UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 21, 2005
SOLUTIA INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OF INCORPORATION)
001-13255 43-1781797
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(COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
As previously reported, on December 17, 2003, Solutia Inc.
("Solutia") and its 14 U.S. subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy
Code") in the U.S. Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court"). The cases were consolidated for the purpose of
joint administration and were assigned case number 03-17949 (PCB). Solutia's
subsidiaries outside the United States were not included in the Chapter 11
filing.
On April 21, 2005, the Bankruptcy Court approved the implementation
of the 2005 Solutia Annual Incentive Program, approved the entry into an
employment agreement with Rosemary L. Klein, Senior Vice President, General
Counsel and Corporate Secretary, and approved amendments to the employment
agreements with Jeffry N. Quinn, President and Chief Executive Officer, and
James M. Sullivan, Senior Vice President and Chief Financial Officer.
1. 2005 Annual Incentive Program
The 2005 Solutia Annual Incentive Program (the "Program") is
applicable to the majority of Solutia's employees. Funding of the incentive
pool from which awards are made to employees assigned to business divisions
will be based on the level of achievement of specific financial objectives
established for each business division such as EBITDA, EBITDAR, Free Cash
Flow, Cost Reduction and New Revenue (all as defined in the Program). There
is not a threshold level of corporate performance that must be met before
awards can be made. For employees assigned to "core" areas, overall
enterprise performance, based 75% on EBITDAR and 25% on Free Cash Flow, each
measured against plan target, will determine the size of the incentive pool.
The incentive pool can be funded up to a maximum of 2.25 times the total of
all target payout amounts. Targeted payouts are set as a percentage of
annual base salary and vary by participant level in the organization. The
target bonus opportunity for the chief executive officer is 150% of annual
base salary. For other senior executive officers, the target bonus
opportunities range from 75% to 100% of annual base salary. Actual awards
are to be determined based on a combination of unit and individual
performance. For executive officers and certain other members of management,
75% of each such individual's allocated amount (i.e., target award
multiplied by unit funding) will be paid based on unit performance. The
portion of each participant's award that is based on individual performance
is limited only by the aggregate amount available in the incentive pool
after the amount to be awarded based on unit performance has been
determined. Awards, if any, will be paid within two and one-half months
following the end of the 2005 calendar year. The foregoing description of
the Program does not purport to be complete and is qualified in its entirety
by reference to the Program, a copy of which is attached as Exhibit 99.1 to
this Report.
2. Employment Agreement with Rosemary L. Klein
On April 21, 2005, upon Bankruptcy Court approval, Solutia entered
into an agreement effective as of April 21, 2005, (the "Agreement") with Ms.
Rosemary L. Klein, its Senior Vice President, General Counsel and Corporate
Secretary. The term of the Agreement (the "Employment Period") is from April
21, 2005 until the six month anniversary of the Emergence Date (as
hereinafter described). Under the Agreement, Ms. Klein will receive an
annual base salary of not less than $250,000, retroactive to December 1,
2004. She will participate in Solutia's annual incentive program with a
target annual bonus opportunity of 75% of her annual base salary. She will
also be entitled to participate in all long-term and other incentive plans
or programs applicable to senior executive officers of Solutia and its
subsidiaries and in applicable savings, retirement, welfare benefit and
vacation plans.
The Agreement provides that if Ms. Klein is employed by Solutia (or
an affiliate of Solutia) at such time, if ever, at which the Bankruptcy
Court shall have confirmed a plan of reorganization of Solutia under Chapter
11 of the Bankruptcy Code and such plan shall have become effective (the
"Emergence Date"), she will be eligible to receive an emergence bonus of
$500,000 (the "Emergence Bonus"). The Emergence Bonus shall
be paid in two equal installments, the first installment to be paid within
10 days after the Emergence Date and the second installment to be paid on
the six-month anniversary of the Emergence Date, provided, however, if Ms.
Klein voluntarily terminates her employment other than for Good Reason (as
defined in the Agreement) or is terminated for Cause (as defined in the
Agreement), then she shall forfeit her right to receive the unpaid portion
of the Emergence Bonus.
If Solutia terminates Ms. Klein's employment other than for Cause,
or Ms. Klein terminates her employment for Good Reason, Solutia will pay Ms.
Klein: (a) any accrued but unpaid base salary through the Date of
Termination (as defined in the Agreement), (b) any unpaid annual bonus
earned with respect to the previous year, and (c) any unpaid accrued
vacation pay (collectively, "Accrued Obligations"), (d) an amount equal to
100% of Ms. Klein's annual base salary ("Severance Payment") and (e) if the
Date of Termination is on or subsequent to the Emergence Date, the unpaid
portion, if any, of the Emergence Bonus, provided that she waives any and
all claims against Solutia and its subsidiaries. Ms. Klein will also be
entitled to any other benefits or amounts, excluding severance or separation
pay or benefits, for which she is eligible under any plan, program, or
policy of Solutia and its subsidiaries, such as any vested benefit under any
qualified defined benefit or defined contribution retirement plan in which
she participates (collectively, "Other Benefits"). If Ms. Klein's employment
terminates because of death or Disability, she or her estate, as applicable,
will receive the Accrued Obligations and the Other Benefits and, if such
termination occurs on or after the Emergence Date but not later than the six
month anniversary thereof, the unpaid portion, if any, of the Emergence
Bonus.
The Agreement also contains provisions relating to non-competition,
protection of Solutia's confidential information and non-solicitation of
Solutia's employees.
The foregoing description of the Agreement does not purport to be
complete and is qualified in its entirety by reference to the Agreement, a
copy of which is attached hereto as Exhibit 99.2.
3. Amendments to Employment Agreements of Jeffry N. Quinn and
James M. Sullivan
On April 21, 2005, upon Bankruptcy Court approval, Solutia entered
into amended and restated employment agreements with Mr. Jeffry N. Quinn,
its President and Chief Executive Officer, and with Mr. James M. Sullivan,
its Senior Vice President and Chief Financial Officer, each dated July 19,
2004 (each an "Agreement" and together, their "Agreements"), to provide
that the Severance Payment (as defined in their Agreements) be increased
from 125% to 200% of annual base salary, payable at such time as either
Solutia terminates their employment other than for Cause (as defined in
the Agreement) or Mr. Quinn or Mr. Sullivan, respectively, terminate their
employment for Good Reason (as defined in the Agreement), provided however,
that if the Date of Termination occurs after the Emergence Date (as
defined in their respective Agreements), but on or before the six-month
anniversary of the Emergence Date, such Severance Payment would be reduced
by any amounts subsequently paid or due to be paid, as a Special Emergence
Bonus (as defined in their respective Agreements). Additionally, the
Bankruptcy Court approved, and Mr. Sullivan's employment agreement has
been amended to reflect, an increase in annual base salary for Mr.
Sullivan from $250,000 to $325,000. The salary increase shall apply
retroactively from January 1, 2005.
The foregoing descriptions of the Agreements do not purport to be
complete and are qualified in their entireties by reference to the
Agreements, copies of which are attached hereto as Exhibits 99.3 and 99.4.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
Exhibit Number Description
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99.1 2005 Solutia Annual Incentive Program
99.2 Agreement by and between Solutia Inc. and Rosemary L. Klein
99.3 Amended and Restated Agreement by and between Solutia Inc.
and Jeffry N. Quinn
99.4 Amended and Restated Agreement by and between Solutia Inc.
and James M. Sullivan
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOLUTIA INC.
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(Registrant)
/s/ Rosemary L. Klein
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Senior Vice President, General Counsel
and Corporate Secretary
DATE: April 27, 2005