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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13255
---------
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
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE 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, 1999
----- --------------
COMMON STOCK, $0.01 PAR VALUE 111,723,640 SHARES
----------------------------- ------------------
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<PAGE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1999 1998
----- -----
<S> <C> <C>
NET SALES................................................... $ 652 $ 720
Cost of goods sold.......................................... 547 533
----- -----
GROSS PROFIT................................................ 105 187
Marketing expenses.......................................... 31 37
Administrative expenses..................................... 31 31
Technological expenses...................................... 17 20
----- -----
OPERATING INCOME............................................ 26 99
Equity earnings from affiliates............................. 10 6
Interest expense............................................ (9) (12)
Other income (expense)--net................................. 6 4
----- -----
INCOME BEFORE INCOME TAXES.................................. 33 97
Income taxes................................................ 10 33
----- -----
NET INCOME.................................................. $ 23 $ 64
===== =====
BASIC EARNINGS PER SHARE.................................... $0.21 $0.55
===== =====
DILUTED EARNINGS PER SHARE.................................. $0.20 $0.51
===== =====
Weighted average equivalent shares (in millions):
Basic................................................... 111.8 117.0
Effect of dilutive securities:
Common share equivalents--common shares issuable
upon exercise of outstanding stock options........ 4.2 7.9
----- -----
Diluted................................................. 116.0 124.9
===== =====
<CAPTION>
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
THREE MONTHS
ENDED
MARCH 31,
-----------------
1999 1998
----- -----
<S> <C> <C>
NET INCOME.................................................. $ 23 $ 64
OTHER COMPREHENSIVE INCOME:
Currency translation adjustments............................ (17) (8)
----- -----
COMPREHENSIVE INCOME........................................ $ 6 $ 56
===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1
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<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 36 $ 89
Trade receivables, net of allowance of $7 in 1999 and
1998...................................................... 398 357
Miscellaneous receivables and prepaid expenses.............. 123 126
Deferred income tax benefit................................. 101 88
Inventories................................................. 343 331
------ ------
TOTAL CURRENT ASSETS........................................ 1,001 991
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................ 16 17
Buildings................................................... 366 371
Machinery and equipment..................................... 2,773 2,786
Construction in progress.................................... 145 127
------ ------
Total property, plant and equipment......................... 3,300 3,301
Less accumulated depreciation............................... 2,375 2,357
------ ------
NET PROPERTY, PLANT AND EQUIPMENT........................... 925 944
INVESTMENTS IN AFFILIATES................................... 410 394
LONG-TERM DEFERRED INCOME TAX BENEFIT....................... 277 274
OTHER ASSETS................................................ 156 162
------ ------
TOTAL ASSETS................................................ $2,769 $2,765
====== ======
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................ $ 268 $ 278
Accrued liabilities......................................... 467 454
------ ------
TOTAL CURRENT LIABILITIES................................... 735 732
LONG-TERM DEBT.............................................. 597 597
POSTRETIREMENT LIABILITIES.................................. 973 971
OTHER LIABILITIES........................................... 488 472
SHAREHOLDERS' DEFICIT:
Common stock (authorized, 600,000,000 shares, par value
$0.01)
Issued: 118,400,635 shares in 1999 and 1998............... 1 1
Additional contributed capital............................ (134) (131)
Treasury stock, at cost (6,676,995 shares in 1999 and
5,629,677 shares in 1998)............................... (165) (143)
Unearned ESOP shares........................................ (23) (25)
Accumulated other comprehensive income...................... 2 19
Reinvested earnings......................................... 295 272
------ ------
SHAREHOLDERS' DEFICIT....................................... (24) (7)
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................. $2,769 $2,765
====== ======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
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<PAGE>
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED CASH FLOW
(DOLLARS IN MILLIONS)
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1999 1998
----- -----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income.................................................. $ 23 $ 64
Adjustments to reconcile to Cash From Operations:
Items that did not use (provide) cash:
Deferred income taxes............................... (13) 4
Depreciation and amortization....................... 35 34
Other............................................... 49 (4)
Working capital changes that provided (used) cash:
Trade receivables................................... (41) (9)
Inventories......................................... (12) (29)
Accounts payable and accrued liabilities............ (59) 30
Other............................................... 12 13
Other items............................................. 5 4
----- -----
CASH FROM OPERATIONS........................................ (1) 107
----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases..................... (30) (18)
Investment and property disposal proceeds................... 3 5
----- -----
CASH FROM INVESTING ACTIVITIES.............................. (27) (13)
----- -----
FINANCING ACTIVITIES:
Net repayment of debt obligations........................... -- (69)
Treasury stock purchases.................................... (26) (41)
Dividend payments........................................... -- (1)
Common stock issued under employee stock plans.............. 1 9
----- -----
CASH FROM FINANCING ACTIVITIES.............................. (25) (102)
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (53) (8)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR........................................... 89 24
----- -----
END OF PERIOD............................................... $ 36 $ 16
===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
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<PAGE>
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Solutia Inc. is an international producer and marketer of a range of high
performance chemical-based materials, including nylon and acrylic fibers and
fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives and
specialty chemicals. These materials are used by our customers to make
consumer, household, automotive and industrial products.
These financial statements should be read in conjunction with the audited
financial statements and notes to consolidated financial statements included in
Solutia's 1998 Annual Report to shareholders and incorporated by reference in
the company's annual report on Form 10-K, filed with the Securities and
Exchange Commission on March 16, 1999.
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, comprehensive income, 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, 1999 are not necessarily indicative of the results to be expected for
the full year.
2. INVENTORY VALUATION
The components of inventories as of March 31, 1999 and December 31, 1998
were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Finished goods...................... $ 271 $ 252
Goods in process.................... 110 87
Raw materials and supplies.......... 82 116
----- -----
Inventories, at FIFO cost........... 463 455
Excess of FIFO over LIFO cost....... (120) (124)
----- -----
TOTAL............................... $ 343 $ 331
===== =====
</TABLE>
3. SPECIAL OPERATIONS CHARGES
During the first quarter of 1999, Solutia recorded special operations
charges of $34 million ($22 million aftertax) related to manufacturing
operations in the Chemicals and Fibers segments.
In February 1999, Chemicals' ammonia unit experienced the failure of
certain equipment critical to the production process. Based on an analysis
of the economics of purchased ammonia and the cost to repair the equipment,
Solutia decided to exit the ammonia business. A $28 million ($18 million
aftertax) charge to cost of goods sold was recorded in the first quarter to
complete the exit plan. The charge included $2 million to write down the assets
to fair value, $4 million of dismantling costs, and $22 million of costs for
which Solutia is contractually obligated under an operating agreement.
Excluding the contractually obligated costs, Solutia expects to complete the
dismantling of the equipment and exit of the business by the end of 1999. The
ammonia business' net sales for the three months ended March 31, 1999 and 1998,
were $1 million and $8 million, respectively. Operating income for those
periods was minimal.
A special operations charge of $6 million ($4 million aftertax) was also
recorded primarily to write down a Fibers' segment bulk continuous filament
(BCF) spinning machine to fair value as a result of a noncompetitive cost
position. The charge is due to a Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be
Disposed Of," review which indicated that the carrying amount of the assets
exceeded the identifiable undiscounted cash flows related to the assets. Fair
value of the assets was
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determined based on estimates of market prices. Operating income derived from
the machinery was minimal in the three month periods ended March 31, 1999 and
1998.
4. CONTINGENCIES
During the first quarter of 1999, Solutia recorded a $29 million ($18
million aftertax) charge to cost of goods sold to increase reserves related to
the anticipated settlement of two lawsuits brought against Monsanto Company
("Monsanto"), for which Solutia assumed responsibility in the 1997 spin-off
from Monsanto, relating to the alleged discharge of polychlorinated biphenyls
("PCBs"), from the Anniston, Alabama plant site, and to environmental
remediation of the allegedly affected areas. The anticipated settlement of
these cases provided information that allowed management to estimate more
accurately the company's position with respect to such litigation.
Monsanto is a party to a number of lawsuits and claims relating to Solutia,
for which Solutia assumed responsibility in the Spinoff. In addition, Solutia
is also a named party to a number of lawsuits and claims directly. Solutia
intends to defend all suits and claims vigorously. Such matters arise out of
the normal course of business and relate to product liability; government
regulation, including environmental issues; employee relations; 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. SUBSEQUENT EVENTS
CPFilms Inc. Acquisition
On April 19, 1999, Solutia announced it had reached an agreement to acquire
CPFilms Inc. from Akzo Nobel N.V. for approximately $200 million. CPFilms is
the world market leader in window film and other high technology film products
for automotive and architectural after-markets, and a variety of other
specialty film applications. CPFilms' annual net sales are approximately $130
million.
The acquisition will be accounted for as a purchase, and includes CPFilms'
manufacturing sites, located in the United States and the United Kingdom, and
its international distribution network. Solutia expects to close the
acquisition in late May 1999.
Phosphorus Derivatives Joint Venture
On April 30, 1999, the company announced it had entered into an agreement
in principle with FMC Corporation to form a joint venture to manufacture and
market phosphorus chemicals. Solutia will contribute its Phosphorus Derivatives
business to this joint venture. The joint venture will have annual net sales of
approximately $600 million. Solutia and FMC will each have a 50 percent
ownership share.
5
<PAGE>
<PAGE>
6. SEGMENT DATA
Segment data for the three months ended March 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
NET INTERSEGMENT NET INTERSEGMENT
SALES SALES PROFIT SALES SALES PROFIT
----- ------------ ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
SEGMENT:
Chemicals.......................... $204 $ 2 $ 56 $225 $ 2 $ 56
Fibers............................. 210 -- 32 251 -- 58
Polymers & Resins.................. 240 -- 66 244 -- 64
---- ---- ---- ---- ---- ----
SEGMENT TOTALS....................... 654 2 154 720 2 178
RECONCILIATION TO CONSOLIDATED
TOTALS:
Sales eliminations................. (2) (2) (2) (2)
Other revenues..................... -- 2
Less unallocated service costs:
Cost of goods sold<F1>........... (76) (23)
Marketing, administrative and
technological expenses......... (52) (56)
Equity earnings from affiliates.... 10 6
Interest expense................... (9) (12)
Other income (expense)--net........ 6 4
CONSOLIDATED TOTALS:
---- ---- ---- ----
NET SALES.......................... $652 $-- $720 $--
==== ==== ---- ==== ==== ----
INCOME BEFORE INCOME TAXES......... $ 33 $ 97
==== ====
Segment profit includes only 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.
<F1> Unallocated cost of goods sold for the three months ended March 31, 1999,
includes special charges related to exiting the ammonia business ($28
million pretax, $18 million aftertax), the write down of a Fibers' segment
bulk continuous filament spinning machine ($6 million pretax, $4 million
aftertax), and the anticipated settlement of certain pending property
claims litigation relating to the Anniston, Alabama plant site ($29
million pretax, $18 million aftertax).
</TABLE>
6
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These include all statements
regarding the expected future financial position, results of operations, cash
flows, effect of changes in accounting due to recently issued accounting
standards, benefits from new technology, the cost of remediating the year 2000
issue and the effect of any unremediated or undiscovered year 2000 issues on
the Company's operations. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include, among others, those set forth below as well as
general economic, business and market conditions, customer acceptance of new
products, raw material pricing, efficacy of new technology and facilities, and
increased competitive and/or customer pressure.
RESULTS OF OPERATIONS--FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
Net sales for the first quarter of 1999 decreased by 9 percent as compared
with the first quarter of 1998. Lower average selling prices and lower sales
volume contributed equally to the decline.
Chemicals Segment
Net sales declines in the Chemicals segment occurred primarily as the
result of volume declines, and to a lesser extent, downward pressure on
pricing. The decline in sales volume was driven primarily by two intermediates
products: ammonia and chlorobenzenes. The ammonia sales decline was caused by
the failure of certain critical production equipment at the Luling, Louisiana
facility. Because of the cost to repair the equipment and the availability of
ammonia in the marketplace, Solutia has decided not to repair the equipment,
and instead to exit the business. The exit of the ammonia business is further
discussed below in Operating Income. The decrease in chlorobenzene volumes was
anticipated and is primarily due to lower demand as the Flexsys, L.P.
("Flexsys") rubber chemicals joint venture sourced more raw material from its
new PPD2 operation. Pricing declines experienced in the first quarter of 1999,
as compared to the first quarter of 1998, were caused by acrylonitrile sales
contracts which contain contracted price declines.
In spite of the decline in net sales, segment profit for the three-month
period ended March 31, 1999, was flat as compared to the three-month period
ended March 31, 1998. Solutia's cost reduction efforts, including those related
to personnel costs, and favorable manufacturing performance for phosphorus
derivatives products were sufficient to offset the net sales declines. For the
1999 first quarter, segment profit as a percentage of net sales was 27 percent
as compared with 25 percent for the first quarter of 1998.
Fibers Segment
The Fibers segment net sales for the first quarter of 1999 were down
approximately 16 percent versus the first quarter of 1998. Pricing and volume
contributed equally to the year-over-year decrease. Acrilan(R) acrylic fiber
continued to show poor operating results, as compared to the prior year, due to
the effect of the Asian financial crisis on the businesses' sales to that
region, and its residual effect on the Americas. The impact of these events
began early in the third quarter of 1998 and have continued into the first
quarter of 1999. The carpet business experienced lower average sales prices in
the first quarter of 1999 as compared to the same period of the prior year due
to the consolidation of the carpet mill industry and a higher proportion of
unbranded sales. Also affecting the comparison of the first quarter 1999 with
the first quarter 1998 is the first quarter 1998 price increase which gradually
eroded during 1998. Subsequent to the end of the first quarter, Solutia moved
to match a competitor's sales price increase effective May 1, 1999.
Segment profit for Fibers decreased $26 million due to the net sales
decline and lower capacity utilization, but was partially offset by lower raw
material costs and the effects of Solutia's cost reduction initiatives,
including those related to personnel costs.
7
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Polymers & Resins Segment
Net sales for the first quarter of 1999 in the Polymers & Resins segment
were down slightly from the first quarter of 1998. Businesses in this segment
experienced average selling prices lower than those in the year-ago quarter due
to the sharing of raw material price reductions with customers and pricing
provisions of some long-term sales contracts. Offsetting the average selling
price declines were improved volumes in the Saflex(R) plastic interlayer and
resins businesses. Saflex(R) plastic interlayer volumes were a record for a
first quarter. Resins volumes improved due to new product introductions in the
GME adhesives family. Additionally, volumes for Vydyne(R) nylon plastics were a
record for a first quarter, benefiting from Solutia's marketing alliance with
Dow Plastics. However, overall nylon plastics and polymers volumes were down
from the year-ago quarter due to lower merchant polymer volume.
Polymers & Resins segment profit for the first quarter of 1999 was 3
percent higher than for the first quarter of 1998 due to the lower raw material
costs, improved capacity utilization and Solutia's cost reduction efforts,
including those related to personnel costs. These factors led segment profit as
a percentage of segment net sales to increase to 28 percent in the 1999 first
quarter from 26 percent in the 1998 first quarter.
Operating Income
Operating income for the first quarter of 1999 declined to $26 million as
compared to $99 million for the first quarter of 1998 due to lower segment
profit discussed above and special charges affecting the 1999 quarter.
In February 1999, the Chemicals' ammonia unit experienced the failure of
certain equipment critical to the production process. Based on an analysis of
the economics of purchased ammonia and the cost to repair the equipment,
Solutia decided to exit the ammonia business. A $28 million ($18 million
aftertax) special operations charge to cost of goods sold was recorded in the
first quarter of 1999 to complete the exit plan. The charge included $2 million
to write down the assets to fair value, $4 million of dismantling costs, and
$22 million of costs for which Solutia is contractually obligated under an
operating agreement. Excluding the contractually obligated costs, Solutia
expects to complete the dismantling of the equipment and exit of the business
by the end of 1999. The ammonia business' net sales for the three months ended
March 31, 1999 and 1998 were $1 million and $8 million, respectively. Operating
income for those periods was minimal.
A special operations charge of $6 million ($4 million aftertax) was
recorded to write down certain Fibers segment assets to their fair values. The
charge is due to a review under Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be
Disposed Of," ("SFAS No. 121"). The review stemmed from a historical trend of
operating losses and a forecast that the trend would continue. The SFAS No. 121
review indicated that the carrying amount of the assets exceeded the
identifiable undiscounted cash flows related to the assets. Fair value of the
assets was determined based on estimates of market prices. Operating income
derived from the machinery was minimal in the three month periods ended March
31, 1999 and 1998.
Also during the 1999 first quarter, Solutia recorded a $29 million ($18
million aftertax) charge to cost of goods sold related to the anticipated
settlement of two lawsuits brought against Monsanto Company relating to the
alleged discharge of polychlorinated biphenyls ("PCBs") from the Anniston,
Alabama plant site. The anticipated settlement of these cases provided
information that allowed management to estimate more accurately the company's
position with respect to such litigation.
Partially offsetting the decline in operating income, caused by the special
charges and lower segment profit discussed above, were lower personnel and
benefits costs associated with Solutia's on-going cost reduction efforts.
Equity Earnings from Affiliates
Equity Earnings from Affiliates increased to $10 million in the first
quarter of 1999 from $6 million in the comparable 1998 quarter. The increase
was driven by improved profitability at the Flexsys joint venture, which
benefited from the PPD2 unit's good operating performance.
LIQUIDITY AND CAPITAL RESOURCES
Solutia's working capital at March 31, 1999, increased to $266 million from
$259 million at December 31, 1998. The increase was primarily driven by higher
accounts receivable, partially offset by lower cash balances. The
8
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increase in accounts receivable is consistent with normal sales and collection
trends. Cash balances declined primarily due to lower cash from operations.
Solutia continued to reinvest in itself through share repurchases in the
first quarter of 1999. Shares repurchased under the second 5 million share
repurchase program totaled 1.2 million shares. The cost for shares repurchased
during the quarter was approximately $26 million.
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.
THE YEAR 2000 ISSUE
Overview
The year 2000 ("Y2K") issue refers to the inability of a date-sensitive
computer program to recognize a two-digit date field designated "00" as the
year 2000. Mistaking "00" for 1900 could result in a system failure or
miscalculations causing disruptions to operations, including manufacturing, a
temporary inability to process transactions, send invoices, or engage in other
normal business activities. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty.
Solutia began addressing its Y2K issues in 1996. The planning phase of the
process was completed during 1997. Effective December 31, 1998, Solutia adopted
the Y2K Readiness Disclosure format of the Chemical Manufacturers Association
("CMA"), of which the company is a member. The CMA disclosure format uses four
process categories and five functional areas. Solutia has conformed its Y2K
reporting to the CMA disclosure format. The following sections contain a
summary of Solutia's Y2K readiness and detailed discussions of Solutia's Y2K
issues.
Summary of Y2K Readiness
The following table summarizes Solutia's Y2K readiness. The percentage in
each column indicates the completion of each process step listed.
<TABLE>
<CAPTION>
CONTINGENCY PLANNED
INVENTORY/ PLANS IMPLEMENTATION
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION DEVELOPED DATE
---------- ----------- ------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Business
Applications.......... 100% 80% 80% 80% See Mid-1999
Manufacturing and
Warehousing
Equipment........... 100% 75% 75% 75% Comments 2nd Qtr. 1999
Information Technology
Technical
Infrastructure...... 75% 50% 50% 50% Below 2nd Qtr. 1999
Environmental
Operations
Systems............. 100% 75% 75% 75% 2nd Qtr. 1999
Business Partners..... 80% -- -- -- 2nd Qtr. 1999
</TABLE>
Business Applications
Solutia inventoried and assessed its business applications during 1997. At
that time, the company determined that significant portions of its software
required modification or repair to function properly beyond December 31, 1999.
Solutia is addressing the majority of these Y2K issues through the previously
planned installation of software licensed from SAP AG which is Y2K compliant.
The implementation of SAP involves a series of transitions, the first of which
occurred in January 1997. Through December 31, 1998, all implementations were
completed in accordance with the transition schedule. During the first quarter
of 1999, the company decided to delay the transitions to SAP scheduled for
January 31, 1999, and March 31, 1999, by 30 days each to perform additional
testing, to complete personnel training, and to minimize problems with the
transition. The first of the delayed transitions (rescheduled for February 28,
1999) was completed successfully and, as a result, approximately 85 percent of
Solutia's businesses (based on net sales) have implemented SAP. The final
transition to SAP is underway. Critical issues that are not
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<PAGE>
addressed by SAP are in the process of being remediated. The company expects
to complete remediation of critical business applications by the end of April
1999, except for a limited number of applications that will be remediated just
before Y2K integrated testing. Y2K integrated testing of SAP and non-SAP
systems will occur during mid-1999.
Manufacturing and Warehousing Equipment and Environmental Operations Systems
The manufacturing and warehousing equipment and the environmental
operations systems areas include primary process control systems and devices
with embedded chips. Primary process control systems were inventoried and
assessed during late 1997. Remediation and testing of these systems is
continuing. The inventory and assessment of the company's devices with embedded
chip systems was completed during December 1998. Remediation of the Y2K issues
found is continuing. Some slippage from planned schedules occurred during 1998
as resources were temporarily redirected to other Y2K areas. However,
substantial resources are being directed towards the remediation of Y2K issues
detected and the testing and implementation of repaired systems. Solutia
expects that work on the critical issues in these areas will be completed on
schedule by the end of the second quarter of 1999, with the exception of a
small portion of systems that will be repaired and tested during planned plant
shutdowns in the second half of 1999.
Information Technology Technical Infrastructure
The information technology ("IT") technical infrastructure area is
primarily comprised of host server systems, computer networking infrastructure,
voice systems, and desktop computer workstations and software. The inventory
and assessment of known long lead-time items is complete. Major projects were
identified during 1998 and remediation is scheduled for completion during 1999.
An exhaustive and comprehensive follow-up investigation of this area to assure
that no critical components were overlooked is complete, except for network and
mainframe/midrange software. The assessment, remediation and testing of the
issues identified will be completed by the end of the second quarter 1999.
However, remediation and testing of a small number of systems will occur in the
second half of 1999 to coincide with scheduled system outages.
Business Partners
Solutia's business partners include its suppliers and service providers
(supply chain), and its customers. Solutia has continued its process to
identify and assess those business partners in the supply chain that provide
materials, products or services critical to the company's operations. These
continued reviews have led Solutia to survey additional business partners
during the first quarter of 1999. Approximately two-thirds of Solutia's
critical suppliers report that they have either completed their remediation
efforts or have plans to complete their remediation by mid-1999. Investigation
of the remaining Y2K issues with critical suppliers is continuing on schedule.
Audits of selected suppliers to verify the status and/or completion of their
remediation are planned for the first half of 1999.
Solutia has been working with customers to address their Y2K concerns
regarding Solutia's ability to operate. Plans to address the ability of our
significant customers to accept our products after December 31, 1999, will be
determined as contingency plans are developed.
Integrated Testing
The company intends to perform integrated Y2K testing of critical systems
in all functional areas throughout 1999, with the majority of such testing
occurring during the second and third quarters of 1999. Given the nature of
Solutia's manufacturing and other operations, full-scale integrated testing may
not be practical in some areas and, therefore, may be limited in scope to avoid
significant disruption of the company's operations. Statements of compliance
from vendors and other compliance evidence are expected to mitigate the risk of
not performing integrated testing in those areas.
Contingency Planning
During the first quarter of 1999, Solutia completed the development of a
contingency planning process for Y2K issues. The process engages the
manufacturing sites in the evaluation of their existing contingency plans in
light of possible Y2K effects, such as the loss of electrical and telephone
utilities. Solutia expects that the Y2K contingency plans for all manufacturing
sites will be in place by the beginning of the third quarter 1999. The
contingency
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planning process has been modified for use in non-manufacturing areas and
development of those plans is underway. Contingency plans for non-manufacturing
areas will be completed by the end of third quarter 1999. For both
manufacturing and non-manufacturing areas, the plans will include procedures
that attempt to minimize the impact of any unremediated and unresolved Y2K
issues on Solutia's operations and financial position.
Costs
To date, the company has incurred approximately $8 million in costs related
to Y2K work, excluding the cost of SAP implementation. Management currently
estimates that additional costs to evaluate and remediate the remaining issues
will be less than $5 million. These costs will be expensed as incurred during
1999.
Risks
Based on the status of the company's work to address its Y2K issues,
including the implementation of SAP, management does not expect the Y2K issue
to pose significant operational problems for the company. However, if the
remediation of critical issues is not completed in a timely manner, Y2K could
have a material adverse effect on the company, depending on the nature and
extent of any remaining unremediated or unresolved issues. Furthermore, if the
company's customers, suppliers, and service providers fail to rectify their Y2K
issues in their own systems, the resultant effect on the company may be
material. Management anticipates the most reasonably likely worst-case scenario
would involve a temporary shutdown of certain units if, in management's
judgment, the company cannot run certain processes safely from an
environmental, safety and health standpoint because of the failure of the
company or a supplier to resolve Y2K issues. Through the development of
contingency plans, the company expects to mitigate the effect that any such
temporary shutdowns would have on the company or third parties.
The estimated costs and date of completion of Y2K remediation are based on
management's best estimates, which were derived from numerous assumptions about
future events. These assumptions include the availability of certain resources,
third-party modification plans and other factors. There can be no guarantee
that these estimates will be achieved and actual results could differ
materially. Specific factors that might cause material differences include, but
are not limited to, the availability and cost of personnel trained in this
area, the ability to identify and correct all relevant computer codes, and the
cost and availability of replacements for devices with embedded chips.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133
provides comprehensive and consistent standards for the recognition and
measurement of derivative and hedging activities. It requires that derivatives
be recorded on the Statement of Consolidated Financial Position at fair value
and establishes criteria for hedges of changes in the fair value of assets,
liabilities or firm commitments, hedges of variable cash flows of forecasted
transactions, and hedges of foreign currency exposures of net investments in
foreign operations. Changes in the fair value of derivatives that do not meet
the criteria for hedges would be recognized in the Statement of Consolidated
Income. This statement will be effective for the Company beginning January 1,
2000. The Company does not expect the adoption of SFAS No. 133 to have a
material effect on the consolidated financial statements.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's report on Form 10-K for the year ended December 31, 1998,
described a number of lawsuits brought against Monsanto relating to the alleged
discharge of polychlorinated biphenyls ("PCBs"), from the Anniston, Alabama
plant site. The Company has arrived at an agreement in principle, subject to
Court approval, to settle actions pending in Circuit Court in St. Clair County
which had been consolidated and certified as a class action on behalf of
property owners in a specified area along waterways near the plant (Dyer, et al
v. Monsanto Company, et al.). Under the terms of the agreement, the Company
will pay $23 million in cash to the property owners and has guaranteed that it
will spend $18 million, in addition to the $3 million already expended, over a
period of approximately 6 years on remediation activities directed to the
waterways.
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, 1999.
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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: April 30, 1999
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EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2 Omitted--Inapplicable
3 (i) Omitted--Inapplicable
(ii) By-Laws of Solutia Inc., as amended April 28, 1999
4 Omitted--Inapplicable
10 Solutia Inc. Non-Employee Director Compensation Plan, as
amended February 24, 1999
11 Omitted--Inapplicable; see "Statement of Consolidated
Income" on page 1.
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
14
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BY-LAWS
OF
SOLUTIA INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AS AMENDED APRIL 28, 1999
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").
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SECTION 2.3. Place of Meeting. The Board of Directors, the
Chairman of the Board or the President, as the case may be, may des-
ignate the place of meeting for any annual meeting or for any special
meeting of the stockholders called by the Chairman of the Board, the
President or the Board of Directors. 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 stock-
holders, 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 only (a) pursuant to the
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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 90th day nor earlier than the close of business on
the 120th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, 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 120th day
prior to such annual meeting and not later than the close of business on
the later of the 90th 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 or postponement 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
re-election 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, (ii) the class and number of shares of the
Company which are owned beneficially and of record by such stockholder
and such beneficial owner, and (iii) a representation whether the
stockholder or the beneficial owner, if any, intends or is part of a
group which intends, to (x) deliver a proxy statement and form of proxy
to holders of at least the percentage of the Company's outstanding
Voting Stock required to approve or adopt the proposal or elect the
nominee and/or (y) otherwise solicit proxies from stockholders in
support of such proposal or nomination.
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(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 100 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 120th day prior to
such special meeting and not later than the close of business on the
later of the 90th 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 or postponement 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 be elected at an annual or special meeting of stockholders
of the Company 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.
(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
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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.
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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
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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 over-
night 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 pres-
ent 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.
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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.
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ARTICLE IV.
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the
Company shall be a Chairman of the Board and a President, one of whom
shall be designated by the Board of Directors as the Chief Executive
Officer, 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. The Chairman of the Board shall act with respect to matters
of strategy and policy for the Company and perform all duties incidental
to his office which may be required by law and all such other duties as
are assigned to the Chairman of the Board by these By-Laws, the Board of
Directors or, if applicable, the Chief Executive Officer.
SECTION 4.4. President. The President shall act in a general
executive capacity. The President shall perform such other duties as
may be assigned to him by these By-Laws, the Board of Directors, or, if
applicable, the Chief Executive Officer. The President shall, in the
absence 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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SECTION 4.5. Chief Executive Officer. The Chief Executive Officer
shall be responsible for the general management of the affairs of the
Company. He shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall also perform such other
duties as may be assigned to him by these By-Laws or the Board of
Directors. The Chief Executive Officer shall designate who shall
perform the duties of the Chief Executive Officer in his absence.
SECTION 4.6. 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 4.7. 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 4.8. 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 4.9. 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 4.10. 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 4.11. 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
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assigned to him by these By-Laws, the Board of Directors, the Chairman
of the Board, the President or the Chief Financial Officer.
SECTION 4.12. 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 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 4.13. 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 4.14. 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
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transfer and payment of any applicable transfer taxes as the Company or
its agents may reasonably require or by appropriate book-entry pro-
cedures.
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.
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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 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) initi-
ated 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 state-
ment 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 pro-
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ceeding in advance of its final disposition conferred in this Article
VII each shall be a contract right.
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 Company 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.
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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 expense, 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 to 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
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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
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 stock-
holders to adopt, amend or repeal any provision of these By-Laws.
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SOLUTIA INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
1. NAME OF PLAN. This plan shall be known as the "Solutia Inc. Non-
Employee Director Compensation Plan" and is hereinafter referred to as
the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to increase the
ownership interest in Solutia Inc., a Delaware corporation (the
"Company"), by Non-Employee Directors whose services are considered
essential to the Company's continued progress and to provide a further
incentive to serve as directors of the Company.
3. EFFECTIVE DATE AND TERM. The Plan is effective as of September 3,
1997 (the "Effective Date"). The Plan shall remain in effect until
terminated by action of the Board, or until no shares of Common Stock
remain available under the Plan, if earlier.
4. DEFINITIONS. The following terms shall have the meanings set forth
below:
"Administrator" has the meaning set forth in Section 20(a).
"Annual Meeting" means an annual meeting of the shareholders of
the Company.
"Annual Retainer" means the amount a Non-Employee Director will be
entitled to receive for serving as a director in a Plan Year, on
an annualized basis, as determined by and set forth in resolutions
of the Board, but shall not include reimbursement for expenses,
fees associated with service on any committee of the Board, the
retainer payable for serving as the chairman of any committee of
the Board, or fees with respect to any other services to be
provided to the Company.
"Board" means the Board of Directors of the Company.
"Business Combination" has the meaning set forth in subparagraph
(c) of the definition of "Change of Control."
"Change of Control" means any of the following events:
(a) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (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
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 1
As amended 2/24/99<PAGE>
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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
definition; or
(b) Individuals who, as of the date hereof, constitute the Board
(as of the date hereof 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) Approval by the stockholders of the Company of a
reorganization, merger, 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, 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
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 2
As amended 2/24/99
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(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.
"Change of Control Consideration" means, for purposes of this
Plan, (i) the amount of any cash, plus the value of any securities
and other noncash consideration, constituting the most valuable
consideration per share of Common Stock paid to any shareholder in
the transaction or series of transactions that results in a Change
of Control or (ii) if no consideration per share of Common Stock
is paid to any shareholder in the transaction or series of
transactions that results in a Change of Control, the highest
reported sale price of a share of Common Stock on the New York
Stock Exchange composite tape (or if the Common Stock is not
listed on such exchange, on any other national securities exchange
on which the Common Stock is listed or the NASDAQ Stock Market)
during the 60-day period prior to and including the date of a
Change of Control. To the extent that such consideration consists
all or in part of securities or other noncash consideration, the
value of such securities or other noncash consideration shall be
determined by the Committee in good faith.
"Change of Control Date" has the meaning set forth in Section
19(b).
"Code" has the meaning set forth in Section 9.
"Committee" means the committee that supervises the Plan, as more
fully defined in Section 20(a).
"Common Stock" means the Company's common stock, par value $.01
per share.
"Company" has the meaning set forth in Section 2.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 3
As amended 2/24/99
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"Deferred Cash Account" means a bookkeeping account maintained by
the Company for a Non-Employee Director representing the Elective
Cash Amount, if any, credited to such account pursuant to Section
6.
"Deferred Stock Account" means a bookkeeping account maintained by
the Company for a Non-Employee Director representing the Non-
Employee Director's interest in the Stock Amount and the Elective
Stock Amount, if any, credited to such account pursuant to Section
6.
"Delivery Date" has the meaning set forth in Section 7.
"Discretionary Amount" means with respect to each Plan Year, the
dollar amount equal to 50% of the Annual Retainer for such Plan
Year, all or any portion (in percentage increments determined by
the Administration) of which the Non-Employee Director may, but is
not required to, elect to have credited to his or her Deferred
Stock Account in the form of an Elective Stock Amount and/or his
or her Deferred Cash Account in the form of an Elective Cash
Amount.
"Dividend Equivalent" for a given dividend or distribution means a
number of shares of Common Stock having a Value, as of the date
such Dividend Equivalent is credited to a Deferred Stock Account,
equal to the amount of cash, plus the fair market value on the
date of distribution of any property, that is distributed with
respect to one share of Common Stock pursuant to such dividend or
distribution; such fair market value to be determined by the
Committee in good faith.
"Effective Date" has the meaning set forth in Section 3.
"Election Amount" for each Non-Employee Director who has made a
Plan Year Deferral Election pursuant to Section 5 shall be, with
respect to each Plan Year, (i) the percentage that is set forth in
the Non-Employee Director's Plan Year Deferral Election Notice
multiplied by (ii) the Discretionary Amount.
"Elective Cash Amount" means that portion of the Election Amount
which the Non-Employee Director designated in his or her Plan Year
Deferral Election Notice to be credited to his or her Deferred
Cash Account.
"Elective Stock Amount" means that portion of the Election Amount
which the Non-Employee Director designated in his or her Plan Year
Deferral Election Notice to be credited to his or her Deferred
Stock Account in the form of Common Stock.
"Exchange Act" has the meaning set forth in subparagraph (a) of
the definition of "Change of Control."
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 4
As amended 2/24/99
<PAGE>
<PAGE>
"Fraction," with respect to a person who is a Non-Employee
Director during part, but not all, of a Plan Quarter, means the
amount obtained by dividing (i) the number of calendar months
during such Plan Quarter that such person was a Non-Employee
Director by (ii) 3; provided, that for purposes of the foregoing,
a partial calendar month shall be treated as a whole month.
"Incumbent Board" has the meaning set forth in subparagraph (b) of
the definition of "Change of Control."
The "Interest Rate" means Moody's Baa Bond Index Rate, as in
effect from time to time.
"Non-Employee Director" means any director of the Company who is
not an employee of the Company or any subsidiary thereof on the
date of any award made or granted to such person hereunder.
"Option" means an award to purchase Common Stock granted to a Non-
Employee Director pursuant to the terms of Section 8.
"Outstanding Company Common Stock" has the meaning set forth in
subparagraph (a) of the definition of "Change of Control."
"Outstanding Company Voting Securities" has the meaning set forth
in subparagraph (a) of the definition of "Change of Control."
"Partial Quarter Notice Period" has the meaning set forth in
Section 5.
"Partial Year Fraction," with respect to a person who is a Non-
Employee Director during part, but not all of a Plan Year, means
the amount obtained by dividing (i) the number of calendar months
during such Plan Year that such person was a Non-Employee Director
by (ii) 12; provided, that for the purposes of the foregoing, a
partial calendar month shall be treated as a whole month.
"Person" has the meaning set forth in subparagraph (a) of the
definition of "Change of Control."
"Plan" has the meaning set forth in Section 1.
"Plan Quarter" means the 3 month period commencing on the first
Trading Day in May, August, November or February, as applicable,
during a Plan Year.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 5
As amended 2/24/99
<PAGE>
<PAGE>
"Plan Year" means the year commencing on the date of an Annual
Meeting and ending on the day before the next succeeding Annual
Meeting; provided, that the first Plan Year shall begin on the
Effective Date and end on the day before the first Annual Meeting
and provided further, that the last Plan Year with respect to a
Non-Employee Director who ceases to be a Non-Employee Director
during a Plan Year, shall begin on the first day of such Plan Year
and end on the day such Non-Employee Director ceases to be a Non-
Employee Director.
"Plan Year Deferral Election" means the irrevocable election to
defer, for any Plan Year, all or any part (in percentage
increments determined by the Administrator) of the Discretionary
Amount for the next Plan Year such that the deferred portion
becomes the Election Amount. Any Plan Year Deferral Election
Notice shall remain in effect for that Plan Year and for all
subsequent Plan Years unless and until such Non-Employee Director
delivers to the Administrator, no later than the last business day
prior to the commencement of the next succeeding Plan Year, a new
Plan Year Deferral Election Notice setting forth a different Plan
Year Deferral Election.
"Plan Year Deferral Election Notice" means the notice of the Plan
Year Deferral Election delivered to the Administrator.
"Rule 16b-3" has the meaning set forth in Section 20(a).
"Stock Amount" means with respect to each Plan Year, the dollar
amount equal to 50% of the Annual Retainer for such Plan Year
which will be automatically and mandatorily credited to the Non-
Employee Director's Deferred Stock Account in the form of Common
Stock determined in the manner set forth in Section 6(b).
"Trading Day" means any day on which there are sales of Common
Stock reported on the New York Stock Exchange composite tape, or
if the Common Stock is not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed
or the Nasdaq Stock Market.
The "Value" of a share of Common Stock as of any given date
(including the date a Deferred Stock Account is credited, or, in
the case of Options, the date the Option is granted) means the
average of the highest and lowest sales prices of a share of
Common Stock reported on the New York Stock Exchange Composite
Transactions for such day, or, if shares of Common Stock were not
traded on the New York Stock Exchange on such date, then on the
next preceding date on which such shares were traded, all as
reported by The Wall Street Journal under the heading "New York
Stock Exchange - Composite Transactions" or by such other source
as the Committee may select.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 6
As amended 2/24/99
<PAGE>
<PAGE>
5. ELECTION TO RECEIVE SHARES OR DEFER CASH IN LIEU OF CASH
COMPENSATION. (a) In order to make a Plan Year Deferral Election
pursuant to this Section 5, a Non-Employee Director who is a Non-
Employee Director prior to the Effective Date must deliver to the
Administrator, no later than September 30, 1997, his or her Plan Year
Deferral Election Notice.
(b) Except for the Plan Year Deferral Election due by September
30, 1997 as set forth in Section 5(a) and except for persons who first
become Non-Employee Directors on a date other than an Annual Meeting
Date (to which Section 5(c) applies), each Non-Employee Director (and
each nominee for a position on the Board who would, if elected by the
Company's shareholders at the next succeeding Annual Meeting, be a Non-
Employee Director) may make a Plan Year Deferral Election for the next
succeeding Plan Year by delivering to the Administrator, no later than
the last business day prior to the commencement of the next succeeding
Plan Year, a Plan Year Deferral Election Notice.
(c) Except for the Plan Year Deferral Election due by September
30, 1997 as set forth in Section 5(a), each person who becomes a Non-
Employee Director on a date other than the date of an Annual Meeting
must deliver his or her Plan Year Deferral Election Notice within thirty
days of the date he or she first becomes a Non-Employee Director (the
"Partial Quarter Notice Period").
6. ACCOUNTS; CREDIT OF SHARES AND CASH. (a) The Company shall
maintain a Deferred Stock Account and a Deferred Cash Account for each
Non-Employee Director. As part of the compensation payable to each Non-
Employee Director for service on the Board, the Deferred Stock Account
of each Non-Employee Director shall be credited with shares of Common
Stock as set forth in this Section 6 and the Deferred Cash Account of
each Non-Employee Director may, at the Non-Employee Director's election,
be credited with cash as set forth in this Section 6. The shares
credited to the Deferred Stock Account pursuant to this Section 6 may
represent fractional as well as whole shares of Common Stock.
(b) Except as set forth in Section 6(e), as of the first day of
each Plan Quarter (or in the case of a Non-Employee Director who becomes
a Non-Employee Director on a date other than on the date of an Annual
Meeting, the first Trading Day in a Plan Quarter on which he or she
becomes a Non-Employee Director), the Deferred Stock Account of each
Non-Employee Director shall be credited with a number of shares of
Common Stock having a Value equal to 25% of the Stock Amount, multiplied
by the Fraction, if applicable.
(c) Except as set forth in Section 6(e), as of the first day of
each Plan Quarter (or in the case of a Non-Employee Director who first
becomes a Non-Employee Director on a date other than on the date of an
Annual Meeting, on the first Trading Day following the conclusion of the
Partial Quarter Notice Period), the Deferred Stock Account of each Non-
Employee
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 7
As amended 2/24/99
<PAGE>
<PAGE>
Director who has a Plan Year Deferral Election for Common Stock in
effect on such date shall be credited with (i) a number of shares of
Common Stock having a Value equal to 25% of the Elective Stock Amount,
multiplied by the Fraction, if applicable.
(d) Except as set forth in Section 6(f), as of the first day of
each Plan Quarter (or in the case of a Non-Employee Director who first
becomes a Non-Employee Director on a date other than on the date of an
Annual Meeting, on the first Trading Day following the conclusion of the
Partial Quarter Notice Period), the Deferred Cash Account of each Non-
Employee Director who has a Plan Year Deferral Election for cash in
effect on such date shall be credited with (i) an amount equal to 25% of
the Elective Cash Amount, multiplied by the Fraction, if applicable.
(e) On September 4, 1997, the Deferred Stock Account of each
Non-Employee Director who becomes a Non-Employee Director prior to the
Effective Date shall be credited with a number of shares of Common Stock
having a Value equal to 25% of the Stock Amount, multiplied by the
Fraction. In addition, the Deferred Stock Account of each Non-Employee
Director who becomes a Non-Employee Director prior to the Effective Date
and who has a Plan Year Deferral Election for Common Stock in effect on
October 1, 1997, shall be credited with a number of shares of Common
Stock having a Value equal to 25% of the Elective Stock Amount,
multiplied by the Fraction.
(f) On October 1, 1997, the Deferred Cash Account of each Non-
Employee Director who becomes a Non-Employee Director prior to the
Effective Date and who has a Plan Year Deferral Election for cash in
effect on October 1, 1997, shall be credited with an amount equal to 25%
of the Elective Cash Amount, multiplied by the Fraction.
(g) Whenever a dividend is paid or other distribution made with
respect to the Common Stock, each Deferred Stock Account shall be
credited with a number of shares equal to (i) the number of shares of
Common Stock in such Deferred Stock Account as of the record date for
such dividend or other distribution, multiplied by (ii) the Dividend
Equivalent for such dividend paid or other distribution made.
(h) Each Deferred Cash Account shall accrue interest on the
balance therein at the Interest Rate, such interest to be credited at
least monthly.
7. DELIVERY OF SHARES AND DEFERRED CASH. The shares of Common Stock
in a Non-Employee Director's Deferred Stock Account and the cash balance
in a Non-Employee Director's Deferred Cash Account as of the date the
Non-Employee Director ceases to be a Non-Employee Director for any
reason (the "Delivery Date") shall begin to be delivered in accordance
with this Section 7 as soon as practicable after the Delivery Date. The
shares and cash balance shall be delivered in two equal installments
with the first installment being delivered as soon as practicable after
the Delivery Date and the second installment on the first anniversary of
the
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 8
As amended 2/24/99
<PAGE>
<PAGE>
Delivery Date. If the number of shares to be delivered at one time
includes a fractional share, such number shall be rounded to the nearest
whole number of shares. If any such shares or cash are to be delivered
after the Non-Employee Director has died or become legally incompetent,
they shall be delivered to the Non-Employee Director's estate, legal
guardian or beneficiary designated pursuant to Section 21(a), as the
case may be, as soon as practicable. References to a Non-Employee
Director in this Plan shall be deemed to refer to the Non-Employee
Director's estate, legal guardian or beneficiary designated pursuant to
Section 21(a), where appropriate. The Non-Employee Director shall become
the holder of record of the shares of Common Stock upon delivery.
8. GRANT OF OPTIONS. (a) Except as set forth in Section 8(d), each
Non-Employee Director shall receive, on the date such person becomes a
Non-Employee Director, an initial Option to purchase 8,000 shares of
Common Stock.
(b) Each person who becomes a Non-Employee Director on the date
of, or who remains a Non-Employee Director on the date of and
immediately following each Annual Meeting held after the Effective Date
hereof, shall receive, as of such date, an annual Option to purchase
2,000 shares of Common Stock.
(c) Except as set forth in Section 8(d), each person who becomes
a Non-Employee Director on a date other than on an Annual Meeting date,
shall receive, as of such date, an Option to purchase that number of
shares of Common Stock equal to 2,000 multiplied by the Partial Year
Fraction.
(d) Persons who become Non-Employee Directors prior to the
Effective Date shall receive, on the same date as the Committee makes
the first option grants to management personnel of the Company, an
Option to purchase 9,334 shares of Common Stock, 8,000 of which
constitute the initial grant that would have otherwise been granted
pursuant to Section 8(a) but for this Section 8(d), and 1,334 of which
constitute the prorated annual Option grant for the first Plan Year
calculated in accordance with Section 8(c).
9. TYPE OF OPTIONS. All Options granted under the Plan shall be
"nonqualified" stock options subject to the provisions of Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"). All Options
granted under the Plan prior to February 24, 1999, shall be subject to
the terms and conditions set forth in the certificate attached as
Exhibit A hereto. All Options granted under the Plan on or after
February 24, 1999, shall be subject to the terms and conditions set
forth in the certificate attached as Exhibit B hereto.
10. EXERCISE PRICE. The exercise price per share of Common Stock
purchasable under all Options granted pursuant to the Plan shall be the
Value of a share of Common Stock on the Option Grant Date.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 9
As amended 2/24/99
<PAGE>
<PAGE>
11. EXERCISE RIGHTS. Each Option granted hereunder prior to February
24, 1999, shall become exercisable, during the Option term set forth in
Section 12, in three equal installments commencing on the first
anniversary of the Option Grant Date, and annually thereafter, provided
that the Non-Employee Director continues in the service of the Company
as a director through such anniversaries. Each Option granted on or
after February 24, 1999, shall become exercisable during the Option term
set forth in Section 12, in three equal installments, on the dates of
the first three Annual Meetings of Stockholders of the Company following
the Option Grant Date, provided that the Non-Employee Director continues
in the service of the Company as a director until such dates; provided,
however, that the Option, if not already fully exercisable, shall become
fully exercisable upon the Non-Employee Director's retirement from the
Board at the mandatory retirement age set forth in the Charter for the
Company's Board, or other applicable document. Each Option may be
exercised in full share lots only. Notwithstanding the foregoing, the
Committee shall have the authority to determine any vesting acceleration
or forfeiture waiver regarding any Option granted under the Plan.
12. OPTION TERM. The Option term will expire at the end of the day
next preceding ten years from the Option Grant Date, or at the end of
the day next preceding two years from the date the Non-Employee Director
ceases to be a director of the Company for any reason, whichever occurs
first.
13. METHOD OF EXERCISE. The Option shall be exercised by (a) written
notice or notice in such other form as may be prescribed from time to
time, given to the Company or its designee (at the address specified by
the Company from time to time) specifying the date the Option was
granted and the number of shares of Common Stock as to which the Option
is being exercised, plus (b) payment to the Company in full for the
Shares so specified. Within a reasonable time after exercise of the
Option, the Company shall deliver shares of Common Stock to the Non-
Employee Director in respect of which the Option shall have been
exercised and shall pay all stamp taxes in respect thereof, provided
that upon or prior to the delivery of such shares, provision (as
specified by the Company from time to time) shall be made by the Non-
Employee Director for the payment to the Company of any and all taxes
which it shall be required to withhold in connection with the exercise
of the Option by any law or regulation of any government, whether
federal, state or local, and whether domestic or foreign. The Non-
Employee Director shall have the right to pay the Option exercise price
by delivery of shares of Common Stock (or other evidence of ownership of
shares satisfactory to the Company) already owned by the Non-Employee
Director with a Value equal to the Option exercise price as payment,
provided that such shares have been held by the Non-Employee Director
for at least six months on the date of exercise.
14. DELIVERY OF SHARES, VOTING AND OTHER RIGHTS. The Non-Employee
Director shall have no rights as a stockholder with respect to any
Option shares or the shares of
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 10
As amended 2/24/99
<PAGE>
<PAGE>
Common Stock credited to his or her Deferred Stock Account unless and
until the Non-Employee Director becomes the holder of record of such
shares and, subject to the provisions of Sections 6 and 19 hereof, no
adjustment shall be made for dividends, ordinary or extraordinary
(whether in cash or securities or property), or other distributions, or
other rights in respect of such shares as to which the record date is
prior to the date upon which the Non-Employee Director shall have become
the holder of record thereof. Shares delivered under the Plan shall be
in book entry form unless the Non-Employee Director has requested in the
written notice specified in Section 13 that they be issued in
certificate form.
15. TAX WITHHOLDING. The Company shall have the right to require,
prior to the delivery of any shares of Common Stock pursuant to the
Plan, that a Non-Employee Director make arrangements satisfactory to the
Company for the withholding of any taxes required by law to be withheld
with respect to the delivery of such shares, including without
limitation by the withholding of shares that would otherwise be so
delivered, by withholding from any other payment due to the Non-Employee
Director, or by a cash payment to the Company by the Non-Employee
Director.
16. NO TRUST OR FUND CREATED. The Plan shall not create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any of its subsidiaries and a Non-
Employee Director or any other person or entity. To the extent that any
person acquires a right to receive payments from the Company or any of
its affiliates pursuant to the Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company or any of its
subsidiaries.
17. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of
the Plan, the Company shall not be required to deliver any shares of
Common Stock under the Plan prior to fulfillment of all of the following
conditions:
(i) Any registration or other qualification of such shares
under any state, federal, or foreign law or regulation, or
the maintaining in effect of any such registration or other
qualification which the Administrator shall, in its absolute
discretion upon the advice of counsel, deem necessary or
advisable; and
(ii) Obtaining any other consent, approval, or permit from
any state or federal governmental agency which the
Administrator shall, in its absolute discretion after
receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Company from
adopting other or additional compensation arrangements for Non-Employee
Directors.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 11
As amended 2/24/99
<PAGE>
<PAGE>
18. SHARES AVAILABLE. Subject to Section 19 below, 400,000 shares of
Common Stock may be delivered under the Plan. Shares of Common Stock
deliverable under the Plan may be taken from treasury shares of the
Company or purchased on the open market.
19. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event
of any change in corporate capitalization, such as a stock split or a
corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property
(without regard to the payment of any cash dividends by the Company in
the ordinary course) of the Company, any reorganization (whether or not
such reorganization comes within the definition of such term in Section
368 of the Code) or any partial or complete liquidation of the Company,
the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares to be delivered under the Plan, in
the number, kind and Option exercise price of shares subject to
outstanding Options, in the number and kind of shares held in the
Deferred Stock Accounts or subject to Options and/or such other
equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number
of shares held in the Deferred Stock Accounts or subject to Options
shall always be a whole number.
(b) Without limiting the generality of the foregoing, and
notwithstanding any other provision of this Plan, in the event of a
Change of Control, the following shall occur on the date of the Change
of Control (the "Change of Control Date"): (i) the last day of the then
current Plan Year shall be deemed to occur on the Change of Control
Date; (ii) the Company shall immediately pay to each Non-Employee
Director in a lump sum the Change of Control Consideration multiplied
by the number of shares of Common Stock held in each Non-Employee
Director's Deferred Stock Account immediately before such Change of
Control; (iii) the Company shall immediately pay to each Non-Employee
Director in a lump sum the balance in his or her Deferred Cash Account;
(iv) the Options shall become fully exercisable by the Non-Employee
Director without regard to Section 11; and (v) the Plan shall be
terminated. Notwithstanding the foregoing, if the payment of cash with
respect to Deferred Stock Accounts pursuant to the preceding sentence
would make a Change in Control transaction ineligible for pooling-of-
interests accounting under APB No. 16 that but for the nature of such
grant would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute for such cash Common
Stock or other equity securities with a Value equal to the amount of
such cash.
(c) If the shares of Common Stock credited to the Deferred Stock
Accounts and subject to Options are converted pursuant to this Section
19 into another form of property, references in the Plan to the Common
Stock shall be deemed, where appropriate, to refer to such other form of
property, with such other modifications as may be required for the Plan
to operate in accordance with its purposes. Without limiting the
generality of the foregoing, references to the delivery of shares of
Common Stock shall be deemed to refer to delivery of cash and the
incidents of ownership of any other property held in the Deferred Stock
Accounts and subject to Options.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 12
As amended 2/24/99
<PAGE>
<PAGE>
20. ADMINISTRATION; AMENDMENT. (a) The Board shall have the power to
amend or terminate the Plan. The Executive Compensation and Development
Committee or any other committee of the Board (the "Committee")
designated by the Board that will satisfy Rule 16b-3 of the Exchange
Act, including any successor rule ("Rule 16b-3"), shall supervise the
Plan. The Plan shall be administered by the Vice President - Human
Resources, or such other person or persons designated by the Committee
(the "Administrator"). The Committee shall consist solely of two or more
"non-employee directors" of the Company who shall be appointed by the
Board. A member of the Board shall be deemed to be a "non-employee
director" for the purposes of this Section 20 only if he satisfies such
requirements as the Securities and Exchange Commission may establish for
"non-employee directors" under Rule 16b-3. Members of the Board receive
no additional compensation for their services in connection with the
administration of the Plan.
(b) Any act that the Committee is authorized to perform hereunder
may instead be performed by the Board at its discretion, and to the
extent the Board so acts, references in the Plan to the Committee shall
refer to the Board as so applicable. Anything to the contrary herein
notwithstanding, to the extent that any permitted action taken by the
Board conflicts with action taken by the Committee, the Board action
shall control.
(c) The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. All questions of interpretation of
the Plan or of any shares delivered under it shall be determined by the
Committee and such determination shall be final and binding upon all
persons having an interest in the Plan.
(d) Notwithstanding any other provision of the Plan, no amendment
or termination of the Plan shall adversely affect the interest of any
Non-Employee Director in Options granted to him or her, in shares
previously credited to such Non-Employee Director's Deferred Stock
Account, or in cash previously credited to such Non-Employee Director's
Deferred Cash Account without that Non-Employee Director's express
written consent.
21. TRANSFERABILITY. (a) In the event of a Non-Employee Director's
death, all of such person's rights with respect to his or her Deferred
Stock Account and Deferred Cash Account will transfer to the maximum
extent permitted by law to such person's beneficiary. Each Non-Employee
Director may name, from time to time, any beneficiary or beneficiaries
(which may be named contingently or successively) as his or her
beneficiary for receiving delivery of the shares of Common Stock from
the Deferred Stock Account and the cash from the Deferred Cash Account
under this Plan. Each designation shall be on a form prescribed by the
Administrator, will be effective only when delivered to the Company and
when effective will revoke all prior designations by the Non-Employee
Director. If a Non-Employee Director dies with no such beneficiary
designation in effect, such person's beneficiary shall be his or her
estate and such
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 13
As amended 2/24/99
<PAGE>
<PAGE>
person's payments will be transferable by will or pursuant to laws of
descent and distribution applicable to such person.
(b) Each Option granted under the Plan by its terms shall not be
transferable by the Non-Employee Director otherwise than by will, or by
the laws of descent and distribution, and shall be exercised during the
lifetime of the Non-Employee Director only by him or her. No Option or
interest therein may be transferred, assigned, pledged or hypothecated
by the Non-Employee Director during his or her lifetime, whether by
operation of law or otherwise, or be made subject to execution,
attachment or similar process.
22. MISCELLANEOUS. Nothing in the Plan shall be deemed to create any
obligation on the part of the Board to nominate any Non-Employee
Director for reelection by the Company's shareholders or to limit the
rights of the shareholders to remove any director.
23. GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 14
As amended 2/24/99
<PAGE>
<PAGE>
EXHIBIT A
FORM OF
SOLUTIA INC.
1997
NON-QUALIFIED STOCK OPTION
(NOT TRANSFERABLE)
CERTIFICATE
Grant to
[insert Name of Optionee]
(The "Optionee")
to purchase from Solutia Inc. (the "Company")
[insert Number of shares]
shares of its common stock
par value $0.01 per share (the "Optioned Shares")
at the price of
[insert Option Price]
per share
pursuant to and subject to the provisions of the
Solutia Inc. Non-Employee Director Compensation Plan (the "Plan")
and to the Terms and Conditions set forth on the reverse hereof
Option Grant Date: [insert grant date]
<PAGE>
<PAGE>
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
DEFINITIONS.
The terms "Administrator", "Value", and "Common Stock" when used
herein, shall have the meanings set forth in the Plan.
EXERCISE RIGHTS.
The Option shall become exercisable, during the Option term set forth
in the third paragraph hereof and subject to the other terms and conditions
hereof, as to one-third of the Optioned Shares on the first anniversary of the
Option Grant Date, as to an additional one-third of the Optioned shares on the
second anniversary of the Option Grant Date, and as to any or all of the
Optioned Shares on the third anniversary of the Option Grant Date, provided
that the Optionee continues in the service of the Company as a director through
such anniversaries. Notwithstanding the foregoing, but subject to the third
paragraph hereof, an Option shall become fully and immediately exercisable upon
the occurrence of a Change in Control as set forth in Section 19 of the Plan.
The Option may be exercised in full share lots only.
OPTION TERM.
The Option term will expire at the end of the day next preceding ten
years from the date the Option was granted, or at the end of the day next
preceding two years from the date the Optionee ceases to be a director of the
Company for any reason, whichever first occurs.
METHOD OF EXERCISE.
The Option shall be exercised by (a) written notice, or notice in such
other form as may be prescribed from time to time, given to the Company or its
designee (at the address specified by the Company from time to time) specifying
the date the Option was granted and the number of shares of Common Stock as to
which the Option is being exercised, plus (b) payment to the Company in full
for the shares so specified. Within a reasonable time after exercise of the
Option, the Company shall deliver shares of Common Stock to the Optionee in
respect of which the Option shall have been exercised and shall pay all stamp
taxes in respect thereof, provided that upon or prior to the delivery of such
shares of Common Stock, provision (as specified by the Company from time to
time) shall be made by the Optionee for the payment to the Company of any and
all taxes which it shall be required to withhold in connection with exercise of
the Option, by any law or regulation of any government, whether federal, state
or local and whether domestic or foreign. Payment may be made by delivery of
shares of Common Stock (or other evidence of ownership of shares of Common
Stock satisfactory to the Company) with a Value equal to the Option exercise
price, provided that such shares have been held by the Optionee for at least
six months at the time of exercise.
<PAGE>
<PAGE>
STOCKHOLDER STATUS.
The Optionee shall have no rights as a stockholder with respect to any
shares of Common Stock subject to an Option unless and until the Optionee shall
have become the holder of record of such underlying shares of Common Stock and,
subject to the provisions of the sixth paragraph hereof, no adjustment shall be
made for dividends, ordinary or extraordinary (whether in cash or securities or
other property), or other distributions, or other rights in respect of such
shares of Common Stock as to which the record date is prior to the date upon
which the Optionee shall have become the holder of record thereof.
SHARE AND PRICE ADJUSTMENT.
In the event of any adjustments in the outstanding shares of Common
Stock, as provided for in Section 19 of the Plan, the Executive Compensation
and Development Committee of the Board of Directors of the Company may make
such substitution or adjustments in the aggregate number and kind of shares to
be delivered under the Plan, in the number, kind and Option exercise price of
shares subject to outstanding Options and/or such other equitable substitution
or adjustments as it may determine to be appropriate in its sole discretion.
The Optionee shall be notified of any such adjustment and any adjustment, or
failure to adjust, shall be final and binding upon the Company and the
Optionee.
SERVICE AS A DIRECTOR.
The grant of this Option is a separate inducement in connection with
the Optionee's service as a director of the Company. Neither the Option nor any
provision hereof shall be deemed to create any obligation on the part of the
Board of Directors of the Company to nominate any Optionee for reelection to
the Company's Board of Directors by the Company's shareholders or to limit the
rights of the shareholders to remove any director.
OPTION SUBJECT TO LAWS AND REGULATION.
Each exercise of the Option shall be subject to all requirements as to
(a) any registration or other qualifications of such shares under any state,
federal, or foreign law or regulation, or the maintaining in effect of any such
registration or other qualification which the Administrator shall, in his or
her absolute discretion upon the advice of counsel, deem necessary or
advisable, and (b) obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Administrator shall, in his or
her absolute discretion after receiving advice of counsel, determine to be
necessary or advisable. Anything herein to the contrary notwithstanding, the
Option may not be exercised, in whole or in part, unless and until the Company
shall have been able to comply with all such requirements and regulations free
of any conditions not acceptable to the Company. As a condition to the
exercise of the Option, either in whole or in part, the Optionee shall execute
such documents and take such action as the Company in its sole discretion deems
necessary or advisable to assist the Company in compliance
<PAGE>
<PAGE>
with any such requirements, and Optionee shall comply with all requirements of
any regulatory authority having control or supervision.
GENERAL PROVISIONS.
The Option is not transferable by the Optionee otherwise than by will
or by the laws of descent and distribution, and during the lifetime of the
Optionee shall be exercisable only by the Optionee.
The validity, interpretation, performance and enforcement of this
Option shall be governed by the laws of the State of Delaware.
Each and every provision of the Option shall be administered, construed
and interpreted so that the Option shall in all respects conform to the
provisions of the Plan, a copy of which has been delivered to the Optionee, and
any provision that cannot be so administered shall be deemed appropriately
modified, or, if necessary, disregarded. In no event shall this Option be
deemed to be an Incentive Stock Option under Section 422 of the Internal
Revenue Code of 1986, as amended.
<PAGE>
<PAGE>
EXHIBIT B
FORM OF
SOLUTIA INC.
[Year]
NON-QUALIFIED STOCK OPTION
(NOT TRANSFERABLE)
CERTIFICATE
Grant to
[insert Name of Optionee]
(The "Optionee")
to purchase from Solutia Inc. (the "Company")
[insert Number of shares]
shares of its common stock
par value $0.01 per share (the "Optioned Shares")
at the price of
[insert Option Price]
per share
pursuant to and subject to the provisions of the
Solutia Inc. Non-Employee Director Compensation Plan (the "Plan")
and to the Terms and Conditions set forth on the following pages
Option Grant Date: [insert grant date]
<PAGE>
<PAGE>
TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION
DEFINITIONS.
- -----------
The terms "Administrator", "Value", and "Common Stock" when used
herein, shall have the meanings set forth in the Plan.
EXERCISE RIGHTS.
- ---------------
The Option shall become exercisable, during the Option term set
forth in the third paragraph hereof and subject to the other terms and
conditions hereof, as to one-third of the Optioned Shares on the date of
the first Annual Meeting of Stockholders of the Company following the
Option Grant Date, as to an additional one-third of the Optioned shares
on the date of the second Annual Meeting of Stockholders of the Company
following the Option Grant Date, and as to any or all of the Optioned
Shares on the date of the third Annual Meeting of Stockholders of the
Company following the Option Grant Date, provided that the Optionee
continues in the service of the Company as a director until the date of
the applicable Annual Meetings of Stockholders. Notwithstanding the
foregoing, but subject to the third paragraph hereof, an Option shall
become fully and immediately exercisable upon the occurrence of a Change
in Control as set forth in Section 19 of the Plan or upon the Optionee's
retirement from the Board of Directors at the mandatory retirement age
set forth in the Charter for the Company's Board of Directors, or other
applicable document. The Option may be exercised in full share lots
only.
OPTION TERM.
- -----------
The Option term will expire at the end of the day next preceding
ten years from the date the Option was granted, or at the end of the day
next preceding two years from the date the Optionee ceases to be a
director of the Company for any reason, whichever first occurs.
METHOD OF EXERCISE.
- ------------------
The Option shall be exercised by (a) written notice, or notice in
such other form as may be prescribed from time to time, given to the
Company or its designee (at the address specified by the Company from
time to time) specifying the date the Option was granted and the number
of shares of Common Stock as to which the Option is being exercised,
plus (b) payment to the Company in full for the shares so specified.
Within a reasonable time after exercise of the Option, the Company shall
deliver shares of Common Stock to the Optionee in respect of which the
Option shall have been exercised and shall pay all stamp taxes in
respect thereof, provided that upon or prior to the delivery of such
shares of Common Stock, provision (as specified by the Company from time
to time) shall be made by the Optionee for the payment to the Company of
any and all taxes which it shall be required to withhold in connection
with exercise of the Option, by any law or regulation of any government,
whether federal, state or local and whether domestic
<PAGE>
<PAGE>
2
or foreign. Payment may be made by delivery of shares of Common Stock
(or other evidence of ownership of shares of Common Stock satisfactory
to the Company) with a Value equal to the Option exercise price,
provided that such shares have been held by the Optionee for at least
six months at the time of exercise.
STOCKHOLDER STATUS.
- ------------------
The Optionee shall have no rights as a stockholder with respect to
any shares of Common Stock subject to an Option unless and until the
Optionee shall have become the holder of record of such underlying
shares of Common Stock and, subject to the provisions of the sixth
paragraph hereof, no adjustment shall be made for dividends, ordinary or
extraordinary (whether in cash or securities or other property), or
other distributions, or other rights in respect of such shares of Common
Stock as to which the record date is prior to the date upon which the
Optionee shall have become the holder of record thereof.
SHARE AND PRICE ADJUSTMENT.
- --------------------------
In the event of any adjustments in the outstanding shares of
Common Stock, as provided for in Section 19 of the Plan, the Executive
Compensation and Development Committee of the Board of Directors of the
Company may make such substitution or adjustments in the aggregate
number and kind of shares to be delivered under the Plan, in the number,
kind and Option exercise price of shares subject to outstanding Options
and/or such other equitable substitution or adjustments as it may
determine to be appropriate in its sole discretion. The Optionee shall
be notified of any such adjustment and any adjustment, or failure to
adjust, shall be final and binding upon the Company and the Optionee.
SERVICE AS A DIRECTOR.
- ---------------------
The grant of this Option is a separate inducement in connection
with the Optionee's service as a director of the Company. Neither the
Option nor any provision hereof shall be deemed to create any obligation
on the part of the Board of Directors of the Company to nominate any
Optionee for reelection to the Company's Board of Directors by the
Company's shareholders or to limit the rights of the shareholders to
remove any director.
OPTION SUBJECT TO LAWS AND REGULATION.
- -------------------------------------
Each exercise of the Option shall be subject to all requirements
as to (a) any registration or other qualifications of such shares under
any state, federal, or foreign law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Administrator shall, in his or her absolute discretion upon the advice
of counsel, deem necessary or advisable, and (b) obtaining any other
consent, approval, or permit from any state or federal governmental
agency
<PAGE>
<PAGE>
3
which the Administrator shall, in his or her absolute discretion after
receiving advice of counsel, determine to be necessary or advisable.
Anything herein to the contrary notwithstanding, the Option may not be
exercised, in whole or in part, unless and until the Company shall have
been able to comply with all such requirements and regulations free of
any conditions not acceptable to the Company. As a condition to the
exercise of the Option, either in whole or in part, the Optionee shall
execute such documents and take such action as the Company in its sole
discretion deems necessary or advisable to assist the Company in
compliance with any such requirements, and Optionee shall comply with
all requirements of any regulatory authority having control or
supervision.
GENERAL PROVISIONS.
- ------------------
The Option is not transferable by the Optionee otherwise than by
will or by the laws of descent and distribution, and during the lifetime
of the Optionee shall be exercisable only by the Optionee.
The validity, interpretation, performance and enforcement of this
Option shall be governed by the laws of the State of Delaware.
Each and every provision of the Option shall be administered,
construed and interpreted so that the Option shall in all respects
conform to the provisions of the Plan, a copy of which has been
delivered to the Optionee, and any provision that cannot be so
administered shall be deemed appropriately modified, or, if necessary,
disregarded. In no event shall this Option be deemed to be an Incentive
Stock Option under Section 422 of the Internal Revenue Code of 1986, as
amended.
<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, 1999, and the
Statement of Consolidated Financial Position as of March 31, 1999.
Such information is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 405
<ALLOWANCES> 7
<INVENTORY> 343
<CURRENT-ASSETS> 1,001
<PP&E> 3,300
<DEPRECIATION> 2,375
<TOTAL-ASSETS> 2,769
<CURRENT-LIABILITIES> 735
<BONDS> 597
<COMMON> 1
0
0
<OTHER-SE> (25)
<TOTAL-LIABILITY-AND-EQUITY> 2,769
<SALES> 652
<TOTAL-REVENUES> 652
<CGS> 547
<TOTAL-COSTS> 547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 33
<INCOME-TAX> 10
<INCOME-CONTINUING> 23
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
