Exhibit 10.4
GUARANTEE AGREEMENT
     GUARANTEE AGREEMENT (this “Agreement”) dated as of February 28, 2008, among
each of the subsidiaries of SOLUTIA INC., a Delaware corporation (the
“Borrower”), listed on Schedule I hereto (each such subsidiary individually, a
“Guarantor” and collectively, the “Guarantors”) in favor of CITIBANK, N.A., as
collateral agent (in such capacity, together with its successors and assigns in
such capacity, the “Collateral Agent”) for the Secured Parties (as defined in
the Credit Agreement referred to below).
     Reference is made to the Credit Agreement dated as of February 28, 2008 (as
amended, restated, amended and restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”), among the Borrower; the lending
institutions from time to time parties thereto (the “Lenders”); CITIBANK, N.A.,
as administrative agent for the Lenders (in such capacity, the “Administrative
Agent”), and as collateral agent for the Secured Parties; GOLDMAN SACHS CREDIT
PARTNERS L.P. (“GSCP”), as syndication agent; DEUTSCHE BANK AG, NEW YORK BRANCH,
as documentation agent; and CITIGROUP GLOBAL MARKETS INC., GSCP and DEUTSCHE
BANK SECURITIES INC., as joint lead arrangers and joint bookrunners. Capitalized
terms used herein without definition shall have the meanings assigned to such
terms in the Credit Agreement.
     The Lenders have agreed to make Loans to the Borrower pursuant to, and upon
the terms and subject to the conditions specified in, the Credit Agreement. Each
of the Guarantors is a direct or indirect Restricted Subsidiary of the Borrower
and acknowledges that it will derive substantial benefit from the making of the
Loans by the Lenders. The obligations of the Lenders to make Loans are
conditioned on, among other things, the execution and delivery by the Guarantors
of a Guarantee Agreement in the form hereof. As consideration therefor and in
order to induce the Lenders to make Loans, the Guarantors are willing to execute
this Agreement.
     Accordingly, the parties hereto agree as follows:
     SECTION 1. Guarantee. Each Guarantor unconditionally and irrevocably
guarantees, jointly with the other Guarantors and severally, as a primary
obligor and not merely as a surety, to each of the Secured Parties and their
respective successors and permitted assigns the full payment when due (whether
at stated maturity or otherwise) of the Obligations (the “Guaranteed
Obligations”). Each Guarantor further agrees that the Guaranteed Obligations may
be extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee under this Agreement
notwithstanding any extension or renewal of any Obligation. By execution of this
Agreement, each Guarantor agrees to be bound by the terms of the Credit
Agreement as a Subsidiary Guarantor as if it were a party to the Credit
Agreement.
     SECTION 2. Guaranteed Obligations Not Waived. The obligations of the
Guarantors under Section 1 shall constitute a guaranty of payment when due and
not of collection and to the fullest extent permitted by applicable law, are
absolute, irrevocable and unconditional, joint and several, irrespective of the
value, genuineness, validity, regularity or enforceability of the Guaranteed
Obligations of the Borrower under the Credit Agreement or any other agreement or
instrument referred to herein or therein (including interest, fees, expenses and
other charges that continue to accrue after the commencement of any bankruptcy
or other similar proceeding, whether or not such interest, fees, expenses and
other charges are allowed or allowable under any state, federal or foreign
bankruptcy, insolvency, reorganization or other law affecting the rights of
credits generally by or against the Borrower, or in any such bankruptcy or other
similar proceeding), or any substitution, release or exchange of any other
guarantee of or security for any of the Guaranteed Obligations, and,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or Guarantor
(except for payment

 

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in full). Without limiting the generality of the foregoing, it is agreed that
the occurrence of any one or more of the following shall not alter or impair the
liability of the Guarantors hereunder which shall remain absolute, irrevocable
and unconditional under any and all circumstances as described above to the
extent permitted by applicable law:
               (i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
               (ii) any of the acts mentioned in any of the provisions of this
Agreement or the Credit Agreement or any other agreement or instrument referred
to herein or therein shall be done or omitted;
               (iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be amended in any
respect, or any right under the Loan Documents or any other agreement or
instrument referred to therein shall be amended or waived in any respect or any
other guarantee of any of the Guaranteed Obligations or any security therefor
shall be released or exchanged in whole or in part or otherwise dealt with;
               (iv) the failure to perfect any security interest in or lien on,
or the release of, any of the security held by or on behalf of the Collateral
Agent or any other Secured Party; or
               (v) the release of any other Guarantor pursuant to Section 9(b).
          The Guarantors hereby expressly waive, to the extent permitted by
applicable law, diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that any Secured Party exhaust any
right, power or remedy or proceed against the Borrower under this Agreement or
the Credit Agreement or any other agreement or instrument referred to herein or
therein, or against any other Person under any other guarantee of, or security
for, any of the Guaranteed Obligations. The Guarantors waive, to the extent
permitted by applicable law, any and all notice of the creation, renewal,
extension, waiver, termination or accrual of any of the Guaranteed Obligations
and notice of or proof of reliance by any Secured Party upon this Agreement or
acceptance of this Agreement, and the Guaranteed Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred in
reliance upon this Agreement and the guarantees contained herein, and all
dealings between the Borrower and the Secured Parties shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Agreement. This Agreement shall be construed as a continuing, absolute,
irrevocable and unconditional guarantee of payment without regard to any right
of offset with respect to the Guaranteed Obligations at any time or from time to
time held by Secured Parties, and the obligations and liabilities of the
Guarantors hereunder shall not be conditioned or contingent upon the pursuit by
the Secured Parties or any other Person at any time of any right or remedy
against Borrower or against any other Person which may be or become liable in
respect of all or any part of the Guaranteed Obligations or against any
collateral security or guarantee therefor or right of offset with respect
thereto. This Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantors and the
successors and permitted assigns thereof, and shall inure to the benefit of the
Secured Parties, and their respective successors and permitted assigns.

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     SECTION 3. Guarantee of Payment. Each Guarantor hereby jointly and
severally agrees that its guarantee constitutes a guarantee of payment when due
and not of collection of the Guaranteed Obligations, and waives, to the extent
permitted by applicable law, any right to require that any resort be had by the
Collateral Agent or any other Secured Party to any of the security held for
payment of the Guaranteed Obligations or to any balance of any deposit account
or credit on the books of the Collateral Agent or any other Secured Party in
favor of the Borrower or any other Person.
     SECTION 4. No Discharge or Diminishment of Guarantee. The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the payment in full in cash
of the Guaranteed Obligations (other than contingent indemnification
obligations)), including any claim of waiver, release, surrender, alteration or
compromise of any of the Guaranteed Obligations, and shall not be subject to (to
the extent permitted by applicable law) any defense (other than payment in full
in cash of the Guaranteed Obligations (other than contingent indemnification
obligations)) or setoff, counterclaim, recoupment or termination whatsoever by
reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce any remedy under the Credit
Agreement, any other Loan Document or any other agreement, by any waiver or
modification of any provision of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Guaranteed Obligations, or by
any other act or omission that may or might in any manner or to any extent vary
the risk of any Guarantor or that would otherwise operate as a discharge of each
Guarantor as a matter of law or equity (other than the payment in full in cash
of all the Guaranteed Obligations (other than contingent indemnification
obligations)).
     SECTION 5. Defenses of Borrower Waived. To the fullest extent permitted by
applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of any Loan Party or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of any Loan Party, other than the payment in full in cash of
the Guaranteed Obligations (other than contingent indemnification obligations).
Subject to the terms of the Security Documents, the Collateral Agent and the
other Secured Parties may, at their election, foreclose on any security held by
one or more of them by one or more judicial or nonjudicial sales, accept an
assignment of any such security in lieu of foreclosure, compromise or adjust any
part of the Guaranteed Obligations, make any other accommodation with any Loan
Party or any other guarantor or exercise any other right or remedy available to
them against any Loan Party or any other guarantor, without affecting or
impairing in any way the liability of any Guarantor hereunder except to the
extent the Guaranteed Obligations have been fully paid in cash (other than
contingent indemnification obligations). To the extent permitted by applicable
law, each of the Guarantors waives any defense arising out of any such election
even though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against any Loan Party or any other Guarantor or guarantor, as
the case may be, or any security.
     SECTION 6. Agreement to Pay; Subordination. In furtherance of the foregoing
and not in limitation of any other right that the Collateral Agent or any other
Secured Party has at law or in equity against any Guarantor by virtue hereof,
upon the failure of any Loan Party to pay any Obligation when and as the same
shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, promptly upon notice from the Collateral Agent each
Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the
Collateral Agent or such other Secured Party as designated thereby in cash or
the amount of such unpaid Guaranteed Obligations. Upon payment by any Guarantor
of any sums to the Collateral Agent or any other Secured Party as provided
above, all rights of such Guarantor against any Loan Party arising as a result
thereof by way of right of subrogation, contribution, reimbursement, indemnity
or otherwise shall in all respects be subordinate and junior in right of payment
to the prior payment in full in cash of all the Guaranteed Obligations (other
than contingent

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indemnification obligations). In addition, any indebtedness of any Loan Party
now or hereafter held by any Guarantor is hereby subordinated in right of
payment to the prior payment in full in cash of the Guaranteed Obligations
(other than contingent indemnification obligations). If any amount shall
erroneously be paid to any Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of any Loan Party, such amount shall be held for the benefit of the
Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against the payment of the Guaranteed Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents.
     SECTION 7. Information. Each of the Guarantors assumes all responsibility
for being and keeping itself informed of each other Loan Party’s financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks that such Guarantor incurs hereunder, and agrees that none of the
Collateral Agent or the other Secured Parties will have any duty to advise any
of the Guarantors of information known to it or any of them regarding such
circumstances or risks.
     SECTION 8. Representations and Warranties. Each of the Guarantors
represents and warrants as to itself that all representations and warranties
relating to it contained in the Credit Agreement are true and correct (or true
and correct in all material respects if not otherwise qualified by materiality
or a Material Adverse Effect) as of the date hereof (unless expressly stated to
relate to an earlier date, in which case such representations and warranties
shall be true and correct (or true and correct in all material respects if not
otherwise qualified by materiality or a Material Adverse Effect) as of such
earlier date).
     SECTION 9. Termination. (a) The Guarantees made hereunder (i) shall
automatically terminate when all the Guaranteed Obligations (other than
contingent indemnification obligations) have been paid in full in cash and
(ii) shall continue to be effective or be reinstated, as the case may be, if at
any time any payment in respect thereof, of any Obligation is rescinded or must
otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy
or reorganization of the Borrower, any Guarantor or otherwise. In connection
with any termination referred to above, the Collateral Agent shall promptly
execute and deliver to such Guarantor or Guarantor’s designee, at such
Guarantor’s expense, any documents or instruments which such Guarantor shall
reasonably request from time to time in writing to evidence such termination and
release.
     (b) If the Equity Interests of a Guarantor are sold, transferred or
otherwise disposed of to a Person that is not an Affiliate pursuant to a
transaction permitted by Section 6.05 of the Credit Agreement that results in
such Guarantor ceasing to be a Subsidiary, or upon the effectiveness of any
written consent pursuant to Section 9.08 of the Credit Agreement to the release
of the guarantee granted by such Guarantor hereby, such Guarantor shall be
automatically released from its obligations under this Agreement without further
action. In connection with such release, the Collateral Agent shall promptly
execute and deliver to such Guarantor, at such Guarantor’s expense, all
documents that such Guarantor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this
Section 9(b) shall be without recourse to or warranty by the Collateral Agent.
     SECTION 10. Successors and Assigns; Several Agreement. (a) This Agreement
shall be binding upon each Guarantor and their respective permitted successors
and assigns, and shall inure to the benefit of such Guarantor, the Collateral
Agent and the other Secured Parties and their respective permitted successors
and assigns, except that no Guarantor shall have the right to assign or transfer
its rights or obligations hereunder or any interest herein (and any such
attempted assignment or transfer shall be void) except as permitted by the
Credit Agreement.

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     (b) This Agreement shall be construed as a separate agreement with respect
to each Guarantor and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.
     SECTION 11. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent or any other Secured Party in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law or in the other Loan
Documents. No waiver of any provisions of this Agreement or any other Loan
Document or consent to any departure by any Guarantor therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice to or demand on any Guarantor in
any case shall entitle such Guarantor or any other Guarantor to any other or
further notice or demand in similar or other circumstances.
     (b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into in accordance with Section 9.08 of the Credit Agreement.
     SECTION 12. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
     SECTION 13. Notices. All communications and notices hereunder shall (except
as otherwise expressly permitted herein) be in writing and given as provided in
Section 9.01 of the Credit Agreement.
     SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by any Guarantor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans, regardless of any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and effect until this Agreement shall terminate.
     (b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
     SECTION 15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute a single contract (subject to Section 10) and
shall become effective as provided in Section 10. Delivery of an executed
signature page to this Agreement by facsimile or other electronic transmission
shall be effective as delivery of a manually executed counterpart hereof.
     SECTION 16. Rules of Interpretation; Headings. (a) The rules of
interpretation specified in Section 1.03 of the Credit Agreement shall be
applicable to this Agreement.

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     (b) Section headings used herein are for the purpose of reference only, are
not part of this Agreement and are not to affect the construction of, or to be
taken into consideration in interpreting this Agreement.
     SECTION 17. Jurisdiction; Consent to Service of Process. (a) Each party
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America for the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Collateral Agent or any other Secured Party may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Loan Documents against any Guarantor or its properties in the courts
of any jurisdiction.
     (b) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court referred to in paragraph (a) of this Section.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
     (c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for in Section 9.15 of the Credit Agreement. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
     SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
     SECTION 19. Additional Guarantors. To the extent any Subsidiary shall be
required to become a Guarantor pursuant to Section 5.15 of the Credit Agreement,
upon execution and delivery by the Collateral Agent and such Subsidiary of an
instrument in the form of Annex I hereto, such Subsidiary shall become a
Guarantor hereunder with the same force and effect as if originally named as a
Guarantor herein. The execution and delivery of any such instrument shall not
require the consent of any other Guarantor hereunder. The rights and obligations
of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
     SECTION 20. Right of Setoff. If an Event of Default shall have occurred and
be continuing, each Secured Party and its Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Secured Party or its Affiliates, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, to or for the credit or the
account of any Guarantor against any of and all the obligations of such
Guarantor now or hereafter existing under this Agreement and other Loan
Documents held by such Secured Party, irrespective of whether or not such
Secured Party or its Affiliates shall have made any demand under this

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Agreement or such other Loan Document upon any amount becoming due and payable
by the Borrower under the Credit Agreement (whether at stated maturity, by
acceleration or otherwise). In connection with exercising its rights pursuant to
the previous sentence, a Secured Party or its Affiliates may at any time use any
Guarantor’s credit balances with the Secured Party or its Affiliates to purchase
at the Secured Party’s or its Affiliates’ applicable spot rate of exchange any
other currency or currencies which the Secured Party or its Affiliates considers
necessary to reduce or discharge any amount due by such Guarantor to the Secured
Party or its Affiliates, and may apply that currency or those currencies in or
towards payment of those amounts. The rights of each Secured Party or its
Affiliates under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Secured Party or its Affiliates
may have. Each Secured Party or its Affiliates agrees promptly to notify such
Guarantor and the Administrative Agent after making any such setoff; provided
that the failure to give such notice shall not affect the validity of such
setoff.
[Signature Pages Follow]

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

     
 
  BEAMER ROAD MANAGEMENT COMPANY
CPFILMS INC.
FLEXSYS AMERICA CO.
FLEXSYS AMERICA L.P.
      by FLEXSYS AMERICA CO.,
      its general partner
MONCHEM INTERNATIONAL, INC.
SOLUTIA BUSINESS ENTERPRISES INC.
SOLUTIA GREATER CHINA, INC.
SOLUTIA INTER-AMERICA, INC.
SOLUTIA OVERSEAS, INC.
SOLUTIA SYSTEMS, INC.

                  By:   /s/James A. Tichenor         Name:   James A. Tichenor 
      Title:   Authorized Officer     

[Guarantee Agreement]

 

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            CITIBANK, N.A.,
as Collateral Agent
      By:   /s/ Aaron Dannenberg         Name:   Aaron Dannenberg       
Title:   Vice President     

[GUARANTEE AGREEMENT]