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
/X/ Definitive Proxy Statement Commission Only (as permitted
/ / Definitive Additional Materials by Rule 14a-6(e)(2))
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SOLUTIA INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(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 MARCH 1, 1999, AS THE RESULT OF YOUR *
* HAVING PARTIALLY EXERCISED YOUR OPTIONS, YOU WILL RECEIVE A PROXY CARD FOR *
* THOSE SHARES. *
*******************************************************************************
SOLUTIA LOGO
10300 Olive Boulevard
P.O. Box 66760
St. Louis, MO 63166-6760
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: Wednesday, April 28, 1999
TIME: 1:45 p.m., Central Daylight Time
PLACE: St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
PURPOSE: * Elect three directors
* Ratify the appointment of Deloitte & Touche LLP
as principal independent auditors for the year 1999
* Conduct other business if properly raised
Only stockholders of record at the close of business on March
1, 1999, 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 THE ENCLOSED 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 wish to attend the annual meeting, you will need to
present your admission ticket at the door. Your admission
ticket and directions to the annual meeting are printed on the
back cover of this proxy statement.
/s/ Karl R. Barnickol
Karl R. Barnickol
Secretary
March 15, 1999
TABLE OF CONTENTS
PAGE NO.
--------
Information About the Annual Meeting........................ 1
Election of Directors (Proxy Item No. 1).................... 3
Structure of the Board................................. 3
Nominees For a Three-Year Term That Will Expire in
2002................................................. 4
Directors Whose Terms Will Expire in 2000.............. 5
Directors Whose Terms Will Expire in 2001.............. 6
Board Meetings and Committees.......................... 6
Compensation of Directors.............................. 8
Ownership of Company Common Stock........................... 9
Ownership by Directors and Executive Officers.......... 9
Ownership by Others.................................... 10
Compensation of Executive Officers.......................... 11
Stock Price Performance Graph.......................... 11
Report of the Executive Compensation and
Development Committee................................ 12
Summary Compensation Table............................. 15
Aggregated Option Exercises in 1998 and
Year-End Option Values............................... 16
Long-Term Incentive Plan--Awards in Last Fiscal Year... 17
Pension Plans.......................................... 17
Change-of-Control Agreements........................... 18
Ratification of Independent Auditors (Proxy Item No. 2)..... 18
Additional Information...................................... 19
Information About Stockholder Proposals................ 19
Multiple Copies of Annual Report to Stockholders....... 19
PROXY STATEMENT FOR THE SOLUTIA INC.
1999 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 1999
Annual Meeting of Stockholders. This proxy statement includes information about
the issues to be voted upon at the meeting.
On March 15, 1999, we began mailing these proxy materials to all stockholders
of record at the close of business on March 1, 1999. On this date, there were
111,664,547 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
28, 1999, and for 10 days prior to the meeting, during normal business hours,
at Solutia Inc., 10300 Olive Boulevard, 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 March 1, 1999, the record date. These shares include:
* Shares held directly in your name as the "stockholder of record," and
* Shares held for you as the beneficial owner through a broker, bank, or
other nominee in "street name."
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 by Internet should help reduce costs for the company.
* Voting Your Proxy by Telephone
In the U.S. 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, 7 days a week. 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.
* Voting Your Proxy By Internet
You can also choose to vote via the Internet. The web site for Internet
voting is on your proxy card. Internet voting is available 24 hours a day,
7 days a week. If you vote via the Internet, you do not need to return
your proxy card.
* Voting Your Proxy By Mail
If you choose to vote by mail, simply mark your proxy, date and sign it,
and return it to First Chicago Trust Company, a division of EquiServe, in
the postage-paid envelope provided.
1
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 ratification of the appointment of the principal independent auditors for
1999. 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, and
* "FOR" ratification of the appointment of the principal independent
auditors for 1999.
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 at any time before it is exercised. You
may revoke your proxy 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. Please bring your admission ticket, which can be found on the
back cover of this proxy statement.
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 card included in these materials
by your broker or nominee.
HOW DO I VOTE MY SHARES HELD IN THE COMPANY'S DIVIDEND REINVESTMENT PLAN?
If you are a participant in the Dividend Reinvestment Plan for stockholders of
Solutia that is administered by First Chicago Trust Company, 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 the company and a participant in
either the Solutia Inc. Savings and Investment Plan or the Monsanto 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 one of these plans and you do not
return your proxy card by Friday, April 23, 1999, 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
2
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?
Election of Three Directors The three directors who receive the most votes will be
(Proxy Item No. 1) 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.
Ratification of Appointment The affirmative vote of a majority of the shares present in
of Independent Auditors person or by proxy at the annual meeting is required to
(Proxy Item No. 2) ratify the appointment of the principal independent auditors
for 1999. If you "abstain" from voting, it has the same
effect as if you voted "against" this proposal.
If a broker indicates on its proxy that it does not have authority to vote
certain shares 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 broker
has not received instructions on how to vote on these proposals.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
The company 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. The company has engaged Georgeson & Company Inc.,
a proxy solicitation firm, to assist in the solicitation of proxies. We expect
Georgeson's fee to be approximately $12,500 plus out-of-pocket expenses. A few
officers and employees of the company may also participate in the solicitation,
without additional compensation.
HOW CAN I GAIN ADMITTANCE TO THE ANNUAL MEETING?
If you plan to attend the annual meeting, you will need to bring your admission
ticket. Stockholders who do not have admission tickets will be admitted upon
verification of ownership at the door. You will find an admission ticket and
directions to the St. Louis Marriott West Hotel on the back cover of this proxy
statement.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
STRUCTURE OF THE BOARD
Our Board of Directors is divided into three classes. Directors for each class
are elected at the annual meeting of stockholders held in the year in which the
term for their class expires.
The terms of three directors will expire at the 1999 Annual Meeting. Directors
nominated for election at the 1999 Annual Meeting would hold office for a
three-year term that will expire at the annual meeting in 2002 (or until their
respective successors are elected and qualified, or until their earlier death,
resignation, or removal). However, in accordance with the company's mandatory
retirement policy for directors who are not employees of the company, Mrs. Joan
T. Bok and Mr. Howard M. Love will resign as directors effective as of the date
of the 2000 Annual Meeting of Stockholders.
All of the nominees are now directors of the company. They were previously
elected by Monsanto Company, acting as sole stockholder of the company, prior
to the spinoff of the company from Monsanto Company on September 1, 1997. On
the date of the 1999 Annual Meeting, Robert G. Potter, who is now chairman and
chief executive officer of Solutia, will step down as chief executive officer
but remain as chairman. John C. Hunter III, who is now president and chief
operating officer of Solutia, will succeed Robert G. Potter as chief executive
officer. Mr. Hunter will also continue as president.
3
If a nominee is unavailable for election, 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. The Board is not
aware that any nominee named in this proxy statement will be unwilling or
unable to serve as a director.
Other directors are not up for election this year and will continue in office
for the remainder of their terms or until their earlier death, resignation, or
removal.
NOMINEES FOR A THREE-YEAR TERM THAT WILL EXPIRE IN 2002
JOAN T. BOK PRINCIPAL OCCUPATION: CHAIRMAN EMERITUS, NEW ENGLAND
ELECTRIC SYSTEM
FIRST BECAME DIRECTOR: 1997
AGE: 69
[PHOTO] Mrs. Bok was Chairman of the Board of the New England
Electric System from 1984 to 1998 and is currently Chairman
Emeritus. She is a Director of Avery Dennison Corporation,
John Hancock Mutual Life Insurance Company, and the New
England Electric System. Mrs. Bok is a Trustee of the
National Osteoporosis Foundation, the Woods Hole
Oceanographic Institution, the Worcester Foundation for
Biomedical Research, and The Urban Institute.
HOWARD M. LOVE PRINCIPAL OCCUPATION: RETIRED CHIEF EXECUTIVE OFFICER,
NATIONAL INTERGROUP, INC.
FIRST BECAME DIRECTOR: 1997
AGE: 68
[PHOTO] Mr. Love was Chief Executive Officer of National Intergroup,
Inc. from 1981 to 1991 and has been Honorary Chairman of
National Steel Corporation, formerly a subsidiary of
National Intergroup, Inc., since 1990. He served as Chairman
and Chief Executive Officer of National Steel Corporation
from 1984 to 1990. Mr. Love is a Director of AEA Investors,
an Advisory Director of COMSAT, and a member of The Business
Council. He is also a Trustee of the University of
Pittsburgh.
ROBERT G. POTTER PRINCIPAL OCCUPATION: CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
SOLUTIA INC.
FIRST BECAME DIRECTOR: 1997
AGE: 59
[PHOTO] Mr. Potter has been Chairman and Chief Executive Officer of
Solutia Inc. since 1997. He served as chief executive of the
chemical businesses of Monsanto Company from 1986 to 1997.
He was also an Executive Vice President of Monsanto Company
from 1990 to 1997 and an Advisory Director of Monsanto
Company from 1986 to 1997. Mr. Potter is a Director of both
Southdown Inc. and Stepan Company.
-------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES.
-------------------------------------------------------------------
4
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
ROBERT T. BLAKELY PRINCIPAL OCCUPATION: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, TENNECO INC.
FIRST BECAME DIRECTOR: 1997
AGE: 57
[PHOTO] Mr. Blakely has been Chief Financial Officer of Tenneco Inc.
since 1981 and Executive Vice President since 1996. He is a
Director of Vlasic Foods International, Inc. He also serves
as a Director of the New York City Ballet, the Manhattan and
Bronx Council of the Boy Scouts of America, and the United
Way of Greenwich. In addition, he is a Trustee of Cornell
University.
PAUL H. HATFIELD PRINCIPAL OCCUPATION: PRINCIPAL, HATFIELD CAPITAL GROUP
FIRST BECAME DIRECTOR: 1997
AGE: 63
[PHOTO] 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. From 1987 to 1995, Mr. Hatfield was Vice President
of Ralston Purina Co. and Chief Executive Officer of Protein
Technologies International, Inc., a subsidiary of Ralston
Purina Co. Mr. Hatfield is a Director of Penford
Corporation.
ROBERT H. JENKINS PRINCIPAL OCCUPATION: CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER, SUNDSTRAND CORPORATION
FIRST BECAME DIRECTOR: 1997
AGE: 56
[PHOTO] Mr. Jenkins has been Chairman of the Board and Chief
Executive Officer of Sundstrand Corporation since 1997. He
was President and Chief Executive Officer of Sundstrand
Corporation from 1995 to 1997 and Executive Vice President
of Illinois Tool Works, Inc. from 1990 to 1995. Mr. Jenkins
is a Director of Sundstrand Corporation, AK Steel Holdings
Corporation, and Cordant Technologies.
FRANK A. METZ, JR. PRINCIPAL OCCUPATION: RETIRED SENIOR VICE PRESIDENT, FINANCE
AND PLANNING, AND CHIEF FINANCIAL OFFICER, INTERNATIONAL
BUSINESS MACHINES CORPORATION
FIRST BECAME DIRECTOR: 1997
AGE: 65
[PHOTO] Mr. Metz was Senior Vice President, Finance and Planning,
and Chief Financial Officer of International Business
Machines Corporation from 1986 to 1993 and Director from
1991 to 1993. Mr. Metz is a Director of Allegheny Energy,
Inc. and Norrell Corporation.
5
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
JOHN C. HUNTER III PRINCIPAL OCCUPATION: PRESIDENT AND CHIEF OPERATING OFFICER,
SOLUTIA INC.
FIRST BECAME DIRECTOR: 1997
AGE: 52
[PHOTO] Mr. Hunter has been President and Chief Operating Officer of
Solutia Inc. since 1997. From 1995 to 1997, he was President
of the Fibers Business Unit of Monsanto Company. From 1993
to 1995, he served as Vice President and General Manager of
the Fibers Division and Asia-Pacific region of the Chemical
Group of Monsanto Company. Mr. Hunter is a Director of both
Advanced Elastomer Systems, L.P. and Penford Corporation. He
is also on the board of directors of Missouri Baptist
Hospital.
WILLIAM D. RUCKELSHAUS PRINCIPAL OCCUPATION: CHAIRMAN, BROWNING-FERRIS INDUSTRIES,
INC.
FIRST BECAME DIRECTOR: 1997
AGE: 66
[PHOTO] Mr. Ruckelshaus has been Chairman of Browning-Ferris
Industries, Inc. since 1988. He has been a Principal of
Madrona Investment Group L.L.C. since 1996. From 1988 to
1995, Mr. Ruckelshaus was also Chief Executive Officer of
Browning-Ferris Industries, Inc. 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 Browning-Ferris Industries,
Inc.; Coinstar, Inc.; Cummins Engine Co., Inc.; Gargoyles
Inc.; Monsanto Company; Nordstrom, Inc.; and Weyerhaeuser
Company.
JOHN B. SLAUGHTER PRINCIPAL OCCUPATION: PRESIDENT, OCCIDENTAL COLLEGE
FIRST BECAME DIRECTOR: 1997
AGE: 64
[PHOTO] Dr. Slaughter has been President of Occidental College since
1988. He was a Director of the National Science Foundation
from 1980 to 1982. Dr. Slaughter is a Director of Atlantic
Richfield Company, Avery Dennison Corporation, International
Business Machines Corporation, and Northrop Grumman Corp. He
is a member of the American Academy of Arts and Sciences and
the National Academy of Engineering. He is also a Fellow of
the American Association for the Advancement of Science and
the Institute of Electrical and Electronic Engineers.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors met eight times in 1998. In addition to meetings of the
full Board, directors attended meetings of Board committees. Each director
attended at least 92% of the aggregate Board meetings and meetings of
committees of which he or she is a member. A description of each committee and
its current membership follows.
Audit and Finance Committee
Members: Mr. Metz, Chairman; Mr. Blakely and Dr. Slaughter
The Audit and Finance Committee, composed of non-employee directors, met six
times in 1998. The committee reviews and monitors the company'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 the company's
principal independent auditors,
6
and it approves in advance all significant audit and nonaudit services provided
by these auditors. The internal and principal independent auditors meet with
this committee, with and without management representatives present, to discuss
the results of their examination, the adequacy of the company's internal
accounting controls, and the quality of the company's financial reporting.
The Audit and Finance Committee also reviews and monitors the company's
financial policies, including planning and structure, so that they conform to
the company's requirements for growth and sound operation.
Executive Compensation and Development Committee
Members: Mr. Love, Chairman; Mr. Hatfield and Mr. Metz
The Executive Compensation and Development Committee, composed of non-employee
directors, met six times in 1998. The committee recommends to the Board the
establishment and modification of the company's management incentive plans. The
committee makes grants and awards under these plans to senior management of the
company (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 grants and 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 the company's senior management (including its
executive officers).
Governance Committee
Members: Mr. Ruckelshaus, Chairman; Mrs. Bok, Mr. Jenkins, and Dr. Slaughter
The Governance Committee, composed of non-employee directors, met four times in
1998. 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 the
company's Secretary.
The Governance Committee also develops principles and procedures for the Board.
It reevaluates these principles and procedures annually to ensure that the
Board is fulfilling its responsibilities in a manner that effectively serves
the interests of the company's stockholders. The Governance Committee also
reviews and monitors the company's performance as it affects employees,
communities, customers, and the environment.
7
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:
- ----------------------------------------------------------------------------
Form of Compensation Amount of Compensation
- ----------------------------------------------------------------------------
Annual Board Retainer<F*> $50,000
- ----------------------------------------------------------------------------
Annual Retainer for Committee
Chairman $5,000
- ----------------------------------------------------------------------------
Committee Attendance Fee
(each meeting) $1,000
- ----------------------------------------------------------------------------
Initial Option Grant option on 8,000 shares of company
(upon first election to Board) common stock
- ----------------------------------------------------------------------------
option on 2,000 shares of company
Annual Option Grant<F**> common stock
- ----------------------------------------------------------------------------
<FN>
<F*> At least half of the annual retainer is credited to the
director's deferred stock account in quarterly installments
and is paid out in company 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.
<F**> 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 the company's 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.
On April 22, 1998, each of the current non-employee directors received an
option to buy 2,000 shares of the company's common stock at an exercise price
of $29.438.
Non-employee directors do not have a retirement plan nor do they participate in
the company's benefit plans. They are, however, covered under the company's
business travel accident insurance policy while traveling on the company'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 the company. Therefore, the Board has not considered it
necessary to adopt a stock ownership requirement for non-employee directors.
8
OWNERSHIP OF COMPANY COMMON STOCK
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the company common stock owned beneficially by the
company's directors and executive officers, including deferred shares credited
to the account of each non-employee director, as of December 31, 1998. 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.
- ----------------------------------------------------------------------------------------------------------------
Shares Underlying
Shares of Common Stock Options Exercisable
Name Beneficially Owned <Fa><Fb> Within 60 Days <Fc> Total
---- --------------------------- ------------------- -----
- ----------------------------------------------------------------------------------------------------------------
Karl R. Barnickol 58,832<Fd> 284,159 342,991
- ----------------------------------------------------------------------------------------------------------------
Robert T. Blakely 1,428 3,111 4,539
- ----------------------------------------------------------------------------------------------------------------
Joan T. Bok 4,023 3,111 7,134
- ----------------------------------------------------------------------------------------------------------------
Robert A. Clausen 42,868 259,237 302,105
- ----------------------------------------------------------------------------------------------------------------
Paul H. Hatfield 7,252 3,111 10,363
- ----------------------------------------------------------------------------------------------------------------
John C. Hunter III 76,685 362,614 439,299
- ----------------------------------------------------------------------------------------------------------------
Robert H. Jenkins 3,022<Fe> 3,111 6,133
- ----------------------------------------------------------------------------------------------------------------
Howard M. Love 5,255<Ff> 3,111 8,366
- ----------------------------------------------------------------------------------------------------------------
Frank A. Metz, Jr. 3,206 3,111 6,317
- ----------------------------------------------------------------------------------------------------------------
Michael E. Miller 56,122<Fg> 404,408 460,530
- ----------------------------------------------------------------------------------------------------------------
Robert G. Potter 203,662<Fh> 1,088,468 1,292,130
- ----------------------------------------------------------------------------------------------------------------
William D. Ruckelshaus 5,774<Fi> 3,111 8,885
- ----------------------------------------------------------------------------------------------------------------
John B. Slaughter 3,228<Fj> 3,111 6,339
- ----------------------------------------------------------------------------------------------------------------
All directors and executive officers
(21 persons) 566,543<Fk> 3,313,098 3,879,641
- ----------------------------------------------------------------------------------------------------------------
<FN>
<Fa> The number of shares shown includes shares held indirectly
by executive officers under the Solutia Inc. Savings and
Investment Plan ("SIP"): Mr. Potter, 68,093; Mr. Barnickol,
29,405; Mr. Clausen, 2,738; Mr. Hunter, 23,631; Mr. Miller,
11,265; and directors and executive officers as a group,
185,759. 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.
<Fb> The number of shares shown includes deferred shares credited
to the account of each non-employee director, as follows:
Mr. Blakely, 1,428 shares; Mrs. Bok, 1,428 shares; Mr.
Hatfield, 2,852 shares; Mr. Jenkins, 2,852 shares; Mr. Love,
1,428 shares; Mr. Metz, 1,428 shares; Mr. Ruckelshaus, 2,852
shares; and Dr. Slaughter, 1,428 shares. As noted under
"Compensation of Directors" on page 8, a minimum of half of
a non-employee director's annual retainer is credited to the
director's deferred stock account and is paid out in two
installments 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.
<Fc> The shares shown represent stock options granted under the
company's incentive plans, including stock options resulting
from the conversion of Monsanto Company stock options at the
time of the spinoff.
9
<Fd> The number of shares shown for Mr. Barnickol includes 2,000
shares of company restricted stock received in the spinoff
as a dividend on shares of Monsanto restricted stock that
Mr. Barnickol held under a Monsanto incentive plan. With
respect to these shares, Mr. Barnickol has sole voting power
and no current investment power. The number of shares shown
for Mr. Barnickol also includes 1,778 shares owned jointly
by Mr. Barnickol and his wife.
<Fe> The number of shares shown for Mr. Jenkins includes 170
shares owned jointly by Mr. Jenkins and his wife.
<Ff> The number of shares shown for Mr. Love includes 1,200
shares held in trust in which Mr. Love has an income
interest. Mr. Love expressly disclaims beneficial ownership
of these shares.
<Fg> The number of shares shown for Mr. Miller includes 44,856
shares with respect to which Mr. Miller shares voting and
investment power.
<Fh> The number of shares shown for Mr. Potter includes 6,520
shares owned by Mr. Potter's wife. Mr. Potter expressly
disclaims beneficial ownership of these shares. The number
of shares shown for Mr. Potter also includes 99 shares owned
jointly by Mr. Potter and his wife.
<Fi> The number of shares shown for Mr. Ruckelshaus includes 120
shares of company restricted stock received in the spinoff
by Mr. Ruckelshaus as a dividend on the stock-based portion
of his non-employee director annual retainer from Monsanto
Company. Mr. Ruckelshaus has sole voting power and no
current investment power over these shares. The number of
shares shown for Mr. Ruckelshaus also includes 200 shares
owned jointly by Mr. Ruckelshaus and his wife.
<Fj> 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.
<Fk> The number of shares shown for all directors and executive
officers as a group includes:
* 90 shares owned by a member of the household of an
executive officer not named above. The officer disclaims
beneficial ownership of these shares.
* 2,466 shares over which an executive officer not named
above shares investment and voting power.
The total share holdings reported above for all directors and executive
officers as a group equal approximately 3.43% of the number of shares of
company common stock outstanding on December 31, 1998. Mr. Potter's total share
holdings equal approximately 1.14%.
OWNERSHIP BY OTHERS
The following table shows, as of December 31, 1998, all persons or entities
that the company knows are "beneficial owners" of more than five percent of
company common stock.
Amount and Nature of
Beneficial Ownership of Percent
Name and Address of Beneficial Owner Company Common Stock of Class
- ------------------------------------ ----------------------- --------
FMR Corp. 7,622,589<Fa> 6.284%
82 Devonshire Street
Boston, Massachusetts 02109
<FN>
<Fa> This information is based on a Schedule 13G filed with the
Securities and Exchange Commission by FMR Corp. ("FMR") on
behalf of itself, two wholly-owned subsidiaries of FMR, and
certain FMR shareholders. Fidelity Management & Research
Company, one of these subsidiaries, is the beneficial owner
of 7,078,500 of these shares (5.835% of Solutia common
stock). This subsidiary, and FMR through its control of this
subsidiary, each have sole power to dispose of 7,078,500
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
the remaining 544,089 shares and sole power to vote or
direct the voting of 362,349 shares.
10
COMPENSATION OF EXECUTIVE OFFICERS
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return to stockholders (stock
price appreciation plus reinvested dividends) on the company'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 the company's common stock and in each of the
indices at the closing price on August 20, 1997 (the date on which the
company's common stock began trading on the New York Stock Exchange),
* all dividends were reinvested, and
* you continued to hold your investment through December 31, 1998.
[GRAPH]
- ----------------------------------------------------------------------------------------------------------------------------------
20-AUG-97 30-SEP-97 31-DEC-97 31-MAR-98 30-JUN-98 30-SEP-98 31-DEC-98
- ----------------------------------------------------------------------------------------------------------------------------------
SOLUTIA INC. 100 93 124 138 134 106 104
- ----------------------------------------------------------------------------------------------------------------------------------
S&P 500(R) 100 101 104 119 123 110 134
- ----------------------------------------------------------------------------------------------------------------------------------
S&P(R) CHEMICALS 100 97 95 115 120 110 101
(DIVERSIFIED)
- ----------------------------------------------------------------------------------------------------------------------------------
S&P(R) CHEMICALS 100 101 105 105 94 78 88
(SPECIALTY)
- ----------------------------------------------------------------------------------------------------------------------------------
11
REPORT OF THE EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
The Executive Compensation and Development Committee of the Board of Directors
is comprised of three non-employee directors. The committee establishes
compensation policy for the company and administers the compensation program
for the company's senior management, including its thirteen executive officers
and the other members of the company's executive leadership team.
In 1997, in anticipation of the spinoff of Solutia by Monsanto Company, Solutia
engaged the services of a nationally recognized compensation consulting firm to
assist in developing the company's overall compensation structure and in
determining an appropriate and effective compensation program for the company's
executive officers. The consulting firm reviewed historical pay practices for
Monsanto's chemical businesses. It also provided information on base salary
levels, annual bonus levels, and long-term incentives at a broad group of
companies (the "survey group"), which included but was not limited to companies
represented in the S&P specialty and diversified chemicals indices. Based on
this comparative pay data, the financial parameters that are critical to the
achievement of the company's success, and the compensation-related objectives
that the committee wishes to foster, the committee adopted, following the
spinoff, an executive compensation program that it considers appropriate for
the company. A description of that program follows.
Policies and Objectives
The committee's objectives reflected in the company's compensation programs,
including its executive compensation program, are to:
* achieve a successful "one enterprise" culture focused on stockholder
value and profitable long-term growth;
* recognize business unit and site accomplishments;
* focus and reward employees based upon the key measures of the company's
success: cash management, earnings growth, and stock price increases; and
* build an ownership mentality throughout the company.
The key components of the company's executive compensation program are base
salary, annual incentive compensation, and long-term incentive compensation.
The intention is to maintain base salaries for the executives named in the
Summary Compensation Table and other members of the executive leadership team
at approximately the 50th percentile of companies of comparable size in the
survey group. Annual bonuses are also targeted at about the 50th percentile.
Target long-term incentive compensation is pegged at approximately the 75th
percentile.
Annual Incentive Program
The annual incentive program for the executive leadership team, 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.
Threshold levels of free cash flow and earnings per share must be attained in
order for the plan to be funded. Actual awards depend principally upon
achieving free cash flow and earnings per share targets set at the beginning of
the year. The committee may adjust awards in its discretion based on the
individual's personal performance as measured against his or her particular
responsibilities. Awards may vary significantly from year to year.
Long-Term Incentive Program
For the executive officers, including the chief executive officer, and other
members of the executive leadership team, the 1998-1999 long-term incentive
program has two components: a long-term incentive opportunity based upon
cumulative enterprise results for 1998 and 1999 and a non-qualified stock
option grant. Together these two components are intended to result in long-term
compensation at the 75th percentile of companies of comparable size in the
survey group, assuming performance at target levels.
12
1998-1999 LONG-TERM INCENTIVE OPPORTUNITY. This opportunity is intended to
focus senior management on the financial performance required during this
critical post-spinoff period. Awards will depend principally upon achieving
cumulative earnings per share and free cash flow targets for 1998 and 1999.
These cumulative targets are more aggressive than the earnings per share and
free cash flow targets established for the annual incentive plan. Threshold
levels of cumulative earnings per share and cumulative free cash flow must be
achieved for any awards to be earned. The committee retains the discretion to
adjust awards. Awards earned will be paid in the first quarter of the year
2000. To discourage senior management from focusing solely on this two-year
performance period at the expense of the longer term prospects of the company,
awards will be paid in the form of shares of company common stock that are
restricted against sale or other disposition until December 31, 2004, to the
extent that sufficient shares are available for this purpose under the
company's stock-based incentive plan. To the extent that sufficient shares are
not available, awards will be paid in the form of "performance shares," which
are bookkeeping units that replicate to the extent practicable the terms and
conditions of the restricted stock. The restricted stock or performance shares
are forfeitable if the executive leaves the company voluntarily (other than as
the result of retirement) before the restrictions lapse.
STOCK OPTIONS. The size of option grants to management level employees is
generally based upon a table that reflects their level of responsibility. The
committee approved this table after considering data from the survey group and
the committee's policy of targeting total long-term compensation at the 75th
percentile.
In 1998, none of the named executive officers received a grant of stock
options. In fact, the only options granted were to newly hired employees, to
employees promoted into new positions, or for retention purposes. The reason is
that in September 1997, in order to create an immediate sense of ownership in
the company, approximately 750 management level employees received option
grants that were larger than called for by the table. Grants to members of
management below the level of the executive leadership team were two and
one-half times the normal annual grant. Because of the opportunity for stock
ownership provided by the long-term incentive opportunity for 1998-1999, stock
option grants to members of the executive leadership team were two times the
size of the normal annual grant.
The stock options that were granted in September 1997 have a ten-year term and
an exercise price equal to the fair market value of a share of company common
stock on the grant date. The options granted to members of the executive
leadership team become exercisable on the earlier of the achievement of four
pre-established increases in the fair market value of the company's common
stock or on the ninth anniversary of the option grant date. Three of these
pre-established increases have been attained, and 75% of these options are now
exercisable. Options granted to other management level employees become
exercisable in thirds on each of the first three anniversaries of the stock
option grant date.
The next general annual grant of options to management level employees will be
made in the fall of 1999.
Compensation for 1998
Effective August 1, 1998, the committee increased Mr. Potter's base salary to
an annual rate of $650,000 and Mr. Hunter's base salary to an annual rate of
$475,000. These increases were in recognition of the outstanding performance of
both the chief executive officer and chief operating officer since the spinoff.
These increases also brought the salaries for both of these executive officers
in line with median salaries for comparable positions in the survey group, in
accordance with the committee's policy. Mr. Miller's base salary was increased
to $350,000, effective May 1, 1998, based on his new responsibilities as vice
chairman.
The committee awarded Mr. Potter an annual cash incentive award of $1,000,000.
It awarded Mr. Hunter an annual cash incentive award of $550,000. The principal
determinants of annual incentive awards are free cash flow and earnings per
share. Although 1998 was a difficult year for the chemical industry, the
company achieved excellent free cash flow and earnings per share as a result of
its cost and cash management efforts, substantially exceeding the targets set
by the committee at the beginning of 1998 as the outstanding performance level.
In addition the company continued to improve upon its already strong safety
performance. These accomplishments were due in large part to the continuing
strong leadership and direction given by both Mr. Potter and Mr. Hunter. Annual
incentive awards to the other named executive officers reflected their
contribution to these overall results.
13
Deductibility of Executive Compensation
The committee is complying with the requirements of Section 162(m) of the
Internal Revenue Code with respect to options and annual and long-term
incentive plans in order to avoid losing the tax deduction for compensation in
excess of $1,000,000 paid to one or more of the executive officers named in the
Summary Compensation Table.
Management Stock Ownership Requirements
Because the committee and management believe that the financial well-being of
senior executives should be linked to the creation of stockholder value, the
committee has implemented stock ownership requirements for all executive
officers and other members of the executive leadership team. Stock ownership
requirements are as follows: six times base salary for the chief executive
officer and the chief operating officer, three times base salary for the vice
chairman and three senior vice presidents, and two times base salary for all
other members of the executive leadership team. These requirements are to be
achieved in accordance with the following schedule: 25% by September 1999, 50%
by September 2000, and 100% by September 2002. Restricted stock and shares held
through the company's 401(k) plan count toward achievement of these
requirements as do shares held by the executive directly or in a trust.
Unexercised stock options do not count.
EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
Howard M. Love, Chairman
Paul H. Hatfield
Frank A. Metz, Jr.
14
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Securities All Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Year Salary Bonus sation Awards Options Payouts sation
Position <F1> ($) ($) ($)<F2> ($)<F3> (#)<F4> ($)<F5> ($)<F6>
- -----------------------------------------------------------------------------------------------------------------------------------
R. G. Potter 1998 620,833 1,000,000 -0- -0- -0- -0- 117,614
Chairman, Chief 1997 566,667 1,082,000 2,898 -0- 311,692 1,489,537 96,139
Executive Officer, and 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Director
- -----------------------------------------------------------------------------------------------------------------------------------
K. R. Barnickol 1998 250,000 280,000 -0- -0- -0- -0- 40,378
Senior Vice President, 1997 231,250 357,200 -0- -0- 123,612 121,740 28,618
General Counsel, and 1996 197,925 207,789 -0- 491,500 -0- -0- 19,022
Secretary
- -----------------------------------------------------------------------------------------------------------------------------------
R. A. Clausen 1998 270,000 300,000 -0- -0- -0- -0- 41,547
Senior Vice President 1997 255,000 346,000 600 -0- 76,245 160,563 27,504
and Chief Financial 1996 230,000 307,150 -0- -0- 250,000 -0- 21,762
Officer
- -----------------------------------------------------------------------------------------------------------------------------------
J. C. Hunter III 1998 445,834 550,000 -0- -0- -0- -0- 86,002
President, Chief 1997 391,667 687,000 -0- -0- 250,117 1,204,893 51,580
Operating Officer, and 1996 250,000 340,000 -0- -0- 250,000 -0- 28,077
Director
- -----------------------------------------------------------------------------------------------------------------------------------
M. E. Miller 1998 325,000 360,000 -0- -0- -0- -0- 38,369
Vice Chairman 1997 263,750 325,000 3,069 -0- 136,789 1,577,168 41,759
1996 260,000 362,000 -0- -0- 250,000 -0- 24,337
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Excluding the 1997 annual bonus, compensation for 1996 and the first eight
months of 1997 was determined solely by Monsanto Company.
<F2> The figures for 1997 represent reimbursement for taxes on amounts received
in connection with the termination of the Monsanto Employee Benefits
Trust. The trust, which was established to provide a means for employees
to save for post-retirement medical expenses, was terminated prior to the
spinoff.
<F3> The dollar figure opposite Mr. Barnickol's name for 1996 represents the
value of the award of Monsanto restricted stock made to Mr. Barnickol
under a Monsanto Company incentive plan on January 24, 1996. On December
31, 1998, Mr. Barnickol held 2,000 of the 3,000 shares of Solutia
restricted stock received as a dividend on the shares of Monsanto
restricted stock as a result of the spinoff. These 2,000 shares had a
value of $44,750 on December 31, 1998. In accordance with the terms of the
original Monsanto Company award, 1,000 of these Solutia restricted shares
vested on January 25, 1999, and the remaining 1,000 shares will vest on
January 25, 2000. Dividends are paid on these shares at the same rate as
paid to all stockholders.
None of the other named executive officers held shares of restricted stock
on December 31, 1998.
<F4> The stock option grants shown for 1997 represent options on Solutia common
stock. The stock option grants shown for 1996 represent options on
Monsanto common stock. Under the Employee Benefits and Compensation
Allocation Agreement between Solutia and Monsanto, these Monsanto stock
options were converted, in connection with the spinoff, into two awards: a
replacement option on Solutia common stock and an adjusted option on
Monsanto common stock, with the two awards preserving the economic value
of the original Monsanto grant at the time of the spinoff. As a result,
Mr. Potter's stock options for 1996 were converted into (a) an option on
432,614 shares of Solutia common stock and (b) an option on 667,220 shares
of Monsanto common stock. For each of Messrs. Clausen, Hunter, and Miller,
the grants were converted into (a) an option on 135,192 shares of Solutia
common stock and (b) an option on 208,506 shares of Monsanto common stock.
<F5> Includes payment in 1997 of (a) awards earned by Messrs. Potter, Hunter,
and Miller under Monsanto's 1994-1996 long-term incentive program and (b)
"banked" amounts and sustained performance
15
adjustments for all of the named executive officers under Monsanto's
annual incentive program for the years 1994 through 1996.
<F6> Amounts shown for 1998 include contributions to thrift/savings plans as
follows: Mr. Potter, $79,499; Mr. Barnickol, $27,158; Mr. Clausen,
$29,101; Mr. Hunter, $50,718; and Mr. Miller, $30,576; split dollar life
insurance premiums, as follows: Mr. Potter, $38,012; Mr. Barnickol,
$13,117; Mr. Clausen, $12,343; Mr. Hunter, $35,181; and Mr. Miller,
$7,690; and costs for executive travel accident protection, as follows:
Messrs. Potter, Barnickol, Clausen, Hunter, and Miller, $103.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at FY-End Options at FY-End
(#) ($)<F1>
Shares -------------------------------------------------
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($)<F2> Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
R. G. Potter 108,154 2,016,423 1,088,468/60,000 9,870,146/172,500
- -------------------------------------------------------------------------------------------------------------------
K. R. Barnickol 27,039 676,218 284,159/12,500 3,368,300/35,938
- -------------------------------------------------------------------------------------------------------------------
R. A. Clausen 10,000 157,690 259,237/12,500 1,922,009/35,938
- -------------------------------------------------------------------------------------------------------------------
J. C. Hunter III -0- -0- 362,614/40,000 1,856,097/115,000
- -------------------------------------------------------------------------------------------------------------------
M. E. Miller -0- -0- 404,408/12,500 3,779,892/35,938
- -------------------------------------------------------------------------------------------------------------------
<FN>
<F1> These year-end values represent the difference between (a) the fair market
value of the company common stock underlying the options on December 31,
1998 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.
<F2> The amounts in this column reflect the fair market value of shares
received on the exercise date minus the exercise price.
16
In accordance with regulations of the Securities and Exchange Commission, the
following table describes potential awards to named executive officers under
the Solutia Inc. 1998-1999 Long-Term Incentive Plan (the "Plan"). No payments
were actually made in 1998 under this Plan. Furthermore, there is no assurance
that the company will achieve cumulative two-year results that would lead to
payments under the Plan.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Number of Performance or Non-Stock Price-Based Plans
Shares, Units, or Other Period
Other Rights Until Maturation Threshold Target Maximum
Name #<F1> or Payout ($) ($) ($)
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------------
R. G. Potter N/A 1/1/98 - 12/31/99 N/A 931,250 2,793,748
- ------------------------------------------------------------------------------------------------------------------------------
K. R. Barnickol N/A 1/1/98 - 12/31/99 N/A 200,000 600,000
- ------------------------------------------------------------------------------------------------------------------------------
R. A. Clausen N/A 1/1/98 - 12/31/99 N/A 216,000 648,000
- ------------------------------------------------------------------------------------------------------------------------------
J. C. Hunter III N/A 1/1/98 - 12/31/99 N/A 668,751 2,006,253
- ------------------------------------------------------------------------------------------------------------------------------
M. E. Miller N/A 1/1/98 - 12/31/99 N/A 260,000 780,000
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Although actual awards, if any, under the Plan will not be determined or
paid until 2000, long-term incentive opportunities were established for
executives at the beginning of the two-year performance period, based on a
percentage of each executive's aggregate salary during the performance
period. The percentage varies with the level of responsibility of the
executive. Actual awards will depend principally upon achievement of
cumulative earnings per share and free cash flow targets for the two-year
performance period. Threshold levels of cumulative earnings per share and
cumulative free cash flow must be achieved for any awards to be earned.
The amount of any award is subject to the discretion of the Executive
Compensation and Development Committee.
Any awards earned will be paid no later than March 15, 2000, in the
form of shares of company common stock that are restricted against sale or
other disposition until December 31, 2004, to the extent that sufficient
shares are available for this purpose under the company's stock-based
incentive plan. To the extent that sufficient shares are not available,
payment will be made in the form of performance shares (bookkeeping units
that entitle a participant to payment in cash based on the value of a
share of company common stock) that replicate to the extent practicable
the terms and conditions of the restricted stock. The number of shares of
restricted stock or performance shares granted to an executive will be
determined by dividing the dollar amount of the executive's award by the
average of the fair market value of the company's common stock on each of
the three consecutive days immediately preceding the grant date on which
the New York Stock Exchange is open for trading. The restricted stock or
performance shares are forfeitable if the executive leaves the company
voluntarily (other than as the result of retirement) before the
restrictions lapse.
PENSION PLANS
The named executive officers are eligible for benefits payable under the
defined benefit pension plans applicable to the company's regular full-time
employees. An executive's benefits are based on his service with Monsanto
Company prior to the spinoff and service with Solutia since the spinoff. The
company'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 Company'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
17
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) is 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 Company's defined benefit pension plans before 1997 are
credited each year (for up to ten years based on prior years of service
with Monsanto Company 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.
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.
Potter, $894,989; Mr. Barnickol, $320,980; Mr. Clausen, $443,645; Mr. Hunter,
$715,685; and Mr. Miller, $516,053.
CHANGE-OF-CONTROL AGREEMENTS
Each executive officer named in the Summary Compensation Table is a party to a
change-of-control employment agreement. These agreements become effective upon
a "change of control" of the company (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
three times his annual compensation (including bonus) and continuation of
certain benefits for three years (or the shorter number of years until the
executive's normal retirement date). In addition, each of these executives is
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 of these executives 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).
RATIFICATION OF INDEPENDENT AUDITORS (PROXY ITEM NO. 2)
We are asking you to ratify the Board's appointment of Deloitte & Touche LLP
("Deloitte") as principal independent auditors to examine the consolidated
financial statements of the company and its subsidiaries for the year 1999. The
Audit and Finance Committee recommended the selection of Deloitte to the Board.
Deloitte was originally appointed to act as the company's independent auditors
in September 1997 when the company became an independent entity. Deloitte is
knowledgeable about the company's operations and accounting practices and is
well qualified to act as auditor.
Although we are not required to seek your approval of this appointment, the
Board believes it to be sound corporate practice to do so. If you do not ratify
the appointment of independent auditors, the Audit and Finance Committee will
investigate the reasons for your rejection and the Board will reconsider the
appointment.
18
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.
- -------------------------------------------------------------------------------
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE AS PRINCIPAL INDEPENDENT AUDITORS FOR THE YEAR 1999.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals for possible inclusion in our 2000 proxy
materials, we must receive them on or before November 16, 1999. 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 2000 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 30, 1999 and not later than January 29, 2000.
* 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 2000 Annual Meeting without
submitting them for possible inclusion in our 2000 proxy materials.
MULTIPLE COPIES OF ANNUAL REPORT TO STOCKHOLDERS
If more than one copy of Solutia's Annual Report is currently being sent to
your address, we will discontinue the mailing of reports on the accounts you
select if you mark the designated box on the appropriate proxy card(s), or
follow the prompts when you vote if you are a stockholder of record voting by
telephone or Internet.
At least one account must continue to receive the Annual Report. Mailing of
dividends, dividend reinvestment account statements, and any special notices
will not be affected by your election to discontinue future duplicate mailings
of the Annual Report. To discontinue or resume the mailing of an Annual Report
to an account, you may call First Chicago Trust Company at 1-888-987-6588.
If you own common stock through a bank, broker or other nominee and receive
more than one Solutia Annual Report, contact the holder of record to eliminate
duplicate mailings.
KARL R. BARNICKOL
Secretary
March 15, 1999
19
DIRECTIONS TO
ST. LOUIS
MARRIOTT [MAP]
WEST HOTEL
FROM LAMBERT
INTERNATIONAL AIRPORT:
Take I-70 West
approximately 3 miles
to I-270 South, then 8
miles to the I-64/40
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 signs.
------------------------------------
[SOLUTIA LOGO]
Annual Meeting of Stockholders
St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
April 28, 1999
1:45 P.M.
ADMISSION TICKET
------------------------------------
SOLUTIA INC.
[SOLUTIA LOGO] COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1999 ANNUAL MEETING
ST. LOUIS MARRIOTT WEST HOTEL, 660 MARYVILLE CENTRE DRIVE
ST. LOUIS, MISSOURI 63141
APRIL 28, 1999 AT 1:45 P.M.
P
R The undersigned hereby appoints Robert G. Potter, John C. Hunter III, and
O Karl R. Barnickol, and each of them, with full power of substitution,
X proxies to vote all shares of Common Stock of Solutia Inc. that the
Y undersigned is entitled to vote at the 1999 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 or the Monsanto Savings and Investment Plan, and this
proxy card is received on or prior to April 23, 1999, then this card
also provides voting instructions to the trustee of such plan to vote
at the 1999 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 one of these plans and does not instruct
the trustee by April 23, 1999, 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.
Election of directors to a term of three years to expire at the
Annual Meeting in 2002 (see reverse). Nominees are (1) Joan T. Bok,
(2) Howard M. Love, and (3) Robert G. Potter.
- --------------------------------------------------------------------------------
*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, PLEASE BRING THE ADMISSION
TICKET PRINTED ON THE BACK COVER OF THE PROXY STATEMENT.
/X/ PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE .
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" ITEMS 1 AND 2.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
- -------------------------------------------------------------------------------
FOR WITHHELD
1. Election of
Directors / / / /
to term listed
on reverse.
For, except withheld from the following nominee(s):
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Deloitte & Touche
LLP as principal / / / / / /
independent auditors
for 1999.
- ---------------------------
SPECIAL ACTION
Check box if you wish
to discontinue Annual / /
Report mailing for this
Account because
another household
member receives one.
- ---------------------------
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*
[SOLUTIA LOGO]
Solutia Inc. encourages you to vote your shares electronically by
telephone or through the Internet. This eliminates the need to return
your proxy card.
To vote your shares electronically, you must use the control numbers
printed in the box above, just below the perforation. The series of
numbers that appear in the box above must be used to access the system.
1. To vote by telephone:
* On a touch-tone telephone, call 1-800-OK2-VOTE (1-800-652-8683) 24
hours a day, 7 days a week.
2. To vote over the Internet
* Log onto the Internet and go to the website http://www.vote-by-net.com
Your electronic vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, dated and returned the proxy
card.
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.
APPENDIX
1. The legend appearing at the top of the Notice of Annual Meeting of
Stockholders in the EDGAR filing appears in the printed document
vertically in red along the left side of the Notice. The printed
documents containing this legend will be distributed only to
participants in Solutia's stock option plans. The legend will not
appear on documents delivered to other stockholders.
2. On printed pages 4 through 6, the blank spaces to the left of each
director's biography depicted by the word "[PHOTO]," contain a 1-1/8
inch by 1-5/8 inch black-and-white photograph of the respective
director.
3. On printed page 4, "Your Board of Directors recommends a vote "FOR"
these nominees" is in bold-face type.
4. On printed page 11, the trademarks are designated by the superscript
letter "R" in a circle.
5. On printed page 11, the Stock Price Performance Graph is being
transmitted in a format which can be processed by EDGAR.
6. On printed pages 1, 2, 10, 11, 12, 17, 18 and 19, the bullets in
the printed document are represented by asterisks in the EDGAR document.
7. On printed page 19, "The Board recommends that you vote "FOR" the
ratification of the appointment of Deloitte as principal independent
auditors for the year 1999" is in bold-face type.
8. On the outside back cover of the printed copy, a map is presented
showing the location of the Solutia Inc. 1999 Annual Meeting of
Stockholders. This is depicted in the EDGAR copy as "[MAP]".
9. On the back of the proxy card, "This proxy, when properly executed
will be voted in the manner directed by the undersigned stockholder.
If no direction is given, this proxy will be voted "FOR" Items 1 and 2,"
and "The Board of Directors recommends a vote "FOR" Items 1 and 2" are
in bold-face type.
10. On the front of the proxy card "THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS." is in bold-face type.