EX-99.2 3 ex99p2.txt 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, ------------------------------------ (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 2 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. 3 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% ------------------------------------ (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.
4 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% ------------------------------------ (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.
5 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 ------ ------ Total Sources: $1,697 Total Uses: $1,697 ====== ====== ------------------------------------ (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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