Exhibit 99.5
SOLUTIA
SETTLEMENT TERM SHEET
APRIL 10, 2007
SCOPE OF TERM SHEET: This 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.
This term sheet contemplates a stand alone
restructuring of Solutia and, in that regard, a
distribution of the common stock of reorganized
Solutia to Solutia's creditors pursuant to a Plan
of Reorganization. However, Solutia may engage in a
sale transaction if the Board determines that such
sale will maximize value for Solutia's chapter 11
estates or is necessary to fund a disputed claims
reserve in connection with the JP Morgan Adversary
Proceeding.
This term sheet is for settlement purposes only,
may not be used by any party in litigation or
otherwise be disclosed to the Court 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)
<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.
GENERAL PLAN ASSUMPTIONS: o Total Enterprise Value (TEV) of $2.844 billion.
o Pro forma net debt of $1.649 billion.(2)
o Implied Equity Value of $1.195 billion.
o Solutia acquires Akzo-Nobel's 50% joint venture
ownership in Flexsys and closes the Dequest sale.
o General Unsecured Claims pool of $302 million.(3)
o Monsanto Claim of $355.9 million.(4)
o Fully-diluted stock price per share of $10.00,
assuming full participation to the Rights Offering
(the "Plan Stock Price").
o A rights offering will be conducted to raise
$250 million.
o The rights will be struck at a 15% discount to
the Plan valuation.
o In total, 119.5 million common shares will be
issued upon emergence (the "Common Shares"). 90.1
million shares will be distributed directly to
the Noteholders, the General Unsecured Creditors,
Monsanto and the Retirees (the "Primary Common
Shares"). 29.4 million shares will be distributed
pro rata based on estimated claim amounts to
holders of Noteholder Claims and General
Unsecured Claims pursuant to the Rights Offering.
o Warrants to purchase up to 3.70 million Common
Shares to be struck at a premium to Plan
valuation (the "Warrants").(5)
o Effective Date of the Plan: June 29, 2007.
o No change to the other key terms of Solutia's
Plan of Reorganization dated February 14, 2006
(e.g., Retiree Settlement, pension funding, the
legacy liability reallocation as set forth in
the Relationship Agreement, releases, etc...).
<FN>
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(2) Pro forma debt of $1.674 billion less pro forma cash of $25 million.
(3) Based on estimated claim amounts as of March 29, 2007. Excludes
environmental, intercompany, Noteholder, Monsanto/Pharmacia, Officer &
Director Indemnification, Retiree and Tort Claims.
(4) Claim based on midpoint estimate per March 29, 2007 claims presentation.
(5) Assumes that shareholders will be entitled to purchase 3% of the Common
Shares.
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I. TREATMENT OF NOTEHOLDER CLAIMS:
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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)
45.5 million Primary Common Shares; and (ii) rights
to purchase 17.7 million Common Shares in the
Rights Offering.
II. TREATMENT OF OTHER CLAIMS:
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CLASSIFICATION OF GENERAL As used herein, "General Unsecured Claims" excludes
UNSECURED CLAIMS: the Noteholder Claims, Monsanto's Claim and the
Retiree Claim.
TREATMENT OF GENERAL General Unsecured Claims will be exchanged for: (i)
UNSECURED CLAIMS: 19.4 million Primary Common Shares; and (ii) rights
to purchase 11.7 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: 22.9 million Primary Common Shares.
TREATMENT OF RETIREE The terms of the Retiree Settlement will remain the
CLAIM: same. In accordance with the terms of the Retiree
Settlement, the Retiree Claim will be exchanged
for: 2.3 million Primary Common Shares.
TREATMENT OF EQUITY Equity Interests will be exchanged for the Warrants.
INTERESTS:
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III. RIGHTS OFFERING:
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SIZE OF RIGHTS OFFERING: $250.0 million.
RIGHTS OFFERING PRICE: 15.0% discount to the Implied Equity Value.
TOTAL SHARES UNDERLYING 29.4 million.
RIGHTS OFFERING:
TREATMENT OF RIGHTS Holders of Noteholder Claims and General Unsecured
OFFERING: Claims will receive rights on a pro rata basis
based on estimated claim amounts. These rights will
be non-transferable and the terms of such
non-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 29.4
million, the oversubscribed shares will be
distributed to the electing Rights Offering
participants on a pro rata basis.
IV. CORPORATE GOVERNANCE:
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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 N. 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:
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EQUITY ALLOCATION PRE-RIGHTS Rights % of
OFFERING SUBSCRIPTION: Shares (mm) Offering Total Total
----------- -------- ----- -----
Noteholders 45.5 - 45.5 38.1%
GUCs 19.4 - 19.4 16.2%
Monsanto 22.9 - 22.9 19.1%
Retirees 2.3 - 2.3 1.9%
Rights Offering - 29.4 29.4 24.6%
---- ---- ----- ------
Total 90.1 29.4 119.5 100.0%
EQUITY ALLOCATION POST-RIGHTS Shares (mm) % of Total
OFFERING SUBSCRIPTION: ----------- ----------
Noteholders 63.2 52.9%
GUCs 31.1 26.0%
Monsanto 22.9 19.1%
Retirees 2.3 1.9%
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Total 119.5 100.0%
VI. RECOVERY ANALYSIS ($ IN MILLIONS)(6):
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RECOVERY TO NOTEHOLDERS(7):
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Total Net Value before pro rata Rights $455.4
Offering allocation
Implied Recovery % 100.0%
Total Net Value assuming pro rata $481.9
subscription to Rights Offering
Net Recovery % 105.8%
<FN>
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(6) All recoveries are net of the cost to exercise the rights.
(7) Assumes Noteholder Claims of $455.4 million.
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RECOVERY TO GENERAL UNSECURED CREDITORS(8):
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Total Net Value before pro rata Rights $194.0
Offering allocation
Implied Recovery % 64.2%
Total Net Value assuming pro rata $211.6
subscription to Rights Offering
Net Recovery % 70.1%
RECOVERY TO MONSANTO(9):
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Total Net Value $228.6
Net Recovery % 64.2%
RECOVERY TO RETIREES(10):
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Total Net Value $22.8
Net Recovery % 65.2%
<FN>
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(8) Assumes a General Unsecured Claims Pool of $302 million.
(9) Claim of $355.9 million based on midpoint estimate per March 2007 claims
presentation.
(10) Assumes Retiree Claim of $35.0 million.
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VII. PRO FORMA SOURCES AND USES:
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Surplus Cash(11) $176 Refinance DIP Facility $975
New Exit Facility 1,654 2009 Bonds 223
Dequest Sale 60 Pension Funding 103
Maryville Note 20 Euro Loan 210
------ One-Time Exit Costs-Fees/Admin Items(12) 154
Assumes Flexsys debt 200
Maryville Note 20
Minimum Cash Balance 25
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Total Sources: $1,910 Total Uses: $1,910
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<FN>
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(11) Cash balance (including net proceeds from Dequest Sale) to be reduced
from $236 million to $25 million at emergence with no restrictions.
(12) $154 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:
Monsanto Advisors
Rothschild Success Fee
Houlihan Lokey Success Fee
Final month advisor fees for all constituent groups plus
hold-backs
$2.5 KERP Due on Emergence
$6.0 D&O and Fiduciary Run-off Policies
$2.0 Other Emergence Costs
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