EX-4.1



 





Exhibit 4.1




WARRANT AGREEMENT




     THIS WARRANT AGREEMENT (this “Agreement”) is made as of the 28th day of Fe, 2008
between Solutia Inc., a Delaware corporation, with offices at 575 Maryville Centre Drive, P.O. Box
66760, St. Louis, Missouri 63166 (the “Company”), and American Stock Transfer and Trust
Company, with offices at 59 Maiden Lane, New York, NY 10038 (the “Warrant Agent”). Each
capitalized term used herein but not defined herein shall have the meaning ascribed to it in the
Fifth Amended Plan of Reorganization of the Company and the other debtors therein filed with the
United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy
Court”) on October 15, 2007, as modified and confirmed by an order of the Bankruptcy Court on
November 19, 2007.



     WHEREAS, on December 17, 2003, Solutia Inc. (“Solutia”) and its debtor subsidiaries
filed petitions with the Bankruptcy Court under chapter 11 of the United States Code, 11 U.S.C. §§
101-1330.



     WHEREAS, the Company proposes to issue an aggregate of 59,750,000 shares of New Common Stock
(as defined below) pursuant to the order of the United States Bankruptcy Court, Southern District
of New York in In re Solutia Inc., et al., Case No. 03-17949 (PCB), and the Plan of Reorganization
confirmed therein in connection with the reorganization of Solutia under Title 11 of the United
States Code;



     WHEREAS, the Company proposes to issue, at the Effective Date, warrants (the
“Warrants”) to purchase, in the aggregate, 4,481,250 shares of New Common Stock at an
exercise price of $29.70, to all holders of Equity Interest (as defined in the Plan of
Reorganization) in Solutia (Class 20), on a pro rata basis, based upon the amount of their
respective pre-petition ownership of Equity Interest, provided that such holder of an Equity
Interest owns at least 24 shares of common stock of Solutia such that it would receive a Warrant to
purchase at least one share of New Common Stock;



     WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms
upon which they shall be issued and exercised, and the respective rights, limitation of rights, and
immunities of the Company, the Warrant Agent, and the holders of the Warrants; and



     WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the
Warrant Agent is willing to so act, in connection with the issuance, registration, transfer,
exchange, call, exercise and cancellation of the Warrants; and



     WHEREAS, all acts and things have been done and performed which are necessary to make the
Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant
Agent, as provided herein, the valid, binding and legal obligations of the Company, and to
authorize the execution and delivery of this Agreement.



     NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto
agree as follows:



 









 





ARTICLE I




DEFINITIONS




     Section 1.1 Definition of Terms. As used in this Agreement, the following capitalized
terms shall have the following respective meanings:



          (a) “Business Day” shall mean day other than a Saturday, Sunday or other day on which
banks in the State of New York are authorized by law to remain closed.




          (b) “Beneficial Holder” shall mean any person or entity that holds beneficial
interests in a Global Warrant Certificate.




          (c) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.




          (d) “Expiration Date” shall mean 5:00 p.m., New York City time, on February 27, 2013,
or if such day is not a Business Day, the next succeeding day which is a Business Day.




          (e) “NASDAQ” shall mean The NASDAQ Stock Market (including any of its subdivisions
such as the NASDAQ Global Select Market) or any successor market thereto.




          (f) “New Common Stock” shall mean common stock, $.01 par value per share, of the
Company. For purposes of Article V hereof, references to “shares of New Common Stock”
shall be deemed to include shares of any other class of stock resulting from successive changes or
reclassifications of the New Common Stock consisting solely of changes in par value or from no par
value to par value and vice versa.




          (g) “New Common Stock Equivalents” shall mean Securities that are convertible into or
exercisable for (directly or indirectly) shares of New Common Stock.




          (h) “NYSE” shall mean The New York Stock Exchange or any successor stock exchange
thereto.




          (i) “Plan of Reorganization” shall mean the plan of reorganization of the Company as
finally approved by the bankruptcy court before which the Company’s case under Chapter 11 of the
United States Bankruptcy Code is or was pending.




          (j) “SEC” shall mean the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.




          (k) “Securities Act” shall mean the Securities Act of 1933, as amended.




          (l) “Warrant Shares” shall mean New Common Stock, New Common Stock Equivalents and any
other securities (including any securities of any Successor Person) purchased or purchasable upon
exercise of the Warrants (and, if the context requires, securities which may thereafter be issued
by the Company in respect of any such securities so purchased, by means of any stock splits, stock
dividends, recapitalizations, reclassifications or the like).




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Section 1.2 Table of Defined Terms.



	 	 	 
	Term	 	Section Number
	Agreement

	 	Recitals
	Appropriate Officer

	 	Section 3.3(a)
	Book-Entry Warrants

	 	Section 3.1
	Company

	 	Recitals
	Depositary

	 	Section 3.2(b)
	Exercise Amount

	 	Section 4.5(a)
	Exercise Form

	 	Section 4.3(a)
	Exercise Price

	 	Section 4.1
	FMV

	 	Section 4.5(c)
	Global Warrant Certificates

	 	Section 3.2(a)
	Holder

	 	Section 4.1
	Issue Date

	 	Section 3.1
	Net Issuance Exercise Date

	 	Section 4.4(b)
	Net Issuance Right

	 	Section 4.5(b)
	Net Issuance Warrant Shares

	 	Section 4.5(b)
	Organic Change

	 	Section 5.4(a)
	Organic Change Date

	 	Section 5.4(a)
	Registered Holder

	 	Section 3.4(d)
	Rule 144

	 	Section 7.1
	Solutia

	 	Recitals
	Special Dividend

	 	Section 5.1(b)
	Successor Person

	 	Section 5.4(a)
	Warrants

	 	Recitals
	Warrant Agent

	 	Recitals
	Warrant Register

	 	Section 3.4(c)
	Warrant Statements

	 	Section 3.1






ARTICLE II




APPOINTMENT OF WARRANT AGENT




     Section 2.1 Appointment. The Company hereby appoints the Warrant Agent to act as
agent for the Company for the Warrants in accordance with the instructions hereinafter set forth in
this Agreement, and the Warrant Agent hereby accepts such appointment and agrees to perform the
same in accordance with the terms and conditions set forth in this Agreement.



ARTICLE III




WARRANTS




     Section 3.1 Issuance of Warrants. On the terms and subject to the conditions of this
Agreement and in accordance with the terms of the Plan of Reorganization, on the Effective Date or
a date that is as soon as reasonably practicable after the Effective Date, but in any event no



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later than five (5) days after the Effective Date (such date, the “Issue Date”), Warrants
to purchase the Warrant Shares will be issued by the Company to all holders of Equity Interest (as
defined in the Plan of Reorganization) in Solutia, on a pro rata basis, based upon the amount of
their respective pre-petition ownership of Equity Interest, provided that such holder of an Equity
Interest owns at least 24 shares of common stock of Solutia such that it would receive a Warrant to
purchase at least one share of New Common Stock. On such date, the Company will deliver, or cause
to be delivered to the Depositary, one or more Global Warrant Certificates evidencing a portion of
the Warrants. The remainder of the Warrants shall be issued by book-entry registration on the
books of the Warrant Agent (“Book-Entry Warrants”) and shall be evidenced by statements
issued by the Warrant Agent from time to time to the Registered Holders of Book-Entry Warrants
reflecting such book-entry position (the “Warrant Statements”). The maximum number of
shares of New Common Stock issuable pursuant to the Warrants shall be 4,481,250 shares, as such
amount may be adjusted from time to time pursuant to this Agreement.



     Section 3.2 Form of Warrant.



          (a) Subject to Section 6.1 of this Agreement, the Warrants shall be issued (i) via
book-entry registration on the books and records of the Warrant Agent and evidenced by the Warrant
Statements, in substantially the form set forth in Exhibit A-1 attached hereto, and/or (ii) in the
form of one or more global certificates (the “Global Warrant Certificates”), with the forms
of election to exercise and of assignment printed on the reverse thereof, in substantially the form
set forth in Exhibit A-2 attached hereto. The Warrant Statements and Global Warrant Certificates
may bear such appropriate insertions, omissions, substitutions and other variations as are required
or permitted by this Agreement, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply with any law or with
any rules made pursuant thereto or with any rules of any securities exchange or as may,
consistently herewith, or, be determined by (i) in the case of Global Warrant Certificates, the
Appropriate Officers executing such Global Warrant Certificates, as evidenced by their execution of
the Global Warrant Certificates, or (ii) in the case of a Warrant Statement, any Appropriate
Officer, and all of which shall be reasonably acceptable to the Warrant Agent.




          (b) The Global Warrant Certificates shall be deposited on or after Issue Date with the Warrant
Agent and registered in the name of Cede & Co., as the nominee of The Depository Trust Company (the
“Depositary”). Each Global Warrant Certificate shall represent such number of the outstanding
Warrants as specified therein, and each shall provide that it shall represent the aggregate amount
of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or increased, as
appropriate, in accordance with the terms of this Agreement.




     Section 3.3 Execution of Global Warrant Certificates.






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          (a) The Global Warrant Certificates shall be signed on behalf of the Company by its Chairman
of the Board of Directors, its Chief Executive Officer, its President, any Senior Vice President or
its Treasurer (each, an “Appropriate Officer”). Each such signature upon the Global
Warrant Certificates may be in the form of a facsimile signature of any such Appropriate Officer
and may be imprinted or otherwise reproduced on the Global Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any Appropriate Officer.




          (b) If any Appropriate Officer who shall have signed any of the Global Warrant Certificates
shall cease to be such Appropriate Officer before the Global Warrant Certificates so signed shall
have been countersigned by the Warrant Agent or disposed of by the Company, such Global Warrant
Certificates nevertheless may be countersigned and delivered or disposed of as though such
Appropriate Officer had not ceased to be such Appropriate Officer of the Company; and any Global
Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Global Warrant Certificate, shall be a proper Appropriate Officer of the
Company to sign such Global Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such Appropriate Officer.




     Section 3.4 Registration and Countersignature.



          (a) Upon written order of the Company, the Warrant Agent shall (i) register in the Warrant
Register the Book-Entry Warrants and (ii) upon receipt of the Global Warrant Certificates duly
executed on behalf of the Company, countersign one or more Global Warrant Certificates evidencing
Warrants. Such written order of the Company shall specifically state the number of Warrants that
are to be issued as Book-Entry Warrants and the number of Warrants that are to be issued as a
Global Warrant Certificate. A Global Warrant Certificate shall be, and shall remain, subject to
the provisions of this Agreement until such time as all of the Warrants evidenced thereby shall
have been duly exercised or shall have expired or been canceled in accordance with the terms
hereof.




          (b) No Global Warrant Certificate shall be valid for any purpose, and no Warrant evidenced
thereby shall be exercisable, until such Global Warrant Certificate has been countersigned by the
manual signature of the Warrant Agent. Such signature by the Warrant
Agent upon any Global Warrant Certificate executed by the Company shall be conclusive evidence
that such Global Warrant Certificate so countersigned has been duly issued hereunder.




          (c) The Warrant Agent shall keep, at an office designated for such purpose, books (the
“Warrant Register”) in which, subject to such reasonable regulations as it may prescribe,
it shall register the Book-Entry Warrants as well as any Global Warrant Certificates and exchanges
and transfers of outstanding Warrants in accordance with the procedures set forth in Section
6.1 of this Agreement, all in form satisfactory to the Company and the Warrant Agent. No
service charge shall be made for any exchange or registration of transfer of the Warrants, but the
Company may require payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that may be imposed on the Registered Holder in connection with any such
exchange or registration of transfer. The Warrant Agent shall have no obligation to effect an
exchange or register a transfer unless and until any payments required by the immediately preceding
sentence have been made.




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          (d) Prior to due presentment for registration of transfer or exchange of any Warrant in
accordance with the procedures set forth in this Agreement, the Company and the Warrant Agent may
deem and treat the person in whose name any Warrant is registered upon the Warrant Register (the
“Registered Holder” of such Warrant) as the absolute owner of such Warrant (notwithstanding
any notation of ownership or other writing on a Global Warrant Certificate made by anyone other
than the Company or the Warrant Agent), for the purpose of any exercise thereof, any distribution
to the holder thereof and for all other purposes, and neither the Warrant Agent nor the Company
shall be affected by notice to the contrary.




ARTICLE IV




TERMS AND EXERCISE OF WARRANTS




     Section 4.1 Exercise Price. On the Issue Date, each Warrant shall entitle (i) in the
case of the Book-Entry Warrants, the Registered Holder thereof and (ii) in the case of Warrants
held through the book-entry facilities of the Depositary or by or through persons that are direct
participants in the Depositary, the Beneficial Holder thereof ((i) and (ii) collectively, the
“Holder”), subject to the provisions of such Warrant and of this Agreement, to purchase
from the Company the number of Warrant Shares, at the price of $29.70 per whole share (as the same
may be hereafter adjusted pursuant to Article V, the “Exercise Price”) specified in
such Warrant.



     Section 4.2 Duration of Warrants. Warrants may be exercised by the Holder thereof at
any time and from time to time during the period commencing on the Issue Date and terminating at
5:00 p.m., New York City time, on the Expiration Date. Any Warrant not exercised prior to 5:00
p.m., New York City time, on the Expiration Date, shall become permanently and irrevocably null and
void at 5:00 p.m., New York City time, on the Expiration Date, and all rights thereunder and all
rights in respect thereof under this Agreement shall cease at such time.



     Section 4.3 Method of Exercise.



          (a) Subject to the provisions of the Warrants and this Agreement, the Holder of a Warrant may
exercise such Holder’s right to purchase the Warrant Shares, in whole or in part, by: (x) in the
case of persons who hold Book-Entry Warrants, providing an exercise form for the election to
exercise such Warrant (“Exercise Form”) substantially in the form of Exhibit B-1 hereto,
properly completed and executed by the Registered Holder thereof, together with payment of the
Exercise Amount in accordance with Section 4.5(a) in the case of an exercise for cash
pursuant to Section 4.5(a), to the Warrant Agent, and (y) in the case of Warrants held
through the book-entry facilities of the Depositary or by or through persons that are direct
participants in the Depositary, providing an Exercise Form (as provided by such Holder’s broker) to
its broker, properly completed and executed by the Beneficial Holder thereof, together with payment
of the Exercise Amount in accordance with Section 4.5(a) in the case of an exercise for
cash pursuant to Section 4.5(a).




          (b) Any exercise of a Warrant pursuant to the terms of this Agreement shall be irrevocable and
shall constitute a binding agreement between the Holder and the Company, enforceable in accordance
with its terms.




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          (c) The Warrant Agent shall:




               (i) examine all Exercise Forms and all other documents delivered to it by or on behalf of
Holders as contemplated hereunder to ascertain whether or not, on their face, such Exercise Forms
and any such other documents have been executed and completed in accordance with their terms and
the terms hereof;



               (ii) where an Exercise Form or other document appears on its face to have been improperly
completed or executed or some other irregularity in connection with the exercise of the Warrants
exists, endeavor to inform the appropriate parties (including the person submitting such
instrument) of the need for fulfillment of all requirements, specifying those requirements which
appear to be unfulfilled;



               (iii) inform the Company of and cooperate with and assist the Company in resolving any
reconciliation problems between Exercise Forms received and the delivery of Warrants to the Warrant
Agent’s account;



               (iv) advise the Company no later than three (3) Business Days after receipt of an Exercise
Form, of (A) the receipt of such Exercise Form and the number of Warrants exercised in accordance
with the terms and conditions of this Agreement, (B) the instructions with respect to delivery of
the Warrant Shares deliverable upon such exercise, subject to timely receipt from the Depositary of
the necessary information, and (C) such other information as the Company shall reasonably require;
and



               (v) subject to Warrant Shares being made available to the Warrant Agent by or on behalf of the
Company for delivery to the Depositary, liaise with the Depositary and endeavor to effect such
delivery to the relevant accounts at the Depositary in accordance with its customary requirements.



          (d) The Company reserves the right to reasonably reject any and all Exercise Forms not in
proper form or for which any corresponding agreement by the Company to exchange would, in the
opinion of the Company, be unlawful. Such determination by the Company shall be final and binding
on the Holders of the Warrants, absent manifest error. Moreover, the Company reserves the absolute
right to waive any of the conditions to the exercise of Warrants or defects in Exercise Forms with
regard to any particular exercise of Warrants. Neither the Company nor the Warrant Agent shall be
under any duty to give notice to the Holders of the Warrants of any irregularities in any exercise
of Warrants, nor shall it incur any liability for the failure to give such notice.




     Section 4.4 Issuance of Warrant Shares.



          (a) Upon exercise of any Warrants pursuant to Section 4.3 and clearance of the funds
in payment of the Exercise Price, the Company shall promptly at its expense, and in no event later
than five (5) Business Days thereafter, cause to be issued to the Holder of such Warrants the total
number of whole Warrant Shares for which such Warrants are being exercised (as the same may be
hereafter adjusted pursuant to Article V) in such denominations as are requested by the
Holder as set forth below:




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               (i) in the case of a Beneficial Holder who holds the Warrants being exercised through the
Depositary’s book-entry transfer facilities, by same-day or next-day credit to the Depositary for
the account of such Beneficial Holder or for the account of a participant in the Depositary the
number of Warrant Shares to which such person is entitled, in each case registered in such name and
delivered to such account as directed in the Exercise Form by such Beneficial Holder or by the
direct participant in the Depositary through which such Beneficial Holder is acting, or



               (ii) in the case of a Registered Holder who holds the Warrants being exercised in the form of
Book-Entry Warrants, a book-entry interest in the Warrant Shares registered on the books of the
Company’s transfer agent.



          (b) Any exercise of Net Issuance Right pursuant to Section 4.5(b) shall be effective
upon receipt by the Warrant Agent of the Exercise Form duly executed, or on such later date as is
specified therein (the “Net Issuance Exercise Date”), and, at the election of the Holder
thereof. The Holder of the Warrants shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise as of the time of receipt of the Exercise Form and payment of
the aggregate Exercise Price for the Warrant Shares for which a Warrant is then being exercised, in
the case of an exercise for cash pursuant to Section 4.5(a), or as of the Net Issuance
Exercise Date, in the case of a net issuance exercise pursuant to Section 4.5(b), except
that, if the date of such receipt and payment or the Net Issuance Exercise Date is a date when the
stock transfer books of the Company are closed, the Holder shall be deemed to have become the
holder of such shares at the close of business on the next succeeding date on which the stock
transfer books are open. Warrants may not be exercised by, or securities issued to, any Holder in
any state in which such exercise or issuance would be unlawful.




          (c) If less than all of the Warrants evidenced by a Global Warrant Certificate surrendered
upon the exercise of Warrants are exercised at any time prior to the Expiration Date, a new Global
Warrant Certificate or Global Warrant Certificates shall be issued for the remaining number of
Warrants evidenced by the Global Warrant Certificate so surrendered, and the Warrant Agent is
hereby authorized to countersign the required new Global Warrant Certificate or Certificates
pursuant to the provisions of Section 3.4 and this Section 4.4.




     Section 4.5 Exercise of Warrant.



          (a) Right to Exercise for Cash. Warrants may be exercised by the Holders thereof by delivery
of payment to the Warrant Agent, for the account of the Company, by certified or bank cashier’s
check payable to the order of the Company (or as otherwise agreed to by the Company), in lawful
money of the United States of America, of the full Exercise Price for the number of Warrant Shares
specified in the Exercise Form (which shall be equal to the Exercise Price multiplied by the number
of Warrant Shares in respect of which any Warrants are being exercised) and any and all applicable
taxes and governmental charges due in connection with the exercise of Warrants and the exchange of
Warrants for Warrant Shares (the “Exercise Amount”).




          (b) Right to Exercise on a Net Issuance Basis. In lieu of exercising Warrants for cash
pursuant to Section 4.5(a), Holders shall have the right to exercise Warrants or any
portion thereof (the “Net Issuance Right”) for Warrant Shares as provided in this
Section 4.5(b) at any



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time or from time to time during the period specified in Section
4.2 hereof by the surrender to the Warrant Agent of a duly executed and completed Exercise Form
marked to reflect net issuance exercise. Upon exercise of the Net Issuance Right with respect to a
particular number of Warrant Shares subject to such Warrants and noted on the Exercise Form (the
“Net Issuance Warrant Shares”), the Company shall deliver or caused to be delivered to the
Holder (without payment by the Holder of any Exercise Amount or any cash or other consideration)
that number of fully paid and nonassessable Warrant Shares (subject to the provisions of Section
4.7) (x) equal to the quotient obtained by dividing the value of such Warrants (or the specified
portion hereof) on the Net Issuance Exercise Date, which value shall be determined by subtracting
(A) the aggregate Exercise Amount of the Net Issuance Warrant Shares immediately prior to the
exercise of the Net Issuance Right from (B) the aggregate fair market value of the Net Issuance
Warrant Shares issuable upon exercise of such Warrants (or the specified portion thereof) on the
Net Issuance Exercise Date (as defined above) by (y) the fair market value of one Warrant Share on
the Net Issuance Exercise Date. Expressed as a formula, such net issuance exercise shall be computed
as follows:




	 	 	 	 	 
	 
	 	 	B – A	 
	X =
	 	 	———	 
	 
	 	 	Y	 






	 	 	 	 	 	 	 
	 

	 	Where:
	 	X   =
	 	the number of Warrant Shares issuable to the Holder thereof
	 
	 	 	 	 	 	 
	 

	 	 	 	Y   =
	 	the fair market value (FMV) of one Warrant Share as of the Net Issuance Exercise Date
	 
	 	 	 	 	 	 
	 

	 	 	 	A   =
	 	the aggregate Exercise Amount (i.e., Net Issuance Warrant Shares x Exercise Amount)
	 
	 	 	 	 	 	 
	 

	 	 	 	B   =
	 	the aggregate FMV (i.e., FMV x Net Issuance Warrant Shares)






     If the foregoing calculation results in a negative number, then no Warrant Shares shall be
issuable upon exercise of the Net Issuance Right by the applicable Holder.



          (c) Determination of Fair Market Value. For purposes of this Section 4.5, “fair
market value” (or “FMV”) of a Warrant Share as of the Net Issuance Exercise Date shall
mean:




               (i) If traded on the NYSE, NASDAQ or another stock exchange, the fair market value of the
Warrant Shares shall be deemed to be the last reported sale price of the Warrant Shares on the
NYSE, NASDAQ or such other exchange on the trading day immediately prior to the Net Issuance
Exercise Date;



               (ii) If traded over-the-counter other than on NASDAQ, the fair market value of the Warrant
Shares shall be deemed to be the average of the closing bid and ask prices of the Warrant Shares on
the trading day immediately prior to the Net Issuance Exercise Date; and



9









 








               (iii) If there is no public market for the Warrant Shares, then the fair market value shall be
determined in good faith by the Board of Directors of the Company in consultation with a financial
advisor of national reputation.



     Section 4.6 Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise of Warrants such number of Warrant Shares
as may be from time to time issuable upon exercise in full of the Warrants. All Warrant Shares
shall be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid
and non-assessable, free and clear of all liens, security interests, charges and other encumbrances
or restrictions on sale and free and clear of all preemptive rights, and the Company shall take all
such action as may be necessary or appropriate in order that the Company may validly and legally
issue all Warrant Shares in compliance with this sentence. If at any time prior to the Expiration
Date the number and kind of authorized but unissued shares of the Company’s capital stock shall not
be sufficient to permit exercise in full of the Warrants, the Company will promptly take such
corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares to such number of shares as shall be sufficient for such purposes. The Company
agrees that its issuance of Warrants shall constitute full authority to its officers who are
charged with the issuance of Warrant Shares to issue shares of New Common Stock upon the exercise
of Warrants. Without limiting the generality of the foregoing, the Company will not increase the
stated or par value per share, if any, of the New Common Stock above the Exercise Price in effect
immediately prior to such increase in stated or par value.



     Section 4.7 Fractional Shares. Notwithstanding any provision to the contrary
contained in this Agreement, the Company shall not be required to issue any fraction of a share of
its capital stock in connection with the exercise of Warrants, and in any case where the Registered
Holder would, except for the provisions of this Section 4.7, be entitled under the terms of
Warrants to receive a fraction of a share upon the exercise of such Warrants, the Company shall,
upon the exercise of such Holder’s Warrants, issue or cause to be issued only the largest whole
number of Warrant Shares issuable on such exercise (and such fraction of a share will be
disregarded); provided, that if more than one Warrant is presented for exercise at the same time by
the same Holder, the number of whole Warrant Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant Shares issuable on
exercise of all such Warrants.



     Section 4.8 Listing. Prior to the issuance of any Warrant Shares upon exercise of
Warrants, the Company shall secure the listing of such shares of New Common Stock or other Warrant
Shares upon each national securities exchange or stock market, if any, upon which shares of New
Common Stock (or securities of the same class as such other Warrant Shares, if applicable) are then
listed (subject to official notice of issuance upon exercise of Warrants) and shall maintain, so
long as any other shares of New Common Stock (or, as applicable, other securities) shall be so
listed, such listing of all Warrant Shares from time to time issuable upon the exercise of
Warrants.



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ARTICLE V




ADJUSTMENT OF SHARES OF NEW COMMON STOCK PURCHASABLE AND OF EXERCISE PRICE




     The Exercise Price and the number and kind of Warrant Shares shall be subject to adjustment
from time to time upon the happening of certain events as provided in this Article V.



     Section 5.1 Mechanical Adjustments.



          (a) Subject to the provisions of Section 4.7, if at any time prior to the exercise in
full of the Warrants, the Company shall (i) declare a dividend or make a distribution on the New
Common Stock payable in shares of its capital stock (whether shares of New Common Stock or of
capital stock of any other class), (ii) subdivide, reclassify or recapitalize its outstanding New
Common Stock into a greater number of shares, (iii) combine, reclassify or recapitalize its
outstanding New Common Stock into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of its New Common Stock (including any such reclassification in
connection with a consolidation or a merger in which the Company is the continuing corporation),
the number of Warrant Shares issuable upon exercise of Warrants and/or the
Exercise Price in effect at the time of the record date of such dividend, distribution,
subdivision, combination, reclassification or recapitalization shall be adjusted so that the
Holders shall be entitled to receive the aggregate number and kind of shares which, if their
Warrants had been exercised in full immediately prior to such event, the Holders would have owned
upon such exercise and been entitled to receive by virtue of such dividend, distribution,
subdivision, combination, reclassification or recapitalization. Any adjustment required by this
Section 5.1(a) shall be made successively immediately after the record date, in the case of
a dividend or distribution, or the effective date, in the case of a subdivision, combination,
reclassification or recapitalization, to allow the purchase of such aggregate number and kind of
shares.




          (b) If at any time prior to the exercise in full of the Warrants, the Company shall fix a
record date for the issuance or making of a distribution to all holders of the New Common Stock or
any other Warrant Shares for which Warrants are exercisable (including any such distribution to be
made in connection with a consolidation or merger in which the Company is to be the continuing
corporation) of evidences of its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a combination, reclassification or recapitalization referred to
in Section 5.1(a) and regular quarterly cash dividends) or of subscription rights, options
or warrants to purchase or acquire New Common Stock or New Common Stock Equivalents (excluding
those referred to in Section 5.1(a)) (any such event being herein called a “Special
Dividend”), the Exercise Price shall be decreased immediately after the record date for such
Special Dividend to a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the then current market price of the New Common Stock (as
defined in Section 5.1(d)) on such record date less the fair market value (as determined in
good faith by the Company’s Board of Directors based on the written advice of an independent
investment banking firm of national reputation) of the evidences of indebtedness, securities or
property, or other assets issued or distributed in such Special Dividend applicable to one share of
New Common Stock or of such subscription rights or warrants applicable to one share of New Common
Stock and the denominator of which shall be such then current market price per share of New Common
Stock (as so determined). Any adjustment required by this Section 5.1(b) shall be made
successively whenever such a record date is fixed and in the event



11









 






that such distribution is not so
made, the Exercise Price shall again be adjusted to be the Exercise Price that was in effect
immediately prior to such record date.




          (c) Subject to the provisions of Section 4.7, whenever the Exercise Price payable upon
exercise of the Warrants is adjusted pursuant to Section 5.1(a) or Section 5.1(b),
the number of Warrant Shares issuable upon exercise of the Warrants shall simultaneously be
adjusted by multiplying the number of Warrant Shares initially issuable upon exercise of each
Warrant by the Exercise Price in effect on the date thereof and dividing the product so obtained by
the Exercise Price, as adjusted.




          (d) For the purpose of any computation under this Section 5.1, the current market
price per share of New Common Stock at any date shall be deemed to be the average of the daily
closing prices for twenty (20) consecutive trading days commencing thirty (30) trading days before
such date. The closing price for each day shall be the last sale price regular way or, in case no
such reported sales take place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange or stock market on which
the New Common Stock is admitted to trading or listed, or if not so available, the fair
market price as determined in good faith by the Board of Directors of the Company after
obtaining the written advice of an independent investment banking firm of national reputation.




          (e) No adjustment in the Exercise Price shall be required unless such adjustment would require
an increase or decrease of at least five cents ($.05) in such price; provided,
however, that any adjustments which by reason of this paragraph Section 5.1(e) are
not required to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5.1 shall be made to the nearest cent
($.01) or to the nearest one-hundredth of a share, as the case may be. Notwithstanding anything in
this Section 5.1 to the contrary, the Exercise Price shall not be reduced to less than the
then existing par value of the New Common Stock as a result of any adjustment made hereunder.




          (f) In the event that at any time, as a result of any adjustment made pursuant to Section
5.1(a) or Section 5.4, the Holder thereafter shall become entitled to receive any
shares of the Company (or, as applicable, the Successor Person) other than New Common Stock,
thereafter the number of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the New Common Stock contained in this Section
5.1.




     Section 5.2 Notices of Adjustment. Whenever the number and/or kind of Warrant Shares
or the Exercise Price is adjusted as herein provided, the Company shall (i) prepare and deliver, or
cause to be prepared and delivered, forthwith to the Warrant Agent a statement setting forth the
adjusted number and/or kind of shares purchasable upon the exercise of Warrants and the Exercise
Price of such shares after such adjustment, the facts requiring such adjustment and the computation
by which adjustment was made, and (ii) cause the Warrant Agent to give written notice to each
Holder in the manner provided in Section 10.2 below, of the record date or the effective
date of the event. Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such event.



12









 





     Section 5.3 Form of Warrant After Adjustments. The form of the Global Warrant
Certificate need not be changed because of any adjustments in the Exercise Price or the number or
kind of the Warrant Shares, and Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in Warrants, as initially issued. The
Company, however, may at any time in its sole discretion make any change in the form of Global
Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does
not affect the substance of the Global Warrant Certificate (including the rights, duties or
obligations of the Warrant Agent), and any Global Warrant Certificate thereafter issued, whether in
exchange or substitution for an outstanding Global Warrant Certificate, may be in the form so
changed.



     Section 5.4 Organic Changes.



          (a) Adjustments for Organic Change With Consideration Consisting Solely of Cash. If, on or
prior to the fourth anniversary of the Issue Date, (A) the Company reorganizes its capital stock,
reclassifies its capital stock or consolidates or merges with or into another person or enters into
a business combination with another person (in the case of a reorganization, reclassification,
consolidation, merger or business combination where the Company is not the surviving person (such
successor or acquiring person being referred to as the “Successor Person”)), or
sells, leases, transfers or otherwise disposes of all or substantially all of its property, assets
or business to another person (each, an “Organic Change”), and (B) pursuant to the terms of
such Organic Change, the consideration to be received by or distributed to the holders of New
Common Stock of the Company consists solely of cash, then the Successor Person shall purchase the
Warrants on the Organic Change Date (as defined below) for an amount in cash equal to the Purchase
Price.




          (b) Adjustments for Organic Change with Publicly Traded Company and Consideration Consisting
of Registered and Listed Shares and/or Other Property. If, on or prior to the fourth anniversary
of the Issue Date, (A) the Company consummates an Organic Change, (B) the Successor Person is a
Publicly Traded Company, and (C) pursuant to the terms of such Organic Change, the holders of New
Common Stock of the Company receive consideration consisting solely of Registered Shares of the
Successor Person that are (or will, within 30 days following the Organic Change Date, be) Listed or
Admitted for Trading and/or Other Property, then the Successor Person shall elect, in its sole
discretion, to either:




               (i) provide each Holder with the right (on the basis and subject to the terms and conditions
specified herein and in lieu of the Warrant Shares immediately theretofore purchasable and
receivable upon the exercise of such Holder’s Warrant) to acquire and receive, upon exercise of the
Warrant, the number of Registered Shares of Successor Person and/or Other Property that such Holder
would have been entitled to receive had such Holder exercised its Warrant immediately prior to such
Organic Change, provided that the value of any Other Property received by any such Holder shall be
determined by the Company’s Board of Directors (based upon the written advice of an independent
investment bank of national reputation selected by the Board of Directors); or



               (ii) purchase each Warrant on the Organic Change Date for, at the Successor Person’s sole
discretion, (A) an amount in cash equal to the Purchase Price or (B) a



13









 







number of Registered Shares
of such Successor Person equal to (x) the Purchase Price in respect of such Warrant divided by (y)
the Market Value (as defined below) per share of the Successor Person’s applicable class or series
of stock constituting the applicable Registered Shares and shall cause such Registered Shares to be
Listed or Admitted for Trading (as applicable).



          (c) Adjustments for Organic Change with Publicly Traded Company and Consideration Consisting
of Combination of Cash and Registered and Listed Shares and/or Other Property. If, on or prior to
the fourth anniversary of the Issue Date, (A) the Company consummates an Organic Change, (B) the
Successor Person is a Publicly Traded Company, and (C) pursuant to the terms of such Organic
Change, the holders of New Common Stock of the Company receive consideration consisting of a
combination of (1) cash, and (2) Registered Shares of the Successor Person that are (or will,
within 30 days following the Organic Change
Date, be) Listed or Admitted for Trading and/or Other Property, then the Successor Person
shall elect, in its sole discretion, to either:




               (i) provide each Holder with the right (on the basis and subject to the terms and conditions
specified herein and in lieu of the Warrant Shares immediately theretofore purchasable and
receivable upon the exercise of such Holder’s Warrant) to acquire and receive, upon exercise of the
Warrant, (A) the number of Registered Shares of the Successor Person and/or Other Property that
such Holder would have been entitled to receive had such Holder exercised its Warrant immediately
prior to such Organic Change, and shall cause such Registered Shares to be Listed or Admitted for
Trading (as applicable), and (B) an amount of cash equal to the proportion of the Purchase Price
which is equal to the same proportion that the cash amount offered to the holders of shares of New
Common Stock bears to the Registered Shares and/or Other Property which is offered to the holders
of shares of New Common Stock, provided that if the holders of shares of New Common Stock were
entitled to exercise a right of election as to the kind or amount of securities, cash or Other
Property receivable upon such Organic Change, then such proportion shall be determined by reference
to the weighted average of the kind and amount of consideration received per share by the holders
of New Common Stock in such Organic Change that affirmatively make such election; or



               (ii) purchase the Warrants on the Organic Change Date for an amount in cash equal to the
Purchase Price.



          (d) Adjustments for Organic Change with Private Company as Successor Person. If, on or prior
to the fourth anniversary of the Issue Date, (A) the Company consummates an Organic Change not
provided for in clause (a) above, and (B) the Successor Person is not a Publicly Traded Company,
then the Successor Person shall elect, in its sole discretion, to either:




               (i) provide each Holder with the right (on the basis and subject to the terms and conditions
specified herein and in lieu of the Warrant Shares immediately theretofore purchasable and
receivable upon the exercise of such Holder’s Warrant) to acquire and receive, upon exercise of the
Warrant, the number and kind of shares of the Successor Person and/or Other Property that such
Holder would have been entitled to receive had such Holder exercised its Warrant immediately prior
to such Organic Change (plus, if the consideration payable in such Organic Change includes cash, an
amount of cash equal to the proportion of the Purchase Price which is equal to the same proportion
that the cash amount offered to the holders of shares of



14









 







New Common Stock bears to the shares
and/or Other Property which is offered to the holders of shares of New Common Stock); or



               (ii) purchase the Warrants on the Organic Change Date for, at Successor Person’s sole option,
(A) an amount in cash equal to the Purchase Price or (B) the number of shares of such Successor
Person (of the same class and series that such Holder would have been entitled to receive had such
Holder exercised its Warrant immediately prior to such Organic Change) equal to (x) the Purchase
Price in respect of such Warrant divided by (y) the Market Value (as defined below) per share of
such class or series of stock of the Successor Person (and if the other recipients of such shares
in such Organic Change shall receive rights to cause the registration of such shares with the SEC,
corresponding rights shall be provided to the Holders so receiving such shares as a result of such
Organic Change).



          (e) Adjustments for Organic Change After Four Years after the Issue Date. If, following the
fourth anniversary of the Issue Date, the Company consummates an Organic Change which shall be
effected in such a way that the holders of the New Common Stock shall be entitled to receive stock,
securities, cash or Other Property (whether such stock, securities, cash or Other Property are
issued or distributed by the Company or any other person) with respect to or in exchange for the
New Common Stock, then (whether or not the Successor Person is a Publicly Traded Company) as a
condition of such Organic Change, lawful and adequate provision shall be made whereby each Holder
shall have the right to acquire and receive upon exercise of its Warrant such shares of stock,
securities, cash or Other Property issuable or payable (as part of the Organic Change) with respect
to or in exchange for such number of outstanding shares of New Common Stock as such Holder would
have been entitled to receive upon exercise of its Warrant had it been exercised immediately before
such Organic Change, subject to applicable adjustments (as determined in good faith by the Board of
Directors).




          (f) Assumption by Successor Person. In the event of any Organic Change contemplated by
Section 5.4(b), (c), (d), or (e) above, effective provisions shall
be made in the certificate or articles of incorporation of the Successor Person, or in any contract
of sale, merger, conveyance, lease, transfer or otherwise, so that the provisions set forth herein
for the protection of the rights of the Holders of Warrants shall thereafter continue to be
applicable; and any such Successor Person shall expressly assume all of the obligations set forth
under Section 5.4(a) through 5.4(e) above and the due and punctual performance and
observation of all of the obligations of the Company hereunder. The provisions of this Section
5.4 shall apply similarly to all successive events constituting Organic Changes.




          (g) Notices. The Successor Person shall notify the Company, which in turn shall notify or
cause to be notified all Holders at the last address set forth for such Holder in the Warrant
Register, in the manner provided in Section 10.2 below, of the Organic Change at least five
Business Days prior to the Organic Change Date. Such notice shall state:




               (i) the expected Organic Change Date;



               (ii) a reasonably detailed description of the consideration to be paid per share of New Common
Stock in the Organic Change to the holders of New Common Stock;



15









 








               (iii) the option elected by the Successor Person pursuant to Section 5.4(b) or Section 5.4(c)
or Section 5.4(d) hereof (as applicable);



               (iv) the Purchase Price, if applicable; and



               (v) a description of the procedures and method of payment in respect of the Organic Change
Consideration. No failure of the Company to give or cause to be given the foregoing notices or
defect therein shall affect the validity of the proceedings for the purchase of Warrants, or limit
the Holders’ rights hereunder.



          (h) Definitions. For purposes of this Section 5.4:




               (i) “Black Scholes Warrant Value” shall mean the value of a Warrant on an Organic Change Date
as determined by the Company’s Board of Directors immediately prior to such Organic Change (based
upon the written advice of an independent investment bank of national reputation selected by the
Board of Directors) and shall be determined by customary nationally recognized investment banking
practices using the Black-Scholes model. For purposes of calculating such amount, (1) the term of
the Warrants will be the time from the Organic Change Date to the Expiration Date, (2) the assumed
volatility will be 30%, (3) the assumed risk-free rate will equal the yield on the five-year U.S.
Treasury securities, (4) the price for each share of New Common Stock will be (w) the average
closing price of a share of New Common Stock for the five consecutive trading days immediately
preceding, but not including, the Organic Change Date as reported on the principal national
securities exchange on which the shares of New Common Stock are Listed or Admitted for Trading, or
(x) if not Listed or Admitted for Trading on any national securities exchange, and if prices for
the New Common Stock are then quoted on the OTC Bulletin Board, the average of the closing bid and
asked prices during such five trading day period, or (y) if not Listed or Admitted for Trading on
any national securities exchange and not then listed or quoted on the OTC Bulletin Board and if
prices for the New Common Stock are then reported in the Pink Sheets published by Pink Sheets LLC
(or a similar organization or agency succeeding to its functions of reporting prices), the average
of the closing bid and asked prices during such five trading day period, or (z) in all other cases,
as determined in good faith by the Board of Directors of the Company, following the receipt of a
written valuation by an independent bank of national standing selected by the Board of Directors,
and (5) the exercise price shall be the Exercise Price, as adjusted.



               (ii) For purposes of this Section 5.4, “Market Value” per share of the relevant class or
series of stock of a Successor Person shall mean, (a) in the case of a Successor Person that is a
Publicly Traded Company, (1) the average of the daily closing prices of a share of such stock for
the five (5) consecutive trading days immediately preceding the Organic Change Date; and for such
purpose, the “closing price” for each day shall be the last sale price regular way or, in case no
such reported sales take place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange on which such shares of
stock are Listed or Admitted for Trading, or (2) if not Listed or Admitted for Trading on any
national securities exchange, and if prices for such stock are then quoted on the OTC Bulletin
Board, the average of the closing bid and asked prices during such five trading day period, or (3)
if not Listed or Admitted for Trading on any national securities exchange and not then listed or
quoted on the OTC Bulletin Board and if prices for such stock



16









 







are then reported in the Pink Sheets
published by Pink Sheets LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the average of the closing bid and asked prices during such five trading day
period, or (4) if not so available, the fair market price as determined in good faith by the Board
of Directors of the Company after obtaining the written advice of an independent investment bank of
national reputation; or (b) in the case of a Successor Person that is not a Public Traded Company,
the fair market value of such stock as determined in good faith by the Board of Directors of the
Company after obtaining the written advice of an independent investment bank of national reputation
and reflecting, as nearly as practicable, the value of such stock of the Successor Person implied
by the terms of such Organic Change.



               (iii) “Listed or Admitted for Trading” means that the Registered Shares are listed for trading
on the NYSE or American Stock Exchange or the Registered Shares are admitted for trading on NASDAQ.



               (iv) “Organic Change Date” means the date on which an Organic Change is consummated.



               (v) “Other Property” means any property other than cash or Qualifying Common Equity
Securities.



               (vi) “Publicly Traded Company” means a Successor Person whose shares of common stock (i) are
Registered Shares and (ii) are Listed or Admitted for Trading (or will be Listed or Admitted for
Trading within 30 days following the Organic Change Date).



               (vii) “Purchase Price” means the Black Scholes Warrant Value.



               (viii) “Registered Shares” means shares which have been registered (or will be registered
within 30 calendar days following the Organic Change Date) with the SEC under Section 12 of the
Exchange Act.



               (ix) “Qualifying Common Equity Securities” means the regular common stock of the surviving
entity in a consolidation, merger, combination or the acquiring entity in a tender or exchange
offer, except that if the surviving entity or acquiring entity has a parent corporation, it shall
be the regular common stock of the parent corporation.



ARTICLE VI




TRANSFER AND EXCHANGE

OF WARRANTS AND WARRANT SHARES




     Section 6.1 Registration of Transfers and Exchanges.



          (a) Transfer and Exchange of Global Warrant Certificates or Beneficial Interests Therein. The
transfer and exchange of Global Warrant Certificates or beneficial interests therein shall be
effected through the Depositary, in accordance with this Agreement and the procedures of the
Depositary therefor.




17









 








          (b) Exchange of a Beneficial Interest in a Global Warrant Certificate for a Book-Entry
Warrant.




               (i) Any Holder of a beneficial interest in a Global Warrant Certificate may, upon request,
exchange such beneficial interest for a Book-Entry Warrant. Upon receipt by the Warrant Agent from
the Depositary or its nominee of written instructions or such other form of instructions as is
customary for the Depositary on behalf of any person having a beneficial interest in a Global
Warrant Certificate, the Warrant Agent shall cause, in accordance with the standing instructions
and procedures existing between the Depositary and Warrant Agent, the
number of Warrants represented by the Global Warrant Certificate to be reduced by the number
of Warrants to be represented by the Book-Entry Warrants to be issued in exchange for the
beneficial interest of such person in the Global Warrant Certificate and, following such reduction,
the Warrant Agent shall register in the name of the Holder a Book-Entry Warrant and deliver to said
Holder a Warrant Statement.



               (ii) Book-Entry Warrants issued in exchange for a beneficial interest in a Global Warrant
Certificate pursuant to this Section 6.1(b) shall be registered in such names as the
Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall
instruct the Warrant Agent. The Warrant Agent shall deliver such Warrant Statements to the persons
in whose names such Warrants are so registered.



          (c) Transfer and Exchange of Book-Entry Warrants. When Book-Entry Warrants are presented to
the Warrant Agent with a written request:




               (i) to register the transfer of the Book-Entry Warrants; or



               (ii) to exchange such Book-Entry Warrants for an equal number of Book-Entry Warrants of other
authorized denominations, the Warrant Agent shall register the transfer or make the exchange as
requested if its customary requirements for such transactions are met; provided,
however, that the Warrant Agent has received a written instruction of transfer in form
satisfactory to the Warrant Agent, duly executed by the Registered Holder thereof or by his
attorney, duly authorized in writing.



          (d) Restrictions on Exchange or Transfer of a Book-Entry Warrant for a Beneficial Interest in
a Global Warrant Certificate. A Book-Entry Warrant may not be exchanged for a beneficial interest
in a Global Warrant Certificate except upon satisfaction of the requirements set forth below. Upon
receipt by the Warrant Agent of appropriate instruments of transfer with respect to a Book-Entry
Warrant, in form satisfactory to the Warrant Agent, together with written instructions directing
the Warrant Agent to make, or to direct the Depositary to make, an endorsement on the Global
Warrant Certificate to reflect an increase in the number of Warrants represented by the Global
Warrant Certificate equal to the number of Warrants represented by such Book-Entry Warrant, then
the Warrant Agent shall cancel such Book-Entry Warrant on the Warrant Register and cause, or direct
the Depositary to cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Warrant Agent, the number of Warrants represented by the Global
Warrant Certificate to be increased accordingly. If no Global Warrant Certificates are then
outstanding, the Company



18









 






shall issue and the Warrant Agent shall countersign a new Global Warrant
Certificate representing the appropriate number of Warrants.




          (e) Restrictions on Transfer and Exchange of Global Warrant Certificates. Notwithstanding any
other provisions of this Agreement (other than the provisions set forth in Section 6.1(f)),
unless and until it is exchanged in whole for a Book-Entry Warrant, a Global Warrant Certificate
may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.




          (f) Book-Entry Warrants. If at any time:




               (i) the Depositary for the Global Warrant Certificates notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global Warrant Certificates and
a successor Depositary for the Global Warrant Certificates is not appointed by the Company within
90 days after delivery of such notice; or



               (ii) the Company, in its sole discretion, notifies the Warrant Agent in writing that it elects
to exclusively cause the issuance of Book-Entry Warrants under this Agreement, then the Warrant
Agent, upon written instructions signed by an Appropriate Officer of the Company, shall register
Book-Entry Warrants, in an aggregate number equal to the number of Warrants represented by the
Global Warrant Certificates, in exchange for such Global Warrant Certificates.



          (g) Restrictions on Transfer. No Warrants or Warrant Shares shall be sold, exchanged or
otherwise transferred in violation of the Securities Act or state securities laws.




          (h) Cancellation of Global Warrant Certificate. At such time as all beneficial interests in
Global Warrant Certificates have either been exchanged for Book-Entry Warrants, redeemed,
repurchased or cancelled, all Global Warrant Certificates shall be returned to, or retained and
cancelled by, the Warrant Agent, upon written instructions from the Company satisfactory to the
Warrant Agent.




     Section 6.2 Obligations with Respect to Transfers and Exchanges of Warrants.



          (i) To permit registrations of transfers and exchanges, the Company shall execute Global
Warrant Certificates, if applicable, and the Warrant Agent is hereby authorized, in accordance with
the provisions of Section 3.4 and this Article VI, to countersign such Global
Warrant Certificates, if applicable, or register Book-Entry Warrants, if applicable, as required
pursuant to the provisions of this Article VI and for the purpose of any distribution of
new Global Warrant Certificates contemplated by Section 8.2 or additional Global Warrant
Certificates contemplated by Article V.




          (ii) All Book-Entry Warrants and Global Warrant Certificates issued upon any registration of
transfer or exchange of Book-Entry Warrants or Global Warrant Certificates shall be the valid
obligations of the Company, entitled to the same benefits under this



19









 






Agreement as the Book-Entry
Warrants or Global Warrant Certificates surrendered upon such registration of transfer or exchange.




          (iii) No service charge shall be made to a Holder for any registration, transfer or exchange
but the Company may require payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that may be imposed on the Holder in connection with any such exchange or
registration of transfer.




          (iv) So long as the Depositary, or its nominee, is the registered owner of a Global Warrant
Certificate, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Warrants represented by such Global Warrant
Certificate for all purposes under this Agreement. Except as provided in Sections 6.1(b)
and (f) upon the exchange of a beneficial interest in a Global Warrant Certificate for
Book-Entry Warrants, Beneficial Holders will not be entitled to have any Warrants registered in
their names, and will under no circumstances be entitled to receive physical delivery of any such
Warrants and will not be considered the Registered Holder thereof under the Warrants or this
Agreement. Neither the Company nor the Warrant Agent, in its capacity as registrar for such
Warrants, will have any responsibility or liability for any aspect of the records relating to
beneficial interests in a Global Warrant Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial interests.




          (v) Subject to Sections 6.1(b), (c) and (d), and this Section
6.2, the Warrant Agent shall, upon receipt of all information required to be delivered
hereunder, from time to time to register the transfer of any outstanding Warrants in the Warrant
Register, upon surrender of Global Warrant Certificates, if applicable, representing such Warrants
at the Warrant Agent’s office as set forth in Section 10.2, duly endorsed, and accompanied
by a completed form of assignment substantially in the form of Exhibit C hereto (or with respect to
a Book-Entry Warrant, only such completed form of assignment substantially in the form of Exhibit C
hereto), duly signed by the Registered Holder thereof or by the duly appointed legal representative
thereof or by a duly authorized attorney, such signature to be guaranteed by a participant in the
Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York
Stock Exchange, Inc. Medallion Signature Program. Upon any such registration of transfer, a new
Global Warrant Certificate or a Warrant Statement, as the case may be, shall be issued to the
transferee.




     Section 6.3 Fractional Warrants. The Warrant Agent shall not be required to effect
any registration of transfer or exchange which will result in the issuance of a warrant certificate
for a fraction of a Warrant.



ARTICLE VII




INFORMATION




     Section 7.1 Reports. With a view to making available to Registered Holders the
benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the
SEC that may at any time permit a Registered Holder to sell securities of the Company to the public
without registration (collectively, “Rule 144”), in the event such benefits are required



20









 







under then applicable law in order for such Registered Holder to sell Warrants or Warrant Shares
without registration, the Company agrees to:



          (a) make and keep public information available, as those terms are understood and defined in
Rule 144, for so long as any Warrants or Warrant Shares are outstanding;




          (b) file with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and




          (c) furnish to such Registered Holder forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the Securities Act and
the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing such holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.




ARTICLE VIII




OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS




     Section 8.1 No Rights or Liability as Stockholder; Notice to Registered Holders.
Nothing contained in the Warrants shall be construed as conferring upon the Holder or his, her or
its transferees the right to vote or to receive dividends or to consent or to receive notice as a
stockholder in respect of any meeting of stockholders for the election of directors of the Company
or of any other matter, or any rights whatsoever as stockholders of the Company. No provision
thereof and no mere enumeration therein of the rights or privileges of the Holder shall give rise
to any liability of such holder for the Exercise Price hereunder or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of the Company. To the
extent not covered by any statement delivered pursuant to Section 5.2, the Company shall
give notice to Registered Holders by registered mail if at any time prior to the expiration or
exercise in full of the Warrants, any of the following events shall occur:



          (a) the Company shall authorize the payment of any dividend payable in any securities upon
shares of New Common Stock or authorize the making of any distribution (other than a regular
quarterly cash dividend) to all holders of New Common Stock;




          (b) the Company shall authorize the issuance to all holders of New Common Stock of any
additional shares of New Common Stock or New Common Stock Equivalents or of rights, options or
warrants to subscribe for or purchase New Common Stock or New Common Stock Equivalents or of any
other subscription rights, options or warrants;




          (c) a dissolution, liquidation or winding up of the Company shall be proposed; or




          (d) a capital reorganization or reclassification of the New Common Stock (other than a
subdivision or combination of the outstanding New Common Stock and other than a change in the par
value of the New Common Stock) or any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the



21









 






Company is the continuing
corporation and that does not result in any reclassification or change of New Common Stock
outstanding) or in the case of any sale or conveyance to another corporation or other entity of the
property of the Company as an entirety or substantially as an entirety.




     Such giving of notice shall be initiated at least fifteen (15) Business Days prior to the date
fixed as a record date or effective date or the date of closing of the Company’s stock transfer
books for the determination of the stockholders entitled to such dividend, distribution or
subscription rights, or for the determination of the stockholders entitled to vote on such
proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer books, as the case
may be. Failure to provide such notice shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. For the avoidance of
doubt, no such notice shall supersede or limit any adjustment called for by Section 5.1 of
Section 5.4 by reason of any event as to which notice is required by this Section.



     Section 8.2 Lost, Stolen, Mutilated or Destroyed Global Warrant Certificates. If any
Global Warrant Certificate is lost, stolen, mutilated or destroyed, the Company shall issue, and
the Warrant Agent shall countersign and deliver, in exchange and substitution for and upon
cancellation of the mutilated Global Warrant Certificate, or in lieu of and substitution for the
Global Warrant Certificate lost, stolen or destroyed, a new Global Warrant Certificate of like
tenor and representing an equivalent number of Warrants, but only upon receipt of evidence and an
affidavit reasonably satisfactory to the Company and the Warrant Agent of the loss, theft or
destruction of such Global Warrant Certificate, and an indemnity of the Company and Warrant Agent
for any losses in connection therewith, if requested by either the Company or the Warrant Agent,
also satisfactory to them. Applicants for such substitute Global Warrant Certificates shall also
comply with such other reasonable regulations and pay such other reasonable charges as the Company
or the Warrant Agent may prescribe and as required by Section 8-405 of the Uniform Commercial Code
as in effect in the State of New York.



     Section 8.3 No Restrictive Legends. No legend shall be stamped or imprinted on any
stock certificate for Warrant Shares issued upon the exercise of any Warrant and or stock
certificate issued upon the direct or indirect transfer of any such Warrant Shares.



     Section 8.4 Cancellation of Warrants. If the Company shall purchase or otherwise
acquire Warrants, the Global Warrant Certificates and the Book-Entry Warrants representing such
Warrants shall thereupon be delivered to the Warrant Agent, if applicable, and be cancelled by it
and retired. The Warrant Agent shall cancel all Global Warrant Certificates surrendered for
exchange, substitution, transfer or exercise in whole or in part. Such cancelled Global Warrant
Certificates shall thereafter be disposed of in a manner satisfactory to the Company provided in
writing to the Warrant Agent.



22









 





ARTICLE IX




CONCERNING THE WARRANT AGENT AND OTHER MATTERS




     Section 9.1 Payment of Taxes. The Company will from time to time promptly pay all
taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the
issuance or delivery of the Warrant Shares upon the exercise of Warrants, but any taxes or charges in connection with the
issuance of Warrants or Warrant Shares in any name other than that of the Holder of the Warrants
shall be paid by such Holder; and in any such case, the Company shall not be required to issue or
deliver any Warrants or Warrant Shares until such taxes or charges shall have been paid or it is
established to the Company’s satisfaction that no tax or charge is due.



     Section 9.2 Resignation, Consolidation or Merger of Warrant Agent.



          (a) Appointment of Successor Warrant Agent. The Warrant Agent, or any successor to it
hereafter appointed, may resign its duties and be discharged from all further duties and
liabilities hereunder after giving sixty (60) days’ notice in writing to the Company. If the
office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the
Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the
Company shall fail to make such appointment within a period of sixty (60) days after it has been
notified in writing of such resignation or incapacity by the Warrant Agent or by the Registered
Holder of a Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the Registered Holder of any Warrant may apply to the Supreme Court of the State of
New York for the County of New York for the appointment of a successor Warrant Agent at the
Company’s cost. Any successor Warrant Agent, whether appointed by the Company or by such court,
shall be a corporation organized and existing under the laws of the State of New York in good
standing and having its principal office in the Borough of Manhattan, City and State of New York,
and shall be authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authority. After appointment, any successor Warrant
Agent shall be vested with all the authority, powers, rights, immunities, duties and obligations of
its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder,
without any further act or deed; but if for any reason it becomes necessary or appropriate, the
predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument
transferring to such successor Warrant Agent all the authority, powers, rights, immunities, duties
and obligations of such predecessor Warrant Agent hereunder; and upon request of any successor
Warrant Agent, the Company shall make, execute, acknowledge and deliver any and all instruments in
writing for more fully and effectually vesting in and confirming to such successor Warrant Agent
all such authority, powers, rights, immunities, duties and obligations.




          (b) Notice of Successor Warrant Agent. In the event a successor Warrant Agent shall be
appointed, the Company shall (i) give notice thereof to the predecessor Warrant Agent and the
transfer agent for the New Common Stock not later than the effective date of any such appointment,
and (ii) cause written notice thereof to be delivered to each Registered Holder at such holder’s
address appearing on the Warrant Register. Failure to give any notice provided for



23









 






in this
Section 9.2(b) or any defect therein shall not affect the legality or validity of the
removal of the Warrant Agent or the appointment of a successor Warrant Agent, as the case may be.




          (c) Merger, Consolidation or Name Change of Warrant Agent.




               (i) Any corporation into which the Warrant Agent may be merged or with which it may be
consolidated or any corporation resulting from any merger or consolidation to which the Warrant
Agent shall be a party shall be the successor Warrant Agent under this Agreement, without any
further act or deed, if such person would be eligible for appointment as a successor Warrant Agent
under the provisions of Section 9.2(a). If any of the Global Warrant Certificates have
been countersigned but not delivered at the time such successor to the Warrant Agent succeeds under
this Agreement, any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent; and if at that time any of the Global Warrant Certificates shall not have
been countersigned, any successor to the Warrant Agent may countersign such Global Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name of the successor
Warrant Agent; and in all such cases such Global Warrant Certificates shall have the full force
provided in the Global Warrant Certificates and in this Agreement.



               (ii) If at any time the name of the Warrant Agent is changed and at such time any of the
Global Warrant Certificates have been countersigned but not delivered, the Warrant Agent whose name
has changed may adopt the countersignature under its prior name; and if at that time any of the
Global Warrant Certificates have not been countersigned, the Warrant Agent may countersign such
Global Warrant Certificates either in its prior name or in its changed name; and in all such cases
such Global Warrant Certificates shall have the full force provided in the Global Warrant
Certificates and in this Agreement.



     Section 9.3 Fees and Expenses of Warrant Agent.



          (a) Remuneration. The Company agrees to pay the Warrant Agent reasonable remuneration for its
services as Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all
expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder.




          (b) Further Assurances. The Company agrees to perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further and other acts,
instruments, and assurances as may reasonably be required by the Warrant Agent for the carrying out
or performing of the provisions of this Agreement.




     Section 9.4 Liability of Warrant Agent.



          (a) Reliance on Company Statement. Whenever in the performance of its duties under this
Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved
or established by the
Company prior to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a statement signed by the Chief Executive Officer or Chairman of the
Board of Directors of the Company and



24









 






delivered to the Warrant Agent. The Warrant Agent may rely
upon such statement for any action taken or suffered in good faith by it pursuant to the provisions
of this Agreement.




          (b) Indemnity. The Warrant Agent shall be liable hereunder only for its own negligence,
willful misconduct or bad faith. The Company agrees to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and reasonable counsel fees,
for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a
result of the Warrant Agent’s negligence, willful misconduct or bad faith. Notwithstanding the
foregoing, the Company shall not be responsible for any settlement made without its written
consent. No provision in this Agreement shall be construed to relieve the Warrant Agent from
liability for its own negligence, willful misconduct or bad faith.




          (c) Exclusions. The Warrant Agent shall have no responsibility with respect to the validity
of this Agreement or with respect to the validity or execution of any Warrant (except its
countersignature thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Warrant; nor shall it be responsible to
make any adjustments required under the provisions of Article V hereof or responsible for
the manner, method or amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Warrant Shares to be
issued pursuant to this Agreement or any Warrant or as to whether any Warrant Shares will, when
issued, be valid and fully paid and nonassessable.




     Section 9.5 Acceptance of Agency. The Warrant Agent hereby accepts the agency
established by this Agreement and agrees to perform the same upon the terms and conditions herein
set forth and, among other things, shall account promptly to the Company with respect to Warrants
exercised and concurrently account for and pay to the Company all moneys received by the Warrant
Agent for the purchase of Warrant Shares through the exercise of Warrants.



ARTICLE X




MISCELLANEOUS PROVISIONS




     Section 10.1 Binding Effects; Benefits. This Agreement shall inure to the benefit of
and shall be binding upon the Company, the Warrant Agent and the Holders and their respective
heirs, legal representatives, successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to or shall confer on
any person other than the Company, the Warrant Agent and the Holders, or their respective
heirs, legal representatives, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.



     Section 10.2 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be sent by certified or registered mail, by private
national courier service (return receipt requested, postage prepaid), by personal delivery or by
facsimile transmission. Such notice or communication shall be deemed given (a) if mailed, two days
after the date of mailing, (b) if sent by national courier service, one Business Day after being
sent, (c) if delivered personally, when so delivered, or (d) if sent by facsimile transmission, on
the Business Day after such facsimile is transmitted, in each case as follows:



25









 




if to the Warrant Agent, to:



American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 10038

Attention: Herbert Lemmer

Facsimile: (718) 331-1852



if to the Company, to:



Solutia Inc.

575 Maryville Centre Drive

P.O. Box 66760

St. Louis, MO 63166

Attention: General Counsel

Facsimile: (314) 674-8703



with a copy to:

Kirkland & Ellis LLP

153 East 53rd Street

New York, New York 10022-4611

Attention: Thomas W. Christopher

                    Jonathan S. Henes

Facsimile: (212) 446-4900



if to Registered Holders, at their addresses as they appear in the Warrant Register.




     Section 10.3 Persons Having Rights under this Agreement. Nothing in this Agreement
expressed and nothing that may be implied from any of the provisions hereof is intended, or shall
be construed, to confer upon, or give to, any person or corporation other than the parties hereto
and the Holders, any right, remedy, or claim under or by reason of this Agreement or of any
covenant, condition, stipulation, promise, or agreement hereof. All covenants, conditions,
stipulations, promises, and agreements contained in this
Agreement shall be for the sole and exclusive benefit of the parties hereto, their successors
and assigns and the Holders.



     Section 10.4 Examination of this Agreement. A copy of this Agreement shall be
available at all reasonable times at the office of the Warrant Agent at 59 Maiden Lane, New York, NY 10038, for
examination by the Holder of any Warrant. Prior to such examination, the Warrant Agent may require
any such holder to submit his Warrant for inspection by it.



     Section 10.5 Counterparts. This Agreement may be executed in any number of original
or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the same instrument.



     Section 10.6 Effect of Headings. The section headings herein are for convenience only
and are not part of this Agreement and shall not affect the interpretation hereof.



     Section 10.7 Amendments.



26









 





          (a) Subject to Section 10.7(b) below, this agreement may not be amended except in
writing signed by both parties hereto.




          (b) The Company and the Warrant Agent may from time to time supplement or amend this Agreement
or the Warrants (a) without the approval of any Holders in order to cure any ambiguity, manifest
error or other mistake in this Agreement or the Warrants, or to correct or supplement any provision
contained herein or in the Warrants that may be defective or inconsistent with any other provision
herein or in the Warrants, or to make any other provisions in regard to matters or questions
arising hereunder that the Company and the Warrant Agent may deem necessary or desirable and that
shall not adversely affect, alter or change the interests of the Holders or (b) with the prior
written consent of holders of the Warrants exercisable for a majority of the Warrant Shares then
issuable upon exercise of the Warrants then outstanding. Notwithstanding anything to the contrary
herein, upon the delivery of a certificate from an Appropriate Officer which states that the
proposed supplement or amendment is in compliance with the terms of this Section 10.7 and,
provided such supplement or amendment does not change the Warrant Agent’s rights, duties,
liabilities or obligations hereunder, the Warrant Agent shall execute such supplement or amendment.
Any amendment, modification or waiver effected pursuant to and in accordance with the provisions
of this Section 10.7 will be binding upon all Holders and upon each future Holder, the
Company and the Warrant Agent. In the event of any amendment, modification or waiver, the Company
will give prompt notice thereof to all Registered Holders and, if appropriate, notation thereof
will be made on all Global Warrant Certificates thereafter surrendered for registration of transfer
or exchange.




     Section 10.8 No Inconsistent Agreements; No Impairment. The Company will not, on or
after the date hereof, enter into any agreement with respect to its securities which conflicts with
the rights granted to the Holders in the Warrants or the provisions hereof. The Company represents
and warrants to the Holders that the rights granted hereunder do not in any way conflict with the
rights granted to holders of the Company’s securities under any other agreements. The Company will
not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist in the carrying out
of all the provisions of the Warrants and in the taking of all such action as may be necessary in
order to preserve the exercise rights of the Holders against impairment.



     Section 10.9 Integration/Entire Agreement. This Agreement, together with the
Warrants, is intended by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the Company, the Warrant
Agent and the Holders in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the Warrants. This Agreement and the Warrants supersede all prior
agreements and understandings between the parties with respect to such subject matter.



     Section 10.10 Governing Law, Etc. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of New York and for all purposes
shall be governed by and construed in accordance with the laws of such State. Each



27









 







party hereto
consents and submits to the jurisdiction of the courts of the State of New York and of the federal
courts of the Southern District of New York in connection with any action or proceeding brought
against it that arises out of or in connection with, that is based upon, or that relates to this
Agreement or the transactions contemplated hereby. In connection with any such action or
proceeding in any such court, each party hereto hereby waives personal service of any summons,
complaint or other process and hereby agrees that service thereof may be made in accordance with
the procedures for giving notice set forth in Section 10.2 hereof. Each party hereto
hereby waives any objection to jurisdiction or venue in any such court in any such action or
proceeding and agrees not to assert any defense based on forum non conveniens or lack of
jurisdiction or venue in any such court in any such action or proceeding.



     Section 10.11 Termination. This Agreement shall terminate on the Expiration Date.
Notwithstanding the foregoing, this Agreement will terminate on any earlier date when all Warrants
have been exercised. The provisions of Section 9.4 and this Article X shall
survive such termination and the resignation or removal of the Warrant Agent.



     Section 10.12 Waiver of Trial by Jury. Each party hereto hereby irrevocably and unconditionally waives the right to a trial by
jury in any action, suit, counterclaim or other proceeding (whether based on contract, tort or
otherwise) arising out of, connected with or relating to this Agreement and the transactions
contemplated hereby.



     Section 10.13 Severability. In the event that any one or more of the provisions
contained herein or in the Warrants, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of any such provisions
in every other respect and of the remaining provisions contained herein and therein shall not be
affected or impaired thereby.



     Section 10.14 Attorneys’ Fees. In any action or proceeding brought to enforce any
provisions of this Agreement or any Warrant, or where any provision hereof or thereof is validly
asserted as a defense, the successful party shall be entitled to recover reasonable attorneys’ fees
and disbursements in addition to its costs and expenses and any other available remedy.



[Signature Page Follows]




28









 








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



	 	 	 	 	 
	 	SOLUTIA INC.

 	 
	 	By:  	/s/ Rosemary L. Klein  	 
	 	 	Name:  	Rosemary L. Klein 	 
	 	 	Title:  	Senior Vice President, General
Counsel and Secretary 	 
	 
	 	AMERICAN STOCK TRANSFER & TRUST COMPANY

 	 
	 	By:  	/s/Felix Orihuela
 	 
	 	 	Name:  	Felix Orihuela 	 
	 	 	Title:  	Vice President 	 



29









 






	 	 	 	 	 



EXHIBIT A-1




FORM OF WARRANT STATEMENT




[As provided by Warrant Agent]




 









 





EXIHIBIT A-2




FORM OF FACE OF GLOBAL WARRANT CERTIFICATE




VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON February 27, 2013



This Global Warrant Certificate is held by The Depository Trust Company (the “Depositary”) or its
nominee in custody for the benefit of the beneficial owners hereof, and is not transferable to any
person under any circumstances except that (i) this Global Warrant Certificate may be exchanged in
whole but not in part pursuant to Section 6.1(a) of the Warrant Agreement, (ii) this Global Warrant
Certificate may be delivered to the Warrant Agent for cancellation pursuant to Section 6.1(h) of
the Warrant Agreement and (iii) this Global Warrant Certificate may be transferred to a successor
Depositary with the prior written consent of the Company.



Unless this Global Warrant Certificate is presented by an authorized representative of the
Depositary to the Company or the Warrant Agent for registration of transfer, exchange or payment
and any certificate issued is registered in the name of Cede & Co. or such other entity as is
requested by an authorized representative of the Depositary (and any payment hereon is made to Cede
& Co. or to such other entity as is requested by an authorized representative of the Depositary),
any transfer, pledge or other use hereof for value or otherwise by or to any person is wrongful
because the registered owner hereof, Cede & Co., has an interest herein.



Transfers of this Global Warrant Certificate shall be limited to transfers in whole, but not in
part, to nominees of the Depositary or to a successor thereof or such successor’s nominee, and
transfers of portions of this Global Warrant Certificate shall be limited to transfers made in
accordance with the restrictions set forth in Section 6 of the Warrant Agreement.



No registration or transfer of the securities issuable pursuant to the Warrant will be recorded on
the books of the Company until such provisions have been complied with.




 









 







THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE (INCLUDING THE SECURITIES ISSUABLE UPON
EXERCISE OF THE WARRANT) ARE SUBJECT TO ADDITIONAL AGREEMENTS SET FORTH IN THE WARRANT AGREEMENT
DATED AS OF FEBRUARY 28, 2008, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT (THE “WARRANT
AGREEMENT”).




THIS WARRANT WILL BE VOID IF NOT EXERCISED PRIOR TO

5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 27, 2013




WARRANT TO PURCHASE




                     SHARES OF COMMON STOCK OF




SOLUTIA INC.




CUSIP # 834376147

ISSUE DATE: February 28, 2008




No.                     



This certifies that, for value received,                                         , and its registered assigns
(collectively, the “Registered Holder”), is entitled to purchase from Solutia Inc., a corporation
incorporated under the laws of the State of Delaware (the “Company”), subject to the terms and
conditions hereof, at any time before 5:00 p.m., New York time, on February 27, 2013, the number of
fully paid and non-assessable shares of Common Stock of the Company set forth above at the Exercise
Price (as defined in the Warrant Agreement). The Exercise Price and the number and kind of shares
purchasable hereunder are subject to adjustment from time to time as provided in Article V of the
Warrant Agreement. The initial Exercise Price shall be $                    .



This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent.



IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under its corporate seal as
of the ___ day of                     , 2008.




	 	 	 	 	 
	 	SOLUTIA INC.

 	 
	 	By:  	 	 
	 	 	Print Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 
	Attest:	 	 
	Secretary
 	 	 
	AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Warrant Agent

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



32









 






	 	 	 	 	 




Address of Registered Holder for Notices (until changed in accordance with this Warrant):



	 	 	 
	 


	 	 
	 


	 	 
	 


	 	 
	 


	 	 
	 


	 	 





REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH ON THE
REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.




33









 








FORM OF REVERSE OF WARRANT



The Warrant evidenced by this Warrant Certificate is a part of a duly authorized issue of Warrants
to purchase                      shares of Common Stock issued pursuant to that the Warrant Agreement, a
copy of which may be inspected at the Warrant Agent’s office. The Warrant Agreement hereby is
incorporated by reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and immunities thereunder of
the Warrant Agent, the Company and the Registered Holders of the Warrants. All capitalized terms
used on the face of this Warrant herein but not defined that are defined in the Warrant Agreement
shall have the meanings assigned to them therein.



Upon due presentment for registration of transfer of the Warrant at the office of the Warrant
Agent, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement, without charge except
for any applicable tax or other governmental charge.



The Company shall not be required to issue fractions of Warrant Shares or any certificates that
evidence fractional Warrant Shares.



No Warrants may be sold, exchanged or otherwise transferred in violation of the Securities Act or
state securities laws.



This Warrant does not entitle the Registered Holder to any of the rights of a stockholder of the
Company.



The Company and Warrant Agent may deem and treat the Registered Holder hereof as the absolute owner
of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made
by anyone) for the purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.




34









 








EXHIBIT B-1




EXERCISE FORM FOR REGISTERED HOLDERS

HOLDING BOOK-ENTRY WARRANTS




(To be executed upon exercise of Warrant)



The undersigned hereby irrevocably elects to exercise the right, represented by the Book-Entry
Warrants, to purchase Warrant Shares and (check one):





	 	o 	 	herewith tenders payment for                      of the Warrant Shares to the order of Solutia
Inc. in the amount of $                     in accordance with the terms of the Warrant
Agreement and this Warrant; or
	 
	 	o 	 	herewith tenders this Warrant for                      Warrant Shares pursuant to the net
issuance exercise provisions of Section 4.4(b) of the Warrant Agreement. This
exercise and election shall o be immediately effective or o shall be effective as of
5:00 pm., New York time, on [insert date].




The undersigned requests that [a statement representing] the Warrant Shares be delivered as
follows:




	 	 	 	 	 
	 	Name 	 
	 	Address 	 
	 	 	 	 	 
	 	
Delivery Address (if different) 	 
	 	 	 	 	 
	 	 	 	 	 
	 



If said number of shares shall not be all the shares purchasable under the within Warrant
Certificate, the undersigned requests that a new Book-Entry Warrant representing the balance of
such Warrants shall be registered, with the appropriate Warrant Statement delivered as follows:




	 	 	 	 	 
	 	Name 	 
	 	Address 	 
	 	 	 	 	 
	 	
Delivery Address (if different) 	 
	 	 	 	 	 
	 	 	 	 	 
	 




	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 


	 	 	 	Signature	 	 

	 	 
	Social Security or Other Taxpayer
Identification Number of Holder
	 	 	 	 	 	 	 	 






	 	 	 	 
	 

	 	Note: If the statement representing the Warrant
Shares or any Book-Entry Warrants representing
Warrants not exercised is to be registered in a
name other than that in which the Book-Entry
Warrants are registered, the signature of the
holder hereof must be guaranteed.
	 
	 	 
	 

	 	SIGNATURE GUARANTEED BY:
	 
	 	 





35









 






	 	 	 	 	 
	 	Signatures must be guaranteed by a participant in
the Securities Transfer Agent Medallion Program,
the Stock Exchanges Medallion Program or the New
York Stock Exchange, Inc. Medallion Signature
Program.



Countersigned:

Dated:                     , 20



AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Warrant Agent


 	 
	 	Signature 	 	 
	 	 	 	Authorized Signatory 	 
	 	 	 



36









 






	 	 	 	 	 



EXHIBIT B-2




EXERCISE FORM FOR BENEFICIAL HOLDERS

HOLDING WARRANTS THROUGH THE DEPOSITORY TRUST COMPANY




TO BE COMPLETED BY DIRECT PARTICIPANT

IN THE DEPOSITORY TRUST COMPANY




(To be executed upon exercise of Warrant)





     The undersigned hereby irrevocably elects to exercise the right, represented by ___ Warrants
held for its benefit through the book-entry facilities of The Depository Trust Company (the
“Depositary”), to purchase Warrant Shares and (check one):




	 	o 	 	herewith tenders payment for                      of the Warrant Shares to the order of Solutia
Inc. in the amount of $                     in accordance with the terms of the Warrant
Agreement and this Warrant; or
	 
	 	o 	 	herewith tenders this Warrant for                      Warrant Shares pursuant to the net
issuance exercise provisions of Section 4.4(b) of the Warrant Agreement. This
exercise and election shall o be immediately effective or o shall be effective as of
5:00 pm., New York time, on [insert date].




The undersigned requests that the Warrant Shares issuable upon exercise of the Warrants be in
registered form in the authorized denominations, registered in such names and delivered, all as
specified in accordance with the instructions set forth below; provided, that if the Warrant Shares
are evidenced by global securities, the Warrant Shares shall be registered in the name of the
Depositary or its nominee.



Dated:



NOTE: THIS EXERCISE NOTICE MUST BE DELIVERED TO THE WARRANT AGENT, PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. THE WARRANT AGENT SHALL NOTIFY YOU (THROUGH THE CLEARING
SYSTEM) OF (1) THE WARRANT AGENT’S ACCOUNT AT THE DEPOSITARY TO WHICH YOU MUST DELIVER YOUR
WARRANTS ON THE EXERCISE DATE AND (2) THE ADDRESS, PHONE NUMBER AND FACSIMILE NUMBER WHERE YOU CAN
CONTACT THE WARRANT AGENT AND TO WHICH WARRANT EXERCISE NOTICES ARE TO BE SUBMITTED. NAME OF
DIRECT PARTICIPANT IN THE DEPOSITARY:




(PLEASE PRINT)




ADDRESS:




CONTACT NAME:




ADDRESS:




TELEPHONE (INCLUDING INTERNATIONAL CODE):




FAX (INCLUDING INTERNATIONAL CODE):




SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF APPLICABLE):




ACCOUNT FROM WHICH WARRANTS ARE BEING DELIVERED:




DEPOSITARY ACCOUNT NO.




 









 




WARRANT EXERCISE NOTICES WILL ONLY BE VALID IF DELIVERED IN ACCORDANCE WITH THE INSTRUCTIONS SET
FORTH IN THIS NOTIFICATION (OR AS OTHERWISE DIRECTED), MARKED TO THE ATTENTION OF “WARRANT
EXERCISE”. WARRANT HOLDER DELIVERING WARRANTS, IF OTHER THAN THE DIRECT DTC PARTICIPANT DELIVERING
THIS WARRANT EXERCISE NOTICE:




NAME:                                         

                    (PLEASE PRINT)



CONTACT NAME:




TELEPHONE (INCLUDING INTERNATIONAL CODE):




FAX (INCLUDING INTERNATIONAL CODE):




SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF APPLICABLE):




ACCOUNT TO WHICH THE SHARES OF COMMON STOCK ARE TO BE CREDITED:




DEPOSITARY ACCOUNT NO.



FILL IN FOR DELIVERY OF THE COMMON STOCK, IF OTHER THAN TO THE PERSON DELIVERING THIS WARRANT
EXERCISE NOTICE:




NAME:                                         

                    (PLEASE PRINT)




ADDRESS:                                         




CONTACT NAME:                                         




TELEPHONE (INCLUDING INTERNATIONAL CODE):                                         




FAX (INCLUDING INTERNATIONAL CODE):                                         




SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF APPLICABLE):                     




NUMBER OF WARRANTS BEING EXERCISED:                                         

(ONLY ONE EXERCISE PER WARRANT EXERCISE NOTICE)




Signature:                                         




Name:                                         




Capacity in which Signing:                                         




SIGNATURE GUARANTEED BY:                                         



Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program,
the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature
Program.





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EXHIBIT C




FORM OF ASSIGNMENT




(To be executed only upon assignment of Warrant)



For value received,                      hereby sells, assigns and transfers unto the Assignee(s)
named below the rights represented by such Warrant to purchase number of Warrant Shares listed
opposite the respective name(s) of the Assignee(s) named below and all other rights of the
Registered Holder under the within Warrant, and does hereby irrevocably constitute and appoint
                     attorney, to transfer said Warrant on the books of the within-named
Company with respect to the number of Warrant Shares set forth below, with full power of
substitution in the premises:




	 	 	 	 	 
	Name(s) of	 	 	 	 
	Assignee(s)	 	Address	 	No. of Warrant Shares




And if said number of Warrant Shares shall not be all the Warrant Shares represented by the
Warrant, a new Warrant is to be issued in the name of said undersigned for the balance remaining of
the Warrant Shares registered by said Warrant.




	 	 	 	 	 
	Dated:      
              , 20__  	Signature 	 	 
	 	 	Note: 	 The above signature should correspond exactly with the name on the face of this Warrant 
	 




39