Exhibit 10.3
FIRST AMENDED & RESTATED RETIREE SETTLEMENT AGREEMENT
This first amended and restated retiree settlement agreement (this “Agreement”)
presents the material terms of a settlement (the “Retiree Settlement”) among:
(a) Solutia Inc. (“Solutia”) and its domestic subsidiaries (collectively with
Solutia, the “Company”); (b) those retirees, including their surviving spouses,
dependent spouses and dependent children, and those employees receiving
disability benefits, who worked for Pharmacia Corporation (f/k/a Monsanto) or
one of its domestic subsidiaries (“Pharmacia”) and who retired, or became
disabled, prior to Solutia’s spin-off from Pharmacia in 1997, and whose
post-employment benefit or disability liabilities were transferred to Solutia as
a result of such spin-off (collectively, the “Pre-Spin Retirees”); (c) those
retirees, including their surviving spouses, dependent spouses and dependent
children, and those employees receiving disability benefits, who retired from
Solutia or became disabled after Solutia’s spin-off from Pharmacia in 1997,
including those retirees (and their surviving spouses, dependent spouses and
dependent children) and disabled persons who worked for Pharmacia prior to
Solutia’s spin-off from Pharmacia in 1997, and, thereafter worked for Solutia,
other than those retirees covered by a collective bargaining agreement who
retired on January 1, 2003, or later (collectively, the “Post-Spin Retirees”);
(d) any other person having a claim against Solutia for “retiree benefits” as
such term is defined in section 1114(a) of the Bankruptcy Code (collectively,
the “Retiree Claimants” and, together with the Pre-Spin Retirees and the
Post-Spin Retirees, the “Retirees”);1 (e) Monsanto Company (“Monsanto”)2;
(f) the official committee of unsecured creditors (the “Creditors’ Committee”)
appointed on January 6, 2004, in the Company’s chapter 11 cases currently
pending before the Honorable Prudence C. Beatty in the United States Bankruptcy
Court for the Southern District of New York (the “Bankruptcy Court”); and
(e) the official committee of retirees (the “Retirees’ Committee”) appointed on
February 20, 2004, in the Company’s chapter 11 cases. The terms of the Retiree
Settlement described herein are intended to amend and supersede any previous
offer made during the Company’s chapter 11 cases, constitute an integrated
offer, are indivisible except as described herein, are subject to the terms and
conditions hereof, and are not intended to be binding unless executed in
writing.
 

1   To “retire” from the Company means to incur a termination of employment from
Pharmacia prior to September 1, 1997, or from the Company thereafter, in either
case having met the eligibility requirements of a retiree medical plan sponsored
by Pharmacia or Solutia, as the case may be.   2   Monsanto was created on
February 9, 2000, under the name “Monsanto Ag”, as a wholly-owned subsidiary of
Pharmacia, and changed its name to Monsanto Company on March 31, 2000. The
Separation Agreement between Monsanto and Pharmacia was entered into as of
September 1, 2000.

 

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Settlement Overview
   
 
   
Retiree Trust & Funding Co. Contributions
  On the effective date (the “Effective Date”) of the Company’s plan of
reorganization (the “Plan”), and subject to the terms of the Plan and the
Relationship Agreement (as defined below), through the offering of rights (the
“Rights Offering”) to acquire shares of new common stock (the “New Common
Stock”) in the reorganized successor to Solutia (“Reorganized Solutia”), Solutia
will raise $250 million, which will be distributed as follows: (a) $175 million
in cash will be contributed to a trust (the “Retiree Trust”) intended to qualify
as a “voluntary employees’ beneficiary association” under Section 501(c)(9) of
the Internal Revenue Code of 1986 and all of the rules and regulations
promulgated thereunder, as amended (the “Internal Revenue Code”); and (b) $75
million in cash will be contributed to fund a new entity (“Funding Co.”), which
will be a special purpose, tax-efficient, bankruptcy-remote affiliate of
Reorganized Solutia.3
 
   
 
  Funding Co. shall create two separate accounts for its funds: (a) an
environmental liabilities account containing $50 million (the “Environmental
Account”); and (b) an account containing $25 million of unallocated funds (the
“Unallocated Account”).
 
   
Retiree Trust Sub Accounts
  The Retiree Trust shall be comprised of two sub
 
  accounts: (a) “Sub Account 1”; and (b) “Sub Account 2”. Sub Account 1 shall be
funded by the Company with the $175 million of cash contributed by the
participants in the Rights Offering, and shall be used to reimburse Reorganized
Solutia for costs associated with providing Other Post-Employment Benefits (as
defined below) to Pre-Spin Retirees in accordance with the terms of this
Agreement. Sub Account 2 shall be funded with the Retiree Shares (as defined
below) and the proceeds of the sales thereof, and shall be used to reimburse
Reorganized Solutia for costs associated with providing Other Post-Employment
Benefits to Pre- and Post-Spin Retirees subject to and in accordance with the
terms of this Agreement.

 

3   It is a condition precedent to the Effective Date that from the proceeds of
the Rights Offering, $175 million shall fund the Retiree Trust and $75 million
shall fund Funding Co.

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The Relationship Agreement
  The mechanism by which Funding Co. will make contributions to Reorganized
Solutia from the Environmental Account and the Unallocated Account shall be
governed by an agreement (the “Relationship Agreement”), which will be executed
by Reorganized Solutia, Funding Co., and Monsanto, and which will be reasonably
acceptable to the Creditors’ Committee.
 
   
Investment of Retiree Trust Funds
  Cash held by the Retiree Trust shall, subject to the requirements of the
Employee Retirement Income Security Act of 1974 and all of the rules and
regulations promulgated thereunder, as amended (“ERISA”) and the Internal
Revenue Code, be invested by the Trustee (as defined below) in short-term,
well-diversified, high quality investment instruments, with a primary objective
of capital preservation, that are reasonably acceptable to Reorganized Solutia,
including one or more of: (a) interest bearing accounts with a commercial bank
having at least $10 billion in assets (a “Qualified Financial Institution”);
(b) direct obligations of the United States; (c) obligations for which the full
faith and credit of the United States is pledged to provide for the payment of
principal and interest; (d) commercial paper rated in one of the four highest
debt rating categories of Moody’s Investor Services, Inc. and Standard & Poor’s
Corporation (without regard to gradation); (e) certificates of deposit issued by
Qualified Financial Institutions; (f) bankers’ acceptances issued by Qualified
Financial Institutions; (g) repurchase agreements with Qualified Financial
Institutions; (h) floating rate notes rated at least AA; (i) tax exempt
municipal bonds and notes rated at least AA; and (j) money market funds
(collectively, the “Permitted Investments”).
 
   
Reimbursement of Other Post-Employment Benefits
  Following the Effective Date and subject to the terms of the Retiree Trust
Agreement (as defined below), every two weeks, the Retiree Trust shall reimburse
Reorganized Solutia or its successors in cash from Sub Account 1 for its actual
out-of-pocket costs, including all administrative costs, net of, among other
things, Medicare reimbursements and Pre-Spin Retirees’ medical expense
contributions (“Net Costs”), for providing retiree medical, retiree life
insurance and disability benefits (collectively, “Other Post-Employment
Benefits” or “OPEB”) to Pre-Spin Retirees following the Effective Date. The
reimbursement shall be for 100% of such Net Costs for the first twelve
(12) months after the Effective Date, and for 90% of such Net Costs thereafter
until the funds in Sub Account 1 have been exhausted.
 
   
 
  In addition, following the Effective Date and subject to the terms of the
Retiree

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  Trust Agreement, every two weeks, the Retiree Trust shall reimburse
Reorganized Solutia from Sub Account 2 for 100% of its actual out-of-pocket
costs, including all administrative costs, net of, among other things, Medicare
reimbursements and Pre and Post-Spin Retirees’ medical expense contributions,
for providing Other Post-Employment Benefits to Pre- and Post-Spin Retirees
following the Effective Date until the funds in Sub Account 2 are exhausted;
provided, however, that Reorganized Solutia may only seek the reimbursements
described above when cash or other securities or investments constituting
Permitted Investments are available in Sub Account 2 and; provided further that,
to the extent that Reorganized Solutia has not been reimbursed from Sub Account
1 for the same cost or expense, the funds in Sub Account 2 shall be used to
reimburse Reorganized Solutia for such current costs and expenses and shall be
reserved in the following proportion: (a) 58% of all amounts deposited in Sub
Account 2 during the term of the Retiree Trust Agreement, for Pre-Spin Retirees;
and (b) 42% of all amounts deposited in Sub Account 2 during the term of the
Retiree Trust Agreement, for Post-Spin Retirees.
 
   
Modification of Other Post-Employment Benefits4
  In consideration for the reduction in credit risk for Retirees in connection
with OPEB benefits, as a result of (a) the formation, structure and pre-funding
of the Retiree Trust and the Unallocated Account and (b) Reorganized Solutia’s
improved creditworthiness (as compared to that of Solutia), Reorganized Solutia
shall retain the rights and benefits reflected in the Company’s 2005 budget and
long range plan, including its rights and benefits under the “Forsberg
Settlement”.5
 
   
 
  All rights and benefits provided to the Retirees and the Company under the
Forsberg Settlement and the Post-Settlement Plan (as defined herein) shall be
preserved and not changed, unless specifically modified or eliminated by the
terms of this Agreement, or as otherwise permitted to be modified or eliminated
under the terms of the Forsberg Settlement or the Post-Settlement Plan. The
Retirees’ continuing post-employment rights and benefits shall be incorporated
into a comprehensive post-employment medical and other benefits plan (the “2007
Retiree Welfare Plan”).
 
   
 
  In accordance with the foregoing, Reorganized Solutia shall be

 

4   Capitalized terms, used but not defined in this section, shall have t he
meanings ascribed to them in the Forsberg Plan (as defined below) or the 2007
Retiree Welfare Plan.   5   On November 1, 2001, Solutia, Monsanto, Pharmacia
and representatives of the Retirees agreed to settle litigation related to
medical benefits provided to Retirees (the “Forsberg Settlement”). Under the
terms of the Forsberg Settlement, Solutia adopted and implemented the Solutia
Inc. Medical Benefits Plan For Retirees (2002) (the “Forsberg Plan”).

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  permitted to implement the following changes to medical benefits for Medicare
Eligible Retirees due to age:
 
   
Deductible Amount
   50% of Medicare Part A Deductible.
 
   
Covered Proportion
  Plan pays 80%.
 
   
Retail Prescription Drugs (up to 30 day supply) Co-Payment Amount
  Participant pays 20% up to a $50 maximum per prescription or refill.
 
   
Mail Order Prescription Drugs (up to 90 day supply) Co-Payment Amount
  Participant pays 20% per prescription or refill.
 
   
Individual Maximum
Aggregate Benefit for
Expenses Incurred
After Age 65
   $65,000.
 
   
Participant Medical
Expense
Contribution6
  For all Forsberg Groups and Post-Settlement Retirees (Group VI in the 2007
Retiree Welfare Plan)7, the greater of 20% of the Annual Cost Per Covered Group
or the Defined Dollar Limit Amount8 as specified in Exhibit A hereto.
 
   
 
  Subject to its rights under the terms of the Forsberg Settlement and the
Post-Settlement Plan, Reorganized Solutia will not reduce the “Solutia Defined
Dollar Limit” set forth on Exhibit A hereto.
 
   
Forsberg Plan9
  The Company’s right to modify its Other Post-Employment Benefits as permitted
by the terms of the Forsberg Settlement shall be retained by Reorganized Solutia
and shall be implemented on the Effective Date or any date thereafter.
Specifically, Reorganized Solutia intends to exercise its absolute right to
amend or terminate the Forsberg Plan as it applies on and after January 1, 2007,
to any member of Groups IIB or V except as to a Participant or covered Dependent
Spouse who is

 

6   Capitalized terms, used but not defined in this section, shall have the
meanings ascribed to them in the Forsberg Plan.   7   Solutia is not waiving any
of its rights pursuant to the Solutia Inc. Medical Benefits Plan for Retirees
(Post-Settlement) (the “Post-Settlement Plan”) to make changes to the
Participant Medical Expense Contribution or other provisions therein.   8   The
Defined Dollar Limit Amount shall be the difference between the Annual Cost Per
Covered Group and the Solutia Defined Dollar Limit applicable to a Covered Group
as delineated in Exhibit A.   9   Capitalized terms, used but not defined in
this section, shall have the meanings ascribed to them in the Forsberg Plan or
the 2007 Retiree Welfare Plan.

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  not then a Medicare Eligible Participant. Reorganized Solutia intends to
exercise its right to amend or terminate the Forsberg Plan as it applies to any
Participant or covered Dependent Spouse who is a member of Groups IIB or V on
the earlier of (a) the date such Participant or covered Dependent Spouse becomes
a Medicare Eligible Participant if such date is after January 1, 2007, or
(b) the fifteenth anniversary of the Settlement Date (October 19, 2016).
Reorganized Solutia intends to exercise its right to amend or terminate the
Forsberg Plan as to any covered Dependent Child of a Retired Employee on or
after the later of (a) the date Reorganized Solutia could amend or terminate the
Forsberg Plan as to such Retired Employee, or (b) the date Reorganized Solutia
could amend or terminate the Forsberg Plan as to such Retired Employee’s covered
Dependent Spouse.10
 
   
 
  In addition, for Participants who are not Medicare Eligible Participants, any
Deductible Amount, any Covered Proportion until a Maximum Out-of-Pocket Amount
is reached, any Covered Proportion after a Maximum Out-of-Pocket Amount is
reached, and any Maximum Out-of-Pocket Amounts for a Plan Year shall be
determined under the Solutia Inc. Salaried and Non-Union Hourly Employees’
Medical Benefits Plan, and its successors (the “Active Plan”) and Medical Plan
Choice elected by the Covered Group. Covered Medical Expenses with respect to a
Participant or Covered Dependent who is not a Medicare Eligible Participant
shall be determined under the Active Plan. Participants who are not Medicare
Eligible Participants and whose benefits were subject to a collective bargaining
agreement and the Covered Dependents of such Participants shall receive
prescription drug benefits on the same terms and conditions as under the Active
Plan.
 
   
 
  The terms of the OPEB benefits provided under the Forsberg Plan that are not
otherwise modified by the terms hereof shall be included in the 2007 Retiree
Welfare Plan, subject to the terms and conditions set forth in the Forsberg
Plan.

 

10   Pursuant to the terms of that certain Stipulation And Order Between Solutia
Inc. And the Official Committee Of Retirees of Solutia Inc. Pursuant to
Section 1114 of the Bankruptcy Code, dated November 28, 2006 (Docket No. 3541)
(the “Stipulation”), the Company was authorized, effective January 1, 2007, to
terminate medical benefits for Retirees or participants in groups IIB and V of
the Forsberg Plan and all Post-Settlement Plan participants who were Medicare
Eligible. For such persons who were not Medicare Eligible as of this date, the
Stipulation authorized the Company to terminate medical benefits on the earlier
of (a) the date such Retirees or participants become Medicare Eligible if such
date is on or after January 1, 2007, or (b) October 19, 2016. The treatment of
these classes of Retirees was pursuant to Solutia’s prepetition rights under the
Forsberg Plan.

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Post-Settlement Plan
  The Company’s right to make modifications permitted by the terms of the
Post-Settlement Plan for Retirees who were not part of the Forsberg Settlement
shall be retained by Reorganized Solutia and shall be implemented on the
Effective Date or on any date thereafter.
 
   
Medicare Part D
  Reorganized Solutia shall retain 100% of any subsidy related to Medicare
prescription drug coverage (“Medicare Part D”). Any reimbursement received by
Reorganized Solutia will not be applied to determine the Medical Expense
Contribution required of Retirees for participation in the 2007 Retiree Welfare
Plan.
 
   
Notification of Maximum Aggregate Benefit
  Medicare Eligible Retirees who exceed 60 percent and 85 percent of the Maximum
Aggregate Benefit will receive a notification of the medical and pharmacy
benefits applied toward the Maximum Aggregate Benefit. Upon reaching the Maximum
Aggregate Benefit, Retirees will receive a notice of coverage termination. Such
notices shall include a summary of medical and pharmacy benefits applied toward
the Maximum Aggregate Benefit through December 31, 2001, and annual amounts
applied thereafter. Such Retirees shall retain their rights under ERISA to
appeal any such calculation, although the calculations shall bind any Retiree
who fails to timely appeal such calculation. Amounts paid by the Company for
each Retiree shall be included in the calculation of the Maximum Aggregate
Benefit, even if such amounts are later reimbursed by government subsidies under
Medicare.
 
   
2007 Retiree Welfare Plan
  The 2007 Retiree Welfare Plan will modify, amend and supersede the terms of
the Forsberg and Post-Settlement Plans as provided in this Agreement.
 
   
 
  The 2007 Retiree Welfare Plan will be filed with the Bankruptcy Court at least
10 days prior to the hearing on confirmation of the Plan (the “Confirmation
Hearing”), and the terms thereof shall be reasonably acceptable to the Retirees’
Committee.
 
   
Plan Sponsorship
  The Company and the Retirees each reserve all of their rights, if any, with
respect to Reorganized Solutia’s sponsorship of OPEB benefits.

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Life Insurance
  The 2007 Retiree Welfare Plan shall provide life insurance benefits to former
employees covered under Solutia’s retiree life insurance plan on the Effective
Date consistent with the following:
 
   
 
 
a)    for each former employee covered on the Effective Date who retired prior
to January 1, 1986, such former employee’s current life insurance coverage, up
to a maximum coverage limit of $12,500;
 
   
 
 
b)    for each former employee covered on the Effective Date who retired from
January 1, 1986 through December 31, 2001, such former employee’s current life
insurance coverage, up to a maximum coverage limit of $10,000; and
 
   
 
 
c)    for each former employee covered on the Effective Date who retired after
December 31, 2001, the life insurance benefit will be eliminated.
 
   
 
  These life insurance benefits shall not be subject to change. These life
insurance benefits shall continue in the event that any recipient is not covered
for medical benefits under the 2007 Retiree Welfare Plan or any subsequent
retiree medical benefit plans.
 
   
Retiree Trust
  The Retiree Trust shall be established on the Effective Date. To the extent
permitted under ERISA and the Internal Revenue Code, the Retiree Trust shall
hold in trust all assets contributed thereto.
 
   
 
  The trustee for the Retiree Trust (the “Trustee”) shall be a qualified
institutional trustee selected by the Company and reasonably acceptable to the
Retirees’ Committee and the Creditors’ Committee.
 
   
 
  At least 10-days prior to the Confirmation Hearing, the Retirees’ Committee
shall appoint a 3-person liaison committee (the “Retiree Liaison Committee”).
The duties of the Retiree Liaison Committee shall be set forth in the 2007
Retiree Welfare Plan. Subject to the requirements of, and solely to the extent
permitted by, ERISA and the Internal Revenue Code, the Trustee shall have the
authority to reimburse all reasonable, actual, out-of-pocket expenses incurred
by the members of the Retiree Liaison Committee in the performance of their
duties; provided, however, that such reimbursements shall not exceed $3,000 in
the aggregate in any calendar year.
 
   
 
  The duties and powers of the Trustee shall be enumerated in a

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  trust instrument (the “Retiree Trust Agreement”) subject to the requirements
of ERISA and the Internal Revenue Code and reasonably acceptable to the Company,
Monsanto, the Creditors’ Committee and the Retirees’ Committee. The Retiree
Trust Agreement shall provide for:
 
   
 
 
1.    Payment (within 10 days from the submission of detailed invoices to the
Trustee) of Reorganized Solutia’s requests for reimbursement from the Retiree
Trust in compliance with the terms of this Agreement and the 2007 Retiree
Welfare Plan.
 
   
 
 
2.    The Trustee’s ability to sell the Retiree Shares (defined below) and use
the proceeds of such sales to reimburse Reorganized Solutia in accordance with
the terms of this Agreement and the 2007 Retiree Welfare Plan. Neither
Reorganized Solutia, Monsanto, Funding Co., nor any of their respective agents,
directors, officers or employees, shall have or assume any liability with
respect to any decision by the Trustee to sell or not sell the Retiree Shares
held in the Retiree Trust at any given time.
 
   
 
 
3.    In the event that no Pre-Spin Retirees are participating in the 2007
Retiree Welfare Plan, any amounts remaining in the Retiree Trust shall be used
to reimburse Reorganized Solutia for costs incurred in connection with providing
Other Post-Employment Benefits to Post-Spin Retirees. In the event that no
Pre-Spin Retirees and fewer than 100 Post-Spin Retirees are participating in the
2007 Retiree Welfare Plan, the amounts remaining in the Retiree Trust shall be
used to reimburse Reorganized Solutia for costs incurred in providing Other
Post-Employment Benefits to Post-Spin Retirees and medical and other welfare
benefits to Reorganized Solutia’s active employees.
 
   
Retiree Claim
  The Retirees, as a class, shall be entitled to an Allowed11 non-priority
unsecured claim in the aggregate amount of $35 million (the “Retiree Claim”),
based on reductions in OPEB that the Company could not have unilaterally imposed
on Retirees pursuant to the terms of the Forsberg Settlement and its other
rights.
 
   
 
  In full and complete satisfaction of the Retiree Claim, and for the benefit of
all Retirees, Reorganized Solutia shall contribute to the Retiree Trust, subject
to any consents or approvals required under ERISA and the Internal Revenue Code
(including, for the

 

11   “Allowed” shall mean any claim that is determined to be a valid claim in
the Company’s chapter 11 cases based on the Company’s schedules or through
settlement, litigation or otherwise.

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  avoidance of doubt, the obtaining of an exemption from any “prohibited
transactions”, as defined in Section 4975 of the Internal Revenue Code or
Section 406 of ERISA), the number of shares of New Common Stock necessary to
provide a recovery on account of the Retiree Claim that is equal to the implied
recovery for all General Unsecured Creditors (as defined in the Plan) who do not
participate in the Rights Offering. The recovery on account of the Retiree Claim
(the “Retiree Recovery”) shall be computed based on (i) the aggregate equity
value in Reorganized Solutia distributable to General Unsecured Creditors
approved by the Bankruptcy Court (or the mid-point of the range of values
established by the Bankruptcy Court), and (ii) the mid-point of the range of
projected final aggregate amounts of General Unsecured Claims, as set forth in
the disclosure statement filed in connection with the Plan and approved by the
Bankruptcy Court, after accounting for the discount in the Rights Offering and
prior to any dilution in General Unsecured Creditor recoveries resulting from
the resolution of Disputed General Unsecured Claims (as defined in the Plan),
provided, however, that the number of shares of New Common Stock distributed to
the Retiree Trust in satisfaction of the Retiree Claim (collectively, the
“Retiree Shares”) shall be subject to pro-rata dilution on account of the
Incentive Plan (as defined in the Plan).
 
   
 
  Notwithstanding anything contained in the preceding paragraph to the contrary,
in the event that the consents and approvals described above have not been
obtained within 30 days from the Effective Date (which period may be extended
upon the mutual written consent of Reorganized Solutia and the Retiree Liaison
Committee), in full and complete satisfaction of the Retiree Claim, Reorganized
Solutia shall deposit Retiree Shares in the Retiree Trust equal to 10% of the
value of the Retiree Trust on such date and all proceeds (net of sales
commissions and other transaction fees) from the sale of the balance of the
Retiree Shares that would have been deposited on account of the Retiree Claim
had the consents and approvals been received; provided that the total number of
shares of New Common Stock deposited in the Retiree Trust or sold in accordance
with the foregoing shall not exceed the number of Retiree Shares distributed on
account of the Retiree Recovery; and provided further that if the contribution
of Retiree Shares to the Retiree Trust in accordance with the foregoing and/or
the holding of the Retiree Shares by the Retiree Trust would constitute or
result in a “prohibited transaction”, as defined in Section 4975 of the Internal
Revenue Code or Section 406 of ERISA, the Retiree Shares shall be sold and the
proceeds (net of sales commissions and other transaction

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  fees) of such sale shall be contributed to the Retiree Trust in lieu of the
Retiree Shares under circumstances reasonably agreed to between the Retirees’
Committee and the Company.
 
   
 
  The Retiree Shares and the proceeds from sales thereof shall be held in Sub
Account 2 and shall be used to reimburse Reorganized Solutia in accordance with
the terms of this Agreement and the 2007 Retiree Welfare Plan.
 
   
 
  The Company and the Retirees’ Committee agree to use their reasonable efforts
to assist in seeking any exemption of the application of the “prohibited
transactions” rules described in this section with respect to the number of
Retiree Shares to be distributed to the Retiree Trust.
 
   
 
  The Retiree Claim and all rights and obligations associated therewith shall be
held and managed by the Retirees’ Committee as the authorized representative for
the Retirees. The Retirees’ Committee may authorize its counsel to act as the
agent for the Retirees’ Committee with respect to the Retiree Claim.  
 
  Any and all claims filed by individual Retirees on account of reductions in
their OPEB benefits as a result of the Company’s chapter 11 cases, shall be
disallowed and expunged from the Company’s claims register on the Effective Date
as duplicative of the Retiree Claim.
 
   
Release
  In consideration of Monsanto’s agreement to, among other things, enter into
the Monsanto Settlement (as defined in the Plan) and Pharmacia’s agreement to
waive certain indemnity claims against the Company, which will collectively
enable Reorganized Solutia to satisfy its OPEB obligations to Retirees as
modified by the Retiree Settlement, and improve Reorganized Solutia’s
creditworthiness, which consideration is integral to the effectuation of the
Plan, the consummation of any transactions contemplated thereby and Reorganized
Solutia’s ability to perform its prospective obligations, upon the Effective
Date, the Retirees’ Committee, its members and professionals, the Retirees and
each of their respective officers, directors, employees, heirs, executors,
administrators, successors and assigns (collectively, the “Retiree Parties”)
shall hereby be deemed to have released and discharged the Company, Monsanto,
Pharmacia, any employee benefit plans of Monsanto or Pharmacia and their
respective officers, directors, employees, affiliates, successors, assigns,
representatives, agents, advisors and professionals (collectively, the “Released
Parties”) from, and the order confirming the Plan (the “Confirmation Order”) and
the order approving the terms of this Agreement (the “Retiree Approval

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  Order”) shall operate as an injunction against, the commencement or
continuation of any action, the employment of process, or any act to collect,
recover or offset, any “claim” (as defined in section 101(5) of the Bankruptcy
Code) and any “debt” (as that term is defined in section 101(12) of the
Bankruptcy Code), related to “retiree benefits” (as defined in section 1114(a)
of the Bankruptcy Code), including the partial reservation of claims in the
class action settlement approved by the U.S. District Court for the Northern
District of Florida, Pensacola Division, in Solutia Inc. v. Forsberg, et al.,
No. 3:98CV237, whether such claim is reduced to judgment or not, liquidated or
unliquidated, contingent or noncontingent, asserted or unasserted, fixed or not,
matured or unmatured, disputed or undisputed, legal or equitable, known or
unknown that the Retiree Parties had, have or may have against the Released
Parties. This Agreement, the Plan and any order approving the Retiree Settlement
shall provide for and effectuate a discharge of the Released Parties to the
fullest extent permitted by applicable law with respect to any and all claims of
the Retiree Parties related to “retiree benefits” (as defined in section 1114(a)
of the Bankruptcy Code); provided, however, that the foregoing shall not release
and discharge (a) Reorganized Solutia from the performance of its obligations
under this Agreement, or (b) Monsanto from the performance of its obligations
under this Agreement.
 
   
Exculpation and Limitation of Liability
  The Plan and Confirmation Order shall provide that the Retirees’ Committee and
each of its current and former members, agents, advisors and professionals, in
each case in their capacity as such, shall not have or incur any liability to,
or be subject to any right of action by, any Holder of a Claim (as defined in
the Plan), or any other party in interest, or any of their respective agents,
direct or indirect shareholders, employees, representatives, financial advisors,
attorneys or affiliates, or any of their respective successors or assigns, for
any act or omission in connection with, relating to, or arising out of, the
Chapter 11 Cases, the pursuit of confirmation of the Plan, the consummation of
the Plan, or the administration of the Plan or the property to be distributed
under the Plan, except for their willful misconduct, criminal conduct, misuse of
confidential information that causes damages, fraud, ultra vires acts or gross
negligence, and in all respects shall be entitled to rely reasonably upon the
advice of counsel with respect to their duties and responsibilities under the
Plan.

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Stay of Appeal
  On or about February 16, 2006, the Company and the Retirees’ Committee jointly
sought to stay the appeal, captioned Solutia Inc. et al. v. Official Committee
of Retirees (Civil no. 04-CIV-9587 (KMK)), pending before the United States
District Court for the Southern District of New York, pending approval of the
Retiree Settlement. On the Effective Date, this appeal shall be deemed withdrawn
with prejudice.
 
   
Withdrawal of Adversary Proceedings
  On the Effective Date, that certain adversary proceeding, captioned, The
Official Committee of Retirees v. Solutia, Inc., Pharmacia Corporation and
Monsanto Company (Adv. Proc. no. 04-03057 (PCB)) shall be deemed withdrawn with
prejudice.
 
   
Retiree Approval Order
  The Retiree Approval Order shall (i) approve the terms of this Agreement,
including all releases, injunctions, exculpations and limitations of liability
contained herein, pursuant to section 1114 of the Bankruptcy Code, Bankruptcy
Rule 9019 and any other applicable provisions of the Bankruptcy Code and
Bankruptcy Rules; (ii) direct the Company and the Retirees’ Committee to file a
copy of this Agreement and the Retiree Approval Order with the U.S. District
Court for the Northern District of Florida, Pensacola Division, in Solutia Inc.
v. Forsberg, et al., No. 3:98CV237; (iii) specify that the prior order approving
the Forsberg Settlement and the Forsberg Plan has been superseded in all
respects by the terms of this Agreement; (iv) provide that the Retirees’
Committee is authorized and empowered to execute and deliver this Agreement on
behalf of the Retirees pursuant to section 1114(e)(1)(B) of the Bankruptcy Code;
and (v) expressly reserve exclusive jurisdiction for the enforcement of the
terms of this Agreement and the Retiree Settlement in the United States
Bankruptcy Court for the Southern District of New York.

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Support
  The Retirees’ Committee agrees to support confirmation of the Plan filed by
Solutia with the Bankruptcy Court.
 
   
 
  The Company, the Retirees’ Committee, Monsanto and the Creditors’ Committee
agree to support the Retiree Settlement consistent with the terms set forth
herein, including by, among other things, seeking Bankruptcy Court approval of
the Retiree Settlement, pursuant to Bankruptcy Rule 9019. In addition, the
Retirees’ Committee will assist the Company and Monsanto in ensuring proper
service of such motion and the terms of this Agreement is made on all Retirees.
 
   
Changed Circumstances
  Notwithstanding anything contained herein to the contrary, this Agreement
shall terminate and be of no further force or effect if, and only if, prior to
the Effective Date: (i) that certain adversary proceeding, captioned Official
Committee of Equity Security Holders of Solutia, Inc., v. Monsanto Company, and
Pharmacia Corporation (Case Nos. 03-17949 (PCB)) results in a final, binding and
non-appealable determination by a court of competent jurisdiction that Monsanto
and/or Pharmacia are solely responsible for liabilities in connection with
Pre-Spin OPEB benefits, and the Company is fully and unconditionally discharged
from any and all direct or indirect obligations with respect to the OPEB
benefits or the Pre-Spin Retirees; (ii) Solutia’s chapter 11 cases currently
pending before the Bankruptcy Court are converted to a case under chapter 7 of
the Bankruptcy Code; or (iii) the Plan is modified such that the holders of
General Unsecured Claims against the Company, other than the holders of
Convenience Claims (as defined in the Plan), are to receive cash from
Reorganized Solutia totaling more than 2% of the aggregate Allowed amount of
General Unsecured Claims on account of such claims and the Retirees do not.

14

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     IN WITNESS WHEREOF, the undersigned, intending to be bound by the terms of
this Agreement, have caused this Agreement to be executed by its duly authorized
officer, in each case as of this 10th day of July, 2007.

            SOLUTIA INC.
      /s/ Jeffry N. Quinn       By: Jeffry N. Quinn      Its: President & Chief
Executive Officer     

[Signatures Continue on the Next Page]

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            THE OFFICIAL COMMITTEE OF RETIREES OF SOLUTIA INC.
      /s/ Daniel D. Doyle       By: Spencer Fane Britt Browne LLP      Its:
Co-counsel              /s/ R. Scott Williams       By: Haskell Slaughter Young
& Rediker      Its: Co-counsel     

[Signatures Continue on the Next Page]

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            THE OFFICIAL COMMITTEE OF RETIREES
OF SOLUTIA INC.
      /s/ Kenneth M. Kettler       By: Kenneth M. Kettler      Its: Chairman   
 

[Signatures Continue on the Next Page]

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            MONSANTO COMPANY
      /s/ David F. Snively       By: David F. Snively      Its: Senior Vice
President, Secretary and General       Counsel     

18

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            THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF SOLUTIA INC.
      /s/James R. Savin       By: Akin Gump Strauss Hauer & Feld LLP      Its:
Counsel     

19

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Exhibit A
For each Plan Year, each Participant of Groups IA and IIIA shall pay an annual
Medical Expense Contribution equal to the greater of 20% of the Annual Cost Per
Covered Group, or the applicable Defined Dollar Limit Amount12 as determined by
the following table:

                      SOLUTIA DEFINED DOLLAR LIMIT     RETIREE (OR SURVIVING  
RETIREE (OR SURVIVING COVERED GROUP   SPOUSE) BEFORE AGE 65   SPOUSE) AFTER AGE
65
Retiree Only
  $ 6,600     $ 2,000  
Surviving Spouse Only
  $ 5,100     $ 1,650  
Retiree and Spouse (under 65)
  $ 11,700     $ 7,100  
Retiree and Spouse (over 65)
  $ 7,950     $ 3,650  
Retiree and Child(ren)
  $ 9,000     $ 4,400  
Retiree, Spouse (under 65) and Child(ren)
  $ 14,100     $ 9,500  
Retiree, Spouse (over 65) and Child(ren)
  $ 10,350     $ 6,050  

For each Plan Year, each Participant of Groups IB and IIIB shall pay an annual
Medical Expense Contribution equal to the greater of 20% of the Annual Cost Per
Covered Group, or the applicable Defined Dollar Limit Amount as determined by
the following table:

                      SOLUTIA DEFINED DOLLAR LIMIT     RETIREE (OR SURVIVING  
RETIREE (OR SURVIVING COVERED GROUP   SPOUSE) BEFORE AGE 65   SPOUSE) AFTER AGE
65
Retiree Only
  $ 6,600     $ 1,800  
Surviving Spouse Only
  $ 5,100     $ 1,475  
Retiree and Spouse (under 65)
  $ 11,700     $ 6,900  
Retiree and Spouse (over 65)
  $ 7,950     $ 3,275  
Retiree and Child(ren)
  $ 9,000     $ 4,200  
Retiree, Spouse (under 65) and Child(ren)
  $ 14,100     $ 9,300  
Retiree, Spouse (over 65) and Child(ren)
  $ 10,350     $ 5,675  

 

12   The Defined Dollar Limit Amount shall be the difference between the Annual
Cost Per Covered Group and the Solutia Defined Dollar Limit applicable to a
Covered Group as delineated in this Exhibit A.

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For each Plan Year, each Participant of Groups IIA, IIB, IV and V and
Post-Settlement Participants shall pay an annual Medical Expense Contribution
equal to the greater of 20% of the Annual Cost Per Covered Group, or the
applicable Defined Dollar Limit Amount13 as determined by the following table:

                      SOLUTIA DEFINED DOLLAR LIMIT     RETIREE (OR SURVIVING  
RETIREE (OR SURVIVING COVERED GROUP   SPOUSE) BEFORE AGE 65   SPOUSE) AFTER AGE
65
Retiree Only
  $ 6,600     $ 1,650  
Surviving Spouse Only
  $ 5,100     $ 1,350  
Retiree and Spouse (under 65)
  $ 11,700     $ 6,750  
Retiree and Spouse (over 65)
  $ 7,950     $ 3,000  
Retiree and Child(ren)
  $ 9,000     $ 4,050  
Retiree, Spouse (under 65) and Child(ren)
  $ 14,100     $ 9,150  
Retiree, Spouse (over 65) and Child(ren)
  $ 10,350     $ 5,400  

 

13   Solutia is not waiving any of its rights pursuant to the Post-Settlement
Plan to make changes to the Participant Medical Expense Contribution or other
provisions therein.

2