<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13255
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SOLUTIA INC.
------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1781797
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10300 OLIVE BOULEVARD, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760
- ---------------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATED BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
OUTSTANDING AT
CLASS MARCH 31, 1998
----- --------------
COMMON STOCK, $0.01 PAR VALUE 116,718,458 SHARES
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1998 1997
---- ----
<S> <C> <C>
NET SALES....................................................................... $ 720 $ 719
Cost of Goods Sold.............................................................. 533 543
----- -----
GROSS PROFIT.................................................................... 187 176
Marketing Expenses.............................................................. 37 36
Administrative Expenses......................................................... 31 27
Technological Expenses.......................................................... 20 18
----- -----
OPERATING INCOME................................................................ 99 95
Equity Earnings from Affiliates................................................. 6 9
Interest Expense................................................................ (12) (9)
Other Income (Expense)--Net..................................................... 4 4
----- -----
INCOME BEFORE INCOME TAXES...................................................... 97 99
Income Taxes.................................................................... 33 34
----- -----
NET INCOME...................................................................... $ 64 $ 65
===== =====
EARNINGS PER SHARE.............................................................. $0.55 $0.56
===== =====
EARNINGS PER SHARE, ASSUMING DILUTION........................................... $0.51 $0.54
===== =====
Weighted Average Equivalent Shares (in millions):
Basic....................................................................... 117.0 117.1
===== =====
Diluted..................................................................... 124.9 120.5
===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1
<PAGE> 3
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(DOLLARS IN MILLIONS)
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 16 $ 24
Trade receivables, net of allowance of $6 in 1998 and $6 in 1997........... 434 425
Miscellaneous receivables and prepaid expenses............................. 118 136
Deferred income tax benefit................................................ 84 91
Inventories................................................................ 354 325
------ ------
TOTAL CURRENT ASSETS....................................................... 1,006 1,001
PROPERTY, PLANT AND EQUIPMENT:
Land....................................................................... 17 17
Buildings.................................................................. 363 357
Machinery and equipment.................................................... 2,712 2,707
Construction in progress................................................... 102 107
------ ------
Total property, plant and equipment........................................ 3,194 3,188
Less accumulated depreciation.............................................. 2,289 2,265
------ ------
NET PROPERTY, PLANT AND EQUIPMENT.......................................... 905 923
INVESTMENT IN AFFILIATES................................................... 430 423
LONG-TERM DEFERRED INCOME TAX BENEFIT...................................... 302 300
OTHER ASSETS............................................................... 126 121
------ ------
TOTAL ASSETS............................................................... $2,769 $2,768
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable........................................................... $ 256 $ 221
Wages and benefits......................................................... 64 106
Restructuring reserves..................................................... 23 40
Miscellaneous accruals..................................................... 383 335
Short-term debt............................................................ 121 193
------ ------
TOTAL CURRENT LIABILITIES.................................................. 847 895
LONG-TERM DEBT............................................................. 597 597
POSTRETIREMENT LIABILITIES................................................. 966 958
OTHER LIABILITIES.......................................................... 464 449
STOCKHOLDERS' DEFICIT:
Common stock (authorized, 600,000,000 shares, par value $0.01)
Issued: 118,400,635 shares in 1998 and 1997.............................. 1 1
Additional contributed capital........................................... (127) (119)
Treasury stock, at cost (1,682,177 shares in 1998 and 992,828 shares in
1997).................................................................. (46) (22)
Unearned ESOP shares....................................................... (28) (31)
Accumulated other comprehensive income..................................... 4 12
Reinvested earnings........................................................ 91 28
------ ------
STOCKHOLDERS' DEFICIT...................................................... (105) (131)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................................ $2,769 $2,768
====== ======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE> 4
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED CASH FLOW
(DOLLARS IN MILLIONS)
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1998 1997
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income................................................................. $ 64 $ 65
Adjustments to reconcile to Cash Provided by (Used in) Operations:
Items that did not use (provide) cash:
Deferred income taxes.............................................. 4 6
Depreciation and amortization...................................... 34 33
Other.............................................................. (4) (12)
Working capital changes that provided (used) cash:
Accounts receivable................................................ (9) (18)
Inventories........................................................ (29) (30)
Accounts payable and accrued liabilities........................... 30 (124)
Other.............................................................. 13 7
Other items............................................................ 4 (29)
----- -----
TOTAL CASH PROVIDED BY (USED IN) OPERATIONS................................ 107 (102)
----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases.................................... (18) (38)
Investment and property disposal proceeds.................................. 5 --
----- -----
CASH USED IN INVESTING ACTIVITIES.......................................... (13) (38)
----- -----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company..................................... -- 140
Repayment of debt obligations.............................................. (69) --
Treasury stock purchases................................................... (41) --
Dividend payments.......................................................... (1) --
Common stock issued under employee stock plans............................. 17 --
Other financing activities................................................. (8) --
----- -----
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................ (102) 140
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (8) --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR.......................................................... 24 --
----- -----
END OF PERIOD.............................................................. $ 16 $ --
===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE> 5
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Solutia Inc. (the "Company" or "Solutia") is an international producer
and marketer of a range of high performance chemical-based materials which are
used by its customers to make consumer, household, automotive and industrial
products. Prior to September 1, 1997, the businesses that form the Company were
wholly owned by Monsanto Company ("Monsanto"). On September 1, 1997, Monsanto
distributed all of the outstanding shares of common stock of the Company as a
dividend to Monsanto stockholders (the "Spinoff"). The distribution resulted
in the issuance of one share of the Company's common stock for every five
shares of Monsanto common stock held of record as of August 20, 1997. As a
result of the Spinoff, the Company became an independent publicly held company
listed on the New York Stock Exchange and its operations ceased to be owned by
Monsanto. Monsanto and Solutia have entered into a number of agreements with
respect to the separation of the companies and to provide mechanisms for an
orderly transition following the Spinoff.
Financial data included in the accompanying unaudited financial statements,
for periods prior to the Spinoff, were prepared on a basis which reflected an
estimate of what the historical assets, liabilities and operations would have
been if Solutia had been organized as a separate legal entity, owning certain
net assets of Monsanto. Financial data included in the accompanying unaudited
financial statements, for periods subsequent to the Spinoff, have been prepared
on a basis which reflects the historical assets, liabilities, and operations of
the businesses contributed to Solutia by Monsanto.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto set forth in Solutia's 1997 Annual
Report to stockholders and included as an exhibit to the Company's annual
report on Form 10-K, filed with the Securities and Exchange Commission on March
13, 1998. As indicated in the notes to the audited financial statements
included in the Company's 1997 Annual Report, Monsanto provided certain general
and administrative services to Solutia prior to the Spinoff. The cost for these
services was allocated to Solutia based upon the net capital employed in
Solutia's operations, as well as other methods which management believed to be
reasonable. In preparation for the Spinoff, Monsanto began a transition plan of
separation. As part of this plan, Monsanto discontinued its allocation of
corporate expenses for these general and administrative services on April 1,
1997 as these expenses were specifically identified and segregated as part of
Solutia's ongoing cost infrastructure.
The accompanying unaudited consolidated financial statements reflect all
adjustments which in the opinion of management are necessary to present fairly
the financial position, results of operations and cash flows for the interim
periods reported. Such adjustments are of a normal, recurring nature. The
results of operations for the three-month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES
The components of inventories as of March 31, 1998 and December 31, 1997
were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Finished goods........................................................ $ 271 $ 259
Goods in process...................................................... 87 60
Raw materials and supplies............................................ 141 148
----- -----
Inventories, at FIFO cost............................................. 499 467
Excess of FIFO over LIFO cost......................................... (145) (142)
----- -----
Total................................................................. $ 354 $ 325
===== =====
</TABLE>
4
<PAGE> 6
3. INTERCOMPANY TRANSACTIONS
Included in the Statement of Consolidated Income for the first quarter of
1997 were sales to Monsanto of $20 million, allocated costs from Monsanto for
general and administrative services of $12 million and allocated interest
expense of $9 million. Sales were made at Monsanto's established transfer
prices. As further discussed in Note 1, Monsanto discontinued its allocation of
the cost of general and administrative expenses to Solutia, effective April 1,
1997, as part of its transition plan of separation. Such expenses were
specifically identified and segregated as part of Solutia's on-going cost
infrastructure. Interest expense charged to Solutia represents an allocation
from Monsanto of its total interest expense.
4. CONTINGENCIES
Monsanto is a party to a number of lawsuits and claims relating to Solutia,
for which Solutia has assumed responsibility in the Spinoff and which Solutia
intends to defend vigorously. Such matters arise out of the normal course of
business and relate to product liability, government regulation, including
environmental issues, and other issues. Certain of the lawsuits and claims seek
damages in very large amounts. Although the results of litigation cannot be
predicted with certainty, management's belief is that the final outcome of such
litigation will not have a material adverse effect on Solutia's consolidated
financial position, profitability or liquidity in any one year, as applicable.
5. EARNINGS PER SHARE
Effective December 31, 1997, Solutia adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under this new
standard, the presentation of primary and fully diluted earnings per share
required by the previous standards was replaced by basic and diluted earnings
per share. Basic earnings per share measures operating performance assuming no
dilution from securities or contracts to issue common stock. Diluted earnings
per share measures operating performance giving effect to the dilution that
would occur when securities or contracts to issue common stock are exercised or
converted.
For periods ended prior to the Spinoff, the number of weighted average
shares outstanding and common share equivalents used in the earnings per share
calculation was based upon the weighted average number of Monsanto shares
outstanding and Monsanto common share equivalents for the applicable period,
adjusted for the distribution ratio in the Spinoff of one share of the
Company's common stock for every five shares of Monsanto common stock.
The computation of basic earnings per share is reconciled with diluted
earnings per share as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1998 1997
-------------------------------- ---------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income.............................. $64 117.0 $0.55 $65 117.1 $0.56
===== =====
EFFECT OF DILUTIVE SECURITIES:
Common share equivalents - common stock
issuable upon exercise of outstanding
stock options......................... 7.9 3.4
--- ----- --- -----
DILUTED EARNINGS PER SHARE.............. $64 124.9 $0.51 $65 120.5 $0.54
=== ===== ===== === ===== =====
</TABLE>
6. COMPREHENSIVE INCOME
Effective January 1, 1998, Solutia adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes the standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income includes net income
and several other items that are recognized directly in reinvested earnings
under current accounting standards.
5
<PAGE> 7
Comprehensive income for the three months ended March 31, 1998 and 1997 is
detailed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
NET INCOME.................................................. $64 $65
Foreign currency translation adjustment..................... (8) (10)
--- ---
COMPREHENSIVE INCOME........................................ $56 $55
=== ===
</TABLE>
Accumulated other comprehensive income as of March 31, 1998 and December
31, 1997 is detailed as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Accumulated currency adjustment............................. $11 $19
Minimum pension liability adjustment........................ (7) (7)
--- ---
ACCUMULATED OTHER COMPREHENSIVE INCOME...................... $ 4 $12
=== ===
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting guidance for the capitalization of certain internal-use software
costs once certain criteria are met. This accounting standard will be effective
for the Company beginning January 1, 1999. The adoption of SOP 98-1 is not
expected to have a material impact on the Company.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
provides guidance on the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to be
expenses as incurred. This statement will be effective for the Company's
financial statements for the year ended December 31, 1999. The Company is
currently evaluating SOP 98-5, but does not expect it to have a material impact
on its consolidated financial statements.
6
<PAGE> 8
8. SEGMENT DATA
Segment data for the three months ended March 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
NET INTERSEGMENT NET INTERSEGMENT
SALES SALES PROFIT SALES SALES PROFIT
----- ------------ ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
SEGMENT:
Chemicals............................. $225 $ 2 $ 56 $229 $ 4 $ 51
Fibers................................ 251 58 244 43
Polymers & Resins..................... 244 64 253 5 66
---- --- ---- ---- --- ----
SEGMENT TOTALS.......................... 720 2 178 726 9 $160
RECONCILIATION TO CONSOLIDATED TOTALS:
Sales eliminations.................... (2) (2) (9) (9)
Other revenues........................ 2 2
Less unallocated service costs:
Cost of goods sold................ (23) (21)
Marketing, administrative and
technological expenses.......... (56) (44)
Equity earnings from affiliates....... 6 9
Interest expense...................... (12) (9)
Other income (expense)--net........... 4 4
---- --- ---- ---- --- ----
CONSOLIDATED TOTALS:
NET SALES............................. $720 $-- $719 $--
==== === ---- ==== === ====
INCOME BEFORE INCOME TAXES............ $ 97 $ 99
==== ====
</TABLE>
Segment profit only includes operating expenses directly attributable to
the segment. Unallocated service costs are managed centrally and primarily
include costs of technology, engineering and manufacturing services that are
provided to the segments.
7
<PAGE> 9
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT
The following unaudited pro forma condensed consolidated statement of
income for the three months ended March 31, 1997 gives effect to the Spinoff
and Solutia's 1997 public debt offering as if the Spinoff and the public debt
offering had occurred at January 1, 1997. The pro forma information is
presented for illustrative purposes only and may not be indicative of the
results that would have been obtained had the transactions actually occurred on
the date assumed, nor is it necessarily indicative of future consolidated
results of operations.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical financial statements and the related
notes thereto contained elsewhere in this report on Form 10-Q.
<TABLE>
SOLUTIA INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------
PRO FORMA
HISTORICAL ----------------------
SOLUTIA ADJUSTMENTS SOLUTIA
---------- ----------- -------
<S> <C> <C> <C>
NET SALES......................................... $ 719 (4)<FA> $ 715
Cost of Goods Sold................................ 543 1 <FB> 542
1 <FC>
(3)<FD>
----- ------ -----
GROSS PROFIT...................................... 176 (3) 173
Marketing, administrative and technological
expenses........................................ 81 7 <FB> 91
(9)<FD>
12 <FE>
----- ------ -----
OPERATING INCOME.................................. 95 (13) 82
Equity Earnings from Affiliates................... 9 9
Interest Expense.................................. (9) (8)<FF> (17)
Other Income (Expense)--Net....................... 4 4
----- ------ -----
INCOME BEFORE INCOME TAXES........................ 99 (21) 78
Income Taxes...................................... 34 (8)<FG> 26
----- ------ -----
NET INCOME........................................ $ 65 $ (13) $ 52
===== ====== =====
DILUTED EARNINGS PER SHARE........................ $0.54 $(0.11) $0.43
===== ====== =====
Weighted average equivalent shares................ 120.5
=====
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statement.
</TABLE>
8
<PAGE> 10
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT
[FN]
<FA> To record the estimated effect of new selling prices and arrangements on
former intercompany sales from Solutia to Monsanto.
<FB> To record the assumed increase in retiree medical and pension costs as a
result of the Spinoff.
<FC> To record the estimated effect of transactions with the P4 joint venture
formed by Monsanto in conjunction with the Spinoff.
<FD> To reverse the historical Monsanto corporate expense allocation to the
Company because the company is no longer subject to the allocation of
corporate expenses from Monsanto following the Spinoff.
<FE> Because the Company is no longer subject to this corporate expense
allocation, a pro forma adjustment was made to record estimated general
corporate costs that the Company believes it would have incurred had the
Company been a separate public company for the periods presented.
<FF> To record additional interest expense as a result of the Company's
assumption of debt from Monsanto and the borrowings of Solutia's 1997
public debt offering.
<FG> To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (A) through (F) above at an
estimated combined U.S. federal income and state income tax rate of 36
percent.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--FIRST QUARTER 1998 COMPARED WITH THE FIRST QUARTER 1997
Net sales for the quarter were essentially even with net sales in the first
quarter of 1997. Sales volume increases totaled approximately $25 million and
were nearly offset by the effects of lower average selling prices and
unfavorable currency exchange rates. Declining raw material prices have begun
to put downward pressure on selected selling prices and have had an effect on
all of the Company's segments.
Net sales for the Chemicals segment declined slightly from net sales in the
first quarter of last year, principally because of lower average selling prices
for intermediates. The pricing decline was driven by lower prices for ammonia
that primarily resulted from worldwide excess supplies. Higher sales volumes,
principally in carpet staple, led to the increase in first quarter sales for
the Company's Fibers segment. The overall carpet market is strong, particularly
in the builder and commercial segments. In addition, the first quarter of 1998
included a high number of new Wear-Dated(R) introductions from the carpet
mills. Higher sales volumes of nylon industrial fibers also contributed to the
sales increase for the Fibers segment. The sales volume increases in the Fibers
segment were partially offset by lower average selling prices, as competitive
pressures have had a negative impact on carpet staple selling prices despite a
recent price increase. The decrease in first quarter net sales for the Polymers
& Resins segment was principally the result of unfavorable currency exchange
rates and the effect of lower average selling prices. Unfavorable currency
exchange rates had the largest impact on the Saflex(R) plastic interlayer
business unit. However, the effect of currency exchange rates on the Company's
operating income was minimal because ex-U.S. sales are sourced primarily from
ex-U.S. operations.
Operating income for Solutia during the first quarter of 1998 increased $4
million, or 4 percent, from the first quarter of 1997 to $99 million. However,
operating income for the first quarter of 1997 includes $10 million of pretax
charges associated with adoption of Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities." In addition, this year-over-year
operating income comparison was affected by the inclusion in 1998 of
stand-alone expenses for certain general and administrative services that were
previously provided by Monsanto. As discussed in note 1 of the "Notes to
Consolidated Financial Statements," Monsanto provided these services to
Solutia prior to the Spinoff under a cost allocation arrangement. If Solutia
had operated as a stand-alone entity in the first quarter of 1997, management
estimates that general and administrative services would have been higher by
approximately $13 million in order to reflect the cost of replacing the
services represented by these allocations. If operating income in 1997 excluded
the charge for SOP 96-1 and reflected the estimate of higher expenses for
general and administrative services, operating income in 1998 would have
increased approximately $7 million, or 8 percent. The improvement in operating
income was principally the result of lower raw material costs, good
manufacturing performance and lower general and administrative expenses. The
decrease in administrative expenses can be attributed primarily to cost savings
realized through previous restructuring actions. The improvement in these
expenses was partially offset by higher front-end engineering expenses
associated with various capital projects.
The increase in the Chemicals segment profit in the first quarter of 1998
primarily was driven by lower raw material costs, principally lower propylene
costs, and improved manufacturing performance. The significant improvement in
the Fibers segment profit was attributed to the effect of the sales increase
previously described, lower raw material costs and good manufacturing
performance. First quarter segment profit for Polymers & Resins declined
slightly versus segment profit for the first quarter last year. The decrease
resulted primarily because of the effect of lower sales previously discussed
and higher manufacturing costs. The higher manufacturing costs were associated
with planned downtime for maintenance projects and changeover costs for the
Saflex(R) plastic interlayer business unit as it expands production of its new
Saflex IIIG(TM) product.
The decrease in "Equity Earnings from Affiliates" was principally the
result of lower earnings for the Company's Flexsys L.P. joint venture. The
lower earnings were primarily attributed to startup costs associated with the
joint venture's PPD2 facility. This new unit will produce
4-amino-diphenylamine, a product that extends tire life.
LIQUIDITY AND CAPITAL RESOURCES
Solutia's working capital at March 31, 1998 increased to $159 million from
$106 million at December 31, 1997, primarily because of higher inventory levels
combined with decreases in short-term debt and accrued liabilities.
10
<PAGE> 12
Inventories were increased during the quarter primarily in anticipation of
planned downtime for various maintenance projects. The decrease in accrued
liabilities was attributed to lower accruals for wages and benefits associated
with the payouts of incentive compensation and a reduction in restructuring
reserves.
The Company continues to focus on reducing its outstanding short-term debt.
During the quarter, approximately $69 million of commercial paper was repaid.
During the first quarter of 1998, approximately 900,000 shares of common
stock were repurchased under the Company's previously announced stock
repurchase program for approximately $26 million. To date, approximately 2.4
million shares of the authorized 5 million shares have been repurchased. The
Company currently plans to complete these purchases by the end of 1998 or early
1999.
The Company believes that its cash flow from operations, supplemented by
periodic additional borrowings, provides it with sufficient resources to
finance operations and planned capital needs.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Report on Form 10-K for the year ended December 31, 1997,
described a number of lawsuits brought against Monsanto relating to the alleged
discharge of hazardous substances, including polychlorinated biphenyls
("PCBs") from the Anniston, Alabama plant site. The Company received a letter
dated March 12, 1998 giving notice of intention to file a Citizens' Suit
pursuant to Resource Conservation and Recovery Act, 42 U.S.C. Section 6972
(a)(1)(B) and (b)(2)(A) and the Toxic Substances Control Act, 15 U.S.C. Section
2619(a)(1) and (b)(1)(A) on behalf of four named individuals who are also
plaintiffs in other pending litigation relating to the Anniston plant. The
notice claims that solid or hazardous wastes have been released from the
Anniston plant and pose an imminent and substantial threat to health or the
environment. Plaintiffs seek statutory penalties of $25,000 per day for a
period of more than 5 years, for a total of $46 million plus attorneys' fees
and expenses.
The Company's Report on Form 10-K for the year ended December 31, 1997,
described an administrative consent order with the Florida Department of
Environmental Protection ("FDEP") regarding alleged violations of state air
pollution standards and air permits related to operations at the Company's
facility located in Pensacola, Florida. On February 3, 1998, the consent order
executed by the Company and the FDEP was entered. Pursuant to the consent order
and without admitting the allegations, the Company paid an administrative
penalty of $207,375 to the FDEP and agreed to perform certain corrective
actions at the facility.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the Company's Report on Form 10-K for the year ended December 31, 1997,
the Company estimated its total expenses incurred in connection with the
issuance and distribution of certain debt securities (the "Debt Securities")
registered under its Registration Statement on form S-1, File No. 333-36355,
which was declared effective, as amended, effective on October 15, 1997. Total
expenses were estimated to be $5,368,838, of which $4,462,000 was for
underwriting commissions and $906,338 was for other offering expenses,
including legal, printing and filing fees. Of the $906,338, $511,838 were
reported as actual expenses and $394,500 as estimated expenses. The Company has
now determined that its actual total offering expenses were $5,394,198,
composed of the $4,462,000 in underwriting commissions previously reported and
$932,198 for other actual offering expenses, including legal, printing and
filing fees. None of the expenses involved payments to directors or officers of
the Company, persons owning more than 10 percent of any class of equity
securities of the Company, or affiliates of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--See the Exhibit Index at page 14 of this report.
(b) The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1998.
12
<PAGE> 14
SIGNATURE
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)
ROGER S. HOARD
-------------------------------------
(Vice President and Controller)
(On behalf of the Registrant and as
Principal Accounting Officer)
Date: May 7, 1998
13
<PAGE> 15
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
2 Omitted--Inapplicable
3 (i) Omitted--Inapplicable
(ii) By-Laws of the Company, as amended effective April 22, 1998
4 Omitted--Inapplicable
10 1. Form of Employment Agreement with Named Executive Officers
2. Form of Employment Agreement with other executive officers
11 Omitted--Inapplicable; see Note 5 of "Notes to Consolidated Financial Statements" on page 5.
15 Omitted--Inapplicable
18 Omitted--Inapplicable
19 Omitted--Inapplicable
22 Omitted--Inapplicable
23 Omitted--Inapplicable
24 Omitted--Inapplicable
27 Financial Data Schedule
99 Omitted--Inapplicable
</TABLE>
14
<PAGE> 1
BY-LAWS
OF
SOLUTIA INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AS AMENDED APRIL 22, 1998
ARTICLE I.
OFFICES AND RECORDS
SECTION 1.1. Delaware Office. The name of the registered agent of the
Company is The Corporation Trust Company and the registered office of the
Company shall be located in the City of Wilmington, County of New Castle,
State of Delaware.
SECTION 1.2. Other Offices. The Company may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Company may from time to time require.
SECTION 1.3. Books and Records. The books and records of the Company
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
SECTION 2.1. Annual Meeting. The annual meeting of the stockholders
of the Company shall be held on such date and at such place and time as may
be fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meeting. Subject to the rights of the holders of
any series of stock having a preference over the Common Stock of the Company
as to dividends or upon liquidation ("Preferred Stock") with respect to such
series of Preferred Stock, special meetings of the stockholders may be called
only by the Chairman of the Board or the President or by the Board of
Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Company would have if there were no vacancies (the
"Whole Board").
<PAGE> 2
SECTION 2.3. Place of Meeting. The Board of Directors or the Chairman
of the Board, as the case may be, may designate the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Board of Directors or the Chairman of the Board. If no designation is so
made, the place of meeting shall be the principal office of the Company.
SECTION 2.4. Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be delivered by the Company not less than ten
(10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed
to the stockholder at his address as it appears on the stock transfer books
of the Company. Such further notice shall be given as may be required by
law. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Company's notice of meeting. Meetings may be held without notice if all
stockholders entitled to vote are present, or if notice is waived by those
not present in accordance with Section 6.4 of these By-Laws. Any previously
scheduled meeting of the stockholders may be postponed, and (unless the
Restated Certificate of Incorporation, as it may be amended (the "Certificate
of Incorporation") otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given on or prior to the date previously scheduled for such
meeting of stockholders.
SECTION 2.5. Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Company entitled to vote generally in the election
of directors (the "Voting Stock"), represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class,
the holders of a majority of the outstanding shares of such class or series
shall constitute a quorum of such class or series for the transaction of such
business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there
is such a quorum. No notice of the time and place of adjourned meetings need
be given except as required by law. The stockholders present at a duly
called meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing (or in such manner prescribed by the
General Corporation Law of the State of Delaware) by the stockholder, or by
his duly authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Company and the proposal of
business to be considered by the stockholders may be made at an annual
meeting of stockholders (a) pursuant to the
-2-
<PAGE> 3
Company's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Company who was a stockholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1)
of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Company not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that with respect to the annual meeting to be held in 1998, the first
anniversary date shall be deemed for all purposes under this Section 2.7 to
be April 22, 1998, and provided, further, that in the event that the date of
the annual meeting is more than 30 days before or more than 60 days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day following the day
on which public announcement of the date of such meeting is first made by the
Company. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on the
Company's books, and of such beneficial owner and (ii) the class and number
of shares of the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.
-3-
<PAGE> 4
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of Directors at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this By-Law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of
business on the 10th day following the day on which such public announcement
is first made by the Company.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Company's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the Company
who is a stockholder of record at the time of giving of notice provided for
in this By-Law, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law. In the event
the Company calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Company's notice of meeting,
if the stockholder's notice required by paragraph (A)(2) of this By-Law shall
be delivered to the Secretary at the principal executive offices of the
Company not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this
By-Law and, if any proposed nomination or business is not in compliance with
this By-Law, to declare that such defective proposal or nomination shall be
disregarded.
-4-
<PAGE> 5
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in
the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act
or (ii) of the holders of any series of Preferred Stock to elect directors
under specified circumstances.
SECTION 2.8. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, or
these By-Laws, in all matters other than the election of directors, the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting shall be the act of the stockholders.
SECTION 2.9. Inspectors of Elections; Opening and Closing the Polls.
The Board of Directors by resolution shall appoint one or more inspectors,
which inspector or inspectors may include individuals who serve the Company
in other capacities, including, without limitation, as officers, employees,
agents or representatives, to act at the meetings of stockholders and make a
written report thereof. One or more persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at the meeting.
SECTION 2.10. No Stockholder Action by Written Consent. Subject to
the rights of the holders of any series of Preferred Stock with respect to
such series of Preferred Stock, any action required or permitted to be taken
by the stockholders of the Company must be effected at an annual or special
meeting of stockholders of the Company and may not be effected by any consent
in writing by such stockholders.
-5-
<PAGE> 6
ARTICLE III.
BOARD OF DIRECTORS
SECTION 3.1. General Powers. The business and affairs of the Company
shall be managed under the direction of its Board of Directors. In addition
to the powers and authorities by these By-Laws expressly conferred upon it,
the Board of Directors may exercise all powers of the Company and do all such
lawful acts and things as are not by law or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. Number and Tenure. Subject to the rights of the holders
of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole
Board. The directors, other than those who may be elected by the holders of
any series of Preferred Stock under specified circumstances, shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as is reasonably possible, with the
term of office of the first class to expire at the 1998 annual meeting of
stockholders, the term of office of the second class to expire at the 1999
annual meeting of stockholders and the term of office of the third class to
expire at the 2000 annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and qualified.
At each annual meeting of stockholders, commencing with the 1998 annual
meeting, (i) directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly
elected and qualified, and (ii) if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
SECTION 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law on the same
date, and at the same place as, the Annual Meeting of Stockholders. The
Board of Directors may, by resolution, provide the time and place for the
holding of additional regular meetings without other notice than such
resolution.
SECTION 3.4. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors then in office. The person
or persons authorized to call special meetings of the Board of Directors may
fix the place and time of the meetings.
SECTION 3.5. Notice. Notice of any special meeting of directors shall
be given to each director at his business or residence in writing by hand
delivery, first class or overnight mail or other overnight or express
delivery service, telegram or facsimile transmission, by electronic mail or
orally by telephone. If mailed by first class mail, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage
-6-
<PAGE> 7
thereon prepaid, at least five (5) days before such meeting. If by telegram,
overnight mail or courier service, such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company or the
notice is delivered to the overnight mail or other overnight or express
delivery service company at least twenty-four (24) hours before such meeting.
If by facsimile transmission or electronic mail, such notice shall be deemed
adequately delivered when the notice is transmitted at least twelve (12)
hours before such meeting. If by telephone or by hand delivery, the notice
shall be given at least twelve (12) hours prior to the time set for the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-Laws, as provided
under Section 9.1. A meeting may be held at any time without notice if all
the directors are present or if those not present waive notice of the meeting
in accordance with Section 6.4 of these By-Laws.
SECTION 3.6. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. Quorum. Subject to Section 3.9, one third of the whole
number of directors, but not less than two, shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time without further notice.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
SECTION 3.9. Vacancies. Subject to applicable law and the rights of
the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only
by the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors, and not by stockholders. Directors
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Whole Board shall shorten the term of any incumbent
director.
-7-
<PAGE> 8
SECTION 3.10. Executive and Other Committees. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to any limitations provided by law,
all the powers of the Board in the management of the business and affairs of
the Company when the Board is not in session, including without limitation
the power to declare dividends, to authorize the issuance of the Company's
capital stock and to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware, and may,
by resolution similarly adopted, designate one or more other committees. The
Executive Committee and each such other committee shall consist of two or
more directors of the Company. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee,
other than the Executive Committee (the powers of which are expressly
provided for herein), may to the extent permitted by law exercise such powers
and shall have such responsibilities as shall be specified in the designating
resolution. In the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board when required; but failure to keep such minutes shall not affect the
validity of any acts of the committee or committees.
At any meeting of a committee, the presence of one third of its
members, but not less than two, shall constitute a quorum for the transaction
of business and the act of a majority of any committee may determine its
action. Each committee may provide for the holding of regular meetings, make
provision for the calling of special meetings and, except as otherwise
provided in these By-Laws or by resolution of the Board of Directors, make
rules for the conduct of its business. Notice of special meetings of
committees shall be given to each member of the committee in the manner
provided for in Section 3.5 of these By-Laws. The Board shall have power at
any time to fill vacancies in, to change the membership of, or to dissolve
any such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons
who are not directors of the Company; provided, however, that no such
committee shall have or may exercise any authority of the Board.
SECTION 3.11. Removal. Subject to the rights of the holders of any
series of Preferred Stock with respect to such series of Preferred Stock, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of
at least 80 percent of the voting power of all of the then-outstanding shares
of Voting Stock, voting together as a single class.
SECTION 3.12. Records. The Board of Directors shall cause to be kept
a record containing the minutes of the proceedings of the meetings of the
Board and of the stockholders, appropriate stock books and registers and such
books of records and accounts as may be necessary for the proper conduct of
the business of the Company.
-8-
<PAGE> 9
ARTICLE IV.
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the Company
shall be a Chairman of the Board of Directors, a President, one or more Vice
Chairmen, a Secretary, a Treasurer, a Controller, a number of Vice
Presidents, and such other officers (including, without limitation, a Chief
Financial Officer) as the Board of Directors from time to time may deem
proper. The Chairman of the Board shall be chosen from among the directors.
All officers elected by the Board of Directors shall each have such powers
and duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof. The Board may from time to time
elect, or the Chairman of the Board or President may appoint, such other
officers (including one or more Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, and Assistant Controllers) and such
agents, as may be necessary or desirable for the conduct of the business of
the Company. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or by the Chairman of the Board or President,
as the case may be.
SECTION 4.2. Election and Term of Office. The elected officers of the
Company shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held on the date of the annual meeting of
the stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient.
Alternatively, at the last regular meeting of the Board of Directors prior to
an annual meeting of stockholders, the Board of Directors may elect the
officers of the Company, contingent upon the election of the persons
nominated to be directors by the Board of Directors. Each officer shall hold
office until his successor shall have been duly elected and shall have
qualified or until his earlier death, resignation or removal.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall be the Chief Executive Officer of the Company. The Chairman of the
Board shall be responsible for the general management of the affairs of the
Company and shall perform all duties incidental to his office which may be
required by law and all such other duties as are properly required of him by
the Board of Directors. He shall make reports to the Board of Directors and
the stockholders, and shall see that all orders and resolutions of the Board
of Directors and of any committee thereof are carried into effect. The
Chairman of the Board may also serve as President, if so elected by the
Board.
SECTION 4.4. President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Company's business and general
supervision of its policies and affairs. The President shall, in the absence
of or because of the inability to act of the Chairman of the Board, perform
all duties of the Chairman of the Board and preside at all meetings of
stockholders and of the Board of Directors.
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<PAGE> 10
SECTION 4.5. Vice Chairmen. The Vice Chairmen shall act in a general
executive capacity with enterprise-wide responsibility as assigned by the
Chairman of the Board or the President and shall have such powers and shall
perform such duties as shall be assigned to him by the Board of Directors,
the Chairman of the Board or the President.
SECTION 4.6. Vice-Presidents. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the Board
of Directors, the Chairman of the Board or the President.
SECTION 4.7. Chief Financial Officer. The Chief Financial Officer (if
any) shall be a Vice President and act in an executive financial capacity.
He shall assist the Chairman of the Board and the President in the general
supervision of the Company's financial policies and affairs.
SECTION 4.8. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds.
The Treasurer shall cause the funds of the Company to be deposited in such
banks as may be authorized by the Board of Directors, or in such banks as may
be designated as depositaries in the manner provided by resolution of the
Board of Directors. He shall have such further powers and duties and shall
be subject to such directions as may be granted or imposed upon him from time
to time by these By-Laws, the Board of Directors, the Chairman of the Board,
the President or the Chief Financial Officer.
SECTION 4.9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors and, when appropriate, shall cause
the corporate seal to be affixed to any instruments executed on behalf of the
Company. The Secretary shall also perform all duties incident to the office
of Secretary and such other duties as may be assigned to him by these
By-Laws, the Board of Directors, the Chairman of the Board or the President.
SECTION 4.10. Controller. The Controller shall serve as the principal
accounting officer of the Company and shall keep full and accurate account of
receipts and disbursements in books of the Company and render to the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer, whenever requested, an account of all his transactions as Controller
and of the financial condition of the Company. The Controller shall also
perform all duties incident to the office of Controller and such other duties
as may be assigned to him by these By-Laws, the Board of Directors, the
Chairman of the Board, the President or the Chief Financial Officer.
SECTION 4.11. Assistant Secretaries, Assistant Treasurers and Assistant
Controllers. The Assistant Secretaries shall, during the absence of the
Secretary, perform the duties and functions and exercise the powers of the
Secretary. Each Assistant Secretary shall perform such other duties as may
be assigned to such Assistant Secretary by the Board of
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<PAGE> 11
Directors, the Chairman of the Board, the President or the Secretary. The
Assistant Treasurers shall, during the absence of the Treasurer, perform the
duties and functions and exercise the powers of the Treasurer. Each
Assistant Treasurer shall perform such other duties as may be assigned to the
Assistant Treasurer by the Board of Directors, the President, the Chief
Financial Officer or the Treasurer. The Assistant Controllers shall, during
the absence of the Controller, perform the duties and functions and exercise
the powers of the Controller. Each Assistant Controller shall perform such
other duties as may be assigned to such officer by the Board of Directors,
the President, the Chief Financial Officer or the Controller.
SECTION 4.12. Removal. Any officer or agent may be removed from office
at any time by the affirmative vote of a majority of the Whole Board or,
except in the case of an officer or agent elected by the Board, by the
Chairman of the Board or the President. Such removal shall be without
prejudice to the contractual rights, if any, of the person removed, provided
that no elected officer shall have any contractual rights against the Company
for compensation by virtue of his election as an officer beyond the date of
the election of his successor, his death, his resignation or his removal,
whichever event shall first occur, except as otherwise expressly provided in
an employment contract or under an employee deferred compensation plan.
SECTION 4.13. Vacancies. A newly created elected office and a vacancy
in any elected office because of death, resignation, or removal may be filled
by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chairman of the Board or the President because of death, resignation, or
removal may be filled by the Chairman of the Board or the President.
ARTICLE V.
STOCK CERTIFICATES, BOOK-ENTRY ACCOUNTS AND TRANSFERS
SECTION 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Company shall be evidenced by certificates or by
registration in book-entry accounts without certificates for shares of stock
in such form as the appropriate officers of the Company may from time to time
prescribe. The shares of the stock of the Company shall be transferred on
the books of the Company by the holder thereof in person or by his attorney,
upon surrender for cancellation of certificates for the same number of
shares, with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof of the authenticity of the transfer
and payment of any applicable transfer taxes as the Company or its agents may
reasonably require or by appropriate book-entry procedures.
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<PAGE> 12
Certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be
in facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Company with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Certificates. No certificate
for shares of stock in the Company shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on
delivery to the Company of a bond of indemnity in such amount, upon such
terms and secured by such surety, as the Board of Directors or any officer
may in its or his discretion require.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year. The fiscal year of the Company shall begin
on the first day of January and end on the thirty-first day of December of
each year.
SECTION 6.2. Dividends. The Board of Directors may from time to time
declare, and the Company may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate
of Incorporation.
SECTION 6.3. Seal. The corporate seal shall have enscribed thereon the
words "Corporate Seal," the year of incorporation and "Delaware" and around
the margin thereof the name of the Company.
SECTION 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Company under the provisions of
the General Corporation Law of the State of Delaware or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified
in any waiver of notice of such meeting.
SECTION 6.5. Audits. The accounts, books and records of the Company
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall
be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 6.6. Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by giving written notice of such
resignation to the Chairman of the Board, the President, or the Secretary,
and such resignation shall be deemed to be effective as
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<PAGE> 13
of the close of business on the date said notice is received by the Chairman
of the Board, the President, or the Secretary, or at such later time as is
specified therein. No formal action shall be required of the Board of
Directors or the stockholders to make any such resignation effective.
ARTICLE VII.
INDEMNIFICATION; ADVANCE OF EXPENSES
SECTION 7.1. Right of Indemnification Generally.
(A) Directors, Officers and Employees. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director, officer or employee of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Company to the fullest extent authorized
by the General Corporation Law of the State of Delaware as the same exists or
may hereafter be amended against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith; provided, however, that except as
provided in Section 7.3 of this Article VII, the Company shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors.
(B) Advance of Expenses; Undertaking. Each person referred to in
Section 7.1(A) of this Article VII shall be paid by the Company the expenses
incurred in connection with any proceeding described in Section 7.1(A) in
advance of its final disposition, such advances to be paid by the Company
within 30 days after the receipt by the Company of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that, if the General Corporation Law of the State of
Delaware requires, the advancement of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not, unless
otherwise required by law, in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) prior to the final
disposition of a proceeding, shall be made only upon delivery to the Company
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Article VII or
otherwise.
(C) Contract Right. The right to indemnification conferred in this
Article VII and the right to be paid by the Company the expenses incurred in
connection with any such proceeding in advance of its final disposition
conferred in this Article VII each shall be a contract right.
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<PAGE> 14
SECTION 7.2. Written Request; Determination of Entitlement. To obtain
indemnification under this Article VII, a claimant shall submit to the
Company a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the General Corporation Law of
the State of Delaware shall be made at the option of the person seeking
indemnification, by the directors as set forth in the General Corporation Law
of the State of Delaware or by independent legal counsel selected by such
person with the consent of the Company (which consent shall not unreasonably
be withheld).
SECTION 7.3. Recovery of Unpaid Claim. If a claim under Section 7.1 of
this Article VII is not paid in full by the Company within 30 days after a
written claim pursuant to Section 7.2 of this Article VII has been received
by the Company, the claimant may at any time thereafter bring suit against
the Company to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other
than actions brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
claimant has not met the standard of conduct which makes it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company
(including its directors, independent legal counsel or stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, nor an actual determination by the
Company (including its directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
SECTION 7.4. Exclusivity; Subsequent Modification. The right to
indemnification and the payment of expenses incurred in connection with a
proceeding in advance of its final disposition conferred in this Article VII
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Directors or
otherwise. No repeal or modification of this Article VII shall in any way
diminish or adversely affect the rights hereunder of any director, officer or
employee or of any agent who has been expressly granted indemnification by
the Company pursuant to Section 7.6 hereof in respect of any occurrence or
matter arising prior to any such repeal or modification.
SECTION 7.5. Insurance. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the Company or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such ex-
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<PAGE> 15
pense, liability or loss under the General Corporation Law of the State of
Delaware. To the extent that the Company maintains any policy or policies
providing such insurance, each such director, officer or employee, and each
such agent to which rights to indemnification have been granted as provided
in Section 7.6 of this Article VII shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage thereunder for any such director, officer, employee or agent.
SECTION 7.6. Other Persons Granted Right of Indemnification. The
Company may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to be paid by the
Company the expenses incurred in defending any proceeding in advance of its
final disposition, to any agent of the Company to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Company.
SECTION 7.7. Illegality; Unenforceability. If any provision or
provisions of this Article VII shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (1) the validity, legality and
enforceability of the remaining provisions of this Article VII (including,
without limitation, each portion of any Section of this Article VII
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (2) to the fullest extent
possible, the provisions of this Article VII (including, without limitation,
each such portion of any Section of this Article VII containing any such
provision held to be invalid, illegal or unenforceable) shall be construed so
as give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
SECTION 7.8. Form and Delivery of Communications. Any notice, request
or other communication required or permitted to be given to the Company under
this Article VII shall be in writing and either delivered in person or sent
by telecopy, telex, telegram, overnight mail or courier service, or certified
or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Company.
ARTICLE VIII.
CONTRACTS, PROXIES, ETC.
SECTION 8.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Company by such officer or officers of the Company as the Board of Directors
may from time to time direct. Such authority may be general or confined to
specific instances as the Board may determine. The Chairman of the Board,
the President, any Vice Chairman or any Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or
on behalf of the Company. Subject to any restrictions imposed by the Board
of Directors or the Chairman of the Board, the President, any Vice Chairman
or any Vice President of the Company may delegate contractual powers to
others
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<PAGE> 16
under his jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 8.2. Proxies. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the President, any Vice
Chairman or any Vice President, the Secretary or any Assistant Secretary, may
from time to time appoint an attorney or attorneys or agent or agents of the
Company, in the name and on behalf of the Company, to cast the votes which
the Company may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities
may be held by the Company, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name
of the Company as such holder, to any action by such other corporation, and
may instruct the person or persons so appointed as to the manner of casting
such votes or giving such consent, and may execute or cause to be executed in
the name and on behalf of the Company and under its corporate seal or
otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE IX.
AMENDMENTS
SECTION 9.1. Amendments. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, at any meeting of the Board of Directors or of
the stockholders, provided notice of the proposed change was given in the
notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than twelve hours prior to the meeting;
provided, however, that, in the case of amendment, repeal or adoption by
stockholders, notwithstanding any other provisions of these By-Laws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any series of Preferred
Stock required by law, the Certificate of Incorporation, any Preferred Stock
designation, or these By-Laws, the affirmative vote of the holders of at
least 80 percent of the voting power of all the then outstanding shares of
the Voting Stock, voting together as a single class, shall be required for
the stockholders to adopt, amend or repeal any provision of these By-Laws.
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<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Solutia Inc., a Delaware corporation (the
"Company"), and ------------------ (the "Executive"), dated as of the ---- day
of ---------, 1998.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. 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. Certain Definitions. (a) The "Effective Date" shall mean
-------------------
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated by the Company prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal
<PAGE> 2
Date the Company shall give notice to the Executive that the Change of Control
Period shall not be so extended.
(c) An "Alternative Change of Control" shall mean a Change of
Control as defined in Section 2, except that the references in such definition
to "20%" shall be deemed to be references to "50%."
2. Change of Control. For the purpose of this Agreement, a
-----------------
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that, for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all
2
<PAGE> 3
or substantially all of the assets of the Company or the acquisition of
assets or stock of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. 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 earlier of the third anniversary of such date and the first day
of the month following the month in which the executive attains age 65 (the
Executive's "Normal Retirement Date").
4. Terms of Employment. (a) Position and Duties. (i) During
------------------- --------------------
the Employment Period, (A) the Executive's position
3
<PAGE> 4
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned to
the Executive at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location, unless
the Executive is on international assignment on the Effective Date and is
relocated as a result of the Executive's being repatriated pursuant to the
terms of his international assignment agreement as in effect before the
Effective Date.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the
------------ -----------
Employment Period, the Executive shall receive an annual base salary ("Annual
Base Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Execu-
4
<PAGE> 5
tive under this Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Bonuses. In addition to Annual Base Salary, the
-------
Executive shall be awarded the following bonuses. For each fiscal year ending
during the Employment Period, the Executive shall be awarded an annual bonus
(the "Annual Bonus") in cash at least equal to the average of the Executive's
bonuses under the Company's Annual Incentive Program, or any comparable bonus
under any predecessor or successor plan(s), for the last three full fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the
end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus. 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 applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable) less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for the Executive
under such plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives 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 applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with savings opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
5
<PAGE> 6
Effective Date to other peer executives of the Company and its affiliated
companies. Without limiting the generality of the foregoing, the Company and
its affiliated companies shall continue to honor any individual agreements
between any of them and the Executive regarding the provision of supplemental
retirement benefits such as (but not limited to) post-retirement income and/or
welfare benefits (each of which is hereafter referred to as an "Individual
SERP").
(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 applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
---------------
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
6
<PAGE> 7
(vii) Office and Support Staff. During the Employment
------------------------
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. 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 12(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
7
<PAGE> 8
the manner in which the Board or Chief Executive Officer believes that
the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
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
three-quarters 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, 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) or
(ii) 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) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any other action by
the Company which results in a 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;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not
8
<PAGE> 9
occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(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, unless the Executive is on international assignment on the
Effective Date and the relocation is as a result of the Executive's being
repatriated pursuant to the terms of his international assignment
agreement as in effect before the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of an Alternative
Change of Control shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(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 12(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.
9
<PAGE> 10
(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.
6. Obligations of the Company upon Termination. (a) Good
------------------------------------------- ----
Reason; Other Than for Cause, Death or Disability. If, during the Employment
- -------------------------------------------------
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed
for less than twelve full months), for the most recently completed
fiscal year during the Employment Period, if any (such higher
amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365, 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"); and
B. the amount equal to the product of (1) the
lesser of three and the number of years and fractions thereof
remaining between the Date of Termination and the Executive's
Normal Retirement Date (such lesser number, the "Multiplier") and
(2) the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
10
<PAGE> 11
C. an amount equal to the difference between (a)
the aggregate benefit under the Monsanto Pension Plan and any
successor thereto, and any other qualified defined benefit
retirement plans of the Company and its affiliated companies in
which the Executive participates (collectively, the "Retirement
Plan") and the Monsanto Company ERISA Parity Pension Plan, the
Monsanto Company Supplemental Retirement Plan, and any successors
thereto, any other "top hat," excess or supplemental defined
benefit retirement plans of the Company and its affiliated
companies in which the Executive participates, and any Individual
SERP (collectively, the "SERP") which the Executive would have
accrued (whether or not vested) if the Executive's employment had
continued for a number of years after the Date of Termination
equal to the Multiplier, and (b) the actual vested benefit, if
any, of the Executive under the Retirement Plan and the SERP,
determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based
on the assumption that the Executive's compensation during such
period of deemed continued employment after the Date of Termination
was that required by Section 4(b)(i) and Section 4(b)(ii), and using
actuarial assumptions no less favorable to the Executive than the
most favorable of those in effect for purposes of computing benefit
entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for a number of years after the Executive's Date of
Termination equal to the Multiplier, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility; and for purposes of determining eligibility of
the Executive for retiree benefits pursuant to such plans, practices,
programs
11
<PAGE> 12
and policies, the Executive shall be considered to have remained
employed until the end of a number of years after the Date of
Termination equal to the Multiplier and to have retired on the last day of
such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in the Executive's sole discretion;
and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(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 payment of Accrued
Obligations and the timely payment or provision of Other Benefits. 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.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(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 payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With
12
<PAGE> 13
respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by
the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. 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.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor, subject to Section 12(f),
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies
at or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement. Notwithstanding the foregoing, from and
after the Effective Time, the compensation and benefits provided for pursuant
to Sections 5, 8 and 9 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.
13
<PAGE> 14
8. 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 except as specifically provided in Section 6(a)(ii), such amounts shall not
be reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) 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 delayed payment at the applicable Federal rate provided for in Section
7872(f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it
shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of Payments
14
<PAGE> 15
would not give rise to any Excise Tax, then no Gross-Up Payment shall be made
to the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which the Executive gives such notice to
the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing
15
<PAGE> 16
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other
16
<PAGE> 17
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. As used herein, "Confidential
------------------------
Information" means all technical and business information of the Company and its
Subsidiaries, 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 Subsidiary 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
17
<PAGE> 18
Executive's employment from others with whom the Company or any Subsidiary has
a business relationship.
The Executive understands that the Executive is not to disclose to
the Company or any Subsidiary, or use for its benefit, any of the confidential,
trade secret or proprietary information of others, including any of the
Executive's former employers. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. 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.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. 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:
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<PAGE> 19
If to the Executive:
-------------------
Name
Address
If to the Company:
-----------------
10300 Olive Boulevard
P. O. Box 66760
St. Louis, MO 63166-6760
Attention: General Counsel
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 provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(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, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is
"at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. This
Agreement shall, upon its execution, supersede the Employment Agreement dated
as of August 28, 1997 between Monsanto Company and the Executive, which was
assumed by the Company as of September 1, 1997. From and after the Effective
Date this Agreement shall supersede any other prior employment agree-
19
<PAGE> 20
ment between the Company and the Executive; provided, that this Agreement
--------
shall have no effect on any Individual SERP or on the Executive's rights under
any plan, program, policy or practice provided by the Company or any of its
affiliated companies except as specifically provided in Section 7 above.
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.
---------------------------------------
Name
SOLUTIA INC.
By-------------------------------------
20
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Solutia Inc., a Delaware corporation (the
"Company"), and ----------------- (the "Executive"), dated as of the --- day
of -----------, 1998.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. 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. Certain Definitions. (a) The "Effective Date" shall
-------------------
mean the first date during the Change of Control Period (as defined in
Section 1(b)) on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is
terminated by the Company prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the
date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal
<PAGE> 2
Date the Company shall give notice to the Executive that the Change of Control
Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a
-----------------
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by
any corporation pursuant to a transaction which complies with clauses
(i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation by the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially
all of the assets of the Company or the acquisition of assets or stock
of another corporation (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
2
<PAGE> 3
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. 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 earlier of the third anniversary of such date and the first day
of the month following the month in which the executive attains age 65 (the
Executive's "Normal Retirement Date").
4. Terms of Employment. (a) Position and Duties. (i)
------------------- -------------------
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned to the Executive
at any time during the 120-day period immediately preceding the Effective
3
<PAGE> 4
Date and (B) the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the Effective Date or
any office or location less than 35 miles from such location, unless the
Executive is on international assignment on the Effective Date and is
relocated as a result of the Executive's being repatriated pursuant to the
terms of his international assignment agreement as in effect before the
Effective Date.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions
and (C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall
not thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
------------ -----------
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated
4
<PAGE> 5
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Bonuses. In addition to Annual Base Salary, the
-------
Executive shall be awarded the following bonuses. For each fiscal year
ending during the Employment Period, the Executive shall be awarded an annual
bonus (the "Annual Bonus") in cash at least equal to the average of the
Executive's bonuses under the Company's Annual Incentive Program, or any
comparable bonus under any predecessor or successor plan(s), for the last
three full fiscal years prior to the Effective Date (annualized in the event
that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus. 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 applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities,
to the extent, if any, that such distinction is applicable) less favorable,
in the aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period
immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives 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 applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective
Date or if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the Company and its
affiliated companies. Without limiting the generality of the foregoing, the
Company and its affiliated companies shall continue to honor any individual
agreements between any of them and the
5
<PAGE> 6
Executive regarding the provision of supplemental retirement benefits such as
(but not limited to) post-retirement income and/or welfare benefits (each of
which is hereafter referred to as an "Individual SERP").
(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 applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
---------------
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and,
if applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment
------------------------
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at
6
<PAGE> 7
least equal to the most favorable of the foregoing provided to the Executive
by the Company and its affiliated companies at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
5. 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 12(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, or
7
<PAGE> 8
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to
the Company.
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 three-quarters 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, 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) or (ii) 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) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a 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;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, 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;
8
<PAGE> 9
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(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, unless the Executive is on international assignment
on the Effective Date and the relocation is as a result of the
Executive's being repatriated pursuant to the terms of his
international assignment agreement as in effect before the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(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 12(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
9
<PAGE> 10
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.
6. Obligations of the Company upon Termination. (a) Good
------------------------------------------- ----
Reason; Other Than for Cause, Death or Disability. If, during the Employment
- -------------------------------------------------
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent Annual
Bonus and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which
is 365, 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"); and
B. the amount equal to the product of (1) the lesser
of two and the number of years and fractions thereof remaining
between the Date of Termination and the Executive's Normal
Retirement Date (such lesser number, the "Multiplier") and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. an amount equal to the difference between (a) the
aggregate benefit under the Monsanto Pension Plan and any
successor thereto, and any other qualified defined benefit
retirement plans of the Company and its affiliated companies in
which the Executive participates (collectively, the "Retirement
Plan") and the Monsanto Company ERISA Parity Pension Plan, the
Monsanto Company Supplemental Retirement Plan, and any
10
<PAGE> 11
successors thereto, any other "top hat," excess or supplemental
defined benefit retirement plans of the Company and its affiliated
companies in which the Executive participates, and any Individual
SERP (collectively, the "SERP") which the Executive would have
accrued (whether or not vested) if the Executive's employment had
continued for a number of years after the Date of Termination
equal to the Multiplier, and (b) the actual vested benefit, if
any, of the Executive under the Retirement Plan and the SERP,
determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based
on the assumption that the Executive's compensation during such
period of deemed continued employment after the Date of
Termination was that required by Section 4(b)(i) and Section
4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes
of computing benefit entitlements under the Retirement Plan and
the SERP at any time from the day before the Effective Date)
through the Date of Termination;
(ii) for a number of years after the Executive's Date of
Termination equal to the Multiplier, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility; and for purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of a number of years
after the Date of Termination equal to the Multiplier and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the
11
<PAGE> 12
scope and provider of which shall be selected by the Executive in the
Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(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 payment of Accrued
Obligations and the timely payment or provision of Other Benefits. 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.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(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 payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies
12
<PAGE> 13
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. 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.
7. Non-exclusivity of Rights. Nothing in this Agreement
-------------------------
shall prevent or limit the Executive's continuing or future participation in
any plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
Notwithstanding the foregoing, from and after the Effective Time, the
compensation and benefits provided for pursuant to Sections 5, 8 and 9 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.
8. 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
13
<PAGE> 14
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
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) 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 delayed payment at the applicable Federal rate provided for in
Section 7872(f) (2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount")
that could be paid to the Executive such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
14
<PAGE> 15
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Ernst & Young LLP or such other certified
public accounting firm as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 9,
shall be paid by the Company to the Executive within five days of the receipt
of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant
to Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which the Executive gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
15
<PAGE> 16
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to
16
<PAGE> 17
such claim, the Executive shall (subject to the Company's complying with the
requirements of Section 9(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. As used herein, "Confidential
------------------------
Information" means all technical and business information of the Company and
its Subsidiaries, 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 Subsidiary 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 Subsidiary has a business relationship.
The Executive understands that the Executive is not to disclose to
the Company or any Subsidiary, or use for its benefit, any of the
confidential, trade secret or proprietary infor-
17
<PAGE> 18
mation of others, including any of the Executive's former employers. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. 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.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. 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:
If to the Executive:
-------------------
Name
Address
18
<PAGE> 19
If to the Company:
-----------------
10300 Olive Boulevard
P. O. Box 66760
St. Louis, MO 63166-6760
Attention: General Counsel
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 provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(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, including,
without limitation, the right of the Executive to terminate employment for
Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is
"at will" and, subject to Section 1(a) hereof, prior to the Effective Date,
the Executive's employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in
which case the Executive shall have no further rights under this Agreement.
This Agreement shall, upon its execution, supersede the Employment Agreement
dated as of August 28, 1997 between Monsanto Company and the Executive, which
was assumed by the Company as of September 1, 1997. From and after the
Effective Date this Agreement shall supersede any other prior employment
agreement between the Company and the Executive; provided, that this
--------
Agreement shall have no effect on any Individual SERP or on the Executive's
rights under any plan, program, policy or practice provided by the Company or
any of its affiliated companies except as specifically provided in Section 7
above.
19
<PAGE> 20
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.
---------------------------------------
Name
SOLUTIA INC.
By-------------------------------------
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Consolidated Income of Solutia Inc. and Subsidiaries for the
three months ended March 31, 1998, and the Statement of Consolidated Financial
Position as of March 31, 1998. Such information is qualified in its entirety by
reference to such combined financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 440
<ALLOWANCES> 6
<INVENTORY> 354
<CURRENT-ASSETS> 1,006
<PP&E> 3,194
<DEPRECIATION> 2,289
<TOTAL-ASSETS> 2,769
<CURRENT-LIABILITIES> 847
<BONDS> 597
<COMMON> 1
0
0
<OTHER-SE> (106)
<TOTAL-LIABILITY-AND-EQUITY> 2,769
<SALES> 720
<TOTAL-REVENUES> 720
<CGS> 533
<TOTAL-COSTS> 533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 97
<INCOME-TAX> 33
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.51
</TABLE>
