EX-10.3



 





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.




 









 










	 	 	 
	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.




2









 










	 	 	 
	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






3









 






	 	 	 
	 

	 	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”).




4









 










	 	 	 
	 

	 	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.




5









 










	 	 	 
	 

	 	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.




6









 










	 	 	 
	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.






7









 






	 	 	 
	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






8









 






	 	 	 
	 

	 	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.




9









 










	 	 	 
	 

	 	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






10









 






	 	 	 
	 

	 	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






11









 






	 	 	 
	 

	 	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.






12









 






	 	 	 
	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.






13









 






	 	 	 
	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









 






     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]




15









 








	 	 	 	 	 
	 	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]




16









 








	 	 	 	 	 
	 	THE OFFICIAL COMMITTEE OF RETIREES

OF SOLUTIA INC.

 	 
	 	/s/ Kenneth M. Kettler
 	 
	 	By: Kenneth M. Kettler 	 
	 	Its: Chairman 	 
	 



[Signatures Continue on the Next Page]




17









 








	 	 	 	 	 
	 	MONSANTO COMPANY

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



18









 




	 	 	 	 	 
	 	THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF
SOLUTIA INC.

 	 
	 	/s/James R. Savin
 	 
	 	By: Akin Gump Strauss Hauer & Feld LLP 	 
	 	Its: Counsel 	 
	 




19









 








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