SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-12
SOLUTIA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SOLUTIA, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
THIS PROXY MATERIAL IS SENT TO YOU FOR YOUR INFORMATION AS THE HOLDER OF SOLUTIA
STOCK OPTIONS. YOU ARE NOT ENTITLED, HOWEVER, TO VOTE ANY OPTIONED SHARES. IF
YOU WERE A RECORD HOLDER ON FEBRUARY 25, 2002, AS THE RESULT OF YOUR HAVING
PARTIALLY EXERCISED YOUR OPTIONS, YOU WILL RECEIVE A PROXY CARD FOR THOSE
SHARES.
[SOLUTIA LOGO]
575 Maryville Centre Drive
P.O. Box 66760
St. Louis, MO 63166-6760
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: Wednesday, April 24, 2002
TIME: 1:30 p.m., Central Daylight Time
PLACE: St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
MATTERS TO BE VOTED ON: - Election of three directors
- Approval of the Solutia Inc. 2002-2006 Long-
Term Incentive Plan
- Ratification of the appointment of Deloitte &
Touche LLP as principal independent auditors for
the year 2002
- Any other matters if properly raised
Only stockholders of record at the close of business on February 25, 2002, may
vote at the meeting. Your vote is important. Whether you plan to attend the
annual meeting or not, PLEASE CAST YOUR VOTE BY PHONE OR ON THE INTERNET, OR
COMPLETE, DATE, AND SIGN YOUR PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
If you attend the meeting and prefer to vote in person, you may do so even if
you have previously voted by proxy.
If you are a stockholder and you wish to attend the annual meeting, you will
need to bring your admission card or proof of beneficial ownership. You may also
be asked to present identification.
/s/ KARL R. BARNICKOL
Karl R. Barnickol
Secretary
March 14, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE NO.
--------
Information About the Annual Meeting........................ 1
Election of Directors (Proxy Item No. 1).................... 4
Structure of the Board.................................... 4
Nominees For a Three-Year Term That Will Expire in 2005... 5
Directors Whose Terms Will Expire in 2003................. 6
Directors Whose Terms Will Expire in 2004................. 7
Board Meetings and Committees............................. 7
Compensation of Directors................................. 9
Ownership of Solutia Common Stock........................... 9
Ownership by Directors and Executive Officers............. 9
Ownership by Others....................................... 11
Compensation of Executive Officers and Other Information.... 12
Report of the Executive Compensation and Development
Committee.............................................. 12
Summary Compensation Table................................ 15
Option Grants in 2001..................................... 16
Aggregated Option Exercises in 2001 and Year-End Option
Values................................................. 17
Pension Plans............................................. 17
Agreements with Named Executive Officers.................. 18
Stock Price Performance Graph............................. 19
Approval of the Solutia Inc. 2002-2006 Long-Term Incentive
Plan (Proxy Item No. 2)................................... 20
Ratification of Appointment of Independent Auditors (Proxy
Item No. 3)............................................... 21
Report of the Audit and Finance Committee................. 21
Audit Fees................................................ 22
Request for Ratification.................................. 22
Additional Information...................................... 23
Information About Stockholder Proposals................... 23
Multiple Stockholders Having the Same Address............. 23
Appendix A -- Solutia Inc. 2002-2006 Long-Term Incentive
Plan...................................................... A-1
</Table>
PROXY STATEMENT FOR THE SOLUTIA INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING
WHY AM I RECEIVING THESE PROXY MATERIALS?
Solutia's Board of Directors is soliciting proxies to be voted at the 2002
Annual Meeting of Stockholders. This proxy statement includes information about
the issues to be voted on at the meeting.
On March 14, 2002, we began mailing these proxy materials to all stockholders of
record at the close of business on February 25, 2002, the record date for the
2002 Annual Meeting. On the record date, there were 104,604,349 shares of
Solutia common stock outstanding. Each share is entitled to one vote on each
matter properly brought before the annual meeting.
As required by Delaware law, a list of stockholders entitled to vote at the
annual meeting will be available at the St. Louis Marriott West Hotel on April
24, 2002, and for ten days prior to the meeting, during ordinary business hours,
at Solutia's world headquarters, 575 Maryville Centre Drive, St. Louis, Missouri
63141.
HOW MANY VOTES DO I HAVE?
You may vote all shares of Solutia common stock that you owned at the close of
business on February 25, 2002, the record date. These shares include:
- shares held directly in your name as the "stockholder of record";
- shares held for you as the beneficial owner through a broker, bank, or
other nominee in "street name"; and
- shares credited to your account in the Solutia Inc. Savings and
Investment Plan, the Monsanto Savings and Investment Plan, or the
Pharmacia Savings and Investment Plan.
IF I AM A STOCKHOLDER OF RECORD, HOW CAN I VOTE MY SHARES?
You can vote by proxy or in person.
HOW DO I VOTE BY PROXY?
If you are a stockholder of record, you may vote your proxy by telephone,
Internet, or mail. Our telephone and Internet voting procedures are designed to
authenticate stockholders by using individual control numbers. Voting by
telephone or Internet will help Solutia reduce costs.
- Voting Your Proxy By Telephone
In the United States and Canada, you can vote your shares by telephone by
calling the toll-free telephone number on your proxy card. Telephone
voting is available 24 hours a day, seven days a week up through the day
before the meeting. Easy-to-follow voice prompts allow you to vote your
shares and confirm that your instructions have been properly recorded. If
you vote by telephone, you do not need to return your proxy card.
1
- Voting Your Proxy By Internet
You can also choose to vote over the Internet. The web site address for
Internet voting is on your proxy card. Internet voting is available 24
hours a day, seven days a week up through the day before the meeting. If
you vote over the Internet, you do not need to return your proxy card.
Please note that if you vote over the Internet, you may incur costs such
as telecommunication and Internet connection charges.
- Voting Your Proxy By Mail
If you choose to vote by mail, simply mark your proxy card, date and sign
it, and return it to EquiServe in the postage-paid envelope provided.
If you vote by proxy using any of these three methods, the persons named on the
card (your "proxies") will vote your shares in the manner you indicate. You may
specify whether your shares should be voted for all, some, or none of the
nominees for director and whether your shares should be voted for or against the
approval of the Solutia Inc. 2002-2006 Long-Term Incentive Plan, and for or
against the ratification of the appointment of the principal independent
auditors for 2002. If you vote by telephone or Internet and choose to vote with
the recommendation of Solutia's Board of Directors, or if you vote by mail, sign
your proxy card, and do not indicate specific choices, your shares will be
voted:
- "FOR" the election of all three nominees for director;
- "FOR" approval of the Solutia Inc. 2002-2006 Long-Term Incentive Plan;
and
- "FOR" ratification of the appointment of the principal independent
auditors for 2002.
If any other matter is presented, your proxies will vote in accordance with
their best judgment. At the time this proxy statement went to press, we knew of
no matters that needed to be acted on at the annual meeting other than those
discussed in this proxy statement.
If you wish to give a proxy to someone other than the persons named on the
enclosed proxy card, you may strike out the names appearing on the card and
write in the name of any other person, sign the proxy, and deliver it to the
person whose name has been substituted.
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it in any one of three ways:
- submit a valid, later-dated proxy;
- notify Solutia's Secretary in writing before the annual meeting that you
have revoked your proxy; or
- vote in person at the annual meeting.
HOW DO I VOTE IN PERSON?
If you are a stockholder of record, you may cast your vote in person at the
annual meeting. If you plan to vote in person, please see "How Can I Gain
Admittance to the Annual Meeting?" on page 4.
IF I HOLD SHARES IN STREET NAME, HOW CAN I VOTE MY SHARES?
You can submit voting instructions to your broker or nominee. In most instances,
you will be able to do this over the Internet, by telephone, or by mail. Please
refer to the voting instruction form included in these materials by your broker
or nominee.
2
HOW DO I VOTE MY SHARES HELD IN SOLUTIA'S DIVIDEND REINVESTMENT PLAN?
If you are a participant in the Dividend Reinvestment Plan administered by
Equiserve for Solutia stockholders, your proxy will also serve as an instruction
to vote the shares held under this plan in the manner indicated on the proxy. If
your proxy is not received, your shares held in the Dividend Reinvestment Plan
will not be voted.
HOW DO I VOTE MY SOLUTIA COMMON STOCK HELD IN SIP?
If you are both a registered stockholder of Solutia and a participant in the
Solutia Inc. Savings and Investment Plan, the Monsanto Savings and Investment
Plan, or the Pharmacia Savings and Investment Plan, you will receive a single
proxy card that covers shares of Solutia common stock credited to your plan
account as well as shares of record registered in exactly the same name.
Accordingly, your proxy card also serves as a voting instruction for the trustee
of the plan in which you are a participant. If your plan account is not carried
in exactly the same name as your shares of record, you will receive separate
proxy cards for individual and plan holdings. If you own shares through any of
these plans and you do not return your proxy by Friday, April 19, 2002, the
trustee will vote your shares in the same proportion as the shares that are
voted by the other participants in the plan. The trustee will also vote
unallocated shares of Solutia common stock held in the plan in direct proportion
to the voting of allocated shares in the plan for which voting instructions have
been received unless doing so would be inconsistent with the trustee's duties.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
<Table>
Election of Three Directors The nominees who receive the most votes for the available
(Proxy Item No. 1) positions will be elected. If you do not vote for a
particular nominee, or you indicate "withhold authority to
vote" for a particular nominee on your proxy card, your vote
will not count either "for" or "against" the nominee.
Approval of Solutia Inc. 2002-2006 The affirmative vote of a majority of the shares present in
Long-Term Incentive Plan (Proxy Item person or by proxy at the annual meeting is required to
No. 2) approve this plan. If you "abstain" from voting, it has the
same effect as if you voted "against" this proposal.
Ratification of Appointment of The affirmative vote of a majority of the shares present in
Independent Auditors (Proxy Item No. 3) person or by proxy at the annual meeting is required to
ratify the appointment of the principal independent auditors
for 2002. If you "abstain" from voting, it has the same
effect as if you voted "against" this proposal.
</Table>
If a broker indicates on its proxy that it does not have authority to vote
certain shares held in street name on particular proposals, the shares not voted
("broker non-votes") will have the same effect as a vote against these
proposals. Broker non-votes occur when brokers do not have discretionary voting
authority on certain proposals under the rules of the New York Stock Exchange
and the beneficial owner has not instructed the broker how to vote on these
proposals.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
Solutia is paying the cost of preparing, printing, and mailing these proxy
materials. We will reimburse banks, brokerage firms, and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. Solutia has retained Georgeson Shareholder to
assist with the solicitation of proxies for a fee not to exceed $12,500 plus
reimbursement of out-of-pocket expenses. A few officers and employees of Solutia
may also participate in the solicitation, without additional compensation.
3
HOW CAN I GAIN ADMITTANCE TO THE ANNUAL MEETING?
If you are a stockholder of record, your admission card is attached to your
proxy card. You will need to bring it with you to the meeting. If you hold your
shares in street name through a bank or broker, you will need to bring proof of
ownership, such as a recent account statement or letter from your bank or
broker. You may also be asked to present identification.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
STRUCTURE OF THE BOARD
Our Restated Certificate of Incorporation and by-laws provide for a Board of
Directors that is divided into three classes as equal in size as possible. The
classes have three-year terms, and the term of one class expires each year in
rotation at that year's annual meeting. Vacancies on the board may be filled by
persons elected by a majority of the remaining directors, or, at the direction
of the remaining directors, by Solutia's stockholders. A director elected by the
board to fill a vacancy, or a new directorship created by an increase in the
size of the board, serves for the remainder of the full term of the class of
directors in which the vacancy or newly created directorship occurred. In June
2001, Mr. Robert T. Blakely resigned from the board, and the board decreased its
size to nine members. In October 2001, the board increased its size to ten
members and elected Mr. Paul Donovan to fill the newly created directorship in
the class of 2003. Effective at the end of January 2002, Mr. Michael E. Miller
retired as a director in accordance with Solutia's policy that employee
directors retire from the board coincident with, or soon after, their retirement
as employees, and the board decreased its size to nine members. We will greatly
miss Mr. Miller's dedicated service to Solutia.
Solutia's Board of Directors has nominated three individuals, all of whom are
currently directors of Solutia, for election as directors at the 2002 Annual
Meeting: Mr. Paul H. Hatfield, Mr. J. Patrick Mulcahy, and Ms. Sally G.
Narodick. All but Ms. Narodick were previously elected by Solutia's
stockholders. Ms. Narodick was elected by Solutia's Board of Directors.
Directors nominated for election would hold office until the annual meeting in
2005, or until their respective successors are elected and qualified, or until
their earlier death, resignation or removal.
The board is not aware that any nominee named in this proxy statement will be
unwilling or unable to stand for election as a director. If that happens,
however, your proxy authorizes us to vote for a replacement nominee if the board
names one. As an alternative, the board may reduce the number of directors to be
elected at the meeting.
4
NOMINEES FOR A THREE-YEAR TERM THAT WILL EXPIRE IN 2005
<Table>
PAUL H. HATFIELD PRINCIPAL OCCUPATION: PRINCIPAL, HATFIELD CAPITAL GROUP
FIRST BECAME DIRECTOR: 1997
[PAUL H. HATFIELD PHOTO] AGE: 66
Mr. Hatfield has been a principal of Hatfield Capital Group
since 1997. He was chairman of the board, president, and
chief executive officer of Petrolite Corporation from 1995
to 1997. Mr. Hatfield is a director of Penford Corporation
and Maritz, Inc.
J. PATRICK MULCAHY PRINCIPAL OCCUPATION: CHIEF EXECUTIVE OFFICER, ENERGIZER
HOLDINGS, INC.
[J. PATRICK MULCAHY FIRST BECAME DIRECTOR: 1999
PHOTO] AGE: 58
Mr. Mulcahy has been chief executive officer of Energizer
Holdings, Inc. since 2000. He was chairman and chief
executive officer of Eveready Battery Company Inc., a
subsidiary of Ralston Purina Company, from 1987 to 2000, and
a corporate officer of Ralston Purina Company from 1984 to
2000. He served as co-chief executive officer and
co-president of Ralston Purina Company from 1997 to 1999.
Mr. Mulcahy is a director of Energizer Holdings, Inc.
SALLY G. NARODICK PRINCIPAL OCCUPATION: EDUCATIONAL TECHNOLOGY AND E-LEARNING
CONSULTANT
[SALLY G. NARODICK FIRST BECAME DIRECTOR: 2000
PHOTO] AGE: 56
Ms. Narodick is an educational technology and e-learning
consultant. She was chief executive officer of Apex
Learning, Inc., an internet educational software company,
from its founding in 1998 until her retirement in 2000.
Previously, she served as an education technology
consultant, both independently and for the Consumer Division
of IBM from 1996 to 1998. Ms. Narodick was chair and chief
executive officer of Edmark Corporation from 1989 to 1996.
She is a director of Penford Corporation, Puget Sound
Energy, Inc., and Click2learn, Inc.
</Table>
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THESE NOMINEES.
5
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2003
<Table>
PAUL DONOVAN PRINCIPAL OCCUPATION: SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, WISCONSIN ENERGY CORPORATION
[PAUL DONOVAN PHOTO] FIRST BECAME DIRECTOR: 2001
AGE: 54
Mr. Donovan has been senior vice president and chief
financial officer of Wisconsin Energy Corporation since
1999. He was executive vice president and chief financial
officer of Sundstrand Corporation from 1990 to 1999. He is a
director of AMCORE Financial, Inc. and Woodward Governor
Company.
ROBERT H. JENKINS PRINCIPAL OCCUPATION: RETIRED CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER, SUNDSTRAND CORPORATION
[ROBERT H. JENKINS FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 59
Mr. Jenkins was chairman of the board and chief executive
officer of Sundstrand Corporation from 1997 to 1999. He was
president and chief executive officer of Sundstrand
Corporation from 1995 to 1997. Mr. Jenkins is a director of
AK Steel Holdings Corporation, CLARCOR Inc., Pella
Corporation, Sentry Insurance, and Visteon Corporation.
FRANK A. METZ, JR. PRINCIPAL OCCUPATION: RETIRED SENIOR VICE PRESIDENT, FINANCE
AND PLANNING, AND CHIEF FINANCIAL OFFICER, INTERNATIONAL
[FRANK A. METZ, JR. BUSINESS MACHINES CORPORATION
PHOTO] FIRST BECAME DIRECTOR: 1997
AGE: 68
Mr. Metz was senior vice president, finance and planning,
and chief financial officer of International Business
Machines Corporation from 1986 to 1993 and a director from
1991 to 1993. Mr. Metz is a director of Allegheny Energy,
Inc.
</Table>
6
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2004
<Table>
JOHN C. HUNTER III PRINCIPAL OCCUPATION: CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER, SOLUTIA INC.
[JOHN C. HUNTER III FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 55
Mr. Hunter has been chairman and chief executive officer of
Solutia Inc. since 1999 and president since 1997. He was
chief operating officer from 1997 to 1999. From 1995 to
1997, he was president of the Fibers Business Unit of
Monsanto Company. Mr. Hunter is a director of Penford
Corporation. He is also on the board of directors of
Missouri Baptist Hospital.
WILLIAM D. RUCKELSHAUS PRINCIPAL OCCUPATION: STRATEGIC DIRECTOR, MADRONA VENTURE
GROUP
[WILLIAM D. RUCKELSHAUS FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 69
Mr. Ruckelshaus has been strategic director, Madrona Venture
Group since 1999. He has also been a principal of Madrona
Investment Group L.L.C. since 1996. From 1988 to 1997, Mr.
Ruckelshaus was chairman of Browning-Ferris Industries, Inc.
and chairman and chief executive officer from 1988 to 1995.
He was of counsel to Perkins Coie from 1985 to 1988. He
served as administrator of the Environmental Protection
Agency from 1983 to 1985. Mr. Ruckelshaus is a director of
Cummins Engine Co., Inc., Nordstrom, Inc., Pharmacia
Corporation, and Weyerhaeuser Company.
JOHN B. SLAUGHTER PRINCIPAL OCCUPATION: PRESIDENT AND CHIEF EXECUTIVE OFFICER,
NACME, INC.
[JOHN B. SLAUGHTER FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 67
Dr. Slaughter has been the president and chief executive
officer of the National Action Council for Minorities in
Engineering, Inc. (NACME), a non-profit corporation, since
2000. From 1999 to 2000, he was the Irving R. Melbo
professor of leadership in education at the University of
Southern California and president emeritus of Occidental
College, where he served as president from 1988 to 1999. He
was the director of the National Science Foundation from
1980 to 1982. Dr. Slaughter is a director of International
Business Machines Corporation and Northrop Grumman Corp. He
is a Fellow of the American Academy of Arts and Sciences,
the American Association for the Advancement of Science, and
the Institute of Electrical and Electronic Engineers. He is
also a member of the National Academy of Engineering.
</Table>
BOARD MEETINGS AND COMMITTEES
Our Board of Directors met ten times in 2001. In addition, directors attended
meetings of board committees. A description of each committee and its current
membership follows.
Audit and Finance Committee
Members: Mr. Metz, Chairman; Messrs. Donovan and Mulcahy, and Dr. Slaughter
The Audit and Finance Committee, composed of non-employee directors, met five
times in 2001. Solutia's Board of Directors has concluded that each member of
the committee is independent and financially literate within the meaning of the
New York Stock Exchange rules regarding audit committees. The committee reviews
and monitors Solutia's internal controls, financial reports, and accounting
practices as well as the scope and extent of the audits performed by both the
independent and internal auditors. The committee also recommends to the full
board the selection of Solutia's principal independent auditors, and it approves
in advance all significant audit and non-audit services provided by these
auditors. The internal
7
and principal independent auditors meet with this committee, with and without
management representatives present, to discuss the results of their examination,
the adequacy of Solutia's internal accounting controls, and the quality of
Solutia's financial reporting.
The Audit and Finance Committee also reviews and monitors Solutia's financial
policies, including planning and capital structure, so that they conform to
Solutia's requirements for growth and sound operation.
The Board has adopted a written charter setting out the functions the committee
is to perform.
Executive Compensation and Development Committee
Members: Mr. Hatfield, Chairman; Messrs. Jenkins and Metz
The Executive Compensation and Development Committee, composed of non-employee
directors, met six times in 2001. The committee recommends to the board the
establishment and modification of Solutia's management incentive plans. The
committee makes grants and awards under these plans to Solutia's senior
management, including its executive officers, and administers and interprets
these plans. The committee has delegated authority to a compensation committee
composed of senior managers to make option grants and cash awards under the
incentive plans to employees other than senior management. The Executive
Compensation and Development Committee also has authority to approve the
establishment, modification, and termination of other executive compensation
programs and agreements. In addition, the committee reviews plans for executive
succession and determines the salaries of Solutia's senior management, including
its executive officers.
Governance Committee
Members: Mr. Ruckelshaus, Chairman; Ms. Narodick, Mr. Jenkins, and Dr. Slaughter
The Governance Committee, composed of non-employee directors, met six times in
2001. The committee serves as a nominating committee to consider candidates for
the board. As such, it approved the slate of director nominees in this proxy
statement for submission to the board. The committee develops internal criteria
for the selection of directors. In performing these responsibilities, the
committee consults with the chairman of the board. The committee will consider
candidates for election as director whose nomination is recommended by
stockholders. Any stockholder wishing to make such a recommendation should
submit the nominee's name, together with the nominee's qualifications and
consent to being considered as a nominee, in writing by year-end to Solutia's
secretary.
Each year the Governance Committee evaluates the performance of the board to
ensure that the directors are fulfilling their responsibilities in a manner that
effectively serves the interests of Solutia's stockholders. As part of this
annual evaluation, the committee also reconsiders the principles and procedures
that it has developed for the board. The Governance Committee also regularly
reviews and monitors Solutia's performance as it affects employees, communities,
and the environment.
8
COMPENSATION OF DIRECTORS
Directors who are Solutia employees do not receive payment for their services as
directors.
The following table displays all components of compensation for non-employee
directors:
<Table>
<Caption>
- ----------------------------------------------------------------------------
Form of Compensation Amount of Compensation
- ----------------------------------------------------------------------------
Annual Board Retainer* $50,000
- ----------------------------------------------------------------------------
Annual Retainer for Committee $5,000
Chairman
- ----------------------------------------------------------------------------
Committee Attendance Fee (each $1,000
meeting)
- ----------------------------------------------------------------------------
Initial Option Grant option on 8,000 shares of Solutia
(upon first election to board) common stock
- ----------------------------------------------------------------------------
Annual Option Grant** option on 2,000 shares of Solutia
common stock
- ----------------------------------------------------------------------------
</Table>
* At least half of the annual retainer is credited to the director's
deferred stock account in quarterly installments and is paid out in
Solutia common stock following the termination of the director's service
on the board. Each non-employee director may elect to receive the other
half of the annual retainer in cash or to defer all or a part into the
deferred stock account, an interest-bearing cash account, or both.
** The annual option grant is normally made on the date of the annual
meeting of stockholders to newly elected directors and those directors
who are continuing in office. The annual option grant for a director's
first year is prorated if the director is elected at a time other than
the date of the annual meeting of stockholders. The exercise price of
these non-qualified stock options is equal to the fair market value of
Solutia common stock on the date of the grant. The stock options
generally become exercisable in three equal annual installments. The
stock options have a term of ten years but terminate two years after a
director's board service ends for any reason, if earlier.
Non-employee directors received options as follows in 2001:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------
Number of Shares Exercise
Director Date Under Option Price
- ---------------------------------------------------------------------------------------------------------------
Messrs. Hatfield, Jenkins, Metz, 4/25/01 2,000 shares $12.445
Mulcahy, and Ruckelshaus, Ms.
Narodick and Dr. Slaughter
- ---------------------------------------------------------------------------------------------------------------
Mr. Donovan 10/24/01 9,167 shares $11.825
- ---------------------------------------------------------------------------------------------------------------
</Table>
Non-employee directors do not have a retirement plan, nor do they participate in
Solutia's benefit plans. They are, however, covered under Solutia's business
travel accident insurance policy while traveling on Solutia's business.
Because non-employee directors are required to take at least half of their
annual retainer in the form of deferred common stock, they will have an ever
increasing stake in Solutia. Therefore, the board has not considered it
necessary to adopt a stock ownership requirement for non-employee directors.
OWNERSHIP OF SOLUTIA COMMON STOCK
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows Solutia common stock owned beneficially by Solutia's
directors and executive officers, including deferred shares credited to the
account of each non-employee director, as of
9
December 31, 2001. In general, "beneficial ownership" includes those shares a
person has the power to vote, or the power to transfer, and stock options that
are exercisable currently or become exercisable within 60 days. Except as
otherwise noted, each person has sole voting and investment power over his or
her shares.
<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
Shares of Common Stock Shares Underlying
Beneficially Owned Options Exercisable
Name (a)(b)(c) Within 60 Days (d) Total
-------------------------------------------------------------------------------------------------------------------
Karl R. Barnickol 156,045(e) 184,116 340,161
-------------------------------------------------------------------------------------------------------------------
Russell J. Belle 52,475(f) 84,368 136,843
-------------------------------------------------------------------------------------------------------------------
Robert A. Clausen 107,125 259,237 366,362
-------------------------------------------------------------------------------------------------------------------
Paul Donovan 702 -- 702
-------------------------------------------------------------------------------------------------------------------
Paul H. Hatfield 20,405 13,333 33,738
-------------------------------------------------------------------------------------------------------------------
John C. Hunter III 297,980 362,614 660,594
-------------------------------------------------------------------------------------------------------------------
Robert H. Jenkins 13,175(g) 13,333 26,508
-------------------------------------------------------------------------------------------------------------------
Frank A. Metz, Jr. 8,296 13,333 21,629
-------------------------------------------------------------------------------------------------------------------
Michael E. Miller 216,301(h) 328,700 545,001
-------------------------------------------------------------------------------------------------------------------
J. Patrick Mulcahy 10,191 6,999 17,190
-------------------------------------------------------------------------------------------------------------------
Sally G. Narodick 5,311 3,055 8,366
-------------------------------------------------------------------------------------------------------------------
William D. Ruckelshaus 15,947(i) 13,333 29,280
-------------------------------------------------------------------------------------------------------------------
John B. Slaughter 8,304(j) 13,333 21,637
-------------------------------------------------------------------------------------------------------------------
All directors and executive
officers (17 persons) 1,029,367(k) 1,552,805 2,582,172
-------------------------------------------------------------------------------------------------------------------
</Table>
(a) The number of shares shown includes shares held under the Solutia Inc.
Savings and Investment Plan ("SIP"): Mr. Hunter, 33,128; Mr. Barnickol,
31,097; Mr. Belle, 20,377; Mr. Clausen, 4,306; Mr. Miller, 13,003; and
directors and executive officers as a group, 127,186. Executive officers
have sole discretion over voting shares held under SIP and, within
limitations provided by SIP, sole discretion over investment of shares.
Shares are voted by the trustees of SIP in accordance with instructions from
participants. If the trustees do not receive instructions as to the voting
of particular shares, the shares are voted in proportion to instructions
actually received from other participants in SIP.
(b) The number of shares shown includes deferred shares credited to the account
of each non-employee director, as follows: Mr. Donovan, 702 shares; Mr.
Hatfield, 13,005 shares; Mr. Jenkins, 13,005 shares; Mr. Metz, 6,504 shares;
Mr. Mulcahy, 9,191 shares; Ms. Narodick, 5,311 shares; Mr. Ruckelshaus,
13,005 shares; and Dr. Slaughter, 6,504 shares. As noted under "Compensation
of Directors" on page 9, a minimum of half of a non-employee director's
annual retainer is credited to the director's deferred stock account and is
paid in stock as soon as practicable following the termination of the
director's service on the board. The non-employee directors have no current
voting or investment power over these deferred shares.
(c) The number of shares shown includes restricted stock granted under the
Solutia Inc. 1997 Stock-Based Incentive Plan in payment of awards earned
under the Solutia Inc. 1998-1999 Long-Term Incentive Plan, as follows: Mr.
Hunter, 207,698 shares; Mr. Barnickol, 58,047 shares; Mr. Belle, 25,033
shares; Mr. Clausen, 62,691 shares; and Mr. Miller, 82,233 shares; and
directors and executive officers as a group, 527,517. With respect to these
shares, executive officers have sole voting power but no current investment
power.
(d) The shares shown represent stock options granted under Solutia's incentive
plans, including stock options resulting from the conversion of Monsanto
Company stock options at the time of the spinoff of Solutia by Monsanto
Company in 1997.
10
(e) The number of shares shown for Mr. Barnickol includes 1,778 shares owned
jointly by Mr. Barnickol and his wife.
(f) The number of shares shown for Mr. Belle includes 858 shares owned jointly
by Mr. Belle and his wife.
(g) The number of shares shown for Mr. Jenkins includes 170 shares owned jointly
by Mr. Jenkins and his wife.
(h) The number of shares shown for Mr. Miller includes 120,564 shares with
respect to which Mr. Miller shares voting and investment power.
(i) The number of shares shown for Mr. Ruckelshaus includes 500 shares owned
jointly by Mr. Ruckelshaus and his wife.
(j) The number of shares shown for Dr. Slaughter includes 137 shares owned by
Dr. Slaughter's wife. Dr. Slaughter expressly disclaims beneficial ownership
of these shares.
(k) The number of shares shown for all directors and executive officers as a
group includes 20 shares owned by members of the households of executive
officers not named above.
The total share holdings reported above for all directors and executive officers
as a group equal approximately 2.5% of the number of shares of Solutia common
stock outstanding on December 31, 2001.
OWNERSHIP BY OTHERS
The following table shows all persons or entities that Solutia knows were
"beneficial owners" of more than five percent of Solutia common stock on
December 31, 2001.
<Table>
<Caption>
Amount and Nature of
Beneficial Ownership of Percent
Name and Address of Beneficial Owner Company Common Stock of Class
- ------------------------------------ ----------------------- --------
FMR Corp. 15,634,340(a) 15.000%(a)
82 Devonshire Street
Boston, Massachusetts 02109
</Table>
(a) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission by FMR Corp. on behalf of itself, certain wholly-owned
subsidiaries of FMR, certain FMR shareholders, and Fidelity International
Limited. Fidelity Management & Research Company, one of these subsidiaries,
is the beneficial owner of 13,370,700 of these shares (12.828% of Solutia's
common stock). This subsidiary, and FMR through its control of this
subsidiary, each have sole power to dispose of 13,370,700 shares but no sole
or shared power to vote or direct the voting of these shares. Through its
control of Fidelity Management Trust Company, FMR has sole power to dispose
of 1,941,320 shares and sole power to vote or direct the voting of 1,934,820
shares. Strategic Advisers, Inc., an FMR subsidiary, has sole dispositive
power over 460 shares. Fidelity International Limited has sole power to
dispose of, and sole power to vote, 321,860 shares.
11
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
REPORT OF THE EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
The Executive Compensation and Development Committee of Solutia's Board of
Directors is comprised of three directors who are not, and have never been,
employees of Solutia. The committee establishes compensation policy for Solutia
and administers the compensation program for Solutia's senior management,
including its executive officers.
Each year the committee reviews Solutia's executive compensation program and
assesses it against salary levels, annual bonus levels, and long-term incentives
at a broad group of companies (the "comparison group") including companies
represented in the S&P specialty and diversified chemicals indices as well as
other industrial companies, using information available from market surveys
provided by independent consultants. In making this assessment, the committee
takes into consideration company size. Based on this comparative data, the
financial parameters that the committee considers critical to Solutia's
strategy, and the compensation-related objectives that the committee wishes to
foster, the committee approved the program for 2001 that is described below.
Policies and Objectives
The committee's objectives reflected in Solutia's compensation programs for
2001, including its executive compensation program described below, were to:
- balance appropriately our primary focus on the accomplishments of the
individual business units and our focus on the priorities of the
enterprise as a whole;
- focus and reward employees based upon key measures of Solutia's success:
cash management, operating income, and revenue; and
- build an ownership mentality throughout Solutia.
The three key components of Solutia's executive compensation program are:
- base salary;
- annual incentive compensation; and
- long-term incentive compensation.
The committee intends to maintain base salaries for the executives named in the
Summary Compensation Table and other members of senior management at
approximately the 50th percentile of companies of comparable size in the
comparison group. Annual incentive awards and long-term incentive compensation
for exceptional performance are designed to provide rewards significantly above
market competitive levels.
Annual Incentive Program
The annual incentive program for senior management, including the chief
executive officer, and all other management level employees provides for awards
to be determined shortly after the end of the year being measured. As written,
the annual plan in effect in 2001 provided that:
- threshold levels of revenue and operating income had to be attained in
order for the annual incentive awards to be paid;
- actual awards would depend principally upon achieving revenue and income
targets set at the beginning of 2001; and
12
- the committee would have discretion to adjust awards based on enterprise
results measured against targets, business unit accomplishments, and an
individual's personal performance as measured against his or her
particular responsibilities.
Long-Term Incentive Program
For the executive officers, including the chief executive officer, and certain
other members of senior management, the 2000-2002 long-term incentive program
has two components:
- a long-term incentive opportunity based upon cumulative enterprise
results for the 2000-2002 performance period; and
- a non-qualified stock option grant.
2000-2002 LONG-TERM INCENTIVE OPPORTUNITY. This opportunity is designed to focus
senior management on the financial performance required for Solutia's long-term
profitable growth. Awards will depend principally upon achieving cumulative
revenue growth, earnings per share, and free cash flow targets for the
three-year period 2000-2002. Threshold levels of revenue growth, cumulative
earnings per share, and cumulative free cash flow must be achieved for awards to
be earned. The committee has discretion to adjust awards. Awards, if any, are to
be paid in cash by the end of March 2003.
STOCK OPTIONS. Approximately 650 management level employees received stock
option grants during 2001. The size of the grant to each employee was based on
both the employee's level of responsibility and his or her individual
performance. The stock options granted in 2001 have a ten-year term and an
exercise price equal to the fair market value of a share of Solutia common stock
on the option grant date. With the exception of the grant to the vice chairman
discussed below on page 16, the options granted to the named executive officers,
including the chief executive officer, and certain other members of management,
become exercisable on the earlier of the achievement of four pre-established
increases in the fair market value of Solutia's common stock or on the ninth
anniversary of the option grant date. Options granted to other management level
employees generally become exercisable in thirds on each of the first three
anniversaries of the stock option grant date.
Compensation for 2001
The committee previously increased Mr. Hunter's base salary (in January of 2000)
consistent with the stated policy of maintaining base salaries for executive
officers at approximately the 50th percentile for companies of comparable size
in the comparison group. Considering this increase and an assessment of
Solutia's performance during 2000 and 2001, the committee chose to maintain Mr.
Hunter's base salary at the 2000 level.
Threshold levels of revenue and operating income under the annual incentive plan
for 2001 were not achieved. Therefore, Mr. Hunter and three of the other named
executive officers did not receive an annual incentive award for the 2001
performance year. The committee, however, determined that enterprise thresholds
should be waived in order to reward those businesses that achieved or exceeded
their performance targets for the year despite the challenging economic
environment. Therefore, because our Industrial Products business exceeded its
earnings target, Mr. Belle, as Vice President and General Manager of Industrial
Products, received the bonus shown in the Summary Compensation Table.
Mr. Hunter received a non-qualified stock option to buy 150,000 shares of
Solutia common stock. The committee increased the size of Mr. Hunter's option
grant from prior years to further align Mr. Hunter's interests with those of
Solutia's stockholders.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
compensation in excess of $1,000,000 paid to one or more of the executive
officers named in the Summary Compensation Table unless certain requirements are
met. The committee attempts to comply with these requirements in
13
designing option plans and annual and long-term incentive plans. However, the
committee believes that its foremost responsibility is to attract and retain
those executive officers who are critical to Solutia's success. The committee
may, therefore, in unusual circumstances find it necessary to authorize
compensation for particular officers that does not meet all the requirements of
Section 162(m). All executive compensation paid in 2001 is expected to be fully
deductible under federal tax law. The committee has been advised by counsel that
the new long-term incentive plan as submitted for stockholder approval at the
2002 annual meeting complies with Section 162(m).
Management Stock Ownership Requirements
The committee and management believe that the financial well-being of senior
executives should be linked to the creation of stockholder value. Therefore, the
committee has implemented stock ownership requirements for all executive
officers and most other members of senior management. Stock ownership
requirements are as follows:
- six times base salary for the chief executive officer;
- three times base salary for the two senior vice presidents; and
- two times base salary for all other senior managers who have stock
ownership requirements.
These requirements must be achieved in accordance with the following schedule:
- 25% within two years of election;
- 50% within three years of election; and
- 100% within five years of election.
Restricted stock and shares held through Solutia's Savings and Investment Plan
(401(k) plan) count toward achievement of these requirements as do shares held
by the executive directly or in a trust. Unexercised stock options do not count.
All of the named executive officers have achieved at least the 50% level.
EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
Paul H. Hatfield, Chairman
Robert H. Jenkins
Frank A. Metz, Jr.
14
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
- ---------------------------------------------------------------------------------
Annual Compensation
-----------------------------------------------------
(a) (b) (c) (d) (e)
Other
Annual
Name and Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)
- ---------------------------------------------------------------------------------
J. C. Hunter III 2001 700,000 -0- -0-
Chairman, President, 2000 700,000 -0- -0-
Chief Executive 1999 508,333 -0- -0-
Officer, and Director
- ---------------------------------------------------------------------------------
K. R. Barnickol 2001 275,000 -0- -0-
Senior Vice President, 2000 275,000 -0- -0-
General Counsel, and 1999 250,000 -0- -0-
Secretary
- ---------------------------------------------------------------------------------
R. J. Belle (4) 2001 210,000 175,000 -0-
Vice President and
General Manager,
Industrial Products and
Resins and Additives
- ---------------------------------------------------------------------------------
R. A. Clausen 2001 300,000 -0- -0-
Senior Vice President 2000 300,000 -0- -0-
and Chief Financial 1999 270,000 -0- -0-
Officer
- ---------------------------------------------------------------------------------
M. E. Miller 2001 475,000 -0- -0-
Vice Chairman and 2000 475,000 -0- -0-
Director (through 1999 383,333 -0- -0-
January 31, 2002)
- ---------------------------------------------------------------------------------
<Caption>
- --------------------------- -----------------------------------------------------
Long-Term Compensation
-----------------------------------------
Awards Payouts
-----------------------------------------
(a) (h)
(f) (g) (i)
Restricted Securities All Other
Name and Stock Underlying LTIP Compen-
Principal Awards Options Payouts sation
Position ($)(1) (#) ($)(2) ($)(3)
- --------------------------- -----------------------------------------------------
J. C. Hunter III -0- 150,000 -0- 100,720
Chairman, President, -0- 95,000 -0- 57,609
Chief Executive -0- 120,000 2,862,500 88,895
Officer, and Director
- ---------------------------------------------------------------------------------
K. R. Barnickol -0- 25,000 -0- 28,015
Senior Vice President, -0- 22,500 -0- 40,279
General Counsel, and -0- 25,000 800,000 43,048
Secretary
- ---------------------------------------------------------------------------------
R. J. Belle (4) -0- 30,000 -0- 10,546
Vice President and
General Manager,
Industrial Products and
Resins and Additives
- ---------------------------------------------------------------------------------
R. A. Clausen -0- 25,000 -0- 25,871
Senior Vice President -0- 22,500 -0- 34,036
and Chief Financial -0- 25,000 864,001 43,912
Officer
- ---------------------------------------------------------------------------------
M. E. Miller -0- 100,000 -0- 65,268
Vice Chairman and -0- 65,000 -0- 80,434
Director (through -0- 50,000 1,133,340 64,842
January 31, 2002)
- ---------------------------------------------------------------------------------
</Table>
(1) On December 31, 2001, the named executive officers owned the restricted
shares shown in the table below. All of these restricted shares are
attributable to payouts under the Solutia Inc. 1998-1999 Long-Term Incentive
Plan described in footnote (2) below. Dividends are paid on the restricted
shares at the same rate paid to all Solutia's stockholders. The market value
is based on the closing price of Solutia's common stock on December 31,
2001, which was $14.02.
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------
Mr. Hunter Mr. Barnickol Mr. Belle Mr. Clausen Mr. Miller
----------------------------------------------------------------------------------------------------------------
Number of Shares 207,698 58,047 25,033 62,691 82,233
----------------------------------------------------------------------------------------------------------------
Market Value on $2,911,926 $813,819 $350,963 $878,928 $1,152,907
December 31, 2001
----------------------------------------------------------------------------------------------------------------
</Table>
(2) The figures for 1999 represent awards earned under the Solutia Inc.
1998-1999 Long-Term Incentive Plan. On February 25, 2000, awards for Messrs.
Hunter, Barnickol, Belle, Clausen, and Miller were paid in the form of
shares of Solutia common stock restricted against sale or other disposition
until the earliest of December 31, 2004, the executive's retirement, death,
total and permanent disability, or involuntary termination other than for
cause, or a change of control. The number of shares was determined by
dividing the dollar amount of the executive's award by the average of the
high and low trading prices for Solutia's common stock for the three days
immediately preceding the payment date.
(3) Amounts shown for 2001 include:
- contributions to thrift/savings plans, as follows: Mr. Hunter, $33,600;
Mr. Barnickol, $13,200; Mr. Belle, $10,080; Mr. Clausen, $14,400; and Mr.
Miller, $22,800;
- split dollar life insurance premiums, as follows: Mr. Hunter, $67,002;
Mr. Barnickol, $14,697; Mr. Clausen, $11,353; and Mr. Miller, $35,611;
- cost of executive travel accident protection for each executive officer
named in this table: $118; and
- "above-market interest" (as defined by the Securities and Exchange
Commission) credited to Solutia Inc. Deferred Compensation Plan accounts
as follows: Mr. Belle, $348 and Mr. Miller, $6,739.
15
(4) Mr. Belle became an executive officer of Solutia on February 1, 2001.
Therefore, under Securities and Exchange Commission rules, his compensation
for 1999 and 2000 is not included in this table.
OPTION GRANTS IN 2001
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------
Grant
Individual Grants(1) Date Value
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options Granted Employees in Base Price Expiration Present Value
Name (#) Fiscal Year ($/Share) Date ($)(2)
- ---------------------------------------------------------------------------------------------------------------------------
J. C. Hunter III 150,000(3) 8.51 13.405 5/14/11 843,000
- ---------------------------------------------------------------------------------------------------------------------------
K. R. Barnickol 25,000(3) 1.42 13.850 9/3/11 145,000
- ---------------------------------------------------------------------------------------------------------------------------
R. J. Belle 30,000(3) 1.70 13.215 6/26/11 166,200
- ---------------------------------------------------------------------------------------------------------------------------
R. A. Clausen 25,000(3) 1.42 13.850 9/3/11 145,000
- ---------------------------------------------------------------------------------------------------------------------------
M. E. Miller 100,000(4) 5.67 12.688 1/22/11 532,000
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) All Solutia management stock options have a minimum one-year holding period,
except in the event of a change of control. They expire ten years from the
grant date unless forfeited earlier. They all carry stock tax withholding
rights.
(2) In accordance with rules of the Securities and Exchange Commission, we have
chosen the Black-Scholes option pricing model to estimate the grant date
present value of the options shown in this table. Our use of this model
should not be construed as an endorsement of its accuracy at valuing
options. There is no assurance that the value realized by an executive, if
any, will be at or near the value estimated by the Black-Scholes model.
Future compensation resulting from option grants will be based solely on the
performance of Solutia's stock price. The following assumptions were made
for purposes of calculating the original grant date present value: an option
life of five years, volatility of 40%, a dividend yield of 0.2%, and a
risk-free interest rate of 4.6%.
(3) These options were granted under the Solutia Inc. 1997 Stock-Based Incentive
Plan. The exercise price equals 100% of the fair market value per underlying
share of Solutia common stock on the grant date. These options become
exercisable in accordance with the following schedule:
<Table>
<Caption>
- ----------------------------------------------------------------------------
Percentage Increase in
Fair Market Value of
Company Common Stock Percentage of Option
from Option Grant Date Exercisable
- ----------------------------------------------------------------------------
20 25
- ----------------------------------------------------------------------------
30 50
- ----------------------------------------------------------------------------
50 75
- ----------------------------------------------------------------------------
75 100
- ----------------------------------------------------------------------------
</Table>
The required increases in fair market value shown above must be maintained
for a period of ten consecutive trading days in order for the respective
percentages of the options to become exercisable. To avoid variable
accounting treatment, these options become exercisable on the ninth
anniversary of the option grant date even if the required percentage
increases in fair market value have not been achieved.
(4) This option was granted under the Solutia Inc. 1997 Stock-Based Incentive
Plan pursuant to the retention agreement with Mr. Miller described below on
page 18. The exercise price equals 100% of the fair market value per
underlying share of Solutia common stock on the grant date. Criteria for
exercisability were subjective and included an evaluation of Mr. Miller's
performance in implementing Solutia's cost-savings initiative and managing
certain portfolio changes and joint venture divestitures. The option became
exercisable with respect to all the shares on January 23, 2002.
16
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
<Table>
<Caption>
- ----------------------------------------------------------------------------
(a) (b) (c)
Shares
Acquired on Value Realized
Name Exercise (#) ($)
- ----------------------------------------------------------------------------
J. C. Hunter III -0- -0-
- ----------------------------------------------------------------------------
K. R. Barnickol 73,005 590,124 (2)
- ----------------------------------------------------------------------------
R. J. Belle 5,408 42,858 (2)
- ----------------------------------------------------------------------------
R. A. Clausen -0- -0-
- ----------------------------------------------------------------------------
M. E. Miller 75,708 525,035 (2)
- ----------------------------------------------------------------------------
<Caption>
- ------------------------------ -----------------------------------------------
(a) (d)
Number of (e)
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at FY-End Options at FY-End
(#) ($)(1)
-----------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ------------------------------ -----------------------------------------------
J. C. Hunter III 362,614/405,000 133,905/103,360
- ----------------------------------------------------------------------------
K. R. Barnickol 184,116/85,000 580,869/6,355
- ----------------------------------------------------------------------------
R. J. Belle 84,368/60,000 220,121/26,106
- ----------------------------------------------------------------------------
R. A. Clausen 259,237/85,000 456,986/6,355
- ----------------------------------------------------------------------------
M. E. Miller 328,700/227,500 676,150/140,670
- ----------------------------------------------------------------------------
</Table>
(1) These year-end values represent the difference between (a) the fair market
value of the Solutia common stock underlying the options on December 31,
2001, and (b) the exercise prices of the options. "In-the-money" means that
the fair market value of the underlying stock is greater than the option's
exercise price on the valuation date.
(2) The value realized reflects the fair market value of the shares received on
the exercise date minus the exercise price.
PENSION PLANS
The named executive officers are eligible for benefits payable under the defined
benefit pension plans applicable to Solutia's regular full-time employees. An
executive's benefits are based on his service with Monsanto Company (now known
as Pharmacia Corporation) prior to the spinoff of Solutia and service with
Solutia since the spinoff. Solutia's defined benefit pension plans consist of
two accounts: a "Prior Plan Account" and a "Cash Balance Account."
- The opening balance of the Prior Plan Account was the lump sum value of
the executive's December 31, 1996, monthly retirement benefit earned
prior to January 1, 1997, under Monsanto's defined benefit pension plans,
calculated using the assumption that the monthly benefit would be payable
at age 55 with no reduction for early payment. The formula used to
calculate the opening balance was the greater of 1.4% of average final
compensation multiplied by years of service, without reduction for Social
Security or other offset amounts, or 1.5% of average final compensation
multiplied by years of service, less a 50% Social Security offset.
Average final compensation for purposes of determining the opening
balance was the greater of (1) average compensation received during the
36 months of employment with Monsanto prior to 1997 or (2) average
compensation received during the highest three of the five calendar years
of employment with Monsanto prior to 1997. For each year of the
executive's continued employment with Solutia (including all of 1997),
the executive's Prior Plan Account increases by 4% to recognize that
prior plan benefits would have grown as a result of pay increases.
- For each year during which the executive is employed by Solutia, 3% of
annual compensation in excess of the Social Security wage base and a
percentage, based on age, of annual compensation (salary and annual
bonus) are credited to the Cash Balance Account. The applicable
percentages and age ranges are: 3% before age 30, 4% for ages 30 to 39,
5% for ages 40 to 44, 6% for ages 45 to 49, and 7% for age 50 and over.
In addition, the Cash Balance Account of executives who earned benefits
under Monsanto's defined benefit pension plans before 1997 is credited
each year (for up to ten years based on prior years of service with
Monsanto before 1997) during which the executive is employed by Solutia
(including all of 1997) with an amount equal to a percentage (based on
age) of annual compensation. The applicable percentages and age ranges
are: 2% before age 30, 3% for ages 30 to 39, 4% for ages 40 to 44, 5% for
ages 45 to 49, and 6% for age 50 and over.
17
The estimated annual benefits payable as a single life annuity beginning at age
65 (assuming that each executive officer remains employed by the company until
age 65 and receives 4% annual compensation increases) are as follows: Mr.
Hunter, $697,215; Mr. Barnickol, $277,721; Mr. Belle, $214,471; Mr. Clausen,
$383,104; and Mr. Miller, $509,634.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Each executive officer named in the Summary Compensation Table other than Mr.
Miller, who has retired, is a party to a change-of-control employment agreement.
These agreements become effective upon a "change of control" of Solutia (as
defined in the agreements). The agreements provide for the continuing employment
of the executive after the change of control on terms and conditions no less
favorable than those in effect before the change of control. If the executive's
employment is terminated by the company without "cause," or if the executive
terminates his own employment for "good reason" (each as defined in the
change-of-control employment agreement), the executive is entitled to severance
benefits equal to a "multiple" of his annual compensation (including bonus) and
continuation of certain benefits for a number of years equal to the multiple.
The multiple is three for Messrs. Hunter, Barnickol, and Clausen, and two for
Mr. Belle (or, in either case, the shorter number of years until the executive's
normal retirement date). In addition, Messrs. Hunter, Barnickol, and Clausen are
each entitled to receive the severance benefits if he voluntarily terminates his
own employment during the 30-day period beginning on the first anniversary of
certain changes of control. Finally, each named executive officer is entitled to
an additional payment, if necessary, to make him whole as a result of any excise
tax imposed by the Internal Revenue Code on certain change-of-control payments
(unless the safe harbor below which the excise tax is imposed is not exceeded by
more than ten percent, in which event the payments will be reduced to avoid the
excise tax).
In January 2001, to maintain continuity of management through a series of major
organizational and strategic changes, Solutia entered into a retention agreement
with Mr. Michael E. Miller, who was Solutia's vice chairman and had been its
chief operating officer. The position of chief operating officer was eliminated
as a result of a management reorganization, but under the agreement Mr. Miller
agreed to continue as vice chairman through January 23, 2002, to focus
specifically on implementing the $100 million cost-savings initiative announced
by Solutia in the fourth quarter of 2000, as well as on managing certain
portfolio changes and taking appropriate steps for the strategic realignment of
Solutia's interests in its joint ventures. Under this agreement, on January 23,
2001, Mr. Miller received a non-qualified performance-based stock option to buy
up to 100,000 shares of Solutia common stock at a price of $12.688 per share,
the fair market value of a share of Solutia common stock on the grant date. In
accordance with the agreement, the Executive Compensation and Development
Committee determined that this option should become exercisable with respect to
all the shares on January 23, 2002, because of Mr. Miller's success in
implementing Solutia's cost savings initiative and his leadership in reaching
the recently announced agreement to divest our interest in our Advanced
Elastomer Systems joint venture with the ExxonMobil Chemical Company. In
accordance with the agreement, Mr. Miller is receiving a cash payment of $1.1
million in 2002.
In January 2002, to provide an effective transition in the leadership of both
Solutia's Resins and Additives group and its Industrial Products group, Solutia
entered into a retention agreement with Mr. Russell J. Belle, the Vice President
and General Manager of these businesses. Mr. Belle agreed to continue his
employment through June 30, 2002, unless he and Solutia mutually agreed at an
earlier date that an effective transition had occurred. In return for this
continued service, Solutia will pay Mr. Belle $490,000 on July 31, 2002, in
addition to his normal compensation. If Solutia and Mr. Belle agree that his
employment should be extended beyond June 30, 2002, his retention payment will
be delayed until thirty days after the agreed date, and he will receive interest
on the retention payment from July 31, 2002, through the date of payment at a
rate equal to the average yield for the preceding year of the Moody's Baa Bond
index composed of Moody's Baa bond rate for investment grade securities rated
Baa1, Baa2, and Baa3 with a twenty-year maturity. If Mr. Belle becomes entitled
to a payment under the change-of-control agreement described above before the
retention payment is made, he will not be entitled to the retention payment.
18
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return to stockholders (stock
price appreciation plus reinvested dividends) on Solutia's common stock with the
cumulative total return on each of three indices: the Standard & Poor's ("S&P")
500 Index, the S&P Chemicals (Diversified) Index, and the S&P Chemicals
(Specialty) Index. We have chosen to compare Solutia's performance with that of
these two chemicals indices because Solutia has a diversified portfolio of
products, including a large number of specialty chemicals. The graph assumes
that:
- you invested $100 in Solutia common stock and in each of the indices at
the closing price on August 20, 1997 (the date on which Solutia common
stock began trading on the New York Stock Exchange);
- all dividends were reinvested; and
- you continued to hold your investment through December 31, 2001.
[LINE GRAPH]
<Table>
<Caption>
SOLUTIA INC. S&P 500 S&P CHEM.(DIVERS.) S&P CHEM.(SPEC.)
------------ ------- ------------------ ----------------
Aug-97 100.00 100.00 100.00 100.00
Dec-97 124.00 104.00 95.00 105.00
Jun-98 134.00 123.00 121.00 95.00
Dec-98 104.00 134.00 102.00 90.00
Jun-99 99.00 150.00 94.00 118.00
Dec-99 72.00 162.00 88.00 99.00
Jun-00 64.00 161.00 98.00 85.00
Dec-00 56.00 147.00 109.00 88.00
Jun-01 60.00 137.00 125.00 99.00
Dec-01 66.00 129.00 124.00 100.00
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------
AUG-97 DEC-97 JUN-98 DEC-98 JUN-99 DEC-99 JUN-00 DEC-00 JUN-01 DEC-01
- -------------------------------------------------------------------------------------------------------------------------
Solutia Inc. 100 124 134 104 99 72 64 56 60 66
- -------------------------------------------------------------------------------------------------------------------------
S&P 500(R) 100 104 123 134 150 162 161 147 137 129
- -------------------------------------------------------------------------------------------------------------------------
S&P(R) Chemicals
(Diversified) 100 95 121 102 94 88 98 109 125 124
- -------------------------------------------------------------------------------------------------------------------------
S&P(R) Chemicals
(Specialty) 100 105 95 90 118 99 85 88 99 100
- -------------------------------------------------------------------------------------------------------------------------
</Table>
19
APPROVAL OF THE SOLUTIA INC. 2002-2006 LONG-TERM INCENTIVE PLAN (PROXY ITEM NO.
2)
We are asking for your approval of the Solutia Inc. 2002-2006 Long-Term
Incentive Plan. This plan provides for incentive compensation for Solutia's
executive officers and certain other key employees designated by the Executive
Compensation and Development Committee ("ECDC"). Awards under this plan will be
determined by the level of achievement of financial and other performance
criteria on which Solutia's sustained progress depends. Upon recommendation of
the ECDC, the Board of Directors adopted this plan in February 2002 and directed
that the plan be submitted to the stockholders for approval at the annual
meeting. Certain key provisions of the plan are summarized below. Because this
is a summary, it may not contain all the information that is important to you.
You can find the full text of the plan in Appendix A at the end of this proxy
statement.
REASON FOR SEEKING STOCKHOLDER APPROVAL
Section 162(m) of the Internal Revenue Code ("Code") requires approval of
Solutia's stockholders in order for Solutia to obtain a tax deduction for
incentives paid under this plan to any of the executive officers named in the
Summary Compensation Table whose compensation for the taxable year exceeds
$1,000,000.
MATERIAL FEATURES OF THE PLAN
ELIGIBLE EMPLOYEES. Solutia's executive officers, currently eight in number, and
certain other key employees, currently two in number, are eligible to be
selected by the ECDC to receive awards under this plan.
ADMINISTRATION. The ECDC administers this plan. The ECDC is composed of "outside
directors" as defined under the Code.
PERFORMANCE PERIODS. The plan provides for overlapping performance periods. Each
of these periods will have a three-year duration. The first performance period,
2002-2004, will overlap the existing Solutia Inc. Long-Term Incentive Plan
approved by stockholders in 2000 and described above on page 13. We do not
currently expect to pay any awards under the existing Solutia Inc. Long-Term
Incentive Plan.
PERFORMANCE GOALS AND DETERMINATION OF AWARDS. At the beginning of each
three-year performance period, the ECDC will establish performance goals that
must be achieved before any awards may be made. The performance goals may be
based on one or more of the following criteria: return on assets, cash return on
assets, free cash flow per share, cumulative free cash flow, earnings per share,
net income, and revenue (each as defined by the ECDC). The ECDC will also
establish an objective formula or standard for computing the amount of incentive
compensation payable to the participants if the performance goals are attained.
The ECDC will have the discretion to reduce, but not increase, the final amount
of any award, based on the criteria listed above or other factors tied to the
success of Solutia and any of its business units. The ECDC may determine that an
award is payable upon a participant's death or disability or upon a change of
control before achievement of the performance goals.
AWARDS. The ECDC will determine any awards following the end of the performance
period. Awards, if any, will be paid in cash. A participant may defer receipt of
all or any portion of an award. The maximum value of the award that a
participant can receive under this plan for any performance period is
$10,000,000. The amounts that participants will receive under this plan are not
currently determinable, nor are the amounts that participants would have
received for the past five-year period if the plan had been in effect for those
years.
AMENDMENTS. The ECDC may modify or terminate the plan at any time.
ADDITIONAL INFORMATION
The affirmative vote of the majority of the shares present in person or
represented by proxy at the annual meeting is required for approval of this
plan. If you do not approve this plan, the ECDC will not make
20
awards under the rejected plan. It will investigate the reasons for your
rejection and consider an alternate incentive plan or other compensation
arrangements.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE SOLUTIA INC. 2002-2006 LONG-TERM INCENTIVE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (PROXY ITEM NO. 3)
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee of the Board of Directors is comprised of four
directors who are independent and financially literate within the meaning of the
New York Stock Exchange rules regarding audit committees. The board has adopted
a written charter setting out the functions the committee is to perform. We
review the adequacy of our charter annually. In our role as an audit committee,
we review and monitor Solutia's internal controls, financial reports, and
accounting practices as well as the scope and extent of the audits performed by
Solutia's auditors. In addition, we recommend to the full board the selection of
Solutia's principal independent auditors, and we approve in advance all
significant audit and non-audit services provided by Solutia's principal
independent auditors, Deloitte & Touche LLP.
Management has primary responsibility for Solutia's financial statements and the
overall reporting process, including Solutia's system of internal controls.
Deloitte audits the annual consolidated financial statements prepared by
management and expresses an opinion on whether those statements fairly present
in all material respects Solutia's financial position, results of operations,
and cash flows in conformity with accounting principles generally accepted in
the United States of America. Deloitte also discusses with us any issues they
believe we should consider. We have reviewed Solutia's audited consolidated
financial statements for the fiscal year ended December 31, 2001, and discussed
them with both management and Deloitte.
We have also discussed with Deloitte the matters required to be discussed by
generally accepted auditing standards, including those described in Statement on
Auditing Standards No. 61, Communication with Audit Committees, issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants.
We have received and reviewed the written disclosures and the letter from
Deloitte required by Independence Standard No. 1, Independence Discussions with
Audit Committees, issued by the Independence Standards Board, and have discussed
with Deloitte its independence from Solutia. In addition, we have considered
whether the provision of non-audit services is compatible with maintaining
Deloitte's independence.
Based on these reviews and discussions, we have recommended to Solutia's Board
of Directors that Solutia's audited consolidated financial statements be
included in Solutia's Annual Report on Form 10-K for the year ended December 31,
2001, and filed with the U.S. Securities and Exchange Commission.
AUDIT AND FINANCE COMMITTEE
Frank A. Metz, Jr., Chairman
Paul Donovan
J. Patrick Mulcahy
John B. Slaughter
21
AUDIT FEES
The following table displays the aggregate fees billed to Solutia for the fiscal
year ended December 31, 2001, by Solutia's principal accounting firm, Deloitte &
Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates.
<Table>
<Caption>
- ----------------------------------------------------------------------------
Audit Fees $890,141
- ----------------------------------------------------------------------------
Financial Information Systems
Design and Implementation Fees -0-
- ----------------------------------------------------------------------------
All Other Fees* $2,393,336
- ----------------------------------------------------------------------------
</Table>
* These fees consist of approximately $1,143,980 for audit-related services and
$1,249,356 for non-audit-related services. Audit-related services included due
diligence consultation, foreign statutory audits, employee benefit plan
audits, accounting consultations, and review of registration statements filed
with the Securities and Exchange Commission, including the related consents
and comfort letters. Non-audit services primarily included expatriate
administration and tax preparation, tax consultation, international tax
compliance, and other consultations.
REQUEST FOR RATIFICATION
We are asking you to ratify the board's appointment of Deloitte & Touche LLP as
principal independent auditors to examine the consolidated financial statements
of Solutia and its subsidiaries for the year 2002. The Audit and Finance
Committee recommended the selection of Deloitte to the board. Deloitte was
originally appointed to act as Solutia's independent auditors in 1997 when
Solutia became an independent entity. Deloitte is knowledgeable about Solutia's
operations and accounting practices and is well qualified to act as auditor.
We are not legally required to seek your approval of this appointment. However,
our board believes that it is sound corporate practice to seek stockholder
approval of the appointment of independent auditors. Therefore, our board has
adopted a policy of submitting its appointment of independent auditors for your
ratification. If you do not ratify the appointment of Deloitte, our Audit and
Finance Committee will investigate the reasons for your rejection, and our board
will reconsider the appointment.
Representatives of Deloitte do not plan to make a formal statement at the annual
meeting. However, they will attend the meeting and be available to respond to
appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
PRINCIPAL INDEPENDENT AUDITORS FOR THE YEAR 2002.
22
ADDITIONAL INFORMATION
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals for possible inclusion in our 2003 proxy
materials, we must receive them on or before November 14, 2002. Proposals should
be mailed to:
Solutia Inc.
P.O. Box 66760
St. Louis, Missouri 63166-6760
Attention: Karl R. Barnickol, Secretary
If you wish to nominate directors and/or propose proper business from the floor
for consideration at the 2003 Annual Meeting of Stockholders, our by-laws
provide that:
- You must notify Solutia's secretary in writing.
- Your notice must be received at Solutia's world headquarters not earlier
than December 25, 2002, and not later than January 24, 2003.
- Your notice must contain the specific information required in our
by-laws. We will send copies of these requirements to any stockholder who
writes to us requesting this information.
Please note that these three requirements apply only to matters that you wish to
bring before your fellow stockholders at the 2003 Annual Meeting without
submitting them for possible inclusion in our 2003 proxy materials.
MULTIPLE STOCKHOLDERS HAVING THE SAME ADDRESS
If you and other residents at your mailing address own shares of common stock in
street name, your broker or bank may have sent you a notice that your household
will receive only one annual report and proxy statement for each company in
which you hold stock through that broker or bank. This practice of sending only
one copy of proxy materials is known as "householding." If you did not respond
that you did not want to participate in householding, you were deemed to have
consented to the process. Your broker may send one copy of our annual report and
proxy statement to your address. Your consent will remain in effect until you
revoke it. You may revoke your consent to householding at any time by sending
your name, the name of your brokerage firm, and your account number to
Householding Department, 51 Mercedes Way, Edgewood, NY 11717, or by calling the
telephone number printed on your voting instruction form. The revocation of your
consent to householding will be effective 30 days following its receipt. In any
event, if you did not receive an individual copy of this proxy statement or our
annual report, we will send a copy to you if you address your written request to
Solutia Inc., Investor Relations, 3N, P.O. Box 66760, St. Louis, MO 63166-6760
or call us at (314) 674-4520.
KARL R. BARNICKOL
Secretary
March 14, 2002
23
APPENDIX A
SOLUTIA INC.
2002-2006 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of the Solutia Inc. 2002-2006 Long-Term Incentive Plan
(the "Plan") is to provide executive officers, or other designated employees, of
Solutia Inc. (the "Company") and its affiliates with long-term incentive
compensation based on the level of achievement of financial and other
performance criteria. The Plan is intended to focus the interests of these key
employees on the key measures of the Company's success and to reward these
employees for achieving the key measures of the Company's success.
2. Definitions. As used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Award" shall mean a cash payment (whether paid or currently
deferred) for a Performance Period.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(d) "ECDC" shall mean the Executive Compensation and Development
Committee of the Board (or any successor committee), which committee shall
consist solely of two or more "outside directors" within the meaning of
Section 162(m) of the Code.
(e) "Participant" shall mean any executive officer, or any other key
employee, who is eligible and selected by the ECDC to participate in
accordance with Section 3 of this Plan.
(f) "Performance Period" shall mean a three-year period for which the
ECDC has established performance goals, the first of which shall commence
January 1, 2002 and any of which may overlap with one or more other such
periods.
3. Eligibility. Individuals employed by the Company or any of its affiliates in
active service during a Performance Period who are executive officers, or other
key employees, designated by the ECDC, at any time during such period are
eligible to be Participants under the Plan for such Performance Period and may
be considered by the ECDC for an Award.
4. Awards.
(a) The ECDC shall establish objective performance goals not later
than 90 days after the beginning of each Performance Period. The
performance goals will be based on one or more of the following business
criteria: cash return on assets, return on assets, earnings per share, net
income, free cash flow per share, cumulative free cash flow, and revenue.
(b) The ECDC shall also establish the Award payable to a Participant
if the performance goals are achieved. The payment of any Award shall be
subject to achievement of the performance goals; provided however, that the
ECDC may determine that an Award is payable upon a Participant's death,
disability or a change of control of the Company prior to the achievement
of the performance goals. The ECDC may, in its discretion, reduce the
amount of any Award based on such criteria as it shall determine,
including, but not limited to any one or more of the following: the actual
level of cash return on assets, return on assets, earnings per share, net
income, free cash flow per share, cumulative free cash flow and revenue,
individual performance, business unit accomplishments, and other factors
tied to the success of the Company or any of its business units. Awards
shall be paid in cash as soon as practical after the ECDC has certified in
writing that the performance goals for the Performance Period have been
achieved.
(c) The ECDC shall have the power to impose such other restrictions on
Awards as it may deem necessary or appropriate to ensure that such Awards
satisfy all requirements for "performance-based compensation" within the
meaning of Section 162(m) of the Code, the
A-1
regulations promulgated thereunder, and any successors thereto, and the
Plan shall be interpreted accordingly.
(d) The maximum amount of the Award payable to a Participant for any
Performance Period shall be $10,000,000.
5. Deferrals. The ECDC may establish procedures pursuant to which Participants
are permitted to defer the receipt of Awards; provided that any increase in the
amount of the cash payable as a result of such an election shall be based on a
reasonable rate of interest or on one or more predetermined actual investments
as determined by the ECDC.
6. Other Conditions
(a) No person shall have any claim to an Award under the Plan. There
is no obligation of uniformity of treatment of Participants under the Plan.
Awards under the Plan may not be assigned or alienated.
(b) Neither the Plan, nor any action taken hereunder, shall be
construed as giving to any Participant the right to be retained in the
employ of the Company or an affiliate.
(c) The Company or any affiliate shall have the right to deduct from
any Award to be paid under the Plan any federal, state or local taxes
required by law to be withheld with respect to such payment.
7. Plan Administration.
(a) The ECDC shall have full discretionary power to administer and
interpret the Plan and to establish rules for its administration. In making
any determinations under or referred to in the Plan, the ECDC shall be
entitled to rely on opinions, reports or statements of employees of the
Company and its affiliates and of counsel, public accountants and other
professional or expert persons. All decisions of the ECDC in administering
and interpreting the Plan shall be final, binding and conclusive for all
purposes and upon all interested persons.
(b) The Plan shall be governed by the laws of the State of Delaware,
without reference to principles of conflicts of law, and applicable federal
law.
8. Modification or Termination of Plan. The ECDC may modify or terminate the
Plan at any time, effective at such date as the ECDC may determine.
A-2
<Table>
DIRECTIONS TO ST. LOUIS [MAP]
MARRIOTT
WEST HOTEL
FROM LAMBERT INTERNATIONAL
AIRPORT:
Take I-70 West approximately
3 miles to I-270 South, then
8 miles to the 40/I-64 West
exit.
FROM DOWNTOWN ST. LOUIS:
Take Highway 40/I-64 West.
From Highway 40/I-64, exit
Maryville Centre Drive (exit
#23). Go north 1/8 of a
mile. The St. Louis Marriott
West Hotel will be on the
left. Turn into the parking
lot and follow the Solutia
annual meeting signs.
</Table>
[SOLUTIA LOGO]
SOLUTIA LOGO
SOLUTIA INC.
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2002 ANNUAL MEETING
ST. LOUIS MARRIOTT WEST HOTEL, 660 MARYVILLE CENTRE DRIVE
ST. LOUIS, MISSOURI 63141
APRIL 24, 2002 AT 1:30 P.M.
The undersigned hereby appoints John C. Hunter III, Karl R. Barnickol, and
Robert A. Clausen, and each of them, with full power of substitution, proxies to
vote all shares of Common Stock of Solutia Inc. that the undersigned is entitled
to vote at the 2002 Annual Meeting of Stockholders, and any adjournments
thereof, as specified upon the matters indicated on the reverse side and in
their discretion upon such other matters as may properly come before the
meeting.
If the undersigned is a participant in the Solutia Inc. Savings and Investment
Plan, the Pharmacia Savings and Investment Plan, or the Monsanto Savings and
Investment Plan, and this proxy card is received on or prior to April 19, 2002,
then this card also provides voting instructions to the trustee of such plan to
vote at the 2002 Annual Meeting, and any adjournments thereof, all shares of
Common Stock of Solutia held in the undersigned's plan account as specified upon
the matters indicated on the reverse side and in its discretion upon such other
matters as may properly come before the meeting. If the undersigned is a
participant in any of these plans and does not instruct the trustee by April 19,
2002, then the trustee will vote the undersigned's plan account shares in
proportion to the votes of the other participants in that plan. In addition, the
trustee will vote unallocated shares in the plan in direct proportion to voting
by allocated shares for which instructions have been received, unless to do so
would be inconsistent with the trustee's duties.
Election of directors to a term of three years to expire at the Annual
Meeting in 2005 (see reverse). Nominees are: (01) Paul H. Hatfield,
(02) J. Patrick Mulcahy, and (03) Sally G. Narodick.
/\FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL/\
PLEASE SEE REVERSE SIDE FOR INFORMATION ON VOTING
YOUR PROXY BY TELEPHONE OR INTERNET.
IF YOU WILL BE ATTENDING THE MEETING, YOU NEED TO BRING THE
ADMISSION TICKET ON THE REVERSE SIDE.
- --------------
PLEASE MARK YOUR VOTE
X AS IN THIS EXAMPLE.
- --------------
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2, AND 3.
- -------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, AND 3.
- -------------------------------------------------------------------------------------------------------------------
1. Election of FOR WITHHELD 2. Approval of the Solutia FOR AGAINST ABSTAIN
Directors to Inc. 2002-2006 Long-
term listed on Z Z Term Incentive Plan Z Z Z
reverse.
3. Ratification of FOR AGAINST ABSTAIN
For, except vote withheld from the Deloitte & Touche LLP
following nominee(s): as principal independent Z Z Z
_________________________________ auditors for 2002.
Please sign your name or names exactly as printed hereon. When
shares are held by joint tenants, both should sign. Trustees and other
fiduciaries should so indicate when signing.
-----------------------------------------
-----------------------------------------
SIGNATURE(S) DATE
/\FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL/\
SPACE FOR PIN NUMBER
Solutia Inc. encourages you to vote your shares electronically by telephone or
through the Internet. This will eliminate the need to return your proxy card.
To vote your shares by telephone or through the Internet, you must use the
control numbers printed in the box above, just below the perforation, to access
the system.
The EquiServe Vote by Telephone and Vote by Internet systems can be accessed
24-hours a day, seven days a week up through the day before the meeting.
TO VOTE BY TELEPHONE:
Using a touch-tone phone, U.S. and Canadian stockholders
call toll-free: 1-877-PRX-VOTE (1-877-779-8683)
TO VOTE BY INTERNET:
Log on to the Internet and go to the website: HTTP://WWW.EPROXYVOTE.COM/SOI
Note: If you vote over the Internet, you may incur costs such as
telecommunication and Internet access charges for which you will be responsible.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING YOUR SHARES.
(Bring this ticket with you if attending the meeting)
ADMISSION TICKET
SOLUTIA INC.
Annual Meeting of Stockholders
St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
April 24, 2002
1:30 P.M.