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Exhibit 10(b)
TAX SHARING AND INDEMNIFICATION AGREEMENT
Tax Sharing and Indemnification Agreement (the "Agreement"), dated as
of September 1, 1997, by and between Monsanto Company, a Delaware corporation
("LS") and Solutia Inc., a Delaware corporation ("Solutia").
WHEREAS, LS has been engaged through various divisions in, among other
things, the manufacture and sale of chemical products which comprise the
Transferred Businesses (as hereinafter defined);
WHEREAS, the Board of Directors of LS has determined that the
interests of its businesses would be best served by separating its businesses
into two separate companies, one consisting of the life sciences businesses and
the other consisting of the chemical business;
WHEREAS, as set forth in the Distribution Agreement, dated as of
September 1, 1997 ("Distribution Agreement"), and subject to the terms and
conditions thereof, LS wishes to transfer and assign to Solutia substantially
all the assets of the chemical businesses, in exchange for (i) the assumption by
Solutia of substantially all the liabilities and obligations relating to the
chemical businesses, and (ii) the issuance to LS by Solutia of shares of Solutia
common stock, (the "Solutia Common Stock"), all as more fully set forth in the
Distribution Agreement;
WHEREAS, LS intends to distribute substantially all of the outstanding
shares of Solutia Common Stock, on a pro rata basis, to the holders of the
common stock of LS, subject to the terms and conditions of the Distribution
Agreement;
WHEREAS, in contemplation of the Distribution (as hereinafter defined)
pursuant to which Solutia and its subsidiaries will cease to be members of the
LS Group (as hereinafter defined), the parties hereto have determined to enter
into this Agreement, setting forth their agreement with respect to certain tax
matters;
WHEREAS, this Agreement also creates certain indemnification
obligations between the parties hereto if the actions of either a member of the
Solutia Group or the LS Group have an adverse effect on the tax-free nature of
the Distribution or of any of the transactions related to the Distribution that
were otherwise intended to be tax free.
NOW THEREFORE, in consideration of the premises set forth above and
the terms and conditions set forth below, the parties hereto agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
a. "ADJUSTMENT" shall mean any proposed or final change in the tax
liability of any member of the Solutia Group or the LS Group.
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b. "AFFILIATED GROUP" shall mean an affiliated group of corporations
within the meaning of Code Section 1504(a).
c. "AGREEMENT" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
d. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
e. "SOLUTIA" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
f. "SOLUTIA AFFILIATED GROUP" shall mean, for each taxable period, the
Affiliated Group of which Solutia or its successor is the common parent
corporation.
g. "SOLUTIA CARRYBACK" shall have the meaning ascribed to such term in
Section 2(b)(i) hereof.
h. "SOLUTIA COMMON STOCK" shall have the meaning ascribed to such term
in the third WHEREAS clause hereof.
i. "SOLUTIA GROUP" shall mean, for each taxable period, (i) the
corporations that are members of the Solutia Affiliated Group, and (ii) the
corporations that would be members of the Solutia Affiliated Group, but for the
fact that they are not includable corporations under Code Section 1504(b).
j. "CURRENT STRADDLE INCOME TAX LIABILITIES" shall mean Income Tax
Liabilities relating to Straddle Period Income Tax returns required to be filed
by Solutia pursuant to Section 3 hereof to the extent that such Income Tax
Liabilities are attributable to earnings accrued during such Straddle Periods on
or before the Distribution Date.
k. "DISPUTE" shall have the meaning ascribed to such term in Section
14(a) hereof.
l. "DISTRIBUTION" shall mean the pro rata distribution of all of the
Solutia Common Stock to the holders of the common stock of LS, pursuant to the
terms and conditions of the Distribution Agreement.
m. "DISTRIBUTION DATE" shall mean the date of the Distribution.
n. "FINAL DETERMINATION" shall mean the final resolution of any tax
matter occurring after the Distribution Date. A Final Determination shall result
from the first to occur of:
(i) the expiration of 30 days after the IRS' acceptance of a waiver
of restrictions on assessment and collection of deficiency in tax and acceptance
of overassessment on federal revenue (Form 870 or 870-AD (the "Waiver")) or any
successor comparable form,
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except as to reserved matters specified therein, or the expiration of 30 days
after acceptance by any other taxing authority of a comparable agreement or form
under the laws of any other jurisdiction, including State, local, and foreign;
unless, within such period, the taxpayer gives notice to the other party to this
Agreement of the taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review (by appeal
or otherwise) and has become final;
(iii) the execution of a closing agreement under Code Section 7121,
or the acceptance by the IRS of an offer in compromise under Code Section 7122,
or comparable agreements under the laws of any other jurisdiction, including
State, local, and foreign, except as to reserved matters specified therein;
(iv) the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund that was disallowed in
whole or part by the IRS or any other taxing authority;
(v) the expiration of the applicable statute of limitations; or
(vi) an agreement by the parties hereto that a Final Determination
has been made.
o. "FIRST PARTY" shall have the meaning ascribed to such term in
Section 6(g) hereof.
p. "INCOME TAXES" shall mean all Federal, State, local and foreign
taxes imposed upon, or measured, in whole or in part, by net income or a taxable
base in the nature of net income, including without limitations, environmental
and alternative or add-on minimum taxes (including the alternative minimum tax
imposed under Code Section 55), and such related franchise, excise, and similar
taxes as have been customarily included in the provision for income taxes or
charged to the income tax liability account on LS's financial statements,
together with all related interest, penalties, and additions to tax.
q. "INCOME TAX LIABILITY" shall mean the net amount of Income Taxes
due and paid or payable for any taxable period, determined after applying all
tax credits and all applicable carrybacks or carryovers for net operating
losses, net capital losses, unused general business tax credits, or any other
relevant adjustments.
r. "INDEMNIFYING PARTY" shall mean any party that is required to pay
any other party pursuant to the terms and conditions of this Agreement.
s. "INDEMNIFIED PARTY" shall mean any party who is entitled to receive
payments from an Indemnifying Party pursuant to the terms and conditions of this
agreement.
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t. "IRS" shall mean the United States Internal Revenue Service or any
successor thereto, including but not limited to its agents, representatives, and
attorneys.
u. "LS" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
v. "LS AFFILIATED GROUP" shall mean, for each taxable period, the
Affiliated Group of which LS or its successor is the common parent corporation.
w. "LS CARRYBACK" shall have the meaning ascribed to such term in
Section 2(b)(i) hereof.
x. "LS GROUP" shall mean, for each taxable period, (i) the
corporations that comprise the LS Affiliated Group, and (ii) the corporations
that would be members of the LS Affiliated Group, but for the fact that they are
not includable corporations under Code Section 1504(b).
y. "LS TAX REDUCTION" shall have the meaning ascribed to such term in
Section 2(b)(i).
z. "MATERIAL DISPOSITION" shall mean the sale or other transfer by
Solutia of assets of the Saflex or Fibers Divisions which alone or in the
aggregate exceed $200 million.
z-1 "OTHER TAX LIABILITIES" shall mean the net amount of Other Taxes
due and paid or payable for any taxable period or transaction, after applying
all tax offsets and credits.
z-2 "OTHER TAXES" shall mean any and all taxes other than Income
Taxes, including, without limitation, gross income, gross receipts, sales, use,
transfer, franchise, license, withholding, payroll, value added, employment,
excise, severance, stamp, occupations, premium, windfall profits, custom, duty,
or other charge of any kind whatsoever, together with all related interest,
penalties, and additions to tax, or additional amount imposed by any taxing
authority. Expressly excluded from "Other Taxes" are all property and ad valorem
taxes.
z-3 "STRADDLE PERIOD" shall have the meaning ascribed to such term in
Section 3(a)(ii) hereof.
z-4 "TAX BENEFIT" shall mean a reduction in the Income Tax Liability
of a party to this Agreement (or of the Affiliated Group of which it is a
member) if any portion of such reduction is actually realized or projected to be
realized in any taxable period ending on or before December 31, 2007. Except as
otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been
realized or received from a Tax Item in a taxable period only if and to the
extent that the Income Tax Liability of the party (or of the Affiliated Group of
which it is a member) for such period, after taking into account the effect of
the Tax Item on the Income Tax Liability of such party in all prior periods, is
less than it would have been if such Income Tax Liability were determined
without regard to such Tax Item. In determining the
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amount of the Tax Benefit, the marginal tax rate, without regard to alternative
minimum tax, shall be utilized, net operating loss carryforwards shall be
ignored, and net present value calculations shall not be made. A Tax Item that
results in additional tax basis to a non-depreciable, non-amortizable asset
shall not be treated as resulting in a Tax Benefit until a reduction in Income
Tax Liability is actually realized on a Tax Return.
z-5 "TAX DETRIMENT" shall mean an increase in the Income Tax Liability
of a party to this Agreement (or of the Affiliated Group of which it is a
member) for any taxable period. Except as otherwise provided in this Agreement,
a Tax Detriment shall be deemed to have been realized or suffered from a Tax
Item in a taxable period, only if and to the extent that the Income Tax
Liability of the party (or the Affiliated Group of which it is a member) for
such period, after taking into account the effect of the Tax Item on the Income
Tax Liability of such party in all prior periods, is greater than it would have
been if such Income Tax Liability were determined without regard to such Tax
Item.
z-6 "TAX ITEM" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which may have the effect of
increasing or decreasing Income Tax Liability.
z-7 "TAX PERIOD" shall mean, with respect to any tax, the period for
which the tax is reported as provided under the Code or other applicable laws.
z-8 "TAX RETURNS" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required to be
filed in connection with any Income Taxes or Other Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
z-9 "TRANSACTION TAXES" shall have the meaning ascribed to that term
in Section 4(c) hereof.
z-10 "DISTRIBUTION AGREEMENT" shall have the meaning ascribed to that
term in the third WHEREAS clause hereof.
z-11 "TRANSFERRED BUSINESSES" shall have the same meaning ascribed to
the term "Chemicals Assets" in the Distribution Agreement.
z-12 "TREASURY REGULATIONS" shall mean the Treasury Regulations
promulgated under the Code.
z-13 "WAIVER" shall have the meaning ascribed to such term in Section
1(n)(i) hereof.
Section 2. PREPARATION OF TAX RETURNS.
a. MANNER OF PREPARATION. All Tax Returns filed after the Distribution
Date
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shall be prepared on a basis that is consistent with the rulings obtained from
the IRS or any other governmental authority in connection with the Distribution
(in the absence of a controlling change in law or circumstances) and shall be
filed on a timely basis (including pursuant to extensions) by the party
responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances, or except as otherwise provided in
this Agreement or agreed in writing by LS and Solutia, all Tax Returns filed
after the date of this Agreement shall be prepared on a basis consistent with
the elections, accounting methods, conventions, and principles of taxation used
for the most recent taxable periods for which Tax Returns involving similar Tax
Items have been filed, except that, with respect to Tax Items not relating to
the Distribution, one party may take an inconsistent position to the extent such
position does not create a Tax Detriment to the other party. Subject to the
provisions of this Agreement, all decisions relating to the preparation of Tax
Returns shall be made in the sole discretion of the party responsible under this
Agreement for such preparation. Unless the parties hereto otherwise mutually
agree in writing no election shall be made by either LS or Solutia under
Treasury Regulation Section 1.1502-76(b)(2)(ii) or (iii).
b. CARRYBACK REPORTING.
(i) If the Income Taxes of the LS Group are reduced for a taxable
period beginning before the Distribution Date (and, in the case of separate
state and local Income Tax Returns and foreign Income Tax Returns, ending on or
before the Distribution Date), (the "LS Tax Reduction"), by reason of a Solutia
loss or other Income Tax attribute arising on or after the Distribution Date (a
"Solutia Carryback"), LS shall pay to Solutia an amount equal to the portion of
the LS Tax Reduction that is attributable to the Solutia Carryback. If both a
Solutia Carryback and a LS loss or other Income Tax attribute arising on or
after the Distribution Date (a "LS Carryback") exist, the absorption rules of
Treasury Regulation Section 1.1502-21A(b)(3) or 1.1502-21T(b)(1), as applicable,
shall be applied to determine the portion of the LS Tax Reduction attributable
to the Solutia Carryback and the LS Carryback, respectively. Nothing herein
shall require either Solutia or LS to carry back a loss or other Income Tax
attribute that it generates. Any payment required to be made pursuant to this
Section 2(b)(i) shall be made no later than ten days after the LS Tax Reduction
is actually received, credited, or otherwise utilized by LS.
(ii) Neither the LS Group nor the Solutia Group shall be obligated to
make a payment to any member of the other group as a result of utilizing a net
operating loss or other Income Tax attribute relating to a period beginning
prior to the Distribution Date.
c. ALLOCATION OF EARNINGS AND PROFITS. Except as otherwise
specifically provided herein, pre-Distribution earnings and profits shall be
allocated in accordance with Treasury Regulation Section 1.312-10(a).
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d. REPORTING OF FOREIGN RESTRUCTURING. The pre-Distribution
restructuring transactions involving Monsanto do Brasil, Ltd, Mopar, Ltd,
Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto, PLC,
shall be reported for United States Federal income tax purposes as transactions
qualifying under Code Section 355 and the parties hereto will apply the
principles of Temporary Treasury Regulation Section 7.367(b)-10 in respect of
those restructuring transactions.
Section 3. FILING OF INCOME AND OTHER TAX RETURNS.
a. LS RESPONSIBILITIES FOR INCOME AND OTHER TAX RETURNS. LS shall
prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect to all
members of the LS Group for all periods ending on or prior to the Distribution
Date; and
(ii) all Income and Other Tax Returns of or with respect to all
members of the LS Group for all periods beginning on or prior to the
Distribution Date and ending after the Distribution Date ("Straddle Periods")
other than Straddle Period Income and Other Tax Returns of those corporations
that will be members of the Chem Group following the Distribution.
b. SOLUTIA RESPONSIBILITIES FOR INCOME AND OTHER TAX RETURNS. Solutia
shall prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect to members
of the Solutia Group for all periods beginning on or after the Distribution
Date; and
(ii) all Income and Other Tax Returns of or with respect to all
corporations that will be members of the Solutia Group following the
Distribution for all Straddle Periods.
Section 4. PAYMENT OF INCOME AND OTHER TAXES.
a. LS OBLIGATIONS. LS shall (except as provided in Sections 2(b),
4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and hold harmless
Solutia against all Income and Other Tax Liabilities that relate to all Tax
Returns that LS is required to prepare and file, or cause to be prepared and
filed, pursuant to Section 3 of this Agreement; and
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(ii) be entitled to all refunds of Income and Other Taxes related
thereto.
b. SOLUTIA OBLIGATIONS. Solutia shall (except as provided in Sections
4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and hold harmless
LS against all Income and Other Tax Liabilities that relate to all Tax Returns
that Solutia is required to prepare and file, or cause to be prepared and filed,
pursuant to Section 3 of this Agreement; and
(ii) be entitled to all refunds of Income and Other Taxes related
thereto.
c. TRANSACTION TAXES. Any sales, use, value added, gross receipts,
retailer's occupation, real estate transfer tax arising out of the transfer of
assets or liabilities to any member of the LS or Solutia Group in contemplation
of the Distribution, and any stock transfer tax and other similar taxes and fees
arising out of the Distribution (collectively, "Transaction Taxes") shall be
borne 100% by the LS Group and the LS Group shall indemnify the Solutia Group
against any such Transaction Taxes.
d. SPECIAL INDEMNITY PAYMENT. Within 60 days after the Distribution
Date, LS shall pay to Solutia an amount equal to the Current Straddle Period
Income Tax Liabilities.
Section 5. PROPERTY TAXES.
a. PRE-DISTRIBUTION PROPERTY TAXES. If the failure to make any ad
valorem or property tax payment on or before the Distribution Date on property
owned by any member of the LS Group, including assets to be transferred to the
Solutia Group, would cause (i) the tax to be delinquent, or (ii) the forfeiture
of a cash discount, the tax shall be paid by the member of the LS Group which
owns such property. The LS Group shall indemnify and hold harmless Solutia and
members of the Solutia Group from and against all property and ad valorem taxes
allocated to the LS Group hereunder.
b. POST-DISTRIBUTION PROPERTY TAXES. Any property or ad valorem tax
payments on Transferred Assets that would become delinquent after the
Distribution Date shall be paid by the Solutia Group. The Solutia Group shall
indemnify and hold harmless LS and members of the LS Group from and against all
property and ad valorem taxes allocated to the Solutia Group hereunder.
c. RETURN PREPARATION. Preparation and timely filing of all tax
returns in respect of Pre and Post Distribution property or ad valorem taxes, on
property owned by any member of the LS or Solutia Group, shall be the
responsibility of the LS or Solutia Group member owning such property at the
time the property or ad valorem tax returns are due.
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Section 6. AUDITS AND TAX CONTROVERSIES AND ADJUSTMENTS.
a. AUDIT RESPONSIBILITY AND CONTROL. Except as otherwise provided in
this Agreement, LS shall have sole responsibility for and control over all
audits with respect to any Tax Return that it is required to file under Sections
3 and 5 hereof. Solutia shall have sole responsibility and control over all
audits with respect to any Tax Return that it is required to file under Sections
3 and 5 hereof.
b. NOTICE; CONTEST. Whenever LS or Solutia receives in writing from
the IRS or any other taxing authority notice of an Adjustment which may give
rise to a payment from the other party under this Agreement, LS or Solutia (as
the case may be) shall give notice of the Adjustment to the other party within
30 days of becoming aware of such receipt, but in no case less than 30 days
before LS or Solutia, as the case may be, is required to respond to the IRS or
any other taxing authority. The Indemnifying Party shall, at its cost and
expense, have control over all matters with respect to which such party has an
indemnification or payment obligation pursuant to this Agreement (other than
Section 6(g) hereof). The foregoing notwithstanding, the Indemnified Party and
its representatives, at the Indemnified Party's expense, shall be entitled to
participate in all conferences, meetings, and proceedings with respect thereto
and shall be entitled to consult with the Indemnifying Party with respect to all
such matters. Notwithstanding the foregoing, if the IRS or any other taxing
authority proposes to disallow any of the deductions required to be taken by a
member of the LS or Solutia Group pursuant to Section 7 of this Agreement, LS or
Solutia, as the case may be, shall contest such proposed disallowance, or shall
cause such disallowance to be contested to a Final Determination unless
otherwise agreed by the parties in writing.
c. CONSULTATION WITH SOLUTIA. LS may consult with Solutia, and Solutia
agrees to fully cooperate with LS, in the negotiation, settlement, or litigation
of any liability for taxes of any member of the LS Group regardless of the
effect of any such negotiation, settlement, or litigation on the liability for
taxes of any member of the Solutia Group.
d. CONSULTATION WITH LS. Solutia may consult with LS, and LS agrees to
fully cooperate with Solutia, in the negotiation, settlement, or litigation of
any liability for taxes of any member of the Solutia Group regardless of the
effect of any such negotiation, settlement, or litigation on the liability for
taxes of any member of the LS Group.
e. TAX BASIS ADJUSTMENTS. LS will notify Solutia in writing of any
adjustments to the tax basis of the assets of the Transferred Businesses,
specifying the nature of the adjustments, such that the Solutia Group will be
able to reflect the revised basis in its tax books and records for periods
beginning on or after the Distribution Date or in any Straddle Period Tax
Returns.
f. EARNINGS AND PROFITS ADJUSTMENTS. LS will notify Solutia of any
redetermination of the earnings and profits and related amounts of creditable
foreign taxes of any of the foreign corporations that are transferred by LS to
Solutia following their acquisition by the LS Group in a transaction intended to
qualify under Code Section 355(a).
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g. CERTAIN ADJUSTMENTS. Except as otherwise provided in this
Agreement, if a Final Determination with respect to any Tax Item (including,
without limitation, any Tax Item relating to depreciation or amortization) of
one party (the "First Party") results in a Tax Detriment to the First Party and,
if as a result of such Final Determination, (i) the other party becomes entitled
to take a reporting position with respect to the same Tax Item that may result
in a Tax Benefit to such other party, on an appropriate Tax Return, including an
amended Tax Return, or (ii) the other party has already taken a reporting
position consistent with such Final Determination on an appropriate tax return,
and, in the case of both (i) and (ii), such reporting position will result in
the realization of a Tax Benefit for the other party, then such other party
shall, within 30 days after notification and documentation of such Final
Determination, pay to the First Party the aggregate amount of such Tax Detriment
(not including interest or penalties) suffered by the First Party but limited to
an amount not greater than the Tax Benefit to be realized by the other party.
For purposes of this Section, the term party shall refer to any member
of the LS Group and any member of the Solutia Group, as the case may be.
h. TRANSACTION TAXES REFUNDED. If one party or a member of such
party's Group (the "First Party") pays Transaction Taxes and the other party or
a member of such other party's Group (the "Other Party") has a right to receive
a refund of such Transaction Taxes ("Refund Amount") and receives such Refund
Amount after the Distribution Date, such Other Party shall reimburse the Refund
Amount to the First Party.
Section 7. TAXABILITY AND REPORTING OF NONQUALIFIED STOCK OPTIONS.
Each of LS and Solutia shall be responsible for making all reports
required to be made to any relevant tax authority with respect to any grants or
exercises of nonqualified stock options with respect to their respective stocks.
LS (or the appropriate member of the LS Group) shall take all tax deductions
arising by reason of exercises of such nonqualified stock options to purchase
shares of LS stock. Solutia (or the appropriate member of the Solutia Group)
shall take all tax deductions arising by reason of exercises of nonqualified
stock options to purchase shares of Solutia stock. If, pursuant to a Final
Determination, all or any part of a tax deduction taken pursuant to this Section
7 is disallowed to LS, then, to the extent permitted by law, the appropriate
member of the Solutia Group shall take such deduction. If a member of the
Solutia Group receives a Tax Benefit in any period as a result of any deduction
taken by a member of the Solutia Group in respect of options exercised against
LS stock, Solutia shall pay the amount of such Tax Benefit to LS. If, pursuant
to a Final Determination, all or any part of a tax deduction taken pursuant to
this Section 7 is disallowed to Solutia, then, to the extent permitted by law,
the appropriate member of the LS Group shall take such deduction. If a member of
the LS Group receives a Tax Benefit in any period as a result of any deduction
taken by a member of the LS Group in respect of options exercised against
Solutia stock, LS shall pay the amount of such Tax Benefit to Solutia.
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Section 8. LIABILITY OF SOLUTIA GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS.
a. GENERAL. (i) Solutia shall, and shall cause each member of the
Solutia Group to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by LS in respect of the Distribution, from any such taxing authority
with respect to any transaction contemplated by the Distribution Agreement and
(ii) neither Solutia nor any member of the Solutia Group shall for a period of
two years following the Distribution Date (A) make a Material Disposition
(including transfers from one member of the Solutia Group to another member of
the Solutia Group), or cessation of operations by means of a sale or exchange of
assets or capital stock, a distribution to stockholders, or otherwise, of
assets; (B) repurchase or issue any Solutia capital stock that in the aggregate
exceeds twenty percent (20%) of the issued and outstanding stock of Solutia
immediately following the Distribution; (C) liquidate or merge with any other
corporation (including a member of the Solutia Group); or (D) cease to engage in
the active conduct of a trade or business within the meaning of Code
Section 355(b)(2), unless, in each of cases (A), (B), (C), and (D), pursuant to
a favorable supplemental ruling letter from the appropriate taxing authority,
reasonably satisfactory to LS, such act or omission would not adversely affect
the tax consequences of the Distribution to LS, Solutia, or the stockholders of
LS or unless LS consents in writing to any such transactions. Solutia has no
present intention to take any such actions.
b. INTRAGROUP TRANSFERS. Notwithstanding Section 8(a), the Solutia
Group (other than Solutia), shall be allowed to make intragroup transfers of
assets, PROVIDED, HOWEVER, such transfers may be made within two years after the
Distribution Date to or from the Solutia Group successors to assets of Monsanto
do Brasil, Ltd., Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto,
PLC, only if LS consents to such transfers in writing or if, in the opinion of
tax counsel to Solutia, or pursuant to a favorable supplemental ruling letter
from the appropriate taxing authority, such transfer would not adversely affect
the tax consequences of the Distribution to LS, Solutia, or the stockholders of
LS. Any opinion required to be obtained under this subsection 8(b) shall be from
a nationally recognized law firm and shall be in a form reasonably acceptable to
LS.
c. OTHER TRANSACTIONS.
(i) Solutia represents that as of the Distribution Date, it does not
have any plan, agreement, arrangement, or any other intention to enter into a
transaction (or a series of related transactions) whereby a Person would acquire
greater than 50 percent of the vote or value of any class of stock of Solutia;
(ii) Neither Solutia nor any member of the Solutia Group shall for a
period of two years following the Distribution Date enter into a transaction (or
series of related transactions) whereby a Person would acquire greater than 50
percent of the vote or value of any class of stock of Solutia (or any successor
of Solutia), unless Solutia receives a favorable supplementary ruling letter
from the appropriate taxing authority, reasonably satisfactory to LS that such
transaction (or series of related transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Solutia, or
the stockholders of LS or
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unless LS consents in writing to any such transaction (or
series of related transactions);
(iii) For purposes of this Section 8(c): (A) a Person shall have
the meaning ascribed to such term in Code Section 7701(a)(1); (B) all Persons
related to such Person within the meaning of Code Sections 267(b) or 707(b)(1)
shall be treated as one Person; (C) two or more Persons acting pursuant to a
plan or arrangement with respect to the acquisition of any class of Solutia
stock shall be treated as one Person; and (D) Code Section 318(a)(2) shall apply
in determining whether a Person holds stock in Solutia, except that Code
Section 318(a)(2)(C) shall be applied without regard to the phrase "50 percent
or more in value" for such purposes; and
(iv) The provisions of this Section 8(c) are intended to prevent the
Solutia Group from entering into post-Distribution transactions which under
proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely affect
the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither Solutia nor any member of the Solutia Group shall undertake any
transaction or series of transactions that could be construed as falling within
the scope of such revised legislation unless Solutia receives a favorable
supplementary ruling letter from the appropriate taxing authority, reasonably
satisfactory to LS that such transaction (or series of transactions) would not
adversely affect the tax-free status of the Distribution and related
transactions to LS, Solutia, or the stockholders of LS or unless LS consents in
writing to any such transaction (or series of related transactions).
d. SPECIAL SOLUTIA INDEMNITY OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, if, as a result of any event,
action, or failure to act wholly or partially within the control of any member
of the Solutia Group, any Income Taxes are imposed on, or other losses
(including, without limitation, attorneys' fees and expenses and losses suffered
by the LS Group as a result of actions instituted by shareholders of LS or
Solutia ("LS Losses")) are suffered by, any member of the LS Group with respect
to the Distribution or any such event, action or failure to act on the
transactions related to the Distribution, including, without limitation, the
transactions in various foreign jurisdictions that were intended to be tax free
under Code Sections 355 and 368 for United States Income Tax purposes, then
Solutia shall indemnify and hold harmless each member of the LS Group with
respect to any such Income Taxes or LS Losses (including any Income Taxes
payable by LS on amounts received by LS from Solutia pursuant to this Section
8(d)). Solutia shall make such indemnification payment no later than 7 days
after receiving written notice from any member of the LS Group of a Final
Determination with respect to such Income Taxes, which notice shall be
accompanied by a computation of the amount due.
e. OTHER REMEDIES. Solutia recognizes that failure to comply with
its obligations under this Section 8 may result in irreparable harm to LS and
its shareholders and that LS and its shareholders may be inadequately
compensated by monetary damages for such failure. If Solutia shall fail to
comply with its obligations under this Section 8, LS shall be entitled to
injunctive relief and specific performance in addition to all other remedies.
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Section 9. LIABILITY OF LS GROUP FOR UNDERTAKING CERTAIN TRANSACTIONS.
a. GENERAL.
(i)LS represents that as of the Distribution Date, it does not have
any plan, agreement, arrangement, or any other intention to enter into a
transaction (or a series of related transactions) whereby a Person would acquire
greater than 50 percent of the vote or value of any class of stock of LS;
(ii) Neither LS nor any member of the LS Group shall for a period
of two years following the Distribution Date enter into a transaction (or series
of related transactions) whereby a Person would acquire greater than 50 percent
of the vote or value of any class of stock of LS (or any successor of LS),
unless LS receives a favorable supplementary ruling letter from the appropriate
taxing authority, reasonably satisfactory to Solutia that such transaction (or
series of related transactions) would not adversely affect the tax-free status
of the Distribution and related transactions to LS, Solutia, or the stockholders
of LS or unless Solutia consents in writing to any such transaction (or series
of related transactions);
(iii) For purposes of this Section 9(a): (A) a Person shall have
the meaning ascribed to such term in Code Section 7701(a)(1); (B) all Persons
related to such Person within the meaning of Code Sections 267(b) or 707(b)(1)
shall be treated as one Person; (C) two or more Persons acting pursuant to a
plan or arrangement with respect to the acquisition of any class of LS stock
shall be treated as one Person; and (D) Code Section 318(a)(2) shall apply in
determining whether a Person holds stock in LS, except that Code Section
318(a)(2)(C) shall be applied without regard to the phrase "50 percent or more
in value" for such purposes; and
(iv) The provisions of this Section 9(a) are intended to prevent
the LS Group from entering into post-Distribution transactions which under
proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely affect
the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither LS nor any member of the LS Group shall undertake any transaction or
series of transactions that could be construed as falling within the scope of
such revised legislation unless LS receives a favorable supplementary ruling
letter from the appropriate taxing authority, reasonably satisfactory to Solutia
that such transaction (or series of transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Solutia, or
the stockholders of LS or unless Solutia consents in writing to any such
transaction (or series of related transactions).
b. SPECIAL LS INDEMNITY OBLIGATION. If, as a result of LS's failure to
comply with its obligations under this Section 9, any Income Taxes are imposed
on, or other losses (including, without limitation, attorneys' fees and expenses
and losses suffered by the Solutia Group as a result of actions instituted by
shareholders of LS or Solutia ("Solutia Losses")) are suffered by, any member of
the Solutia Group with respect to such failure to comply, then LS shall
indemnify and hold harmless each member of the Solutia Group with respect to any
such
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Income Tax or Solutia Losses (including any Income Taxes payable by Solutia
on amounts received by Solutia from LS pursuant to this Section 9(b)). LS shall
make such indemnification payment no later than seven (7) days after receiving
written notice from any member of the Solutia Group of a Final Determination
with respect to such Income Taxes, which notice shall be accompanied by a
computation of the amount due.
Section 10. PARTNERSHIP ITEMS.
On or before September 30, 1998, the Solutia Group shall pay to the LS
Group an amount equal to the excess of (i) the federal and state income tax
liability (utilizing a tax rate of 36%) imposed on the LS Group as a result of
including the various items of income, deductions and credits passed through
from AES, L.P. and Flexsys, L.P. for taxable periods beginning on January 1,
1997 and ending on the Distribution Date, over (ii) the sum of the aggregate of
the cash distributions made by AES, L.P. and Flexsys, L.P. to a member of the LS
Group in respect of the period January 1, 1997 through the Distribution Date
plus the Tax Benefit realized by the LS Group from utilization of MISCO by each
of the partnerships. To the extent such amount in (ii) as relates to
distributions against 1997 taxes exceeds the amount in (i) above, the LS Group
shall pay to the Solutia Group such excess by such date.
Section 11. INDEMNIFICATION.
a. TIMING IN GENERAL Unless otherwise specified in this Agreement, all
indemnification and other payments to be made pursuant to this Agreement shall
be made within 30 days of written notice of a request for indemnification or
payment by the Indemnified Party, which notice shall be accompanied by a
computation of the amount due.
b. SPECIAL TIMING RULES. If any indemnification or other payment is
required to be made under Section 7 of this Agreement upon the realization by
the Indemnifying Party of a Tax Benefit, such payment shall be made no later
than 30 days after the earlier of (a) the filing or (b) the due date
(including extensions) of the Tax Return with respect to which such Tax Benefit
is realized. The parties shall cooperate in good faith in enforcing the
provisions of this Section 11(b), which cooperation shall include the provision
of reasonable access to the Tax Returns of the Indemnifying party by the
Indemnified Party in order to determine the amount of any indemnification or
other payment to be made pursuant to this Section 11(b).
c. INTEREST. If any indemnification payment required to be made
pursuant to this agreement is not made when due, such payment shall bear
interest at the prevailing federal short-term interest rate as determined under
Section 6621 of the Code.
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Section 12. COOPERATION AND EXCHANGE OF INFORMATION.
a. TAX RETURN INFORMATION.
(i) Solutia shall, and shall cause each appropriate member of the
Solutia Group to, provide at Solutia's cost and expense LS with all information
and other assistance reasonably requested by LS to enable the members of the LS
Group to prepare and file the Tax Returns required to be filed by them pursuant
to this Agreement.
(ii) LS shall, and shall cause each appropriate member of the LS
Group to, provide at LS's cost and expense Solutia with all information and
other assistance reasonably requested by Solutia to enable the members of the
Solutia Group to file the Tax Returns required to be filed by them pursuant to
this Agreement.
(iii) Within 5 days of filing a Tax Return that affects the
liability or the determination of the liability for taxes of any member of the
Solutia Group by a member of the LS Group, such member of the LS Group shall
provide Solutia with a copy of only that portion of such Tax Return which is
relevant to a member of the Solutia Group.
(iv) In addition to the foregoing, LS and Solutia agree to fully
cooperate with each other in connection with the preparation of all Tax Returns
required to be filed by them. Such cooperation shall include making personnel
and records available promptly and within 20 days (or such other period as may
be reasonable under the circumstances) after a request for such personnel or
records is made by the taxing authority or the other party. If any member of LS
Group or the Solutia Group, as the case may be, unreasonably fails to provide
any information required pursuant to this Section, then the requesting party
shall have the right to engage an independent certified public accountant of its
choice to gather such information. LS or Solutia, as the case may be, agrees to
permit any such independent certified public accountant full
access to the Tax Return information in the possession of any member of the LS
Group or Solutia Group, as the case may be, during reasonable business hours,
and to reimburse or pay directly all costs and expenses in connection with the
engagement of such independent certified public accountant.
(v) LS shall indemnify and hold harmless each member of the
Solutia Group and its officers and employees, and Solutia shall indemnify and
hold harmless each member of the LS Group and its officers and employees,
against any cost, fine, penalty, or other expenses of any kind attributable to
the negligence of a member of the LS Group or the Solutia Group, as the case
may be, in supplying a member of the other group with inaccurate or incomplete
information, in connection with the preparation of any Tax Return.
(b) Solutia PAYROLL AND UNEMPLOYMENT COMPENSATION TAXES FOR PERIODS
ENDING ON OR AFTER THE DISTRIBUTION DATE. LS shall make available to Solutia
sufficient data to facilitate a determination of the desirability of the
transfer to the Solutia Group of any payroll tax experience and/or any
favorable unemployment compensation tax experience rating of LS; and at
Solutia's election, LS shall cooperate to effect a transfer of such payroll tax
experience and/or such favorable unemployment compensation experience rating
(including state
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unemployment reserves) to the Solutia Group within one hundred and twenty (120)
days after Solutia's written request therefor.
(c) RESEARCH TAX CREDIT INFORMATION. LS will timely furnish the
Solutia Group the base period information the Solutia Group will need, pursuant
to Code Section 41, to properly compute its research tax credits for years
beginning after the Distribution Date.
Section 13. RETENTION OF RECORDS.
a. GENERAL. LS and Solutia agree to retain the appropriate records
which may affect the determination of the liability for taxes of any member of
the LS Group or the Solutia Group, respectively, until such time as there has
been a Final Determination with respect to such liability for taxes.
b. NOTICE OF WAIVERS. LS and Solutia will notify each other in
writing of any waivers or extensions of the applicable statute of limitations
that may affect the period for which any materials, records, or documents must
be retained.
Section 14. RESOLUTION OF DISPUTES.
a. GENERAL. Any claim, dispute, difference or controversy between the
parties which may arise out of, in relation to, or in connection with this
Agreement (a "Dispute") which cannot be settled by mutual understanding of the
parties shall be submitted initially for resolution to the respective chief
executive officers of each of Solutia and LS. Such officers shall meet and use
reasonable efforts to resolve said Dispute.
b. ARBITRATION. If the parties are, after negotiation in good faith as
described in paragraph (a) of this Section 14, unable to agree upon the
appropriate application of this Agreement, the controversy shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association.
c. PROCEDURES. Upon written notice by any party to the other party
that the controversy is to be submitted to arbitration, each party shall appoint
an independent arbitrator (who shall be a tax attorney or independent certified
public accountant) within 30 days, and two arbitrators so appointed shall
appoint a third arbitrator within 30 days after the appointment of the last
arbitrator appointed within the initial 30 day period. If any party fails to
appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two arbitrators
are unable to agree on a third arbitrator within 30 days, any party may apply to
the American Arbitration Association to make such appointment, and all parties
shall be bound by any appointment so made.
d. SITUS. The locale of the arbitration shall be St. Louis, Missouri,
or any other location mutually agreed on by all parties.
e. FINALITY. The award of the arbitrators (or arbitrator) shall be
final, and
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judgment upon the award rendered may be entered in any court having
jurisdiction.
f. EXPENSES. The expenses of the arbitration procedure shall be borne
in equal parts by the parties, unless the arbitration award specifies otherwise.
Section 15. MISCELLANEOUS.
a. TERM OF THE AGREEMENT. This Agreement shall become effective as of
the date of its execution and, except as otherwise expressly provided herein,
shall continue in full force and effect until the expiration of the latest
applicable statute of limitations period.
b. ELECTIONS UNDER CODE SECTION 1552. Nothing in this Agreement is
intended to change or otherwise affect any election made by or on behalf of the
LS Affiliated Group with respect to the calculation of earnings and profits
under Code Section 1552. LS is authorized to seek any change in the method of
calculating earnings and profits as it deems desirable.
c. CODE SECTION 367 NOTICES. Each member of the LS and Solutia Group
required under Temporary Treasury Regulation Section 7.367(b)-1(c) to file a
notice or notices in respect of any pre-Distribution restructuring transaction
referred to in Section 2(d) hereof, shall timely file such notice in proper
form.
d. SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions set forth herein shall remain in full force and effect, and shall
in no way be affected, impaired, or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants, and restrictions without including any
of such which may be hereafter declared invalid, void, or unenforceable. In the
event that any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the parties hereto shall use their best efforts
to find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant, or
restriction.
e. ASSIGNMENT. Except by operation of law or in connection with the
sale of all or substantially all the assets of a party hereto, this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the advance written consent of the other party; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and permitted assigns.
f. FURTHER ASSURANCES. Subject to the provisions hereof, the parties
hereto shall make, execute, acknowledge, and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this
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Agreement and to consummate the transactions contemplated hereby. Subject to the
provisions hereof, each of the parties shall, in connection with entering into
this Agreement, performing its obligations hereunder and taking any and all
actions relating hereto, comply with all applicable laws, regulations, orders,
and decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative agency,
commission or similar authority, and promptly provide the other parties with all
such information as they may reasonably request in order to be able to comply
with the provisions of this sentence.
g. PARTIES IN INTEREST. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm, or corporation other than the
parties and their respective successors and permitted assigns.
h. WAIVERS, ETC. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise or any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
i. SETOFF. All payments to be made by any party under this Agreement
shall be made without setoff, counterclaim, or withholding, all of which are
expressly waived.
j. CHANGE OF LAW. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
k. CONFIDENTIALITY. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party agrees that it shall keep strictly confidential, any information which it
or any of its employees or agents may require pursuant to, or in the course of
performing its obligations under, any provision of this Agreement.
l. HEADINGS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
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m. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
n. NOTICES. All notices, consents, requests, instructions, approvals,
and other communications provided for herein shall be validly given, made, or
served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, or by facsimile transmission to:
If to LS, to it at:
Monsanto Company
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: General Counsel
with a copy to:
Monsanto Company
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: Vice President - Tax
If to Solutia, to it at:
Solutia Inc.
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: General Counsel
with a copy to:
Solutia Inc.
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: Vice President - Tax
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five calendar days after the date the same is mailed.
Notice given by facsimile transmission shall be deemed delivered on the day of
transmission provided telephone confirmation or receipt is obtained promptly
after completion of transmission.
o. COSTS AND EXPENSES. Unless otherwise specifically provided herein,
each
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party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
p. CANCELLATION OF TAX ALLOCATION OR TAX-SHARING AGREEMENTS. On or
prior to the Distribution Date, LS shall cancel or cause to be canceled all
agreements (other than this Agreement and the Distribution Agreement) providing
for the allocation or sharing of Income or Other Taxes to which any member of
the LS Group would otherwise be bound following the Distribution.
q. TREATMENT OF PAYMENTS. The parties agree that, in the absence of
any change in law or fact, any indemnification payments made under this
agreement shall be reported for tax purposes by the payor and the recipient as
capital contributions or dividends, as appropriate, relating back to the Tax
Period beginning before the Distribution Date.
Section 16. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO ANY CHOICE OR CONFLICT OF LAWS, RULES, OR
PROVISIONS THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF
ANY OTHER JURISDICTION.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the day and year first above written.
Monsanto Company
By: /s/ Xxxxxxxx X. Xxxxxx
--------------------------
Title: Vice Chairman
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Solutia Inc.
By: /s/ Xxxx X. Xxxxxx III
--------------------------
Title: President
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