its own behalf and on behalf of the other Borrowers) 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) Commitment Extensions. --------------------- (i) The Company (on its own behalf and on behalf of the other Borrowers) 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. (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 364-DAY CREDIT AGREEMENT -21- 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 Company of each Lender's determination under this Section 2.05(b) 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 Company (on its own behalf and on behalf of the other Borrowers) 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 Date as so extended shall be the next preceding Business Day) and each Additional 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(b) 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; and (y) on or before the Commitment Termination Date of each Non-Extending Lender, (1) each Borrower shall have paid in full the principal of and interest on all of the Advances made by such Non-Extending Lender to such Borrower hereunder; and (2) the Company shall have paid in full all other amounts owing to such Lender hereunder. SECTION 2.06. Repayment of Advances; Evidence of Debt. --------------------------------------- (a) A Advances. Each Borrower shall repay the principal amount ---------- of each A Advance made by each Lender to such Borrower, in the Currency of such A Advance, and each A Advance made by such Lender shall mature, on the Commitment Termination Date of such Lender. (b) B Advances. Each Borrower shall repay the principal ---------- amount of each B Advance made by each Lender to such Borrower as provided in Section 2.03(e). (c) Note Option. Any Lender may request that the A Advances ----------- made or to be made by it to a Borrower to be evidenced by an A Note payable by such Borrower. In such event, the Company (on its own behalf and on behalf of the other Borrowers) shall prepare, have executed by the relevant Borrower and 364-DAY CREDIT AGREEMENT -22- deliver to such Lender an A Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns). If a Lender whose A Advances are so evidenced by an A Note thereafter assigns such A Advances, such A Advances will be evidenced by an A Note only if the assignee so requests in accordance with this Section 2.06(c) and Section 8.07 SECTION 2.07. Interest on A Advances. ---------------------- (a) Scheduled Interest. Each Borrower shall pay interest ------------------ on the unpaid principal amount of each A Advance owing by such Borrower to each Lender, in the Currency in which such A Advance is denominated, 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) Eurocurrency Rate Advances. During such periods as -------------------------- such A Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times during each Interest Period for such A Advance to the sum of (x) the Eurocurrency 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 Eurocurrency Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the ---------------- continuance of any Event of Default, each Borrower shall pay interest on the unpaid principal amount of each A Advance owing by such Borrower to each Lender, in the Currency in which such A Advance is denominated, 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 the Eurocurrency Rate for Advances denominated in Dollars. 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 Company 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 Eurocurrency Rate Advances denominated in any Currency, the Majority Lenders notify the Administrative Agent that the Eurocurrency Rate for any Interest Period for such Advances in such Currency will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurocurrency Rate Advances in such Currency for such Interest Period, the Administrative Agent shall forthwith so notify the Company and the Lenders, whereupon (i) if such Currency is Euros, the related Notice of Borrowing shall be ineffective, (ii) if such Currency is Dollars, such Eurocurrency Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (iii) regardless of Currency, the obligation of the Lenders to make, or (in the case of Dollars) to Convert A Advances into, Eurocurrency Rate Advances shall be suspended until 364-DAY CREDIT AGREEMENT -23- the Administrative Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. (c) If the Company shall fail to select the duration of any Interest Period for any Eurocurrency 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 Company 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 Eurocurrency 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 Borrowers to Convert such A Advances shall terminate. (e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurocurrency Rate Advance denominated in Dollars 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 denominated in Dollars into, Eurocurrency Rate Advances shall be suspended. (f) If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurocurrency Rate for any Eurocurrency Rate Advances denominated in Dollars, (i) the Administrative Agent shall forthwith notify the Company and the Lenders that the interest rate cannot be determined for such Eurocurrency 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, Eurocurrency Rate Advances shall be suspended until the Administrative Agent shall notify the Company 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 Company (on its own behalf and on behalf of the other Borrowers) 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 Company --------------------------------- (on its own behalf and on behalf of the other Borrowers) 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 Dollar-denominated A Advances of one Type comprising the same Borrowing by a Borrower into Dollar-denominated A Advances owing by such Borrower of the other Type; provided that any Conversion of Dollar-denominated Eurocurrency Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurocurrency 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 Eurocurrency Rate Advances, the duration of the initial Interest Period for each such A 364-DAY CREDIT AGREEMENT -24- Advance. Each notice of Conversion shall be irrevocable and binding on the Company and each other Borrower. SECTION 2.10. Prepayments, Etc. ----------------- (a) Optional Payments of A Advances. Each Borrower may, ------------------------------- upon notice by the Company 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 Eurocurrency Rate Advances, and if such notice is given by the Company the applicable Borrower shall, prepay the outstanding principal amount of the A Advances owing by such Borrower 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 Eurocurrency Rate Advance, the applicable Borrower and the Company shall be jointly and severally 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 Company 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 each Borrower shall prepay the Advances made to such Borrower in full. (c) Changes in Dollar/Euro Exchange Rate. ------------------------------------ (i) Determination of Amount Outstanding. On the last ----------------------------------- Business Day of each March, June, September and December and promptly upon the receipt by the Administrative Agent of a Currency Valuation Notice (as defined below), the Administrative Agent shall determine the aggregate outstanding principal amount of the Advances. For the purpose of this determination, the outstanding principal amount of any Advance that is denominated in Euros shall be deemed to be the Dollar Equivalent of the amount in Euros of such Advance, determined as of such date or, in the case of a Currency Valuation Notice received by the Administrative Agent prior to 11:00 a.m., New York City time, on a Business Day, on such Business Day or, in the case of a Currency Valuation Notice otherwise received, on the first Business Day after such Currency Valuation Notice is received. Upon making such determination, the Administrative Agent shall promptly notify the Lenders and the Company thereof. (ii) Prepayment. If, on the date of such determination the ---------- aggregate outstanding principal amount of the Advances exceeds 105% of the aggregate amount of the Commitments as then in effect, the Company shall, if requested by the Majority Lenders (through the Administrative Agent), cause the Borrowers to prepay the Advances in such amount as shall be necessary so that after giving effect thereto the aggregate outstanding principal amount of the Advances does not exceed the Commitments. For purposes hereof, "Currency Valuation Notice" means a notice given ------------------------- by the Majority Lenders to the Administrative Agent stating that such notice is a "Currency Valuation Notice" and requesting that the Administrative Agent determine the aggregate outstanding principal amount of the Advances. The Administrative Agent shall not be required to make more than one valuation determination pursuant to Currency Valuation Notices within any rolling three month period. (d) If (i) the obligations of the Company under Article IX with respect to any outstanding Guaranteed Obligations owing by any Designated Borrower (herein, the "Affected Borrower") shall for ----------------- 364-DAY CREDIT AGREEMENT -25- any reason (x) be terminated, (y) cease to be in full force and effect or (z) not be the legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms, and (ii) such condition continues unremedied for 15 days after written notice thereof shall have been given to the Company by the Administrative Agent or any Lender, then the Affected Borrower shall, no later than the 15th day after the date of such notice, prepay (and the Company shall cause to be prepaid) the full principal of and interest on the Advances owing by, and the Notes payable by, such Affected Borrower and all other amounts whatsoever payable hereunder by such Affected Borrower (including, without limitation, all amounts payable under Section 8.04(c) as a result of such prepayment). 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 Eurocurrency Rate Advances or Floating Rate Advances, then such Lender may from time to time give notice of such circumstances to the Company (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 Company 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 Company 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 Company (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 Company 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 Company of the occurrence of any event referred to in the first sentence of this Section 2.11(b). 364-DAY CREDIT AGREEMENT -26- (c) The Company 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 in Dollars 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 Company 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 Company 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 Company'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 Company pursuant to this Section 2.11(c) unless and until such Lender shall have received one or more payments from either the Company 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, Utilization 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 Eurocurrency Lending Office to perform its obligations hereunder to make Eurocurrency Rate Advances or Floating Rate Advances in any Currency or to fund or maintain Eurocurrency Rate Advances or Floating Rate Advances in any Currency hereunder, the obligation of the Lenders to make, or to Convert A Advances into, Eurocurrency Rate Advances in such Currency shall be suspended until the Administrative Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist; provided that such suspension shall not become effective in the event the Company 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 Company's right to require an assignment in accordance with clause (b)(ii) below shall not be effective to the 364-DAY CREDIT AGREEMENT -27- extent that Lenders representing a majority of the Commitments then outstanding shall be "Affected Lenders". (b) The Company 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 Eurocurrency Rate Advances or Floating Rate Advances in such Currency then outstanding, together with interest thereon, unless the Company, within five Business Days of notice from the Administrative Agent Converts all Eurocurrency 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 Company'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 Company pursuant to this Section 2.12(b) unless and until such Affected Lender shall have received one or more payments from either the Borrowers 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, Utilization 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 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 Borrowers 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 the relevant Currency to the Administrative Agent at the Administrative Agent's Account for such Currency in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest, Facility Fees or Utilization Fees ratably (other than amounts payable pursuant to Sections 2.03, 2.04(b), 2.05(b), 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 364-DAY CREDIT AGREEMENT -28- 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 Eurocurrency Rate or the Federal Funds Rate and of Facility Fees and Utilization 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 or Utilization 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, Facility Fee or Utilization Fee, as the case may be; provided that, if such extension would cause payment of interest on or principal of Eurocurrency 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 Company prior to the date on which any payment is due to the Lenders hereunder that a Borrower will not make such payment in full, the Administrative Agent may assume that each 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 a 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. (e) All amounts owing under this Agreement (including payments required under Section 2.11, and payments required under Section 8.04(c) relating to any Advance denominated in Dollars, but not including principal of, and interest on, any Advance denominated in Euros or payments relating to any such Advance required under Section 8.04(c), which are payable in Euros) are payable in Dollars. Notwithstanding the foregoing, if a Borrower shall fail to pay any principal of any Advance when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), the unpaid portion of such Advance shall, if such Advance is not denominated in Dollars, automatically be redenominated in Dollars on the due date thereof (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such principal shall be payable on demand; and if a Borrower shall fail to pay any interest on any Advance that is not denominated in Dollars, such interest shall automatically be redenominated in Dollars on the due date therefor (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such interest shall be payable on demand. SECTION 2.14. Notations on the A Notes. Each Borrower and each ------------------------ Lender whose A Advances are evidenced by an A Note agree that (a) all A Advances made by such Lender to such 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 364-DAY CREDIT AGREEMENT -29- be endorsed on the grid attached to such A Note; provided that the failure of such Lender to make any such notations shall not limit or otherwise affect such Borrower's obligations to such Lender with respect to such A Advances and (b) 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 Company (on its own behalf and on behalf of the other Borrowers) 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 Borrowers 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 any 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) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Company (on its own behalf and on behalf of the other Borrowers) 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 Borrowers 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 Company (on its own behalf and on behalf of the other Borrowers) 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 a Borrower through an account or branch outside the United States or on behalf of a Borrower by a payor that is not a United States person, if the Company determines that no Taxes are payable in respect thereof, the Company 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. 364-DAY CREDIT AGREEMENT -30- (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 Company (but only so long as such Lender remains lawfully able to do so), shall provide the Company 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 Company 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 Company 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 Company 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 a 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 Company ---------------- 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 Company'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 Company pursuant to this Section 2.15(g) unless and until such Specified Lender shall have received one or more payments from either the Borrowers 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, Utilization 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 364-DAY CREDIT AGREEMENT -31- 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(b), 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. Each 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 such Borrower in the amount of such participation. SECTION 2.17. Borrowings by Designated Borrowers. ---------------------------------- (a) The Company may, at any time or from time to time, designate one or more wholly owned Subsidiaries of the Company as "Borrowers" hereunder by furnishing to the Administrative Agent a letter (a "Designation Letter") in duplicate, in substantially ------------------ the form of Exhibit F-1, duly completed and executed by the Company and such Subsidiary. Upon any such designation of a Subsidiary, such Subsidiary shall be a Designated Borrower and a Designated Borrower entitled to borrow A Advances and B Advances on and subject to the terms and conditions of this Agreement. (b) So long as all principal of and interest on all Advances made to any Designated Borrower have been paid in full, the Company may terminate the status of such Designated Borrower as a Designated Borrower hereunder by furnishing to the Administrative Agent a letter (a "Termination Letter") in ------------------ substantially the form of Exhibit F-2, duly completed and executed by the Company. Any Termination Letter furnished hereunder shall be effective upon receipt by the Administrative Agent, which shall promptly notify the Lenders, whereupon the Lenders shall promptly deliver to the Company (through the Administrative Agent) the Notes, if any, of such former Designated Borrower. Notwithstanding the foregoing, the delivery of a Termination Letter with respect to any Designated Borrower shall not terminate (i) any obligation of such Designated Borrower that remains unpaid at the time of such delivery (including without limitation any obligation arising thereafter in respect of such Designated Borrower under Section 2.15 or 2.11) or (ii) the obligations of the Company under Article IX with respect to any such unpaid obligations. 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 364-DAY CREDIT AGREEMENT -32- the Administrative Agent shall have received 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) Charter Documents, Etc. ----------------------- (1) Certified copies of (x) the charter and by-laws of the Company, (y) the resolutions of the Board of Directors of the Company 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 Company certifying the names and true signatures of the officers of the Company 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 Company. (b) Opinions. -------- (1) A favorable opinion of the General Counsel of the Company, substantially in the form of Exhibit D. (2) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel for the Administrative Agent, substantially in the form of Exhibit E. (c) Solvency. A certificate of a senior financial officer -------- of the Company to the effect that the Company (both individually and collectively with its Consolidated Subsidiaries) is Solvent. (d) Representations, Etc. A certificate signed by a duly --------------------- authorized officer of the Company 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. (e) Other. Such other approvals, opinions and documents ----- relating to material ERISA and, environmental 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 relevant Borrower of the proceeds of such A Borrowing shall constitute a representation and warranty by the Company that on the date of such A Borrowing such statements are true): 364-DAY CREDIT AGREEMENT -33- (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; (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request; and (c) in the case of the first Borrowing by a Designated Borrower, such Borrower shall have furnished to the Administrative Agent such corporate documents, resolutions and legal opinions relating to such Designated Borrower as the Administrative Agent may reasonably require. 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) if (and only if) requested by such Lender, 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 relevant Borrower of the proceeds of such B Borrowing shall constitute a representation and warranty by the Company 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 Company 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. 364-DAY CREDIT AGREEMENT - 34 - ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the ------------------------------------- Company. The Company represents and warrants as follows: - ------- (a) Incorporation; Good Standing. The Company 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 Company of this Agreement and the Notes, and the other transactions contemplated hereby, are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Company's charter or bylaws or (ii) law or any contractual restriction binding on or affecting the Company. (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 Company 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 Company. 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 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 Company. This Agreement is, and each of the Notes when delivered hereunder will be, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with their respective terms. (e) Financial Statements, Etc. -------------------------- (i) The statement of financial position of the Company as at December 31, 1998 and the related statements of income and cash flows of the Company for the twelve months then ended, accompanied by an opinion of Deloitte & Touche LLP, independent public accountants, and the balance sheet of the Company as at June 30, 1999 and the related statements of income and cash flows of the Company for the six months then ended, 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 June 30, 1999, and said statements of income and cash flows for the six months then ended, to year-end audit adjustments) the financial condition of the Company as at such dates and the results of the operations of the Company for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis. (ii) Since December 31, 1998, there has been no material adverse change in the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. (f) No Litigation, Etc. Except as described in the ------------------- Company's Report on Form 10-K for the fiscal year ended December 31, 1998 or in the Company's Report on Form 10-Q for the fiscal quarter 364-DAY CREDIT AGREEMENT - 35 - ended September 30, 1999, there is no pending or, to the best of the Company's knowledge, threatened action or proceeding affecting the Company or any of its Consolidated Subsidiaries before any court, or governmental agency or arbitrator which (i) would have a Material Adverse Effect or (ii) purports to affect, or would affect, the legality, validity or enforceability of this Agreement or any Note. (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 Company nor any ERISA Affiliate participates in any Multiple Employer Plan or in any Multiemployer Plan with respect to which the Company 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 Company (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 ---------------------------------- Company 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 Company 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 Company and its Subsidiaries ("Information") furnished by or on behalf of the ----------- Company 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 Company'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 Company 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 Company'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 Company's good faith projections and estimates as of the date thereof, based upon methods and data the Company believes to be reasonable 364-DAY CREDIT AGREEMENT - 36 - 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 Company and its Subsidiaries after the date hereof under Sections 5.01(i)(i) through (vii), inclusive; and (y) all Information furnished by the Company and its Subsidiaries after the date hereof under Section 5.01(i)(viii), provided that the request for such information is made in writing and delivered to the Company, at the address specified in Section 8.02, to the attention of the Company's Treasurer and stating that such request is being made in connection with this Agreement. (k) Margin Stock. The Company 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 Company and the Company's Subsidiaries (as determined in good faith by the Company) 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 Company 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 COMPANY SECTION 5.01. Affirmative Covenants. So long as any --------------------- Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company 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 Company 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 Company 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 Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company 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 364-DAY CREDIT AGREEMENT - 37 - 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 Company or (ii) are not of material importance to the business, financial condition or operating results of the Company 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 Company determines, in good faith and upon the advice of its counsel, not to be binding on it) of the Company 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 Company and any of its Material Subsidiaries in the presence of an appropriate officer or representative of the Company; (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 Company 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 Company); and (iii) to discuss the affairs, finances and accounts of the Company 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 Company 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 Company 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 Company 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 Company, desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole. 364-DAY CREDIT AGREEMENT - 38 - (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 Company or any of its Subsidiaries from acting as a self- insurer or maintaining insurance with another Subsidiary or Subsidiaries of the Company so long as such action is consistent with sound business practice or (ii) the Company 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 within 60 days after the end of each of the first three quarters of each fiscal year of the Company, Consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows of the Company 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 Company 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 Company in determining compliance with the covenants contained in Section 5.03; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing Consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income, shareowners' equity and cash flows of the Company 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 Company 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 Company in determining compliance with the covenants contained in Section 5.03; (iii) as soon as possible and in any event within five Business Days after the determination by the Company 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 Company setting forth details of such Default and the action that the Company has taken and proposes to take with respect thereto; (iv) promptly and in any event within 30 days after the Company 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 Company describing such ERISA Event and the action, if any, that the Company or such ERISA Affiliate has taken and proposes to take with respect thereto; 364-DAY CREDIT AGREEMENT - 39 - (v) promptly and in any event within ten Business Days after receipt thereof by the Company 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; (vi) promptly and in any event within 45 days after the receipt thereof by the Company 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%; (vii) as soon as possible and in any event within five days after the determination by the Company that a Change of Control has occurred, the Company 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 (viii) such other information (excluding trade secrets) respecting the financial condition and operations of the Company 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 Borrowers (including to support the commercial paper programs of the respective Borrowers, 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. SECTION 5.02. Negative Covenants. So long as any Advance ------------------ shall remain unpaid or any Lender shall have any Commitment hereunder, the Company 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 Company, the Company'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 Company 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 364-DAY CREDIT AGREEMENT - 40 - 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, (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 Company or such Material Subsidiary to, any Person, except that: (i) any Material Subsidiary of the Company 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 Company or any wholly owned Material Subsidiary of the Company; provided that the Company or a wholly owned Material Subsidiary is the survivor of any such merger or consolidation; and (ii) the Company 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 Company 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 Company 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 Company 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 Company 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 Company and its Consolidated Subsidiaries as at the last day of the fiscal quarter most recently ended prior to the date of determination. (e) 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 Company and its Subsidiaries (as 364-DAY CREDIT AGREEMENT - 41 - determined in good faith by the Company) that are subject to Section 5.02(a) to consist of or be represented by Margin Stock. (f) Transactions with Affiliates. Other than transactions ---------------------------- with Specified Joint Ventures, enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Company (other than the Company's Subsidiaries) that would be material in relation to the Company and its Subsidiaries, taken as a whole, even if otherwise permitted under this Agreement, except on terms determined by the Company to be fair and reasonable to the Company and its Subsidiaries and in the best interests of the Company (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 Company 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) Any Borrower shall fail to pay any principal of any Advance owing by such Borrower when the same becomes due and payable; or any Borrower shall fail to pay any interest on any Advance owing by such Borrower 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 Company herein or in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) (i) The Company shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(a), 5.01(i)(iii), 5.01(j), 5.02 or 5.03; or (ii) the Company 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 Company by the Administrative Agent or any Lender (other than any failure by the Company to comply with the terms of Section 5.01(i)(iv), (v) or (vi)); or (d) the Company 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 Company 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; 364-DAY CREDIT AGREEMENT - 42 - 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company (on its own behalf and on behalf of the other Borrowers), 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 Company, declare the Advances, the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, 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 Company and the other Borrowers; provided that in the event of an actual or deemed entry of an order for relief with respect to the Company under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, the Notes, all such interest and all such amounts shall 364-DAY CREDIT AGREEMENT - 43 - 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 Company and the other Borrowers. Notwithstanding anything to the contrary set forth in this Agreement, in the event of an entry of an order for relief with respect to a Designated Borrower under the Federal Bankruptcy Code (or under any analogous law applicable to such Designated Borrower, if such Designated Borrower is not organized under the laws of the United States or any state thereof), (A) the obligation of each Lender to make Advances to such Designated Borrower shall automatically be terminated, (B) on the date that is three Business Days after the Company becomes aware of the entry of such order for relief, the Advances, the Notes, all interest and all other amounts owing by such Designated Borrower 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 Company and such Designated Borrower and (C) such Designated Borrower shall cease to be a Designated Borrower hereunder. 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 Company 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 Company), 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 Borrowers or to inspect the property (including the books and records) of the Borrowers; (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, 364-DAY CREDIT AGREEMENT - 44 - 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 Company, any of its Subsidiaries and any Person who may do business with or own securities of the Company 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 Company), ----- 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 Company. 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 Company and may be removed at any time with or without cause (i) by the Majority Lenders with the Company's approval, which approval shall not unreasonably be withheld, or (ii) by the Company, subject to the approval of the Majority Lenders, which approval shall not unreasonably be withheld. Upon any such resignation or removal, the Company 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 364-DAY CREDIT AGREEMENT - 45 - 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. SECTION 7.07. The Syndication Agent. Except as expressly --------------------- provided herein, the Syndication Agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, the Syndication Agent shall not have or be deemed to have any fiduciary relationship with any other Lender in connection herewith. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. 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 Company 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(b) 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; (6) amend this Section 8.01; or (7) release the Company from any of its obligations under Article IX; 364-DAY CREDIT AGREEMENT - 46 - (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 Company or any other Borrower: Solutia Inc. 575 Maryville Centre Drive St. Louis, Missouri 63141 Attention: Treasurer Telephone No.: (314) 674-8081 Telecopier No.: (314) 674-6755 (b) If to the Administrative Agent: Citibank, N.A. 2 Penns Way New Castle Delaware, 19720 Attention: Anne Hieronimus Telephone No.: (302) 894-6034 Telecopier No.: (302) 894-6120 (c) If to any Lender, at the Domestic Lending Office specified in the Administrative Questionnaire of such Lender, or, as to the Company (or any other Borrower) or the Administrative 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 Company 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 364-DAY CREDIT AGREEMENT - 47 - 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 Company 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 Company 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 Company 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 Company, 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 Eurocurrency Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, or if any payment of principal of any B Advance consisting of a Fixed Rate Advance is made by any Borrower to or for the account of a Lender other than on the maturity date of such Advance, as a result of a prepayment or Conversion pursuant to Sections 2.05(b), 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 Company and such Borrower jointly and severally agree, upon demand by such Lender (with a copy of such demand to the Administrative Agent), to 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 Company or the other Borrowers hereunder, the agreements and obligations of the Company and the other Borrowers 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 A Note or B Note held by such Lender, to set off from time to time against any or all of the Company's or the relevant 364-DAY CREDIT AGREEMENT - 48 - Borrowers' respective 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 Company (on its own behalf and on behalf of the relevant Borrower, if applicable) 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 Company 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 Company, the Administrative Agent and each Lender and their respective successors and assigns, except that no Borrower shall 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 Company 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 Company, 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 364-DAY CREDIT AGREEMENT - 49 - (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 Company or the other Borrowers or the performance or observance by the Company or the other Borrowers of any of their respective 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 Company or the other Borrowers or the performance or observance by the Company or the other Borrowers 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 each 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 Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. 364-DAY CREDIT AGREEMENT - 50 - (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 Company. Within five Business Days after its receipt of such notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent: (x) In the case of an assignment where (1) A Advances of the assigning Lender are evidenced by an A Note and (2) the assigning Lender has retained a Commitment hereunder, in exchange for the surrendered A Note a new A Note payable to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder; (y) In the case of an assignment to an Eligible Assignee where such Eligible Assignee has requested that its A Advances be evidenced by an A Note in accordance with Section 2.06(c), an A Note payable to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Acceptance. (z) In the case of an assumption of a Commitment hereunder, where the Person assuming the relevant Commitment hereunder has requested that its A Advances be evidenced by an A Note in accordance with Section 2.06(c), a new A Note payable to the order of such Person in an amount equal to the Commitment assumed by it pursuant to such Acceptance. The new A Notes to be executed and delivered by a Borrower under clauses (x) and (y) above shall be in an aggregate principal amount equal to the aggregate principal amount of the A Note surrendered in connection with the related assignment, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 hereto. The new A Note to be executed and delivered under clause (z) above shall be dated the effective date of such Acceptance and shall otherwise be in substantially the form of Exhibit A-1 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/or the Note or Notes held by it); provided that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment 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 Company, each other 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 Company or any other 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 Company of the sale of a participation (other than a 364-DAY CREDIT AGREEMENT - 51 - 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 Company or any other Borrower furnished to such Lender by or on behalf of the Company or such 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 Company and the other Borrowers received by it from such Lender; provided further that the Company (on its own behalf and on behalf of the other Borrowers) 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. 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 (and each Designated Borrower, by its acceptance of the proceeds of Advances made to it) 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 and each Designated Borrower 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 and each Designated Borrower 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 and each Designated Borrower 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 and each Designated Borrower 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. 364-DAY CREDIT AGREEMENT - 52 - SECTION 8.11. Judgment Currency. This is an international ----------------- loan transaction in which the specification of Dollars or Euros, as the case may be (the "Specified Currency"), and payment in New York City or ------------------ the country of the Specified Currency, as the case may be (the "Specified Place"), is of the essence, and the Specified Currency shall --------------- be the currency of account in all events relating to Advances denominated in the Specified Currency. The payment obligations of the Company and the other Borrowers under this Agreement shall not be discharged or satisfied by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transfer to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in the Specified Currency into another currency (the "Second Currency"), the rate of exchange that --------------- shall be applied shall be the rate at which in accordance with normal banking procedures the Administrative Agent could purchase the Specified Currency with the Second Currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of the Company and the other Borrowers in respect of any such sum due from it to the Administrative Agent or any Lender hereunder (in this Section called an "Entitled Person") shall, notwithstanding the rate of exchange actually --------------- applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Second Currency such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Second Currency so adjudged to be due; and the Company and the applicable Borrower hereby, as a separate obligation and notwithstanding any such judgment, jointly and severally agree to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, the amount (if any) by which the sum originally due to such Entitled Person in the Specified Currency hereunder exceeds the amount of the Specified Currency so purchased and transferred. ARTICLE IX GUARANTEE SECTION 9.01. The Guarantee. The Company hereby guarantees ------------- to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Advances made by the Lenders to each Designated Borrower and all other amounts from time to time owing to the Lenders or the Administrative Agent by any Designated Borrower under this Agreement and by the Company under any of the other Notes, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Company hereby ---------------------- further agrees that if any Designated Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations owing by such Designated Borrower, the Company will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. SECTION 9.02. Obligations Unconditional. The obligations ------------------------- of the Company under Section 9.01 are irrevocable, absolute and unconditional irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of any of the Designated Borrowers under this Agreement or any other agreement or instrument referred to herein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted 364-DAY CREDIT AGREEMENT - 53 - by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Article IX that the obligations of the Company hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Company hereunder, which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Company, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Company hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any of the Designated Borrowers under this Agreement or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 9.03. Reinstatement. The obligations of the ------------- Company under this Article IX shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any of the Designated Borrowers in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Company agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 9.04. Subrogation. The Company hereby agrees that ----------- until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments of the Lenders under this Agreement it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 9.01, whether by subrogation or otherwise, against any Designated Borrower or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. SECTION 9.05. Remedies. The Company agrees that, as -------- between the Company and the Lenders, the obligations of the Designated Borrowers under this Agreement may be declared to be forthwith due and payable as provided in Article VI (and shall be deemed to have become automatically due and payable in the circumstances provided in Article VI) for purposes of Section 9.01 364-DAY CREDIT AGREEMENT - 54 - notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against any of the Designated Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by such Designated Borrower) shall forthwith become due and payable by the Company for purposes of Section 9.01. SECTION 9.06. Instrument for the Payment of Money. The ----------------------------------- Company hereby acknowledges that the guarantee in this Article IX constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Administrative Agent, at its sole option, in the event of a dispute by the Company in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. SECTION 9.07. Continuing Guarantee. The guarantee in this -------------------- Article IX is a continuing guarantee of payment (and not of collection), and shall apply to all Guaranteed Obligations whenever arising. [remainder of page intentionally blank] 364-DAY CREDIT AGREEMENT - 55 - 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. SOLUTIA INC. By /s/ R.L. Bishop --------------------------------- Name: R.L. Bishop Title: Vice President & Treasurer CITIBANK, N.A., as Administrative Agent By /s/ Eileen G. Ogimachi --------------------------------- Name: Eileen G. Ogimachi Title: Attorney-in-Fact BANK OF AMERICA, N.A., as Syndication Agent By /s/ David Noda --------------------------------- Name: David Noda Title: Managing Director 364-DAY CREDIT AGREEMENT - 56 - Commitment INITIAL LENDERS - ---------- --------------- $25,000,000.00 CITIBANK, N.A. By /s/ Eileen G. Ogimachi ---------------------------------- Name: Eileen G. Ogimachi Title: Attorney-in-Fact $25,000,000.00 BANK OF AMERICA, N.A. By /s/ David Noda ---------------------------------- Name: David Noda Title: Managing Director $20,000,000.00 ABN AMRO BANK N.V. By /s/ Steven M. Buehler ---------------------------------- Name: Steven M. Buehler Title: Assistant Vice President By /s/ Scott J. Albert ---------------------------------- Name: Scott J. Albert Title: Group Vice President $20,000,000.00 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Hisashi Miyashiro ---------------------------------- Name: Hisashi Miyashiro Title: Deputy General Manager $20,000,000.00 BANK ONE, N.A. By /s/ William J. Oleferchik ---------------------------------- Name: William J. Oleferchik Title: Vice President 364-DAY CREDIT AGREEMENT - 57 - $20,000,000.00 THE CHASE MANHATTAN BANK By /s/ Lawrence Palumbo, Jr. ---------------------------------- Name: Lawrence Palumbo, Jr. Title: Vice President $20,000,000.00 DEUTSCHE BANK A.G., NEW YORK BRANCH By /s/ Jean M. Hannigan ---------------------------------- Name: Jean M. Hannigan Title: Vice President By /s/ Sheryl Paynter ---------------------------------- Name: Sheryl Paynter Title: Assistant Vice President $20,000,000.00 HSBC BANK, USA By /s/ Christopher M. Samms ---------------------------------- Name: Christopher M. Samms Title: Vice President - Officer #9426 $20,000,000.00 KBC BANK N.V. By /s/ Robert Snauffer ---------------------------------- Name: Robert Snauffer Title: First Vice President By /s/ Raymond F. Murray ---------------------------------- Name: Raymond F. Murray Title: First Vice President $20,000,000.00 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Dennis Wilczek ---------------------------------- Name: Dennis Wilczek Title: Associate 364-DAY CREDIT AGREEMENT - 58 - $20,000,000.00 THE NORTHERN TRUST COMPANY By /s/ Lisa M. Taylor ---------------------------------- Name: Lisa M. Taylor Title: Second Vice President $20,000,000.00 WACHOVIA BANK, N.A. By /s/ Walter R. Gilikin ---------------------------------- Name: Walter R. Gilikin Title: Senior Vice President $12,500,000.00 MELLON BANK, N.A. By /s/ Jeffrey R. Dickson ---------------------------------- Name: Jeffrey R. Dickson Title: Vice President $12,500,000.00 MERCANTILE BANK NATIONAL ASSOCIATION By /s/ Gregory L. Dryden ---------------------------------- Name: Gregory L. Dryden Title: Vice President $12,500,000.00 SOCIETE GENERALE By /s/ Steven R. Fercho ---------------------------------- Name: Steven R. Fercho Title: Director 364-DAY CREDIT AGREEMENT - 59 - $12,500,000.00 THE SUMITOMO BANK, LIMITED By /s/ John H. Kemper ---------------------------------- Name: John. H. Kemper Title: Senior Vice President $300,000,000.00 Total of Commitments =============== 364-DAY CREDIT AGREEMENT SCHEDULE 1 Existing Liens -------------- By a Deed of Trust and Security Agreement dated as of August 26, 1999 and a Funding, Mortgage and Lease Agreement of the same date, made by Solutia Inc., Solutia granted a lien upon and security interest in Solutia rights as lessee in and against an office building (which is Solutia's new headquarters) consisting of approximately 270,000 square feet and other fixtures and improvements located on the site at 575 Maryville Centre, St. Louis County, Missouri. This is a synthetic lease with State Street Bank and Trust of Missouri NA as lessor and Solutia as Lessee. SCHEDULE 2A Pricing Grid ------------ "Applicable Margin" means, for any A Advance (whether ----------------- denominated in Dollars or Euros) that is a Eurocurrency 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: Rating Level Applicable Margin (p.a.) ------------ ------------------------ Rating Level 1 0.205% Rating Level 2 0.290% Rating Level 3 0.450% Rating Level 4 0.625% Rating Level 5 0.850% Rating Level 6 1.000%; 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. "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: Rating Level Facility Fee Rate (p.a.) ------------ ------------------------ Rating Level 1 0.070% Rating Level 2 0.085% Rating Level 3 0.100% Rating Level 4 0.125% Rating Level 5 0.150% Rating Level 6 0.250%; 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. - 2 - "Utilization 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: Rating Level Utilization Fee Rate (p.a.) ------------ --------------------------- Rating Level 1 0.125% Rating Level 2 0.125% Rating Level 3 0.125% Rating Level 4 0.125% Rating Level 5 0.125% Rating Level 6 0.250%; provided that, if the ratings of the Rated Securities established by S&P and Moody's shall fall within different Rating Levels, the Utilization 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 Utilization 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 Utilization Fee Rate resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change. SCHEDULE 2B SOLUTIA INC. $300MM 364-DAY REVOLVING CREDIT FACILITY PRICING GRID - -----------------------------------------------------------------------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5 LEVEL 6 BASIS FOR Long Term Senior Long Term Senior Long Term Senior Long Term Senior Long Term Senior Long Term Senior PRICING Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Unsecured Debt Rated At Least A Rated Less Than Rated Less Than Rated Less Than Rated Less Than Rated Lower Than By Standard & Level 1 But At Level 2 But At Level 3 But At Level 4 But At Level 5 Or Not Poor's or A2 Least A- By Least BBB+ By Least BBB By Least BBB- By Rated. -- Standard & Poor's Standard & Poor's Standard & Poor's Standard & Poor's By Moody's or A3 By or Baa1 By or Baa2 By or Baa3 By -- -- -- -- Moody's Moody's Moody's Moody's - ----------------------------------------------------------------------------------------------------------------------------------- FACILITY FEE 7.0 bps 8.5 bps 10.0 bps 12.5 bps 15.0 bps 25.0 bps - ----------------------------------------------------------------------------------------------------------------------------------- APPLICABLE 20.5 bps 29.0 bps 45.0 bps 62.5 bps 85.0 bps 100.0 bps MARGIN - ----------------------------------------------------------------------------------------------------------------------------------- DRAWN COST LIBOR + 27.5 bps LIBOR + 37.5 bps LIBOR + 55.0 bps LIBOR + 75.0 bps LIBOR + 100.0 bps LIBOR + 125.0 bps - ----------------------------------------------------------------------------------------------------------------------------------- UTILIZATION FEE 12.5 bps 12.5 bps 12.5 bps 12.5 bps 12.5 bps 25.0 bps USAGE > 33% - ----------------------------------------------------------------------------------------------------------------------------------- FULLY DRAWN LIBOR + 40.0 bps LIBOR + 50.0 bps LIBOR + 67.5 bps LIBOR + 87.5 bps LIBOR + 112.5 bps LIBOR + 150.0 bps COST - ----------------------------------------------------------------------------------------------------------------------------------- This pricing grid is intended to be a summary of the Applicable Margin, Facility Fee Rate and Rating Level definitions in the Credit Agreement. In the event of any inconsistency between this pricing grid and the actual terms of the Credit Agreement (including the definitions set forth on Schedule 2A), the terms of the Credit Agreement shall control and govern. If Solutia Inc. is split-rated and the ratings fall in different Rating Levels, the higher of the two Rating Levels will apply (except that, if the lower such Rating Level is more than one Rating Level below the higher such Rating Level, the Rating Level that is one Rating Level higher than the lower such Rating Level will apply). Facility Fee plus Applicable Margin. Drawn Cost plus Utilization Fee.
EXHIBIT A-1 [Form of A Note] U.S. $ Dated: ----------- ---------- FOR VALUE RECEIVED, the undersigned, [insert name of Borrower], a [insert type of entity] organized under the laws of [insert jurisdiction] (the "Borrower"), HEREBY PROMISES TO PAY to the -------- order of (the "Lender") for the account of its Applicable ---------- ------ Lending Office the principal sum of [INSERT DOLLARS AND CENTS IN WORDS] (or, to the extent of any A Advances that are denominated in Euros, the aggregate principal amount thereof in such Currency) or such lesser amount as shall equal the aggregate unpaid principal amount of the A Advances made by the Lender to the Borrower under the Credit Agreement, in immediately available funds, on the dates, in such Currency and in the principal amounts provided in the Credit Agreement referred to below. Terms used in this Note and not otherwise defined have the meanings assigned to them in the Credit Agreement referred to below. The Borrower promises to pay interest on the unpaid principal amount of each A Advance made to the Borrower from the date of such A Advance until such principal amount is paid in full, at such interest rates, in such Currency, and payable at such times, as are specified in the Credit Agreement. Both principal and interest of each A Advance are payable in the Currency in which such A Advance is denominated to Citibank, N.A. ("Citibank"), as Administrative Agent, at the Administrative Agent's -------- Account, in same day funds. Each A Advance made by the Lender to the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Note is one of the A Notes referred to in, and is entitled to the benefits of, the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as from time to time amended, the "Credit Agreement") among Solutia Inc. (the "Company"), the Lender ---------------- ------- and certain other lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, as Administrative Agent for the Lender and such other lenders. The Credit Agreement, among other things, (i) provides for the making of advances (the "A Advances") by the ---------- Lender to the Borrower from time to time in Dollars and Euros in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount (or Dollar Equivalent) first above mentioned, the indebtedness of the Borrower resulting from each such A Advance being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. [Pursuant to Article IX of the Credit Agreement, this Note is absolutely and unconditionally guaranteed by the Company.] The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. [FN] - --------------- For A Notes for the Company as Borrower, insert "SOLUTIA INC., a corporation organized under the laws of the State of Delaware". For A Notes for a Designated Borrower as Borrower, insert analogous information. Include in Notes of Designated Borrowers. - 2 - This Note shall be governed by, and construed in accordance with, the law of the State of New York, United States. [NAME OF BORROWER] By --------------------------------- Name: Title: ADVANCES AND PAYMENTS OF PRINCIPAL ===================================================================================================================================
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EXHIBIT A-2 [Form of B Note] [U.S.$] [EUROS] Dated: ----------- ---------- FOR VALUE RECEIVED, the undersigned, [insert name of Borrower], a [insert type of entity] organized under the laws of [insert jurisdiction] (the "Borrower"), HEREBY PROMISES TO PAY to the -------- order of (the "Lender") for the account of its Applicable ---------- ------ Lending Office the principal sum of [INSERT DOLLARS AND CENTS (OR EUROS) IN WORDS] on [ , ]. Terms used in this Note and not -------- -- ---- otherwise defined have the meanings assigned to them in the Credit Agreement referred to below. The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, in the Currency, at the interest rate and payable on the interest payment date or dates provided below: Currency: [Dollars][Euros] Interest Rate: % per annum (calculated on ----- the basis of a year of days ----- for the actual number of days elapsed). Interest Payment Date or Dates: -------------------------------- Both principal and interest are payable in [Dollars] [Euros] to Citibank, N.A. ("Citibank"), as Administrative Agent, at the -------- Administrative Agent's Account, in same day funds, free and clear of and without any deduction, with respect to the payee named above, for any and all present and future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, as set forth in the Credit Agreement. This Note is one of the B Notes referred to in, and is entitled to the benefits of, the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as from time to time amended, the "Credit Agreement") among Solutia Inc. (the "Company"), the Lender ---------------- ------- and certain other lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, as Administrative Agent for the Lender and such other lenders. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. [Pursuant to Article IX of the Credit Agreement, this Note is absolutely and unconditionally guaranteed by the Company.] The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. [FN] - ---------------- For A Notes for the Company as Borrower, insert "SOLUTIA INC., a corporation organized under the laws of the State of Delaware". For A Notes for a Designated Borrower as Borrower, insert analogous information. Include in Notes of Designated Borrowers. - 2 - This Note shall be governed by, and construed in accordance with, the law of the State of New York, United States. [NAME OF BORROWER] By --------------------------------- Name: Title: EXHIBIT B-1 [Form of Notice of A Borrowing] [Date] Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: The undersigned, Solutia Inc., refers to the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement", the terms defined therein ---------------- being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests an A Borrowing (the "Proposed A Borrowing") under the Credit Agreement, and in that -------------------- connection sets forth below the information relating to the Proposed A Borrowing as required by Section 2.02(a) of the Credit Agreement: (1) The Business Day of the Proposed A Borrowing is , . -------- ---- (2) The Type of Advances comprising the Proposed A Borrowing is [Base Rate Advances] [Eurocurrency Rate Advances]. (3) The Currency of the Proposed A Borrowing is [Dollars][Euros]. (4) The aggregate amount of the Proposed A Borrowing is [U.S. $] [Euros] . --------- (5) The initial Interest Period for each Eurocurrency Rate Advance made as part of the Proposed A Borrowing is [ ] month[s]. -- (6) the Borrower of the A Advances to be made as part of the Proposed A Borrowing is [the Company][the following Designated Borrower: ]. ----------------- The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed A Borrowing: (A) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the Excluded Representations) are correct, before and after giving effect to the Proposed A Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and [FN] - ------------- Include in borrowing notices relating to Eurocurrency Rate Advances. - 2 - (B) no event has occurred and is continuing, or would result from such Proposed A Borrowing or from the application of the proceeds therefrom, that constitutes a Default. Very truly yours, SOLUTIA INC. [on behalf of the Designated Borrower referred to above] By --------------------------------------- Name: Title: [FN] - ------------- Insert if applicable. EXHIBIT B-2 [Form of Notice of B Borrowing] [Date] Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: The undersigned, Solutia Inc., refers to the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement", the terms defined therein ---------------- being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a B Borrowing (the "Proposed B Borrowing") under the Credit Agreement, and in that -------------------- connection sets forth the terms on which the Proposed B Borrowing is requested to be made: (1) Date of B Borrowing: -------------------- (2) Amount of B Borrowing: -------------------- (3) Currency of B Borrowing: [Dollars][Euros] (4) Maturity Date of B Borrowing: -------------------- (5) Interest Rate Basis: -------------------- (6) Interest Payment Date(s) -------------------- (7) Type of B Borrowing: [Fixed Rate Advance] [Floating Rate Advance] (8) Name of Borrower: [the Company][The following Designated Borrower: ] ---------- (9) Other Terms: ----------------------- ----------------------- The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed B Borrowing: [FN] - ------------- Maturity date may not be earlier than the date occurring thirty days after the date of the Proposed B Borrowing or later than the Commitment Termination Date. - 2 - (a) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the Excluded Representations) are correct, before and after giving effect to the Proposed B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (b) no event has occurred and is continuing, or would result from the Proposed B Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (c) in compliance with Section 2.03(a) of the Credit Agreement, the aggregate amount of the Proposed B Borrowing in Dollars or in Euros and all other Borrowings to be made on the same day under the Credit Agreement is within the aggregate amount of the unused Commitments of the Lenders. The undersigned hereby confirms that the Proposed B Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of the Credit Agreement. Very truly yours, SOLUTIA INC. [on behalf of the Designated Borrower referred to above] By --------------------------------------- Name: Title: [FN] - ------------ Insert if applicable. EXHIBIT C-1 [Form of Assignment and Acceptance] Reference is made to the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement") among Solutia Inc., a Delaware corporation ---------------- (the "Company"), the Lenders (as defined in the Credit Agreement), ------- Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as administrative agent for the Lenders (the "Administrative Agent"). -------------------- Terms defined in the Credit Agreement are used herein with the same meaning unless otherwise defined herein. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of B Advances and B Notes) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations of the Assignor under the Credit Agreement (other than in respect of B Advances and B Notes) including, without limitation, such interest in the Assignor's Commitment, the A Advances owing to the Assignor and any A Notes held by the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the A Advances owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company (or any other Borrower) or the performance or observance by the Company (or any other Borrower) of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; [and] (iv) represents and warrants that the assignment being made hereby shall not require registration, qualification or any filings to be made under the securities laws of the United States of America, of any state or of any country; [and (v) attaches the A Note of each Borrower held by the Assignor and requests that the Administrative Agent exchange such A Notes for new A Notes payable by the respective Borrowers to the order of the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, as specified on Schedule 1 hereto]. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Syndication Agent, the Assignor 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 the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and [FN] - ------------- Include bracketed text if the Assignor is retaining a Commitment under the Credit Agreement and holds A Notes executed pursuant to a request made by such Assignor under Section 2.06(c) of the Credit Agreement. - 2 - discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.15 of the Credit Agreement; [and (vi) requests, in accordance with Section 2.06(c) of the Credit Agreement, that its A Advances to each Borrower be evidenced by an A Note payable by such Borrower to the order of the Assignee in an amount equal to the Commitment assumed by it, as specified on Schedule 1 hereto]. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date for this Assignment and Acceptance (the "Effective --------- Date") shall be the date of acceptance hereof by the ---- Administrative Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the A Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, Facility Fees and Utilization Fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the A Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the law of the State of New York. 8. This Assignment and Acceptance 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 Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. [FN] - ------------ Include bracketed text if the Assignee requests that its A Advances be evidenced by promissory notes in accordance with Section 2.06(c) of the Credit Agreement. Schedule 1 to Assignment and Acceptance Percentage interest assigned: % ------- Assignee's Commitment: $ ------------ Aggregate outstanding principal amount of A Advances assigned: $ ------------ and Euros ------------- Principal amount of A Note of each Borrower payable to Assignee: $ ------------ Principal amount of A Note of each Borrower payable to Assignor: $ ------------ Effective Date (if other than date of acceptance by the Administrative Agent): , ------------ ---- Dated: , [NAME OF ASSIGNOR], as Assignor -------------- ---- By ------------------------------------- Name: Title: Dated: , [NAME OF ASSIGNEE], as Assignee -------------- ---- By ------------------------------------- Name: Title: Domestic Lending Office: [Address] Eurocurrency Lending Office: [Address] [FN] - ---------------- This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Administrative Agent. - 2 - Accepted [and consented to] this day of , 19 - -- ------ -- CITIBANK, N.A., as Administrative Agent By ----------------------------------------- Name: Title: [Consented to: BANK OF AMERICA, N.A., as Syndication Agent By ----------------------------------------- Name: Title:] [Consented to this day -- of , ---------- ---- SOLUTIA INC., on its own behalf and on behalf of each of the Designated Borrowers By ----------------------------------------- Name: Title:] [FN] - --------------- Required if the assignment is other than to an Affiliate of the Assignor or pursuant to the terms of Section 8.07(g) of the Credit Agreement. EXHIBIT C-2 [Form of Assumption and Acceptance] Dated , -------------- ---- Solutia Inc. Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: Reference is made to the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (as amended from time to time, the "Credit Agreement") among Solutia Inc., a Delaware corporation ---------------- (the "Company"), the Lenders (as defined in the Credit Agreement), ------- Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as administrative agent for the Lenders (the "Administrative Agent"). -------------------- Terms defined in the Credit Agreement are used herein with the same meaning unless otherwise defined herein. 1. [INSERT NAME OF ADDITIONAL COMMITMENT LENDER] (the "Additional Commitment Lender") agrees to become a party to the ---------------------------- Credit Agreement and to have the rights and perform the obligations of a Lender under the Credit Agreement, and to be bound in all respects by the terms of the Credit Agreement. 2. The Additional Commitment Lender hereby agrees to a Commitment of [INSERT AMOUNT OF PROPOSED COMMITMENT] (the "Proposed Commitment"). ------------------- 3. The Additional Commitment Lender (i) agrees that no Lender has made any representation or warranty, or assumes any responsibility with respect to, (x) any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto or (y) the financial condition of the Company (or any other Borrower) or the performance or observance by the Company (or any other Borrower) of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assumption and Acceptance; (iii) agrees that it will, independently and without reliance upon the Administrative Agent, the Syndication 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 the Credit Agreement; (iv) confirms that it is an Eligible Assignee; (v) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and - 2 - discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vii) attaches any U.S. Internal Revenue Service forms required under Section 2.15 of the Credit Agreement. 4. The effective date for this Acceptance shall be [ , ] (the "Assumption Date"); provided that -------------- ---- --------------- this Acceptance has been fully executed and delivered to the Administrative Agent for acceptance and recording by the Administrative Agent on or prior to such Assumption Date. 5. Upon such execution, delivery, acceptance and recording and as of the Assumption Date, the Additional Commitment Lender shall be a party to the Credit Agreement with a Commitment equal to the Proposed Commitment and, to the extent provided in this Acceptance, have the rights and obligations of a Lender thereunder. 6. Upon such acceptance and recording, from and after the Assumption Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the Proposed Commitment provided for in this Acceptance (including, without limitation, all payments of principal, interest, Facility Fees and Utilization Fees with respect thereto) to the Additional Commitment Lender. 7. This Acceptance shall be governed by and construed in accordance with the law of the State of New York. 8. This Acceptance may be signed in any number of counterparts, each of which shall be an original, with the same as if the signatures were upon the same instrument. [remainder of page intentionally blank] - 3 - IN WITNESS WHEREOF, the Additional Commitment Lender has caused Acceptance to be executed by its officers thereunto duly authorized as of the date specified above. [NAME OF ADDITIONAL COMMITMENT LENDER] By ------------------------------------- Name: Title: Domestic Lending Office: [Address] Eurocurrency Lending Office: [Address] This Assumption and Acceptance is hereby acknowledged and agreed on as of the date set forth above. SOLUTIA INC. By ----------------------------------------- Name: Title: CITIBANK, N.A., as Administrative Agent By ----------------------------------------- Name: Title: BANK OF AMERICA, N.A., as Syndication Agent By ----------------------------------------- Name: Title: EXHIBIT D [Form of Opinion of Counsel for the Company] November 23, 1999 To the Lenders party to the Credit Agreement referred to below Citibank, N.A., as Administrative Agent 399 Park Avenue New York, New York 10043 Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.01(b)(1) of the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (the "Credit Agreement"), among Solutia Inc., a Delaware corporation ---------------- (the "Company"), the Lenders parties thereto, Bank of America, N.A., as ------- Syndication Agent, and Citibank, N.A., as Administrative Agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined. I am General Counsel of the Company and am familiar with the preparation, execution and delivery of the Credit Agreement. In that connection, I or persons under my supervision have examined or are familiar with: (1) the Credit Agreement, the A Notes and the form of the B Note; (2) the documents furnished by the Company pursuant to Article III of the Credit Agreement; (3) the certificate of incorporation of the Company and all amendments thereto (the "Charter"); ------- (4) the by-laws of the Company and all amendments thereto (the "By-laws"); and (5) a certificate of the Secretary of State of ------- Delaware, dated November 23, 1999, certifying as to the continued corporate existence and good standing of the Company in that State. In addition, I or persons under my supervision have examined or are familiar with the originals, or copies certified to my satisfaction, of such other corporate records of the Company, certificates of public officials and of officers of the Company, and agreements, instruments and other documents, and made such other investigations and review of relevant documents as I have deemed necessary as a basis of the opinions expressed below. I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent. I am qualified to practice law in the State of Missouri. My opinions expressed below are limited to the law of the State of Missouri, the General Corporation Law of the State of Delaware and the Federal law of the United States. Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. The execution, delivery and performance by the Company of the Credit Agreement and the Notes, and the other transactions contemplated by the Credit Agreement, are within the - 2 - Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Charter or the By-laws, (ii) any law, rule or regulation applicable to the Company (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (iii) to the best of my knowledge, any contractual or legal restriction contained in any indenture or other agreement or instrument to which the Company or any of its Consolidated Subsidiaries is a party or is bound. The Credit Agreement, and the Notes delivered today, have been duly executed and delivered on behalf of the Company. 3. No authorization, 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 Company of the Credit Agreement and the Notes. 4. The Credit Agreement is, and each Note of the Company when delivered under the Credit Agreement will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 5. In any action or proceeding arising out of or relating to the Credit Agreement or the Notes in any court of the State of Missouri or in any Federal court sitting in the State of Missouri, such court would recognize and give effect to the provisions of Section 8.08 of the Credit Agreement wherein the parties thereto agree that the Credit Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. Without limiting the generality of the foregoing, a court of the State of Missouri or a Federal court sitting in the State of Missouri would apply the usury law of the State of New York to the Credit Agreement and the Notes. However, if a court were to hold that the Credit Agreement and the Notes are governed by, and to be construed in accordance with, the law of the State of Missouri, the Credit Agreement and the Notes of the Company would be, under the laws of the State of Missouri, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 6. Except as described in the Company's Report on Form 10-K for the fiscal year ended December 31, 1998 or in the Company's Report on Form 10-Q for the fiscal quarter ended September 30, 1999, there is no pending or overtly threatened action or proceeding affecting the Company or any of its Consolidated Subsidiaries before any court, governmental agency or arbitrator which (i) would have a Material Adverse Effect or (ii) purports to affect, or would affect, the legality, validity or enforceability of the Credit Agreement or any Note. 7. Neither the Company 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 Company 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. References herein to the Credit Agreement include the guarantee by the Company of obligations of Designated Borrowers set forth in Article IX of the Credit Agreement. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 8.04(b) of the Credit Agreement (and any other similar provisions therein) may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct. - 3 - (B) Clause (iii) of the second sentence of Section 9.02 of the Credit Agreement may not be enforceable to the extent that the Guaranteed Obligations are materially modified. (C) The enforceability of provisions in the Credit Agreement and the Notes to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (D) I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of Missouri) that limit the interest, fees or other charges such Lender may impose, (ii) the second sentence of Section 2.16 of the Credit Agreement, (iii) the first sentence of Section 8.10(a) of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of any federal court sitting in New York City to adjudicate any controversy related to the Credit Agreement and the Notes, (iv) the second sentence of Section 8.10(a), (v) the waiver of inconvenient forum set forth in Section 8.10(b) of the Credit Agreement with respect to proceedings in any federal court sitting in New York City, (vi) Section 8.11 of the Credit Agreement and (vii) Section 9.06 of the Credit Agreement. (E) My opinion in paragraph 4 above as to the enforceability of the Credit Agreement and the Notes is subject to the effect of (a) any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfer or preferential transfers), reorganization, moratorium or similar law affecting creditors' rights generally and (b) general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Very truly yours, EXHIBIT E [Form of Opinion of Special New York Counsel to the Administrative Agent] November 23, 1999 To the Lenders party to the Credit Agreement referred to below Citibank, N.A., as Administrative Agent 399 Park Avenue New York, New York 10043 Ladies and Gentlemen: We have acted as special New York counsel to the Administrative Agent in connection with the 364-Day Multicurrency Credit Agreement dated as of November 23, 1999 (the "Credit Agreement") among Solutia Inc. ---------------- (the "Company"), the Lenders parties thereto, Bank of America, N.A., ------- as Syndication Agent, and Citibank, N.A., as Administrative Agent, providing for loans to be made by said Lenders to the Company and the Designated Borrowers in an aggregate principal amount not exceeding $300,000,000. Terms defined in the Credit Agreement are used herein as defined therein. This opinion is being delivered pursuant to Section 3.01(b)(2) of the Credit Agreement. In rendering the opinions expressed below, we have examined the Credit Agreement and the Notes being executed and delivered on the date hereof (the "Notes" and collectively with the Credit Agreement, ----- the "Loan Documents"). -------------- In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. In rendering the opinions expressed below, we have assumed, with respect to the Loan Documents, that: (i) the Loan Documents have been duly authorized by, have been duly executed and delivered by, and (except to the extent set forth in the opinions below as to the Company) constitute legal, valid, binding and enforceable obligations of, all of the parties thereto; (ii) all signatories to the Loan Documents have been duly authorized; and (iii) all of the parties to the Loan Documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform the Loan Documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that each Loan Document constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, - 2 - fraudulent conveyance or transfer or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of such Loan Document is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 8.04(b) of the Credit Agreement (and any other similar provisions therein) may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct. (B) Clause (iii) of the second sentence of Section 9.02 of the Credit Agreement may not be enforceable to the extent that the Guaranteed Obligations are materially modified. (C) The enforceability of provisions in the Loan Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (D) We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) the second sentence of Section 2.16 of the Credit Agreement, (iii) the first sentence of Section 8.10(a) of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of any federal court sitting in New York City to adjudicate any controversy related to the Loan Documents, (iv) the second sentence of Section 8.10(a), (v) the waiver of inconvenient forum set forth in Section 8.10(b) of the Credit Agreement with respect to proceedings in any federal court sitting in New York City, (vi) Section 8.11 of the Credit Agreement and (vii) Section 9.06 of the Credit Agreement. (E) We point out with reference to obligations stated to be payable in a currency other than Dollars that (i) a New York statute provides that a judgment rendered by a court of the State of New York in respect of an obligation denominated in any such other currency would be rendered in such other currency and would be converted into Dollars at the rate of exchange prevailing on the date of entry of the judgment and (ii) a judgment rendered by a Federal court sitting in the State of New York in respect of an obligation denominated in any such other currency may be expressed in Dollars, but we express no opinion as to the rate of exchange such Federal court would apply. The foregoing opinions are limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. This opinion letter is, pursuant to Section 3.01(b)(2) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Administrative Agent and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, EKM/RJW EXHIBIT F-1 FORM OF DESIGNATION LETTER , ------------ -- ---- Citibank, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below 2 Penns Way New Castle, Delaware 19720 Attention: Anne Hieronimus Ladies and Gentlemen: We refer to the Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit ------ Agreement") dated as of November 23, 1999 among Solutia Inc. (the - --------- "Company"), the Lenders party thereto, Bank of America, N.A., as ------- Syndication Agent, and Citibank, as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby designates [ ] (the "Designated ------------ ---------- Borrower"), a wholly owned Subsidiary of the Company and a - -------- [corporation duly incorporated under the laws of [ ]], as a ------------- Borrower in accordance with Section 2.17 of the Credit Agreement until such designation is terminated in accordance with said Section 2.17. The Designated Borrower hereby accepts the above designation and hereby expressly and unconditionally accepts the obligations of a Borrower under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, upon your execution and return to the Company of the enclosed copy of this letter, it shall be a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as a Borrower. The Designated Borrower hereby authorizes and empowers the Company to act as its representative and attorney-in-fact for the purposes of signing documents and giving and receiving notices (including notices of Borrowing under the Credit Agreement) and other communications in connection with the Credit Agreement and the transactions contemplated thereby and for the purposes of modifying or amending any provision of the Credit Agreement and further agrees that the Administrative Agent, the Syndication Agent and each Lender may conclusively rely on the foregoing authorization. The Company hereby represents and warrants to the Administrative Agent and each Lender that, before and after giving effect to this Designation Letter, (i) the representations and warranties set forth in Section 4.01 of the Credit Agreement (except the Excluded Representations) are true and correct on the date hereof as if made on and as of the date hereof and (ii) no Default has occurred and is continuing. The Designated Borrower represents and warrants that each of the representations and warranties set forth in Section 4.01 (a), (b), (c) and (d) of the Credit Agreement are true as if each reference therein to the Company were a reference to the Designated Borrower and as if each reference therein to the Credit Agreement and the Notes were a reference to this Designation Letter and the Notes executed by the Designated Borrower in connection herewith. - 2 - The Designated Borrower hereby agrees that this Designation Letter, the Credit Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. The Designated Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Designation Letter, the Credit Agreement or the transactions contemplated thereby. The Designated Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Designated Borrower further agrees that service of process in any such action or proceeding brought in New York may be made upon it by service upon the Company at the "Address for Notices" specified below its name on the signature pages to the Credit Agreement. THE DESIGNATED BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS DESIGNATION LETTER, THE CREDIT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. Very truly yours, SOLUTIA INC. By ------------------------------- Name: Title: [NAME OF DESIGNATED BORROWER] By ------------------------------- Name: Title: ACCEPTED: CITIBANK, N.A, as Administrative Agent By ------------------------ Name: Title: EXHIBIT F-2 FORM OF TERMINATION LETTER , ---------- -- ---- To Citibank, N.A., as Administrative Agent Attention: Anne Hieronimus Ladies and Gentlemen: We refer to the Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit ------ Agreement") dated as of November 23 , 1999 among Solutia Inc., the - --------- Lenders party thereto, Bank of America, N.A., as Syndication Agent, and Citibank, N.A., as Administrative Agent. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby terminates the status as a Designated Borrower of [ ], a [corporation incorporated under the ----------------- laws of [ ]], in accordance with Section 2.17 of the --------------- Credit Agreement, effective as of the date of receipt of this notice by the Administrative Agent. The undersigned hereby represent and warrant that all principal of and interest on all Advances of the above- referenced Designated Borrower and all other amounts payable by such Designated Borrower pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Termination Letter shall not affect any obligation which by the terms of the Credit Agreement survives termination thereof. Very truly yours, SOLUTIA INC. By ------------------------------ Name: Title: EX-13 4 PORTION OF ANNUAL REPORT MANAGEMENT REPORT Management is responsible for the integrity, objectivity, and preparation of Solutia Inc.'s consolidated financial statements and all of the related information appearing in this annual report. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary, this information reflects estimates that are based upon currently available information and management's judgments. Management is also responsible for maintaining a system of internal accounting controls designed to provide reasonable assurance that Solutia's assets are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial information. Cost/benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by careful personnel selection and thorough training, division of responsibilities, establishment and communication of policies, and ongoing internal review programs and audits. Management believes that Solutia's system of internal accounting controls as of and for the period ended December 31, 1999, was effective and adequate to accomplish the objectives described above. /s/ John C. Hunter III John C. Hunter III Chairman, President, and Chief Executive Officer /s/ Robert A. Clausen Robert A. Clausen Senior Vice President and Chief Financial Officer February 23, 2000 AUDIT AND FINANCE COMMITTEE REPORT The Audit and Finance Committee, composed of non-employee directors, met four times during 1999. The committee reviews and monitors Solutia's internal controls, financial reports, and accounting practices as well as the scope and extent of the audits performed by both the independent and internal auditors. The committee also recommends to the full Board the selection of Solutia's principal independent auditors, and it approves in advance all significant audit and nonaudit services provided by these auditors. Deloitte & Touche LLP was appointed independent auditor to examine, and to express an opinion as to the fair presentation of, the consolidated financial statements. The Deloitte & Touche LLP report follows. The internal and principal independent auditors meet with the committee, with and without management representatives present, to discuss the results of their examination, the adequacy of the company's internal accounting controls, and the quality of Solutia's financial reporting. The Audit and Finance Committee also reviews and monitors Solutia's financial policies, including planning and structure, so that they conform to Solutia's requirements for growth and sound operation. The Audit and Finance Committee has reviewed the financial section of this annual report. Upon the recommendation of the committee, the Board of Directors has approved the financial section. /s/ Frank A. Metz Jr. Frank A. Metz Jr. Chairman, Audit and Finance Committee February 23, 2000 18 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Solutia Inc.: We have audited the accompanying statements of consolidated financial position of Solutia Inc. and subsidiaries as of December 31, 1999, and 1998, and the related statements of consolidated income, comprehensive income, cash flow, and shareholders' equity (deficit) for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial statements present fairly, in all material respects, the financial position of Solutia Inc. and subsidiaries as of December 31, 1999, and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 15 to the financial statements, in 1997, the company changed its method of accounting for environmental obligations under the Resource Conservation and Recovery Act. /s/ Deloitte & Touche LLP Deloitte & Touche LLP St. Louis, Missouri February 23, 2000 19 FINANCIAL SUMMARY
Dollars in millions, except per share amounts 1999 1998 1997 1996 1995 ----------------------------------------------------------------------- OPERATING RESULTS: Net Sales $ 2,830 $ 2,835 $ 2,969 $2,977 $2,964 Gross Profit 652 750 653 652 721 As percent of net sales 23% 26% 22% 22% 24% Marketing, Administrative and Technological Expenses 355 364 363 427 410 As percent of net sales 13% 13% 12% 14% 14% Amortization Expense 3 - - - - Operating Income 294 386 290 33 258 As percent of net sales 10% 14% 10% 1% 9% Income Before Income Taxes 303 375 290 33 231 Net Income 206 249 192 32 147 As percent of net sales 7% 9% 6% 1% 5% SHARE DATA: ----------------------------------------------------------------------- Basic Earnings per Share $ 1.86 $ 2.16 $ 1.63 $ 0.28 $ 1.30 Diluted Earnings per Share 1.80 2.03 1.55 0.27 1.27 Dividends per Share 0.04 0.04 0.01 - - Common Stock Price: High 26 5/16 32 27 3/4 - - Low 13 1/2 18 11/16 18 11/16 - - Close 15 7/16 22 3/8 26 11/16 - - Price/Earnings Ratio on Year-end Stock Price 9 11 17 - - Number of Registered Shareholders 39,171 41,864 57,894 - - Year-end Shares Outstanding (in millions) 109.5 112.8 117.4 - - Shares Repurchased (in millions) 3.8 6.2 1.6 - - Average Daily Trading Volume (in thousands) 458 401 1,053 - - OTHER DATA: ----------------------------------------------------------------------- Interest Expense $ 40 $ 43 $ 41 $ 36 $ 36 Income Taxes 97 126 98 1 84 Depreciation and Amortization 151 147 145 166 162 Total Assets 3,770 2,765 2,768 2,483 2,462 Capital Expenditures 257 158 165 192 179 Long-Term Debt 802 597 597 - - Employees (year-end) 10,600 8,700 8,800 - - ----------------------------------------------------------------------- Net sales for the company included $140 million in 1995 for its rubber chemicals business. In May 1995, this business was contributed by Monsanto to the Flexsys, L.P. joint venture. Operating income includes charges for restructuring and other actions of $61 million in 1999, $1 million in 1998, $84 million in 1997, $248 million in 1996, and $46 million in 1995. Net income includes charges for restructuring and other actions of $38 million, or $0.33 per share, in 1999, $1 million, or $0.01 per share, in 1998, $53 million, or $0.43 per share, in 1997, $164 million, or $1.37 per share, in 1996, and $52 million, or $0.45 per share, in 1995. For periods ended prior to the spinoff, the number of Monsanto weighted average shares outstanding and common share equivalents were adjusted for the distribution ratio in the spinoff of one share of Solutia's common stock for every five shares of Monsanto common stock. Monsanto used 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. Interest expense was allocated to Solutia in its consolidated financial statements to reflect Solutia's pro rata share of the financing structure of Monsanto.
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Solutia Inc. and its subsidiaries produce and market a variety of high- performance, chemical-based materials. Solutia's strategic focus is built on key strengths, including complex manufacturing capabilities, process engineering expertise, polymer chemistry, fiber technology, technical service, and customer problem solving. These world-class skills are applied to create solutions and products for customers in the consumer, household, automotive, and industrial products industries. Solutia's products include Saflex(R) plastic interlayer; adhesives; window and industrial films; liquid, powder and waterborne resins; Vydyne(R) and Ascend(TM) nylon polymers; chemical intermediates; and nylon fibers. During December 1999, Solutia refined its management structure to align with its growth strategy. Solutia's management is now organized around four strategic business platforms: Performance Films, Resins and Additives, Specialties, and Integrated Nylon. Resins and Additives and Specialties have been aggregated into the Specialty Products reportable segment because of their similar economic characteristics, as well as their similar products and services, production processes, types of customers, and methods of distribution. Solutia's new reportable segments and representative products are as follows:
- ----------------------------------------------------------------------------------------------- PERFORMANCE FILMS SPECIALTY PRODUCTS INTEGRATED NYLON - ----------------------------------------------------------------------------------------------- Saflex(R) plastic interlayer Resins and additives, Intermediate "building including Alftalat(R) block" chemicals KeepSafe(R), Saflex polyester resins, Resimene(R) Inside(TM), and KeepSafe and Maprenal(R) crosslinkers, Merchant polymer and Maximum(TM) glass for Synthacryl(R) acrylic resins, nylon extrusion polymers, residential security and and Alnovol(R) phenolic resins including Vydyne(R) and Ascend(TM) hurricane protection windows Therminol(R) heat transfer Carpet fibers, including Llumar(R), Vista(R), and fluids the Wear-Dated(R) and Ultron Gila(R) professional and VIP(R) brands after-market window films Dequest(R) water treatment chemicals Industrial nylon fibers Conductive and anti- reflective coated films Skydrol(R) hydraulic fluids Acrilan(R) acrylic fibers and deep-dyed films and SkyKleen(R) cleaning for apparel, upholstery fluid for aviation fabrics, craft yarns, and Gelva(R) pressure-sensitive other applications adhesives Phosphorus-based materials for food and Santicizer(R) plasticizers beverage ingredients, and other polymer modifiers personal care products, industrial cleaners, and fire retardants
Internally, Solutia reports its financial results under this revised management structure. As required by Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," financial information for the years ended December 31, 1999, 1998, and 1997, that is included in this annual report has been restated to conform to the new segment structure. See Note 19 to the Consolidated Financial Statements for further information. Prior to September 1, 1997, the businesses that form Solutia were wholly owned by Monsanto Company (Monsanto). On September 1, 1997, Monsanto distributed all of the outstanding shares of common stock of Solutia as a dividend to Monsanto stockholders (the spinoff). As a result of the spinoff, Solutia 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 entered into a number of agreements to facilitate the separation of the companies and to provide mechanisms for an orderly transition following the spinoff. The separation from Monsanto and the subsequent transition of services have been completed, although operating agreements for Solutia's manufacturing facilities located in Monsanto plant sites and Monsanto manufacturing facilities located in a Solutia plant site continue for longer terms. Financial data included in Solutia's consolidated financial statements for periods prior to the spinoff reflect an estimate of what the historical assets, liabilities, and operations would have been if Solutia had been organized as a separate legal entity, owning certain net assets of Monsanto, during those periods. Management 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) believes that the assumptions underlying these financial statements are reasonable. These historical consolidated financial statements, however, may not necessarily reflect the results of operations, cash flows, or financial position that would have existed if Solutia had been a separate stand-alone public entity. For periods after the spinoff, Solutia's consolidated financial statements reflect the historical value of the assets, liabilities, and operations of the businesses that were contributed to Solutia by Monsanto. See Note 1 to the Consolidated Financial Statements for a discussion of the basis of presentation used in the preparation of Solutia's consolidated financial statements. RESULTS OF OPERATIONS Solutia's net sales for 1999 of $2.830 billion were essentially equal to 1998 net sales of $2.835 billion and 5 percent lower than 1997 net sales of $2.969 billion. Although Solutia's net sales for 1999 were almost unchanged from 1998, the 1999 results were affected by volume improvements of 5 percent, directly offset by average selling price reductions of 5 percent. Operating income for the year ended December 31, 1999, was $294 million, 24 percent lower than 1998 operating income of $386 million, and slightly higher than 1997 operating income of $290 million. Most of the decline in 1999 operating income was caused by special charges taken in the first quarter of 1999 related to exiting the ammonia business, to writing down certain manufacturing equipment in the Integrated Nylon segment to fair value, and to the anticipated settlement of two lawsuits relating to the Anniston, Alabama, plant site. The remainder of the decline resulted from lower average selling prices. During 1999, Solutia began repositioning its portfolio of businesses to achieve $5 billion in net sales within three to four years. This growth program includes internal initiatives such as the full global commercialization of Saflex IIIG(TM), Solutia's third-generation polyvinyl butryl product, the continued commercialization of KeepSafe(R), Saflex Inside(TM), and KeepSafe Maximum(TM) for residential security and hurricane protection windows, the launch of a Saflex(R) product for Enhanced Protective Glass in side and rear automotive windows, and the introduction of Ascend(TM) nylon plastics and polymers, among other programs. As part of Solutia's external growth programs, Solutia acquired CPFilms Inc., a leading manufacturer and marketer of window films and other high-technology films products for automotive, architectural, and other applications, in May 1999, and purchased Vianova Resins, a leading European producer of resins and additives for coatings and technical applications, in December 1999. In April 1999, Solutia announced an agreement with FMC Corporation to form a joint venture to manufacture and market phosphorus chemicals. Solutia and FMC will each contribute their phosphorus derivatives businesses, and each company will own a 50 percent share of the combined venture. The formation of the joint venture is being reviewed by the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The joint venture is expected to begin operations in the first half of 2000. PERFORMANCE FILMS Net sales for Performance Films were $713 million in 1999, compared with $614 million in 1998 and $651 million in 1997. The 16 percent increase in 1999 net sales over 1998 was due to an overall volume gain of more than 20 percent, partially offset by selling price declines. The sales volume increase is attributable to the May 1999 acquisition of CPFilms, and to a greater than 10 percent increase in Saflex(R) plastic interlayer sales volumes. Volume gains [PERFORMANCE FILMS NET SALES graph] [PERFORMANCE FILMS SEGMENT PROFIT graph] for Saflex(R) plastic interlayer resulted from the full global commercialization of Saflex IIIG(TM), the continued commercialization of KeepSafe(R), Saflex Inside(TM), and KeepSafe Maximum(TM), and the launch of a Saflex(R) product for Enhanced Protective Glass. Contractual pricing provisions that adjust pricing downward for increased volume, caused the selling price declines. Performance Films' net sales for 1998 declined compared with 1997 net sales because of lower selling prices and sales volumes. During 1998, Solutia reduced its selling prices for Saflex(R) products to maintain market share. Also during 1998, sales volume of polymer modifier products used in vinyl flooring declined as a result of competition from alternative flooring materials. Segment profit was $189 million in 1999, versus $168 million in 1998 and $177 million in 1997. The improvement in 1999 segment profit over 1998 is due to higher year-over-year net sales, including 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the acquisition of CPFilms, lower raw material costs, and employee benefits cost and other cost reductions, partially offset by increased marketing expenditures related to the promotion of KeepSafe(R), Saflex Inside(TM), KeepSafe Maximum(TM), and Enhanced Protective Glass. Segment profit for 1998 was lower than that for 1997 due to lower 1998 net sales and higher production costs related to the changeover of production from the previous generation of polyvinyl butryl to Saflex IIIG(TM). SPECIALTY PRODUCTS Solutia's Specialty Products segment had net sales of $615 million in 1999, compared with $613 million in 1998 and $635 million in 1997. The slight increase in 1999 net sales over 1998 was due to increased sales volumes of Solutia's resins and additives products and Skydrol(R) 5 hydraulic fluid for aviation, partially offset by unfavorable currency exchange movements. The growth in sales volumes for resins and additives is attributable to strong sales in the coatings market, especially during the fourth quarter of 1999. Also during 1999, Solutia became the sole supplier of hydraulic [SPECIALTY PRODUCTS IN NET SALES graph] [SPECIALTY PRODUCTS SEGMENT PROFIT graph] fluid to Boeing Corporation for its new commercial aircraft. Specialty Products' 1998 net sales were 3 percent lower than in 1997 primarily because of lower sales volumes of phosphorus derivative products, caused by competitor price reductions to obtain market share. Specialty Products' segment profit was $159 million in 1999, compared with $152 million in 1998 and $137 million in 1997. The 1999 improvement was due to improved manufacturing performance for Solutia's phosphorus derivatives products, and to a lesser extent, lower raw material costs. Segment profit for 1998 improved by 11 percent because of lower operating costs, including personnel and benefits-related costs. On April 30, 1999, Solutia announced an agreement with FMC Corporation to form a joint venture to manufacture and market phosphorus chemicals. Solutia and FMC will each contribute their phosphorus derivatives businesses, and each company will hold a 50 percent share of the combined venture. The formation of the joint venture is being reviewed by the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The joint venture is expected to begin operations in the first half of 2000. On December 22, 1999, Solutia purchased Vianova Resins by acquiring the interest of Morgan Grenfell Private Equity Ltd., a private equity syndicate, and the interests of the minority shareholders in Viking Resins Group Holdings B.V. Vianova Resins is a leading European producer of resins and additives for coatings and technical applications. It has annual net sales of approximately $450 million. With the acquisition of Vianova Resins, Solutia is one of the leading worldwide suppliers of resins and additives. Results of Vianova's operations for the period of December 22, 1999, through December 31, 1999, were not material to Solutia's Statement of Consolidated Income for the year ended December 31, 1999. See Note 3 to the Consolidated Financial Statements for additional information. INTEGRATED NYLON Solutia's Integrated Nylon segment had net sales in 1999 of $1.508 billion, compared with $1.613 billion in 1998 and $1.699 billion in 1997. The 7 percent decline in this segment's 1999 net sales compared with 1998 resulted from lower selling prices for almost all products and lower Acrilan(R) acrylic fiber volumes, partially offset by higher sales volumes of carpet fibers and nylon polymers. Lower selling prices and sales volumes for Acrilan(R) acrylic fibers were caused by weak market conditions in the Asia Pacific region. In addition, that region's lower demand depressed markets in the Americas, as acrylic fiber producers sought alternative outlets for their products. The impact of these events began early in the third quarter of 1998 and continued through the third quarter of 1999. Prices stabilized early in the fourth quarter of 1999 and increased slightly during the remainder of the year. For 1999 compared with 1998, Acrilan(R) acrylic fiber accounted for more than half of Integrated Nylon's net sales decline. Nylon carpet selling prices were adversely affected in 1999 by the consolidation of the carpet mill industry in late 1998 and the resultant increase in the carpet mills' buying leverage. In addition, lower-priced polyester carpet fiber also put downward pressure on prices. Sales volumes for the segment's products were mixed, as improved carpet fiber and Vydyne(R) nylon molding resins volumes 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) were offset by lower Acrilan(R) acrylic fiber volumes, and chlorobenzenes volumes, and Solutia's exit from the ammonia business. The decline in 1998 net sales compared with 1997 was due to lower average selling prices for intermediate chemicals and carpet fibers and lower selling prices and volumes for Acrilan(R) acrylic [INTEGRATED NYLON NET SALES graph] [INTEGRATED NYLON SEGMENT PROFIT graph] fiber products. These unfavorable trends were partially offset by higher carpet fiber sales volumes that resulted from strong builder and commercial sales and by new introductions of Wear-Dated(R) brand products. Integrated Nylon segment profit was $289 million in 1999, versus $376 million in 1998 and $350 million in 1997. The 23 percent decrease in 1999 segment profit from 1998 was caused by lower selling prices in 1999, which were partially offset by reduced manufacturing and overhead costs. Segment profit for 1998 increased 7 percent over 1997 because of lower raw material costs and other cost-reduction actions, including those related to benefit costs. OPERATING INCOME Solutia's operating income for 1999 was $294 million, compared with $386 million in 1998 and $290 million in 1997. The 24 percent decline in 1999 operating income from 1998 operating income was caused by lower Integrated Nylon segment profit and charges recorded in the first quarter of 1999, partially offset by higher profit in the Performance Films and Specialty Products segments and lower administrative and technological expenses. During February 1999, certain equipment critical to the ammonia production process failed. After analyzing the economics of purchased ammonia versus the cost to repair the equipment, Solutia decided to exit the ammonia business. A $28 million ($18 million aftertax, or $0.16 per share) charge to cost of goods sold was recorded in the first quarter to complete the exit plan. The charge included $2 million to write down the assets to their fair value of approximately $4 million, $4 million of dismantling costs, and $22 million of estimated costs for which Solutia is contractually obligated under an operating agreement. The contractually obligated costs represent an estimate of the direct manufacturing, overhead, and utilities that Solutia is required to pay to a third-party operator during a 36-month termination period. Solutia expects to complete the dismantling of the equipment by the end of the first quarter of 2000. Ammonia business net sales for the years ended December 31, 1999, 1998, and 1997, were $1 million, $20 million, and $17 million, respectively. Operating income for those periods was minimal. An impairment charge of $6 million ($4 million aftertax, or $0.03 per share) was recorded to cost of goods sold primarily to write down a bulk continuous filament spinning machine that was shut down due to a noncompetitive cost position. The adjusted carrying value of the machine is $0.5 million. The charge resulted from a SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of" review, which indicated that the carrying amount of the assets exceeded the identifiable, undiscounted cash flows related to the assets. Fair value of the assets was determined based on estimates of market prices for the machinery. Operating income derived from the machinery was minimal in the years ended December 31, 1999, 1998, and 1997. During the first quarter of 1999, Solutia also recorded a $29 million ($18 million aftertax, or $0.16 per share) charge to cost of goods sold related to the anticipated settlement of two lawsuits concerning the alleged discharge of polychlorinated biphenyls (PCBs) from the [OPERATING INCOME graph] Anniston, Alabama, plant site. The anticipated settlement of these cases provided information that allowed management to estimate more accurately Solutia's position with respect to that litigation. During the fourth quarter of 1999, Solutia reversed excess restructuring reserves due to the completion of the actions at a lower cost than the 1996 restructuring plan contemplated. A reversal of $1 million ($1 million aftertax, or $0.01 per share) was made to eliminate a reserve for headcount reductions after the final stage of headcount reductions was carried out. A second reversal 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) of $1 million ($1 million aftertax, or $0.01 per share) was made to eliminate a reserve recorded to shutdown a non-strategic facility after that shutdown was completed at a lower cost. See Note 4 to the Consolidated Financial Statements for additional information regarding Solutia's restructuring activities. Operating income in 1998 increased by 33 percent over 1997 operating income because of lower environmental charges, as discussed below, and higher segment profit. Marketing, administrative, and technological expenses were essentially unchanged in 1998 compared with 1997. However, the comparison of operating income between 1998 and 1997 was affected by several unusual items related to reversals of excess restructuring reserves, inventory charges, the adoption of new accounting standards, and environmental-related charges. During 1998 and 1997, Solutia reversed excess restructuring reserves to reflect lower cost estimates for restructuring actions. A reversal of $3 million ($2 million aftertax, or $0.02 per share) was made in the second quarter of 1998 due to lower cost estimates for the shutdown of certain facilities included in the 1996 restructuring plan. Reversals made in the third and fourth quarters of 1998 of $3 million ($2 million aftertax, or $0.02 per share) and $3 million ($2 million aftertax, or $0.02 per share), respectively, were due to lower cost estimates to implement Solutia's employment reduction plans. Estimates were lowered because of higher than anticipated attrition, which reduced employment levels without additional cost to Solutia. The 1997 reversal of $8 million ($5 million aftertax, or $0.04 per share) occurred in the second quarter. It became excess as the result of lower than expected exit costs associated with the sale and closure of certain nonstrategic facilities included in the 1995 restructuring actions. Operating income for 1998 was also affected by inventory charges of $4 million ($3 million aftertax, or $0.03 per share) in the third quarter and $6 million ($4 million aftertax, or $0.04 per share) in the fourth quarter. The third quarter charge was taken to reduce certain slow-moving inventories to their net realizable values. The fourth quarter charge was primarily caused by losses on the disposition of certain nonsalable inventories. Operating income for 1998 also included stand-alone expenses for certain general and administrative services that were provided by Monsanto during 1997. Operating income in 1997 was affected by the adoption of new accounting standards and environmental-related charges taken in the first, second, and fourth quarters. The first quarter charge of $10 million ($6 million aftertax, or $0.05 per share) was associated with the adoption of American Institute of Certified Public Accountants' Statement of Position (SOP) No. 96-1, "Environmental Remediation Liabilities." The second quarter charge of $10 million ($6 million aftertax, or $0.05 per share) was caused by environmental-related litigation associated with the Brio Superfund site near Houston, Texas. The fourth quarter charge of $72 million ($46 million aftertax, or $0.37 per share) was associated with environmental remediation liability charges. These charges are discussed further in Note 15 to the Consolidated Financial Statements. EQUITY EARNINGS FROM AFFILIATES Equity earnings from affiliates were $36 million in 1999, compared with $25 million in 1998 and $31 million in 1997. The improvement in 1999 equity earnings was due to strong sales volumes for products sold by the Flexsys, L.P., (Flexsys) joint venture, and the Advanced Elastomer Systems, Inc., joint venture, in which Solutia [EQUITY EARNINGS FROM AFFILIATES graph] has 50 percent ownership interests. In addition, Flexsys had higher earnings as the result of good manufacturing performance in the PPD2 unit, which started operations in 1998. The PPD2 unit produces 4-amino- diphenylamine, a product that extends the life of rubber products. Equity earnings from affiliates in 1998 were lower than in 1997 primarily due to the lower earnings from the Quimica "M" S.A. de C.V. (Quimica) joint venture, in which Solutia has a 49 percent ownership share, and lower earnings from Flexsys. Quimica was adversely affected by changeover costs for production of Saflex IIIG(TM) plastic interlayer and by the devaluation of the Mexican peso. Flexsys experienced lower earnings due to start-up costs and operational difficulties associated with the joint venture's new PPD2 facility. OUTLOOK AND ECONOMIC CONDITIONS Solutia is affected by economic conditions, particularly those in the domestic housing industry, the domestic and international automotive industries, and the domestic and international textile industries. Each of these industries is cyclical. Global competition 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) and weakened general economic conditions in Asia have led to declining average selling prices. Also contributing to the decline in average selling prices were products that use formula pricing. Pricing for those products is tied to raw material costs, which were significantly lower during the first half of 1999. During the second half of 1999, costs of many raw material feedstocks increased significantly as the price of crude oil increased, ending the trend of declining prices for raw materials. Recent forecasts indicate that raw material prices will maintain their elevated levels for most of 2000. Solutia expects that average selling prices will rise for those products with formula pricing. For those products that do not have contracts with formula pricing, Solutia has announced a number of selling price increases to help restore gross margins. However, the delay in adjusting formula pricing and the difficulty in obtaining price increases for other products may negatively impact gross margins in 2000. Also, average selling prices and sales volumes to the domestic carpet industry could be adversely affected by the consolidation of the carpet mills, by consumer trends toward alternative flooring materials, and by competition from lower-priced polyester staple. FINANCIAL CONDITION During 1999, Solutia took two significant steps in the implementation of its strategy to improve the overall growth rate of its business. First, in May, Solutia acquired CPFilms Inc. in an approximately $200 million transaction that was financed with commercial paper. Second, in December, Solutia acquired Vianova Resins in an approximately $640 million transaction that was primarily financed with commercial paper. As a result of these transactions, Solutia's outstanding commercial paper increased to $712 million at December 31, 1999, from $0 at December 31, 1998. Solutia's commercial paper program is supported by an $800 million, five-year revolving credit facility ($800 million facility) with a syndicate of commercial banks. The $800 million facility is also available for working capital and other general corporate purposes. This agreement was amended during November 1999, principally to allow the issuance of commercial paper in euros, as well as U.S. dollars. Also during November 1999, Solutia put in place a $300 million, 364- day multi-currency revolving credit agreement ($300 million facility) with a syndicate of commercial banks. The $300 million facility has terms that are generally consistent with the terms of the $800 million facility. The $300 million facility supports Solutia's commercial paper program and is available for working capital and other general corporate purposes. During February 2000, Solutia completed the issuance of euro 200 million ($201 million) of notes, due February 2005. Proceeds from the notes were used primarily to refinance outstanding commercial paper, and also for general corporate purposes. In anticipation of this transaction, $201 million of the outstanding commercial paper was reclassified to long-term debt at December 31, 1999. Solutia's working capital at December 31, 1999, was negative $213 million as compared to a positive $259 million at December 31, 1998. This decline in working capital is primarily due to acquiring Vianova Resins assets that were primarily of a long-term nature, and the funding of the acquisition with commercial paper. Cash from operations was $364 million during 1999, which was lower than 1998 cash from operations of $537 million. The decrease is primarily due to strong fourth quarter 1999 sales, which resulted in higher accounts receivable balances between December 31, 1998, and December 31, 1999, as compared to the significant decrease in accounts receivable balances between December 31, 1997, and December 31, 1998. In addition, cash from operations was lower as a result of 1998 incentives paid during 1999 that were not offset by accruals of 1999 incentives, and accounts payable balances that were lower in 1999 than in 1998 due to normal business cycles. Capital expenditures for 1999 were $257 million. These expenditures were used to fund various cost reduction, maintenance, and capacity- expansion projects. Solutia expects that its capital requirements will be approximately $240 million to $270 million in both 2000 and 2001, principally for capacity-expansion and cost-reduction projects. Approximately $100 million of these estimated capital requirements were committed at December 31, 1999. A portion of the capital expenditures in 1999 was funded from advance payments received from third parties participating in these projects. Third party payments received during 1999 totaled $56 million. Solutia had shareholders' equity of $82 million at December 31, 1999, as compared to a shareholders' deficit of $7 million at December 31, 1998. This $89 million improvement was caused by Solutia's net income, partially offset by share repurchases and a $44 million decline in the currency translation adjustment included in Accumulated Other Comprehensive Income. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During 1999, Solutia repurchased 3.3 million shares of its common stock under share repurchase programs, fully utilizing the second 5.0 million share program and beginning on the third 5.0 million share program authorized by the Board of Directors. The cost of the shares repurchased in 1999 under these programs was approximately $69 million. In addition, Solutia repurchased 0.5 million shares, at a cost of approximately $10 million, for compensation and benefits programs. Solutia believes that its cash flow from operations and available borrowing capacity under the $800 million facility and the $300 million facility provide sufficient resources to finance its operations and planned capital needs for the next 12 months. ENVIRONMENTAL MATTERS Solutia continues its strong commitment to comply with laws and government regulations concerning environmental matters and employee safety and health in the United States and other countries. U.S. environmental legislation that has a particular impact on Solutia includes the Toxic Substances Control Act; the Resource Conservation and Recovery Act; 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). Solutia 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 U.S. Environmental Protection Agency (EPA), OSHA, and other federal agencies have the authority to promulgate regulations that have an impact on Solutia's operations. In addition to these federal activities, various states have been delegated certain authority under several of 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. Solutia 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. Solutia is among the leaders in Responsible Care, the chemical industry's performance-enhancement program. Expenditures in 1999 were approximately $14 million for environmental capital projects and approximately $88 million for the management of environmental programs, including the operation and maintenance of facilities for environmental control, of which $22 million was charged against recorded environmental liabilities. Solutia estimates that a total of approximately $25 million will be spent during 2000 and 2001 on additional capital projects for environmental protection and that expenses for the management of environmental programs in 2000 and 2001 will increase slightly from the 1999 levels. With respect to environmental remediation obligations, Solutia's policy is to accrue costs for remediation of contaminated sites in the accounting period in which the obligation is probable and the cost is reasonably estimable. At the time of the spinoff, Solutia assumed from Monsanto, pursuant to a distribution agreement, liabilities related to specified Superfund proceedings. As a result, while Monsanto remains the named potentially responsible party (PRP) or defendant for actions that occurred prior to September 1, 1997, Solutia will manage proceedings and litigation against Monsanto and indemnify Monsanto for costs, expenses, and judgments, if any are incurred by Monsanto, arising from these proceedings. Solutia'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. Solutia has an accrued liability of $32 million as of December 31, 1999, for Superfund sites. Major Superfund sites in this category include the noncompany-owned Brio and MOTCO sites in Texas, and Fike/Artel in West Virginia, which account for $21 million of the accrued amount. Solutia spent approximately $8 million in 1999 for remediation of Superfund sites. Similar amounts can be expected in future years. Solutia had an accrued liability of $88 million as of December 31, 1999, for plants no longer in operation and third-party sites for which it assumed responsibility pursuant to a distribution agreement entered into with Monsanto. Solutia's estimate of its liability related to these sites is based on evaluations of currently available facts with respect to each individual site. The estimate 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) takes into consideration factors such as existing technology, laws and agency policy, and prior experience in remediation of contaminated sites. The company spent $8 million in 1999 for remediation of these sites. Similar amounts can be expected in the future. Solutia had an accrued liability of $81 million as of December 31, 1999, for solid and hazardous waste remediation, and for post-closure costs at the company's operating locations. Solutia recognizes certain post-closure costs over the estimated remaining useful life of the related facilities. Solutia spent $6 million in 1999 for remediation of these facilities. Uncertainties related to all of the company's environmental liabilities are evolving government regulations, the method and extent of remediation, and future changes in technology. Because of these uncertainties, Solutia estimates that potential future expenses associated with these liabilities could be an additional $20 million to $30 million. 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 effect on Solutia's consolidated financial position, liquidity, or profitability in any one year. THE YEAR 2000 ISSUE The year 2000 (Y2K) issue refers to the inability of a date-sensitive computer program to recognize a two-digit date field designated "00" as the year 2000. Solutia experienced no significant Y2K problems with its business applications, manufacturing and warehousing equipment, information technology infrastructure, or environmental operations systems. In total, Solutia incurred approximately $8 million in additional costs specifically to complete Y2K work, excluding the cost of implementing business application software licensed from SAP AG. DERIVATIVE FINANCIAL INSTRUMENTS Solutia's business operations give rise to market risk exposures that result from changes in currency exchange rates, interest rates, and certain commodity prices. To manage the volatility relating to these exposures, Solutia enters into various hedging transactions that enable it to alleviate the adverse effects of financial market risk. Solutia's hedging transactions are carried out under policies and procedures approved by the Audit and Finance Committee of the Board of Directors, which do not permit the purchase or holding of any derivative financial instruments for trading purposes. Solutia uses value-at-risk (VAR) testing and analysis to measure and control risks. VAR estimates the loss in fair market values, which Solutia would potentially incur, given a certain move in market prices over a certain period of time, using specified confidence levels. The tests discussed below for exposure to interest rate and currency rate exposures are based on a one-day horizon and a 95 percent confidence level. The model assumes that financial returns are normally distributed. The value-at-risk model takes into account correlations and diversification across market factors, including currencies and interest rates. Estimates of volatility and correlations of market factors are drawn from the JP Morgan RiskMetrics dataset as of December 31, 1999. In cases where data is unavailable, a reasonable approximation is included. Solutia estimates that the maximum loss that could arise in one day is not material to shareholders' equity and net income. For the year ended December 31, 1998, Solutia based its VAR calculations on a one-year horizon and a 95 percent confidence level. The change in assumption to a one-day horizon from a one-year horizon did not have a material effect on Solutia's VAR. FOREIGN CURRENCY EXCHANGE RATE RISK Currency forward contracts are used to manage currency exposures for financial instruments denominated in currencies other than the entity's functional currency. Gains and losses on contracts that are designated and effective as hedges are included in net income and offset the exchange gain or loss of the transaction being hedged. Solutia's policy prescribes the range of allowable hedging activity and the instruments that are permitted for use. Because the counterparties to these contracts are major international financing institutions, credit risk arising from these contracts is not significant and Solutia does not anticipate any counterparty losses. This hedging activity is intended to protect Solutia from adverse fluctuations in foreign currency exchange rates. At December 31, 1999, Solutia had currency forward contracts to purchase $44 million and sell $44 million of other currencies, principally the Belgian franc, Canadian dollar and euro, with average maturities of three months. Net unrealized hedging losses at December 31, 1999, were not material. Based on Solutia's overall currency rate exposure at December 31, 1999, including derivative and other foreign currency sensitive instruments, a near-term change in currency rates, within a 95 percent confidence level based on historical currency rate movements, would not materially affect the consolidated financial position, results of operations, or cash flows of the company. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INTEREST RATE RISK Interest rate risk is primarily related to the changes in fair value of fixed-rate, long-term debt and short-term, floating-rate debt. Solutia does not actively manage interest rate risk. Based on the company's overall interest rate exposure at December 31, 1999, a near- term change in interest rates, within a 95 percent confidence level based on historical interest rate movements, would not materially affect the consolidated financial position, results of operations, or cash flows of the company. This is consistent with the overall interest rate exposure at December 31, 1998. COMMODITY PRICE RISK Certain raw materials are subject to price volatility caused by weather, crude oil prices, and other unpredictable factors. Solutia employs commodity price swaps to hedge this exposure. The commodity price risk associated with the derivative instruments is not material to Solutia's consolidated financial position, results of operations, or cash flow. EUROPEAN MONETARY UNION On January 1, 1999, 11 member countries of the European Union adopted the euro as their common legal currency. On that date, conversion rates between the existing sovereign currency (legacy currency) of each of these participating countries and the euro were irrevocably fixed, and the euro became available for noncash transactions. The legacy currencies of these countries will remain legal tender during a transition period from January 1, 1999, to January 1, 2002. During this transition period, parties may pay for goods and services using either the euro or the relevant legacy currency. Currency conversion will be performed using a triangulation method, whereby one legacy currency is converted to the euro and then to the second legacy currency. The transition to the euro will be completed in July 2002, when the legacy currencies of the participating member countries cease to be legal tender. The conversion to the euro has increased cross-border price transparency and stimulated cross-border competition within the single- currency zone. However, the effect of the price transparency on raw materials that Solutia purchases generally offsets the effect of price transparency on the sale of Solutia's finished products. In addition, the conversion to the euro had the positive effects of eliminating currency risk in cross-border sales and of reducing currency exchange costs. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133 provides comprehensive and consistent standards for the recognition and measurement of derivative and hedging activities. It requires that derivatives be recorded on the Statement of Consolidated Financial Position at fair value and establishes criteria for hedges of changes in the fair value of assets, liabilities or firm commitments, hedges of variable cash flows of forecasted transactions, and hedges of foreign currency exposures of net investments in foreign operations. Changes in the fair value of derivatives that do not meet the criteria for hedges are to be recognized in the Statement of Consolidated Income. During June 1999, FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," to defer the effective date of SFAS No. 133 by one year. The standard will now be effective for Solutia beginning January 1, 2001. Solutia does not expect the adoption of SFAS No. 133 to have a material effect on its consolidated financial statements. 29 STATEMENT OF CONSOLIDATED INCOME
Year Ended December 31, ---------------------------------------- Dollars in millions, except per share amounts 1999 1998 1997 ---------------------------------------- NET SALES $2,830 $2,835 $2,969 Cost of goods sold 2,178 2,085 2,316 ---------------------------------------- GROSS PROFIT 652 750 653 Marketing expenses 153 145 143 Administrative expenses 122 136 133 Technological expenses 80 83 87 Amortization expense 3 - - ---------------------------------------- OPERATING INCOME 294 386 290 Equity earnings from affiliates 36 25 31 Interest expense (40) (43) (41) Other income (expense) - net 13 7 10 ---------------------------------------- INCOME BEFORE INCOME TAXES 303 375 290 Income taxes 97 126 98 ---------------------------------------- NET INCOME $ 206 $ 249 $ 192 ======================================== BASIC EARNINGS PER SHARE $ 1.86 $ 2.16 $ 1.63 ======================================== DILUTED EARNINGS PER SHARE $ 1.80 $ 2.03 $ 1.55 ======================================== Weighted average equivalent shares (in millions): Basic 110.8 115.5 117.7 Effect of dilutive securities: Common share equivalents - common stock issuable upon exercise of outstanding stock options 3.8 7.3 6.0 ---------------------------------------- Diluted 114.6 122.8 123.7 ========================================
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
Year Ended December 31, ---------------------------------------- Dollars in millions 1999 1998 1997 ---------------------------------------- NET INCOME $206 $249 $192 OTHER COMPREHENSIVE INCOME: Currency translation adjustments (44) 10 19 Minimum pension liability adjustments, net of tax of $2 in 1999, $2 in 1998, and $4 in 1997 (4) (3) (7) ---------------------------------------- COMPREHENSIVE INCOME $158 $256 $204 ======================================== See accompanying Notes to Consolidated Financial Statements.
30 STATEMENT OF CONSOLIDATED FINANCIAL POSITION
As of December 31, ------------------------ Dollars in millions, except per share amounts 1999 1998 ------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 28 $ 89 Trade receivables, net of allowances of $12 in 1999 and $7 in 1998 483 357 Miscellaneous receivables and prepaid expenses 131 126 Deferred income tax benefit 101 88 Inventories 371 331 ------------------------ TOTAL CURRENT ASSETS 1,114 991 PROPERTY, PLANT AND EQUIPMENT: Land 68 17 Buildings 436 371 Machinery and equipment 2,919 2,786 Construction in progress 272 127 ------------------------ Total property, plant and equipment 3,695 3,301 Less accumulated depreciation 2,379 2,357 ------------------------ NET PROPERTY, PLANT AND EQUIPMENT 1,316 944 INVESTMENTS IN AFFILIATES 377 394 GOODWILL, NET OF AMORTIZATION 511 - LONG-TERM DEFERRED INCOME TAX BENEFIT 232 274 OTHER ASSETS 220 162 ------------------------ TOTAL ASSETS $3,770 $2,765 ======================== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 312 $ 278 Wages and benefits 59 107 Postretirement liabilities 86 88 Miscellaneous accruals 359 259 Short-term debt 511 - ------------------------ TOTAL CURRENT LIABILITIES 1,327 732 LONG-TERM DEBT 802 597 POSTRETIREMENT LIABILITIES 998 971 OTHER LIABILITIES 561 472 SHAREHOLDERS' EQUITY (DEFICIT): Common stock (authorized, 600,000,000 shares, par value $0.01) Issued: 118,400,635 shares in 1999 and 1998 1 1 Additional contributed capital (137) (131) Treasury stock, at cost (8,859,764 shares in 1999 and 5,629,677 shares in 1998) (209) (143) Unearned ESOP shares (18) (25) Accumulated other comprehensive income (29) 19 Reinvested earnings 474 272 ------------------------ TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 82 (7) ------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $3,770 $2,765 ======================== See accompanying Notes to Consolidated Financial Statements.
31 STATEMENT OF CONSOLIDATED CASH FLOW
Year Ended December 31, ---------------------------------------- Dollars in millions 1999 1998 1997 ---------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income $ 206 $ 249 $ 192 Adjustments to reconcile to Cash From Operations: Items that did not use (provide) cash: Deferred income taxes 23 32 32 Depreciation and amortization 151 147 145 Amortization of deferred credits (10) (7) (11) Other 78 17 (39) Working capital changes that provided (used) cash: Trade receivables (18) 68 (9) Inventories 42 (6) (32) Accounts payable and accrued liabilities (114) 3 (115) Other 6 15 (45) Other items - 19 41 ---------------------------------------- CASH FROM OPERATIONS 364 537 159 ---------------------------------------- INVESTING ACTIVITIES: Property, plant and equipment purchases (257) (158) (165) Acquisition and investment payments, net of cash acquired (835) (8) (2) Investment and property disposal proceeds 30 22 9 ---------------------------------------- CASH FROM INVESTING ACTIVITIES (1,062) (144) (158) ---------------------------------------- FINANCING ACTIVITIES: Net transactions with Monsanto Company - - 292 Long-term debt proceeds - - 600 Net change in debt obligations 712 (190) (840) Treasury stock purchases (79) (161) (35) Dividend payments (4) (5) (1) Common stock issued under employee stock plans 8 28 7 ---------------------------------------- CASH FROM FINANCING ACTIVITIES 637 (328) 23 ---------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (61) 65 24 CASH AND CASH EQUIVALENTS: Beginning of year 89 24 - ---------------------------------------- End of year $ 28 $ 89 $ 24 ======================================== See accompanying Notes to Consolidated Financial Statements.
The effect of exchange rate changes on cash and cash equivalents was not material. Cash payments for interest (net of amounts capitalized) were $41 million in 1999, $44 million in 1998, and $3 million in 1997. Cash payments for income taxes were $43 million in 1999, $94 million in 1998 and $30 million in 1997. 32 STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)
Year Ended December 31, ------------------------------------- Dollars in millions 1999 1998 1997 ------------------------------------- COMMON STOCK: BALANCE, JANUARY 1 $ 1 $ 1 $ - Issuance of 118,371,280 shares at spinoff - - 1 Issuance of 29,355 shares in 1997 for stock option exercises - - - ------------------------------------- BALANCE, DECEMBER 31 $ 1 $ 1 $ 1 ------------------------------------- ADDITIONAL CONTRIBUTED CAPITAL: BALANCE, JANUARY 1 $(131) $(119) $ - Net liability transfer to Solutia at spinoff - - (101) Post-spinoff adjustments - - (12) Employee stock plans and ESOP (6) (12) (6) ------------------------------------- BALANCE, DECEMBER 31 $(137) $(131) $ (119) ------------------------------------- TREASURY STOCK: BALANCE, JANUARY 1 $(143) $ (22) $ - Shares purchased (3,781,700 shares in 1999, 6,246,300 shares in 1998, and 1,569,800 shares in 1997) (79) (161) (35) Net shares issued under employee stock option plans (551,613 shares in 1999, 1,609,451 shares in 1998, and 576,972 shares in 1997) 13 40 13 ------------------------------------- BALANCE, DECEMBER 31 $(209) $(143) $ (22) ------------------------------------- UNEARNED ESOP SHARES: BALANCE, JANUARY 1 $ (25) $ (31) $ - Transfer of ESOP reserve balance to Solutia at spinoff - - (31) Amortization of ESOP balance 7 6 - ------------------------------------- BALANCE, DECEMBER 31 $ (18) $ (25) $ (31) ------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: BALANCE, JANUARY 1 $ 19 $ 12 $ - Currency translation adjustments (44) 10 19 Minimum pension liability adjustments (4) (3) (7) ------------------------------------- BALANCE, DECEMBER 31 $ (29) $ 19 $ 12 ------------------------------------- REINVESTED EARNINGS: BALANCE, JANUARY 1 $ 272 $ 28 $ - Net income 206 249 29 Dividends (4) (5) (1) ------------------------------------- BALANCE, DECEMBER 31 $ 474 $ 272 $ 28 ------------------------------------- MONSANTO COMPANY EQUITY: BALANCE, JANUARY 1 $ - $ - $ 656 1997 activity to date of spinoff: Net income 163 Currency translation adjustments 13 Net transactions with Monsanto Company 292 Elimination of Monsanto Company Equity at spinoff (1,124) ------------------------------------- BALANCE, DECEMBER 31 $ - $ - $ - ------------------------------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $ 82 $ (7) $ (131) ===================================== See accompanying Notes to Consolidated Financial Statements.
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in millions, except per share amounts 1. BASIS OF PRESENTATION Solutia Inc. and its subsidiaries produce and market a variety of high- performance, chemical-based materials. Solutia's strategic focus is built on key strengths, including complex manufacturing capabilities, process engineering expertise, polymer chemistry, fiber technology, technical service, and customer problem solving. These world-class skills are applied to create solutions and products for customers in the consumer, household, automotive, and industrial products industries. Solutia's products include Saflex(R) plastic interlayer; adhesives; window and industrial films; liquid, powder and waterborne resins; Vydyne(R) and Ascend(TM) nylon polymers; chemical intermediates; and nylon fibers. Prior to September 1, 1997, the businesses that form Solutia were wholly owned by Monsanto Company (Monsanto). On September 1, 1997, Monsanto distributed all of the outstanding shares of common stock of Solutia as a dividend to Monsanto stockholders (the spinoff). As a result of the spinoff, on September 1, 1997, Solutia 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 entered into a number of agreements to facilitate the separation of the companies and to provide mechanisms for an orderly transition following the spinoff. The separation from Monsanto and the subsequent transition of services have been completed, although operating agreements for Solutia's manufacturing facilities located in Monsanto plant sites and Monsanto manufacturing facilities located in a Solutia plant site continue for longer terms. PRE-SPINOFF FINANCIAL INFORMATION Financial data included in the accompanying consolidated financial statements for periods prior to the spinoff were prepared on a combined basis. They reflect an estimate of what the historical assets, liabilities, and operations would have been if Solutia had been organized as a separate legal entity, owning certain net assets of Monsanto, during those periods. Generally, only those assets and liabilities of the ongoing chemicals businesses that were expected to be transferred to Solutia prior to the spinoff were included in the Statement of Consolidated Financial Position. Prior to the spinoff, Monsanto provided certain general and administrative services to Solutia, including finance, legal, treasury, information systems, and human resources. The cost allocated to Solutia for these services was based upon the percentage relationship between the net assets used in Solutia's operations and Monsanto's total net assets, as well as other methods which management believed to be reasonable. These allocations were $12 million in 1997. In preparation for the spinoff, Monsanto began a transition plan for the separation. As part of this plan, Monsanto discontinued its allocation of corporate expenses for these general and administrative services on April 1, 1997, as these expenses were specifically identified and segregated as part of Solutia's ongoing cost infrastructure. Solutia now performs these general and administrative functions using its own resources or purchased services. If Solutia had operated as a stand-alone entity in 1997, management estimates that general and administrative expenses would have been higher by approximately $13 million in 1997 to reflect the cost of replacing the services represented by these allocations. As described in Notes 11 and 12, 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 were included in Solutia's consolidated financial statements. Generally, such costs were based on the percentage of Solutia payroll costs to total Monsanto payroll costs. Monsanto used a centralized approach to manage its cash and to finance its operations. As a result, cash and cash equivalents and debt were not allocated to Solutia in the pre-spinoff historical financial statements. Solutia generally did not have borrowings, except amounts due to Monsanto. Interest expense was allocated to Solutia in the consolidated financial statements to reflect Solutia's pro rata share of the financing structure of Monsanto. This allocation in the consolidated financial statements is based on the percentage relationship between the net assets used in Solutia's operations and Monsanto's total net assets. The allocation method followed in preparing the pre-spinoff consolidated financial statements may not necessarily reflect the results of operations, cash flows, or financial position of Solutia in the future, or reflect what the results of operations, cash flows, or financial position would have been if Solutia had been a separate stand-alone entity. POST-SPINOFF FINANCIAL INFORMATION Financial data included in the accompanying consolidated financial statements, for periods subsequent to the spinoff have been prepared to reflect the historical value of the assets, liabilities, and operations of the businesses that were contributed to Solutia by Monsanto in accordance with the distribution and employee benefits and compensation allocation agreements described in the preceding paragraphs. Effective with the spinoff on September 1, 1997, the assets contributed to Solutia and the liabilities assumed by Solutia included cash of $75 million, debt of $1.029 billion, accrued net pension liability for the U.S. and ex-U.S. defined benefit pension plans, and additional obligations for health care and other postretirement benefits. At the date of the spinoff, the amount of postretirement liabilities assumed by Solutia totaled approximately $1.018 billion. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Solutia and its majority-owned subsidiaries. Other companies in which Solutia has a significant interest (20 to 50 percent) are included in "Investments in Affiliates" in the Statement of Consolidated Financial Position. Solutia's share of these companies' net earnings or losses is reflected in "Equity Earnings from Affiliates" in the Statement of Consolidated Income. Prior to the spinoff, the consolidated financial statements included the accounts of Solutia as described in Note 1. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 were used to account for the allocation between Monsanto and Solutia of financial statement amounts, restructuring reserves, environmental reserves, self-insurance reserves, employee benefit plans, asset impairments, and contingencies. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased. 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 (67 percent as of December 31, 1999) is determined by 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 the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. The cost of plant and equipment is depreciated over weighted average periods of 20 years for buildings and 12 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 market prices or, if not available, upon discounted cash value at an appropriate discount rate. ENVIRONMENTAL REMEDIATION Costs for remediation of waste disposal sites are accrued in the accounting period in which the obligation is probable and when the cost is reasonably estimable. Postclosure 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 consolidated financial statements. Effective January 1, 1997, Solutia adopted the American Institute of Certified Public Accountants' Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding the recognition, measurement and disclosure of environmental remediation liabilities. The primary change in Solutia's accounting principles associated with the adoption of this SOP was an acceleration of the recognition of certain environmental remediation liabilities at operating facilities. This change and the amounts associated with it are more fully described in Note 15. REVENUE RECOGNITION Revenues are recorded when products are shipped. DERIVATIVE FINANCIAL INSTRUMENTS Currency forward contracts are used to manage currency exposures for financial instruments denominated in currencies other than the entity's functional currency. Gains and losses on contracts that are designated and effective as hedges are included in net income and offset the exchange gain or loss of the transaction being hedged. Major currencies affecting Solutia's business are the U.S. dollar, the British pound sterling, the euro, the Canadian dollar, and the Brazilian real. Currency restrictions are not expected to have a significant effect on Solutia's cash flow, liquidity, or capital resources. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INCOME TAXES Prior to the spinoff, the company did not file separate tax returns because its results were included in the income tax returns filed by Monsanto and its subsidiaries in various U.S. and ex-U.S. jurisdictions. The tax provisions reflected in the Statement of Consolidated Income for periods prior to the spinoff have been computed as if Solutia were a separate company. Solutia accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. 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 translation adjustments in the Statement of Consolidated Financial Position are accumulated in equity. The financial statement components of ex-U.S. entities that operate in hyperinflationary economies are translated at either current or historical exchange rates, as appropriate. These currency translation adjustments are included in net income. EARNINGS PER SHARE Solutia measures earnings per share under the guidance of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic earnings per share is a measure of operating performance that assumes no dilution from securities or contracts to issue common stock. Diluted earnings per share is a measure of operating performance by giving effect to the dilution that would occur if securities or contracts to issue common stock were exercised or converted. COMPREHENSIVE INCOME Effective January 1, 1998, Solutia adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes the standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income includes net income and several other items that were recognized directly in shareholders' equity under previous accounting standards. RECLASSIFICATIONS Certain reclassifications of prior years' financial information have been made to conform to the 1999 presentation. 3. ACQUISITIONS On May 25, 1999, Solutia acquired CPFilms Inc. from Akzo Nobel N.V. for approximately $200 million, which was financed with commercial paper. CPFilms is a leading manufacturer and marketer of window film and other high-technology film products for automotive and architectural after- markets and a variety of other specialty film applications. The acquisition has been accounted for using the purchase method. The allocation of the purchase price to the identifiable assets and liabilities acquired resulted in goodwill of approximately $80 million. This allocation is preliminary and is subject to change. Goodwill and other intangible assets will be amortized over their estimated useful lives of 20 years. CPFilms' results of operations from May 25, 1999, through December 31, 1999, are included in Solutia's Statement of Consolidated Income for the year ended December 31, 1999. On December 22, 1999, Solutia acquired Vianova Resins from Morgan Grenfell Private Equity Ltd. for approximately 1.2 billion deutsche marks (approximately $640 million), which was financed with commercial paper and the assumption of debt. Vianova Resins is a leading European producer of resins and additives for coatings and technical applications for the specialty, industrial, and automotive sectors. The acquisition has been accounted for using the purchase method. The allocation of the purchase price to the assets and liabilities acquired resulted in goodwill of approximately $430 million. This allocation is preliminary, due to completing the acquisition near Solutia's fiscal year- end, and is subject to change. The valuations of assets and liabilities have not been finalized. Also, Solutia intends to fully integrate Vianova Resins with Solutia's resins business and corporate service organizations. Solutia began considering how to integrate Vianova Resins with its operations during the evaluation of the acquisition, but has not completed the plans for the corporate service organizations. As part of completing the integration plans, Solutia expects to record a liability in accordance with Emerging Issues Task Force Issue 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." In addition to goodwill, the major components of the purchase allocation were current assets of $197 million, non-current assets of $235 million, current liabilities of $67 million, and non-current liabilities of $155 million. Solutia anticipates completing the allocation of the purchase price by the end of the second quarter of 2000. Any adjustments to acquired assets and liabilities will result in either an increase or a decrease to goodwill. Goodwill will be amortized over its estimated useful life of 20 years. Results of Vianova's operations for the period of December 22, 1999, through December 31, 1999, were not material to Solutia's Statement of Consolidated Income for the year ended December 31, 1999. The following unaudited pro forma condensed information for the years ended December 31, 1999, and 1998, give effect to the acquisitions of CPFilms and Vianova Resins, and the associated debt financing, as if the acquisitions and the financing had occurred as of the beginning of the periods presented. For the Year Ended December 31 (Unaudited) 1999 1998 ------------------------- Net sales $3,357 $3,465 Net income 203 241 Basic earnings per share 1.83 2.09 Diluted earnings per share 1.77 1.97 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RESTRUCTURING During February 1999, certain equipment critical to the ammonia production process failed. Based on an analysis of the economics of purchased ammonia versus the cost to repair the equipment, Solutia decided to exit the ammonia business. A $28 million ($18 million aftertax) charge to cost of goods sold was recorded in the first quarter to complete the exit plan. The charge included $2 million to write down the assets to their fair value of approximately $4 million, $4 million of dismantling costs, and $22 million of estimated costs for which Solutia is contractually obligated under an operating agreement. The contractually obligated costs represent an estimate of the direct manufacturing, overhead, and utilities that Solutia is required to pay to a third-party operator during a 36-month termination period. Solutia expects to complete the dismantling of the equipment by the end of the first quarter of 2000. The ammonia business's net sales for the years ended December 31, 1999, 1998, and 1997, were $1 million, $20 million, and $17 million, respectively. Operating income for those periods was minimal. The following table summarizes the 1999 restructuring charge and amounts utilized to carry out those plans:
Shutdown Asset Other of Facilities Impairments Costs Total ---------------------------------------------------- Balance at January 1, 1999 $- $ - $ - $ - Charges taken 4 2 22 28 Amounts utilized - (2) (6) (8) ---------------------------------------------------- BALANCE AT DECEMBER 31, 1999 $4 $ - $16 $ 20 ====================================================
In December 1996, Solutia recorded pretax restructuring charges of $256 million ($164 million aftertax) to cover costs associated with the closure or sale of certain facilities, asset write-offs, and work force reductions of approximately 900 people across all world areas and functions of the company. The workforce reductions were required to reduce staffing for the spinoff and for the implementation of new business systems and methodologies. Approximately two-thirds of the workforce reductions were planned for North American shared service, business and manufacturing operations, and approximately one-third were planned for European, Asian, and Latin American shared service operations and sales offices. Of the North American reductions, approximately half of the reductions were management and senior management positions. Activities completed during 1999 include the shutdowns of certain facilities and the final stage of headcount reductions totaling approximately 150 people. The 1999 headcount reductions occurred in Solutia's Asian, European, and North American shared service operations. Total headcount reductions under the 1996 restructuring were approximately 900 people. The headcount reductions occurred over a longer period of time than management estimated due to the efforts required to complete the separation from Monsanto and the transition to new business systems and methodologies. In the fourth quarter of 1999, Solutia reversed excess restructuring reserves due to the completion of the actions at a lower cost than contemplated in the 1996 plan. A reversal of $1 million ($1 million aftertax) was made to eliminate a reserve for headcount reductions after the final stage of headcount reductions was carried out. A second reversal of $1 million ($1 million aftertax) was made to eliminate a reserve recorded to shutdown a non-strategic facility after that shutdown was completed at a lower cost. During 1998, actions taken under the 1996 restructuring plan included continuing the shutdowns of certain facilities and headcount reductions of approximately 50 people. The 50 people affected were in almost all areas of Solutia, but primarily in Solutia's shared service operations, and left the company by the end of 1998. Solutia also terminated approximately 100 individuals during December 1998 who left Solutia on various dates in the first half of 1999. During 1998, evaluations of the costs to complete Solutia's restructuring plans yielded lower cost estimates for certain of the restructuring actions. The second quarter 1998 review yielded lower cost estimates to complete the shutdown of certain facilities and resulted in the reversal of $3 million ($2 million aftertax) in that quarter. The third and fourth quarter 1998 reviews yielded downward revisions of the costs to implement the employment reduction plans due to higher than anticipated attrition that reduced employment levels without additional cost to the company. As a result, the company reversed restructuring reserves of $3 million ($2 million aftertax) in the third quarter 1998 and $3 million ($2 million aftertax) in the fourth quarter. Significant progress was made on the 1996 restructuring during 1997, with employment being reduced by approximately 600 people. Employees terminated were from all regions and areas of Solutia, with almost half in North American manufacturing operations. The following table summarizes the actions of the 1996 plan carried out during 1997, 1998, and 1999:
Employee Shutdown Reductions of Facilities Total ------------------------------------- Balance at January 1, 1997 $147 $ 30 $177 Amounts utilized (80) (1) (81) ------------------------------------- BALANCE AT DECEMBER 31, 1997 67 29 96 ------------------------------------- Amounts utilized (24) (8) (32) Adjustments (6) (3) (9) ------------------------------------- BALANCE AT DECEMBER 31, 1998 37 18 55 ------------------------------------- Amounts utilized (36) (17) (53) Adjustments (1) (1) (2) ------------------------------------- BALANCE AT DECEMBER 31, 1999 $ - $ - $ - =====================================
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In December 1995, Monsanto's Board of Directors approved a plan of restructuring resulting in a pretax charge of $66 million ($57 million aftertax). The charge covered the costs of work force reductions, business consolidations, facility closures, and the exit from nonstrategic businesses and facilities. Significant progress was made toward the completion of the 1995 restructuring during 1996. The actions resulted in reduced employment of approximately 100 people and the closure of certain facilities. Reviews of the 1995 restructuring reserves during 1997 resulted in a second quarter reversal of $8 million ($5 million aftertax) due to lower exit costs associated with the sale and closure of nonstrategic facilities. The following table summarizes the actions of the 1995 plan: Shutdown of Facilities ------------- Balance at January 1, 1997 $24 Amounts utilized (8) Adjustments (8) ------------- BALANCE AT DECEMBER 31, 1997 8 ------------- Amounts utilized (8) ------------- BALANCE AT DECEMBER 31, 1998 $ - ============= For all of Solutia's restructuring charges, expenses were recorded based on estimates prepared at the time the restructuring actions were approved by the Board of Directors. Adjustments to these estimates, shown in the tables above, were credited to costs of goods sold in the respective year. 5. ASSET IMPAIRMENTS An impairment charge of $6 million ($4 million aftertax) was recorded in the first quarter of 1999 to cost of goods sold primarily to write down a bulk continuous filament spinning machine as a result of management's decision to shut down the equipment due to a noncompetitive cost position. The adjusted carrying value of the machine is $0.5 million. The charge is due to a Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of," review, which indicated that the carrying amount of the assets exceeded the identifiable, undiscounted cash flows related to the assets. Fair value of the assets was determined based on estimates of market prices for the machinery. Operating income derived from the machinery was minimal in the years ended December 31, 1999, 1998, and 1997. 6. INVESTMENTS IN AFFILIATES At December 31, 1999, Solutia's investments in affiliates consisted principally of its 50 percent interests in the Flexsys, L.P. (Flexsys) rubber chemicals joint venture and the Advanced Elastomers Systems, L.P. (AES) joint venture for which Solutia uses the equity method of accounting. Summarized combined financial information for 100 percent of the Flexsys and AES joint ventures is as follows:
1999 1998 1997 --------------------------------- Results of operations: Net sales $869 $838 $865 Gross profit 267 256 254 Operating income 108 116 107 Net income 85 94 78 Financial position: Current assets $398 $438 Noncurrent assets 518 538 Current liabilities 275 282 Noncurrent liabilities 48 54
7. INVENTORY VALUATION The components of inventories were:
1999 1998 -------------------- Finished goods $ 260 $ 252 Goods in process 121 87 Raw materials and supplies 109 116 -------------------- Inventories, at FIFO cost 490 455 Excess of FIFO over LIFO cost (119) (124) -------------------- TOTAL $ 371 $ 331 ====================
Inventories at FIFO approximate current cost. The effects of LIFO inventory liquidations were not significant in 1999, 1998 and 1997. 8. INCOME TAXES The components of income before income taxes were:
1999 1998 1997 ---------------------------------- United States $224 $285 $187 Outside United States 79 90 103 ---------------------------------- TOTAL $303 $375 $290 ==================================
The components of income tax expense charged to operations were:
1999 1998 1997 ---------------------------------- Current: U.S. federal $48 $ 66 $36 U.S. state 6 3 7 Outside United States 20 25 23 ---------------------------------- 74 94 66 ---------------------------------- Deferred: U.S. federal 18 21 19 U.S. state - 6 2 Outside United States 5 5 11 ---------------------------------- 23 32 32 ---------------------------------- TOTAL $97 $126 $98 ==================================
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Factors causing Solutia's effective tax rate to differ from the U.S. federal statutory rate were:
1999 1998 1997 ---------------------------------- U.S. federal statutory rate 35% 35% 35% U.S. state income taxes 2 2 2 Tax benefit of foreign sales corporation (2) (2) (2) Taxes related to foreign income, net of credits (1) - - Income from equity affiliates recorded net of tax (4) (2) (3) Other 2 1 2 ---------------------------------- EFFECTIVE INCOME TAX RATE 32% 34% 34% ==================================
Deferred income tax balances were related to:
1999 1998 -------------------- Property $(197) $(174) Postretirement benefits 399 393 Restructuring reserves 7 31 Environmental liabilities 76 72 Inventory (3) 5 Other 17 31 -------------------- NET DEFERRED TAX ASSETS $ 299 $ 358 ====================
Income taxes and remittance taxes have not been recorded on $85 million in undistributed earnings of subsidiaries, either because any taxes on dividends would be offset substantially by foreign tax credits or because Solutia intends to reinvest those earnings indefinitely. It is not practicable to estimate the tax effect of remitting these earnings to the United States. 9. DEBT OBLIGATIONS Solutia's debt obligations include commercial paper, notes, and debentures. The weighted average interest rate on total debt outstanding was 6.8 percent at December 31, 1999, and was 7.0 percent at December 31, 1998. DEBT MATURING IN ONE YEAR Debt maturing in one year consisted of commercial paper balances of $511 million at December 31, 1999, and $0 at December 31, 1998. Interest expense on commercial paper balances charged to income during 1999, 1998, and 1997, for the period following the spinoff, were at weighted average rates of 5.5 percent, 5.7 percent, and 5.8 percent, respectively. At December 31, 1999, $201 million of outstanding commercial paper was reclassified from short-term debt to long-term debt based on Solutia's intention to refinance that amount through the issuance of euro 200 million of notes, due February 2005. Solutia's commercial paper program is principally supported by an $800 million, five-year revolving credit facility ($800 million facility) with a syndicate of commercial banks. The $800 million facility is also available for working capital and other general corporate purposes. This agreement was amended during November 1999, principally to allow the issuance of commercial paper in euros, as well as U.S. dollars. During November 1999, Solutia put in place a $300 million, 364-day multi-currency revolving credit agreement ($300 million facility) with a syndicate of commercial banks. The $300 million facility has terms that are generally consistent with the terms of the $800 million facility. The $300 million facility supports Solutia's commercial paper program and is available for working capital and other general corporate purposes. Both the $800 million facility and the $300 million facility contain various covenants that, among other things, restrict Solutia's ability to merge with another entity and require Solutia to meet certain leverage and interest coverage ratios. The company does not anticipate that future borrowings will be limited by the terms of these agreements. Interest on amounts borrowed under these credit facilities is expected to approximate money market rates. LONG-TERM DEBT Long-term debt consisted of the following:
1999 1998 ------------------- Commercial paper $201 $ - 6.5% notes due 2002 150 150 7.375% debentures due 2027 300 300 6.72% debentures due 2037 150 150 Other 4 - Unamortized debt discount (3) (3) ------------------- TOTAL $802 $597 ===================
Other notes of $4 million were assumed in the acquisition of Vianova Resins. The notes and debentures are unsecured obligations. Interest is payable semiannually, on April 15 and October 15 of each year. The holders of the 2037 debentures have the right to require repayment on October 15, 2004. The notes and debentures contain provisions that, among other things, restrict Solutia's ability to create liens against assets and its ability to enter into sale and leaseback transactions. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair value of Solutia's long-term debt was $761 million as of December 31, 1999, and $587 million as of December 31, 1998. These estimates compare with the recorded amount of $802 million in 1999 and $597 million in 1998. The recorded amounts of cash, trade receivables, third-party guarantees, accounts payable, and short-term debt approximate their fair values at both December 31, 1999, and December 31, 1998. The estimated fair value of the company's foreign currency forward contracts approximates their notional amounts. Notional amounts at December 31, 1999, and December 31, 1998, for purchase contracts were $44 million and $34 million, respectively, and for sell contracts were $44 million and $34 million, respectively. Fair values are estimated by the use of quoted market prices, estimates obtained from brokers, and other appropriate valuation techniques and are based upon information available as of December 31, 1999, and December 31, 1998. The fair-value estimates do not necessarily reflect the values Solutia could realize in the current market. 11. POSTRETIREMENT BENEFITS Effective December 31, 1998, the company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which standardizes, to the extent practicable, the disclosure requirements for pensions and other postretirement benefits, and which requires disclosure of the components of the changes in the benefit obligation and fair values of plan assets. Pension benefits are based on the employee's age, years of service, and compensation level. The pension plans are funded in accordance with Solutia'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. Prior to the spinoff, the majority of Solutia's employees participated in Monsanto's noncontributory pension plans. In conjunction with the spinoff, Solutia assumed pension liabilities and received related assets from those plans for its applicable active employees and for certain former employees who left Monsanto in earlier years. The majority of Solutia's employees also participate in benefit programs that provide certain health care and life insurance benefits for retired employees. 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 Solutia. These postretirement benefits are unfunded and are generally based on the employee's years of service and/or compensation level. The costs of postretirement benefits are accrued by the date the employees become eligible for the benefits. In connection with the spinoff, Solutia assumed retiree medical liabilities for its applicable active employees and for approximately two-thirds of the retired U.S. employees of Monsanto. During the second quarter of 1998, Solutia amended certain of its postretirement health care plans, primarily to adjust cost-sharing provisions. The amendment resulted in a $161 million reduction in the company's accumulated postretirement benefit obligation, which is being amortized over the average remaining service life of plan participants of approximately 12 years. Net pension cost for 1997 consisted of $9 million of net pension costs incurred subsequent to the spinoff and $19 million of cost allocations from Monsanto. Similarly, the 1997 postretirement benefit cost consisted of $23 million of postretirement benefit costs incurred subsequent to the spinoff and $31 million of cost allocations from Monsanto. For the 1999, 1998, and the four months of 1997 subsequent to the spinoff, the company's pension and healthcare and other benefit costs were as follows:
Pension Benefits Healthcare and Other Benefits ----------------------------- ----------------------------- 1999 1998 1997 1999 1998 1997 ----------------------------- ----------------------------- Service costs for benefits earned $ 38 $ 33 $ 11 $ 11 $ 11 $ 4 Interest cost on benefit obligation 132 130 52 49 54 20 Assumed return on plan assets (153) (147) (53) - - - Prior service costs 21 19 4 (18) (12) - Transition asset (10) (10) (4) - - - Unrecognized net (gain)/loss (3) (3) (1) 6 1 (1) ----------------------------- ----------------------------- TOTAL $ 25 $ 22 $ 9 $ 48 $ 54 $23 ============================= =============================
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Components of the changes in fair value of plan assets, changes in the benefit obligation, and the funding status of Solutia's postretirement plans are as follows:
Healthcare and Pension Benefits Other Benefits ------------------ ---------------- 1999 1998 1999 1998 ------------------ ---------------- CHANGES IN FAIR VALUE OF PLAN ASSETS Fair value of plan assets at January 1 $1,910 $1,834 $ - $ - Actual return on plan assets 349 288 - - Acquisitions 2 - - - Benefits paid (288) (212) - - ------------------ ---------------- FAIR VALUE OF PLAN ASSETS AT DECEMBER 31 $1,973 $1,910 $ - $ - ================== ================ CHANGES IN BENEFIT OBLIGATION Benefit obligation at January 1 $1,983 $1,824 $726 $ 918 Service costs 38 33 11 11 Interest cost 132 130 49 54 Participant contributions - - 2 1 Actuarial (gain)/loss (54) 214 12 (19) Acquisitions 21 - - - Benefits paid (300) (229) (80) (78) Plan amendments 13 11 - (161) ------------------ ---------------- BENEFIT OBLIGATION AT DECEMBER 31 $1,833 $1,983 $720 $ 726 ================== ================
Plan assets consist principally of common stocks and U.S. government and corporate obligations. Contributions to the pension benefit plans were neither required nor made in 1999 and 1998 because Solutia's principal pension plan is adequately funded, using assumed returns. The funded status of Solutia's postretirement benefit plans at December 31, 1999, and 1998, was as follows:
Healthcare and Pension Benefits Other Benefits ---------------- ----------------- 1999 1998 1999 1998 ---------------- ----------------- FUNDED STATUS $ 140 $ (73) $(720) $(726) Unrecognized actuarial (gain)/loss (464) (228) 18 11 Unrecognized prior service costs 149 184 (159) (176) Additional liability (25) (19) - - Unrecognized net transition (gain)/loss (13) (23) - - ---------------- ----------------- ACCRUED NET LIABILITY AT DECEMBER 31 $(213) $(159) $(861) $(891) ================ =================
The accrued net liability was included in:
Healthcare and Pension Benefits Other Benefits ---------------- ----------------- 1999 1998 1999 1998 ---------------- ----------------- Current postretirement liabilities $ - $ - $ (86) $ (88) Long-term postretirement liabilities (223) (168) (775) (803) Less: Other assets 10 9 - - ---------------- ----------------- ACCRUED NET LIABILITY AT DECEMBER 31 $(213) $(159) $(861) $(891) ================ =================
Certain of Solutia's pension benefit plans are unfunded and therefore have accumulated benefit obligations in excess of plan assets. Information regarding these unfunded plans is as follows:
1999 1998 ---------------- Projected benefit obligation $30 $27 Accumulated benefit obligation 24 23 Fair value of plan assets - -
The significant actuarial assumptions used to estimate the projected benefit obligation for the Solutia's principal pension, healthcare, and other benefit plans were as follows:
Healthcare and Pension Benefits Other Benefits ---------------- ----------------- 1999 1998 1999 1998 ---------------- ----------------- Discount rate 7.50% 7.00% 7.50% 7.00% Assumed long-term rate of return on plan assets 9.50% 9.50% - - Annual rates of salary increase (for plans that base benefits on final compensation level) 4.50% 4.00% - - Assumed trend rate for healthcare costs - - 5.25% 5.00% Ultimate trend rate for healthcare costs - - 5.25% 5.00%
A 1 percent change in the assumed health care cost trend rates would have the following effect as of December 31, 1999:
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------------------------- Effect on total service and interest cost components $ 1 $ (1) Effect on postretirement benefit obligation 10 (11)
12. EMPLOYEE SAVINGS PLANS In connection with the spinoff, Monsanto common stock held by the Monsanto Employee Stock Ownership Plan (ESOP) and related Monsanto ESOP borrowings were allocated between Solutia and Monsanto. As a result of this allocation, Solutia received 2.4 million shares of Monsanto common stock and assumed $29 million of ESOP debt to third parties. Simultaneously, Solutia created its own ESOP, established a trust to hold the Monsanto shares, and issued a $29 million loan to the trust. The trust used the proceeds of the loan to repay the assumed third-party debt. Subsequent to the spinoff, the ESOP trust was required by government regulations to divest its holdings of Monsanto common stock and to use the proceeds to acquire Solutia common stock. The divestiture of Monsanto common stock and the purchase of Solutia common stock were completed in early 1998. The trust held approximately 10.7 million shares of Solutia common stock at December 31, 1999. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Substantially all U.S. employees of Solutia are eligible to participate in the Solutia Inc. Savings and Investment Plan, a 401(k) plan. Shares held in the ESOP are used to make Solutia's matching contribution to eligible participants' accounts under this plan. The number of shares released is computed on each pay date based on a formula that considers the participant contribution, the Solutia matching rate, and Solutia's closing stock price. Shares allocated to participant accounts totaled 979,439 shares in 1999, 622,598 shares in 1998, and 232,674 shares in 1997, leaving 2,908,080 unallocated shares as of December 31, 1999. The value of these contributions was $18 million in 1999, $16 million in 1998, and $10 million in 1997. Unallocated shares held by the ESOP are considered outstanding for earnings per share calculations. Compensation expense is equal to the cost of the shares allocated to participants, less dividends paid on the shares held by the ESOP. Information regarding the ESOP follows:
1999 1998 1997 --------------------- Total ESOP expense $ 8 $6 $5 Interest portion of total ESOP expense 2 2 3 Cash contributions 10 7 -
For the eight-month period of 1997 prior to the spinoff, Monsanto ESOP expense and related interest were allocated to Solutia by Monsanto. Cash contributions and dividends paid on ESOP shares for periods prior to the spinoff were not applicable to the Solutia ESOP. 13. STOCK OPTION PLANS The Solutia Inc. 1997 Stock-Based Incentive Plan (1997 Plan) provides incentives to officers and employees of Solutia and its subsidiaries directly linked to the price of Solutia's stock. The 1997 Plan is the company's current stock-based incentive plan for management. The 1997 Plan authorizes up to 7,800,000 shares of Solutia common stock for grants of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, and bonus stock awards to Solutia's officers and employees. The shares used may be either newly issued shares, treasury shares, or a combination. Under the 1997 Plan, the exercise price of a stock option must be no less than the fair market value of Solutia's common stock on the grant date. Additionally, the 1997 Plan provides that the term of any stock option granted under the plan may not exceed 10 years. At December 31, 1999, approximately 1,341,608 shares of Solutia's common stock remained available for grants under the plan. During 1999, nonqualified options to purchase 571,000 shares of Solutia common stock were granted under the 1997 Plan to current executive officers and other senior executives as a group, and non-qualified stock options to purchase 1,449,325 shares were granted to other employees at an average exercise price of $20.61 per share. Total shares covered by options granted under the 1997 Plan to current executive officers and other senior executives as a group and other employees were 1,643,000 and 5,200,392, respectively, through December 31, 1999. The options granted to Solutia's executive officers and other senior executives are performance options that become exercisable upon the earlier of achievement of specified share price targets or the ninth anniversary of the option grant. The options granted to the other management employees are time-based. They generally become exercisable in thirds, one-third on each of the first three anniversaries of the option grant date. The Solutia Inc. Non-Employee Director Compensation Plan (NEDCP) provides incentives to non-employee members of Solutia's Board of Directors. The NEDCP authorizes up to 400,000 shares for grants of non- qualified stock options and for grants of deferred shares in payment of all or a portion of the annual retainer for the non-employee directors. Only treasury shares may be used. Under the NEDCP, the exercise price of a stock option must be no less than the fair market value of Solutia's common stock on the grant date and the term of any stock option granted under the plan may not exceed 10 years. At December 31, 1999, 274,995 shares of Solutia's common stock remained available for grants under the Plan. Shares covered by options granted, and deferred shares credited to non-employee directors' accounts, during 1999, 1998 and 1997 totaled 34,333, 16,000, and 74,672, respectively. Certain options granted under Monsanto's stock option plans (Monsanto options) to Solutia employees in 1997 prior to the spinoff were converted into Solutia options with adjustments to preserve their value. In addition, unexercised Monsanto options granted to Solutia and Monsanto employees prior to 1997 were converted into two awards, one based on Monsanto common stock and one based on Solutia common stock, with the same overall value at the time of the spinoff as the original Monsanto award. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," Solutia 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 Solutia'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 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SFAS No. 123, Solutia's net income would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ----------------------------------------- NET INCOME: As reported $ 206 $ 249 $ 192 Pro forma 187 224 159 DILUTED EARNINGS PER SHARE: As reported $1.80 $2.03 $1.55 Pro forma 1.63 1.82 1.29
Compensation expense resulting from the fair value method of SFAS No. 123 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 use of the Black-Scholes option-pricing model. The following weighted-average assumptions were used to calculate the expense attributable to Solutia for Monsanto options granted to Solutia employees in 1997:
1997 ---- Expected dividend yield 0.3% Expected volatility 27.0% Risk-free interest rates 6.3% Expected option lives (years) 4.0
The following weighted-average assumptions were used for grants of Solutia options in 1999, 1998, and 1997:
1999 1998 1997 ---------------------------------------- Expected dividend yield 0.2% 0.2% 0.2% Expected volatility 34.0% 28.0% 25.0% Risk-free interest rates 6.0% 5.1% 5.9% Expected option lives (years) 5.0 5.0 4.0
The weighted-average fair values of options granted during 1999, 1998, and 1997 were $8.05, $9.33, and $4.83 per share, respectively. A summary of the status of the Solutia's stock option plans for years ended December 31, 1999, and 1998, and the period subsequent to the spinoff through December 31, 1997, follows:
Outstanding --------------------------------- Exercisable Weighted-Average Shares Shares Exercise Price --------------------------------------------------- September 1, 1997 10,269,960 24,122,741 $13.48 --------------------------------------------------- Granted 4,640,172 19.23 Exercised (752,102) 9.29 Expired (118,411) 16.32 --------------------------------------------------- DECEMBER 31, 1997 9,517,858 27,892,400 14.53 --------------------------------------------------- Granted 273,567 27.12 Exercised (1,833,225) 12.19 Expired (475,637) 16.22 --------------------------------------------------- DECEMBER 31, 1998 17,116,842 25,875,105 14.79 --------------------------------------------------- Granted 2,054,658 20.61 Exercised (678,710) 10.93 Expired (495,232) 18.43 --------------------------------------------------- DECEMBER 31, 1999 18,852,246 26,737,821 $15.27 ===================================================
The following table summarizes information about stock options outstanding at December 31, 1999: OPTIONS OUTSTANDING:
Weighted-Average Range of Remaining Weighted-Average Exercise Prices Shares Contractual Life Exercise Price ---------------------------------------------------------- $ 3 to 7 4,661,143 3.3 years $ 5.87 8 to 11 47,979 5.9 years 10.12 12 to 15 1,399,674 6.3 years 12.60 16 to 18 13,922,189 7.0 years 16.44 19 to 22 6,461,526 8.3 years 19.70 23 to 29 245,310 8.4 years 27.62 ---------------------------------------------------------- $ 3 to 29 26,737,821 6.7 years $15.27 ==========================================================
OPTIONS EXERCISABLE:
Range of Weighted-Average Exercise Prices Shares Exercise Price -------------------------------------- $ 3 to 7 4,661,143 $ 5.87 8 to 11 47,979 10.12 12 to 15 1,390,741 12.59 16 to 18 9,354,897 16.46 19 to 22 3,335,046 19.32 23 to 29 62,440 27.35 -------------------------------------- $ 3 to 29 18,852,246 $14.08 ======================================
14. CAPITAL STOCK Solutia's Board of Directors declared a dividend of one preferred stock purchase right for each share of Solutia's common stock issued in the distribution of shares by Monsanto to its shareholders on the effective date of the spinoff and authorized the issuance of one right for each share of common stock issued after the effective date of the spinoff until the earlier of the date the rights become exercisable and the termination date of the rights plan. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would result in beneficial ownership of 20 percent or more, of Solutia's outstanding common stock, the rights become exercisable. Then, for every right held, the owner will be entitled to purchase one one-hundredth of a share of a series of preferred stock for $125. If Solutia is acquired in a business combination transaction while the rights are outstanding, for every right held, the holder will be entitled to purchase, for $125, common shares of the acquiring company having a market value of $250. In addition, if a person or group acquires beneficial ownership of 20 percent or more of Solutia's outstanding common stock, for every right held, the holder (other than such person or members of such group) will be entitled to purchase, for $125, a number of shares of Solutia's common stock having a market value of $250. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of Solutia's outstanding common stock, Solutia's Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of Solutia's common stock on a one-share-for- every-one-right basis. At any time 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) prior to the acquisition of such a 20 percent position, Solutia can redeem each right for $0.01. The Board of Directors is also authorized to reduce the aforementioned 20 percent thresholds to not less than 10 percent. The rights expire in the year 2007. The company has 10 million shares of preferred stock, par value $0.01 per share, authorized. As of December 31, 1999, there were no preferred shares issued or outstanding. 15. COMMITMENTS AND CONTINGENCIES Commitments, principally in connection with uncompleted additions to property, were approximately $100 million at December 31, 1999. Solutia was contingently liable as a guarantor for bank loans totaling approximately $14 million at December 31, 1999. In addition, as of December 31, 1999, the company was contingently liable under letters of credit, primarily related to environmental remediation, totaling $43 million. Solutia's future minimum payments under noncancelable operating leases and unconditional purchase obligations are $26 million for 2000, $22 million for 2001, $19 million for 2002, $52 million for 2003, $13 million for 2004, and $93 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, 1999 and 1998, the unamortized deferred credits were approximately $183 million and $137 million, respectively. The more significant concentrations in Solutia's trade receivables at year-end were:
1999 1998 ---------------------- U.S. chemical industry $51 $55 U.S. carpet industry 41 51 European glass industry 50 36 European chemical industry 28 -
Management does not anticipate losses on its trade receivables in excess of established allowances. Solutia's Statement of Consolidated Financial Position included accrued liabilities of $201 million and $198 million at December 31, 1999 and 1998, respectively, for the remediation of identified waste disposal sites. Expenditures related to remediation activities were $22 million in 1999, $22 million in 1998, and $39 million in 1997. Solutia recorded charges against cost of goods sold of approximately $34 million ($22 million aftertax) in the fourth quarter of 1997 to increase its environmental reserves. This action was required in order to reflect revised estimates for changed circumstances relating to the ultimate outcome of previously known environmental matters. These revised estimates were based upon further discussions with environmental authorities and the availability of new information from recently completed environmental studies. These events and activities help to define better and to quantify the company's ultimate liability for these matters. Effective January 1, 1997, Solutia adopted SOP 96-1, "Environmental Remediation Liabilities." SOP 96-1 is the authoritative guidance regarding the recognition, measurement and disclosure of environmental remediation liabilities. A charge to cost of goods sold of approximately $10 million ($6 million aftertax) was recorded in the first quarter of 1997 associated with the adoption of SOP 96-1. The timing of this charge was predicated upon an application of SOP 96-1 in which liabilities arising under the Resource Conservation and Recovery Act (RCRA) should be recorded when a RCRA corrective measures study (CMS) is completed. Subsequently, Solutia reassessed its application of SOP 96-1 and concluded that these liabilities would be recorded over a continuum of events leading up to and including a CMS. As a result, Solutia recorded in the fourth quarter of 1997, additional charges against cost of goods sold of approximately $38 million ($24 million aftertax) associated with these RCRA environmental liabilities. Uncertainties related to all of Solutia's environmental liabilities include evolving government regulations, the method and extent of remediation, and future changes in technology. Because of these uncertainties, Solutia estimates that potential future expenses associated with these liabilities could be an additional $20 million to $30 million. Although the ultimate costs and results of remediation of contaminated sites cannot be predicted with certainty, they are not expected to have a material adverse effect on Solutia's consolidated financial position, liquidity, or profitability in any one year. During the first quarter of 1999, Solutia recorded a $29 million ($18 million aftertax) charge to cost of goods sold to increase reserves related to the anticipated settlement of two lawsuits brought against Monsanto, for which Solutia assumed responsibility in the 1997 spinoff from Monsanto, relating to the alleged discharge of polychlorinated biphenyls (PCBs) from the Anniston, Alabama, plant site, and to environmental remediation of the allegedly affected areas. The anticipated settlement of these cases provided information that allowed management to estimate more accurately its position with respect to such litigation. Monsanto is a party to a number of lawsuits and claims relating to Solutia, for which Solutia assumed responsibility in the spinoff. In addition, Solutia is also a named party in a number of lawsuits and claims directly. Solutia intends to defend all suits and claims vigorously. Such matters arise out of the normal course of business and relate to product liability; government regulation, including environmental issues; employee relations; 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 is that the final outcome of such litigation will not have a material adverse effect on Solutia's consolidated financial position, liquidity or profitability, as applicable, in any one year. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. INTERCOMPANY TRANSACTIONS Transactions with Monsanto before the spinoff, included in the Statement of Consolidated Income, are summarized as follows:
Year Ended December 31, 1997 ----------------- Intercompany sales $42 General and administrative services 12 Interest expense 26
Intercompany sales were made at Monsanto's established transfer prices. In addition, the costs for certain general and administrative services were allocated to Solutia. 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 plan for separation. Such expenses were specifically identified and segregated as part of Solutia's ongoing cost infrastructure. Interest expense charged to Solutia represents an allocation from Monsanto of its total interest expense. 17. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133 provides comprehensive and consistent standards for the recognition and measurement of derivative and hedging activities. It requires that derivatives be recorded on the Statement of Consolidated Financial Position at fair value. It also establishes criteria for hedges of changes in the fair value of assets, liabilities, or firm commitments, hedges of variable cash flows of forecasted transactions, and hedges of foreign currency exposures of net investments in foreign operations. Changes in the fair value of derivatives that do not meet the criteria for hedges would be recognized in the Statement of Consolidated Income. During June 1999, FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," to defer the effective date of SFAS No. 133 by one year. The standard will now be effective for Solutia as of January 1, 2001. Based on analyses performed to date, Solutia does not expect the adoption of SFAS No. 133 to have a material effect on its consolidated financial statements. 18. SUPPLEMENTAL DATA Supplemental income statement data were:
1999 1998 1997 ---------------------------------------- Raw material and energy costs $984 $994 $1,102 Employee compensation and benefits 728 757 746 Current income and other taxes 166 176 149 Rent expense 26 26 28 Technological expenses: Research and development 58 60 60 Engineering, commercial development and patent 22 23 27 ---------------------------------------- Total technological expenses 80 83 87 Interest expense: Total interest cost 53 49 49 Less capitalized interest 13 6 8 ---------------------------------------- Net interest expense 40 43 41
19. SEGMENT AND GEOGRAPHIC DATA During December 1999, Solutia refined its management structure to align with its growth strategy. Solutia's management is now organized around four strategic business platforms: Performance Films, Resins and Additives, Specialties, and Integrated Nylon. Resins and Additives and Specialties have been aggregated into the Specialty Products reportable segment because of their similar economic characteristics, as well as their similar products and services, production processes, types of customers, and methods of distribution. Solutia's new reportable segments and representative products are as follows:
- ----------------------------------------------------------------------------------------------- PERFORMANCE FILMS SPECIALTY PRODUCTS INTEGRATED NYLON - ----------------------------------------------------------------------------------------------- Saflex(R) plastic interlayer Resins and additives, Intermediate "building including Alftalat(R) block" chemicals KeepSafe(R), Saflex polyester resins, Resimene(R) Inside(TM), and KeepSafe and Maprenal(R) crosslinkers, Merchant polymer and Maximum(TM) glass for Synthacryl(R) acrylic resins, nylon extrusion polymers, residential security and and Alnovol(R) phenolic resins including Vydyne(R) and Ascend(TM) hurricane protection windows Therminol(R) heat transfer Carpet fibers, including Llumar(R), Vista(R), and fluids the Wear-Dated(R) and Ultron Gila(R) professional and VIP(R) brands after-market window films Dequest(R) water treatment chemicals Industrial nylon fibers Conductive and anti- reflective coated films Skydrol(R) hydraulic fluids Acrilan(R) acrylic fibers and deep-dyed films and SkyKleen(R) cleaning for apparel, upholstery fluid for aviation fabrics, craft yarns, and Gelva(R) pressure-sensitive other applications adhesives Phosphorus-based materials for food and Santicizer(R) plasticizers beverage ingredients, and other polymer modifiers personal care products, industrial cleaners, and fire retardants
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Internally, Solutia reports its financial results under the revised management structure. As required by Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," financial information for the years ended December 31, 1999, 1998 and 1997, that is included in this annual report has been restated to conform to the new segment structure. In April 1999, Solutia announced the agreement with FMC Corporation to form a joint venture to manufacture and market phosphorus chemicals. Solutia will contribute its phosphorus derivatives business and will hold a 50 percent ownership share. The formation of the joint venture is being reviewed by the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. It is expected that the joint venture will be consummated during the first half of 2000. Accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2. However, segment profit reflects only operating expenses that are directly attributable to the segment. Unallocated service costs are managed centrally and primarily include costs of technology, engineering, and manufacturing services that are provided to the segments. These amounts also include corporate administration costs. The company accounts for intersegment sales at agreed upon transfer prices. Intersegment sales are eliminated in consolidation. Segment assets consist primarily of customer receivables, finished goods inventories, and fixed assets directly associated with the production processes of the segment (direct fixed assets). Segment depreciation and amortization is based upon direct fixed assets. Unallocated assets consist primarily of goodwill, deferred taxes, certain investments in equity affiliates, and indirect fixed assets. Solutia's 1999, 1998, and 1997 segment information follows:
Year Ended December 31, ---------------------------------------------------------------------------------------------- 1999 1998 1997 ---------------------------- ---------------------------- --------------------------- Net Intersegment Net Intersegment Net Intersegment SEGMENT: Sales Sales Profit Sales Sales Profit Sales Sales Profit ---------------------------- ---------------------------- --------------------------- Performance Films $ 713 $ - $ 189 $ 614 $ - $ 168 $ 651 $ - $ 177 Specialty Products 615 2 159 613 3 152 635 13 137 Integrated Nylon 1,508 4 289 1,613 4 376 1,699 10 350 ---------------------------- ---------------------------- --------------------------- SEGMENT TOTALS 2,836 6 637 2,840 7 696 2,985 23 664 RECONCILIATION TO CONSOLIDATED TOTALS: Sales eliminations (6) (6) (7) (7) (23) (23) Other revenues - 2 7 Less unallocated service costs: Cost of goods sold (124) (70) (148) Marketing, administrative and technological expenses (216) (240) (226) Amortization expense (3) - - Equity earnings from affiliates 36 25 31 Interest expense (40) (43) (41) Other income (expense)-net 13 7 10 CONSOLIDATED TOTALS: ---------------------- ----------------------- ---------------------- NET SALES $2,830 $ - $2,835 $ - $2,969 $ - ======================------ =======================----- ======================----- INCOME BEFORE INCOME TAXES $ 303 $ 375 $ 290 ====== ===== ===== Year Ended December 31, ------------------------------------------------------------------------------------------------------ 1999 1998 1997 --------------------------------- --------------------------------- -------------------------------- Depreciation Depreciation Depreciation Capital and Capital and Capital and SEGMENT: Assets Expenditures Amortization Assets Expenditures Amortization Assets Expenditures Amortization --------------------------------- --------------------------------- -------------------------------- Performance Films $ 538 $ 21 $ 30 $ 376 $ 24 $ 27 $ 358 $ 33 $ 30 Specialty Products 693 8 18 340 20 19 341 18 21 Integrated Nylon 991 189 57 890 81 56 873 87 52 --------------------------------- --------------------------------- -------------------------------- SEGMENT TOTALS 2,222 218 105 1,606 125 102 1,572 138 103 RECONCILIATION TO CONSOLIDATED TOTALS: Unallocated amounts 1,548 39 46 1,159 33 45 1,196 27 42 --------------------------------- --------------------------------- -------------------------------- CONSOLIDATED TOTALS $3,770 $257 $151 $2,765 $158 $147 $2,768 $165 $145 ================================= ================================= ================================
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Solutia's geographic information for 1999, 1998, and 1997 follows:
Net Sales Long-Lived Assets ------------------------------------ --------------------- 1999 1998 1997 1999 1998 ------------------------------------ --------------------- United States $1,992 $2,009 $2,030 $1,001 $820 Other countries 838 826 939 315 124 ------------------------------------ --------------------- Consolidated totals $2,830 $2,835 $2,969 $1,316 $944 ==================================== =====================
20. QUARTERLY DATA - UNAUDITED
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------------------- Net Sales 1999 $ 652 $ 711 $ 731 $ 736 $ 2,830 1998 720 745 703 667 2,835 Gross Profit 1999 105 193 183 171 652 1998 187 206 188 169 750 Operating Income 1999 26 102 94 72 294 1998 99 115 95 77 386 Net Income 1999 23 71 61 51 206 1998 64 72 58 55 249 Basic Earnings per Share 1999 0.21 0.64 0.55 0.46 1.86 1998 0.55 0.62 0.50 0.49 2.16 Diluted Earnings per Share 1999 0.20 0.61 0.53 0.46 1.80 1998 0.51 0.58 0.47 0.46 2.03 Common Stock Price: 1999 HIGH 24 3/8 26 5/16 22 15/16 18 7/8 26 5/16 LOW 15 7/8 16 1/16 16 1/8 13 1/2 13 1/2 1998 High 32 30 5/16 30 15/16 28 1/2 32 Low 24 3/16 25 9/16 21 1/2 18 11/16 18 11/16
Net income in the first quarter of 1999 includes aftertax charges of $18 million related to exiting Integrated Nylon's ammonia business, $4 million related to the write down of an Integrated Nylon bulk continuous filament spinning machine to fair value, and $18 million related to the anticipated settlement of certain property claims litigation involving the Anniston, Alabama, plant site. Net income in the second, third, and fourth quarters of 1998 includes aftertax reversals of excess restructuring reserves established in 1996 of $2 million, $2 million, and $2 million, respectively. In the third quarter of 1998, net income includes an aftertax charge of $3 million to reduce the carrying value of certain slow-moving inventories to their net realizable value. Net income for the fourth quarter of 1998 includes an aftertax charge of $4 million that was caused by losses on the disposition of certain nonsalable inventories. Under SFAS No. 128, "Earnings per Share," the quarterly and total year calculations of basic and diluted earnings per share are based on weighted average shares outstanding for that quarterly or total year period, respectively. As a result, the sum of diluted earnings per share for the quarterly periods may not equal total year earnings per share. 21. SUBSEQUENT EVENT On February 14, 2000, Solutia completed the offering of euro 200 million of notes, due February 14, 2005. The notes are listed on the Luxembourg Stock Exchange and bear interest at 6.25 percent per year. 47 EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of Solutia's subsidiaries as of December 31, 1999, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
Percentage of Voting Power Owned by Solutia ------------- Monchem, Inc................................................ 100% Monchem International, Inc.................................. 100% Solutia Systems, Inc........................................ 100% Solutia International Sales, Inc............................ 99% Solutia Europe S.A./N.V..................................... 100% Alhadar Holding B.V......................................... 100% Solutia Netherlands International B.V....................... 100% Solutia Deutschland Holding GmbH............................ 100%
22 EX-23 6 CONSENT OF EXPERT EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Solutia's Registration Statements on Form S-8 (Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465) of our opinions dated February 23, 2000 (which includes an explanatory paragraph as to a change in the method of accounting in 1997), appearing in and incorporated by reference in this annual report on Form 10-K of Solutia Inc. for the year ended December 31, 1999. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Saint Louis, Missouri March 9, 2000 23 EX-24.(A) 7 POWERS OF ATTORNEY POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 26th day of January, 2000. /s/ John C. Hunter - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) /s/ Robert A. Clausen - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director /s/ Paul H. Hatfield /s/ Robert H. Jenkins - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director /s/ H. M. Love /s/ Frank A. Metz, Jr. - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director /s/ J. Patrick Mulcahy - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director /s/ William D. Ruckelshaus /s/ John B. Slaughter - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 28th day of January, 2000. /s/ M. E. Miller - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 31st day of January, 2000. - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) /s/ Robert T. Blakely - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 31st day of January, 2000. - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) /s/ J. M. Sullivan - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 31st day of January, 2000. - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director /s/ Robert G. Potter - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director and/or Officer of Solutia Inc. (the "Company"), a Delaware corporation with its general offices in the County of St. Louis, Missouri, does hereby make, constitute and appoint Karl R. Barnickol, Karen L. Knopf, and Mary B. Cody, or any of them acting alone, to be his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign: (i) the Annual Report on Form 10-K and any Amendments thereto to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended; (ii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Securities Act of 1933, as amended (the "Act"), covering the registration of additional securities of the Company to be issued under the Solutia Inc. Employee Stock Purchase Plan; (iii) the Registration Statement on Form S-8 and any Amendments thereto to be filed with the Commission under the Act, covering the registration of additional securities of the Company to be issued under the Solutia Inc. 1997 Stock-Based Incentive Plan; and (iv) any Amendments to Registration Statements Nos. 333-34561, 333-34587, 333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911, 333-51081, 333-74463, and 333-74465, all on Form S-8, which have previously been filed with the Commission under the Act, covering the registration of securities of the Company; giving and granting unto said attorneys full power and authority to do and perform such actions as fully as he or she might have done or could do if personally present and executing any of said documents. Witness my hand this 15th day of February, 2000. - -------------------------------------------- ------------------------------------------- John C. Hunter III, Director, Chairman of Michael E. Miller, Vice Chairman and the Board, Chief Executive Officer, and Director President (Principal Executive Officer) - -------------------------------------------- ------------------------------------------- Robert A. Clausen, Senior Vice President James M. Sullivan, Vice President and and Chief Financial Officer Controller (Principal Accounting Officer) (Principal Financial Officer) /s/ Joan T. Bok - -------------------------------------------- ------------------------------------------- Robert T. Blakely, Director Joan T. Bok, Director - -------------------------------------------- ------------------------------------------- Paul H. Hatfield, Director Robert H. Jenkins, Director - -------------------------------------------- ------------------------------------------- Howard M. Love, Director Frank A. Metz, Jr., Director - -------------------------------------------- ------------------------------------------- J. Patrick Mulcahy, Director Robert G. Potter, Director - -------------------------------------------- ------------------------------------------- William D. Ruckelshaus, Director John B. Slaughter, Director
EX-24.(B) 8 CERTIFICATE SOLUTIA INC. CERTIFICATE I, Karen L. Knopf, Assistant Secretary of Solutia Inc. (the "Company"), hereby certify that the following is a full, true and correct copy of a resolution adopted by the Board of Directors of the Company on February 23, 2000, at which meeting a quorum was present and acting throughout: FURTHER RESOLVED, that each officer and director who may be required to sign and execute the 10-K or any document in connection therewith (whether for and on behalf of the Company, or as an officer or director of the Company, or otherwise), be and hereby is authorized to execute a power of attorney appointing Karl R. Barnickol and Karen L. Knopf, or either of them acting alone, his or her true and lawful attorney or attorneys to sign in his or her name, place and stead in any such capacity such Annual Report on Form 10-K and any and all amendments thereto and documents in connection therewith, and to file the same with the Commission or any other governmental body, each of said attorneys to have power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of said officers and directors, every act whatsoever which such attorneys, or any one of them, may deem necessary, appropriate or desirable to be done in connection therewith as fully and to all intents and purposes as such officers or directors might or could do in person. IN WITNESS WHEREOF, I have hereunto set my hand in my official capacity and affixed the corporate seal of the Company this 1st day of March, 2000. /s/ Karen L. Knopf ------------------------------- Karen L. Knopf Assistant Secretary SEAL EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Solutia Inc. and Subsidiaries Statement of Consolidated Income for the year ended December 31, 1999, and the Statement of Consolidated Financial Position as of December 31, 1999. Such information is qualified in its entirety by reference to such consolidated financial statements. 1,000,000 12-MOS DEC-31-1999 DEC-31-1999 28 0 495 12 371 1,114 3,695 2,379 3,770 1,327 802 1 0 0 81 3,770 2,830 2,830 2,178 2,178 358 0 40 303 97 206 0 0 0 206 1.86 1.80
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