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Target performance levels and funding factors have been established by the ECDC. Performancemetrics may be adjusted, as appropriate, based on asset sales and dispositions. For purposes ofthe Plan the performance measures have the following meaning: **•** **“EBITDAR”**means with respect to any specified entity for anyperiod, consolidated net income (loss) of such specified entityand its subsidiaries for such period, determined on a consolidatedbasis, in accordance with GAAP and subject to historical internalreporting standards, excluding (without duplication), to theextent deducted in determining consolidated net income (loss) (a)any extraordinary, non-recurring, non-operational or non-cashgains or losses, (b) restructuring charges, and (c) effects ofdiscontinued operations, plus (without duplication), in accordancewith GAAP and to the extent deducted in determining consolidatednet income (loss), (d) interest expense, and (e) income taxexpense plus, (f) depreciation expense, and (g) amortizationexpense excluding amortization of deferred credits plus, (h)reorganization items. Calculation of EBITDAR shall exclude allimpacts of fresh start accounting and any effects of accountingpolicy changes made in connection with fresh start, effective asof the emergence date. **•** **“Free Cash Flow”**means, with respect to any specified entity forany period, the cash flow provided by (used in) continuedoperations of such specified entity and its subsidiaries for suchperiod, determined on a consolidated basis, in accordance withGAAP and subject to historical internal reporting standards,excluding (without duplication), to the extent deducted indetermining cash flow provided by (used in) continued operations(a) any extraordinary, non-recurring or non-operational gains orlosses, (b) restructuring charges, and (c) effects of discontinuedoperations, less Capital Expenditures, plus net proceeds receivedrelated to asset sales and proceeds received by Solutia in excessof management’s estimate from the disposition of any of theCompany’s business units or divisions, to the extent sold duringthe calendar year. **•** **“Gross Margin %”**means, with respect to any specified entity forany period, gross margin (the difference between the reportedrevenue less cost of goods sold of the business unit) divided byrevenue of such specified entity and its subsidiaries for suchperiod, determined on a consolidated basis, in accordance withGAAP and subject to historical internal reporting standards,excluding (without duplication), to the extent deducted indetermining gross margin or revenue (a) any extraordinary,non-recurring, non-operational or non-cash gains or losses orgains or losses from dispositions, (b) restructuring charges, and(c) effects of discontinued operation, and (d) all impacts offresh start accounting, including accounting policy changes madein connection with fresh start, effective as of the emergencedate.
 
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**II. Calculation of Incentive Awards**Solutia Inc. (the “Company”), for purposes of the Plan, is organized along business lines(Integrated Nylon, Saflex, CPFilms, Flexsys, and Other Performance Products Divisions (Other PPD),each a “Business”) in order to place emphasis on key performance measures of each individualBusiness.The size of the incentive pool available for awards will be based on the achievement of specificperformance measures (each incentive pool shall be referred to herein as a “Business Unit IncentivePool”). Employees assigned to a specific Business Unit will receive the funding factor tied tothat Business Unit’s specific performance measures.For employees assigned to enterprise-wide functions (“Core Functions”), overall enterpriseperformance shall determine the incentive pool available for awards (such pool to be referred to asthe “Core Function Incentive Pool”).The actual funding of each Business Unit Incentive Pool and the Core Function Incentive Pool shallbe 90% of all aggregate target bonuses for individuals assigned to each pool multiplied by theweighted average of the pre-established funding factor for achievement of specific performancemeasures relative to target performance. The target performance and weightings for eachperformance measure, and the related funding factors, have been determined by the ECDC based uponthe recommendation of the Chief Executive Officer of the Company (the “CEO”).The entire Business Unit Incentive Pool or the Core Function Incentive Pool will be allocated inthe form of awards to individuals assigned to these Pools. Each Pool will be divided equally intoan objective award pool and a discretionary award pool as described below: **•** The objective award pool will be based upon business-unitperformance and will be equal to 45% of such individual’s targetbonus multiplied by the relevant funding factor. **•** The discretionary award pool will be based upon a participant’sindividual performance versus established objectives, performancein relation to peers, and according to the process describedbelow. The discretionary portion of an individual participant’sbonus may range from zero upward.
 
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In addition to the Business Unit Incentive Pools and the Core Function Incentive Pool, an overallenterprise discretionary bonus pool (the “Enterprise Discretionary Incentive Bonus Pool”) shall befunded by the enterprise-level EBITDAR performance relative to a pre-established target performancelevel. The funding of the Enterprise Discretionary Incentive Pool shall be 10% of all aggregatetarget bonuses multiplied by a pre-established funding factor. All participating employees will beeligible for a discretionary award from this pool at the discretion of the CEO and the ECDC (ifapplicable).If threshold performance levels are not met, there would be no bonus pool for that performanceyear. If a bonus pool is funded, a participant would be eligible to receive a minimum bonus of 45%of their performance adjusted target bonus (after applying the funding factor that is based onfinancial performance). The maximum funding factor that can be achieved under this plan is 3.0xtarget performance (if the maximum performance is achieved). After applying the funding factor,the participant’s maximum opportunity is 2.0x the performance adjusted bonus.The process for determining bonuses is as follows: 1) Incentive Pools are determined and funded based on Business Unit/Coreperformance relative to the pre-established targets, funding factors,and weighting. The Pools are then allocated equally to objectiveawards and discretionary awards. 2) The Enterprise Discretionary Incentive Pool is determined and fundedbased on the enterprise EBITDAR performance relative to thepre-established target. 3) The objective portion of bonuses are determined and approved by the ECDC. 4) Managers will make individual award recommendations based uponindividual performance compared to established objectives forindividual discretionary portion. Individual discretionary awardswill be approved by the Business Unit President and the CEO. 5) Bonus amounts from the Enterprise Discretionary Bonus Pool will bedetermined at the discretion of the CEO with the advice of theExecutive Leadership Team (ELT). 6) The ECDC shall determine the discretionary bonus for the CEO andapprove discretionary awards for the ELT. Any discretionary bonuspaid to the CEO in excess of 50% of the CEO’s target bonus multipliedby the relevant funding factor shall not, at the discretion of theECDC, diminish awards available under the Core Function IncentivePool, the Business Unit Incentive Pool or the Enterprise DiscretionaryBonus Pool.
 
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 7) The ECDC has determined that the maximum bonus an individual canreceive under the AIP is 200% of his/her performance adjusted targetbonus (after applying the funding factor). 8) In cases where an individual is assigned to a specific Business Unitor Core, but supports more than one Business Unit, the performancemetric component of the funding will be based on the following rules: **•** Employees who support a Business Unit more than 50% of the timewill receive that Unit’s funding factor. **•** Employees who support two Business Units equally will receive anaverage of the two Units’ funding factors. **•** Employees who support multiple Business Units (and aren’t coveredby the above) will receive the Core funding factor. **•** Funding sources for an employee’s award will be determined basedon the number of full months spent, rounded if applicable, in eachfunction or Business Unit.Each employee’s actual award will also depend on individual performance in serving allrelevant functions and Business Units and will include input from each respectivemanager.Actual awards based on the performance metric will vary as described above based upon achievementof Business Unit or Core performance measures and individual performance. Management, the CEO andthe ECDC reserve the right to make no award to individuals who exhibit below standard performance,incidents of misconduct, etc.**III. Administration**The ECDC and the CEO, whose decisions are final, shall administer the Plan jointly. The SeniorVice President — Human Resources will be responsible for the administrative procedures governingthe Plan, including ensuring the existence of approved Performance Measures and the presentation ofthe performance results under the Plan to the ECDC for its approval. The following administrativeprocedures shall govern: 1. The ECDC will approve individual incentive awards for the CEO and allExecutive Leadership Team (ELT) members. The CEO and his directreports may approve all other incentive awards. 2. Employees must be actively employed with the company on the day of the payout to receive an award.
 
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 3. Employees who retire, resign, or are terminated shall not be eligiblefor an award if they are not employed by Solutia on the date ofpayment. 4. Employees on leave of absence during the Performance Year will beconsidered for a prorated award reflecting actual serve, rounded tothe nearest whole month. Payment will be made, if any, at the timeawards are normally paid, or upon returning from leave of absence, iflater. 5. In the event of an employee’s death, payment will be made to theemployee’s estate reflecting the employee’s actual service to thenearest whole month. 6. Employees promoted or hired before December 1 into a position that iseligible to participate may be considered for an award that will beprorated reflecting the employees’ actual participation to the nearestwhole month. 7. Awards for Employee who change jobs (and incentive targets) during theyear will be prorated to reflect the employee’s actual participationin both positions to the nearest whole month. 8. Employees who transfer from another Business Unit not participating inthis plan to a participating position or vice versa during thePerformance Year will receive a prorated award based on the time spentin the participating position. 9. Employees who are involuntarily terminated with severance between theend of the Performance Year and prior to the payout may be eligible toreceive an award. 10. Awards are paid in cash or common stock of the Company and are to bepaid on or between January 1, 2009 and March 15, 2009. If all or aportion of the payment is made after March 15, 2009, the amount paidafter March 15, 2009 may be considered nonqualified deferredcompensation under Code Section 409A, and the Company shall complywith any IRS Form W-2 reporting requirements that may apply to suchamounts. Awards outside of the United States are determined at thesame time as the awards for participants in the United States and paidas soon as administratively possible once approved.**IV. Pension and Savings and Investment Plan (SIP) Implications**For participants in the United States, the entire amount of any annual award made for a year willbecome part of the earnings used to calculate your Savings and Investment Plan (SIP) contributions,subject to IRS and SIP limits. For participants outside the United States, the process establishedin their country, pension plan or retirement program will apply.
 
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**V. Taxes**For U.S. participants, any award you receive under the Plan is taxable as supplemental income inthe year of payment and is subject to all applicable withholding taxes in the year paid at aminimum of 25%. For participants outside the United States, the laws of the tax jurisdiction(s) towhich you are subject will apply.**VI. Legal Information** **•** In all events, whether any cash award is made under the Plan to aparticipant will depend on management’s recommendation and thedecision of the ECDC (or its delegate). **•** Nothing in this document or any other document describing orreferring to the Plan shall confer any right whatsoever on anyperson to be considered for any incentive commitments or awards. **•** This document is subject to and governed by actions,interpretation, and rules and regulations of the ECDC (or itsdelegate) and may be changed or discontinued at any time withoutnotice or liability. Incentive commitments and awards shall besubject to and governed by the specific terms and conditions ofthis Plan and the applicable award. **•** Nothing in this document or any other document describing orreferring to the Plan shall confer on any employee or participantthe right to continue in the employ of the Company or affect theright of the Company to terminate the employment of any suchperson with or without cause. **•** Nothing contained herein shall require the Company to segregateany monies from its general fund or to create any trusts, or tomake any special deposits for amounts payable to any participant. **•** No bonus commitment or unpaid bonus award shall be pledged ortransferred except as specifically provided for herein (such as inthe case of death). If any participant attempts to pledge,assign, transfer or otherwise alienate any award, any obligationof the Company hereunder shall terminate. **•** The Company will withhold any federal, state or local, domestic orforeign taxes as required by law or regulation or as the Companydeems appropriate from any payments that it makes to participantshereunder. **•** The Plan is subject to the laws of the State of Delaware.
 
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 **•** Nothing in this Plan shall be deemed to modify any terms andconditions of a participant’s employment agreement. **•** The Plan may be amended, modified or terminated without notice bythe Company at any time, including (but not limited to) any suchamendment, modification or termination that reduces or eliminatesany benefit otherwise to be paid or payable hereunder.
 
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