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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13255
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SOLUTIA INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1781797
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
63166-6760
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(ZIP CODE)
(314) 674-1000
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(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, 2000
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COMMON STOCK, $0.01 PAR VALUE 109,001,092 SHARES
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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,
-------------------
2000 1999
----- -----
<S> <C> <C>
NET SALES................................................... $ 846 $ 652
Cost of goods sold.......................................... 647 547
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GROSS PROFIT................................................ 199 105
Marketing expenses.......................................... 45 31
Administrative expenses..................................... 44 31
Technological expenses...................................... 24 17
Amortization expense........................................ 7 --
----- -----
OPERATING INCOME............................................ 79 26
Equity earnings from affiliates............................. 9 10
Interest expense............................................ (20) (9)
Other income (expense)--net................................. 5 6
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INCOME BEFORE INCOME TAXES.................................. 73 33
Income taxes................................................ 22 10
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NET INCOME.................................................. $ 51 $ 23
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BASIC EARNINGS PER SHARE.................................... $0.47 $0.21
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DILUTED EARNINGS PER SHARE.................................. $0.46 $0.20
===== =====
Weighted average equivalent shares (in millions):
Basic................................................... 109.2 111.8
Effect of dilutive securities:
Common share equivalents--common shares issuable
upon exercise of outstanding stock options........ 1.7 4.2
----- -----
Diluted................................................. 110.9 116.0
===== =====
<CAPTION>
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
----- -----
<S> <C> <C>
NET INCOME $ 51 $ 23
OTHER COMPREHENSIVE INCOME:
Currency translation adjustments............................ (20) (17)
----- -----
COMPREHENSIVE INCOME........................................ $ 31 $ 6
===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 29 $ 28
Trade receivables, net of allowance of $11 in 2000 and $12
in 1999..................................................... 512 483
Miscellaneous receivables and prepaid expenses................ 129 131
Deferred income tax benefit................................... 102 101
Inventories................................................... 396 371
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TOTAL CURRENT ASSETS.......................................... 1,168 1,114
PROPERTY, PLANT AND EQUIPMENT:
Land.......................................................... 66 68
Buildings..................................................... 435 436
Machinery and equipment....................................... 2,892 2,919
Construction in progress...................................... 317 272
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Total property, plant and equipment........................... 3,710 3,695
Less accumulated depreciation................................. 2,361 2,379
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NET PROPERTY, PLANT AND EQUIPMENT............................. 1,349 1,316
INVESTMENTS IN AFFILIATES..................................... 393 377
NET GOODWILL.................................................. 568 511
LONG-TERM DEFERRED INCOME TAX BENEFIT......................... 224 232
OTHER ASSETS.................................................. 235 220
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TOTAL ASSETS.................................................. $3,937 $3,770
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................. $ 368 $ 312
Accrued liabilities........................................... 529 504
Short-term debt............................................... 634 511
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TOTAL CURRENT LIABILITIES..................................... 1,531 1,327
LONG-TERM DEBT................................................ 793 802
POSTRETIREMENT LIABILITIES.................................... 998 998
OTHER LIABILITIES............................................. 506 561
SHAREHOLDERS' EQUITY:
Common stock (authorized, 600,000,000 shares, par value $0.01)
Issued: 118,400,635 shares in 2000 and 1999................. 1 1
Additional contributed capital.............................. (139) (137)
Treasury stock, at cost (9,399,543 shares in 2000 and
8,859,764 shares in 1999)................................. (213) (209)
Unearned ESOP shares.......................................... (16) (18)
Accumulated other comprehensive income........................ (49) (29)
Reinvested earnings........................................... 525 474
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SHAREHOLDERS' EQUITY.......................................... 109 82
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $3,937 $3,770
====== ======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED CASH FLOW
(DOLLARS IN MILLIONS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income.................................................. $ 51 23
Adjustments to reconcile to Cash From Operations:
Items that did not use (provide) cash:
Deferred income taxes............................... 11 (13)
Depreciation and amortization....................... 49 36
Amortization of deferred credits.................... (3) (2)
Other............................................... (14) 49
Working capital changes that provided (used) cash:
Trade receivables................................... (27) (41)
Inventories......................................... (12) (12)
Accounts payable and accrued liabilities............ 34 (59)
Other............................................... (2) 12
Other items............................................. (13) 6
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CASH FROM OPERATIONS........................................ 74 (1)
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INVESTING ACTIVITIES:
Property, plant and equipment purchases..................... (62) (30)
Acquisition and investment payments, net of cash acquired... (107) --
Investment and property disposal proceeds................... 4 3
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CASH FROM INVESTING ACTIVITIES.............................. (165) (27)
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FINANCING ACTIVITIES:
Long-term debt proceeds..................................... 196 --
Net repayment of short-term debt............................ (87) --
Treasury stock purchases.................................... (18) (26)
Common stock issued under employee stock plans.............. 1 1
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CASH FROM FINANCING ACTIVITIES.............................. 92 (25)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 1 (53)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR........................................... 28 89
----- ----
END OF PERIOD............................................... $ 29 $ 36
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See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
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SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Solutia Inc. and its subsidiaries produce and market a variety
of high-performance, chemical-based materials. Solutia's strategic
focus is built on key strengths, including complex manufacturing
capabilities, process engineering expertise, polymer chemistry,
fiber technology, technical service, and customer problem solving.
These world-class skills are applied to create solutions and
products for customers in the consumer, household, automotive, and
industrial products industries. Solutia's products and services
include Saflex(R) plastic interlayer; adhesives; window and
industrial films; liquid, powder and waterborne resins; Vydyne(R)
and Ascend(TM) nylon polymers; nylon fibers; and process research
and technology services to the pharmaceutical industry.
These financial statements should be read in conjunction with
the audited financial statements and notes to consolidated financial
statements included in Solutia's 1999 Annual Report to shareholders
and incorporated by reference in Solutia's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on
March 10, 2000.
The accompanying unaudited consolidated financial statements
reflect all adjustments that, 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, 2000, are not necessarily indicative of the results to be
expected for the full year.
2. ACQUISITIONS
During the first quarter of 2000, Solutia completed two
acquisitions in the specialty products segment, which provide custom
process and technology services to the global pharmaceutical
industry. In the first acquisition, which closed on February 10,
Solutia acquired CarboGen Holdings AG. CarboGen is a leading
independent process research and development firm, serving the
global pharmaceutical industry. In the second acquisition, which
closed March 24, Solutia purchased AMCIS AG. AMCIS serves the global
pharmaceutical industry by developing production processes and by
manufacturing active ingredients for clinical trials and
small-volume commercial drugs. The combined purchase price for these
acquisitions was approximately $118 million, which was financed with
commercial paper and the assumption of debt.
Both of the acquisitions have been accounted for using the
purchase method. The allocations of the purchase price to the assets
and liabilities acquired resulted in goodwill and other intangible
assets of approximately $88 million. Goodwill and other intangible
assets are being amortized over their estimated useful lives of
20 years. The allocations of purchase price for both CarboGen and
AMCIS are preliminary and are subject to change because valuations
of intangible assets have not been completed. Solutia expects to
complete the purchase price allocations for both CarboGen and AMCIS
by the end of the third quarter of 2000. The valuations may result
in the allocation of purchase price to intangible assets with
different lives than goodwill.
Results of operations for CarboGen and AMCIS are included in
Solutia's results of operations from the acquisition dates. The
results of operations for the acquired businesses were not material
to Solutia's consolidated results of operations for the first
quarter of 2000.
On December 22, 1999, Solutia acquired Vianova Resins from
Morgan Grenfell Private Equity Ltd. for approximately 1.2 billion
deutsche marks (approximately $640 million), which was financed with
commercial paper and the assumption of debt. Vianova Resins is a
leading European producer of resins and additives for coatings and
technical applications for the specialty, industrial and automotive
sectors.
The acquisition has been accounted for using the purchase
method. The allocation of the purchase price to the assets and
liabilities acquired resulted in goodwill and other intangible
assets of approximately $430 million. This allocation is preliminary
and is subject to change. The valuations of assets and liabilities
have not yet been finalized.
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Solutia also intends to fully integrate Vianova Resins with
Solutia's resins business and corporate service organizations.
Solutia began considering how to integrate Vianova Resins with its
operations during the evaluation of the acquisition, but has not
completed the plans for its corporate service organizations. As part
of completing the integration plans, Solutia expects to record a
liability in accordance with Emerging Issues Task Force Issue 95-3,
"Recognition of Liabilities in Connection with a Purchase Business
Combination." In addition to goodwill and other intangible assets,
the major components of the purchase allocation were current assets
of $197 million, non-current assets of $235 million, current
liabilities of $67 million, and non-current liabilities of
$155 million. Solutia anticipates completing the allocation of the
purchase price by the end of the second quarter of 2000.
Any adjustments to the valuations of acquired assets and
liabilities will result in either an increase or a decrease to
goodwill and other intangible assets, which are being amortized over
their estimated useful lives of 20 years. The allocation of purchase
price to other intangible assets, such as patents and trademarks,
could result in those assets being amortized over a different period
than that used for goodwill.
3. RESTRUCTURING
During February 1999, certain equipment critical to the ammonia
production process failed. Based on an analysis of the economics of
purchased ammonia versus 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 their fair value of approximately
$4 million, $4 million of dismantling costs, and $22 million of
estimated costs for which Solutia is contractually obligated under
an operating agreement. The contractually obligated costs represent
an estimate of the direct manufacturing, overhead, and utilities
that Solutia is required to pay to a third-party operator during the
36-month termination period. During the first quarter of 2000,
Solutia entered into an agreement for the dismantlement of those
assets by a third-party and as a result, transferred the liability
for dismantlement to the third-party. The ammonia business' net
sales for the quarter ended March 31, 1999, were $1 million.
Operating income for the same period in 1999 was minimal.
The following table summarizes the 1999 restructuring charge and
amounts utilized to carry out those plans:
<TABLE>
<CAPTION>
SHUTDOWN OF ASSET OTHER
FACILITIES IMPAIRMENTS COSTS TOTAL
----------- ----------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1999.................... $ -- $ -- $ -- $ --
Charges taken............................. 4 2 22 28
Amounts utilized.......................... -- (2) (6) (8)
---- ---- ---- ----
Balance at December 31, 1999.................. 4 -- 16 20
Amounts utilized.......................... (4) -- (3) (7)
---- ---- ---- ----
BALANCE AT MARCH 31, 2000..................... $ -- $ -- $ 13 $ 13
==== ==== ==== ====
</TABLE>
4. INVENTORY VALUATION
The components of inventories as of March 31, 2000, and
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
Finished goods................................ $ 262 $ 260
Goods in process.............................. 140 121
Raw materials and supplies.................... 113 109
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Inventories, at FIFO cost..................... 515 490
Excess of FIFO over LIFO cost................. (119) (119)
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TOTAL......................................... $ 396 $ 371
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</TABLE>
5. CONTINGENCIES
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 named party to a number of lawsuits and
claims. Solutia intends
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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.
6. SEGMENT DATA
Segment data for the three months ended March 31, 2000,
and 1999, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
NET INTERSEGMENT NET INTERSEGMENT
SALES SALES PROFIT SALES SALES PROFIT
----- ------------ ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
SEGMENT:
Performance Films................... $197 $ -- $ 52 $148 $ -- $ 42
Specialty Products.................. 267 -- 59 149 -- 40
Integrated Nylon.................... 383 1 57 357 2 72
---- ---- ---- ---- ---- ----
SEGMENT TOTALS........................ 847 1 168 654 2 154
RECONCILIATION TO CONSOLIDATED TOTALS:
Sales eliminations.................. (1) (1) (2) (2)
Less unallocated service costs:
Cost of goods sold<F1>............ (13) (76)
Marketing, administrative and
technological expenses.......... (69) (52)
Amortization expense................ (7) --
Equity earnings from affiliates..... 9 10
Interest expense.................... (20) (9)
Other income (expense)--net......... 5 6
CONSOLIDATED TOTALS:
---- ---- ---- ----
NET SALES........................... $846 $ -- $652 $ --
==== ==== ---- ==== ==== ----
INCOME BEFORE INCOME TAXES.......... $ 73 $ 33
==== ====
</TABLE>
Segment profit includes only operating expenses directly
attributable to the segment. Unallocated service costs are managed
centrally and primarily include costs of administrative, technology,
and engineering and manufacturing services that are provided to the
segments.
[FN]
<F1> Unallocated cost of goods sold for the three months ended
March 31, 1999, includes special charges related to exiting
Integrated Nylon's ammonia business ($28 million pretax,
$18 million aftertax), the writedown of an Integrated Nylon's
segment bulk continuous filament spinning machine ($6 million
pretax, $4 million aftertax), and the anticipated settlement of
certain pending environmental litigation relating to the Anniston,
Alabama plant site ($29 million pretax, $18 million aftertax).
7. SUBSEQUENT EVENTS
Phosphorus Derivatives Joint Venture
In April 2000, Astaris LLC, a joint venture between Solutia and
FMC Corporation, officially started operations to manufacture and
market phosphorus chemicals. Solutia contributed its Phosphorus
Derivatives business to the joint venture in exchange for a
50 percent ownership share. Solutia expects to receive a tax-free
distribution from Astaris in excess of $100 million during the
second quarter of 2000.
6
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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, and effect of changes
in accounting due to recently issued accounting standards. Important
factors that could cause actual results to differ materially from
the expectations reflected in the forward-looking statements herein
include, among others, general economic, business and market
conditions, customer acceptance of new products, raw material
pricing, and increased competitive and/or customer pressure.
RESULTS OF OPERATIONS--FIRST QUARTER 2000 COMPARED WITH FIRST
QUARTER 1999
Net sales for the first quarter of 2000 increased by 30 percent
as compared with the first quarter of 1999. Excluding the
acquisitions of CPFilms Inc., Vianova Resins Group, CarboGen
Holdings AG, and AMCIS AG, net sales for the first quarter 2000
increased 4 percent over the comparable 1999 period.
Performance Films
Net sales in the Performance Films segment for the first quarter
of 2000 increased by 33 percent over the same period of the prior
year primarily as the result of the acquisition of CPFilms and
improved volumes in the Saflex(R) plastic interlayer business.
Excluding CPFilms, net sales increased approximately 6 percent. The
increase in the Saflex(R) plastic interlayer business was driven
primarily from increased demand by European and U.S. automotive
glass manufacturers. Also, to a lesser extent, businesses in this
segment achieved higher average selling prices than those of the
year-ago quarter. Partially offsetting the increases in sales
volumes and average selling prices were unfavorable currency
exchange rate fluctuations in Saflex(R) and Polymer Modifiers due
to the devaluation of the euro in relation to the U.S. dollar.
Segment profit for the three-month period ended March 31, 2000,
increased 24 percent over the three-month period ended March 31, 1999,
due to the addition of CPFilms. Excluding CPFilms, segment profit was
essentially flat as increased profit generated by Saflex(R) products
was offset by decreased profit from Polymer Modifiers products. The
increase for Saflex(R) was primarily due to increased sales volumes
and good manufacturing performance partially offset by increased raw
material costs. Polymer Modifiers profit declined because of
increased raw material costs partially offset by increased average
selling prices.
Specialty Products
Net sales in the Specialty Products segment increased 79 percent
for the first quarter 2000 over the comparable quarter of the prior
year. Excluding the acquisitions, net sales declined by 4 percent
primarily due to the loss of sales from the Scripsets line of
business, which was sold in August 1999, and to a lesser extent,
unfavorable currency exchange movements due to the devaluation of
the euro in relation to the U.S. dollar.
Segment profit for the Specialty Products segment increased
48 percent for the quarter ended March 31, 2000 over the year-ago
quarter due to the addition of Vianova, partially offset by
increases in raw material prices and unfavorable currency exchange
rates. The segment profit results for CarboGen and AMCIS were not
material for the first quarter of 2000.
Integrated Nylon
Net sales for the first quarter of 2000 in the Integrated Nylon
segment were up 7 percent from the first quarter of 1999. The
increase in sales occurred in almost all businesses in this segment
as both volumes and average selling prices improved. The most
significant volume improvements were shown for carpet products and
for ex-U.S. sales of Acrilan(R) acrylic fiber. Integrated Nylon's
average selling prices increased due to the December 1999 and
March 2000 price increases for branded and commodity staple fiber
and, to a lesser extent, price increases for nylon salt.
Integrated Nylon segment profit for the first quarter of 2000
was down 21 percent as compared to the first quarter of 1999. The
decline resulted almost exclusively from higher raw material costs
due to the sharp increase in
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petrochemical costs during the last quarter of 1999 and first
quarter of 2000. The costs of propylene and cyclohexane, two major
feedstocks of the segment, were up over 80 percent and 40 percent,
respectively, versus the comparable prior year period. While crude
oil costs have moderated somewhat due to increased production by
OPEC, continued volatility in petrochemical markets will continue to
adversely affect profitability for the near term.
Operating Income
Operating income for the first quarter of 2000 was $79 million
as compared to $26 million for the first quarter of 1999 because
1999 results reflect the impact of $63 million of special operations
charges. These special charges are discussed below. Excluding the
impact of the special charges, overall higher segment profit was
offset by higher marketing, administrative, technological, and
amortization expenses. Higher spending in these areas was associated
with the consolidation and integration of newly acquired companies
and other growth programs.
In February 1999, Integrated Nylon's 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. During the first quarter of
2000, Solutia entered into an agreement for the dismantlement of
those assets by a third-party and as a result, transferred the
liability for dismantlement to the third-party. The ammonia
business' net sales for the three months ended March 31, 1999 was
$1 million. Net income for that period was minimal. See Note 3 for
additional information.
A special operations charge of $6 million ($4 million aftertax)
was recorded to write down certain Integrated Nylon 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.
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 Solutia's
position with respect to such litigation.
LIQUIDITY AND CAPITAL RESOURCES
Solutia's working capital at March 31, 2000, decreased to
negative $363 million from negative $213 million at December 31, 1999.
Working capital is negative primarily due to the financing of
recent acquisitions with short-term debt. These acquisitions include
the December 1999 purchase of Vianova Resins, the February 2000
acquisition of CarboGen, and the March 2000 purchase of AMCIS. At
March 31, 2000, Solutia had short-term debt of $634 million.
During February 2000, Solutia completed the issuance of
EUR 200 million ($196 million) of notes, due February 2005. Proceeds
from the notes were used primarily to refinance outstanding commercial
paper, and also for general corporate purposes.
During the first quarter of 2000, Solutia repurchased 1.4 million
shares of its common stock under its third 5 million share repurchase
program at a cost of $18 million. On April 26, 2000, the Board of
Directors authorized an additional repurchase program for 15 million
shares of Solutia common stock. Combined with the remaining authorization
under Solutia's third 5 million share repurchase program, Solutia has
the authorization to repurchase 18.4 million shares of its common stock.
In connection with the formation of the Astaris joint venture,
Solutia expects to receive a tax-free distribution in excess of
$100 million during the second quarter of 2000.
8
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Solutia believes that its cash flow from operations and
available borrowing capacity under the $800 million, five-year
revolving credit facility and the $300 million, 364-day
multi-currency revolving credit agreement provide sufficient
resources to finance its operations and planned capital needs for
the next 12 months.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB)
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 are to be recognized in the Statement of Consolidated Income.
During June 1999, FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," to defer the effective
date of SFAS No. 133 by one year. The standard will now be effective
for Solutia beginning January 1, 2001. Solutia does not expect the
adoption of SFAS No. 133 to have a material effect on its
consolidated financial statements.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Solutia's Annual Report on Form 10-K for the year ended
December 31, 1999, described administrative and judicial proceedings
arising out of alleged environmental violations at a coal coking
facility in Rock Springs Wyoming, currently owned by P4 Production
L.L.C., a joint venture of Solutia and Monsanto Company. On
March 10, 2000, Solutia received notice that the United States, on
behalf of the U.S. Environmental Protection Agency, had filed suit
against P4 Production, Solutia, and Monsanto alleging violations of
the Clean Air Act. On April 12, 2000, the United States, on behalf of
EPA, revised its demand from P4 Production, Solutia and Monsanto from
$2,500,000 to $1,900,000 plus injunctive relief to ensure P4's
compliance with the Clean Air Act. The companies have voluntarily
dismissed their action for declaratory judgment and raised the same
issues as an affirmative defense to the action brought by the United
States. On April 21, 2000, the companies filed a motion for
dismissal or summary judgment on the grounds of claim preclusion,
including the doctrines of res judicata and release.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--See the Exhibit Index at page 12 of this report.
(b) Solutia filed the following reports on Form 8-K during the
quarter ended March 31, 2000:
A Form 8-K filed on January 4, 2000, regarding the completion of
the acquisition of Viking Resins Group Holdings B.V.
A Form 8-K filed on January 20, 2000, announcing a change in
Solutia's financial reporting segments and restating segment
results for the first three quarters of 1999 and for the full
years 1997 and 1998.
A Form 8-K filed on February 1, 2000, announcing financial
results for the fourth quarter of 1999 and the full year.
A Form 8-K/A filed on March 6, 2000, providing financial
statements and pro forma financial information relating to the
acquisition of Viking Resins Group Holdings B.V.
10
<PAGE>
<PAGE>
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)
/s/ JAMES M. SULLIVAN
-----------------------------------
(Vice President and Controller)
(On behalf of the Registrant and as
Principal Accounting Officer)
Date: April 28, 2000
11
<PAGE>
<PAGE>
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 Omitted--Inapplicable
4 Omitted--Inapplicable
10 Solutia Inc. Non-Employees Director Compensation Plan, as
last amended January 26, 2000.
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
12
<PAGE>
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 1/26/00
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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 1/26/00
<PAGE>
<PAGE>
(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 1/26/00
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<PAGE>
"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 1/26/00
<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 1/26/00
<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 1/26/00
<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 1/26/00
<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 be delivered in accordance with this
Section 7. The shares and cash balance shall be delivered as soon as
practicable after the Delivery Date but in no case more than 30 days
after the
SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 8
As amended 1/26/00
<PAGE>
<PAGE>
Delivery Date. If the number of shares to be delivered 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 1/26/00
<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 1/26/00
<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 1/26/00
<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 1/26/00
<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 1/26/00
<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 1/26/00
<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, 2000, and the Statement of Consolidated
Financial Position as of March 31, 2000. Such information is qualified
in its entirety by reference to such combined financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 523
<ALLOWANCES> 11
<INVENTORY> 396
<CURRENT-ASSETS> 1,168
<PP&E> 3,710
<DEPRECIATION> 2,361
<TOTAL-ASSETS> 3,937
<CURRENT-LIABILITIES> 1,531
<BONDS> 793
<COMMON> 1
0
0
<OTHER-SE> 108
<TOTAL-LIABILITY-AND-EQUITY> 3,937
<SALES> 846
<TOTAL-REVENUES> 846
<CGS> 647
<TOTAL-COSTS> 647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 73
<INCOME-TAX> 22
<INCOME-CONTINUING> 51
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.46
</TABLE>
