-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L9hfraqPSqN6Uwdeb9uesCsZUjK8LSlBIgLPD66brFxzJO8NoXj4fbihNFmH1A6S Ew+OtjnKay9WIi06U0FO4A== 0001068800-05-000282.txt : 20050428 0001068800-05-000282.hdr.sgml : 20050428 20050428152601 ACCESSION NUMBER: 0001068800-05-000282 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050421 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050428 DATE AS OF CHANGE: 20050428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLUTIA INC CENTRAL INDEX KEY: 0001043382 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 431781797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13255 FILM NUMBER: 05780393 BUSINESS ADDRESS: STREET 1: 575 MARYVILLE CENTRE DRIVE STREET 2: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 BUSINESS PHONE: 3146741000 MAIL ADDRESS: STREET 1: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 FORMER COMPANY: FORMER CONFORMED NAME: QUEENY CHEMICAL CO DATE OF NAME CHANGE: 19970804 8-K 1 sol8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 21, 2005 SOLUTIA INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE -------- (STATE OF INCORPORATION) 001-13255 43-1781797 --------- ---------- (COMMISSION (IRS EMPLOYER FILE NUMBER) IDENTIFICATION NO.) 575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760 - --------------------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 674-1000 -------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT As previously reported, on December 17, 2003, Solutia Inc. ("Solutia") and its 14 U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The cases were consolidated for the purpose of joint administration and were assigned case number 03-17949 (PCB). Solutia's subsidiaries outside the United States were not included in the Chapter 11 filing. On April 21, 2005, the Bankruptcy Court approved the implementation of the 2005 Solutia Annual Incentive Program, approved the entry into an employment agreement with Rosemary L. Klein, Senior Vice President, General Counsel and Corporate Secretary, and approved amendments to the employment agreements with Jeffry N. Quinn, President and Chief Executive Officer, and James M. Sullivan, Senior Vice President and Chief Financial Officer. 1. 2005 Annual Incentive Program The 2005 Solutia Annual Incentive Program (the "Program") is applicable to the majority of Solutia's employees. Funding of the incentive pool from which awards are made to employees assigned to business divisions will be based on the level of achievement of specific financial objectives established for each business division such as EBITDA, EBITDAR, Free Cash Flow, Cost Reduction and New Revenue (all as defined in the Program). There is not a threshold level of corporate performance that must be met before awards can be made. For employees assigned to "core" areas, overall enterprise performance, based 75% on EBITDAR and 25% on Free Cash Flow, each measured against plan target, will determine the size of the incentive pool. The incentive pool can be funded up to a maximum of 2.25 times the total of all target payout amounts. Targeted payouts are set as a percentage of annual base salary and vary by participant level in the organization. The target bonus opportunity for the chief executive officer is 150% of annual base salary. For other senior executive officers, the target bonus opportunities range from 75% to 100% of annual base salary. Actual awards are to be determined based on a combination of unit and individual performance. For executive officers and certain other members of management, 75% of each such individual's allocated amount (i.e., target award multiplied by unit funding) will be paid based on unit performance. The portion of each participant's award that is based on individual performance is limited only by the aggregate amount available in the incentive pool after the amount to be awarded based on unit performance has been determined. Awards, if any, will be paid within two and one-half months following the end of the 2005 calendar year. The foregoing description of the Program does not purport to be complete and is qualified in its entirety by reference to the Program, a copy of which is attached as Exhibit 99.1 to this Report. 2. Employment Agreement with Rosemary L. Klein On April 21, 2005, upon Bankruptcy Court approval, Solutia entered into an agreement effective as of April 21, 2005, (the "Agreement") with Ms. Rosemary L. Klein, its Senior Vice President, General Counsel and Corporate Secretary. The term of the Agreement (the "Employment Period") is from April 21, 2005 until the six month anniversary of the Emergence Date (as hereinafter described). Under the Agreement, Ms. Klein will receive an annual base salary of not less than $250,000, retroactive to December 1, 2004. She will participate in Solutia's annual incentive program with a target annual bonus opportunity of 75% of her annual base salary. She will also be entitled to participate in all long-term and other incentive plans or programs applicable to senior executive officers of Solutia and its subsidiaries and in applicable savings, retirement, welfare benefit and vacation plans. The Agreement provides that if Ms. Klein is employed by Solutia (or an affiliate of Solutia) at such time, if ever, at which the Bankruptcy Court shall have confirmed a plan of reorganization of Solutia under Chapter 11 of the Bankruptcy Code and such plan shall have become effective (the "Emergence Date"), she will be eligible to receive an emergence bonus of $500,000 (the "Emergence Bonus"). The Emergence Bonus shall be paid in two equal installments, the first installment to be paid within 10 days after the Emergence Date and the second installment to be paid on the six-month anniversary of the Emergence Date, provided, however, if Ms. Klein voluntarily terminates her employment other than for Good Reason (as defined in the Agreement) or is terminated for Cause (as defined in the Agreement), then she shall forfeit her right to receive the unpaid portion of the Emergence Bonus. If Solutia terminates Ms. Klein's employment other than for Cause, or Ms. Klein terminates her employment for Good Reason, Solutia will pay Ms. Klein: (a) any accrued but unpaid base salary through the Date of Termination (as defined in the Agreement), (b) any unpaid annual bonus earned with respect to the previous year, and (c) any unpaid accrued vacation pay (collectively, "Accrued Obligations"), (d) an amount equal to 100% of Ms. Klein's annual base salary ("Severance Payment") and (e) if the Date of Termination is on or subsequent to the Emergence Date, the unpaid portion, if any, of the Emergence Bonus, provided that she waives any and all claims against Solutia and its subsidiaries. Ms. Klein will also be entitled to any other benefits or amounts, excluding severance or separation pay or benefits, for which she is eligible under any plan, program, or policy of Solutia and its subsidiaries, such as any vested benefit under any qualified defined benefit or defined contribution retirement plan in which she participates (collectively, "Other Benefits"). If Ms. Klein's employment terminates because of death or Disability, she or her estate, as applicable, will receive the Accrued Obligations and the Other Benefits and, if such termination occurs on or after the Emergence Date but not later than the six month anniversary thereof, the unpaid portion, if any, of the Emergence Bonus. The Agreement also contains provisions relating to non-competition, protection of Solutia's confidential information and non-solicitation of Solutia's employees. The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copy of which is attached hereto as Exhibit 99.2. 3. Amendments to Employment Agreements of Jeffry N. Quinn and James M. Sullivan On April 21, 2005, upon Bankruptcy Court approval, Solutia entered into amended and restated employment agreements with Mr. Jeffry N. Quinn, its President and Chief Executive Officer, and with Mr. James M. Sullivan, its Senior Vice President and Chief Financial Officer, each dated July 19, 2004 (each an "Agreement" and together, their "Agreements"), to provide that the Severance Payment (as defined in their Agreements) be increased from 125% to 200% of annual base salary, payable at such time as either Solutia terminates their employment other than for Cause (as defined in the Agreement) or Mr. Quinn or Mr. Sullivan, respectively, terminate their employment for Good Reason (as defined in the Agreement), provided however, that if the Date of Termination occurs after the Emergence Date (as defined in their respective Agreements), but on or before the six-month anniversary of the Emergence Date, such Severance Payment would be reduced by any amounts subsequently paid or due to be paid, as a Special Emergence Bonus (as defined in their respective Agreements). Additionally, the Bankruptcy Court approved, and Mr. Sullivan's employment agreement has been amended to reflect, an increase in annual base salary for Mr. Sullivan from $250,000 to $325,000. The salary increase shall apply retroactively from January 1, 2005. The foregoing descriptions of the Agreements do not purport to be complete and are qualified in their entireties by reference to the Agreements, copies of which are attached hereto as Exhibits 99.3 and 99.4. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits: Exhibit Number Description - -------------- ----------- 99.1 2005 Solutia Annual Incentive Program 99.2 Agreement by and between Solutia Inc. and Rosemary L. Klein 99.3 Amended and Restated Agreement by and between Solutia Inc. and Jeffry N. Quinn 99.4 Amended and Restated Agreement by and between Solutia Inc. and James M. Sullivan SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. SOLUTIA INC. --------------------------------------- (Registrant) /s/ Rosemary L. Klein --------------------- Senior Vice President, General Counsel and Corporate Secretary DATE: April 27, 2005 EX-99.1 2 ex99p1.txt Exhibit 99.1 2005 SOLUTIA ANNUAL INCENTIVE PROGRAM This document sets forth the 2005 Solutia Annual Incentive Program (the "Program") for the year beginning January 1, 2005 and ending December 31, 2005 (the "Performance Year"). INCENTIVE FUNDING Solutia Inc. (the "Company") is organized along business lines in order to place emphasis on the performance of each individual division. Incentive programs are aligned with this structure. For 2005, the size of the incentive pool for those assigned to business divisions will be based on the achievement of specific business objectives. For employees assigned to "core" areas, overall enterprise performance determines the size of the incentive pool. The performance metrics that will determine the size of the incentive pool for each division and core unit are as follows:
=================================================================================================================== UNIT MEASURE WEIGHT MEASURE WEIGHT MEASURE WEIGHT - ------------------------------------------------------------------------------------------------------------------- Core EBITDAR 75% Free Cash Flow 25% N/A N/A - ------------------------------------------------------------------------------------------------------------------- Integrated Nylon EBITDA 55% Free Cash Flow 22.5% Cost Reduction 22.5% - ------------------------------------------------------------------------------------------------------------------- Performance Products EBITDA 60% Free Cash Flow 5% New Revenue 35% ===================================================================================================================
DEFINITIONS OF MEASURES For the purposes of the Program the performance measures have the following meaning: "EBIT" means, with respect to any specified entity for any period, consolidated net income (loss) of such specified entity and its subsidiaries for such period, determined on a consolidated basis, in accordance with GAAP and subject to historical internal reporting standards, excluding (without duplication), to the extent deducted in determining consolidated net income (loss) (a) any extraordinary or non recurring or non cash gains or losses or gains or losses from dispositions, (b) restructuring charges, and (c) effects of discontinued operations, plus (without duplication), in accordance with GAAP and to the extent deducted in determining consolidated net income (loss), (i) interest expense, and (ii) income tax expense. "EBITDA" means, with respect to any specified entity for any period, EBIT plus, in accordance with GAAP, (i) depreciation expense, and (ii) amortization expense excluding amortization of deferred credits. 1 "EBITDAR" means EBITDA plus, in accordance with GAAP, reorganization items. In the event that either of the Company's equity interest in its 50/50 joint ventures is disposed of during the calendar year, the EBITDAR incentive targets will be revised accordingly to exclude forecasted equity income for the period from the date of the transaction closing to year-end. "FREE CASH FLOW" or "FREE CASH USE" means, with respect to any specified entity for any period, the cash flow provided by (used in) continued operations of such specified entity and its subsidiaries for such period, determined on a consolidated basis, in accordance with GAAP and subject to historical internal reporting standards, less Capital Expenditures, plus net proceeds received by Solutia in excess of management's estimate from the disposition of the Company's equity interest in either of its 50/50 joint ventures, to the extent sold during the calendar year. "CAPITAL EXPENDITURES" means, with respect to any specified entity for any period, the aggregate of all expenditures by such specified entity and its subsidiaries during such period in accordance with GAAP; provided, that the term "Capital Expenditure" shall not include (a) expenditures made in connection with the replacement, substitution or restoration of assets or the purchase of any other assets used or useful in the business of such specified entity (i) to the extent financed from insurance proceeds paid on account of the loss of or damage to the assets of any such specified entity or its subsidiaries or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets of any such specified entity or its subsidiaries, (b) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, (c) acquisitions, or (d) capital lease obligations paid or payable during such period. "COST REDUCTION" means, with respect to any specified entity for any period, savings achieved from initiatives identified in the annual budget. "NEW REVENUE" means, with respect to any specified entity for any period, total revenue generated from (i) a distinct set of products which have generally become commercially available since January 1, 2000, and possess above average profitability potential, (ii) products not currently available, including products generated internally as well as those acquired through acquisitions, and (iii) sales of core products when those products penetrate completely new market spaces, provided that there is a high probability those new spaces will in the future contain new and differentiable technology. Products included in categories (i) and (iii) above for purpose of this definition are identified on Schedule A, as maintained by the Committee. Performance metrics may be adjusted, as appropriate, based on assets sales and dispositions. INCENTIVE AWARD DETERMINATION Actual awards will be paid out based on a combination of unit and individual performance. For each employee's allocated amount (individual target award multiplied by unit funding), a portion will be paid to recognize unit performance. The remaining portion will provide management with a pool to recognize individual performance. 2
- --------------------------------------------------------------------------------------------- ORGANIZATIONAL LEVEL UNIT PERFORMANCE INDIVIDUAL PERFORMANCE - --------------------------------------------------------------------------------------------- Executive Leadership and their Direct Reports 75% 25% - --------------------------------------------------------------------------------------------- Other Participants 50% 50% - ---------------------------------------------------------------------------------------------
The fundamental process follows these five steps: 1) Incentive pool is funded based on division/enterprise (unit) performance. 2) A portion of the incentive pool is allocated to individuals based on their unit's performance. For example, if the employee is part of Performance Products and Performance Products is funded at 1X, 50% of the employee's target bonus will be awarded to the employee for the unit's performance. 3) The portion of funding to recognize individual performance will be allocated to the managers within the units who will make individual award recommendations based on the available pool and individual performance compared to goals. 4) Division/corporate senior management approves recommendations. 5) The Company's Executive Compensation and Development Committee gives final approval. Note: Management reserves the right to make no award to individuals who exhibit below standard performance, incidents of misconduct, etc. In cases where an individual is assigned to a specific division or the core, but supports more than one division, the incentive funding will be based on the following rules: o Employees who support a division more than 50 percent of the time will receive that division's incentive factor. o Employees who support two divisions equally will receive an average of the two divisions' incentive factors. o Employees who support multiple divisions (and aren't covered by the above) will receive the core incentive factor. o Funding sources for an employee's award will be determined based on the number of full months spent in each function or division. Each employee's actual award will also depend on individual performance in serving all relevant divisions and will include input from each respective manager. ELIGIBILITY Certain designated full-time and part-time employees who are scheduled to work at least half the standard workweek are eligible for participation in the Program. Further details regarding eligibility are available in the "What Happens If" section of this document. 3 TARGET AWARD OPPORTUNITY For more information on your target award opportunity please speak with your manager or HR Representative. Actual awards will vary based on both achievement of unit performance measures and individual performance. PAYMENT OF AWARDS Awards will be paid out no later than two and one-half months following the close of calendar year 2005. ADMINISTRATION The program is administered by the Executive Compensation and Development Committee of the Company's Board of Directors (the "Committee"). WHAT HAPPENS IF . . . o YOU ARE PROMOTED TO, OR HIRED INTO, A PARTICIPATING POSITION BEFORE DECEMBER 15 OF THE PERFORMANCE YEAR: You may be considered for an award, that may be prorated, reflecting your actual participation rounded to the nearest whole month. o YOU CHANGE JOBS (AND INCENTIVE TARGETS) DURING THE PERFORMANCE YEAR: You may be considered for an award, that may be prorated, reflecting your actual participation in both positions to the nearest whole month. o YOU TRANSFER FROM ANOTHER SOLUTIA UNIT NOT PARTICIPATING IN THIS PLAN TO A PARTICIPATING POSITION OR VICE VERSA DURING THE PERFORMANCE YEAR: You may be considered for an award based on the time you spent in the participating position. o YOU TRANSFER FROM A PARTICIPATING POSITION TO ANOTHER PARTICIPATING POSITION DURING THE PERFORMANCE YEAR: You may be considered for an award which represents your participation in each participating position. o YOU ARE ON A SHORT TERM LEAVE OF ABSENCE (LESS THAN SIX MONTHS ABSENCE DURING THE PERFORMANCE YEAR): You may be considered for a prorated award that reflects your actual participation rounded to the nearest whole month. You will receive payment of your annual award for the year, if any, at the time awards are normally paid. o YOU RETIRE (AS DEFINED BY THE COMMITTEE), HAVE BEEN ON A LEAVE OF ABSENCE EXTENDING BEYOND SIX MONTHS OF THE PERFORMANCE YEAR, OR ARE INVOLUNTARILY TERMINATED OTHER THAN FOR CAUSE: You will not be eligible to receive an award unless you are an active employee at the time of payment. o YOU DIE DURING THE PERFORMANCE YEAR: If you were in a participating position during any part of the Performance Year, any award that may be granted by the Committee will be made to your legal representative at the normal time and will reflect your actual service to the nearest whole month. o YOU VOLUNTARILY RESIGN: You will not be eligible to receive an award unless you are an active employee at the time of payment. 4 o YOU ARE TERMINATED FOR CAUSE: You will receive no incentive award for the year. ADDITIONAL INFORMATION ABOUT THE ANNUAL INCENTIVE PROGRAM PENSION AND SAVINGS AND INVESTMENT PLAN (SIP) IMPLICATIONS For participants in the United States, the entire amount of any annual award made for a year will become part of the earnings used to calculate your Savings and Investment Plan (SIP) contributions, subject to IRS and SIP limits. For participants outside the United States, the process established in your country, pension plan or retirement program will apply. TAXES For U.S. participants, any award you receive under the Program is taxable as ordinary income in the year of payment and is subject to all applicable withholding taxes in the year paid. For participants outside the United States, the laws of the tax jurisdiction(s) to which you are subject will apply. LEGAL INFORMATION In all events, whether any cash award is made under the Program to a participant will depend on management's recommendation and the decision of the Committee (or its delegate). All awards are subject to the sole discretion of the Committee or its delegate, and nothing in this document or any other document describing or referring to the Program shall confer any right whatsoever on any person to be considered for any incentive commitments or awards. This document does not purport to be complete and is subject to and governed by actions, rules and regulations of the Committee (or its delegate) and may be changed or discontinued at any time without notice or liability. Incentive commitments and awards shall be subject to and governed by the specific terms and conditions of this Program and the applicable award. Nothing in this document or any other document describing or referring to the Program shall confer on any employee or participant the right to continue in the employ of the Company or affect the right of the Company to terminate the employment of any such person with or without cause. Nothing contained herein shall require the Company to segregate any monies from its general fund or to create any trusts, or to make any special deposits for amounts payable to any participant. No bonus commitment or unpaid bonus award shall be pledged or transferred except as specifically provided for herein (such as in the case of death). If any participant attempts to pledge, assign, transfer or otherwise alienate any award, any obligation of the Company hereunder shall terminate. The Company will withhold any federal, state or local, domestic or foreign taxes as required by law or regulation or as the Company deems appropriate from any payments that it makes to participants hereunder. 5 The Program is subject to the laws of the State of Delaware. The Program may be amended, modified or terminated without notice by the Company at any time, including (but not limited to) any such amendment, modification or termination that reduces or eliminates any benefit otherwise to be paid or payable hereunder. 6 EX-99.2 3 ex99p2.txt Exhibit 99.2 AGREEMENT AGREEMENT by and between Solutia Inc., a Delaware corporation (the "Company"), and Rosemary L. Klein (the "Executive"), dated as of the 21st day of April, 2005 (the "Effective Date"). The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stakeholders to assure that the Company will have the continued dedication of the Executive until and for a period of time following the Emergence Date (as defined below). To induce the Executive to continue to serve the Company through and beyond the Emergence Date, the Company will provide the Executive with, among other things, an emergence bonus. It is the Board's judgment that such an emergence bonus arrangement is in the best interest of the Company and its stakeholders, and is consistent with the desire of the Board to maximize the value of the Company. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Emergence Bonus Payments. At such time, if ever (the "Emergence ------------------------ Date"), at which the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") shall have confirmed a plan of reorganization of the Company under Chapter 11 of the United States Bankruptcy Code and such plan shall have become effective, and if the Executive is employed by the Company on the Emergence Date, then Executive shall be eligible to receive from the Company an emergence bonus of $500,000 ("Emergence Bonus"). The Emergence Bonus shall be paid in two equal installments, the first installment to be paid within 10 days of the Emergence Date and the second installment to be paid on the six-month anniversary of the Emergence Date; provided, however, if Executive voluntarily terminates her employment other than for Good Reason or is terminated by the Company for Cause, then Executive shall forfeit any and all right to receive any unpaid portion of the Emergence Bonus. 2. Employment Period. The Company hereby agrees to continue the ----------------- Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period (the "Employment Period") commencing on the Effective Date and ending on the date that is the sixth-month anniversary of the Emergence Date. Where the context permits, all references to the Company shall include an affiliate of the Company by which the Executive is employed. As used in this Agreement, the term "affiliate" or "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. The obligations of the Company and the Executive under this Agreement including, without limitation, the obligations under Sections 1, 5, 6 and 7, shall survive the 1 termination of the Employment Period to the extent necessary to accomplish the purposes thereof. 3. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive shall serve as Senior Vice President, General Counsel and Corporate Secretary reporting directly to the Company's Chief Executive Officer, with authority, duties and responsibilities consistent with such position and as may be reasonably assigned to her from time to time by the Company's Chief Executive Officer and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or at any office or location of the Company not more than 50 miles from the Company's headquarters in St. Louis, Missouri. (ii) During the Employment Period, the Executive shall serve the Company faithfully, diligently and to the best of her ability, and shall devote substantially all of her time and efforts during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (B) manage personal investments, so long as such activities described in clauses A and B do not interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement, and (C) with the advance approval of the Board, serve on corporate, civic or charitable boards or committees. (b) Compensation. ------------ (i) Base Salary. During the Employment Period, ----------- the Executive shall receive an annual base salary ("Annual Base Salary") of not less than $250,000, which shall be retroactive to December 1, 2004 and shall be paid in accordance with the Company's normal payroll practices. (ii) Annual Bonuses. In addition to Annual Base -------------- Salary, the Executive shall participate in the Company's Annual Incentive Program, or any successor annual bonus plan(s), with a target annual bonus opportunity of 75% of her Annual Base Salary. In addition, during the Employment Period, the Executive shall be entitled to participate in all long-term and other incentive plans, practices, policies and programs generally applicable to senior executive officers of the Company and its affiliated companies. (iii) Savings and Retirement Plans. During the ---------------------------- Employment Period, the Executive shall be entitled to participate in all savings and retirement plans, practices, policies and programs generally applicable to senior executive officers of the Company and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. 2 (iv) Welfare Benefit Plans. During the Employment --------------------- Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally applicable to senior executive officers of the Company and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. (v) Expenses. During the Employment Period, the -------- Executive shall be entitled to receive prompt reimbursement, in accordance with Company policy, for all reasonable expenses incurred by the Executive in performing her duties hereunder. (vi) Vacation. During the Employment Period, the -------- Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect from time to time. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall ------------------- terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's long-term disability for purposes of any reasonable occupation as determined under the Company's disability plan that is applicable to the Executive. (b) Cause. The Company may terminate the Executive's ----- employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties; (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; 3 (iii) the Executive's conviction of, or plea of guilty or no contest to, a felony or any other crime involving moral turpitude, fraud, theft, embezzlement or dishonesty; or (iv) the Executive's habitual drug or alcohol abuse. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, in the case of conduct described in subparagraph (i) or (ii) above, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i), (ii), (iii) or (iv) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) a material failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement relating to compensation, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position as Senior Vice President, General Counsel and Corporate Secretary of the Company reporting to the Company's Chief Executive Officer and the authority, duties and responsibilities contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material diminution in such position, title, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, that, a sale by the Company of substantially all of its assets shall constitute a diminution in Executive's position, title, authority, duties and responsibilities for purposes of this Section 4(c)(ii); (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(i)(B) hereof or the Company's requiring 4 the Executive to travel on Company business to a substantially greater extent than required prior to the Effective Date; or (iv) the failure of the Company and the Executive to enter into a new employment agreement by the last day of the Employment Period. If the executive terminates her employment for Good Reason pursuant to subparagraph (ii) above, as a result of a sale by the Company of substantially all of its assets, then the Executive shall make herself available to the Company as a paid independent consultant for such fee, at such times, over such period of time and for such number of hours as the parties shall reasonably agree, taking account of any new employment that the Executive may undertake. (d) Notice of Termination. Any termination by the Company --------------------- for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) ------------------- if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during or after the --------------------------------- expiration of the Employment Period, the Company shall terminate the Executive's employment other than for Cause or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within ten days of the Date of Termination, the aggregate of the following amounts: A. the sum of (1) the Executive's accrued Annual Base Salary through the Date of Termination, (2) any annual bonus earned by the Executive with respect to the previous year, and (3) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); 5 B. an amount equal to 100% of Executive's Annual Base Salary immediately prior to the Date of Termination (the "Severance Payment"); and C. if the Date of Termination is on or subsequent to the Emergence Date, Executive shall receive the amount, if any, of the unpaid portion of the Emergence Bonus. (ii) subject to the provisions of Sections (9)(f) hereof, to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits, excluding any severance or separation pay or benefits, required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies, including, without limitation, the vested benefit, if any, of the Executive under any qualified defined benefit or defined contribution retirement plan of the Company and its affiliated companies in which the Executive participates, in accordance with the terms of such plan (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); (iii) the Company shall continue to provide at its expense (on the same basis as at the Executive's Date of Termination) for the continued participation of the Executive and, to the extent applicable, her family, in the Company's medical, dental, vision and life insurance plans and programs, for a period of four months commencing with the Date of Termination; and (iv) the Company shall provide the Executive with outplacement services during the twelve month period commencing on the Date of Termination up to an aggregate cost of $25,000. (b) Death. If the Executive's employment is terminated by ----- reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, of the unpaid portion of the Emergence Bonus. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Amounts to be paid under Sections 5(b)(ii), other than benefits due from retirement plans tax qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code") 6 ("TQ Plans"), and 5(b)(iii) shall be paid no later than 2 1/2 months after the end of the year in which the Executive dies. (c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, of the unpaid portion of the Emergence Bonus. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. Amounts to be paid under Sections 5(c)(ii), other than TQ Plans, and 5(c)(iii) shall be paid no later than 2 1/2 months after the year in which the Executive's employment terminates by reason of Disability. (d) Cause; Other than for Good Reason. If the Executive's --------------------------------- employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 6. Full Settlement; Legal Fees. The Company's obligation to make --------------------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest, in which the Executive is the prevailing party, by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (whether such contest is between the Company and the Executive or between either of them and any third party, and including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment from the time at which the liability for the applicable legal fees and expenses was incurred by Executive, at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). The amounts to be paid by the Company to the Executive under this Section 6 shall be paid within 30 days of the date on which the obligation to make such payments arise. 7 7. Confidential Information and Competitive Activity. ------------------------------------------------- (a) Confidential Information. As used herein, "Confidential ------------------------ Information" means all technical and business information of the Company and its affiliated companies, whether patentable or not, which is of a confidential, trade secret and/or proprietary character and which is either developed by the Executive (alone or with others) or to which the Executive has had access during the Executive's employment. "Confidential Information" shall also include confidential evaluations of, and the confidential use or non-use by the Company or any affiliated company of, technical or business information in the public domain. The Executive shall use the Executive's best efforts and diligence both during and after employment by the Company to protect the confidential, trade secret and/or proprietary character of all Confidential Information. The Executive shall not, directly or indirectly, use (for the Executive or another) or disclose any Confidential Information, for so long as it shall remain proprietary or protectible as confidential or trade secret information, except as may be necessary for the performance of the Executive's duties with the Company. The Executive shall deliver promptly to the Company, at the termination of the Executive's employment, or at any other time at the Company's request, without retaining any copies, all documents and other material in the Executive's possession relating, directly or indirectly, to any Confidential Information. Each of the Executive's obligations in this Section shall also apply to the confidential, trade secret and proprietary information learned or acquired by the Executive during the Executive's employment from others with whom the Company or any affiliated company has a business relationship. The Executive understands that the Executive is not to disclose to the Company or any affiliated company, or use for its benefit, any of the confidential, trade secret or proprietary information of others, including any of the Executive's former employers. (b) Competitive Activity; Nonsolicitation. In the event ------------------------------------- that, during the Employment Period, Executive shall voluntarily terminate her employment hereunder, be terminated by the Company without Cause, or terminate her employment hereunder for Good Reason, then the Executive shall not, directly or indirectly (whether as owner, partner, consultant, employee or otherwise), at any time during the six months following termination of her employment with the Company or any affiliate for any reason, engage in or contribute her knowledge to any work or activity that involves a product, process, apparatus, service or development which is then competitive with or similar to a product, process, apparatus, service or development on which she worked or with respect to which she had access to Confidential Information while employed by the Company or an affiliate at any time during the period of five years immediately prior to her Date of Termination ("Competitive Work"). However, the Executive shall be permitted to engage in such proposed work or activity, and the Company shall furnish her a written consent to that effect signed by an officer of the Company, if the Executive shall have furnished to the Company clear and convincing written evidence, including assurances from the Executive and her new employer, that the fulfillment of her duties in such proposed work or activity would not likely cause her to disclose, base judgment upon, or use any 8 Confidential Information. In addition, during her employment by the Company or an affiliate and for a period of six months thereafter, the Executive shall not, directly or indirectly, (i) induce or attempt to induce a salaried employee of the Company or any of its affiliates to accept employment or affiliation involving Competitive Work with another firm or corporation of which the Executive is an employee, owner, partner or consultant, or (ii) induce or attempt to induce any customer, supplier, licensee or other person having a business relationship with the Company to cease doing business with the Company or interfere materially with the relationship between the Company and any such customer, supplier, licensee or other person having a business relationship with the Company. (c) Injunctive Relief. Executive agrees that the ----------------- restrictions imposed upon her by this Section 7 are fair and reasonable considering the nature of the Company's business and are reasonably required for the protection of the Company. Executive also acknowledges that a breach of any of the provisions of this Section 7 may result in continuing and irreparable damages to the Company for which there may be no adequate remedy at law, and that the Company, in addition to all other relief available to it, shall be entitled to the issuance of a temporary restraining order, preliminary injunction and permanent injunction restraining the Executive from committing or continuing to commit any breach of the provisions of this Section 7. (d) Blue Pencil. If, at any time, the provisions of this ----------- Section 7 shall be determined to be invalid or unenforceable under any applicable law, by reason of being vague or unreasonable as to area, duration or scope of activity, this Agreement shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive and the Company agree that this Agreement as amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. 8. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 9. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 9 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Rosemary L. Klein [Home address] If to the Company: Jeffry N. Quinn, Esq. President and Chief Executive Officer Solutia Inc. P.O. Box 66760 St. Louis, MO 63166-6760 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) With the exception of the agreement dated as of June 17, 2004, between the Company and the Executive (the "Retention Agreement"), this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof and any other prior employment agreement between the Company and the Executive and the Executive waives all rights with respect to such agreements, including, without limitation, any claims for damages related to such agreements; provided, that this Agreement shall have no effect on the Executive's rights under any plan, program, policy or practice provided by the Company or any of its affiliated companies except that the benefits and other payments provided for pursuant to Section 5 hereof shall be in lieu of any severance or separation pay or benefits to which the Executive might otherwise be entitled under any plan, program, policy or arrangement of the Company and its affiliates. In consideration of the promises set forth in the Agreement, and of the mutual releases set forth in this paragraph, each party hereto relinquishes all rights, 10 and releases the other from all promises, liabilities and commitments that may have existed and any other employment agreements, which shall be null and void and of no further effect. (g) No amounts shall be payable pursuant to Section 5(a) or 5(c) of this Agreement unless and until the Executive shall have executed and delivered a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit A. (h) Except as otherwise provided by Section 7(c), in the event of any dispute, controversy or claim arising out of or relating to this Agreement or Executive's employment or termination thereof, the parties hereby agree to settle such dispute, controversy or claim in a binding arbitration by a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association, which arbitration shall be conducted in St. Louis, Missouri. The parties agree that the arbitral award shall be final and non-appealable and, except as otherwise provided by Section 7(c), shall be the sole and exclusive remedy between the parties hereunder. The parties agree that judgment on the arbitral award may be entered in any court having competent jurisdiction over the parties or their assets. (i) The Executive and the Company agree to cooperate to make such amendments to the terms of this Agreement as may be necessary to avoid the imposition of penalties and additional taxes under Section 409A of the Code. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Rosemary L. Klein ------------------------------- Rosemary L. Klein SOLUTIA INC. By /s/ Jeffry N. Quinn ---------------------------- Jeffry N. Quinn 11 Exhibit A --------- WAIVER AND RELEASE Reference is made to that Agreement (the "Agreement"), dated as of April 21, 2005, by and between Solutia, Inc., a Delaware Corporation (the "Company"), and Rosemary L. Klein (the "Executive"). This Waiver and Release (this "Waiver") is made as of the day of , 200 , by the -- ------------ - Executive pursuant to Section 9(g) of the Agreement. Release and Waiver of Claims Against the Company ------------------------------------------------ (a) The Executive, on behalf of herself, her agents, heirs, successors, assigns, executors and administrators, in consideration for the payments and other consideration provided for under the Agreement, hereby forever releases and discharges the Company and its successors, their affiliated entities, and their past and present directors, employees, agents, attorneys, accountants, representatives, plan fiduciaries, successors and assigns from any and all known and unknown causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, and demands of whatsoever kind and character in any manner whatsoever arising on or prior to the date of this Waiver, including but not limited to (i) any claim for breach of contract, breach of implied covenant, breach of oral or written promise, wrongful termination, intentional infliction of emotional distress, defamation, interference with contract relations or prospective economic advantage, negligence, misrepresentation or employment discrimination, and including without limitation alleged violations of Title VII of the Civil Rights Act of 1964, as amended, prohibiting discrimination based on race, color, religion, sex or national origin; the Family and Medical Leave Act; the Americans With Disabilities Act; the Age Discrimination in Employment Act; other federal, state and local laws, ordinances and regulations; and any unemployment or workers' compensation law, excepting only those obligations of the Company expressly recited in the Agreement or this Waiver and any claims to benefits under the Company's employee benefit plans as defined exclusively in written plan documents; (ii) any and all liability that was or may have been alleged against or imputed to the Company by the Executive or by anyone acting on her behalf; (iii) all claims for wages, monetary or equitable relief, employment or reemployment with the Company in any position, and any punitive, compensatory or liquidated damages; and (iv) all rights to and claims for attorneys' fees and costs except as otherwise provided herein or in the Agreement. (b) The Executive shall not file or cause to be filed any action, suit, claim, charge or proceeding with any federal, state or local court or agency relating to any claim within the scope of this Waiver. In the event there is presently pending any action, suit, claim, charge or proceeding within the scope of this Waiver, or if such a proceeding is commenced in the future, the Executive shall promptly withdraw it, with prejudice, to the extent she has the power to do so. The Executive represents and warrants that she has not assigned any claim released herein, or authorized any other person to assert any claim on her behalf. (c) In the event any action, suit, claim, charge or proceeding within the scope of this Waiver is brought by any government agency, putative class representative or other third party to vindicate any alleged rights of the Executive, (i) the Executive shall, except to the extent 12 required or compelled by law, legal process or subpoena, refrain from participating, testifying or producing documents therein, and (ii) all damages, inclusive of attorneys' fees, if any, required to be paid to the Executive by the Company as a consequence of such action, suit, claim, charge or proceeding shall be repaid to the Company by the Executive within ten (10) days of her receipt thereof. (d) In the event of a breach of this Waiver by the Executive, the Company's obligations pursuant to the Agreement shall cease as of the date of such breach. Furthermore, the Executive understands that her breach of the provisions of this Waiver will cause monetary damages to the Company. Thus, should the Executive breach the provisions of this Waiver, she shall be required to pay the Company, as liquidated damages, the amount of the consideration paid by the Company to the Executive pursuant to the Agreement plus all costs and expenses, including all attorneys' fees and expenses, that the Company incurs in enforcing this Waiver. The Executive agrees that the foregoing amount of liquidated damages is reasonable and necessary, and does not constitute a penalty. Voluntary Execution of Waiver. ----------------------------- BY HER SIGNATURE BELOW, THE EXECUTIVE ACKNOWLEDGES THAT: (A) I HAVE RECEIVED A COPY OF THIS WAIVER AND WAS OFFERED A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW AND CONSIDER IT; (B) IF I SIGN THIS WAIVER PRIOR TO THE EXPIRATION OF TWENTY-ONE (21) DAYS, I KNOWINGLY AND VOLUNTARILY WAIVE AND GIVE UP THIS RIGHT OF REVIEW; (C) I HAVE THE RIGHT TO REVOKE THIS WAIVER FOR A PERIOD OF SEVEN (7) DAYS AFTER I SIGN IT BY MAILING OR DELIVERING A WRITTEN NOTICE OF REVOCATION TO THE COMPANY'S CHIEF EXECUTIVE OFFICER NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER THE DAY ON WHICH I SIGNED THIS WAIVER; (D) THIS WAIVER SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN DAY REVOCATION PERIOD HAS EXPIRED WITHOUT THE WAIVER HAVING BEEN REVOKED; (E) THIS WAIVER WILL BE FINAL AND BINDING AFTER THE EXPIRATION OF THE REVOCATION PERIOD REFERRED TO IN (C). I AGREE NOT TO CHALLENGE ITS ENFORCEABILITY; (F) I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY, HAVE BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY, AND HAVE HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY, IF DESIRED, PRIOR TO SIGNING THIS WAIVER; 13 (G) NO PROMISE OR INDUCEMENT FOR THIS WAIVER HAS BEEN MADE EXCEPT AS SET FORTH IN THIS WAIVER; (H) I AM LEGALLY COMPETENT TO EXECUTE THIS WAIVER AND ACCEPT FULL RESPONSIBILITY FOR IT; AND (I) I HAVE CAREFULLY READ THIS WAIVER, ACKNOWLEDGE THAT I HAVE NOT RELIED ON ANY REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT OR THE AGREEMENT, AND WARRANT AND REPRESENT THAT I AM SIGNING THIS WAIVER KNOWINGLY AND VOLUNTARILY. Intending to be legally bound, I have signed this Waiver as of the date first set forth above. ------------------------------ Rosemary L. Klein 14 EX-99.3 4 ex99p3.txt Exhibit 99.3 AMENDED AND RESTATED AGREEMENT AMENDED AND RESTATED AGREEMENT (the "Agreement") by and between Solutia Inc., a Delaware corporation (the "Company"), and Jeffry N. Quinn (the "Executive"), originally dated as of the 19th day of July, 2004 (the "Effective Date") and amended and restated as of the 21st day of April, 2005. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stakeholders to assure that the Company will have the continued dedication of the Executive until and for a period of time following the Emergence Date (as defined below). To induce the Executive to continue to serve the Company through and beyond the Emergence Date, the Company will provide the Executive with, among other things, a special emergence bonus. It is the Board's judgment that such a special emergence bonus arrangement is in the best interest of the Company and its stakeholders, and is consistent with the desire of the Board to maximize the value of the Company. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Special Emergence Bonus. ----------------------- At such time, if ever (the "Emergence Date"), at which the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") shall have confirmed a plan of reorganization of the Company under Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Case") and such plan shall have become effective, if the Executive is employed by the Company on the Emergence Date the Executive shall be eligible to receive a special emergence bonus as follows: (a) If the Executive is employed by the Company on the six-month anniversary of the Emergence Date, or if, on or subsequent to the Emergence Date but prior to the six-month anniversary thereof, Executive shall have been terminated by the Company without Cause, shall have resigned for Good Reason, or shall have died or been terminated for Disability, then Executive shall be entitled to receive from the Company a special emergence bonus equal to 50% of the bonus pool as determined pursuant to and in accordance with the terms of the Solutia Inc. Emergence Incentive Bonus Program as set forth in Attachment I hereto. (b) If the Executive shall voluntarily terminate his employment other than for Good Reason or shall be terminated by the Company for Cause, in either case between the Emergence Date and the six-month anniversary thereof, then Executive shall forfeit any and all right to receive a special emergence bonus hereunder. 2. Employment Period. The Company hereby agrees to continue the ----------------- Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period (the "Employment Period") commencing on the Effective Date and ending on the date that is the six month anniversary of the Emergence Date. Where the context permits, all references to the Company shall include an affiliate of the Company by which the Executive is employed. As used in this Agreement, the term "affiliate" or "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. The obligations of the Company and the Executive under this Agreement including, without limitation, the obligations under Sections 1, 5, 6 and 7, shall survive the termination of the Employment Period to the extent necessary to accomplish the purposes thereof. 3. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive shall serve as President and Chief Executive Officer of the Company, with such authority, duties, responsibilities and reporting requirements as may be reasonably assigned to him from time to time by the Board and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or at any office or location of the Company not more than 50 miles from the Company's headquarters in St. Louis, Missouri. (ii) During the Employment Period, the Executive shall serve the Company faithfully, diligently and to the best of his ability, and shall devote substantially all of his time and efforts during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (B) manage personal investments, so long as such activities described in clauses A and B do not interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement, and (C) with the advance approval of the Board, serve on corporate, civic or charitable boards or committees. (b) Compensation. ------------ (i) Base Salary. During the Employment Period, ----------- the Executive shall receive an annual base salary ("Annual Base Salary") of not less than $500,000, which shall be paid in accordance with the Company's normal payroll practices and shall apply retroactively to May 5, 2004. (ii) Annual Bonuses. In addition to Annual Base -------------- Salary, the Executive shall participate in the Company's Annual Incentive Program, or any successor annual bonus plan(s), with a target annual bonus opportunity of 150% of his Annual Base Salary. In addition, during the Employment Period, the Executive shall be entitled to participate in all long-term and other incentive plans, practices, policies and programs generally applicable to senior executive officers of the Company and its affiliated companies. (iii) Savings and Retirement Plans. During the ---------------------------- Employment Period, the Executive shall be entitled to participate in all savings and retirement plans, practices, policies and programs generally applicable to senior executive officers of the Company and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. 2 (iv) Welfare Benefit Plans. During the Employment --------------------- Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally applicable to senior executive officers of the Company and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. (v) Expenses. During the Employment Period, the -------- Executive shall be entitled to receive prompt reimbursement, in accordance with Company policy, for all reasonable expenses incurred by the Executive in performing his duties hereunder. (vi) Vacation. During the Employment Period, the -------- Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect from time to time. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall ------------------- terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's long-term disability for purposes of any reasonable occupation as determined under the Company's disability plan that is applicable to the Executive. (b) Cause. The Company may terminate the Executive's ----- employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board of the Company which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; 3 (iii) the Executive's conviction of, or plea of guilty or no contest to, a felony or any other crime involving moral turpitude, fraud, theft, embezzlement or dishonesty; or (iv) the Executive's habitual drug or alcohol abuse. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, in the case of conduct described in subparagraph (i) or (ii) above, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i),(ii), (iii) or (iv) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) a material failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement relating to compensation, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position as President and Chief Executive Officer and the authority, duties and responsibilities contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, that, a sale by the Company of subtantially all of its assets shall constitute a diminution in Executive's position, authority, duties and responsibilities for purposes of this Section 4(c)(ii); (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; provided, however, that the requirement that Executive undertake such additional travel away from St. Louis, Missouri as is 4 reasonably required to enable him to fulfill his responsibilities in connection with the Chapter 11 case shall not constitute "Good Reason"; or (iv) the failure of the Company and the Executive to enter into a new employment agreement by the last day of the Employment Period. If the Executive terminates his employment for Good Reason pursuant to subparagraph (ii) above as a result of a sale by the Company of substantially all of its assets, then the Executive shall make himself available to the Company as a paid independent consultant for such fee, at such times, over such period of time and for such number of hours as the parties shall reasonably agree, taking account of any new employment that the Executive may undertake. (d) Notice of Termination. Any termination by the Company --------------------- for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) ------------------- if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during or after --------------------------------- the expiration of the Employment Period, the Company shall terminate the Executive's employment other than for Cause or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within ten days of the Date of Termination (or, solely with respect to any payment to be made pursuant to Section 5(a)(i)(C) below, such other time as specified therein), the aggregate of the following amounts: A. the sum of (1) the Executive's accrued Annual Base Salary through the Date of Termination, (2) any annual bonus earned by the Executive with respect to the previous year, and (3) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); 5 B. an amount equal to 200% of Executive's Annual Base Salary immediately prior to the Date of Termination (the "Severance Payment"), provided that if the Executive's Date of Termination occurs prior to the date that any amount is paid or becomes payable to the Executive under the Solutia Inc. Emergence Incentive Bonus Program (whether pursuant to Section 1 or Section 5(a)(i)(C) hereof or otherwise), the amount of the Severance Payment shall be credited against any amounts subsequently paid to (or due to be paid to) the Executive under the Solutia Inc. Emergence Incentive Bonus Program; and C. if the Date of Termination is on or subsequent to the Emergence Date, subject to the provisions of Section 5(a)(i)(B) hereof, the Executive shall receive the amount, if any, to which he is entitled under the Solutia Inc. Emergence Incentive Bonus Program at such time as amounts are payable thereunder. (ii) subject to the provisions of Section 9(f) hereof, to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits, excluding any severance or separation pay or benefits, required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies, including, without limitation, the vested benefit, if any, of the Executive under any qualified defined benefit or defined contribution retirement plan of the Company and its affiliated companies in which the Executive participates, in accordance with the terms of such plan (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); (iii) the Company shall continue to provide at its expense (on the same basis as at the Executive's Date of Termination) for the continued participation of the Executive and, to the extent applicable, his family, in the Company's medical, dental, vision and life insurance plans and programs, for a period of four months commencing with the Date of Termination; and (iv) upon request of the Executive, the Company shall provide outplacement services to the Executive for up to twelve months and up to an aggregate cost of $25,000. (b) Death. If the Executive's employment is terminated by ----- reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, to which Executive is entitled under the Solutia Inc. Emergence Incentive Bonus Program. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. 6 (c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, to which Executive is entitled under the Solutia Inc. Emergence Incentive Bonus Program. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) Cause; Other than for Good Reason. If the Executive's --------------------------------- employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 6. Full Settlement; Legal Fees. The Company's obligation to make --------------------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest, in which the Executive is the prevailing party, by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (whether such contest is between the Company and the Executive or between either of them and any third party, and including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment from the time at which the liability for the applicable legal fees and expenses was incurred by Executive, at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Confidential Information and Competitive Activity. ------------------------------------------------- (a) Confidential Information. As used herein, ------------------------ "Confidential Information" means all technical and business information of the Company and its affiliated companies, whether patentable or not, which is of a confidential, trade secret and/or proprietary character and which is either developed by the Executive (alone or with others) or to which the Executive has had access during the Executive's employment. "Confidential Information" shall also 7 include confidential evaluations of, and the confidential use or non-use by the Company or any affiliated company of, technical or business information in the public domain. The Executive shall use the Executive's best efforts and diligence both during and after employment by the Company to protect the confidential, trade secret and/or proprietary character of all Confidential Information. The Executive shall not, directly or indirectly, use (for the Executive or another) or disclose any Confidential Information, for so long as it shall remain proprietary or protectible as confidential or trade secret information, except as may be necessary for the performance of the Executive's duties with the Company. The Executive shall deliver promptly to the Company, at the termination of the Executive's employment, or at any other time at the Company's request, without retaining any copies, all documents and other material in the Executive's possession relating, directly or indirectly, to any Confidential Information. Each of the Executive's obligations in this Section shall also apply to the confidential, trade secret and proprietary information learned or acquired by the Executive during the Executive's employment from others with whom the Company or any affiliated company has a business relationship. The Executive understands that the Executive is not to disclose to the Company or any affiliated company, or use for its benefit, any of the confidential, trade secret or proprietary information of others, including any of the Executive's former employers. (b) Competitive Activity; Nonsolicitation. In the event ------------------------------------- that, during the Employment Period, Executive shall voluntarily terminate his employment hereunder, be terminated by the Company without Cause, or terminate his employment hereunder for Good Reason, then the Executive shall not, directly or indirectly (whether as owner, partner, consultant, employee or otherwise), at any time during the six months following termination of his employment with the Company or any affiliate for any reason, engage in or contribute his knowledge to any work or activity that involves a product, process, apparatus, service or development which is then competitive with or similar to a product, process, apparatus, service or development on which he worked or with respect to which he had access to Confidential Information while employed by the Company or an affiliate at any time during the period of five years immediately prior to his Date of Termination ("Competitive Work"). However, the Executive shall be permitted to engage in such proposed work or activity, and the Company shall furnish him a written consent to that effect signed by an officer of the Company, if the Executive shall have furnished to the Company clear and convincing written evidence, including assurances from the Executive and his new employer, that the fulfillment of his duties in such proposed work or activity would not likely cause him to disclose, base judgment upon, or use any Confidential Information. In addition, during his employment by the Company or an affiliate and for a period of six months thereafter, the Executive shall not, directly or indirectly, (i) induce or attempt to induce a salaried employee of the Company or any of its affiliates to accept employment or affiliation involving Competitive Work with another firm or corporation of which the Executive is an employee, owner, partner or consultant, or (ii) induce or attempt to induce any customer, supplier, licensee or other person having a business relationship with the Company to cease doing business with the Company or interfere materially with the relationship 8 between the Company and any such customer, supplier, licensee or other person having a business relationship with the Company. (c) Injunctive Relief. Executive agrees that the ----------------- restrictions imposed upon him by this Section 7 are fair and reasonable considering the nature of the Company's business and are reasonably required for the protection of the Company. Executive also acknowledges that a breach of any of the provisions of this Section 7 may result in continuing and irreparable damages to the Company for which there may be no adequate remedy at law, and that the Company, in addition to all other relief available to it, shall be entitled to the issuance of a temporary restraining order, preliminary injunction and permanent injunction restraining the Executive from committing or continuing to commit any breach of the provisions of this Section 7. (d) Blue Pencil. If, at any time, the provisions of this ----------- Section 7 shall be determined to be invalid or unenforceable under any applicable law, by reason of being vague or unreasonable as to area, duration or scope of activity, this Agreement shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive and the Company agree that this Agreement as amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. 8. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 9. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 9 If to the Executive: Jeffry N. Quinn [home address] If to the Company: Paul H. Hatfield Chairman of the Board Solutia Inc. P.O. Box 66760 St. Louis, MO 63166-6760 With a copy to: Rosemary L. Klein Senior Vice President, General Counsel and Corporate Secretary Solutia Inc. P.O. Box 66760 St. Louis, MO 63166-6760 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement also supersedes, without limitation, the Employment Agreement dated as of February 26, 2003 between the Company and the Executive (the "Change in Control Agreement"), the Agreement dated as of December, 2003 between the Company and the Executive (the "Retention Agreement") and any other prior employment agreement between the Company and the 10 Executive and the Executive waives all rights with respect to such agreements, including, without limitation, any claims for damages related to such agreements; provided, that this Agreement shall have no effect on the Executive's rights under any plan, program, policy or practice provided by the Company or any of its affiliated companies except that the benefits and other payments provided for pursuant to Section 5 hereof shall be in lieu of any severance or separation pay or benefits to which the Executive might otherwise be entitled under any plan, program, policy or arrangement of the Company and its affiliates. In consideration of the promises set forth in the Agreement, and of the mutual releases set forth in this paragraph, each party hereto relinquishes all rights, and releases the other from all promises, liabilities and commitments that may have existed under the Change in Control Agreement, the Retention Agreement, and any other employment agreements, which shall be null and void and of no further effect. (g) No amounts shall be payable pursuant to Section 5(a)(i)(B), 5(a)(i)(C) or 5(d) of this Agreement unless and until the Executive shall have executed and delivered a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit A. (h) Except as otherwise provided by Section 7(c), in the event of any dispute, controversy or claim arising out of or relating to this Agreement or Executive's employment or termination thereof, the parties hereby agree to settle such dispute, controversy or claim in a binding arbitration by a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association, which arbitration shall be conducted in St. Louis, Missouri. The parties agree that the arbitral award shall be final and non-appealable and, except as otherwise provided by Section 7(c), shall be the sole and exclusive remedy between the parties hereunder. The parties agree that judgment on the arbitral award may be entered in any court having competent jurisdiction over the parties or their assets. 10. Code Section 409A Compliance. The arrangements under this Agreement are not intended to create "deferred compensation" within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and any rulings or regulations thereunder, including IRS Notice 2005-1, and all provisions of this Agreement shall be interpreted consistently with such intent. Solely to the extent, if any, that the amended and restated Agreement constitutes the grant of an additional benefit under the Agreement that consists solely of a deferral of additional compensation not otherwise provided under the Agreement as of October 3, 2004, it is intended that any such additional benefit be treated as a material modification of the Agreement only as to such additional deferral of compensation as provided in Q&A-18 of IRS Notice 2005-1. Further, in the event that (a) the Company determines that there is an ambiguity with respect to any provision of this Agreement that could cause such provision to result in an obligation to pay deferred compensation subject to Section 409A of the Code, such ambiguity shall be interpreted and resolved in the manner that the Company deems necessary to either avoid the obligation to pay deferred compensation within the meaning of Section 409a of the Code or to comply with Section 409A of the Code, and (b) the Company determines, in good faith, that any amendment to this Agreement is necessary or appropriate in order to comply with timing and payment provisions of Section 409A of the Code or to avoid the obligation to pay deferred compensation within the meaning of Section 409A of the Code, the Company shall have the right to make such amendment, on a prospective or retroactive basis, in its sole discretion. 11. Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party in original or facsimile form. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Jeffry N. Quinn ------------------------------------- Jeffry N. Quinn SOLUTIA INC. By: /s/ Paul H. Hatfield --------------------------------- Paul H. Hatfield Chairman of the Board 11 Exhibit A --------- WAIVER AND RELEASE Reference is made to that Amended and Restated Agreement (the "Agreement"), dated as of April 21, 2005, by and between Solutia, Inc., a Delaware Corporation (the "Company"), and Jeffry N. Quinn (the "Executive"). This Waiver and Release (this "Waiver") is made as of the __ day of ____________, 200_, by the Executive pursuant to Section 9(g) of the Agreement. Release and Waiver of Claims Against the Company ------------------------------------------------ (a) The Executive, on behalf of himself, his agents, heirs, successors, assigns, executors and administrators, in consideration for the payments and other consideration provided for under the Agreement, hereby forever releases and discharges the Company and its successors, their affiliated entities, and their past and present directors, employees, agents, attorneys, accountants, representatives, plan fiduciaries, successors and assigns from any and all known and unknown causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, and demands of whatsoever kind and character in any manner whatsoever arising on or prior to the date of this Waiver, including but not limited to (i) any claim for breach of contract, breach of implied covenant, breach of oral or written promise, wrongful termination, intentional infliction of emotional distress, defamation, interference with contract relations or prospective economic advantage, negligence, misrepresentation or employment discrimination, and including without limitation alleged violations of Title VII of the Civil Rights Act of 1964, as amended, prohibiting discrimination based on race, color, religion, sex or national origin; the Family and Medical Leave Act; the Americans With Disabilities Act; the Age Discrimination in Employment Act; other federal, state and local laws, ordinances and regulations; and any unemployment or workers' compensation law, excepting only those obligations of the Company expressly recited in the Agreement or this Waiver and any claims to benefits under the Company's employee benefit plans as defined exclusively in written plan documents; (ii) any and all liability that was or may have been alleged against or imputed to the Company by the Executive or by anyone acting on his behalf; (iii) all claims for wages, monetary or equitable relief, employment or reemployment with the Company in any position, and any punitive, compensatory or liquidated damages; and (iv) all rights to and claims for attorneys' fees and costs except as otherwise provided herein or in the Agreement. (b) The Executive shall not file or cause to be filed any action, suit, claim, charge or proceeding with any federal, state or local court or agency relating to any claim within the scope of this Waiver. In the event there is presently pending any action, suit, claim, charge or proceeding within the scope of this Waiver, or if such a proceeding is commenced in the future, the Executive shall promptly withdraw it, with prejudice, to the extent he has the power to do so. The Executive represents and warrants that he has not assigned any claim released herein, or authorized any other person to assert any claim on his behalf. (c) In the event any action, suit, claim, charge or proceeding within the scope of this Waiver is brought by any government agency, putative class representative or other third party to vindicate any alleged rights of the Executive, (i) the Executive shall, except to the extent 12 required or compelled by law, legal process or subpoena, refrain from participating, testifying or producing documents therein, and (ii) all damages, inclusive of attorneys' fees, if any, required to be paid to the Executive by the Company as a consequence of such action, suit, claim, charge or proceeding shall be repaid to the Company by the Executive within ten (10) days of his receipt thereof. (d) In the event of a breach of this Waiver by the Executive, the Company's obligations pursuant to the Agreement shall cease as of the date of such breach. Furthermore, the Executive understands that his breach of the provisions of this Waiver will cause monetary damages to the Company. Thus, should the Executive breach the provisions of this Waiver, he shall be required to pay the Company, as liquidated damages, the amount of the consideration paid by the Company to the Executive pursuant to the Agreement plus all costs and expenses, including all attorneys' fees and expenses, that the Company incurs in enforcing this Waiver. The Executive agrees that the foregoing amount of liquidated damages is reasonable and necessary, and does not constitute a penalty. Voluntary Execution of Waiver. ------------------------------ BY HIS SIGNATURE BELOW, THE EXECUTIVE ACKNOWLEDGES THAT: (A) I HAVE RECEIVED A COPY OF THIS WAIVER AND WAS OFFERED A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW AND CONSIDER IT; (B) IF I SIGN THIS WAIVER PRIOR TO THE EXPIRATION OF TWENTY-ONE (21) DAYS, I KNOWINGLY AND VOLUNTARILY WAIVE AND GIVE UP THIS RIGHT OF REVIEW; (C) I HAVE THE RIGHT TO REVOKE THIS WAIVER FOR A PERIOD OF SEVEN (7) DAYS AFTER I SIGN IT BY MAILING OR DELIVERING A WRITTEN NOTICE OF REVOCATION TO THE COMPANY'S CHAIRMAN OF THE BOARD OR GENERAL COUNSEL, NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER THE DAY ON WHICH I SIGNED THIS WAIVER; (D) THIS WAIVER SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN DAY REVOCATION PERIOD HAS EXPIRED WITHOUT THE WAIVER HAVING BEEN REVOKED; (E) THIS WAIVER WILL BE FINAL AND BINDING AFTER THE EXPIRATION OF THE REVOCATION PERIOD REFERRED TO IN (C). I AGREE NOT TO CHALLENGE ITS ENFORCEABILITY; (F) I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY, HAVE BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY, AND HAVE HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY, IF DESIRED, PRIOR TO SIGNING THIS WAIVER; 13 (G) NO PROMISE OR INDUCEMENT FOR THIS WAIVER HAS BEEN MADE EXCEPT AS SET FORTH IN THIS WAIVER; (H) I AM LEGALLY COMPETENT TO EXECUTE THIS WAIVER AND ACCEPT FULL RESPONSIBILITY FOR IT; AND (I) I HAVE CAREFULLY READ THIS WAIVER, ACKNOWLEDGE THAT I HAVE NOT RELIED ON ANY REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT OR THE AGREEMENT, AND WARRANT AND REPRESENT THAT I AM SIGNING THIS WAIVER KNOWINGLY AND VOLUNTARILY. Intending to be legally bound, I have signed this Waiver as of the date first set forth above. ------------------------------- Jeffry N. Quinn 14 ATTACHMENT I SOLUTIA INC. EMERGENCE INCENTIVE BONUS PROGRAM Participation - ------------- Participation in the bonus pool established under the Solutia Inc. Emergence Incentive Bonus Program shall be extended to those key senior executives of the Company and in such percentages as shall be determined by the Board of Directors. Performance Measures - -------------------- The aggregate dollar value of the bonus pool shall be calculated by reference to three metrics as follows: a. 25% allocation for achieving target EBITDA* for the 12-month period ending on the six-month anniversary of the day at which the United States Bankruptcy Court for the Southern District of New York shall have confirmed a plan of reorganization of the Company under Chapter 11 of the United States Bankruptcy Code, and such plan shall have become effective (the "Emergence Date"); b. 25% allocation for achieving target Enterprise Value based on market value on six-month anniversary of the Emergence Date;** and c. 50% allocation for achieving target Unsecured Creditor Recoveries based on trading prices as of six-month anniversary of the Emergence Date.*** The portion of the bonus pool allocated to each metric can exceed 100%, but the aggregate pool cannot exceed $7.5 million. Thus, up to $2,343,750 can be earned for the pool based on EBITDA, up to $2,250,000 based on enterprise value, and up to $5,625,000 based on unsecured creditor recovery, provided the aggregate does not exceed $7.5 million. The EBITDA, Enterprise Value and Creditor Recovery Metrics are as follows: EBITDA - ------ Performance Relative to Plan ---------------------------- - --------------------------------------------------------------------------------------------------------
%Earned 70% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% - -------------------------------------------------------------------------------------------------------- % of $1.875M Pool (25% of $7.5M) 0% 0% 0% 0% 0% 20% 30% 55% 75% 100% 125% - --------------------------------------------------------------------------------------------------------
15 ENTERPRISE VALUE - ---------------- Enterprise Value (in billions) ------------------------------ - ---------------------------------------------------------------------------------------------------------------------
% Earned $1.20 $1.30 $1.40 $1.50 $1.60 $1.70 $1.80 $1.90 $2.00 $2.10 $2.20 $2.30 $2.40 $2.50 - --------------------------------------------------------------------------------------------------------------------- % of $1.875M Pool (25% of $7.5M) 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% - ---------------------------------------------------------------------------------------------------------------------
UNSECURED CREDITOR RECOVERY - --------------------------- Unsecured Creditor Recovery (%) ------------------------------- - ---------------------------------------------------------------------------------------------------------------------
% Earned 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% - --------------------------------------------------------------------------------------------------------------------- % of $3.75 M UCR Pool (50% of $7.5M) 0% 0% 0% 0% 20% 30% 40% 50% 60% 70% 80% 95% 110% 125% 150% - ---------------------------------------------------------------------------------------------------------------------
The percentage of the bonus pool attributable to the EBITDA, enterprise value or unsecured creditor recovery metric, as applicable, when performance falls between data points in the tables above, shall be determined by using straight line interpolation. Payments Under Program - ---------------------- The bonus pool shall be distributed as soon as practicable after the six-month anniversary of the Emergence Date. Each participant who is employed by the Company as of the six-month anniversary of the Emergence Date, or who was employed by the Company as of the Emergence Date and prior to the six-month anniversary thereof shall have been terminated without Cause (as defined in his employment agreement), shall have resigned for Good Reason (as defined in his employment agreement), or shall have died or been terminated for Disability (as defined in his employment agreement), shall receive a cash payment, net of withholding taxes, equal to his allocable share of the bonus pool. The Board of Directors, in its discretion, may make such payment to a participant who is still employed by the Company as of the six-month anniversary of the Emergence Date, by delivering to the participant common stock of the Company with a fair market value equal to the bonus pool payment due to the participant, provided the Company's common stock is actively traded on a recognized securities exchange. If payment is made by delivering common stock, the participant shall have the right to satisfy any withholding tax obligation by having the Company withhold shares of stock with a fair market value equal to the applicable withholding taxes, and the stock shall be valued both for purposes of withholding and for determining the number of shares to be delivered to the participant, at the average common stock trading price for the 20 trading days ending with the day preceding the delivery of stock to the participant. No portion of the bonus pool shall be payable to a participant whose employment by the Company was terminated for Cause or by voluntary resignation on or before the six-month anniversary of the Emergence Date. 16 - ---------------------------------------------------------------------------- * EBITDA metric should be measured on a trailing-twelve months basis as of six-months post-emergence relative to the Company's business plan presented to the Committee on April 14, 2004. Pharmaceutical Services should be carved out for purposes of calculating the EBITDA Metric bonus > A sale of Pharmaceutical Services would require interim period adjustments to EBITDA and the benefits of a sale should be picked up in the Unsecured Creditor Recovery metric. Joint venture income should be included. Budgeted restructuring costs that are typically accounted for below the operating income line should be included. Assets sale adjustment mechanism needs to be established. ** Enterprise value should be calculated 6 months post-emergence as follows: 20 day average common stock trading price multiplied by the most recent common shares outstanding Plus: 20-day average trading price of preferred stock multiplied by the amount of preferred shares outstanding, if any Plus: Market value of debt securities Plus: Net proceeds from asset sales, if used to pay down debt. *** The unsecured creditor recovery metric should be based on the 20-day average trading value of securities distributed to all unsecured creditors at 6-months post-emergence divided by the total amount of allowed unsecured claims (including Monsanto claims, if any) in the Company's confirmed Plan of Reorganization. 17 EX-99.4 5 ex99p4.txt Exhibit 99.4 AMENDED AND RESTATED AGREEMENT AMENDED AND RESTATED AGREEMENT (the "Agreement") by and between Solutia Inc., a Delaware corporation (the "Company"), and James M. Sullivan (the "Executive"), originally dated as of the 19th day of July, 2004 (the "Effective Date") and amended and restated as of the 21st day of April, 2005. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stakeholders to assure that the Company will have the continued dedication of the Executive until and for a period of time following the Emergence Date (as defined below). To induce the Executive to continue to serve the Company through and beyond the Emergence Date, the Company will provide the Executive with, among other things, a special emergence bonus. It is the Board's judgment that such a special emergence bonus arrangement is in the best interest of the Company and its stakeholders, and is consistent with the desire of the Board to maximize the value of the Company. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Special Emergence Bonus Payments. -------------------------------- At such time, if ever (the "Emergence Date"), at which the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") shall have confirmed a plan of reorganization of the Company under Chapter 11 of the United States Bankruptcy Code and such plan shall have become effective, if the Executive is employed by the Company on the Emergence Date the Executive shall be eligible to receive a special emergence bonus as follows: (a) If the Executive is employed by the Company on the six-month anniversary of the Emergence Date, or if, on or subsequent to the Emergence Date but prior to the six-month anniversary thereof, Executive shall have been terminated by the Company without Cause, shall have resigned for Good Reason, or shall have died or been terminated for Disability, then Executive shall be entitled to receive from the Company a special emergence bonus equal to 20% of the bonus pool as determined pursuant to and in accordance with the terms of the Solutia Inc. Emergence Incentive Bonus Program as set forth in Attachment I hereto. (b) If the Executive shall voluntarily terminate his employment other than for Good Reason or shall be terminated by the Company for Cause, in either case between the Emergence Date and the six-month anniversary thereof, then Executive shall forfeit any and all right to receive a special emergence bonus hereunder. 2. Employment Period. The Company hereby agrees to continue the ----------------- Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period (the "Employment Period") commencing on the Effective Date and ending on the date that is the sixth month anniversary of the Emergence Date. Where the context permits, all references to the Company shall include an affiliate of the Company by which the Executive is employed. As used in this Agreement, the term "affiliate" or "affiliated companies" shall include any company controlled by, controlling or under common control with 1 the Company. The obligations of the Company and the Executive under this Agreement including, without limitation, the obligations under Sections 1, 5, 6 and 7, shall survive the termination of the Employment Period to the extent necessary to accomplish the purposes thereof. 3. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive shall serve as Senior Vice President and Chief Financial Officer of the Company, with such authority, duties, responsibilities and reporting requirements as may be reasonably assigned to him from time to time by the Company's Chief Executive Officer and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or at any office or location of the Company not more than 50 miles from the Company's headquarters in St. Louis, Missouri. (ii) During the Employment Period, the Executive shall serve the Company faithfully, diligently and to the best of his ability, and shall devote substantially all of his time and efforts during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (B) manage personal investments, so long as such activities described in clauses A and B do not interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement, and (C) with the advance approval of the Board, serve on corporate, civic or charitable boards or committees. (b) Compensation. ------------ (i) Base Salary. During the Employment Period, ----------- the Executive shall receive an annual base salary ("Annual Base Salary") of not less than $325,000, which shall be paid in accordance with the Company's normal payroll practices and shall apply retroactively to January 1, 2005. (ii) Annual Bonuses. In addition to Annual Base -------------- Salary, the Executive shall participate in the Company's Annual Incentive Program, or any successor annual bonus plan(s), with a target annual bonus opportunity of 75% of his Annual Base Salary. The Executive shall receive an annual bonus of $100,000 with respect to calendar year 2003. In addition, during the Employment Period, the Executive shall be entitled to participate in all long-term and other incentive plans, practices, policies and programs generally applicable to senior executive officers of the Company and its affiliated companies. (iii) Savings and Retirement Plans. During the ---------------------------- Employment Period, the Executive shall be entitled to participate in all savings and retirement plans, practices, policies and programs generally applicable to senior executive officers of the Company 2 and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. (iv) Welfare Benefit Plans. During the Employment --------------------- Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally applicable to senior executive officers of the Company and its affiliated companies, subject to the Board's authority to modify or terminate any such plans, practices, policies or programs on a Company-wide basis at any time. (v) Expenses. During the Employment Period, the -------- Executive shall be entitled to receive prompt reimbursement, in accordance with Company policy, for all reasonable expenses incurred by the Executive in performing his duties hereunder. (vi) Vacation. During the Employment Period, the -------- Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect from time to time. 4. Termination of Employment. ------------------------- (a) Death or Disability. The Executive's employment shall ------------------- terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's long-term disability for purposes of any reasonable occupation as determined under the Company's disability plan that is applicable to the Executive. (b) Cause. The Company may terminate the Executive's ----- employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties; 3 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; (iii) the Executive's conviction of, or plea of guilty or no contest to, a felony or any other crime involving moral turpitude, fraud, theft, embezzlement or dishonesty; or (iv) the Executive's habitual drug or alcohol abuse. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, in the case of conduct described in subparagraph (i) or (ii) above, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i), (ii), (iii) or (iv) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) a material failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement relating to compensation, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position as Senior Vice President and Chief Financial Officer of the Company and the authority, duties and responsibilities contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, that, a sale by the Company of substantially all of its assets shall constitute a diminution in Executive's position, authority, duties and responsibilities for purposes of this Section 4(c)(ii); 4 (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or (iv) the failure of the Company and the Executive to enter into a new employment agreement by no later than the last day of the Employment Period. If the executive terminates his employment for Good Reason pursuant to subparagraph (ii) above, as a result of a sale by the Company of substantially all of its assets, then the Executive shall make himself available to the Company as a paid independent consultant for such fee, at such times, over such period of time and for such number of hours as the parties shall reasonably agree, taking account of any new employment that the Executive may undertake. (d) Notice of Termination. Any termination by the Company --------------------- for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) ------------------- if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason; Other Than for Cause. If, during or after --------------------------------- the expiration of the Employment Period, the Company shall terminate the Executive's employment other than for Cause or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within ten days of the Date of Termination (or, solely with respect to any payment to be made pursuant to Section 5(a)(i)(C) below, such other time as specified therein), the aggregate of the following amounts: A. the sum of (1) the Executive's accrued Annual Base Salary through the Date of Termination, (2) any annual bonus earned by the Executive with respect to the previous year, and (3) any accrued vacation pay, in each case 5 to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); B. an amount equal to 200% of Executive's Annual Base Salary immediately prior to the Date of Termination (the "Severance Payment"), provided that if the Executive's Date of Termination occurs prior to the date that any amount is paid or becomes payable to the Executive under the Solutia Inc. Emergence Incentive Bonus Program (whether pursuant to Section 1 or Section 5(a)(i)(C) hereof or otherwise), the amount of the Severance Payment shall be credited against any subsequent amounts paid to (or due to be paid to) the Executive under the Solutia Inc. Emergence Incentive Bonus Program; and C. if the Date of Termination is on or subsequent to the Emergence Date, subject to the provisions of Section 5(a)(i)(B) hereof, the Executive shall receive the amount, if any, to which he is entitled under the Solutia Inc. Emergence Incentive Bonus Program at such time as amounts are payable thereunder. (ii) subject to the provisions of Sections (9)(f) hereof, to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits, excluding any severance or separation pay or benefits, required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies, including, without limitation, the vested benefit, if any, of the Executive under any qualified defined benefit or defined contribution retirement plan of the Company and its affiliated companies in which the Executive participates, in accordance with the terms of such plan (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); (iii) the Company shall continue to provide at its expense (on the same basis as at the Executive's Date of Termination) for the continued participation of the Executive and, to the extent applicable, his family, in the Company's medical, dental, vision and life insurance plans and programs, for a period of four months commencing with the Date of Termination; and (iv) upon request of the Executive, the Company shall provide outplacement services to the Executive for up to twelve months and up to an aggregate cost of $25,000. (b) Death. If the Executive's employment is terminated by ----- reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, to which Executive is entitled under the Solutia Inc. Emergence Incentive Bonus Program. 6 Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for timely payment or provision of the following: (i) Accrued Obligations; (ii) Other Benefits; and (iii) if such termination occurs on or after the Emergence Date but not later than the six-month anniversary thereof, the amount, if any, to which Executive is entitled under the Solutia Inc. Emergence Incentive Bonus Program. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) Cause; Other than for Good Reason. If the Executive's --------------------------------- employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 6. Full Settlement; Legal Fees. The Company's obligation to make --------------------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest, in which the Executive is the prevailing party, by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (whether such contest is between the Company and the Executive or between either of them and any third party, and including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment from the time at which the liability for the applicable legal fees and expenses was incurred by Executive, at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Confidential Information and Competitive Activity. ------------------------------------------------- (a) Confidential Information. As used herein, ------------------------ "Confidential Information" means all technical and business information of the Company and its affiliated companies, 7 whether patentable or not, which is of a confidential, trade secret and/or proprietary character and which is either developed by the Executive (alone or with others) or to which the Executive has had access during the Executive's employment. "Confidential Information" shall also include confidential evaluations of, and the confidential use or non-use by the Company or any affiliated company of, technical or business information in the public domain. The Executive shall use the Executive's best efforts and diligence both during and after employment by the Company to protect the confidential, trade secret and/or proprietary character of all Confidential Information. The Executive shall not, directly or indirectly, use (for the Executive or another) or disclose any Confidential Information, for so long as it shall remain proprietary or protectible as confidential or trade secret information, except as may be necessary for the performance of the Executive's duties with the Company. The Executive shall deliver promptly to the Company, at the termination of the Executive's employment, or at any other time at the Company's request, without retaining any copies, all documents and other material in the Executive's possession relating, directly or indirectly, to any Confidential Information. Each of the Executive's obligations in this Section shall also apply to the confidential, trade secret and proprietary information learned or acquired by the Executive during the Executive's employment from others with whom the Company or any affiliated company has a business relationship. The Executive understands that the Executive is not to disclose to the Company or any affiliated company, or use for its benefit, any of the confidential, trade secret or proprietary information of others, including any of the Executive's former employers. (b) Competitive Activity; Nonsolicitation. In the event ------------------------------------- that, during the Employment Period, Executive shall voluntarily terminate his employment hereunder, be terminated by the Company without Cause, or terminate his employment hereunder for Good Reason, then the Executive shall not, directly or indirectly (whether as owner, partner, consultant, employee or otherwise), at any time during the six months following termination of his employment with the Company or any affiliate for any reason, engage in or contribute his knowledge to any work or activity that involves a product, process, apparatus, service or development which is then competitive with or similar to a product, process, apparatus, service or development on which he worked or with respect to which he had access to Confidential Information while employed by the Company or an affiliate at any time during the period of five years immediately prior to his Date of Termination ("Competitive Work"). However, the Executive shall be permitted to engage in such proposed work or activity, and the Company shall furnish him a written consent to that effect signed by an officer of the Company, if the Executive shall have furnished to the Company clear and convincing written evidence, including assurances from the Executive and his new employer, that the fulfillment of his duties in such proposed work or activity would not likely cause him to disclose, base judgment upon, or use any Confidential Information. In addition, during his employment by the Company or an affiliate and for a period of six months thereafter, the Executive shall not, directly or indirectly, (i) induce or attempt to induce a salaried employee of the Company or any of its affiliates to accept employment or affiliation involving Competitive Work with another firm or corporation of 8 which the Executive is an employee, owner, partner or consultant, or (ii) induce or attempt to induce any customer, supplier, licensee or other person having a business relationship with the Company to cease doing business with the Company or interfere materially with the relationship between the Company and any such customer, supplier, licensee or other person having a business relationship with the Company. (c) Injunctive Relief. Executive agrees that the ----------------- restrictions imposed upon him by this Section 7 are fair and reasonable considering the nature of the Company's business and are reasonably required for the protection of the Company. Executive also acknowledges that a breach of any of the provisions of this Section 7 may result in continuing and irreparable damages to the Company for which there may be no adequate remedy at law, and that the Company, in addition to all other relief available to it, shall be entitled to the issuance of a temporary restraining order, preliminary injunction and permanent injunction restraining the Executive from committing or continuing to commit any breach of the provisions of this Section 7. (d) Blue Pencil. If, at any time, the provisions of this ----------- Section 7 shall be determined to be invalid or unenforceable under any applicable law, by reason of being vague or unreasonable as to area, duration or scope of activity, this Agreement shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive and the Company agree that this Agreement as amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. 8. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 9. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 9 If to the Executive: James M. Sullivan [home address] If to the Company: Jeffry N. Quinn, Esq. President and Chief Executive Officer Solutia Inc. P.O. Box 66760 St. Louis, MO 63166-6760 With a copy to: Rosemary L. Klein Senior Vice President, General Counsel and Corporate Secretary Solutia Inc. P.O. Box 66760 St. Louis, MO 63166-6760 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement also supersedes, without limitation, the Employment Agreement dated as of December 1, 1999 between the Company and the Executive (the "Change in Control Agreement"), the agreement dated as of December 15, 2003 between the Company and the Executive (the "Retention Agreement"), and any other prior employment agreement between the Company and the 10 Executive and the Executive waives all rights with respect to such agreements, including, without limitation, any claims for damages related to such agreements; provided, that this Agreement shall have no effect on the Executive's rights under any plan, program, policy or practice provided by the Company or any of its affiliated companies except that the benefits and other payments provided for pursuant to Section 5 hereof shall be in lieu of any severance or separation pay or benefits to which the Executive might otherwise be entitled under any plan, program, policy or arrangement of the Company and its affiliates. In consideration of the promises set forth in the Agreement, and of the mutual releases set forth in this paragraph, each party hereto relinquishes all rights, and releases the other from all promises, liabilities and commitments that may have existed under the Change in Control Agreement, the Retention Agreement, and any other employment agreements, which shall be null and void and of no further effect. (g) No amounts shall be payable pursuant to Section 5(a)(i)(B), 5(a)(i)(C) or 5(d) of this Agreement unless and until the Executive shall have executed and delivered a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit A. (h) Except as otherwise provided by Section 7(c), in the event of any dispute, controversy or claim arising out of or relating to this Agreement or Executive's employment or termination thereof, the parties hereby agree to settle such dispute, controversy or claim in a binding arbitration by a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association, which arbitration shall be conducted in St. Louis, Missouri. The parties agree that the arbitral award shall be final and non-appealable and, except as otherwise provided by Section 7(c), shall be the sole and exclusive remedy between the parties hereunder. The parties agree that judgment on the arbitral award may be entered in any court having competent jurisdiction over the parties or their assets. 10. Code Section 409A Compliance. The arrangements under this Agreement are not intended to create "deferred compensation" within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and any rulings or regulations thereunder, including IRS Notice 2005-1, and all provisions of this Agreement shall be interpreted consistently with such intent. Solely to the extent, if any, that the amended and restated Agreement constitutes the grant of an additional benefit under the Agreement that consists solely of a deferral of additional compensation not otherwise provided under the Agreement as of October 3, 2004, it is intended that any such additional benefit be treated as a material modification of the Agreement only as to such additional deferral of compensation as provided in Q&A-18 of IRS Notice 2005-1. Further, in the event that (a) the Company determines that there is an ambiguity with respect to any provision of this Agreement that could cause such provision to result in an obligation to pay deferred compensation subject to Section 409A of the Code, such ambiguity shall be interpreted and resolved in the manner that the Company deems necessary to either avoid the obligation to pay deferred compensation within the meaning of Section 409A of the Code or to comply with timing and payment provisions of Section 409A of the Code, and (b) the Company determines, in good faith, that any amendment to this Agreement is necessary or appropriate in order to comply with timing and payment provisions of Section 409A of the Code or to avoid the obligation to pay deferred compensation within the meaning of Section 409A of the Code, the Company shall have the right to make such amendment, on a prospective or retroactive basis, in its sole discretion. 11. Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party in original or facsimile form. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ James M. Sullivan ---------------------------------------- James M. Sullivan SOLUTIA INC. By: /s/ Jeffry N. Quinn ------------------------------------- Jeffry N. Quinn 11 Exhibit A --------- WAIVER AND RELEASE Reference is made to that Amended and Restated Agreement (the "Agreement"), dated as of April 21, 2005, by and between Solutia, Inc., a Delaware Corporation (the "Company"), and James M. Sullivan (the "Executive"). This Waiver and Release (this "Waiver") is made as of the __ day of ____________, 200_, by the Executive pursuant to Section 9(g) of the Agreement. Release and Waiver of Claims Against the Company ------------------------------------------------ (a) The Executive, on behalf of himself, his agents, heirs, successors, assigns, executors and administrators, in consideration for the payments and other consideration provided for under the Agreement, hereby forever releases and discharges the Company and its successors, their affiliated entities, and their past and present directors, employees, agents, attorneys, accountants, representatives, plan fiduciaries, successors and assigns from any and all known and unknown causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, and demands of whatsoever kind and character in any manner whatsoever arising on or prior to the date of this Waiver, including but not limited to (i) any claim for breach of contract, breach of implied covenant, breach of oral or written promise, wrongful termination, intentional infliction of emotional distress, defamation, interference with contract relations or prospective economic advantage, negligence, misrepresentation or employment discrimination, and including without limitation alleged violations of Title VII of the Civil Rights Act of 1964, as amended, prohibiting discrimination based on race, color, religion, sex or national origin; the Family and Medical Leave Act; the Americans With Disabilities Act; the Age Discrimination in Employment Act; other federal, state and local laws, ordinances and regulations; and any unemployment or workers' compensation law, excepting only those obligations of the Company expressly recited in the Agreement or this Waiver and any claims to benefits under the Company's employee benefit plans as defined exclusively in written plan documents; (ii) any and all liability that was or may have been alleged against or imputed to the Company by the Executive or by anyone acting on his behalf; (iii) all claims for wages, monetary or equitable relief, employment or reemployment with the Company in any position, and any punitive, compensatory or liquidated damages; and (iv) all rights to and claims for attorneys' fees and costs except as otherwise provided herein or in the Agreement. (b) The Executive shall not file or cause to be filed any action, suit, claim, charge or proceeding with any federal, state or local court or agency relating to any claim within the scope of this Waiver. In the event there is presently pending any action, suit, claim, charge or proceeding within the scope of this Waiver, or if such a proceeding is commenced in the future, the Executive shall promptly withdraw it, with prejudice, to the extent he has the power to do so. The Executive represents and warrants that he has not assigned any claim released herein, or authorized any other person to assert any claim on his behalf. (c) In the event any action, suit, claim, charge or proceeding within the scope of this Waiver is brought by any government agency, putative class representative or other third party to vindicate any alleged rights of the Executive, (i) the Executive shall, except to the extent 12 required or compelled by law, legal process or subpoena, refrain from participating, testifying or producing documents therein, and (ii) all damages, inclusive of attorneys' fees, if any, required to be paid to the Executive by the Company as a consequence of such action, suit, claim, charge or proceeding shall be repaid to the Company by the Executive within ten (10) days of his receipt thereof. (d) In the event of a breach of this Waiver by the Executive, the Company's obligations pursuant to the Agreement shall cease as of the date of such breach. Furthermore, the Executive understands that his breach of the provisions of this Waiver will cause monetary damages to the Company. Thus, should the Executive breach the provisions of this Waiver, he shall be required to pay the Company, as liquidated damages, the amount of the consideration paid by the Company to the Executive pursuant to the Agreement plus all costs and expenses, including all attorneys' fees and expenses, that the Company incurs in enforcing this Waiver. The Executive agrees that the foregoing amount of liquidated damages is reasonable and necessary, and does not constitute a penalty. Voluntary Execution of Waiver. ------------------------------ BY HIS SIGNATURE BELOW, THE EXECUTIVE ACKNOWLEDGES THAT: (A) I HAVE RECEIVED A COPY OF THIS WAIVER AND WAS OFFERED A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW AND CONSIDER IT; (B) IF I SIGN THIS WAIVER PRIOR TO THE EXPIRATION OF TWENTY-ONE (21) DAYS, I KNOWINGLY AND VOLUNTARILY WAIVE AND GIVE UP THIS RIGHT OF REVIEW; (C) I HAVE THE RIGHT TO REVOKE THIS WAIVER FOR A PERIOD OF SEVEN (7) DAYS AFTER I SIGN IT BY MAILING OR DELIVERING A WRITTEN NOTICE OF REVOCATION TO THE COMPANY'S CHIEF EXECUTIVE OFFICER OR GENERAL COUNSEL, NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER THE DAY ON WHICH I SIGNED THIS WAIVER; (D) THIS WAIVER SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN DAY REVOCATION PERIOD HAS EXPIRED WITHOUT THE WAIVER HAVING BEEN REVOKED; (E) THIS WAIVER WILL BE FINAL AND BINDING AFTER THE EXPIRATION OF THE REVOCATION PERIOD REFERRED TO IN (C). I AGREE NOT TO CHALLENGE ITS ENFORCEABILITY; (F) I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY, HAVE BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY, AND HAVE HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY, IF DESIRED, PRIOR TO SIGNING THIS WAIVER; 13 (G) NO PROMISE OR INDUCEMENT FOR THIS WAIVER HAS BEEN MADE EXCEPT AS SET FORTH IN THIS WAIVER; (H) I AM LEGALLY COMPETENT TO EXECUTE THIS WAIVER AND ACCEPT FULL RESPONSIBILITY FOR IT; AND (I) I HAVE CAREFULLY READ THIS WAIVER, ACKNOWLEDGE THAT I HAVE NOT RELIED ON ANY REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT OR THE AGREEMENT, AND WARRANT AND REPRESENT THAT I AM SIGNING THIS WAIVER KNOWINGLY AND VOLUNTARILY. Intending to be legally bound, I have signed this Waiver as of the date first set forth above. --------------------------------------- James M. Sullivan 14 ATTACHMENT I SOLUTIA INC. EMERGENCE INCENTIVE BONUS PROGRAM Participation - ------------- Participation in the bonus pool established under the Solutia Inc. Emergence Incentive Bonus Program shall be extended to those key senior executives of the Company and in such percentages as shall be determined by the Board of Directors. Performance Measures - -------------------- The aggregate dollar value of the bonus pool shall be calculated by reference to three metrics as follows: a. 25% allocation for achieving target EBITDA* for the 12-month period ending on the six-month anniversary of the day at which the United States Bankruptcy Court for the Southern District of New York shall have confirmed a plan of reorganization of the Company under Chapter 11 of the United States Bankruptcy Code, and such plan shall have become effective (the "Emergence Date"); b. 25% allocation for achieving target Enterprise Value based on market value on six-month anniversary of the Emergence Date;** and c. 50% allocation for achieving target Unsecured Creditor Recoveries based on trading prices as of six-month anniversary of the Emergence Date.*** The portion of the bonus pool allocated to each metric can exceed 100%, but the aggregate pool cannot exceed $7.5 million. Thus, up to $2,343,750 can be earned for the pool based on EBITDA, up to $2,250,000 based on enterprise value, and up to $5,625,000 based on unsecured creditor recovery, provided the aggregate does not exceed $7.5 million. The EBITDA, Enterprise Value and Creditor Recovery Metrics are as follows: EBITDA - ------ Performance Relative to Plan ----------------------------
- ----------------------------------------------------------------------------------------------------------- %Earned 70% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% - ----------------------------------------------------------------------------------------------------------- % of $1.875M Pool (25% of $7.5M) 0% 0% 0% 0% 0% 20% 30% 55% 75% 100% 125% - -----------------------------------------------------------------------------------------------------------
15 ENTERPRISE VALUE - ---------------- Enterprise Value (in billions) ------------------------------
- ------------------------------------------------------------------------------------------------------------------------ % Earned $1.20 $1.30 $1.40 $1.50 $1.60 $1.70 $1.80 $1.90 $2.00 $2.10 $2.20 $2.30 $2.40 $2.50 - ------------------------------------------------------------------------------------------------------------------------ % of $1.875M Pool (25% of $7.5M) 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% - ------------------------------------------------------------------------------------------------------------------------
UNSECURED CREDITOR RECOVERY - --------------------------- Unsecured Creditor Recovery (%) -------------------------------
- ------------------------------------------------------------------------------------------------------------------------ % Earned 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% - ------------------------------------------------------------------------------------------------------------------------ % of $3.75 M UCR Pool (50% of $7.5M) 0% 0% 0% 0% 20% 30% 40% 50% 60% 70% 80% 95% 110% 125% 150% - ------------------------------------------------------------------------------------------------------------------------
The percentage of the bonus pool attributable to the EBITDA, enterprise value or unsecured creditor recovery metric, as applicable, when performance falls between data points in the tables above, shall be determined by using straight line interpolation. Payments Under Program - ---------------------- The bonus pool shall be distributed as soon as practicable after the six-month anniversary of the Emergence Date. Each participant who is employed by the Company as of the six-month anniversary of the Emergence Date, or who was employed by the Company as of the Emergence Date and prior to the six-month anniversary thereof shall have been terminated without Cause (as defined in his employment agreement), shall have resigned for Good Reason (as defined in his employment agreement), or shall have died or been terminated for Disability (as defined in his employment agreement), shall receive a cash payment, net of withholding taxes, equal to his allocable share of the bonus pool. The Board of Directors, in its discretion, may make such payment to a participant who is still employed by the Company as of the six-month anniversary of the Emergence Date, by delivering to the participant common stock of the Company with a fair market value equal to the bonus pool payment due to the participant, provided the Company's common stock is actively traded on a recognized securities exchange. If payment is made by delivering common stock, the participant shall have the right to satisfy any withholding tax obligation by having the Company withhold shares of stock with a fair market value equal to the applicable withholding taxes, and the stock shall be valued both for purposes of withholding and for determining the number of shares to be delivered to the participant, at the average common stock trading price for the 20 trading days ending with the day preceding the delivery of stock to the participant. No portion of the bonus pool shall be payable to a participant whose employment by the Company was terminated for Cause or by voluntary resignation on or before the six-month anniversary of the Emergence Date. 16 - ----------------- * EBITDA metric should be measured on a trailing-twelve months basis as of six-months post-emergence relative to the Company's business plan presented to the Committee on April 14, 2004. Pharmaceutical Services should be carved out for purposes of calculating the EBITDA Metric bonus > A sale of Pharmaceutical Services would require interim period adjustments to EBITDA and the benefits of a sale should be picked up in the Unsecured Creditor Recovery metric. Joint venture income should be included. Budgeted restructuring costs that are typically accounted for below the operating income line should be included. Assets sale adjustment mechanism needs to be established. ** Enterprise value should be calculated 6 months post-emergence as follows: 20 day average common stock trading price multiplied by the most recent common shares outstanding Plus: 20-day average trading price of preferred stock multiplied by the amount of preferred shares outstanding, if any Plus: Market value of debt securities Plus: Net proceeds from asset sales, if used to pay down debt. *** The unsecured creditor recovery metric should be based on the 20-day average trading value of securities distributed to all unsecured creditors at 6-months post-emergence divided by the total amount of allowed unsecured claims (including Monsanto claims, if any) in the Company's confirmed Plan of Reorganization. 17 -----END PRIVACY-ENHANCED MESSAGE-----