DATE: Wednesday, April 25, 2001
TIME: 1:45 p.m., Central Daylight Time
PLACE: St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
MATTERS TO BE VOTED ON: - Election of four directors
- Ratification of the appointment of Deloitte &
Touche LLP as principal independent auditors
for the year 2001
- Any other matters if properly raised
Only stockholders of record at the close of business on February 26, 2001, may
vote at the meeting. Your vote is important. Whether you plan to attend the
annual meeting or not, PLEASE CAST YOUR VOTE BY PHONE OR ON THE INTERNET, OR
COMPLETE, DATE, AND SIGN YOUR PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
If you attend the meeting and prefer to vote in person, you may do so even if
you have previously voted by proxy.
If you 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, 2001
TABLE OF CONTENTS
PAGE NO.
--------
Information About the Annual Meeting........................ 1
Election of Directors (Proxy Item No. 1).................... 4
Structure of the Board.................................... 4
Nominees For a Three-Year Term That Will Expire in 2004... 5
Directors Whose Terms Will Expire in 2002................. 6
Directors Whose Terms Will Expire in 2003................. 7
Board Meetings and Committees............................. 7
Compensation of Directors................................. 9
Ownership of Solutia Common Stock........................... 10
Ownership by Directors and Executive Officers............. 10
Ownership by Others....................................... 11
Compensation of Executive Officers and Other Information.... 12
Report of the Executive Compensation and Development
Committee.............................................. 12
Summary Compensation Table................................ 15
Option Grants in 2000..................................... 16
Aggregated Option Exercises in 2000 and Year-End Option
Values................................................. 17
Long-Term Incentive Plan -- Awards in Last Fiscal Year.... 17
Pension Plans............................................. 18
Agreements with Named Executive Officers.................. 18
Stock Price Performance Graph............................. 20
Relationships and Transactions............................ 21
Ratification of Appointment of Independent Auditors
(Proxy Item No. 2)........................................ 21
Report of the Audit and Finance Committee................. 21
Audit Fees................................................ 22
Request for Ratification.................................. 22
Information About Stockholder Proposals..................... 23
Appendix A -- Audit and Finance Committee Charter........... A-1
PROXY STATEMENT FOR THE SOLUTIA INC.
2001 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 2001
Annual Meeting of Stockholders. This proxy statement includes information about
the issues to be voted on at the meeting.
On March 15, 2001, we began mailing these proxy materials to all stockholders of
record at the close of business on February 26, 2001, the record date for the
2001 Annual Meeting. On the record date, there were 103,419,837 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
25, 2001, and for 10 days prior to the meeting, during ordinary business hours,
at Solutia's world headquarters, 575 Maryville Centre Drive, St. Louis, Missouri
63141.
HOW MANY VOTES DO I HAVE?
You may vote all shares of Solutia common stock that you owned at the close of
business on February 26, 2001, the record date. These shares include:
- Shares held directly in your name as the "stockholder of record";
- Shares held for you as the beneficial owner through a broker, bank, or
other nominee in "street name"; and
- Shares credited to your account in the Solutia Inc. Savings and
Investment Plan or the Monsanto Savings and Investment Plan.
IF I AM A STOCKHOLDER OF RECORD, HOW CAN I VOTE MY SHARES?
You can vote by proxy or in person.
HOW DO I VOTE BY PROXY?
If you are a stockholder of record, you may vote your proxy by telephone,
Internet, or mail. Our telephone and Internet voting procedures are designed to
authenticate stockholders by using individual control numbers. Voting by
telephone or Internet will help Solutia reduce costs.
- Voting Your Proxy by Telephone
In the 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 up through the day before the
meeting. Easy-to-follow voice prompts allow you to vote your shares and
confirm that your instructions have been properly recorded. If you vote
by telephone, you do not need to return your proxy card.
1
- Voting Your Proxy By Internet
You can also choose to vote over the Internet. The web site address for
Internet voting is on your proxy card. Internet voting is available 24
hours a day, 7 days a week up through the day before the meeting. If you
vote over the Internet, you do not need to return your proxy card. Please
note that if you vote over the Internet, you may incur costs such as
telecommunication and Internet connection charges.
- Voting Your Proxy By Mail
If you choose to vote by mail, simply mark your proxy card, date and sign
it, and return it to EquiServe in the postage-paid envelope provided.
If you vote by proxy using any of these three methods, the persons named on the
card (your "proxies") will vote your shares in the manner you indicate. You may
specify whether your shares should be voted for all, some, or none of the
nominees for director and whether your shares should be voted for or against the
ratification of the appointment of the principal independent auditors for 2001.
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 four nominees for director; and
- "FOR" ratification of the appointment of the principal independent
auditors for 2001.
If any other matter is presented, your proxies will vote in accordance with
their best judgment. At the time this proxy statement went to press, we knew of
no matters that needed to be acted on at the annual meeting other than those
discussed in this proxy statement.
If you wish to give a proxy to someone other than the persons named on the
enclosed proxy card, you may strike out the names appearing on the card and
write in the name of any other person, sign the proxy, and deliver it to the
person whose name has been substituted.
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it in any one of three ways:
- Submit a valid, later-dated proxy;
- Notify Solutia's Secretary in writing before the annual meeting that you
have revoked your proxy; or
- Vote in person at the annual meeting.
HOW DO I VOTE IN PERSON?
If you are a stockholder of record, you may cast your vote in person at the
annual meeting. 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 SOLUTIA'S DIVIDEND REINVESTMENT PLAN?
If you are a participant in the Dividend Reinvestment Plan for stockholders of
Solutia that is administered by EquiServe, your proxy will also serve as an
instruction to vote the shares held under this plan in the
2
manner indicated on the proxy. If your proxy is not received, your shares held
in the Dividend Reinvestment Plan will not be voted.
HOW DO I VOTE MY SOLUTIA COMMON STOCK HELD IN SIP?
If you are both a registered stockholder of Solutia and a participant in 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 by Friday, April 20, 2001, the
trustee will vote your shares in the same proportion as the shares that are
voted by the other participants in the plan. The trustee will also vote
unallocated shares of Solutia common stock held in the plan in direct proportion
to the voting of allocated shares in the plan for which voting instructions have
been received unless doing so would be inconsistent with the trustee's duties.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
Election of Four Directors The nominees who receive the most votes for the available
(Proxy Item No. 1) positions will be elected. If you do not vote for a
particular nominee, or you indicate "withhold authority to
vote" for a particular nominee on your proxy card, your vote
will not count either "for" or "against" the nominee.
Ratification of Appointment of The affirmative vote of a majority of the shares present in
Independent Auditors (Proxy Item No. 2) person or by proxy at the annual meeting is required to
ratify the appointment of the principal independent auditors
for 2001. 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 held in "street name" on particular proposals, the shares not
voted ("broker non-votes") will have the same effect as a vote against these
proposals. Broker non-votes occur when brokers do not have discretionary voting
authority on certain proposals under the rules of the New York Stock Exchange
and the beneficial owner has not instructed the broker how to vote on these
proposals.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
Solutia is paying the cost of preparing, printing, and mailing these proxy
materials. We will reimburse banks, brokerage firms, and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. Solutia has retained Georgeson Shareholder
Communications Inc. to assist with the solicitation of proxies for a fee not to
exceed $12,500 plus reimbursement of out-of-pocket expenses. A few officers and
employees of Solutia may also participate in the solicitation, without
additional compensation.
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.
3
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
STRUCTURE OF THE BOARD
Our Restated Certificate of Incorporation and by-laws provide for a Board of
Directors that is divided into three classes as equal in size as possible. The
classes have three-year terms, and the term of one class expires each year in
rotation at that year's annual meeting. Vacancies on the board may be filled by
persons elected by a majority of the remaining directors, or, at the direction
of the remaining directors, by Solutia's stockholders. A director elected by the
board to fill a vacancy, or a new directorship created by an increase in the
size of the board, serves for the remainder of the full term of the class of
directors in which the vacancy or newly created directorship occurred. During
2000, the Board of Directors increased the size of the board from ten to eleven
members and elected Ms. Sally G. Narodick to fill the newly created directorship
in the class of 2002. Effective at the end of December 2000, Mr. Robert G.
Potter retired as a director, and the board decreased its size to ten members.
We will greatly miss Mr. Potter's devoted service to Solutia.
Solutia's Board of Directors has nominated four individuals, all of whom are
currently directors of Solutia, for election as directors at the 2001 Annual
Meeting: Mr. John C. Hunter III, Mr. Michael E. Miller, Mr. William D.
Ruckelshaus, and Dr. John B. Slaughter. All but Mr. Miller were previously
elected by Solutia's shareholders. Mr. Miller was elected by Solutia's Board of
Directors. Directors nominated for election would hold office until the Annual
Meeting in 2004, or until their respective successors are elected and qualified,
or until their earlier death, resignation or removal. However, in accordance
with Solutia's mandatory retirement policy for directors who are not employees
of Solutia, Mr. Ruckelshaus will resign as a director effective as of the date
of the 2003 Annual Meeting of Stockholders. We also anticipate that Mr. Miller
will resign from the board before April 2004 in accordance with Solutia's policy
that employee directors retire from the board coincident with, or soon after,
their retirement as employees.
The board is not aware that any nominee named in this proxy statement will be
unwilling or unable to stand for election as a director. If that happens,
however, your proxy authorizes us to vote for a replacement nominee if the board
names one. As an alternative, the board may reduce the number of directors to be
elected at the meeting.
4
NOMINEES FOR A THREE-YEAR TERM THAT WILL EXPIRE IN 2004
JOHN C. HUNTER III PRINCIPAL OCCUPATION: CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER, SOLUTIA INC.
[JOHN C. HUNTER III FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 54
Mr. Hunter has been Chairman and Chief Executive Officer of
Solutia Inc. since 1999 and President since 1997. He was
Chief Operating Officer from 1997 to 1999. From 1995 to
1997, he was President of the Fibers Business Unit of
Monsanto Company. Mr. Hunter is a Director of Penford
Corporation. He is also on the Board of Directors of
Missouri Baptist Hospital.
MICHAEL E. MILLER PRINCIPAL OCCUPATION: VICE CHAIRMAN, SOLUTIA INC.
FIRST BECAME DIRECTOR: 1999
[MICHAEL E. MILLER AGE: 59
PHOTO] Mr. Miller has been Vice Chairman of Solutia Inc. since
1998. He served as Chief Operating Officer from 1999 to
2001. From 1997 to 1998, he was a Senior Vice President. He
was an Advisory Director from 1997 to 1999. From 1995 to
1997, Mr. Miller was President of the Specialty Products
Business Unit of Monsanto Company. Mr. Miller is a Director
of Watlow Electric Manufacturing Company and Alpha
Technologies. He is also a Trustee of Fontbonne College.
WILLIAM D. RUCKELSHAUS PRINCIPAL OCCUPATION: STRATEGIC PARTNER, MADRONA VENTURE
FUND
[WILLIAM D. RUCKELSHAUS FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 68
Mr. Ruckelshaus has been Strategic Partner, Madrona Venture
Fund since 1999. He has also been a Principal of Madrona
Investment Group L.L.C. since 1996. From 1988 to 1997, Mr.
Ruckelshaus was Chairman of Browning-Ferris Industries, Inc.
and Chief Executive Officer from 1988 to 1995. He was Of
Counsel to Perkins Coie from 1985 to 1988. He served as
Administrator of the Environmental Protection Agency from
1983 to 1985. Mr. Ruckelshaus is a Director of Coinstar,
Inc., Cummins Engine Co., Inc., Nordstrom, Inc., Pharmacia
Corporation, and Weyerhaeuser Company.
JOHN B. SLAUGHTER PRINCIPAL OCCUPATION: PRESIDENT AND CHIEF EXECUTIVE OFFICER,
NACME, INC.
[JOHN B. SLAUGHTER FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 66
Dr. Slaughter has been the President and Chief Executive
Officer of The National Action Council for Minorities in
Engineering, Inc. (NACME), a non-profit corporation, since
2000. From 1999 to 2000, he was the Irving R. Melbo
Professor of Leadership in Education at the University of
Southern California and President Emeritus of Occidental
College, where he served as President from 1988 to 1999. He
was the Director of the National Science Foundation from
1980 to 1982. Dr. Slaughter is a Director of International
Business Machines Corporation and Northrop Grumman Corp. He
is a Fellow of the American Academy of Arts and Sciences,
the American Association for the Advancement of Science, and
the Institute of Electrical and Electronic Engineers. He is
also a member of the National Academy of Engineering.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES.
5
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
PAUL H. HATFIELD PRINCIPAL OCCUPATION: PRINCIPAL, HATFIELD CAPITAL GROUP
FIRST BECAME DIRECTOR: 1997
[PAUL H. HATFIELD PHOTO] AGE: 65
Mr. Hatfield has been a Principal of Hatfield Capital Group
since 1997. He was Chairman of the Board, President, and
Chief Executive Officer of Petrolite Corporation from 1995
to 1997. Mr. Hatfield is a Director of Penford Corporation
and Maritz, Inc.
J. PATRICK MULCAHY PRINCIPAL OCCUPATION: CHIEF EXECUTIVE OFFICER, ENERGIZER
HOLDINGS, INC.
[J. PATRICK MULCAHY FIRST BECAME DIRECTOR: 1999
PHOTO] AGE: 57
Mr. Mulcahy has been Chief Executive Officer, Energizer
Holdings, Inc. since 2000. He was Chairman and Chief
Executive Officer of Eveready Battery Company Inc., a
subsidiary of Ralston Purina Company, from 1987 to 2000, and
a corporate officer of Ralston Purina Company from 1984 to
2000. He served as Co-Chief Executive Officer and
Co-President of Ralston Purina Company from 1997 to 1999.
Mr. Mulcahy is a Director of Energizer Holdings, Inc.
SALLY G. NARODICK PRINCIPAL OCCUPATION: EDUCATIONAL TECHNOLOGY AND E-LEARNING
CONSULTANT
[SALLY G. NARODICK FIRST BECAME DIRECTOR: 2000
PHOTO] AGE: 55
Ms. Narodick is an educational technology and e-learning
consultant. She was Chief Executive Officer of Apex
Learning, Inc., an Internet educational software company,
from its founding in 1998 until her retirement in 2000.
Previously, she served as an education technology
consultant, both independently and for the Consumer Division
of IBM from 1996 to 1998. Ms. Narodick was Chair and Chief
Executive Officer of Edmark Corporation from 1989 to 1996.
She is a Director of Penford Corporation, Puget Sound
Energy, Inc., and click2learn.com, inc.
6
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2003
ROBERT T. BLAKELY PRINCIPAL OCCUPATION: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, LYONDELL CHEMICAL COMPANY
[ROBERT T. BLAKELY FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 59
Mr. Blakely has been Executive Vice President and Chief
Financial Officer of Lyondell Chemical Company since 1999.
He was an Executive Vice President and Chief Financial
Officer of Tenneco Inc. from 1981 to 1999. He is a Director
of Vlasic Foods International Inc. He also serves as a
Trustee of Cornell University.
ROBERT H. JENKINS PRINCIPAL OCCUPATION: RETIRED CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER, SUNDSTRAND CORPORATION
[ROBERT H. JENKINS FIRST BECAME DIRECTOR: 1997
PHOTO] AGE: 58
Mr. Jenkins was Chairman of the Board and Chief Executive
Officer of Sundstrand Corporation from 1997 to 1999. He was
President and Chief Executive Officer of Sundstrand
Corporation from 1995 to 1997. Mr. Jenkins is a Director of
AK Steel Holdings Corporation, CLARCOR Inc., Pella
Corporation, Sentry Insurance, and Visteon Corporation.
FRANK A. METZ, JR. PRINCIPAL OCCUPATION: RETIRED SENIOR VICE PRESIDENT, FINANCE
AND PLANNING, AND CHIEF FINANCIAL OFFICER, INTERNATIONAL
[FRANK A. METZ, JR. BUSINESS MACHINES CORPORATION
PHOTO] FIRST BECAME DIRECTOR: 1997
AGE: 67
Mr. Metz was Senior Vice President, Finance and Planning,
and Chief Financial Officer of International Business
Machines Corporation from 1986 to 1993 and a Director from
1991 to 1993. Mr. Metz is a Director of Allegheny Energy,
Inc.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors met six times in 2000. In addition, directors attended
meetings of board committees. A description of each committee and its current
membership follows.
Audit and Finance Committee
Members: Mr. Metz, Chairman; Messrs. Blakely and Mulcahy, and Dr. Slaughter
The Audit and Finance Committee, composed of non-employee directors, met seven
times in 2000. Solutia's Board of Directors has concluded that each of these
members is independent and financially literate within the meaning of the New
York Stock Exchange rules regarding audit committees. The committee reviews and
monitors Solutia's internal controls, financial reports, and accounting
practices as well as the scope and extent of the audits performed by both the
independent and internal auditors. The committee also recommends to the full
board the selection of Solutia's principal independent auditors, and it approves
in advance all significant audit and non-audit services provided by these
auditors. The internal and principal independent auditors meet with this
committee, with and without management representatives present, to discuss the
results of their examination, the adequacy of Solutia's internal accounting
controls, and the quality of Solutia's financial reporting.
7
The Audit and Finance Committee also reviews and monitors Solutia's financial
policies, including planning and capital structure, so that they conform to
Solutia's requirements for growth and sound operation.
The Board has adopted a written charter setting out the functions the committee
is to perform. You can find a copy of the Audit and Finance Committee Charter in
Appendix A to this proxy statement.
Executive Compensation and Development Committee
Members: Mr. Hatfield, Chairman; Messrs. Jenkins and Metz
The Executive Compensation and Development Committee, composed of non-employee
directors, met five times in 2000. The committee recommends to the board the
establishment and modification of Solutia's management incentive plans. The
committee makes grants and awards under these plans to Solutia's senior
management (including its executive officers) and administers and interprets
these plans. The committee has delegated authority to a compensation committee
composed of senior managers to make 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 Solutia's senior management (including its
executive officers).
Governance Committee
Members: Mr. Ruckelshaus, Chairman; Ms. Narodick, Mr. Jenkins, and Dr. Slaughter
The Governance Committee, composed of non-employee directors, met five times in
2000. The committee serves as a nominating committee to consider candidates for
the board. As such, it approved the slate of director nominees in this proxy
statement for submission to the board. The committee develops internal criteria
for the selection of directors. In performing these responsibilities, the
committee consults with the Chairman of the Board. The committee will consider
candidates for election as director whose nomination is recommended by
stockholders. Any stockholder wishing to make such a recommendation should
submit the nominee's name, together with the nominee's qualifications and
consent to being considered as a nominee, in writing by year-end to Solutia's
Secretary.
Each year the Governance Committee evaluates the performance of the board to
ensure that the directors are fulfilling their responsibilities in a manner that
effectively serves the interests of Solutia's stockholders. As part of this
annual evaluation, the committee also reconsiders the principles and procedures
that it has developed for the board. The Governance Committee also regularly
reviews and monitors Solutia's performance as it affects employees, communities,
and the environment.
8
COMPENSATION OF DIRECTORS
Directors who are Solutia employees do not receive payment for their services as
directors.
The following table displays all components of compensation for non-employee
directors:
----------------------------------------------------------------------------
FORM OF COMPENSATION AMOUNT OF COMPENSATION
----------------------------------------------------------------------------
Annual Board Retainer* $50,000
----------------------------------------------------------------------------
Annual Retainer for Committee $5,000
Chairman
----------------------------------------------------------------------------
Committee Attendance Fee $1,000
(each meeting)
----------------------------------------------------------------------------
Initial Option Grant option on 8,000 shares of company
(upon first election to Board) common stock
----------------------------------------------------------------------------
Annual Option Grant** option on 2,000 shares of company
common stock
----------------------------------------------------------------------------
* At least half of the annual retainer is credited to the director's
deferred stock account in quarterly installments and is paid out in
Solutia common stock following the termination of the director's service
on the board. Each non-employee director may elect to receive the other
half of the annual retainer in cash or to defer all or a part into the
deferred stock account, an interest-bearing cash account, or both.
** The annual option grant is normally made on the date of the annual
meeting of stockholders to newly elected directors and those directors
who are continuing in office. The annual option grant for a director's
first year is prorated if the director is elected at a time other than
the date of the annual meeting of stockholders. The exercise price of
these non-qualified stock options is equal to the fair market value of
Solutia common stock on the date of the grant. The stock options
generally become exercisable in three equal annual installments. The
stock options have a term of ten years but terminate two years after a
director's board service ends for any reason, if earlier.
Non-employee directors received options as follows in 2000:
---------------------------------------------------------------------------------------------------------------
Number of Shares Exercise
Director Date Under Option Price
---------------------------------------------------------------------------------------------------------------
Messrs. Blakely, Hatfield, Jenkins, 4/26/00 2,000 shares $13.532
Metz, Mulcahy, Potter, and
Ruckelshaus, and Dr. Slaughter
---------------------------------------------------------------------------------------------------------------
Ms. Narodick 10/23/00 9,167 shares $11.719
---------------------------------------------------------------------------------------------------------------
Mr. Potter's option was forfeited upon his retirement from the Board.
Non-employee directors do not have a retirement plan, nor do they participate in
Solutia's benefit plans. They are, however, covered under Solutia's business
travel accident insurance policy while traveling on Solutia's business.
Because non-employee directors are required to take at least half of their
annual retainer in the form of deferred common stock, they will have an ever
increasing stake in Solutia. Therefore, the board has not considered it
necessary to adopt a stock ownership requirement for non-employee directors.
9
OWNERSHIP OF SOLUTIA COMMON STOCK
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows Solutia common stock owned beneficially by Solutia's
directors and executive officers, including deferred shares credited to the
account of each non-employee director, as of December 31, 2000. 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 of Common Stock Shares Underlying
Beneficially Owned Options Exercisable
Name (a)(b)(c) Within 60 Days (d) Total
-------------------------------------------------------------------------------------------------------------------
Karl R. Barnickol 128,007(e) 257,121 385,128
-------------------------------------------------------------------------------------------------------------------
Robert T. Blakely 4,515 11,333 15,848
-------------------------------------------------------------------------------------------------------------------
Robert A. Clausen 106,544 259,237 365,781
-------------------------------------------------------------------------------------------------------------------
Paul H. Hatfield 16,427 11,333 27,760
-------------------------------------------------------------------------------------------------------------------
John C. Hunter III 297,147 362,614 659,761
-------------------------------------------------------------------------------------------------------------------
Robert H. Jenkins 9,197(f) 11,333 20,530
-------------------------------------------------------------------------------------------------------------------
Frank A. Metz, Jr. 6,302 11,333 17,635
-------------------------------------------------------------------------------------------------------------------
Michael E. Miller 139,518(g) 404,408 543,926
-------------------------------------------------------------------------------------------------------------------
J. Patrick Mulcahy 6,224 3,166 9,390
-------------------------------------------------------------------------------------------------------------------
Sally G. Narodick 1,356 -- 1,356
-------------------------------------------------------------------------------------------------------------------
Robert G. Potter 247,219(h) 1,112,477 1,359,696
-------------------------------------------------------------------------------------------------------------------
William D. Ruckelshaus 11,949(i) 11,333 23,282
-------------------------------------------------------------------------------------------------------------------
John B. Slaughter 6,315(j) 11,333 17,648
-------------------------------------------------------------------------------------------------------------------
Robert B. Toth 31,065(k) 64,246 95,311
-------------------------------------------------------------------------------------------------------------------
All directors and executive
officers (19 persons) 1,229,644(l) 3,074,359 4,304,003
-------------------------------------------------------------------------------------------------------------------
(a) The number of shares shown includes shares held under the Solutia Inc.
Savings and Investment Plan ("SIP"): Mr. Hunter, 32,295; Mr. Barnickol,
30,496; Mr. Clausen, 3,725; Mr. Miller, 12,428; Mr. Toth, 5,032; and
directors and executive officers as a group, 132,674. Executive officers
have sole discretion over voting shares held under SIP and, within
limitations provided by SIP, sole discretion over investment of shares.
Shares are voted by the trustees of SIP in accordance with instructions from
participants. If the trustees do not receive instructions as to the voting
of particular shares, the shares are voted in proportion to instructions
actually received from other participants in SIP.
(b) The number of shares shown includes deferred shares credited to the account
of each non-employee director, as follows: Mr. Blakely, 4,515 shares; Mr.
Hatfield, 9,027 shares; Mr. Jenkins, 9,027 shares; Mr. Metz, 4,515 shares;
Mr. Mulcahy, 5,224 shares; Ms. Narodick, 1,356 shares; Mr. Potter, 4,238
shares; Mr. Ruckelshaus, 9,027 shares; and Dr. Slaughter, 4,515 shares. As
noted under "Compensation of Directors" on page 9, a minimum of half of a
non-employee director's annual retainer is credited to the director's
deferred stock account and is paid in stock as soon as practicable following
the termination of the director's service on the board. The non-employee
directors have no current voting or investment power over these deferred
shares.
(c) The number of shares shown includes restricted stock granted under the
Solutia Inc. 1997 Stock-Based Incentive Plan in payment of awards earned
under the Solutia Inc. 1998-1999 Long-Term Incentive Plan, as follows: Mr.
Hunter, 207,698 shares; Mr. Barnickol, 58,047 shares;
10
Mr. Clausen, 62,691 shares; Mr. Miller, 82,233 shares; and Mr. Toth, 25,033
shares; and directors and executive officers as a group, 587,712. With
respect to these shares, executive officers have sole voting power but no
current investment power.
(d) The shares shown represent stock options granted under Solutia's incentive
plans, including stock options resulting from the conversion of Monsanto
Company stock options at the time of the spinoff of Solutia by Monsanto
Company in 1997.
(e) The number of shares shown for Mr. Barnickol includes 1,778 shares owned
jointly by Mr. Barnickol and his wife.
(f) The number of shares shown for Mr. Jenkins includes 170 shares owned jointly
by Mr. Jenkins and his wife.
(g) The number of shares shown for Mr. Miller includes 44,856 shares with
respect to which Mr. Miller shares voting and investment power.
(h) 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.
(i) The number of shares shown for Mr. Ruckelshaus includes 500 shares owned
jointly by Mr. Ruckelshaus and his wife.
(j) The number of shares shown for Dr. Slaughter includes 137 shares owned by
Dr. Slaughter's wife. Dr. Slaughter expressly disclaims beneficial ownership
of these shares.
(k) The number of shares shown for Mr. Toth includes 662 shares under contract
through Solutia's Employee Stock Purchase Plan.
(l) The number of shares shown for all directors and executive officers as a
group includes:
- 1,526 shares owned by members of the households of executive officers not
named above; beneficial ownership of 1,500 of these is expressly
disclaimed; and
- 1,262 shares under contract through Solutia's Employee Stock Purchase
Plan to an executive officer not named above.
The total share holdings reported above for all directors and executive officers
as a group equal approximately 4.2% of the number of shares of Solutia common
stock outstanding on December 31, 2000. Mr. Potter's total share holdings equal
approximately 1.3%.
OWNERSHIP BY OTHERS
The following table shows all persons or entities that Solutia knows were
"beneficial owners" of more than five percent of Solutia common stock on
December 31, 2000.
Amount and Nature of
Beneficial Ownership of Percent
Name and Address of Beneficial Owner Company Common Stock of Class
------------------------------------ ----------------------- --------
FMR Corp. 12,185,610(a) 11.769%
82 Devonshire Street
Boston, Massachusetts 02109
(a) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission by FMR Corp. on behalf of itself, two wholly-owned
subsidiaries of FMR, certain FMR shareholders, and Fidelity International
Limited. Fidelity Management & Research Company, one of these subsidiaries, is
the beneficial owner of 9,562,900 of these shares (9.236% of Solutia's common
stock). This subsidiary, and FMR through its control of this subsidiary, each
have sole power to dispose of 9,562,900 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 2,490,610 shares and
sole power to vote or direct the voting of 2,470,610 shares. Fidelity
International Limited has sole power to dispose of, and sole power to vote,
132,100 shares.
11
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
REPORT OF THE EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
The Executive Compensation and Development Committee of the Board of Directors
is comprised of three directors who are not, and have never been, employees of
Solutia. The committee establishes compensation policy for Solutia and
administers the compensation program for Solutia's senior management, including
its executive officers.
In 1999, Solutia engaged the services of a nationally recognized compensation
consulting firm to assist in reviewing Solutia's overall compensation structure
and in determining appropriate changes to the compensation program for Solutia's
executive officers. The consulting firm provided information on base salary
levels, annual bonus levels, and long-term incentives at a broad group of
companies (the "survey group"). The survey group included companies represented
in the S&P specialty and diversified chemicals indices as well as other
industrial companies. Based on this comparative pay data, financial parameters
that the committee considered critical to the achievement of Solutia's
profitable growth, and the compensation-related objectives that the committee
wished to foster, the committee approved the program that is described below.
Policies and Objectives
The committee's objectives reflected in Solutia's compensation programs,
including its executive compensation program described below were 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 on three key measures of Solutia's
success: revenue growth, earnings growth, and cash management; and
- build an ownership mentality throughout Solutia.
The three key components of Solutia's executive compensation program are:
- base salary;
- annual incentive compensation; and
- long-term incentive compensation.
The intention is to maintain base salaries for the executives named in the
Summary Compensation Table and other members of senior management at
approximately the 50th percentile of companies of comparable size in the survey
group. Annual incentive awards and long-term incentive compensation for 2000
through 2002 are also targeted at about the 50th percentile.
Annual Incentive Program
The annual incentive program for senior management, including the chief
executive officer, and all other management level employees provides for awards
to be determined shortly after the end of the year being measured. The annual
plan in effect in 2000 provided that:
- threshold levels of revenue growth and operating margins had to be
attained in order for the plan to be funded;
- funding would be adjusted up or down using a working capital factor;
12
- actual awards would depend principally upon achieving revenue growth,
operating margin, and working capital targets set at the beginning of
2000; and
- the committee would have discretion to adjust awards based on enterprise
results measured against targets, business unit accomplishments, and an
individual's personal performance as measured against his or her
particular responsibilities.
Long-Term Incentive Program
For the executive officers, including the chief executive officer, and certain
other members of senior management, the 2000-2002 long-term incentive program
has two components:
- a long-term incentive opportunity based upon cumulative enterprise
results for the 2000-2002 performance period; and
- a non-qualified stock option grant.
Together these two components were designed to result in long-term compensation
at the 50th percentile of companies of comparable size in the survey group,
assuming performance at target levels.
2000-2002 LONG-TERM INCENTIVE OPPORTUNITY. This opportunity is designed to focus
senior management on the financial performance required for Solutia's long-term
profitable growth. Awards will depend principally upon achieving cumulative
revenue growth, earnings per share, and free cash flow targets for the
three-year period 2000-2002. Threshold levels of revenue growth, cumulative
earnings per share, and cumulative free cash flow must be achieved for awards to
be earned. The committee has discretion to adjust awards. Awards, if any, are to
be paid in cash by the end of March 2003.
STOCK OPTIONS. In July 2000, approximately 800 management level employees
received stock option grants. The size of the grant to each employee was based
upon both the employee's level of responsibility and his or her individual
performance. This represents a move away from granting options solely on the
basis of a grade level table.
The stock options granted in July 2000 have a ten-year term and an exercise
price equal to $14.032, the fair market value of a share of Solutia common stock
on the option grant date. The options granted to senior management, including
the chief executive officer, become exercisable on the earlier of the
achievement of four pre-established increases in the fair market value of
Solutia's common stock or on the ninth anniversary of the option grant date.
Options granted to other management level employees generally become exercisable
in thirds on each of the first three anniversaries of the stock option grant
date.
Compensation for 2000
Effective January 1, 2000, the committee increased Mr. Hunter's base salary to
an annual rate of $700,000. This increase was consistent with the stated policy
of maintaining base salaries for executive officers at approximately the 50th
percentile for companies of comparable size in the survey group.
Threshold levels of revenue growth and operating margin under the annual
incentive plan for 2000 were not achieved. Therefore, Mr. Hunter and three of
the other named executive officers did not receive an annual incentive award for
the 2000 performance year. Mr. Toth, Vice President and General Manager of
Solutia's Resins and Additives business received a special recognition bonus as
the result of the successful integration of the Vianova Resins acquisition,
which exceeded acquisition model targets.
On July 6, 2000, as part of the general grant of stock options to management
level employees, Mr. Hunter received a non-qualified stock option to buy 95,000
shares of Solutia common stock. The committee considered the company's
performance and the operating environment in determining the size of this grant.
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 to avoid losing tax deductibility for compensation in excess of $1,000,000
paid to one or more of the executive officers named in the Summary Compensation
Table.
Management Stock Ownership Requirements
The committee and management believe that the financial well-being of senior
executives should be linked to the creation of stockholder value. Therefore, the
committee has implemented stock ownership requirements for all executive
officers and most other members of senior management. Stock ownership
requirements are as follows:
- six times base salary for the chief executive officer and the vice
chairman;
- three times base salary for the three senior vice presidents; and
- two times base salary for all other senior managers who have stock
ownership requirements.
These requirements must be achieved in accordance with the following schedule:
- 25% within two years of election;
- 50% within three years of election; and
- 100% within five years of election.
Restricted stock and shares held through Solutia's 401(k) plan count toward
achievement of these requirements as do shares held by the executive directly or
in a trust. Unexercised stock options do not count. All of the named executive
officers have achieved at least the 50% level.
EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
Paul H. Hatfield, Chairman
Robert H. Jenkins
Frank A. Metz, Jr.
14
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------
Annual Compensation
-----------------------------------------------------
(a) (b) (c) (d) (e)
Other
Annual
Name and Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)
---------------------------------------------------------------------------------
J. C. Hunter III 2000 700,000 -0- -0-
Chairman, President, 1999 508,333 -0- -0-
Chief Executive 1998 445,834 550,000 -0-
Officer, and Director
---------------------------------------------------------------------------------
K. R. Barnickol 2000 275,000 -0- -0-
Senior Vice President, 1999 250,000 -0- -0-
General Counsel, and 1998 250,000 280,000 -0-
Secretary
---------------------------------------------------------------------------------
R. A. Clausen 2000 300,000 -0- -0-
Senior Vice President 1999 270,000 -0- -0-
and Chief Financial 1998 270,000 300,000 -0-
Officer
---------------------------------------------------------------------------------
M. E. Miller 2000 475,000 -0- -0-
Vice Chairman, 1999 383,333 -0- -0-
Chief Operating 1998 325,000 360,000 -0-
Officer, and Director
---------------------------------------------------------------------------------
R. B. Toth (4) 2000 205,000 125,000 -0-
Vice President and 1999 172,500 60,000 -0-
General Manager,
Resins and Additives
---------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Long-Term Compensation
-----------------------------------------
Awards Payouts
-----------------------------------------
(a) (f) (g) (h) (i)
Restricted Securities All Other
Name and Stock Underlying LTIP Compen-
Principal Awards Options Payouts sation
Position ($)(1) (#) ($)(2) ($)(3)
----------------------------------------------------------------------------------
J. C. Hunter III -0- 95,000 -0- 57,609
Chairman, President, -0- 120,000 2,862,500 88,895
Chief Executive -0- -0- -0- 86,002
Officer, and Director
---------------------------------------------------------------------------------
K. R. Barnickol -0- 22,500 -0- 40,279
Senior Vice President, -0- 25,000 800,000 43,048
General Counsel, and -0- -0- -0- 40,378
Secretary
---------------------------------------------------------------------------------
R. A. Clausen -0- 22,500 -0- 34,036
Senior Vice President -0- 25,000 864,001 43,912
and Chief Financial -0- -0- -0- 41,547
Officer
---------------------------------------------------------------------------------
M. E. Miller -0- 65,000 -0- 80,434
Vice Chairman, -0- 50,000 1,133,340 64,842
Chief Operating -0- -0- -0- 38,369
Officer, and Director
---------------------------------------------------------------------------------
R. B. Toth (4) -0- 18,000 -0- 12,838
Vice President and -0- 12,000 345,000 13,918
General Manager,
Resins and Additives
---------------------------------------------------------------------------------
(1) On December 31, 2000, the named executive officers owned the restricted
shares shown in the table below. All of these restricted shares are
attributable to the 1998-1999 Long-Term Incentive Plan payouts described in
footnote (2) below. Dividends are paid on the restricted shares at the same
rate paid to all Solutia's shareholders. The market value is based on the
closing price of Solutia's common stock on December 31, 2000, which was
$12.00.
----------------------------------------------------------------------------------------------------------------
Mr. Hunter Mr. Barnickol Mr. Clausen Mr. Miller Mr. Toth
----------------------------------------------------------------------------------------------------------------
Number of Shares 207,698 58,047 62,691 82,233 25,033
----------------------------------------------------------------------------------------------------------------
Market Value on $2,492,376 $696,564 $752,292 $986,796 $300,396
December 31, 2000
----------------------------------------------------------------------------------------------------------------
(2) The figures for 1999 represent awards earned under the Solutia Inc.
1998-1999 Long-Term Incentive Plan. On February 25, 2000, awards for Messrs.
Hunter, Barnickol, Clausen, Miller, and Toth were paid in the form of shares
of Solutia common stock restricted against sale or other disposition until
the earliest of December 31, 2004, the executive's retirement, death, total
and permanent disability, or involuntary termination other than for cause,
or a change of control. The number of shares was determined by dividing the
dollar amount of the executive's award by the average of the high and low
trading prices for Solutia's common stock for the three days immediately
preceding the payment date.
(3) Amounts shown for 2000 include:
- contributions to thrift/savings plans, as follows: Mr. Hunter, $33,600;
Mr. Barnickol, $13,200; Mr. Clausen, $14,400; Mr. Miller, $22,800; and
Mr. Toth, $12,720;
- split dollar life insurance premiums, as follows: Mr. Hunter, $23,891;
Mr. Barnickol, $26,961; Mr. Clausen, $19,518; and Mr. Miller, $53,293.
- cost of executive travel accident protection for each executive officer
named in this table: $118; and
15
- for Mr. Miller, the $4,223 in "above-market interest" (as defined by the
Securities and Exchange Commission) credited to his Solutia Inc. Deferred
Compensation Plan account.
(4) Mr. Toth became an executive officer of Solutia on December 22, 1999.
Therefore, under Securities and Exchange Commission rules, his compensation
for 1998 is not included in this table.
OPTION GRANTS IN 2000
---------------------------------------------------------------------------------------------------------------------------
Grant
Individual Grants(1) Date Value
---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options Granted Employees in Base Price Expiration Present Value
Name (#)(2) Fiscal Year ($/Share) Date ($)(3)
---------------------------------------------------------------------------------------------------------------------------
J. C. Hunter III 95,000 5.04 14.032 7/5/10 536,750
---------------------------------------------------------------------------------------------------------------------------
K. R. Barnickol 22,500 1.19 14.032 7/5/10 127,125
---------------------------------------------------------------------------------------------------------------------------
R. A. Clausen 22,500 1.19 14.032 7/5/10 127,125
---------------------------------------------------------------------------------------------------------------------------
M. E. Miller 65,000 3.45 14.032 7/5/10 367,250
---------------------------------------------------------------------------------------------------------------------------
R. B. Toth 18,000 0.95 14.032 7/5/10 101,700
---------------------------------------------------------------------------------------------------------------------------
(1) All Solutia management stock options have a minimum one-year holding period,
except in the event of a change of control. They expire ten years from the
grant date unless forfeited earlier. They all carry stock tax withholding
rights.
(2) These options were granted on July 6, 2000, under the Solutia Inc. 1997
Stock-Based Incentive Plan. The exercise price of $14.032 was the fair
market value per underlying share on the grant date. These options become
exercisable in accordance with the following schedule:
----------------------------------------------------------------------------
Percentage Increase in
Fair Market Value of
Company Common Stock Percentage of Option
from Option Grant Date Exercisable
----------------------------------------------------------------------------
20 25
----------------------------------------------------------------------------
30 50
----------------------------------------------------------------------------
50 75
----------------------------------------------------------------------------
75 100
----------------------------------------------------------------------------
The required increases in fair market value shown above must be maintained
for a period of ten consecutive trading days in order for the respective
percentages of the options to become exercisable. To avoid variable
accounting treatment, these options become exercisable on the ninth
anniversary of the option grant date even if the required percentage
increases in fair market value have not been achieved.
(3) In accordance with rules of the Securities and Exchange Commission, we have
chosen the Black-Scholes option pricing model to estimate the grant date
present value of the options shown in this table. Our use of this model
should not be construed as an endorsement of its accuracy at valuing
options. There is no assurance that the value realized by an executive, if
any, will be at or near the value estimated by the Black-Scholes model.
Future compensation resulting from option grants is based solely on the
performance of Solutia's stock price. The following assumptions were made
for purposes of calculating the original grant date present value: an option
life of five years, volatility of 34%, a dividend yield of 0.2%, and a
risk-free interest rate of 6%.
16
AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
----------------------------------------------------------------------------
(a) (b) (c)
Shares
Acquired on Value Realized
Name Exercise (#) ($)
----------------------------------------------------------------------------
J. C. Hunter III -0- -0-
----------------------------------------------------------------------------
K. R. Barnickol 27,038 192,078 (2)
----------------------------------------------------------------------------
R. A. Clausen -0- -0-
----------------------------------------------------------------------------
M. E. Miller -0- -0-
----------------------------------------------------------------------------
R. B. Toth -0- -0-
----------------------------------------------------------------------------
------------------------------ -----------------------------------------------
(a) (d)
Number of (e)
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at FY-End Options at FY-End
(#) ($)(1)
-----------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
------------------------------ -----------------------------------------------
J. C. Hunter III 362,614/255,000 85,917/0
----------------------------------------------------------------------------
K. R. Barnickol 257,121/60,000 926,428/0
----------------------------------------------------------------------------
R. A. Clausen 259,237/60,000 330,747/0
----------------------------------------------------------------------------
M. E. Miller 404,408/127,500 1,005,718/0
----------------------------------------------------------------------------
R. B. Toth 64,246/36,000 39,587/0
----------------------------------------------------------------------------
(1) These year-end values represent the difference between (a) the fair market
value of the Solutia common stock underlying the options on December 31,
2000, and (b) the exercise prices of the options. "In-the-money" means that
the fair market value of the underlying stock is greater than the option's
exercise price on the valuation date.
(2) This amount reflects the fair market value of the shares Mr. Barnickol
received on the exercise date minus the exercise price.
In accordance with regulations of the Securities and Exchange Commission, the
following table shows a range of potential awards to named executive officers
under the Solutia Inc. Long-Term Incentive Plan for the 2000-2002 performance
period. No payments were actually made in 2000 under this plan. Furthermore,
there is no assurance that Solutia will achieve cumulative three-year results
that would lead to any payments under the plan.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
(for possible payout in 2003)
-------------------------------------------------------------------------
Number of Performance or
Shares, Units, or Other Period Until
Other Rights Maturation or
Name (#)(1) Payout
(a) (b) (c)
-------------------------------------------------------------------------
J. C. Hunter III N/A 1/1/00 - 12/31/02
-------------------------------------------------------------------------
K. R. Barnickol N/A 1/1/00 - 12/31/02
-------------------------------------------------------------------------
R. A. Clausen N/A 1/1/00 - 12/31/02
-------------------------------------------------------------------------
M. E. Miller N/A 1/1/00 - 12/31/02
-------------------------------------------------------------------------
R. B. Toth N/A 1/1/00 - 12/31/02
-------------------------------------------------------------------------
------------------------ -----------------------------------------------------------
Estimated Future Payouts Under Non-Stock Price-Based Plans
-----------------------------------------------------------
-----------------------------------------------------------
Threshold Target Maximum
Name ($) ($) ($)
(a) (d) (e) (f)
------------------------ -----------------------------------------------------------
J. C. Hunter III 2,625,000 5,250,000 15,750,000
---------------------------------------------------------------------------------
K. R. Barnickol 412,500 825,000 2,475,000
---------------------------------------------------------------------------------
R. A. Clausen 450,000 900,000 2,700,000
---------------------------------------------------------------------------------
M. E. Miller 1,068,750 2,137,500 6,412,500
---------------------------------------------------------------------------------
R. B. Toth 230,625 461,250 1,383,750
---------------------------------------------------------------------------------
(1) Early in 2000, long-term incentive opportunities were established for
executives chosen to participate in the Solutia Inc. Long-Term Incentive
Plan during the 2000-2002 performance period. Actual awards, if any, for
this performance period, will be based on a percentage of the executive's
aggregate base salary during the performance period. Actual awards will
depend principally on achievement of cumulative net income, free cash flow,
and revenue growth targets for the three-year performance period. Threshold
levels of cumulative net income, free cash flow, and revenue growth 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.
Actual awards, if any, will be determined and paid in cash during the first
quarter of 2003. The potential threshold, target, and maximum awards shown
in the table above are calculated on the assumption that salary for each of
the three years in the performance period is the same as the executive's
salary for the year 2000 shown in the Summary Compensation Table on page 15.
17
PENSION PLANS
The named executive officers are eligible for benefits payable under the defined
benefit pension plans applicable to Solutia's regular full-time employees. An
executive's benefits are based on his service with the former Monsanto Company
(now known as Pharmacia Corporation) prior to the spinoff of Solutia and service
with Solutia since the spinoff. Solutia's defined benefit pension plans consist
of two accounts: a "Prior Plan Account" and a "Cash Balance Account."
- The opening balance of the Prior Plan Account was the lump sum value of
the executive's December 31, 1996, monthly retirement benefit earned
prior to January 1, 1997, under Monsanto's defined benefit pension plans,
calculated using the assumption that the monthly benefit would be payable
at age 55 with no reduction for early payment. The formula used to
calculate the opening balance was the greater of 1.4% of average final
compensation multiplied by years of service, without reduction for Social
Security or other offset amounts, or 1.5% of average final compensation
multiplied by years of service, less a 50% Social Security offset.
Average final compensation for purposes of determining the opening
balance was the greater of (1) average compensation received during the
36 months of employment with Monsanto prior to 1997 or (2) average
compensation received during the highest three of the five calendar years
of employment with Monsanto prior to 1997. For each year of the
executive's continued employment with Solutia (including all of 1997),
the executive's Prior Plan Account increases by 4% to recognize that
prior plan benefits would have grown as a result of pay increases.
- For each year during which the executive is employed by Solutia, 3% of
annual compensation in excess of the Social Security wage base and a
percentage, based on age, of annual compensation (salary and annual
bonus) 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's defined benefit pension plans before 1997 are credited
each year (for up to ten years based on prior years of service with
Monsanto before 1997) during which the executive is employed by Solutia
(including all of 1997) with an amount equal to a percentage (based on
age) of annual compensation. The applicable percentages and age ranges
are: 2% before age 30, 3% for ages 30 to 39, 4% for ages 40 to 44, 5% for
ages 45 to 49, and 6% for age 50 and over.
The estimated annual benefits payable as a single life annuity beginning at age
65 (assuming that each executive officer remains employed by the company until
age 65 and receives 4% annual compensation increases) are as follows: Mr.
Hunter, $665,837; Mr. Barnickol, $274,422; Mr. Clausen, $374,449; Mr. Miller,
$502,900; and Mr. Toth, $269,076.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
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 Solutia (as defined in the agreements). The agreements
provide for the continuing employment of the executive after the change of
control on terms and conditions no less favorable than those in effect before
the change of control. If the executive's employment is terminated by the
company without "cause," or if the executive terminates his own employment for
"good reason" (each as defined in the change-of-control employment agreement),
the executive is entitled to severance benefits equal to a "multiple" of his
annual compensation (including bonus) and continuation of certain benefits for a
number of years equal to the multiple. The multiple is three for Messrs. Hunter,
Barnickol, Clausen, and Miller, and two for Mr. Toth (or, in either case, the
shorter number of years until the executive's normal retirement date). In
addition, Messrs. Hunter, Barnickol, Clausen, and Miller are each entitled to
receive the severance benefits if he voluntarily terminates his own employment
during the 30-day period beginning on the first anniversary of certain changes
of control. Finally, each named executive officer is entitled to an additional
payment, if necessary, to make him whole as a result of any excise tax imposed
by the Internal Revenue Code on
18
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).
To maintain continuity of management through a series of major organizational
and strategic changes, in January 2001 Solutia entered into a retention
agreement with Michael E. Miller, who has been Solutia's vice chairman and chief
operating officer. The position of chief operating officer has been eliminated
as a result of the recent reorganization of Solutia's management, but under the
agreement Mr. Miller agreed to continue as vice chairman through January 23,
2002. He will focus specifically on implementing the $100 million cost saving
initiative announced by Solutia in the fourth quarter of 2000, as well as on
managing certain portfolio changes and taking appropriate steps for the
strategic realignment of Solutia's interests in its joint ventures. Under this
agreement, on January 23, 2001, Mr. Miller received a non-qualified
performance-based stock option to buy up to 100,000 shares of Solutia common
stock at a price of $12.688 per share, the fair market value of a share of
Solutia common stock on the grant date. All or part of this option will become
exercisable on January 23, 2002, provided that Mr. Miller has been continuously
employed by Solutia through that date. The number of shares with respect to
which the option will become exercisable will be determined by the Executive
Compensation and Development Committee based upon an evaluation of Mr. Miller's
performance in implementing the initiative and managing the transactions. Any
options that are not exercisable on January 23, 2002 will be forfeited. The
agreement also provides for a cash payment of $1.1 million following completion
of this assignment in addition to Mr. Miller's normal compensation as vice
chairman. The Executive Compensation and Development Committee has discretion to
substitute vesting of a portion of the stock option for a portion of the cash
payment. If Mr. Miller becomes entitled to a payment under the change-of-control
agreement described in the previous paragraph, he will not be entitled to the
cash payment provided for by the retention agreement.
19
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return to stockholders (stock
price appreciation plus reinvested dividends) on Solutia's common stock with the
cumulative total return on each of three indices: the Standard & Poor's ("S&P")
500 Index, the S&P Chemicals (Diversified) Index, and the S&P Chemicals
(Specialty) Index. We have chosen to compare Solutia's performance with that of
these two chemicals indices because Solutia has a diversified portfolio of
products, including a large number of specialty chemicals. The graph assumes
that:
- you invested $100 in Solutia common stock and in each of the indices at
the closing price on August 20, 1997 (the date on which Solutia common
stock began trading on the New York Stock Exchange);
- all dividends were reinvested; and
- you continued to hold your investment through December 31, 2000.
On January 3, 2000, Mr. Timothy M. Potter, the son of Mr. Robert G. Potter, a
former chairman and chief executive officer of Solutia, and a director until
December 31, 2000, purchased Kimsway Company Inc., a company with an established
business relationship with Solutia. In 2000, Solutia paid Kimsway approximately
$247,500 for supplies, tickets, and administrative services for business
entertainment. We anticipate that Solutia will pay Kimsway approximately
$318,000 for similar goods and services in 2001.
Mr. Robert T. Blakely, a director of Solutia, is executive vice president and
chief financial officer of Lyondell Chemical Company. He also serves on the
Partnership Governance Committee of Equistar Chemicals LP, a Delaware limited
partnership 41% owned by Lyondell, and on the committee of the Partnership
Governance Committee that deals with executive compensation. Solutia purchases
propylene and minor quantities of other raw materials from Equistar. Propylene,
a commodity petrochemical, is a raw material used to produce Solutia's nylon and
acrylic fiber products. Solutia's propylene purchases from Equistar are under a
long-term contract, negotiated prior to Mr. Blakely's employment by Lyondell.
During 2000, Solutia's purchases from Equistar, primarily for propylene, totaled
approximately $206 million. Purchases in 2001 are projected to be in a range of
$180 million to $205 million. In addition, Equistar owns a production facility
located at Solutia's plant in Alvin, Texas. This facility receives support
services from Solutia. Equistar paid Solutia approximately $16 million for these
services in 2000 and a similar amount is expected in 2001. Solutia's Board of
Directors has reviewed these arms length commercial transactions and concluded
that they will not interfere with Mr. Blakely's exercise of independent
judgment.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (PROXY ITEM NO. 2)
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee of the Board of Directors is comprised of four
directors who are independent and financially literate within the meaning of the
New York Stock Exchange rules regarding audit committees. In its role as an
audit committee, the committee reviews and monitors Solutia's internal controls,
financial reports, and accounting practices as well as the scope and extent of
the audits performed by Solutia's auditors. In addition, the committee
recommends to the full board the selection of Solutia's principal independent
auditors, and it approves in advance all significant audit and non-audit
services provided by Solutia's principal independent auditors, Deloitte & Touche
LLP.
Management has primary responsibility for Solutia's financial statements and the
overall reporting process, including Solutia's system of internal controls.
Deloitte audits the annual consolidated financial statements prepared by
management and expresses an opinion on whether those statements fairly present
in all material respects Solutia's financial position, results of operations,
and cash flows in conformity with accounting principles generally accepted in
the United States of America. Deloitte also discusses with the committee any
issues Deloitte believes the committee should consider. The committee has
reviewed Solutia's audited consolidated financial statements for the fiscal year
ended December 31, 2000, and discussed them with both management and Deloitte.
The committee has also discussed with Deloitte the matters required to be
discussed by generally accepted auditing standards, including those described in
Statement on Auditing Standards No. 61, Communication with Audit Committees,
issued by the Auditing Standards Board of the American Institute of Certified
Public Accountants.
The committee has received and reviewed the written disclosures and the letter
from Deloitte required by Independence Standard No. 1, Independence Discussions
with Audit Committees, issued by the Independence Standards Board, and has
discussed with Deloitte its independence from Solutia. In addition, the
committee has considered whether the provision of the non-audit services that it
has approved, including information technology consulting services relating to
financial information systems design and implementation, is compatible with
maintaining Deloitte's independence.
21
Based on these reviews and discussions, the committee has recommended to
Solutia's Board of Directors that Solutia's audited consolidated financial
statements be included in Solutia's Annual Report on Form 10-K for the year
ended December 31, 2000, and filed with the U.S. Securities and Exchange
Commission.
AUDIT AND FINANCE COMMITTEE
Frank A. Metz, Jr., Chairman
Robert T. Blakely
J. Patrick Mulcahy
John B. Slaughter
AUDIT FEES
The following table displays the aggregate fees billed to Solutia for the fiscal
year ended December 31, 2000, by Solutia's principal accounting firm, Deloitte &
Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates.
----------------------------------------------------------------------------
Audit Fees $855,389
----------------------------------------------------------------------------
Financial Information Systems
Design and Implementation Fees $628,957
----------------------------------------------------------------------------
All Other Fees $2,400,764
----------------------------------------------------------------------------
REQUEST FOR RATIFICATION
We are asking you to ratify the Board's appointment of Deloitte & Touche LLP as
principal independent auditors to examine the consolidated financial statements
of the company and its subsidiaries for the year 2001. The Audit and Finance
Committee recommended the selection of Deloitte to the board. Deloitte was
originally appointed to act as Solutia's independent auditors in 1997 when
Solutia became an independent entity. Deloitte is knowledgeable about 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.
Representatives of Deloitte do not plan to make a formal statement at the annual
meeting. However, they will attend the meeting and be available to respond to
appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
PRINCIPAL INDEPENDENT AUDITORS FOR THE YEAR 2001.
22
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals for possible inclusion in our 2002 proxy
materials, we must receive them on or before November 15, 2001. 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 2002 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 26, 2001, and not later than January 25, 2002.
- 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 2002 Annual Meeting without
submitting them for possible inclusion in our 2002 proxy materials.
KARL R. BARNICKOL
Secretary
March 15, 2001
23
APPENDIX A
AUDIT AND FINANCE COMMITTEE CHARTER
I. Composition of the Audit and Finance Committee: The Audit and Finance
Committee of the Board of Directors shall be comprised of at least three
directors, each of whom shall not be officers or employees of the
Company or have a relationship to the Company that may interfere with
the exercise of their independence from management and the Company, and
shall satisfy the applicable membership requirements under the rules of
the New York Stock Exchange as such requirements are interpreted by the
Board of Directors in its business judgment.
II. Purposes of the Audit and Finance Committee: The purposes of the Audit
and Finance Committee are to assist the Board of Directors:
1. in reviewing and monitoring the Company's internal controls,
financial reporting and accounting practices to ascertain that
they are within acceptable limits of sound practice;
2. in its oversight of the Company's financial statements and the
independent and internal audits of these statements;
3. in selecting (or nominating the independent auditor to be proposed
for shareholder approval in any proxy statement), evaluating and,
where deemed appropriate, replacing the independent auditor;
4. in evaluating the independence of the independent auditor;
5. in reviewing and monitoring the financial planning and financial
structure of the Company in order that they be in conformance with
the Company's requirements for growth and sound operation; and
6. in rendering advice, counsel and assistance to the Company's
financial officers in the execution of their responsibilities.
III. Meetings of the Audit and Finance Committee: The Audit and Finance
Committee shall meet four times annually, or more frequently if
circumstances dictate, to discuss with management the annual audited
financial statements and the quarterly financial statements. Minutes of
each meeting shall be kept. The Audit and Finance Committee should meet
separately at least annually with the director of the internal auditing
department and the independent auditor to discuss any matters that the
Audit and Finance Committee or any of these persons or firms believe
should be discussed privately.
IV. Duties and Powers of the Audit and Finance Committee: To carry out its
purposes, the Audit and Finance Committee shall have the following
duties and powers:
1. with respect to the independent auditor,
(i) to provide advice to the Board of Directors in selecting,
evaluating or replacing the independent auditor;
(ii) to review in advance the fees charged by the independent
auditor for audit and non-audit services;
(iii) to review with the independent auditor, at the time when
the annual audit plan is developed, its scope, purpose and
procedures to be included;
(iv) to review with the independent auditor, on completion of
the annual audit, the independent auditor's experience, any
restrictions on its work, cooperation received, its
findings, and its recommendations;
(v) to ensure that the independent auditor prepares and
delivers annually a Statement as to the independent
auditor's independence, to discuss with the independent
auditor any
A-1
relationships or services disclosed in this Statement that
may impact the objectivity and independence of the
independent auditor and to recommend appropriate action in
response to this Statement to satisfy itself of the
independent auditor's independence; and
(vi) to instruct the independent auditor that the independent
auditor is accountable to the Board of Directors and Audit
and Finance Committee;
2. with respect to the internal auditing department,
(i) to review the appointment and replacement of the director of
the internal auditing department;
(ii) to advise the director of the internal auditing department
that he or she is expected to provide to the Audit and
Finance Committee summaries of and, as appropriate, the
significant reports to management prepared by the internal
auditing department and management's responses thereto; and
(iii) to review with the internal auditor, at the time when the
annual audit plan is developed, its scope, purposes and
procedures.
3. with respect to financial reporting principles and policies and
internal controls and procedures,
(i) to advise management, the internal auditing department and
the independent auditor that they are expected to provide to
the Audit and Finance Committee a timely analysis of
significant financial reporting issues and practices;
(ii) to consider any reports or communications (and management's
and/or the internal audit department's responses thereto)
submitted to the Audit and Finance Committee by the
independent auditor, including reports and communications
related to:
- deficiencies noted in the audit in the design or operation
of internal controls;
- consideration of fraud in a financial statement audit;
- detection of illegal acts;
- the independent auditor's responsibility under generally
accepted auditing standards;
- significant accounting policies;
- management judgments and accounting estimates;
- adjustments arising from the audit;
- the responsibility of the independent auditor for other
information in documents containing audited financial
statements;
- disagreements with management;
- consultation by management with other accountants;
- major issues discussed with management prior to retention
of the independent auditor;
- difficulties encountered with management in performing the
audit;
- the independent auditor's judgments about the quality of
the Company's accounting principles; and reviews of
interim financial information conducted by the independent
auditor;
(iii) to meet with management, the director of the internal
auditing department and the independent auditor, as
appropriate:
- to satisfy itself with respect to the independent and
internal auditing policies and procedures and the scope
and extent of audits to be made;
A-2
- to satisfy itself as to the professional competency of
the Company's controllership and internal audit functions
and the quality of their performance in discharging their
responsibilities;
- to review and discuss the audited financial statements;
- to discuss any significant matters arising from any audit
or report or communication, whether raised by management,
the internal auditing department or the independent
auditor, relating to the Company's financial statements;
- to review the form of opinion the independent auditor
proposes to render to the Board of Directors and
shareholders;
- to review all major accounting policy matters involved in
the preparation of the financial statements;
- to discuss significant changes to the Company's auditing
and accounting principles, policies, controls, procedures
and practices proposed or contemplated by the independent
auditor, the internal auditing department or management;
and
- to inquire about significant risks and exposures, if any,
and the steps taken to monitor and minimize such risks;
(iv) to obtain from the independent auditor assurance that the
audit was conducted in a manner consistent with Section 10A
of the Securities Exchange Act of 1934, as amended, which
sets forth certain procedures to be followed in any audit
of financial statements required under the Securities
Exchange Act of 1934;
(v) to review with management and the independent and internal
auditors, their evaluation of the Company's internal
controls;
(vi) to review annually the program that the Company has
instituted to correct any control deficiencies noted by the
independent or internal auditors in their review;
(vii) to discuss with the Company's General Counsel any
significant legal matters that may have a material effect
on the financial statements and the Company's compliance
policies, including material notices to or inquiries
received from governmental agencies; and
(viii) to review the results of the Company's annual employee
certification of compliance with the Company's Guidelines
for Employee Conduct.
4. with respect to the Company's quarterly financial results, the
Chairman of the Audit and Finance Committee, or his/her designee,
will review the quarterly financial results, to the extent that
he/she deems appropriate, with representatives of management and
the independent auditor prior to the release of the financial
statements to the public.
5. with respect to reporting and recommendations,
(i) to prepare any report, including any recommendation of the
Audit and Finance Committee, required by the rules of the
Securities and Exchange Commission to be included in the
Company's annual proxy statement;
(ii) to review this Charter at least annually and recommend any
changes to the full Board of Directors; and
(iii) to report its activities to the full Board of Directors on
a regular basis and to make such recommendations with
respect to the above and other matters as the Audit and
Finance Committee may deem necessary or appropriate.
6. with respect to the following matters, and except as specifically
authorized by the Board of Directors, the Audit and Finance
Committee is to review the Company's recommendations before
submission to the Board of Directors for its approval:
A-3
(i) the financial plan of the Company to insure its adequacy
and soundness in providing for the Company's operating
capital and the capital required for its planned long-term
growth;
(ii) major banking and other major financial relations to insure
their adequacy in meeting the Company's long-term
requirements;
(iii) proposed equity and debt offerings and placements as
required by the financial plan of the Company; and
(iv) proposed financial policy for the Company including such
matters as the level of dividend payout.
A-4
;
DIRECTIONS TO
ST. LOUIS
MARRIOTT
WEST HOTEL
FROM LAMBERT
INTERNATIONAL AIRPORT:
Take I-70 West
approximately 3 miles
to I-270 South, then 8
miles to the 40/I-64
West exit. [MAP]
FROM DOWNTOWN
ST. LOUIS:
Take Highway 40/I-64
West.
From Highway 40/I-64,
exit Maryville Centre
Drive (exit #23). Go
North 1/8 of a mile. The
St. Louis Marriott West
Hotel will be on the
left. Turn into the
parking lot and follow
the Solutia annual
meeting signs.
[SOLUTIA LOGO]
Annual Meeting of Stockholders
St. Louis Marriott West Hotel
660 Maryville Centre Drive
St. Louis, Missouri 63141
April 25, 2001
1:45 P.M.
ADMISSION TICKET
SOLUTIA LOGO
SOLUTIA INC.
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2001 ANNUAL MEETING
ST. LOUIS MARRIOTT WEST HOTEL, 660 MARYVILLE CENTRE DRIVE
ST. LOUIS, MISSOURI 63141
APRIL 25, 2001 AT 1:45 P.M.
The undersigned hereby appoints John C. Hunter III, Michael E. Miller, and Karl
R. Barnickol, and each of them, with full power of substitution, proxies to vote
all shares of Common Stock of Solutia Inc. that the undersigned is entitled to
vote at the 2001 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 20, 2001, then this card also provides voting
instructions to the trustee of such plan to vote at the 2001 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 20, 2001, then the trustee will vote
the undersigned's plan account shares in proportion to the votes of the other
participants in that plan. In addition, the trustee will vote unallocated shares
in the plan in direct proportion to voting by allocated shares for which
instructions have been received, unless to do so would be inconsistent with the
trustee's duties.
Election of directors to a term of three years to expire at the Annual
Meeting in 2004 (see reverse). Nominees are: (01) John C. Hunter III,
(02) Michael E. Miller, (03) William D. Ruckelshaus, and (04) John B.
Slaughter.
/\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.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. 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.
-------------------------------------------------------------------------------------------------------------------------------
1. Election of FOR WITHHELD 2. Ratification of FOR AGAINST ABSTAIN
Directors to Deloitte & Touche LLP
term listed on [ ] [ ] as principal independent
reverse. auditors for 2001. [ ] [ ] [ ]
For, except vote withheld from the
following nominee(s):
----------------------------------
Please sign your name or names exactly as printed
hereon. When shares are held by joint tenants, both
should sign. Trustees and other fiduciaries should so
indicate when signing.
-----------------------------------------
-----------------------------------------
SIGNATURE(S) DATE
/\FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL/\
SPACE FOR PIN NUMBER
[SOLUTIA LOGO]
Solutia Inc. encourages you to vote your shares electronically by telephone or
through the Internet. This will eliminate the need to return your proxy card.
To vote your shares by telephone or through the Internet, you must use the
control numbers printed in the box above, just below the perforation, to access
the system.
The EquiServe Vote by Telephone and Vote by Internet systems can be accessed
24-hours a day, seven days a week up through the day before the meeting.
TO VOTE BY TELEPHONE:
Using a touch-tone phone call Toll-free: 1-877-PRX-VOTE (1-877-779-8683)
From outside the United States, call direct: 1-201-536-8073
TO VOTE BY INTERNET:
Log on to the Internet and go to the website: HTTP://WWW.EPROXYVOTE.COM/SOI
Note: If you vote over the Internet, you may incur costs such as
telecommunication and Internet access charges for which you will be responsible.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING YOUR SHARES.
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