Financing Agreement (2003)Full Document 

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                             FINANCING AGREEMENT

                         DATED AS OF OCTOBER 8, 2003

                                BY AND AMONG

                              SOLUTIA INC. AND
                     SOLUTIA BUSINESS ENTERPRISES, INC.,
                                AS BORROWERS,

         CERTAIN SUBSIDIARIES OF SOLUTIA INC. LISTED AS A GUARANTOR
                       ON THE SIGNATURE PAGES HERETO,
                               AS GUARANTORS,

                 THE LENDERS FROM TIME TO TIME PARTY HERETO,
                                 AS LENDERS,

                             ABLECO FINANCE LLC,
                            AS COLLATERAL AGENT,

                         WELLS FARGO FOOTHILL, INC.,
             AS ADMINISTRATIVE AGENT AND AS JOINT LEAD ARRANGER,

                                     AND

                  CONGRESS FINANCIAL CORPORATION (CENTRAL),
              AS DOCUMENTATION AGENT AND AS JOINT LEAD ARRANGER







                                                           EXECUTION VERSION



                                                TABLE OF CONTENTS


                                                                                                             Page
                                                                                                             ----
                                                                                                          
ARTICLE I DEFINITIONS; CERTAIN TERMS............................................................................1
         Section 1.01        Definitions........................................................................1
         Section 1.02        Terms Generally...................................................................33
         Section 1.03        Accounting and Other Terms........................................................33
         Section 1.04        Time References...................................................................33

ARTICLE II THE LOANS...........................................................................................34
         Section 2.01        Commitments.......................................................................34
         Section 2.02        Making the Loans..................................................................35
         Section 2.03        Repayment of Loans; Evidence of Debt..............................................38
         Section 2.04        Interest..........................................................................39
         Section 2.05        Reduction of Commitment; Prepayment of Loans......................................39
         Section 2.06        Fees..............................................................................45
         Section 2.07        Securitization....................................................................45
         Section 2.08        Taxes.............................................................................46

ARTICLE III LETTER OF CREDIT ACCOMMODATIONS....................................................................48
         Section 3.01        Letter of Credit Guaranty.........................................................48
         Section 3.02        Participations....................................................................51
         Section 3.03        Letter of Credit Accommodations...................................................52

ARTICLE IV FEES, PAYMENTS AND OTHER COMPENSATION...............................................................53
         Section 4.01        Audit and Collateral Monitoring Fees..............................................53
         Section 4.02        Payments; Computations and Statements.............................................53
         Section 4.03        Sharing of Payments, Etc..........................................................54
         Section 4.04        Apportionment of Payments.........................................................55
         Section 4.05        Increased Costs and Reduced Return................................................56
         Section 4.06        Joint and Several Liability of the Borrowers......................................58

ARTICLE V CONDITIONS TO LOANS..................................................................................59
         Section 5.01        Conditions Precedent to Effectiveness.............................................59
         Section 5.02        Conditions Precedent to All Loans and Letter of Credit
                             Accommodations....................................................................65

ARTICLE VI REPRESENTATIONS AND WARRANTIES......................................................................66
         Section 6.01        Representations and Warranties....................................................66

ARTICLE VII COVENANTS OF THE LOAN PARTIES......................................................................75
         Section 7.01        Affirmative Covenants.............................................................75
         Section 7.02        Negative Covenants................................................................88
         Section 7.03        Financial Covenants...............................................................95

ARTICLE VIII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS AND OTHER COLLATERAL................................99





         Section 8.01        Collection of Accounts; Management of Collateral..................................99
         Section 8.02        Collateral Custodian.............................................................102
         Section 8.03        Collateral Reporting.............................................................102
         Section 8.04        Accounts Covenants...............................................................103
         Section 8.05        Inventory Covenants..............................................................104

ARTICLE IX EVENTS OF DEFAULT..................................................................................105
         Section 9.01        Events of Default................................................................105

ARTICLE X AGENTS..............................................................................................109
         Section 10.01       Appointment......................................................................109
         Section 10.02       Nature of Duties.................................................................110
         Section 10.03       Rights, Exculpation, Etc.........................................................110
         Section 10.04       Reliance.........................................................................111
         Section 10.05       Indemnification..................................................................111
         Section 10.06       Agents Individually..............................................................111
         Section 10.07       Successor Agent..................................................................112
         Section 10.08       Collateral Matters...............................................................112
         Section 10.09       Agency for Perfection............................................................113

ARTICLE XI GUARANTY...........................................................................................114
         Section 11.01       Guaranty.........................................................................114
         Section 11.02       Guaranty Absolute................................................................114
         Section 11.03       Waiver...........................................................................115
         Section 11.04       Continuing Guaranty; Assignments.................................................116
         Section 11.05       Subrogation......................................................................116

ARTICLE XII MISCELLANEOUS.....................................................................................117
         Section 12.01       Notices, Etc.....................................................................117
         Section 12.02       Amendments, Etc..................................................................118
         Section 12.03       No Waiver; Remedies, Etc.........................................................119
         Section 12.04       Expenses; Taxes; Attorneys' Fees.................................................119
         Section 12.05       Right of Set-off.................................................................120
         Section 12.06       Severability.....................................................................121
         Section 12.07       Assignments and Participations...................................................121
         Section 12.08       Counterparts.....................................................................124
         Section 12.09       GOVERNING LAW....................................................................124
         Section 12.10       CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE............................124
         Section 12.11       WAIVER OF JURY TRIAL, ETC........................................................125
         Section 12.12       Consent by the Agents and Lenders................................................126
         Section 12.13       No Party Deemed Drafter..........................................................126
         Section 12.14       Reinstatement; Certain Payments..................................................126
         Section 12.15       Indemnification..................................................................126
         Section 12.16       Parent as Agent for Borrowers....................................................127
         Section 12.17       Records..........................................................................128
         Section 12.18       Binding Effect...................................................................128





         Section 12.19       Interest.........................................................................128
         Section 12.20       Confidentiality..................................................................129
         Section 12.21       Integration......................................................................130
         Section 12.22       Intercreditor Agreement..........................................................130
         Section 12.23       Dutch Security Agreement.........................................................130











                                      SCHEDULE AND EXHIBITS
                                      ---------------------
                          
Schedule 1.01(A)             Lenders and Lenders' Commitments
Schedule 1.01(B)             Cash Restructuring Charges
Schedule 3.01                Existing Letters of Credit
Schedule 6.01(e)             Subsidiaries
Schedule 6.01(f)             Litigation; Commercial Tort Claims
Schedule 6.01(i)             ERISA
Schedule 6.01(l)             Nature of Business
Schedule 6.01(o)             Real Property
Schedule 6.01(q)             Operating Lease Obligations
Schedule 6.01(r)             Environmental Matters
Schedule 6.01(s)             Insurance
Schedule 6.01(u)             Bank Accounts
Schedule 6.01(v)             Intellectual Property
Schedule 6.01(w)             Material Contracts
Schedule 6.01(y)             Employee and Labor Matters
Schedule 6.01(aa)            Name; Jurisdiction of Organization; Organizational ID Number; Chief
                             Place of Business; Chief Executive Office; FEIN
Schedule 6.01(bb)            Collateral Locations
Schedule 7.01(s)             Post-Closing Delivery
Schedule 7.02(a)             Existing Liens
Schedule 7.02(b)             Existing Indebtedness
Schedule 7.02(c)(i)          Permitted Dispositions
Schedule 7.02(e)             Existing Investments
Schedule 7.02(k)             Limitations on Dividends and Other Payment Restrictions
Schedule 7.03                Designated Business Segments
Schedule 8.01                Cash Management Banks and Cash Management Accounts

Exhibit A                    Form of Guaranty
Exhibit B                    Form of Security Agreement
Exhibit C                    Form of Pledge Agreement
Exhibit D                    Form of Notice of Borrowing
Exhibit E                    Form of Borrowing Base Certificate
Exhibit F                    Form of Opinion of Counsel
Exhibit G                    Form of Intercompany Subordination Agreement
Exhibit H                    Form of Assignment and Acceptance
Exhibit I                    Form of Landlord Waiver
Exhibit J                    Form of Contribution Agreement








                             FINANCING AGREEMENT

                  Financing Agreement, dated as of October 8, 2003, by and
among Solutia Inc., a Delaware corporation (the "Parent"), and Solutia
                                                 ------
Business Enterprises, Inc., a New York corporation ("Solutia Business" and
                                                     ----------------
together with the Parent, each a "Borrower" and collectively, the
                                  --------
"Borrowers"), each subsidiary of the Parent listed as a "Guarantor" on the
 ---------
signature pages hereto (each a "Guarantor" and collectively, the
                                ---------
"Guarantors"), the lenders from time to time party hereto (each a "Lender"
 ----------                                                        ------
and collectively, the "Lenders"), Ableco Finance LLC, a Delaware limited
                       -------
liability company ("Ableco"), as collateral agent for the Lenders (in such
                    ------
capacity, the "Collateral Agent"), Wells Fargo Foothill, Inc., a California
               ----------------
corporation ("Foothill"), as administrative agent for the Lenders (in such
              --------
capacity, the "Administrative Agent"), and Congress Financial Corporation
               --------------------
(Central), an Illinois corporation ("Congress"), as documentation agent for
                                     --------
the Lenders (in such capacity, the "Documentation Agent" and together with
                                    -------------------
the Collateral Agent and the Administrative Agent, each an "Agent" and
                                                            -----
collectively, the "Agents").
                   ------

                                  RECITALS

                  The Borrowers have asked the Lenders to extend credit to
the Borrowers consisting of three separate revolving credit facilities in an
aggregate principal amount for all such facilities not to exceed
$350,000,000 at any time outstanding. The revolving A credit facility will
include a $150,000,000 subfacility for the issuance of letters of credit.
The proceeds of the loans made under the revolving credit facilities shall
be used to refinance existing indebtedness of the Borrowers and the
Guarantors, for general working capital purposes of the Borrowers and the
Guarantors and to pay fees and expenses related to this Agreement. The
letters of credit shall be used to support the Parent's obligations under
the Astaris Guaranty (as hereinafter defined) and for general corporate and
working capital purposes. The Lenders are severally, and not jointly,
willing to extend such credit to the Borrowers subject to the terms and
conditions hereinafter set forth.

                  In consideration of the premises and the covenants and
agreements contained herein, the parties hereto agree as follows:

                                 ARTICLE I

                         DEFINITIONS; CERTAIN TERMS

                  Section 1.01 Definitions. As used in this Agreement, the
                               -----------
following terms shall have the respective meanings indicated below, such
meanings to be applicable equally to both the singular and plural forms of
such terms:

                  "Ableco" has the meaning specified therefor in the
                   ------
preamble hereto.

                  "Account Debtor" means each debtor, customer or obligor in
                   --------------
any way obligated on or in connection with any Account.

                  "Accounts" means, as to each Loan Party, all present and
                   --------
future rights of such Loan Party to payment of a monetary obligation,
whether or not earned by performance, (a) for


                                   - 1 -




property that has been or is to be sold, leased, assigned, or otherwise
disposed of, (b) for services rendered or to be rendered, or (c) for a
secondary obligation incurred or to be incurred.

                  "Action" has the meaning specified therefor in Section
                   ------
12.12.

                  "Administrative Agent" has the meaning specified therefor
                   --------------------
in the preamble hereto.

                  "Administrative Agent's Account" means an account at a
                   ------------------------------
bank designated by the Administrative Agent from time to time as the account
into which the Loan Parties shall make all payments to the Administrative
Agent for the benefit of the Agents and the Lenders under this Agreement and
the other Loan Documents.

                  "Administrative Borrower" has the meaning specified
                   -----------------------
therefor in Section 12.16.

                  "Affiliate" means, with respect to any Person, any other
                   ---------
Person that directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such Person.
For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (i) vote 10% or more of the Capital Stock
having ordinary voting power for the election of directors of such Person or
(ii) direct or cause the direction of the management and policies of such
Person whether by contract or otherwise. Notwithstanding anything herein to
the contrary, in no event shall any Agent or any Lender be considered an
"Affiliate" of any Loan Party.

                  "After Acquired Property" has the meaning specified
                   -----------------------
therefor in Section 7.01(n).

                  "Agent" and "Agents" have the respective meanings
                   -----       ------
specified therefor in the preamble hereto.

                  "Agent Advances" has the meaning specified therefor in
                   --------------
Section 10.08(a).

                  "Agreement" means this Financing Agreement, including all
                   ---------
amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.

                  "Assignment and Acceptance" means an assignment and
                   -------------------------
acceptance entered into by an assigning Lender and an assignee, and accepted
by the Collateral Agent, in accordance with Section 12.07 hereof and
substantially in the form of Exhibit H hereto or such other form acceptable
to the Collateral Agent.

                  "Astaris" means Astaris LLC, a Delaware limited liability
                   -------
company.

                  "Astaris Agent" means Bank of America, N.A., in its capacity
                   -------------
as administrative agent for the Astaris Lenders.

                  "Astaris Credit Agreement" means the Five Year Credit
                   ------------------------
Agreement, dated as of September 14, 2000, among Astaris, the Astaris

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