EXHIBIT 10.5
 

PERFORMANCE STOCK AWARD AGREEMENT
pursuant to the
SOLUTIA INC.  2007 MANAGEMENT LONG-TERM INCENTIVE PLAN

Grant Date:                      February 23, 2011

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THIS PERFORMANCE STOCK AWARD AGREEMENT (this “Agreement”), dated as of the Grant
Date specified above, is entered into by and between Solutia Inc., a company
organized in the State of Delaware (the “Company”), and the Participant (the
“Participant”), pursuant to the Solutia Inc. 2007 Management Long-Term Incentive
Plan, as in effect and as amended from time to time (the “Plan”).
 
WHEREAS, it has been determined under the Plan the Company will grant the shares
of Performance Stock provided herein to the Participant;
 
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth and for other good and valuable consideration, the parties
hereto hereby mutually covenant and agree as follows:
 
1. Incorporation By Reference; Plan Document Receipt.  This Agreement is subject
in all respects to the terms and provisions of the Plan (including, without
limitation, any amendments thereto adopted at any time and from time to time
unless such amendments are expressly intended not to apply to the award provided
hereunder), all of which terms and provisions are made a part of and
incorporated in this Agreement as if they were expressly set forth herein.  Any
capitalized term not defined in this Agreement shall have the same meaning as is
ascribed thereto in the Plan.  The Participant hereby acknowledges receipt of a
true copy of the Plan and that the Participant has read the Plan carefully and
fully understands its content.  In the event of a conflict between the terms of
this Agreement and the terms of the Plan, the terms of the Plan shall control.
 
2. Grant of Performance Stock Award.  The Company hereby grants to the
Participant, as of the Grant Date specified above, the number of shares of
Performance Stock identified by the Company as Participant’s 2011 Solutia Inc.
Long-Term Incentive Grant (and as confirmed on the Company’s stock
administrator’s website www.benefits.ml.com).  Except as otherwise provided by
Section 11.12 of the Plan, the Participant agrees and understands that nothing
contained in this Agreement provides, or is intended to provide, the Participant
with any protection against potential future dilution of the Participant’s
stockholder interest in the Company for any reason.
 
3. Vesting.
 
3.1 Except as otherwise provided in this Section 3, the Performance Shares
subject to this grant shall become unrestricted and vested on February 23, 2014,
provided the Participant is then employed by the Company and/or one of its
Subsidiaries or Affiliates and the Company meets the Performance goals set forth
below against the Solutia comparison group of companies that are a subset of the
S&P Chemical Index (as defined herein) for the period of January 1, 2011 up to
and including December 31, 2013 (the “Performance Period”).
 
a.           Total Shareholder Return: Total Shareholder Return (“TSR”) is
defined as stock price appreciation including dividends paid. Fifty percent of
the Performance Shares shall vest 100% at target if the TSR equals the 55th
percentile of the comparison group for the Performance Period.  A threshold
level of 25% of the target shares shall vest if the TSR equals the 40th
percentile.  A maximum of 175% of the target shares shall vest if TSR equals the
75th percentile or higher.  Vested Performance Shares will be interpolated for
the percentile achieved at the end of the Performance Period. The TSR shall
include reinvested dividends over the Performance Period and shall be calculated
using the average closing price of the Company’s common stock and the average
closing price of the common stock of the companies in the Solutia comparison
group within a ninety calendar day period, immediately preceding the beginning
date of the Performance Period and the ending date of the Performance Period.
 
 
 

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b.           Relative Return on Capital:  Return on Capital is defined as
adjusted net operating profit less adjusted taxes divided by invested
capital.  Fifty percent of the Performance Shares shall vest 100% at target if
the three year average return on capital (“ROC”) equals the 55th percentile of
the Solutia comparison group three year average for the Performance Period.  A
threshold level of 25% of the target shares shall vest if the three year average
ROC equals the 40th percentile.  A maximum of 175% shall vest if the three year
average ROC equals the 75th percentile or higher.  Vested Performance Shares
will be interpolated for the percentile achieved at the end of the Performance
Period.  ROC is subject to a $1 billion cumulative adjusted EBITDA threshold for
the Performance Period before any payouts occur.
 
For purposes of this Agreement, the Solutia comparison group (a subset of the
S&P Chemical Index) means: Dow Chemical Company, E.I. du Pont de Nemours and
Company, PPG Industries Inc., Ashland Inc., Ecolab Inc., Eastman Chemical
Company, The Lubrizol Corporation, RPM International Inc., Cytec Industries
Inc., Valspar Corporation, Rockwood Holdings, Inc., Cabot Corporation, FMC
Corporation, PolyOne Corporation, Albemarle Corporation, International Flavors &
Fragrances, Inc., Sigma-Aldrich Corporation, OM Group, Inc. Olin Corporation,
NewMarket Corporation, Sherwin Williams, LSB Industries, STR Holdings, Stepan
Company, A. Schulman Inc., H.B. Fuller Company, Sensient Technologies
Corporation, Minerals Technologies Inc., Zep Inc., Quaker Chemical Corporation,
Calgon Carbon Corporation, Balchem Corporation, and Arch Chemicals Inc.  The
Committee reserves the right to adjust the companies in this comparison group as
defined if, for instance, during the Performance Period, a company in the
comparison group is acquired or becomes no longer publicly traded.
 
3.2       Except as otherwise provided in this Section 3, if the Participant’s
employment with the Company and/or its Subsidiaries or Affiliates terminates for
any reason prior to the vesting of all or any portion of the Performance Shares
awarded under this Agreement, such unvested portion of the Performance Shares
shall immediately be cancelled and the Participant (and the Participant’s
estate, designated beneficiary or other legal representative) shall forfeit any
rights or interests in and with respect to any such shares of Performance Stock.
 
3.3 If the Participant’s employment with the Company and/or its Subsidiaries or
Affiliates terminates due to the Participant’s Disability, any unvested
Performance Shares shall only vest if the Company meets the Performance goals
set forth in Section 3.1 above, and shall become vested on February 23, 2014
during the period of Disability regardless of a termination event.  For purposes
of this Agreement, “Disability,” if the Participant is a party to an employment
agreement, shall have the same meaning as in such employment agreement,
otherwise, “Disability” shall mean any physical or mental disability which is
determined to be total and permanent by a doctor selected in good faith by the
Company or the relevant Subsidiary or Affiliate.
 
3.4 If the Participant’s employment with the Company and/or its Subsidiaries or
Affiliates terminates due to the Participant’s death, any unvested Performance
Shares shall only vest if the Company meets the Performance goals set forth in
Section 3.1 above, and shall become vested on February 23, 2014.
 
3.5 If the Participant’s employment is terminated by the Company and/or its
Subsidiaries or Affiliates, the Performance Shares will be become vested on a
pro rata basis as defined herein if and only if the Participant is a Severance
Eligible Participant; i.e., if the Participant is eligible for severance from
the Company under the terms of: (a) the Participant’s employment agreement (if
any); or (b) the terms of an applicable Company separation pay plan in force at
the time of the Participant’s termination.  The Performance Shares of Severance
Eligible Participants shall vest as follows:
 
 
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3.5.1  
A pro rata amount of any unvested shares shall vest in a percentage equal to:
the number of full months in which the Participant was employed from the Grant
Date to the Participant’s termination date, plus the number of full months in
the Participant’s severance period (i.e., the number of months’ salary which
constitute the Participant’s severance payments), divided by the number of full
months between the Grant Date and the scheduled vesting date of the Performance
Shares (see Attachment A for a sample calculation).  The pro rata portion of the
Performance Shares shall only vest if the Company meets the Performance goals
set forth in Section 3.1 above, and shall not become unrestricted and vested
until  February 23, 2014.

 
3.6 If a Change in Control as defined in the Plan occurs during the Performance
Period, the Performance Period shall be amended to extend from January 1, 2011
through the date of the Change in Control ("Amended Performance Period"). Upon a
Change in Control, any unvested Performance Shares subject to this grant shall
become unrestricted and vested if the Company meets the Performance goals set
forth in Section 3.1 above during the Amended Performance Period (or during the
Performance Period, if the Change in Control occurs after December 31, 2013),
provided the Participant is employed by the Company on the day prior to the
Change in Control.  
 
3.7 If the Participant's employer ceases to be an Affiliate or Subsidiary of the
Company, that event shall be deemed to constitute a termination of employment
under Section 3.2 above.
 
4. Period of Restriction; Delivery of Unrestricted Shares.   During the Period
of Restriction, the Performance Stock shall bear a legend as described in
Section 6.4.2 of the Plan (if certificated) and the Company shall hold the
Performance Stock as escrow agent as set forth in Section 6.3 of the Plan.  When
shares of Performance Stock awarded by this Agreement become vested, the
Participant shall be entitled to receive unrestricted Shares and if the
Participant’s stock is certificated and contain legends restricting the transfer
of such Shares, the Participant shall be entitled to receive new stock
certificates free of such legends (except any legends requiring compliance with
securities laws).  In connection with the delivery of the unrestricted Shares
pursuant to this Agreement, the Participant agrees to execute any documents
reasonably requested by the Company.
 
5. Dividends and Other Distributions.  There is no guarantee by the Company that
dividends will be paid.  During the Period of Restriction, all dividends and
other distributions paid with respect to the Performance Stock, whether paid in
cash, Shares, or other property (the “Distributions”), shall be held by the
Company and subject to the same vesting requirements and restrictions on
transferability and forfeitability as the Performance Stock with respect to
which such Distributions were paid.  The Distributions shall be paid at the time
the Performance Stock becomes vested pursuant to Section 3.
 
6. Existing Covenants.  If Participant violates any confidentiality,
non-competition, or non-solicitation covenants to which Participant is subject
pursuant to any separate agreement between Participant and the Company and/or
its Subsidiaries or Affiliates, all unvested Performance Stock shall be
cancelled and forfeited immediately.
 
7. Non-transferability.  Performance Stock, and any rights and interests with
respect thereto, issued under this Agreement and the Plan shall not, prior to
vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in
any way by the Participant (or any beneficiary(ies) of the Participant), other
than by testamentary disposition by the Participant or the laws of descent and
distribution.  Any such Performance Stock, and any rights and interests with
respect thereto, shall not, prior to vesting, be pledged or encumbered in any
way by the Participant (or any beneficiary(ies) of the Participant) and shall
not, prior to vesting, be subject to execution, attachment or similar legal
process.  Any attempt to sell, exchange, transfer, assign, pledge, encumber or
otherwise dispose of in any way any of the Performance Stock, or the levy of any
execution, attachment or similar legal process upon the Performance Stock,
contrary to the terms and provisions of this Agreement and/or the Plan shall be
null and void and without legal force or effect.
 
 
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8. Entire Agreement; Amendment.  This Agreement, together with the Plan contains
the entire agreement between the parties hereto with respect to the subject
matter contained herein, and supersedes all prior agreements or prior
understandings, whether written or oral, between the parties relating to such
subject matter.  The Executive Compensation and Development Committee (the
“Committee”) shall have the right, in its sole discretion, to modify or amend
this Agreement from time to time in accordance with and as provided in the
Plan.  This Agreement may also be modified or amended by a writing signed by
both the Company and the Participant.  The Company shall give written notice to
the Participant of any such modification or amendment of this Agreement as soon
as practicable after the adoption thereof.
 
9. Acknowledgment of Employee. The award of this Performance Stock does not
entitle Participant to any benefit other than that granted under this
Agreement.  Any benefits granted under this Agreement are not part of the
Participant’s ordinary salary, and shall not be considered as part of such
salary in the event of severance, redundancy or resignation.  Participant
understands and accepts that the benefits granted under this Agreement are
entirely at the discretion of the Company and that the Company retains the right
to amend or terminate this Agreement and the Plan at any time, at its sole
discretion and without notice. The award will appear as two grants on the
Company’s stock administrator’s website, one for each performance goal.  By
accepting the grant agreement once, the full Performance Stock award is
accepted.
 
10. Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to the
principles of conflict of laws thereof.
 
11. Withholding of Tax.  The Company shall have the power and the right to
deduct or withhold, or require the Participant to remit to the Company, an
amount sufficient to satisfy any federal, state and local taxes of any kind
(including, but not limited to, the Participant’s FICA and SDI obligations)
which the Company, in its sole discretion, deems necessary to be withheld or
remitted to comply with any tax law and/or any other applicable law, rule or
regulation with respect to the Performance Stock (or vesting thereof) and, if
the Participant fails to do so, the Company may otherwise refuse to issue or
transfer any Performance Stock otherwise required to be issued pursuant to this
Agreement.
 
12. No Right to Employment.  Any questions as to whether and when there has been
a termination of employment and the cause of such termination shall be
determined in the sole discretion of the Committee.  Nothing in this Agreement
shall interfere with or limit in any way the right of the Company to terminate
the Participant’s employment or service at any time, for any reason and with or
without cause.
 
13. Notices.  Any notice which may be required or permitted under this Agreement
shall be in writing and shall be delivered in person, or via facsimile
transmission, email, overnight courier service or certified mail, return receipt
requested, postage prepaid, properly addressed as follows:
 
13.1 If such notice is to the Company, to the attention of the General Counsel
of the Company or at such other address as the Company, by notice to the
Participant, shall designate in writing from time to time.
 
13.2 If such notice is to the Participant, at his or her email or home address
as shown on the Company’s records, or at such other address as the Participant,
by notice to the Company, shall designate in writing from time to time.
 
14. Compliance with Laws.  The issuance of the Performance Stock or unrestricted
Shares pursuant to this Agreement shall be subject to, and shall comply with,
any applicable requirements of any federal and state securities laws, rules and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, as amended, the 1934 Act and any respective rules and regulations
promulgated thereunder), and any other law or regulation applicable
thereto.  The Company shall not be obligated to issue any of the Performance
Stock or unrestricted Shares pursuant to this Agreement if such issuance would
violate any such requirements.
 
 
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15. Binding Agreement; Assignment.  This Agreement shall inure to the benefit
of, be binding upon, and be enforceable by the Company and its successors and
assigns.  The Participant shall not assign any part of this Agreement without
the prior express written consent of the Company.
 
16. Headings.  The titles and headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
 
17. Further Assurances.  Each party hereto shall do and perform (or shall cause
to be done and performed) all such further acts and shall execute and deliver
all such other agreements, certificates, instruments and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the Plan and the consummation of
the transactions contemplated thereunder.
 
18. Severability.  The invalidity or unenforceability of any provisions of this
Agreement in any jurisdiction shall not affect the validity, legality or
enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of any provision of this Agreement in any
other jurisdiction, it being intended that all rights and obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.
 
 
 
 

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Attachment A

Sample Vesting Calculation As Defined Under Section 3.5.1

Grant Date
2/23/2011
Termination Date
7/1/2011
a- Full Months of Service Between Grant Date and Term Date
4
b- Months of Severance
3
c- Total Months (a + b)
7
Performance Shares Granted
3,500

Performance Shares
# of Months
between Grant
& Vest Date
Shares
Granted
Pro-rated
Vest%
Upon Term
Shares that Vest
 on 2/23/2014  
Subject to Meeting
Performance Criteria
Vest Date  (2/23/2014) 100%
36
3,500
7/36=19.4%
679
Represents the pro-rata portion of the Performance Shares that vest if the
Company meets the Performance goals set forth in Section 3.1
     
679
Represents the Total Performance Shares Cancelled Upon Termination
     
2,821

 

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