Document:

exhibit_4-3.htm

    
      

      

    

    EXHIBIT
4.3

     

    

    RESTRICTED
STOCK UNIT AWARD AGREEMENT

     

    pursuant
to the

     

    SOLUTIA
INC. 2007

     

    MANAGEMENT
LONG-TERM INCENTIVE PLAN

     

    

    Participant:

    

    Grant
Date:  February 28, 2008

    

    Number
of Restricted Stock Units granted:

    
      

    

    

    THIS
RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), dated as
of the Grant Date specified above, is entered into by and between Solutia, Inc.,
a company organized in the State of Delaware (the “Company”), and the
Participant specified above (the “Participant”),
pursuant to the Solutia Inc. 2007 Management Long-Term Incentive Plan, as in
effect and as amended from time to time (the “Plan”);

     

    WHEREAS,
it has been determined under the Plan the Company will grant the Restricted
Stock Units provided herein to the Participant.

     

    NOW,
THEREFORE, in consideration of the mutual covenants and premises hereinafter set
forth and for other good and valuable consideration, the parties hereto hereby
mutually covenant and agree as follows:

     

    1. Incorporation
By Reference; Plan Document Receipt.  This Agreement is
subject in all respects to the terms and provisions of the Plan (including,
without limitation, any amendments thereto adopted at any time and from time to
time unless such amendments are expressly intended not to apply to the award
provided hereunder), all of which terms and provisions are made a part of and
incorporated in this Agreement as if they were expressly set forth
herein.  Any capitalized term not defined in this Agreement shall have
the same meaning as is ascribed thereto in the Plan.  The Participant
hereby acknowledges receipt of a true copy of the Plan and that the Participant
has read the Plan carefully and fully understands its content.  In the
event of a conflict between the terms of this Agreement and the terms of the
Plan, the terms of the Plan shall control.

     

    2. Grant of
Restricted Stock Unit Award.  The Company
hereby grants to the Participant, as of the Grant Date specified above, the
number of Restricted Stock Units specified above.  Except as otherwise
provided by Section 11.12 of the Plan, the Participant agrees and understands
that nothing contained in this Agreement provides, or is intended to provide,
the Participant with any protection against potential future dilution of the
Participant’s interest in the Company for any reason.  The Participant
shall not have the rights of a stockholder in respect of any Share underlying
this Award until such Share is delivered to the Participant in accordance with
Section 4.

     

    3. Vesting.

     

    3.1. The
Restricted Stock Unit subject to this grant shall become unrestricted and vested
pro rata on each of the first three anniversaries of the Grant Date specified
above (one-third of the total grant per year), provided the Participant is then
employed by the Company and/or one of its Subsidiaries or
Affiliates.

     

    3.2. Except as
otherwise provided in this Section 3, if the Participant’s employment with the
Company and its Subsidiaries and Affiliates terminates for any reason prior to
the full vesting of all or any portion of the Restricted Stock Units awarded
under this Agreement, such unvested Restricted Stock Units shall immediately be
cancelled and the Participant (and the Participant’s estate, designated
beneficiary or other legal representative) shall forfeit any rights or interests
in and with respect to any such unvested Restricted Stock Units.

     

    3.3. 
If the
Participant’s employment with the Company and/or its Subsidiaries or Affiliates
terminates due to the Participant’s Disability the Restricted Stock Units shall
continue to vest on a regular schedule during the period of Disability
regardless of a termination event.  For purposes of this Agreement,
“Disability,” if the Participant is a party to an employment agreement, shall
have the same meaning as in such employment agreement, otherwise, “Disability”
shall mean any physical or mental disability which is determined to be total and
permanent by a doctor selected in good faith by the Company or the relevant
Subsidiary of Affiliate.

     

    3.4. 
If the
Participant’s employment with the Company and/or its Subsidiaries or Affiliates
terminates due to the Participant’s death, the Restricted Stock Units shall
become vested as of the date of any such termination.

     

    3.5. 
If the
Participant’s employment is terminated by the Company and/or its Subsidiaries or
Affiliates at a time when such Participant is entitled to a severance payment
over a period specified in such Participant’s employment agreement (if any) (the
“Severance
Period”) all Restricted Stock Units which would have vested had the
Participant continued his or her employment during the Severance Period shall
become immediately vested.

     

    3.6.  If
the Participant’s employer ceases to be an Affiliate or Subsidiary of the
Company, that event shall be deemed to constitute a termination of employment
under Section 3.2 above.

     

    4. Delivery of Shares.  
Subject to the terms of the Plan, if the Restricted Stock Units
awarded by this Agreement become vested, the Company shall promptly distribute
to the Participant the number of Shares equal to the number of Restricted Stock
Units that so vested; provided that the Company may defer distribution of Shares
to a date the Participant is not subject to any Company “blackout” policy or
other trading restriction imposed by the Company; provided that any distribution
of Shares shall in any event be made by the date that is 2-1/2 months from the
end of the calendar year in which the applicable Restricted Stock Units
vested.  In connection with the delivery of the Shares pursuant to
this Agreement, the Participant agrees to execute any documents reasonably
requested by the Company.

     

    5. Dividends
and Other Distributions.  There is no
guarantee by the Company that dividends will be paid.  All dividends
and other distributions paid with respect to the Shares underlying the
Restricted Stock Units, whether paid in cash, Shares, or other property (the
“Distributions”),
shall be held by the Company and subject to the same vesting requirements and
restrictions on transferability and forfeitability as the Restricted Stock Unit
with respect to which such Distributions were paid.  The Distributions
shall be paid at the time the Shares underlying the Restricted Stock Units are
delivered pursuant to Section 4.

     

    6. Existing
Covenants.  If Participant
violates any confidentiality, non-competition, or non-solicitation covenants to
which Participant is subject at the time of Participant’s termination of
employment pursuant to any separate agreement between Participant and the
Company and/or its Subsidiaries or Affiliates, all unvested Restricted Stock
Units shall be cancelled immediately.

     

    7. Further
Covenants.  In the event that
the Participant fails to comply with any of the restrictive covenants set forth
in this Section 7, all unvested Restricted Stock Units shall be cancelled
immediately.

     

    7.1. Nondisclosure of
Confidential and Proprietary Information.

     

    
      	
              7.1.1  

            	
              The
      Participant hereby acknowledges that during the term of his/her employment
      with the Company or its Subsidiaries or Affiliates or Related Companies,
      as the case may be (collectively, the “Employer”),
      he/she will have access to and possession of trade secrets, confidential
      information and proprietary information (collectively, and as defined more
      extensively below, “Confidential
      Information”) of Employer and their respective
      clients.  The Participant hereby recognizes and acknowledges
      that this Confidential Information is valuable, special and unique to the
      business of Employer, and that access to and knowledge of such
      Confidential Information is essential to the performance of Participant’s
      duties to Employer.  The Participant hereby agrees that during
      his/her employment relationship with Employer and thereafter, the
      Participant will keep secret and will not use or disclose any Confidential
      Information to any person or entity, in any fashion and for any purpose
      whatsoever, except at the request of
Employer.

            

    

     

    
      	
              7.1.2  

            	
              For
      purposes of this Agreement, the term “Confidential
      Information” includes, but is not limited to, information written,
      in digital form, in graphic form, electronically stored, orally
      transmitted or memorized, concerning or relating to Employer, all
      information about Employer’s business prospects and opportunities, and all
      other information about or gained from any customer or client to which
      Employer provides services during the Participant’s employment with
      Employer.  This clause shall not apply to any Confidential
      Information which enters the public domain other than through the
      Participant’s default.

            

    

     

    7.2. No Inducement or Employment
of Other Participants.  During the Participant’s employment
with Employer and for one (1) year thereafter, or, if the participant is subject
to an employment agreement that contains a similar provision, the period set
forth in such employment agreement, the Participant hereby agrees not to induce,
employ, solicit the employment of, attempt to affiliate for profit with, or
otherwise encourage, directly or indirectly, any employee of, or any independent
contractor performing services for, Employer, to leave the employ of, or to
cease rendering services to Employer, for the benefit of the Participant, or any
other party, or to assist any enterprise to employ any person employed by or any
independent contractor performing services for Employer.

     

    7.3. Non-Solicitation,
Non-Competition.

     

    
      	
              7.3.1  

            	
              Sections
      7.3.2 and 7.3.3 shall be applicable only to those Participants who are not
      parties to any other non-competition and/or non-solicitation agreements,
      contracts, or covenants with the Employer as of the effective date of this
      Agreement.  Nothing in Section 7.3 shall be deemed to supersede,
      alter, or otherwise limit any non-competition and/or non-solicitation
      agreements, contracts or covenants with the Employer to which Participant
      is otherwise subject as of the effective date of this
      Agreement.

            

    

     

    
      	
              7.3.2  

            	
              Subject
      to the conditions set forth in Section 7.3.1, during the Participant’s
      employment with Employer and for one (1) year thereafter, or, if the
      participant is subject to an employment agreement that contains a similar
      provision, the period set forth in such employment agreement, the
      Participant hereby agrees to refrain from, directly or indirectly,
      accepting business from, doing business with, inducing or soliciting any
      customers or vendors of Employer, to or on behalf of whom the Participant
      rendered any services during the course of the Participant’s employment
      with Employer, except as authorized in writing by
  Employer.

            

    

     

    
      	
              7.3.3  

            	
              Subject
      to the conditions set forth in Section 7.3.1, during the Participant’s
      employment with Employer and for one (1) year thereafter, or, if the
      participant is subject to an employment agreement that contains a similar
      provision, the period set forth in such employment agreement, the
      Participant will not, directly or indirectly, as an individual proprietor,
      partner, stockholder, officer, employee, director, joint venturer,
      investor, lender, consultant, or in any other capacity (other than as the
      direct or indirect passive holder of not more than one percent (1%) of the
      combined voting power of the outstanding stock of a publicly held company)
      (a) have any interest in or association with any business competitive with
      any business of Employer or (b) develop, market, sell or render (or assist
      any other person in developing, marketing, selling or rendering) products
      or services competitive with those developed, marketed, sold or rendered
      by Employer while the Participant was employed by
  Employer.

            

    

     

    8. Non-transferability.  Restricted Stock
Units, and any rights and interests with respect thereto, issued under this
Agreement and the Plan shall not, prior to the delivery of Shares, be sold,
exchanged, transferred, assigned or otherwise disposed of in any way by the
Participant (or any beneficiary(ies) of the Participant), other than by
testamentary disposition by the Participant or the laws of descent and
distribution.  Any such Restricted Stock Unit, and any rights and
interests with respect thereto, shall not, prior to the delivery of Shares, be
pledged or encumbered in any way by the Participant (or any beneficiary(ies) of
the Participant) and shall not, prior to delivery of Shares, be subject to
execution, attachment or similar legal process.  Any attempt to sell,
exchange, transfer, assign, pledge, encumber or otherwise dispose of in any way
any of the Restricted Stock Units, or the levy of any execution, attachment or
similar legal process upon the Restricted Stock Units, contrary to the terms and
provisions of this Agreement and/or the Plan shall be null and void and without
legal force or effect.

     

    9. Entire
Agreement; Amendment.  This Agreement,
together with the Plan contains the entire agreement between the parties hereto
with respect to the subject matter contained herein, and supersedes all prior
agreements or prior understandings, whether written or oral, between the parties
relating to such subject matter.  The Executive Compensation and
Development Committee (the “Committee”) shall
have the right, in its sole discretion, to modify or amend this Agreement from
time to time in accordance with and as provided in the Plan.  This
Agreement may also be modified or amended by a writing signed by both the
Company and the Participant.  The Company shall give written notice to
the Participant of any such modification or amendment of this Agreement as soon
as practicable after the adoption thereof.

     

    10. Acknowledgment
of Employee.  The award of this Restricted Stock Unit does not
entitle Participant to any benefit other than that granted under this Agreement.
Any benefits granted under this Agreement are not part of the Participant’s
ordinary salary, and shall not be considered as part of such salary in the event
of severance, redundancy or resignation.  Participant understands and
accepts that the benefits granted under this Agreement are entirely at the
discretion of the Company and that the Company retains the right to amend or
terminate this Agreement and the Plan at any time, at its sole discretion and
without notice.

     

    11. Governing
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware without reference to the principles of conflict of laws
thereof.

     

    12.
Withholding of Tax.  The
Company shall have the power and the right to deduct or withhold, or require the
Participant to remit to the Company, an amount sufficient to satisfy any country
or foreign taxes of any kind which the Committee, in its sole discretion, deems
necessary to be withheld or remitted to comply with any applicable tax law, rule
or regulation with respect to the Restricted Stock Units (or vesting thereof)
and, if the Participant fails to do so, the Company may otherwise refuse to
issue or transfer any Shares otherwise required to be issued pursuant to this
Agreement.

     

    13.
No Right
to Employment.  Any questions as to whether and when there has
been a termination of such employment and the cause of such termination shall be
determined in the sole discretion of the Committee.  Nothing in this
Agreement shall interfere with or limit in any way the right of Employer to
terminate the Participant’s employment or service at any time, for any reason
and with or without cause.

     

    14. Notices.  Any notice which
may be required or permitted under this Agreement shall be in writing and shall
be delivered in person, or via facsimile transmission, email, overnight courier
service or certified mail, return receipt requested, postage prepaid, properly
addressed as follows:

     

    14.1. If such
notice is to the Company, to the attention of the General Counsel of the Company
or at such other address as the Company, by notice to the Participant, shall
designate in writing from time to time.

     

    14.2. If such
notice is to the Participant, at his or her email or home address as shown on
the Company’s records, or at such other address as the Participant, by notice to
the Company, shall designate in writing from time to time.

     

    15. Compliance
with Laws.  The issuance of
any Shares pursuant to this Agreement shall be subject to, and shall comply
with, any applicable requirements of any federal and state securities laws,
rules and regulations (including, without limitation, the provisions of the
Securities Act of 1933, as amended, the 1934 Act and any respective rules and
regulations promulgated thereunder), and any other law or regulation applicable
thereto.  The Company shall not be obligated to issue any Shares
pursuant to this Agreement if such issuance would violate any such
requirements.

     

    16. Binding
Agreement; Assignment.  This Agreement
shall inure to the benefit of, be binding upon, and be enforceable by the
Company and its successors and assigns.  The Participant shall not
assign any part of this Agreement without the prior express written consent of
the Company.

     

    17. Headings.  The titles and
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.

     

    18. Further
Assurances.  Each party hereto
shall do and perform (or shall cause to be done and performed) all such further
acts and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the Plan and the consummation of the transactions contemplated
thereunder.

     

    19. Severability.  The invalidity or
unenforceability of any provisions of this Agreement in any jurisdiction shall
not affect the validity, legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or enforceability of
any provision of this Agreement in any other jurisdiction, it being intended
that all rights and obligations of the parties hereunder shall be enforceable to
the fullest extent permitted by law.

     

    _________________________________

    Participant Name

    

    _________________________________

    Participant Signature

    

    _________________________________

    Dateexhibit_10-1.htm

     

     

    
      

      

    

    
 

    EXHIBIT 10.1

    2008 Solutia Inc. Annual
Incentive Plan

    

    This
document sets forth the terms of the Solutia Inc. Annual Incentive Plan (the
“Plan” or the “AIP”) for the year beginning January 1, 2008 and ending December
31, 2008 (the Performance Year”).

    

    Purpose

    

    The
purpose of the Solutia Inc. Annual Incentive Plan is to provide employees with
annual cash bonus opportunities to incent strong operational and financial
performance and promote the creation of shareholder value.

    

    
      	
              I.  

            	
              Performance
      Metrics

            

    

    

    The
Executive Compensation and Development Committee of the Company’s Board of
Directors (the “ECDC”) sets performance metrics for the Plan based on industry
expectation, market opportunities and other factors the ECDC believes are
relevant.  The 2008 performance metrics for each incentive pool are
shown in the following charts:

    

    Business
Unit Pools

    

    
      	 Unit	 	
               Performance
      Measure #1

            	 	
              Weight

            	 	 	
               Performance
      Measure #2

            	 	
              Weight

            	 	
               Performance
      Measure #3

            	 	
              Weight

            	 
	
              Core

            	 	
              Enterprise
      EBITDAR

            	 	 	50	%	 	
              Enterprise
      Free Cash Flow

            	 	 	50	%	
              NA

            	 	
              NA

            	 
	
              Integrated
      Nylon

            	 	
              EBITDAR

            	 	 	50	%	 	
              Free
      Cash Flow

            	 	 	50	%	
              NA

            	 	
              NA

            	 
	
              Saflex

            	 	
              EBITDAR

            	 	 	33.3	%	 	
              Free
      Cash Flow

            	 	 	33.3	%	
              Gross
      Margin %

            	 	 	33.3	%
	
              CPFilms

            	 	
              EBITDAR

            	 	 	50	%	 	
              Free
      Cash Flow

            	 	 	50	%	
              NA

            	 	
              NA

            	 
	
              Flexsys

            	 	
              EBITDAR

            	 	 	50	%	 	
              Free
      Cash Flow

            	 	 	50	%	
              NA

            	 	
              NA

            	 
	
              Other
      PPD

            	 	
              EBITDAR

            	 	 	50	%	 	
              Free
      Cash Flow

            	 	 	50	%	
              NA

            	 	
              NA

            	 

    

    

    Enterprise
Discretionary Bonus Pool

    

    
      	
               Unit

            	 	 	
              Performance
      Measure

            	 	 	
               Weight

            	 
	
              All

            	 	 	
              Enterprise
      EBITDAR

            	 	 	 	100	%

    

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    Target
performance levels and funding factors have been established by the
ECDC.  Performance metrics may be adjusted, as appropriate, based on
asset sales and dispositions.  For purposes of the Plan the
performance measures have the following meaning:

    

    
      	
              ·  

            	
              “EBITDAR” means with
      respect to any specified entity for any period, consolidated net income
      (loss) of such specified entity and its subsidiaries for such period,
      determined on a consolidated basis, in accordance with GAAP and subject to
      historical internal reporting standards, excluding (without duplication),
      to the extent deducted in determining consolidated net income (loss) (a)
      any extraordinary, non-recurring, non-operational or non-cash gains or
      losses, (b) restructuring charges, and (c) effects of discontinued
      operations, plus (without duplication), in accordance with GAAP and to the
      extent deducted in determining consolidated net income (loss), (d)
      interest expense, and (e) income tax expense plus, (f) depreciation
      expense, and (g) amortization expense excluding amortization of deferred
      credits plus, (h) reorganization items.  Calculation of EBITDAR
      shall exclude all impacts of fresh start accounting and any effects of
      accounting policy changes made in connection with fresh start, effective
      as of the emergence date.

            

    

    

    
      	
              ·  

            	
              “Free Cash Flow” means,
      with respect to any specified entity for any period, the cash flow
      provided by (used in) continued operations of such specified entity and
      its subsidiaries for such period, determined on a consolidated basis, in
      accordance with GAAP and subject to historical internal reporting
      standards, excluding (without duplication), to the extent deducted in
      determining cash flow provided by (used in) continued operations (a) any
      extraordinary, non-recurring or non-operational gains or losses, (b)
      restructuring charges, and (c) effects of discontinued operations, less
      Capital Expenditures, plus net proceeds received related to asset sales
      and proceeds received by Solutia in excess of management’s estimate from
      the disposition of any of the Company’s business units or dividions, to
      the extent sold during the calendar
year.

            

    

    

    
      	
              ·  

            	
              “Gross Margin %” means,
      with respect to any specified entity for any period, gross margin (the
      difference between the reported revenue less cost of goods sold of the
      business unit) divided by revenue of such specified entity and its
      subsidiaries for such period, determined on a consolidated basis, in
      accordance with GAAP and subject to historical internal reporting
      standards, excluding (without duplication), to the extent deducted in
      determining gross margin or revenue (a) any extraordinary, non-recurring,
      non-operational or non-cash gains or losses or gains or losses from
      dispositions, (b) restructuring charges, and (c) effects of discontinued
      operation, and (d) all impacts of fresh start accounting, including
      accounting policy changes made in connection with fresh start, effective
      as of the emergence date.

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    
      	
              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 individual Business.

    

    The size
of the incentive pool available for awards will be based on the achievement of
specific performance measures (each incentive pool shall be referred to herein
as a “Business Unit Incentive Pool”).  Employees assigned to specific
a Business Unit will receive the funding factor tied to that Business Unit’s
specific performance measures.

    

    For
employees assigned to enterprise-wide functions (“Core Functions”), overall
enterprise performance shall determine the incentive pool available for awards
(such pool to be referred to as the “Core Function Incentive
Pool”).

    

    The
actual funding of each Business Unit Incentive Pool and the Core Function
Incentive Pool shall be 90% of all aggregate target bonuses for individuals
assigned to each pool multiplied by the weighted average of the pre-established
funding factor for achievement of specific performance measures relative to
target performance.  The target performance and weightings for each
performance measure, and the related funding factors, have been determined by
the ECDC based upon the 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 in the form of awards to individuals assigned to these
Pools.  Each Pool will be divided equally into an objective award pool
and a discretionary award pool as described below:

    

    
      	
              ·  

            	
              The
      objective award
      pool will be based upon business-unit performance and will be equal
      to 45% of such individual’s target bonus multiplied by the relevant
      funding factor.

            

    

    

    
      	
              ·  

            	
              The
      discretionary
      award pool will be based upon a participant’s individual
      performance versus established objectives, performance in relation to
      peers, and according to the process described below.  The
      discretionary portion of an individual participant’s bonus may range from
      zero upward.

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    In
addition to the Business Unit Incentive Pools and the Core Function Incentive
Pool, an overall enterprise discretionary bonus pool (the “Enterprise
Discretionary Incentive Bonus Pool”) shall be funded by the enterprise-level
EBITDAR performance relative to a pre-established target performance
level.  The funding of the Enterprise Discretionary Incentive Pool
shall be 10% of all aggregate target bonuses multiplied by a pre-established
funding factor.  All participating employees will be eligible for a
discretionary award from this pool at the discretion of the CEO and the ECDC (if
applicable).

    

    If
threshold performance levels are not met, there would be no bonus pool for that
performance year.  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 on financial
performance).  The maximum funding factor that can be achieved under
this plan is 3.0x target 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/Core performance
      relative to the pre-established targets, funding factors, and
      weighting.  The Pools are then allocated equally to objective
      awards and discretionary awards.

            

    

    

    
      	
              2)  

            	
              The
      Enterprise Discretionary Incentive Pool is determined and funded based on
      the enterprise EBITDAR performance relative to the pre-established
      target.

            

    

    

    
      	
              3)  

            	
              The
      objective portion of bonuses are determined and approved by the
      ECDC.

            

    

    

    
      	
              4)  

            	
              Managers
      will make individual award recommendations based upon individual
      performance compared to established objectives for individual
      discretionary portion.  Individual discretionary awards will be
      approved by the Business Unit President and the
  CEO.

            

    

    

    
      	
              5)  

            	
              Bonus
      amounts from the Enterprise Discretionary Bonus Pool will be determined at
      the discretion of the CEO with the advise of the Executive Leadership Team
      (ELT).

            

    

    

    
      	
              6)  

            	
              The
      ECDC shall determine the discretionary bonus for the CEO and approve
      discretionary awards for the ELT.  Any discretionary bonus paid
      to the CEO in excess of 50% of the CEO’s target bonus multiplied by the
      relevant funding factor shall not, at the discretion of the ECDC, diminish
      awards available under the Core Function Incentive Pool, the Business Unit
      Incentive Pool or the Enterprise Discretionary Bonus
  Pool.

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    
      	
              7)  

            	
              The
      ECDC has determined that the maximum bonus an individual can receive under
      the AIP is 200% of his/her performance adjusted target bonus (after
      applying the funding factor).

            

    

    

    
      	
              8)  

            	
              In
      cases where an individual is assigned to a specific Business Unit or Core,
      but supports more than one Business Unit, the performance metric component
      of the funding will be based on the following
  rules:

            

    

    

    
      	
              ·  

            	
              Employees
      who support a Business Unit more than 50% of the time will receive that
      Unit’s funding factor.

            

    

    

    
      	
              ·  

            	
              Employees
      who support two Business Units equally will receive an average of the two
      Units’ funding factors.

            

    

    

    
      	
              ·  

            	
              Employees
      who support multiple Business Units (and aren’t covered by the above) will
      receive the Core funding factor.

            

    

    

    
      	
              ·  

            	
              Funding
      sources for an employee’s award will be determined based on the number of
      full months spent, rounded if applicable, in each function or Business
      Unit.

            

    

    

    Each
employee’s actual award will also depend on individual performance in serving
all relevant functions and Business Units and will include input from each
respective manager.

    

    Actual
awards based on the performance metric will vary as described above based upon
achievement of Business Unit or Core performance measures and individual
performance.  Management, the CEO and the 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 Senior Vice President – Human Resources will be
responsible for the administrative procedures governing the Plan, including
ensuring the existence of approved Performance Measures and the presentation of
the performance results under the Plan to the ECDC for its
approval.  The following administrative procedures shall
govern:

    

    
      	
              1.  

            	
              The
      ECDC will approve individual incentive awards for the CEO and all
      Executive Leadership Team (ELT) members.  The CEO and his direct
      reports 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.

            

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    
      	
              3.  

            	
              Employees
      who retire, resign, or are terminated shall not be eligible for an award
      if they are not employed by Solutia on the date of
  payment.

            

    

    

    
      	
              4.  

            	
              Employees
      on leave of absence during the Performance Year will be considered for a
      prorated award reflecting actual serve, rounded to the nearest whole
      month.  Payment will be made, if any, at the time awards are
      normally paid, or upon returning from leave of absence, if
      later.

            

    

    

    
      	
              5.  

            	
              In
      the event of an employee’s death, payment will be made to the employee’s
      estate reflecting the employee’s actual service to the nearest whole
      month.

            

    

    

    
      	
              6.  

            	
              Employees
      promoted or hired before December 1 into a position that is eligible to
      participate may be considered for an award that will be prorated
      reflecting the employees’ actual participation to the nearest whole
      month.

            

    

    

    
      	
              7.  

            	
              Awards
      for Employee who change jobs (and incentive targets) during the year will
      be prorated to reflect the employee’s actual participation in both
      positions to the nearest whole
month.

            

    

    

    
      	
              8.  

            	
              Employees
      who transfer from another Business Unit not participating in this plan to
      a participating position or vice versa during the Performance Year will
      receive a prorated award based on the time spent in the participating
      position.

            

    

    

    
      	
              9.  

            	
              Employees
      who are involuntarily terminated with severance between the end of the
      Performance Year and prior to the payout may be eligible to receive an
      award.

            

    

    

    
      	
              10.  

            	
              Awards
      are paid in cash and will be made no later than 75 days following the end
      of the Performance Year in the United States.  Awards outside of
      the United States are determined at the same time as the awards for
      participants in the United States and paid as 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 will become 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
established in their country, pension plan or retirement program will
apply.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    V.           Taxes

    

    For U.S.
participants, any award you receive under the Plan is taxable as supplemental
income in the year of payment and is subject to all applicable withholding taxes
in the year paid at a minimum of 25%.  For participants outside the
United States, the laws of the tax jurisdiction(s) to which you are subject will
apply.

    

    VI.           Legal
Information

    

    
      	
              ·  

            	
              In
      all events, whether any cash award is made under the Plan to a participant
      will depend on management’s recommendation and the decision of the ECDC
      (or its delegate).

            

    

    

    
      	
              ·  

            	
              Nothing
      in this document or any other document describing or referring to the Plan
      shall confer any right whatsoever on any person 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 its delegate) and may be changed or
      discontinued at any time without notice or liability.  Incentive
      commitments and awards shall be subject to and governed by the specific
      terms and conditions of this Plan and the applicable
  award.

            

    

    

    
      	
              ·  

            	
              Nothing
      in this document or any other document describing or referring to the Plan
      shall confer on any employee or participant the right to continue in the
      employ of the Company or affect the right of the Company to terminate the
      employment of any such person with or without
  cause.

            

    

    

    
      	
              ·  

            	
              Nothing
      contained herein shall require the Company to segregate any monies from
      its general fund or to create any trusts, or to make any special deposits
      for amounts payable to any
participant.

            

    

    

    
      	
              ·  

            	
              No
      bonus commitment or unpaid bonus award shall be pledged or transferred
      except as specifically provided for herein (such as in the case of
      death).  If any participant attempts to pledge, assign, transfer
      or otherwise alienate any award, any obligation of the Company hereunder
      shall terminate.

            

    

    

    
      	
              ·  

            	
              The
      Company will withhold any federal, state or local, domestic or foreign
      taxes as required by law or regulation or as the Company deems appropriate
      from any payments that it makes to participants
  hereunder.

            

    

    

    
      	
              ·  

            	
              The
      Plan is subject to the laws of the State of
  Delaware.

            

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

    
      	
              ·  

            	
              Nothing
      in this Plan shall be deemed to modify any terms and conditions of a
      participants employment agreement.

            

    

    

    
      	
              ·  

            	
              The
      Plan may be amended, modified or terminated without notice by the Company
      at any time, including (but not limited to) any such amendment,
      modification or termination that reduces or eliminates any benefit
      otherwise to be paid or payable
hereunder.

            

    

     

    8

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