Exhibit 99.4
SOLUTIA EUROPE SA/NV
TERM SHEET
MODIFICATION OF 6 1/4 SOLUTIA EUROPE NOTES
ISSUE: Senior Secured Euro Notes (the "Secured Notes").
ISSUER: Solutia Europe SA/NV ("Solutia Europe").
GUARANTORS: All subsidiaries of Solutia Europe.
RANKING: The Secured Notes will represent senior secured
obligations of Solutia Europe and the Guarantors,
and will rank pari passu with all other senior
obligations of Solutia Europe and the Guarantors.
SECURITY: Fully perfected 1st priority lien on substantially
all of the property and assets of Solutia Europe
and, to the fullest extent permitted by applicable
local laws, the Guarantors, including, but not
limited to, intercompany debt in favor of Solutia
Europe or the Guarantors, accounts receivables,
inventory, PP&E, intellectual property, and capital
stock; provided, however, that any lien in debt,
cash and/or receivables will not, in the absence of
a default, interfere with the day to day operations
of Solutia Europe and the Guarantors; and provided
further that in the event that applicable local laws
do not permit the granting of liens on the assets of
the Guarantors, the parties will use reasonable
efforts to seek alternative means of providing a 1st
priority lien or to create structural seniority in
favor of the Secured Notes. Pledge of intercompany
debt to include (euro)69 million obligation of
Solutia UK Holdings Ltd. (the "UK Note"). The UK
Note will be amended to provide that its terms may
not be amended without the consent of the holders of
the Secured Notes other than to extend its maturity
to a date or dates not later than December 15, 2008.
INTEREST: 10.00% per annum, payable semi-annually in cash.
NO CROSS DEFAULT Elimination of cross-defaults related to bankruptcy
TO SOLUTIA INC. of Solutia Inc.
DEFAULT INTEREST: 2.00% per annum increase during an event of default.
MATURITY DATE: December 15, 2008
OPTIONAL The Secured Notes will be redeemable from proceeds
REDEMPTION: of asset sales at par at Solutia Europe's option, in
whole or in part, prior to maturity in increments of
not less than (euro) 10 million; provided, however
that any such asset sale must be permitted pursuant
to the limitations and prohibitions described below.
Except with respect
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Exhibit 99.4
to proceeds of such asset sales, the Secured Notes
will (i) not be redeemable for 18 months after the
close of the transactions , (ii) will be redeemable
thereafter at the following premiums: (x) 1.05 times
the principal amount during the period commencing on
the 19th month after the close of the transactions
and ending on the 30th month after the close of the
transactions, (y) 1.03 times the principal amount
during the period commencing on the 31st month after
the close of the transactions and ending on the 42nd
month after the close of the transactions, and (z)
1.01 times the principal amount during the period
commencing on the 43rd month of the close of the
transactions and ending on the 54th month after the
close of the transactions. Commencing with the 55th
month after the close of the transactions, the
Secured Notes will be redeemable at par.
LIMITATIONS & Including but not limited to: (i) "ring fence"
PROHIBITIONS: covenants prohibiting dividends and intercompany
indebtedness related transfers by Solutia Europe or
the Guarantors outside the companies obligated on
the Secured Notes, (ii) prohibition on restricted
payments (including prohibition on additional
intercompany loans to entities other than Solutia
Europe and the Guarantors), (iii) prohibition on
cash payment of principal or interest on the
Convertible Subordinated Bonds dated January 26,
1999 issued by Solutia Europe so long as the Secured
Notes are outstanding, (iv) limitation on
indebtedness, (v) limitation on liens, (vi)
prohibition on payment restrictions affecting
Solutia Europe's and Guarantors' ability to make
payment on the Secured Notes, (vii) restrictions
with respect to affiliate transactions (including
restricting transfer pricing to terms no less
favorable to Solutia Europe and the Guarantors than
those that would be available from unrelated third
parties, (viii) restrictions on issuance of
guarantees, (ix) restrictions on merging,
consolidating or disposing of substantially all the
stock or assets of Solutia Europe or a Guarantor,
(x) restrictions on asset sales, (xi) covenant that
the trademark and patent licenses between Solutia
Inc and Solutia Europe will be extended through at
least December 15, 2008 and the fees on such
licenses will not be increased from the rates set
forth in the licenses.
REPORTING Requirement that Solutia Europe make available to
REQUIREMENTS: holders of Secured Notes quarterly and annual US
GAAP balance sheets, income statements and cash flow
statements on a consolidated and consolidating basis
for Solutia Europe and the Guarantors, and that
Solutia Inc. file such documents on Form 8K promptly
thereafter.
MECHANICS OF The agreement in principle of the parties reflected
EFFECTING THE herein shall be effected in the following manner:
(1) at the bondholder meeting
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Exhibit 99.4
AGREEMENT: scheduled for December 16, 2003, Solutia Europe
shall propose, and the members of the Committee will
support, an amendment to the Fiscal Agency Agreement
providing for the waiver of any events of default
related to a bankruptcy of Solutia Inc. through
January 30, 2004 and providing that the interest
rate on the Euro Notes shall be increased for the
period from December 17, 2003 through February 14,
2004 by 4% with such increase in interest to be paid
in advance on December 17, 2003; (2) Solutia Europe
shall call a second bondholder meeting for as soon
as is practicable, but in any event no later than
January 29, 2004, and shall publish and transmit a
notice of such second meeting in which Solutia
Europe proposes that the holders of the Euro Notes
adopt resolutions in order to implement this Term
Sheet, (3) Solutia Inc., Solutia Europe and the
Committee promptly will enter into an agreement
providing that they will use their best efforts to
implement the foregoing and to negotiate definitive
documentation in good faith so that such
documentation may be executed at such second
meeting.
CONDITIONS Including but not limited to (i) satisfactory
PRECEDENT: completion of the Committee's confirmatory due
diligence, (ii) negotiation of definitive
documentation in form and substance acceptable to
the Committee in its sole and absolute discretion,
(iii) opinions of counsel of Solutia Europe, (iii)
receipt of a usury permit, if necessary, (iv)
payment of Committee's reasonable fees and expenses
at Closing, and (v) the Credit Facility between
Solutia Inc. and Ableco shall be amended so that
implementation of the terms set forth herein will
not breach such agreement or such credit facility
will be replaced by a DIP Credit Agreement that
would not be breached by the implementation of the
terms set forth herein.
EXPENSES: Solutia Europe and Solutia Inc. have entered into
engagement and retention letters with counsel and a
financial advisor chosen by the Committee and such
agreements shall be unaffected by whether or not the
agreements reflected herein are implemented.
INDEMNIFICATION: Solutia Europe and the Guarantors shall indemnify
the noteholders and their control persons,
affiliates, agents, representatives and assigns from
and against any and all liabilities which may be
incurred by them (i) based on the conduct of Solutia
Europe, the Guarantors or their affiliates, or (ii)
which asserts that any of the agreements or
transactions provided for in this Term Sheet
conflicts with or violates any contract, agreement,
order, proceeding, duty or law applicable to SESA or
any of its affiliates.
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Exhibit 99.4
Indemnification shall survive termination of this
Term Sheet.
NO COMMITMENT: Nothing contained in this term sheet shall be deemed
to be a binding commitment of the Committee to
consummate the transactions described herein. Any
such commitment shall be evidenced by the
noteholders' execution of a formal commitment letter
or definitive documentation. This term sheet is
intended to be merely an outline to facilitate the
negotiation and preparation of a definitive
agreement and related documents.
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