Employee Benefits Allocation Agreement

EMPLOYEE


BENEFITS


AND


COMPENSATION ALLOCATION AGREEMENT


BETWEEN


MONSANTO COMPANY


AND


SOLUTIA INC.


DATED AS OF SEPTEMBER 1, 1997


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TABLE OF CONTENTS


PAGE
---- ARTICLE I. DEFINITIONS.................................................................1
1.1 General........................................................................1


ARTICLE II. U.S. PLANS AND STOCK PLANS.................................................8
2.1 Retirement Plans...............................................................8
2.2 The SIP........................................................................9
2.3 Welfare Plans.................................................................11
2.4 Stock Plans...................................................................12
2.5 Stock Purchase Plans..........................................................14
2.6 Nonqualified Plans and Programs...............................................16


ARTICLE III. FOREIGN PLANS AND TCN POLICY.............................................16
3.1 General Principles............................................................16
3.2 Exceptions to General Principles..............................................17
3.3 TCN Policy....................................................................17


ARTICLE IV. GENERAL PROVISIONS........................................................17
4.1 Employment Transfers; Severance Pay...........................................17
4.2 Other Liabilities.............................................................18
4.3 Recognition of Monsanto Employment Service, Etc...............................18
4.4 Indemnification...............................................................19
4.5 Transition Services...........................................................19
4.6 Workers Compensation Excluded.................................................19
4.7 P4 Joint Venture..............................................................19


ARTICLE V. MISCELLANEOUS..............................................................19
5.1 Guarantee of Subsidiaries' Obligations........................................19
5.2 Audits and Disputes...........................................................19
5.3 Sharing of Information........................................................20
5.4 Termination...................................................................21
5.5 Rights to Amend or Terminate Plans; No Third Party Beneficiaries..............21
5.6 Complete Agreement............................................................21
5.7 Governing Law.................................................................21
5.8 Notices.......................................................................21
5.9 Amendment and Modification....................................................21
5.10 Successors and Assigns.......................................................21
5.11 Counterparts.................................................................22


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5.12 Interpretation...............................................................22
5.13 Legal Enforceability.........................................................22
5.14 References; Construction.....................................................22


Schedule I


Schedule II


Schedule III


Exhibit A


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EMPLOYEE BENEFITS AND COMPENSATION
ALLOCATION AGREEMENT


EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION AGREEMENT, dated as of September 1, 1997, by and between Monsanto Company, a Delaware corporation ("Monsanto"), and Solutia Inc., a newly formed Delaware corporation ("Solutia").


W I T N E S S E T H:


WHEREAS, the Board of Directors of Monsanto has determined that it is appropriate and desirable to separate Monsanto and its subsidiaries into two publicly traded organizations by: (1) consolidating into Solutia and its newly formed subsidiaries certain of the businesses currently conducted by Monsanto directly and through certain of its other subsidiaries and (2) distributing to the holders of the issued and outstanding shares of common stock, par value $2.00 per share, of Monsanto ("Monsanto Common Stock") all of the issued and outstanding shares of common stock, par value $.01 per share, of Solutia ("Solutia Common Stock") (the "Distribution");


WHEREAS, the Distribution is intended to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended;


WHEREAS, Monsanto and Solutia are entering into a Distribution Agreement of even date herewith (the "Distribution Agreement"), which, among other things, sets forth the principal corporate transactions required to effect the Distribution and sets forth other agreements that will govern certain other matters prior to and following the Distribution; and


WHEREAS, in connection with the Distribution and pursuant to the Distribution Agreement, Monsanto and Solutia desire to provide for the allocation of assets and liabilities and other matters relating to employee benefit plans and compensation arrangements;


NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:


ARTICLE I.


DEFINITIONS


1.1. GENERAL. Any capitalized terms that are used in this Agreement but not defined herein (other than the names of Monsanto employee benefit plans) shall have the meanings set forth in the Distribution Agreement, and, as used herein, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):


Agreement: this Employee Benefits and Compensation Allocation Agreement, including the Schedules and Exhibit hereto.


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Alternate Payee: an alternate payee under a domestic relations order which has been determined by the appropriate Plan administrator to be qualified under Section 414(p) of the Code and Section 206(d) of ERISA and which creates or recognizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a participant under any Plan, or an alternate recipient under a medical child support order which has been determined by the appropriate Plan administrator to be qualified under Section 609(a) of ERISA and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under any Plan.


Assigned Split Dollar Policies: defined in Section 2.3(c).


Audit Liability: defined in Section 5.2(a)(i).


Beneficiary: a beneficiary, dependent or Alternate Payee of a participant in a Plan or the estate of a deceased participant in a Plan, in each case, in his, her or its capacity as such a beneficiary, dependent, Alternate Payee or estate.


Benefit Uplift: as defined in Section 4.2.


Cash Incentive Plan: a Plan providing annual and/or long-term cash incentive compensation.


Code: defined in the recitals.


Distribution: defined in the recitals.


Distribution Agreement: defined in the recitals.


Employee: with respect to any entity, an individual who is considered, according to the payroll and other records of such entity, to be employed by such entity, regardless of whether such individual is, at the relevant time, actively at work or on leave of absence (including vacation, holiday, sick leave, family and medical leave, disability leave, military leave, jury duty, layoff with rights of recall, and any other leave of absence or similar interruption of active employment that is not considered, according to the policies or practices of such entity, to have resulted in a permanent termination of such individual's employment).


Employer Securities: shares of Monsanto Common Stock that are held in the Monsanto SIP immediately before the Distribution Date and the shares of Solutia Common Stock distributed with respect thereto in the Distribution.


Enrolled Actuary: with respect to all U.S. Plans, Towers Perrin, and, with respect to all Foreign Plans, an enrolled actuary or other party making actuarial or similar determinations pursuant to this Agreement with respect to assets or Liabilities relating to


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a particular employee benefit plan selected by Monsanto with the approval of Solutia, which approval shall not be unreasonably withheld.


ERISA: the Employee Retirement Income Security Act of 1974, as amended, or any successor legislation, and the regulations promulgated thereunder.


ESOP Shares: shares of Employer Securities that were acquired with the proceeds of any loans or are otherwise governed by the terms of Section 19 of the Monsanto SIP or the corresponding provisions of the Solutia SIP.


Existing Monsanto ESOP Security: each of the Monsanto ESOP Notes, the Monsanto ESOP Debentures and the Monsanto ESOP Loans.


Foreign Plan: any Plan maintained outside of the United States primarily for the benefit of individuals substantially all of whom are nonresident aliens with respect to the United States other than the TCN Policy.


Fraction: the ratio of the aggregate unpaid principal amount of the Solutia ESOP Securities, determined immediately after the restructuring provided for in Section 2.02(c), to the aggregate unpaid principal amount of the Existing Monsanto ESOP Securities, determined immediately before such restructuring.


Hourly Pension Plan: the Monsanto Company Hourly-Paid Employees' Pension Plan.


Improving Party: defined in Section 4.2(a).


Monsanto: defined in the preamble.


Monsanto Common Stock: defined in the recitals.


Monsanto Employee: any individual who is, as of the Distribution Date, identified on the records of Monsanto as being an Employee of any member of the Monsanto Group, other than those individuals working through the Retiree Resources Corps.


Monsanto ESOP: the Monsanto Employee Stock Ownership Plan component of the Monsanto SIP.


Monsanto ESOP Debentures: the 8.13% Guaranteed Amortizing ESOP Debentures issued by the Monsanto SIP Trust.


Monsanto ESOP Loans: the $50,000,000 promissory note entered into on December 16, 1991 between Monsanto and the Monsanto SIP Trust and the $3,675,800 promissory note entered into on December 27, 1996 between Monsanto and the Monsanto SIP Trust.


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Monsanto ESOP Notes: the 7.09% Guaranteed Amortizing ESOP Notes due December 15, 2000 issued by the Monsanto SIP Trust.


Monsanto ESOP Suspense Account: the ESOP Suspense Account established pursuant to Section 19 of the Monsanto SIP.


Monsanto Foreign Plan: a Foreign Plan provided by, contributed to or sponsored by one or more members of the Monsanto Group.


Monsanto Former Employee: any individual who was, at any time before the Distribution Date, an Employee of any member of the Pre-Distribution Group, and who is not a Monsanto Employee, a Solutia Employee or a Solutia Former Employee; provided that, if at any time on or before December 31, 1997, Solutia and Monsanto determine that any one or more individuals were identified as Monsanto Former Employees in error and should have been identified as Solutia Former Employees, and agree to correct such error, such individuals shall be considered Solutia Former Employees, and Solutia and Monsanto shall use their reasonable best efforts to implement the terms of this Agreement as they apply to such individuals as if such individuals had been correctly identified as of the Distribution Date.


Monsanto Incentive Plans: the Monsanto Company Management Incentive Plan of 1984, the Searle Monsanto Stock Option Plan of 1986, the Monsanto Company Management Incentive Plan of 1988/I, the Monsanto Company Management Incentive Plan of 1988/II, the NutraSweet/Monsanto Stock Plan of 1991, the Monsanto Company Management Incentive Plan of 1994, the Searle/Monsanto Stock Plan of 1994, the NutraSweet/Monsanto Stock Plan of 1994, the Monsanto Management Incentive Plan of 1996 and the Monsanto Shared Success Stock Option Plan.


Monsanto Option: an option to purchase shares of Monsanto Common Stock granted pursuant to any of the Monsanto Incentive Plans.


Monsanto Participant: any individual who is a Monsanto Employee, a Monsanto Former Employee, or a Beneficiary of such an individual.


Monsanto Pension Plan: the Monsanto Company Pension Plan.


Monsanto Ratio: the amount obtained by dividing (i) the average of the daily high and low trading prices on the NYSE Composite Tape, as reported in The Wall Street Journal, for the Monsanto Common Stock with due bills on each of the five trading days prior to the Distribution Date, by (ii) the excess of (A) the amount described in clause (i) over (B) one-fifth of the average of the daily high and low trading prices on the NYSE Composite Tape, as reported in The Wall Street Journal, for the Solutia Common Stock on a when-issued basis on each of such five trading days.


Monsanto Restricted Stock: restricted shares of Monsanto Common Stock granted pursuant to, and subject to forfeiture under, any of the Monsanto Incentive Plans.


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Monsanto SAR: a stock appreciation right with respect to Monsanto Common Stock granted pursuant to any of the Monsanto Incentive Plans.


Monsanto SIP: the Monsanto Savings and Investment Plan.


Monsanto SIP Trust: the Monsanto Defined Contribution and Employee Stock Ownership Trust.


Monsanto U.S. Welfare Plan: any Monsanto Welfare Plan that is a U.S. Plan.


Monsanto Welfare Plan: any Welfare Plan of one or more members of the Monsanto Group.


New Monsanto ESOP Security: defined in Section 2.2(c).


New Monsanto Option: defined in Section 2.4(b).


New Monsanto SAR: defined in Section 2.4(b).


Other Party: defined in Section 4.2(a).


Pension Plan Agreement: defined in Section 2.1(b)(i).


Plan: any written or unwritten plan, policy, program, payroll practice, ongoing arrangement, trust, fund, contract, insurance policy or other agreement or funding vehicle provided by, contributed to or sponsored by one or more members of the Monsanto Group or the Solutia Benefits Group, providing benefits to Monsanto Participants or Solutia Participants, regardless of whether it is mandated under local law or negotiated or agreed to as a term or condition of employment or otherwise, and regardless of whether it is governmental, private, funded, unfunded, financed by the purchase of insurance, contributory or noncontributory.


Pre-Adjustment Option: defined in Sections 2.4(c) and (d).


Pre-Adjustment SAR: defined in Sections 2.4(c) and (d).


Pre-Distribution Group: the Monsanto Group and the Solutia Benefits Group.


Qualified Plan: a Plan that is an "employee pension benefit plan" as defined in Section 3(2) of ERISA that constitutes, or is intended in good faith to constitute, a qualified plan under Section 401(a) of the Code.


Retained Solutia Inactive Participant: any Solutia Former Employee who is (i) a retired or terminated vested salaried participant in the Monsanto Pension Plan whose termination under the Monsanto Pension Plan occurred after December 31, 1985 or (ii) a retired or terminated vested hourly participant in the Monsanto Pension Plan whose


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termination under the Monsanto Pension Plan occurred after December 31, 1996, or a Beneficiary of any such Solutia Former Employee.


Solutia: defined in the preamble.


Solutia Benefits Group: the Solutia Group, Advanced Elastomers Systems, L.P. (U.S. operations) and Flexsys America L.P. (U.S. operations).


Solutia Common Stock: defined in the recitals.


Solutia Employee: any individual who is, as of the Distribution Date, identified on the records of Solutia as being an Employee of any member of the Solutia Benefits Group.


Solutia ESOP Loan: defined in Section 2.2(c).


Solutia ESOP Security: defined in Section 2.2(c).


Solutia Foreign Plan: a Foreign Plan provided by, contributed to or sponsored by one or more members of the Solutia Benefits Group.


Solutia Former Employee: any individual who is, as of the Distribution Date, identified on the records of Monsanto as being a Solutia Former Employee, which identification shall have been made based upon a good faith determination by Monsanto and Solutia that (i) such individual was, at any time before the Distribution Date, an employee of any member of the Pre-Distribution Group, (ii) such individual is not a Monsanto Employee or a Solutia Employee, and (iii) such individual's most recent active employment with any such member was with a Solutia Business or a Former Solutia Business; provided that, if at any time on or before December 31, 1997, Solutia and Monsanto determine that any one or more individuals were identified as Solutia Former Employees in error and should have been identified as Monsanto Former Employees and agree to correct such error, such individuals shall be considered Monsanto Former Employees and Solutia and Monsanto shall use their reasonable best efforts to implement the terms of this Agreement as they apply to such individuals as if such individuals had been correctly identified as of the Distribution Date.


Solutia Option: an option to purchase from Solutia shares of Solutia Common Stock provided to a Solutia Participant or Monsanto Participant pursuant to Section 2.4.


Solutia Participant: any individual who is a Solutia Employee, a Solutia Former Employee, or a Beneficiary of such an individual.


Solutia Ratio: the amount obtained by dividing (i) the average of the daily high and low trading prices on the NYSE Composite Tape, as reported in The Wall Street Journal, for the Monsanto Common Stock with due bills on each of the five trading days prior to the Distribution Date by (ii) the average of the daily high and low trading prices


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on the NYSE Composite Tape, as reported in The Wall Street Journal, for the Solutia Common Stock on a when-issued basis on each of such five trading days.


Solutia Restricted Stock: defined in Section 2.4(f).


Solutia SAR: a stock appreciation right with respect to shares of Solutia Common Stock provided to a Solutia Participant or Monsanto Participant pursuant to Section 2.4.


Solutia SIP: a Qualified Plan established by Solutia pursuant to Section 2.2(a).


Solutia SIP Trust: defined in Section 2.2(a).


Solutia U.S. Welfare Plan: a Solutia Welfare Plan that is a U.S. Plan.


Solutia Welfare Plan: a Welfare Plan sponsored by one or more members of the Solutia Benefits Group.


Special Effective Date: defined in Section 2.1(c)(ii).


Split Dollar Life Insurance Program: the Monsanto Executive Life Insurance Program, including all individual life insurance contracts, split dollar agreements and collateral assignments thereunder.


Successor Plan: defined in Section 2.1(b)(i).


Supplemental Retirement Agreement: any agreement between any member of the Pre-Distribution Group and any single Monsanto Employee, Monsanto Former Employee, Solutia Employee or Solutia Former Employee providing for post-retirement income, pension or welfare benefits (other than pursuant to a Welfare Plan, a Qualified Plan, a Supplemental Retirement Plan or the TCN Policy).


Supplemental Retirement Plan: a U.S. Plan that is (i) an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA but is not a Qualified Plan, or (ii) an excess benefit plan under ERISA, including the Monsanto Company ERISA Parity Pension Plan, the Monsanto Company ERISA Parity Savings and Investment Plan and the Monsanto Company Supplemental Retirement Plan.


TCN Policy: The Monsanto Company Third Country National Policy.


Transition Services Employee: defined in Section 4.5.


U.S. Deferred Compensation Plan: a U.S. Plan, other than a Qualified Plan or a Supplemental Retirement Plan, providing deferred compensation.


U.S. Plan: any Plan that is not a Foreign Plan, other than the TCN Policy.


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Welfare Plan: any Foreign Plan or U.S. Plan that is an "employee welfare benefit plan" as defined in Section 3(1) of ERISA (whether or not such plan is subject to ERISA).


ARTICLE II.


U.S. PLANS AND STOCK PLANS


2.1. RETIREMENT PLANS. Monsanto and Solutia shall take all steps necessary or appropriate so that the provisions of this Section 2.1 are implemented in a timely fashion, as more fully set forth below.


(a) ASSUMPTION OF HOURLY PENSION PLAN BY SOLUTIA. Effective no later than as of the Distribution Date, and subject to Section 5.2(a): (i) all Liabilities to or with respect to Monsanto Participants under the Hourly Pension Plan shall be transferred from the Hourly Pension Plan to the Monsanto Pension Plan, and the Monsanto Pension Plan shall assume and be solely responsible for such Liabilities; (ii) there shall be transferred from the master trust account for the Hourly Pension Plan to the master trust account for the Monsanto Pension Plan a pro rata portion thereof, representing the amount of assets required to be transferred as a result of such transfer and assumption of Liabilities, as reasonably and equitably determined by the Enrolled Actuary in accordance with Section 414(l) of the Code; and (iii) Solutia shall assume sponsorship of the Hourly Pension Plan. The steps taken pursuant to the foregoing shall include the appointment or reappointment by Solutia (by action of its Board of Directors or its delegee after the Distribution Date to approve or ratify such appointment or reappointment) of all trustees, custodians, recordkeepers and other fiduciaries and service providers to the Hourly Pension Plan, and the replacement of the existing named fiduciary of the Hourly Pension Plan.


(b) SUCCESSOR PLAN.


(i) Monsanto and Solutia shall enter into, on or be ...