Exhibit 99.2
SOLUTIA
SETTLEMENT TERM SHEET
DECEMBER 8, 2006
SCOPE OF TERM SHEET: The term sheet outlines the key terms
of (i) a modification of the Global
Settlement as described in Solutia's
Disclosure Statement filed with the
Bankruptcy Court on February 14, 2006;
(ii) a final settlement of the JP
Morgan Adversary Proceeding; and (iii)
a final settlement of the Equity
Committee Adversary Proceeding. The
term sheet is for discussion purposes
only, may not be used by any party in
litigation or otherwise disclosed to
the Court or the Court's staff, or to
other parties, without the express
written permission of Solutia, and
shall not be deemed a solicitation of
acceptances of a Plan of
Reorganization.(1)
GENERAL PLAN ASSUMPTIONS: o Total Enterprise Value (TEV) of
$2.507 billion.
o Pro forma net debt of $1.507
billion.(2)
o Implied Equity Value of $1.0
billion. (3)
o Solutia acquires Akzo-Nobel's
50% joint venture ownership in
Flexsys and effects the sale of
a business unit.
o General Unsecured Claims pool of
$765 million.(4)
o Plan stock price per share of
$10.00 (the "Plan Stock Price").
The rights will be struck at a
25.0% discount to the Plan Stock
Price per share, as explained
below.(5)
o In total, 108.3 million common
shares will be issued upon
emergence (the "Common Shares").
As explained below, 75.0 million
shares will be distributed
directly to the Noteholders, the
general unsecured creditors,
<FN>
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(1) Capitalized terms, used but not defined herein, shall have the meanings
ascribed to them in the disclosure statement (the "Disclosure Statement")
filed by Solutia with the Bankruptcy Court for the Southern District of
New York on February 14, 2006.
(2) Pro forma debt of $1.522 billion less pro forma cash of $15 million.
(3) The implied equity value is subject to a final determination by the
Bankruptcy Court in connection with the confirmation of an amended plan.
(4) Based on estimated claim amounts as of November 2006. Includes Noteholder
Claims of $455.4 million, trade claims of approximately $87 million,
contract claims of approximately $158 million (including Calpine claim of
approximately $100 million), Maryville claim of approximately $27
million, employee claims of approximately $20 million and approximately
$18 million of other claims. Excludes environmental, intercompany,
Monsanto/Pharmacia, Officer & Director Indemnification, Retiree and Tort
claims.
(5) Implies theoretical share price of Common Shares of $9.23 per share,
after accounting for the Rights Offering.
Monsanto and the Retirees (the
"Primary Common Shares"), and
another 33.3 million shares will
be distributed on a pro rata
basis to holders of Noteholder
Claims, General Unsecured
Claims, Monsanto and the
Retirees pursuant to the Rights
Offering, as explained in
Section III below.
o Effective Date of the Plan:
March 31, 2007.
o No change to the other key terms
of the Debtor's Plan of
Reorganization dated February
14, 2006 (e.g., Retiree
Settlement, pension funding,
settlement of environmental
liabilities, releases, etc.).
I. TREATMENT OF NOTEHOLDER CLAIMS:
-------------------------------
NOTEHOLDER CLAIMS: The claims of the holders of (i) the
6.72% notes due October 15, 2037, and
(ii) the 7.375% notes due October 15,
2027 (together, the "Noteholder
Claims") will be classified separately
from other claims. The aggregate
allowed amount of the Noteholder
Claims is $455.4 million, calculated
as principal amount plus accrued and
unpaid interest through the Petition
Date.
TREATMENT: The Noteholder Claims will be
exchanged for: (i) 36.52 million
Primary Common Shares; and (ii) rights
to purchase 16.23 million Common
Shares in the Rights Offering.
II. TREATMENT OF OTHER CLAIMS:
--------------------------
CLASSIFICATION OF GENERAL As used herein, "General Unsecured
UNSECURED CLAIMS: Claims" excludes the Noteholder
Claims, Monsanto's Claim and the
Retiree Claim.
TREATMENT OF GENERAL General Unsecured Claims will be
UNSECURED CLAIMS: exchanged for: (i) 19.66 million
Primary Common Shares; and (ii) rights
to purchase 8.74 million Common
Shares in the Rights Offering.
TREATMENT OF MONSANTO: Monsanto's claim against the estates
will be classified separately from
other claims and will be exchanged
for: (i) 17.0 million Primary Common
Shares; and (ii) rights to purchase
7.56 million Common Shares in the
Rights Offering.
TREATMENT OF RETIREE CLAIM: In accordance with the terms of the
Retiree Settlement, the Retiree Claim
will be exchanged for: (i) 1.82
million Primary Common Shares; and
(ii) rights to purchase 0.81 million
Common Shares in the Rights Offering.
TREATMENT OF EQUITY INTERESTS: Holders of Equity Interests will not
receive a distribution under the Plan.
Monsanto will resolve the Equity
Committee
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Adversary Proceeding at its sole cost.
III. RIGHTS OFFERING:
----------------
SIZE OF RIGHTS OFFERING: $250.0 million.
RIGHTS OFFERING PRICE: $7.50 per share, implying a 25.0%
discount to the Plan Stock Price.
TOTAL SHARES UNDERLYING 33.3 million.
RIGHTS OFFERING:
TREATMENT OF RIGHTS OFFERING: Holders of Noteholder Claims, General
Unsecured Claims, Monsanto and the
Retirees will receive rights on a pro
rata basis based on the number of
Primary Common Shares they are
receiving under the Plan. The rights
will be transferable and the terms of
such transferability will be
determined by Solutia in consultation
with the stakeholders.
OVERSUBSCRIPTION: Holders of rights may elect to
subscribe for additional shares, over
and above the amount they would
otherwise be eligible to purchase in
the Rights Offering. If the total
number of shares subscribed for in the
Rights Offering exceeds 33.3 million,
the oversubscribed shares will be
distributed to the electing Rights
Offering participants on a pro rata
basis.
BACKSTOP: The Rights Offering will be
backstopped by a market participant
and effected at a market clearing
discount to the Implied Equity Value.
IV. CORPORATE GOVERNANCE:
---------------------
BOARD OF DIRECTORS: The Company's post-reorganization
Board of Directors shall initially
consist of 9 members, including the
Company's Chairman and Chief Executive
Officer, Jeffry Quinn and two
continuing directors of the Company.
The ad hoc committee of noteholders
shall select 2 directors and the
Creditors' Committee and Monsanto
shall select 1 director each. The
remaining 2 directors shall be
selected by the initial 7 directors
from a panel of candidates identified
by a national search firm employed by
the Company.
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V. FULLY-DILUTED EQUITY ALLOCATION:
--------------------------------
EQUITY ALLOCATION PRE-RIGHTS Shares Rights % of
OFFERING SUBSCRIPTION: (mm) Offering Total Total
------ ------- ----- -----
Noteholders 36.52 - 36.52 33.71%
GUCs 19.66 - 19.66 18.15
Monsanto 17.00 - 17.0 15.69
Retirees 1.82 - 1.82 1.68
Rights - 33.33 33.33 30.77
Offering
----- ----- ------ ------
Total 75.00 33.33 108.33 100.00%
EQUITY ALLOCATION POST-RIGHTS Shares (mm) % of Total
OFFERING SUBSCRIPTION(6): ----------- ----------
Noteholders 52.76 48.70%
GUCs 28.39 26.21
Monsanto 24.56 22.67
Retirees 2.63 2.43
------ ------
Total 108.33 100.00%
VI. RECOVERY ANALYSIS ($ IN MILLIONS)(7):
-------------------------------------
RECOVERY TO NOTEHOLDERS(8):
- ---------------------------
Value of Primary Common Shares Received $337.1
Net Value from Rights Offering exercise 28.1
------
Total Net Value $365.2
Net Recovery % 80.2%
<FN>
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(6) Assumes full subscription to Rights Offering by all constituents.
(7) All recoveries are net of the cost to exercise the rights at the Rights
Offering Price of $7.50 per share. Based on implied theoretical share
price of Common Shares of $9.23 per share, after accounting for the
Rights Offering.
(8) Assumes Noteholder Claims of $455.4 million.
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RECOVERY TO GENERAL UNSECURED CREDITORS(9):
- -------------------------------------------
Value of Primary Common Shares Received $181.5
Net Value from Rights Offering exercise 15.1
--------
Total Net Value $196.6
Net Recovery % 63.5%
RECOVERY TO MONSANTO(10):
- -------------------------
Value of Primary Common Shares Received $156.9
Net Value from Rights Offering exercise 13.1
--------
Total Net Value $170.0
Net Recovery % 44.4%
RECOVERY TO RETIREES(11):
- -------------------------
Value of Primary Common Shares Received $16.8
Net Value from Rights Offering exercise 1.4
--------
Total Net Value $18.2
Net Recovery % 52.0%
<FN>
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(9) Assumes a General Unsecured Claims Pool of $309.6 million.
(10) Claim of $382.8 million based on Monsanto's estimate.
(11) Assumes Retiree Claim of $35.0 million.
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VII. PRO FORMA SOURCES AND USES:
---------------------------
Surplus Cash(12) $115 DIP (Drawn) $650
Exit Revolver(13) 52 2009 Bonds 223
Exit Term Loan B - USD Tranche 850 Pension Funding 149
Exit Term Loan B - Euro Tranche 350 Euro Loan 203
Exit Subordinated Bonds 250 One-Time Exit Costs-Fees/Admin Items(14) 152
Sale of a businss unit 60 Flexsys acquisition 300
Maryville Note 20 Maryville Note 20
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Total Sources: $1,697 Total Uses: $1,697
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<FN>
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(12) Cash balance reduced from $130 million to $15 million at emergence with
no restrictions.
(13) Total Revolver $400 million, after LC's/drawings pro-forma liquidity on
12/31/06 would be $280 million.
(14) $152 million total includes:
$40.0 Exit Financing Bank & Legal Fees
$15.0 Accrued Interest on 2009 Bonds and EuroLoan
$9.0 CPFilms Trade AP
$25.0 Secured, Administrative and Priority Claims to be paid in cash
(Tax/Reclamation/Mechanics Liens/Other)
$20.0 Cure Costs on Executory Contracts that must be assumed
$34.5 Advisor Fees
$2.5 KERP Due on Emergence
$6.0 D&O and Fiduciary Run-off Policies
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