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Exhibit 99.2
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
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definitions shall apply:
a. "Adjustment" shall mean any proposed or final change in the tax
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liability of any member of the Solutia Group or the LS Group.
b. "Affiliated Group" shall mean an affiliated group of corporations
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within the meaning of Code Section 1504(a).
c. "Agreement" shall have the meaning ascribed to such term in the
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introductory paragraph hereof.
d. "Code" shall mean the Internal Revenue Code of 1986, as amended.
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e. "Solutia" shall have the meaning ascribed to such term in the
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introductory paragraph hereof.
f. "Solutia Affiliated Group" shall mean, for each taxable period, the
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Affiliated Group of which Solutia or its successor is the common parent
corporation.
g. "Solutia Carryback" shall have the meaning ascribed to such term
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in Section 2(b)(i) hereof.
h. "Solutia Common Stock" shall have the meaning ascribed to such
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term in the third WHEREAS clause hereof.
i. "Solutia Group" shall mean, for each taxable period, (i) the
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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
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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
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14(a) hereof.
l. "Distribution" shall mean the pro rata distribution of all of the
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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.
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n. "Final Determination" shall mean the final resolution of any tax
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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, 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;
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(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
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Section 6(g) hereof.
p. "Income Taxes" shall mean all Federal, State, local and foreign
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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
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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
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any other party pursuant to the terms and conditions of this Agreement.
s. "Indemnified Party" shall mean any party who is entitled to
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receive payments from an Indemnifying Party pursuant to the terms and conditions
of this agreement.
t. "IRS" shall mean the United States Internal Revenue Service or any
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successor thereto, including but not limited to its agents, representatives,
and attorneys.
u. "LS" shall have the meaning ascribed to such term in the
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introductory paragraph hereof.
v. "LS Affiliated Group" shall mean, for each taxable period, the
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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
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Section 2(b)(i) hereof.
x. "LS Group" shall mean, for each taxable period, (i) the corporations
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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
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Section 2(b)(i).
z. "Material Disposition" shall mean the sale or other transfer by
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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
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due and paid or payable for any taxable period or transaction, after applying
all tax offsets and credits.
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z-2 "Other Taxes" shall mean any and all taxes other than Income Taxes,
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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
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Section 3(a)(ii) hereof.
z-4 "Tax Benefit" shall mean a reduction in the Income Tax Liability of
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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 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
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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,
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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
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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
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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
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in Section 4(c) hereof.
z-10 "Distribution Agreement" shall have the meaning ascribed to that
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term in the third WHEREAS clause hereof.
z-11 "Transferred Businesses" shall have the same meaning ascribed to
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the term "Chemicals Assets" in the Distribution Agreement.
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z-12 "Treasury Regulations" shall mean the Treasury Regulations
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promulgated under the Code.
z-13 "Waiver" shall have the meaning ascribed to such term in Section
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1(n)(i) hereof.
Section 2. Preparation of Tax Returns.
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a. Manner of Preparation. All Tax Returns filed after the
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Distribution Date 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.
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(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
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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
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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.
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a. LS Responsibilities for Income and Other Tax Returns. LS shall
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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 Solutia Group following the Distribution.
b. Solutia Responsibilities for Income and Other Tax Returns.
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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.
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a. LS Obligations. LS shall (except as provided in Sections 2(b),
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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
(ii) be entitled to all refunds of Income and Other Taxes related
thereto.
b. Solutia Obligations. Solutia shall (except as provided in
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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,
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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
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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
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Date, LS shall pay to Solutia an amount equal to the Current Straddle Period
Income Tax Liabilities.
Section 5. Property Taxes.
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a. Pre-Distribution Property Taxes. If the failure to make any ad
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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
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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
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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.
Section 6. Audits and Tax Controversies and Adjustments.
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a. Audit Responsibility and Control. Except as otherwise provided in
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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
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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.
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c. Consultation with Solutia. LS may consult with Solutia, and
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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
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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
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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
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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).
g. Certain Adjustments. Except as otherwise provided in this
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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
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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.
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Section 7. Taxability and Reporting of Nonqualified Stock Options.
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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.
Section 8. Liability of Solutia Group for Undertaking Certain
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Transactions.
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a. General. (i) Solutia shall, and shall cause each member of the
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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
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Group (other than Solutia), shall be allowed to make intragroup transfers of
assets, provided, however, such transfers may be made within two years
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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.
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(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 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
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and specific performance in addition to all other remedies.
Section 9. Liability of LS Group for Undertaking Certain
---------------------------------------------
Transactions.
------------
a. General.
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(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 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.
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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.
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
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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 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.
13
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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 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
14
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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 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.
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
15
16
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 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.
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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.
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
Solutia Inc.
By: /s/ Xxxx X. Xxxxxx III
--------------------------
Title: President
17
