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 11, 2007
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 5.02. COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
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 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 11, 2007, the Bankruptcy Court approved the implementation
of the 2007 Solutia Annual Incentive Program, approved amendments to the
employment agreements with Solutia's senior executive officers and approved an
increase in compensation for Mr. Jeffry N. Quinn, Solutia's President, Chief
Executive Officer, and Chairman of the Board.
1. The 2007 Solutia Annual Incentive Program
The 2007 Solutia Annual Incentive Program (the "2007 AIP") is
Solutia's annual incentive-based bonus opportunity that applies to almost all
of Solutia's employees, including its executive officers. Each participant in
the 2007 AIP has a set target bonus. Target bonuses are based upon both
external and internal considerations and payouts are set as a percentage of
annual base salary and vary by participant level in the organization.
Solutia's named executive officers included in the Summary Compensation Table
of Solutia's Annual Report on Form 10-K for the fiscal year ended December 31,
2006, (the "NEO's"), have target bonus opportunities for the 2007 AIP as set
forth in their respective employment agreements.
The 2007 AIP is based upon a bonus pool concept. There are separate
bonus pools for enterprise-level participants and business unit participants.
The Executive Compensation and Development Committee of Solutia's Board of
Directors (the "ECDC") established financial and operating performance metrics
for the enterprise and for each business unit and a weighting for each metric,
including EBITDAR (75%) and Enterprise Average Working Capital (as defined in
the 2007 AIP) for the enterprise pool. For each metric, a threshold (0.50x),
target (1.0x), and maximum (3.0x) funding level is determined by the ECDC.
These funding levels are referred to as funding factors. If the threshold
performance level is not met with respect to any particular performance metric
there is no funding of the bonus pool with respect to that metric. The target
level funding or a 1.0x funding factor is the aggregate of all target bonuses
for participants in the 2007 AIP. At the end of the year, the performance of
Solutia and its business units is measured against the pre-established metrics
and the ECDC determines the funding factor for each bonus pool. Once the bonus
pools are established, individual bonuses are determined as part of Solutia's
performance management process.
Individual bonuses are comprised of an objective portion and a
subjective portion. Forty-five percent (45%) of each bonus pool is paid out on
a straight objective basis to participants in that pool based upon enterprise
or business unit performance, depending on the pool. This is the objective
portion of a participant's bonus. Forty-five percent (45%) of each bonus pool
is allocated to individual participants within the pool based upon individual
performance versus set goals and individual performance versus peer
performance. The remaining ten percent (10%) of each bonus pool is aggregated
to constitute an enterprise discretionary pool which can be allocated to any
participant in the 2007 AIP. Allocations from these discretionary funds
constitute the discretionary portion of a participant's bonus.
Each participant's target bonus is multiplied by the relevant funding
factor (the same funding factor that was used to determine the size of the
bonus pool from which the participant's bonus is paid). The sum of all
performance adjusted target bonuses for all participants in one of the bonus
pools equals the total bonus pool. The discretionary portion of an
individual's bonus can range from zero upward, which is limited only by the
total funding of the relevant bonus pool. The aggregate of all bonuses paid
from each of the bonus pools can not exceed the amount of the pool, except any
discretionary bonus paid to Mr. Quinn in excess of 50% of his performance
adjusted target bonus will not, at the discretion of the ECDC, diminish the
pool available for bonuses to other participants.
The 2007 AIP also includes a bankruptcy emergence metric for all of
the NEO's and certain other executives (collectively, the "Emergence Metric
Employees") that is designed to incent such executives for Solutia to promptly
emerge from Chapter 11 while maximizing the value of the bankruptcy estates.
Each Emergence Metric Employees' actual bonus awarded under the 2007 AIP will
be multiplied by a factor based on the date Solutia emerges from Chapter 11
(the "Emergence Date"). The factor decreases each quarter of 2007 and certain
executive's bonuses are penalized in the event the Company does not emerge
from Chapter 11 during 2007.
The 2007 AIP is administered by the ECDC. Awards under the 2007 AIP,
including those based on the emergence metric, will be paid within two and
one-half months following the end of the year. Emergence Metric Employees will
be entitled to the Emergence Bonus even if their employment is terminated
(voluntarily or involuntarily) on or after the Emergence Date, or if they are
terminated without Cause (as defined in their respective employment
agreements) prior to the Emergence Date.
The foregoing description of the 2007 AIP does not purport to be
complete and is qualified in its entirety by reference to the 2007 AIP, a copy
of which is attached as Exhibit 10.1 to this report.
2. Executive Officer Employment Agreements
On April 11, 2007, upon Bankruptcy Court approval, Solutia entered
into amended and restated employment agreements with its NEO's and other
executive officers (collectively, the "Executives") effective as of January 1,
2007 (individually, the "Agreement" and collectively, the "Agreements"). The
Agreements have been amended to extend the term of employment for each of the
Executive's to the six month anniversary of the Emergence Date (the "Initial
Term"), and provide for an automatic three year renewal of the employment
period after the Initial Term and automatic 12 month renewals thereafter. In
addition, the Agreement with Mr. Quinn reflects an increase in base salary to
$825,000 effective as of January 1, 2007. The Agreement with Mr. James R.
Voss, one of our NEO's, reflects an increase in base salary to $400,000 and a
target bonus opportunity increase from 75% to 100% of his base salary in
connection with his new position as the Company's Senior Vice President and
President-Flexsys. Solutia also entered into an employment agreement with Mr.
Robert T. DeBolt in connection with his new position as the Company's Senior
Vice President of Business Operations. Mr. DeBolt's Agreement reflects a base
salary of $300,000 while his target bonus opportunity will be 75% of his base
salary. Mr Voss' and Mr. DeBolt's new positions will be effective upon the
closing of the Flexsys Acquisition described in Solutia's 2006 Annual Report
on Form 10-K.
The Agreements provide that if any Executive is terminated other than
for Cause (as defined in the Agreements) or the Executive terminates
employment for Good Reason (as defined in the Agreements), the Executive shall
be entitled to receive from Solutia payment of the following: (1) the sum of
(i) the Executive's accrued annual base salary through the date of termination,
(ii) any unpaid annual bonus amounts earned with respect to the previous year,
and (iii) any accrued vacation pay; (2) an amount equal to what the Executive
would have received under Solutia's Annual Incentive Program for the fiscal
year of such termination prorated based on the number of days employed during
that fiscal year; (3) a severance payment equal to 200% of the sum of (i) the
Executive's annual base salary immediately prior to the date of termination
and (ii) the average annualized payment he received for the three most recent
years under Solutia's Annual Incentive Program; and (4) any unpaid portion of
the special emergence bonus provided for in the Agreements, if applicable. If
the Executive's employment is terminated other than for Cause or the Executive
terminates employment for Good Reason upon a Change in Control (as defined in
the Agreements), or at any time within 24 months after a Change in Control, he
or she will be entitled to receive the payments described above, provided
however, that (1) the severance payment will be equal to 250% (as opposed to
200%) of the sum described in (3) above, and all outstanding equity awards
granted pursuant to any equity compensation plans in effect will immediately
vest. The Agreements also provide that in the event taxes are imposed on the
Executive, due to a payment provided for under the Agreements, and such
payment results in taxes being imposed that would not normally be imposed but
for the occurrence of a Change of Control, Solutia will provide a tax
reimbursement and a gross up of such tax reimbursement.
The foregoing description of the Agreements does not purport to be
complete and is qualified in its entirety by reference to the copy of the
Agreements, attached as Exhibits 10.2 to 10.9 to this report.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits:
Exhibit Number Description
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10.1 2007 Solutia Annual Incentive Program
10.2 Amended and Restated Employment Agreement by and between
Solutia Inc. and Jeffry N. Quinn
10.3 Amended and Restated Employment Agreement by and between
Solutia Inc. and Kent J. Davies
10.4 Amended and Restated Employment Agreement by and between
Solutia Inc. and Luc De Temmerman
10.5 Amended and Restated Employment Agreement by and between
Solutia Inc. and Rosemary L. Klein
10.6 Amended and Restated Employment Agreement by and between
Solutia Inc. and James M. Sullivan
10.7 Amended and Restated Employment Agreement by and between
Solutia Inc. and James R. Voss
10.8 Amended and Restated Employment Agreement by and between
Solutia Inc. and Jonathon P. Wright
10.9 Employment Agreement by and between Solutia Inc. and
Robert T. DeBolt
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 Secretary
DATE: April 17, 2007