-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B1iHPqX3fJBeDjUos31MKhM/K8AFyCO6rK9SxID36ArL+6MZfKhgbeYFxc62o1Nj oqrCR5iztQl0MdArLcrmow== 0001068800-07-001108.txt : 20070427 0001068800-07-001108.hdr.sgml : 20070427 20070427164540 ACCESSION NUMBER: 0001068800-07-001108 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20070329 ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070427 DATE AS OF CHANGE: 20070427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLUTIA INC CENTRAL INDEX KEY: 0001043382 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 431781797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13255 FILM NUMBER: 07796415 BUSINESS ADDRESS: STREET 1: 575 MARYVILLE CENTRE DRIVE STREET 2: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 BUSINESS PHONE: 3146741000 MAIL ADDRESS: STREET 1: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 FORMER COMPANY: FORMER CONFORMED NAME: QUEENY CHEMICAL CO DATE OF NAME CHANGE: 19970804 8-K 1 sol8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 29, 2007 SOLUTIA INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE -------- (STATE OF INCORPORATION) 001-13255 43-1781797 --------- ---------- (COMMISSION (IRS EMPLOYER FILE NUMBER) IDENTIFICATION NO.) 575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760 - --------------------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 674-1000 -------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 7.01 REGULATION FD DISCLOSURE. On March 28, 2007, Solutia Inc. ("Solutia" or the "Company") entered into a confidentiality agreement (the "Trade Claimants' Undertaking") with certain of the holders of its trade claims (the "Trade Claimants"), and on March 29, 2007, the Company entered into a confidentiality agreement (the "Noteholders' Undertaking" and together with the Trade Claimants' Undertaking, the "Undertakings") with certain of the holders (the "Noteholders") of Solutia's 6.72% Notes due October 15, 2037 and the 7.375% Notes due October 15, 2027. Pursuant to the Undertakings, Solutia agreed to provide certain information (the "Confidential Information") to the Noteholders, the Trade Claimants and other stakeholders in Solutia's Chapter 11 Cases (collectively, the "Stakeholders") to enable discussions between the parties regarding a potential negotiated resolution of unresolved issues in the Chapter 11 Cases. To assure that the restrictions on the Noteholders' and the Trade Claimants' ability to trade would be limited, Solutia agreed to publicly disseminate the Confidential Information upon the occurrence of certain events or by April 30, 2007. In accordance with the provisions of the Undertakings described above, Solutia hereby makes the following disclosures: o On March 29, 2007, Solutia provided to the Stakeholders a summary of the status of Solutia's bankruptcy claims resolution process (the "Claims Summary"). A copy of the Claims Summary is furnished hereunder as Exhibit 99.1. o On March 29, 2007, Solutia provided to the Stakeholders a summary prepared by its financial advisors of Solutia's updated valuation (the "Valuation Summary"). A copy of the Valuation Summary is furnished hereunder as Exhibit 99.2. o On March 29, 2007, Solutia provided to the Stakeholders a summary prepared by its financial advisors of updated calculations, as of March 29, 2007, regarding Solutia's projected debt capacity upon emergence from Chapter 11 (the "Debt Summary"). A copy of the Debt Summary is furnished hereunder as Exhibit 99.3. o On March 29, 2007, Solutia provided to the Stakeholders a summary of Solutia's updated business plan (the "Updated Business Plan Summary"). A copy of the Updated Business Plan Summary is furnished hereunder as Exhibit 99.4. The Updated Business Plan Summary includes both historical and projected financial information. Because the Company excludes one-time, non-operational gains and losses to prevent distortion of business trends in accounting for historical financial information, the historical financial information is not in accordance with U.S. generally accepted accounting principles (GAAP). Exhibit 99.4 includes a reconciliation of non-GAAP financial measures with GAAP financial measures. o On April 10, 2007, Solutia provided to the Stakeholders a term sheet proposal (the "Term Sheet Proposal") to initiate discussions with the Stakeholders for renewed settlement negotiations to reach a consensual plan of reorganization. A copy of the Term Sheet Proposal is furnished hereunder as Exhibit 99.5. 2 o On April 16, 2007, Solutia provided to the Stakeholders a letter proposing modifications to the April 10th Term Sheet Proposal (the "Proposal Modification"). A copy of the Proposal Modification is attached hereunder as Exhibit 99.6 CAUTIONARY AND FORWARD LOOKING STATEMENTS. Solutia does not generally publicly disclose its strategic plans or projections for its anticipated financial position or results of operations or the other types of forward looking information contained in the Claims Summary, the Valuation Summary, the Debt Summary, the Updated Business Plan Summary, the Term Sheet Proposal and the Proposal Modification (the "Disclosures"). Accordingly, the Disclosures furnished as part of this current report on Form 8-K, remain in the form as was provided to the Stakeholders and have not been updated to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions or other circumstances arising and/or existing or to reflect the occurrence of any unanticipated events in each case as of or through the date of this current report on Form 8-K. The Disclosures were prepared by Solutia, Solutia's legal counsel and other advisors. Solutia's legal counsel and other advisors do not assume any responsibility for the Disclosures nor do they undertake any obligation to update any of the information or analysis contained therein. Further, Solutia does not intend to update or revise the Disclosures provided to the Stakeholders and furnished as part of this current report on Form 8-K to reflect changes in future general economic, industry or chemicals category conditions. The Disclosures were not prepared with a view toward general use, but rather were prepared for the limited purpose of providing information to the Stakeholders at a point in time pursuant to the Undertaking. The data contained in the Disclosures were provided as of the dates listed above and represented Solutia's then forecasted expectations as described therein. The estimates and assumptions underlying the Disclosures and any other prospective financial information or projections are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and are beyond the control of Solutia. Accordingly, there can be no assurance that the results set forth in the Disclosures, or any other prospective financial information or projections, will be realized. It is likely that there will be differences between actual and projected results, and actual results may be materially higher or lower than those set forth above. This report and the exhibits furnished hereto may contain forward-looking statements, which can be identified by the use of words such as "believes," "expects," "may," "will," "intends," "plans," "estimates" or "anticipates," or other comparable terminology, or by discussions of strategy, plans or intentions. These statements are based on management's current expectations and assumptions about the industries in which Solutia operates. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Solutia's most recent Annual Report on Form 10-K, under "Cautionary Statement About Forward Looking Statements," Solutia's quarterly reports on Form 10-Q, and in filings with the U.S. Bankruptcy Court in connection with the Chapter 11 case of Solutia Inc. and 14 of its U.S. subsidiaries. These reports can be accessed through the "Investors" section of Solutia's website at 3 www.solutia.com. The bankruptcy court filings can be accessed by visiting www.trumbullgroup.com. Solutia disclaims any intent or obligation to update or revise any forward-looking statements in response to new information, unforeseen events, changed circumstances or any other occurrence. LIMITATION ON INCORPORATION BY REFERENCE In accordance with General Instruction B.2 of Form 8-K, the information in this Form 8-K furnished pursuant to Item 7.01 shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Exchange Act or Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. 4 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) EXHIBITS. Exhibit 99.1 Claims Summary, as provided to the Stakeholders on March 29, 2007. Exhibit 99.2 Valuation Summary, as provided to the Stakeholders on March 29, 2007. Exhibit 99.3 Debt Summary, as provided to the Stakeholders on March 29, 2007. Exhibit 99.4 Updated Business Plan Summary, as provided to the Stakeholders on March 29, 2007. Exhibit 99.5 Term Sheet Proposal, as provided to the Stakeholders on April 10, 2007. Exhibit 99.6 Proposal Modification as provided to the Stakeholders on April 16, 2007. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOLUTIA INC. By: /s/Rosemary L. Klein -------------------- Name: Rosemary L. Klein Title: Senior Vice President, General Counsel and Secretary Date: April 27, 2007 6 EXHIBIT INDEX Exhibit Number Description 99.1 Claims Summary, as provided to the Stakeholders on March 29, 2007. 99.2 Valuation Summary, as provided to the Stakeholders on March 29, 2007. 99.3 Debt Summary, as provided to the Stakeholders on March 29, 2007. 99.4 Updated Business Plan Summary, as provided to the Stakeholders on March 29, 2007. 99.5 Term Sheet Proposal, as provided to the Stakeholders on April 10, 2007. 99.6 Proposal Modification as provided to the Stakeholders on April 16, 2007. 7 EX-99.1 2 ex99p1.txt Exhibit 99.1 - ------------------------------------------------------------------------------- [PHOTOS] SOLUTIA CLAIMS PRESENTATION March 29, 2007 - ------------------------------------------------------------------------------- [PHOTOS] CLAIMS OVERVIEW =============================================================================== ESTIMATED AMOUNT OF CLAIMS - ------------------------------------------------------------------------------- CLASS ESTIMATED AMOUNT IN MILLIONS =============================================================================== ADMINISTRATIVE $8.8 - ------------------------------------------------------------------------------- PRIORITY $2.2 - ------------------------------------------------------------------------------- SECURED $262.6 - ------------------------------------------------------------------------------- CPFILMS (UNSECURED CLAIMS) $8.4 - ------------------------------------------------------------------------------- ENVIRONMENTAL/TORT N/A - ------------------------------------------------------------------------------- PHARMACIA $0 - ------------------------------------------------------------------------------- RETIREES $35 - ------------------------------------------------------------------------------- NOTEHOLDERS $455.4 (IF UNSECURED) TO $584.1 (IF FULLY SECURED AS OF 6/30/07) - ------------------------------------------------------------------------------- MONSANTO $329 TO $383 - ------------------------------------------------------------------------------- GENERAL UNSECURED $242 TO $302 =============================================================================== 2 - ------------------------------------------------------------------------------- [PHOTOS] CLAIMS RESOLUTION TO DATE o As of the Bar Date, more than 17,000 claims were filed or scheduled by Solutia: - Approximately 14,800 proofs of claim were filed; and - Approximately 2,500 claims were scheduled. o These claims include: - 8,900 environmental and personal injury claims; - 760 claims asserted by retirees; and - 1,780 director, officer, and employee indemnification claims. o The vast majority of claims have been resolved: - 67 claims objections filed - 66 settlements reached - 2,900 claims with an asserted value of more than $2.6 billion resolved o Resolutions with respect to 105 unsecured claims remain pending. 3 - ------------------------------------------------------------------------------- [PHOTOS] UNRESOLVED CLAIMS DETAIL o The asserted amount of the 105 unresolved unsecured claims is $813.3 million. o Solutia's estimate for these claims is $124 - $184 million. o The unresolved unsecured claims can be broken down into the following general categories: - 11 claims asserting amounts in excess of Solutia's estimated amount by more than $100,000 (estimated at $70.9 - $130.9 million); - 60 claims asserting amounts in excess of Solutia's estimated amount by less than $100,000 (estimated at $42.4 million); - 4 claims that should be categorized as equity interests (estimated at $0); - 11 unliquidated claims (estimated at $2.1 million); and - 19 claims where a resolution is expected imminently (estimated at $8.6 million). 4 - ------------------------------------------------------------------------------- [PHOTOS] SIGNIFICANT UNRESOLVED CLAIMS CLAIM ASSERTED AMOUNT ----- --------------- CALPINE $382.5 MILLION DICKERSON $291 MILLION BOC GASES $30.4 MILLION PROBST UNLIQUIDATED 5 EX-99.2 3 ex99p2.txt Exhibit 99.2 [Solutia logo] Solutia Inc. Valuation discussion materials Disclaimer - ------------------------------------------------------------------------------- This presentation was prepared by Rothschild Inc. ("Rothschild") for the benefit and internal use of Solutia Inc. ("Solutia" or the "Company"). In providing this presentation, Rothschild has relied upon information that is publicly available or which was provided to Rothschild by or on behalf of the Company's management, including management operating and financial forecasts. This presentation reflects Rothschild's view and prevailing financial and market conditions as of the date hereof, all of which are accordingly subject to change. Rothschild has not assumed any responsibility for independent verification of any of the information contained herein including, but not limited to, any forecasts or projections set forth herein. In addition, Rothschild assumes no obligation to update or to correct any inaccuracies which may become apparent in this presentation and the analyses contained herein are not and do not purport to be appraisals of the assets, stock or business of the Company. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Rothschild. Nothing contained herein shall be deemed to be a recommendation from Rothschild to any party, including without limitation, any security holder of the Company to enter into any transaction or to take any course of action. Neither this presentation nor any of its contents may be summarized, excerpted from, disclosed publicly, or made available to any third parties or used for any other purpose without the prior written consent of Rothschild. - ------------------------------------------------------------------------------- [Solutia logo] Valuation discussion Valuation discussion - ------------------------------------------------------------------------------- INTRODUCTION THESE MATERIALS PRESENT THE VIEWS OF ROTHSCHILD INC. ("ROTHSCHILD") REGARDING THE GOING-CONCERN VALUE ("GCV") OF SOLUTIA INC. ("SOLUTIA" OR THE "COMPANY"), ASSUMING A STAND-ALONE REORGANIZATION OF THE COMPANY AND THE ACQUISITION OF AKZO NOBEL'S 50% OWNERSHIP INTEREST IN FLEXSYS(1) o For purposes of this analysis, Rothschild has relied on Solutia's most recent forecasts and assumptions for the Company and its prospects as set forth in its long-range business plan dated December 15, 2006 (the "LRP") and Flexsys' five-year operating plan (the "FOP") - Forecast has been adjusted by Solutia management to reflect Solutia's ownership of Flexsys - On March 12, 2007, Solutia reached a definitive agreement to sell the Dequest business to Thermphos Trading GmbH for net proceeds of approximately $60 million o Solutia is reorganized on a "stand-alone" basis with an assumed confirmation date of June 30, 2007 and is operating outside of chapter 11 no later than July 31, 2007 o Future values are discounted to June 30, 2007 o Solutia is able to recapitalize with adequate liquidity upon emergence from chapter 11 o Solutia is operating in conjunction with the provisions of and the projections set forth in the LRP, including establishment of a Funding Co. to fund certain environmental, other post-retirement employment benefit ("OPEB") and other "legacy" liabilities o Solutia is able to implement the agreement reached with Monsanto Company and the Official Committee of Unsecured Creditors (the "Agreement-in-Principle") or an alternate plan providing for similar structure and terms and enabling the Company to meet the projections contained in the LRP and the FOP o Capital markets conditions are consistent with those that existed as of March 2007 o All valuation methodologies are predicated upon numerous assumptions pertaining to prospective market, economic and operating conditions as of the date of this presentation (1) On February 27, 2007, Solutia reached a definitive agreement to purchase Akzo Nobel's 50% ownership interest in Flexsys - ------------------------------------------------------------------------------- [Solutia logo] 4 Valuation discussion - ------------------------------------------------------------------------------- OVERVIEW OF METHODOLOGY ROTHSCHILD ANALYZED SOLUTIA'S TOTAL GOING-CONCERN VALUE UTILIZING THREE STANDARD VALUATION METHODOLOGIES: o Comparison against trading values of selected comparable public companies ("Comparable Companies Analysis") o Comparison against relevant precedent transactions ("Precedent Transactions Analysis") o Discounted cash flow analysis ("DCF") - For purposes of conducting the DCF analysis, Rothschild valued Flexsys separately - Additionally, Rothschild valued Solutia's US net operating losses ("NOL") separately - Solutia's total DCF value reflects the value of Solutia and Flexsys assuming normalized tax rates plus the estimated value of Solutia's US NOL tax attributes o Rothschild's valuation analysis assumes the acquisition of Akzo Nobel's 50% joint venture ownership interest in Flexsys and the sale of the Dequest business o For purposes of valuing the Integrated Nylon ("Nylon") and Performance Products ("PPD")(1) businesses, Rothschild allocated 50% of corporate expenses to Nylon and 50% of corporate expenses to PPD based on a percentage of sales of Saflex, CPFilms and Specialty Products - No corporate expenses of Solutia allocated to Flexsys (1) Consists of the Saflex, CPFilms and Specialty Products businesses - ------------------------------------------------------------------------------- [Solutia logo] 5 Valuation discussion - ------------------------------------------------------------------------------- SUMMARY VALUATION RANGE BASED ON THE ASSUMPTION OF A STAND-ALONE REORGANIZATION, THE ACQUISITION OF AKZO NOBEL'S 50% OWNERSHIP INTEREST IN FLEXSYS AND THE SUCCESSFUL IMPLEMENTATION OF THE COMPANY'S LRP AND FLEXSYS' FOP, THE ANALYSES OUTLINED HEREIN RESULT IN A TOTAL ENTERPRISE VALUE ("TEV") RANGE (1) OF $2.5 BILLION TO $3.2 BILLION, WITH A MID-POINT VALUE OF $2.8 BILLION o Assuming a net indebtedness of approximately $1.65 billion, Rothschild's TEV range results in a range of implied equity value ("Implied Equity Value") of $878 million to $1.5 billion, with a mid-point value of approximately $1.2 billion
CURRENT PROJECTIONS(1) 2/14/06 DISCLOSURE STATEMENT(1) VARIANCE RANGE OF ENTERPRISE VALUES RANGE OF ENTERPRISE VALUES RANGE OF ENTERPRISE VALUES ($ in millions) ($ in millions) ($ in millions) METHODOLOGY LOW MID HIGH LOW MID HIGH LOW MID HIGH - ----------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Comparable Companies Analysis $2,459 $2,747 $3,024 $1,439 $1,588 $1,737 $1,020 $1,159 $1,287 Precedent Transactions Analysis 2,258 2,721 3,183 1,652 1,779 1,906 606 941 1,277 Discounted Cash Flow Analysis 2,865(2) 3,064(2) 3,281(2) 1,795(3) 1,941(3) 2,099(3) 1,070 1,124 1,182 - ----------------------------------------------------------------- ----------------------------- -------------------------- RANGE OF GOING-CONCERN VALUE(4) $2,527(5) $2,844(5) $3,163(5) $1,628 $1,769 $1,914 $899 $1,075 $1,249 ================================================================= ============================= ========================== Range of Flexsys JV Interest Value -- -- -- 335(6) 373(6) 410(6) (335) (373) (410) - ----------------------------------------------------------------- ----------------------------- -------------------------- RANGE OF TOTAL ENTERPRISE VALUE $2,527 $2,844 $3,163 $1,964 $2,142 $2,325 $563 $702 $838 ================================================================= ============================= ========================== Less: Total Pro Forma Net Debt (1,649)(7) (1,649)(7) (1,649)(7) (1,230) (1,230) (1,230) (419) (419) (419) - ----------------------------------------------------------------- ----------------------------- -------------------------- IMPLIED EQUITY VALUE $878 $1,195 $1,514 $734 $912 $1,095 $144 $283 $419 - ----------------------------------------------------------------- ----------------------------- -------------------------- (1) Valuation excludes any potential impact to value related to outstanding litigation and makes no assumption with respect to pension plan challenges (2) Includes value of unlevered free cash flow analysis of Solutia (excluding Flexsys) assuming a normalized tax rate plus the estimated value of Solutia's NOL tax attributes plus value of unlevered free cash flow analysis of Flexsys assuming a normalized tax rate (3) Includes value of unlevered free cash flow analysis of Solutia assuming a normalized tax rate plus the estimated value of Solutia's NOL tax attributes (4) Assumes equal weighting of valuation methodologies (5) Assumes the acquisition of Akzo Nobel's 50% equity ownership interest in Flexsys and the sale of the Dequest business (6) Based on equal weighting of Flexsys Comparable Companies Analysis, Precedent Transactions Analysis and Discounted Cash Flow Analysis (7) Assumes post-emergence cash balance of $25 million
- ------------------------------------------------------------------------------- [Solutia logo] 6 Valuation discussion - ------------------------------------------------------------------------------- COMPARISON OF REQUIRED FUNDING NEEDS THE TABLE BELOW REFLECTS THE DIFFERENCES BETWEEN THE REQUIRED FUNDING NEEDS AT EMERGENCE PER THE COMPANY'S CURRENT PROJECTIONS AND THE FEBRUARY 14, 2006 DISCLOSURE STATEMENT PROJECTIONS o Funding needs exclude any treatment of claims asserted by Monsanto, General Unsecured Claimants, holders of the 2027 and 2037 Bonds and Retirees, and excludes any treatment of "Funding Co." needs COMPARISON OF REQUIRED FUNDING NEEDS ($ IN MILLIONS)
2/14/06 CURRENT DISCLOSURE FUNDING NEEDS PROJECTIONS STATEMENT DIFFERENCE - --------------------------------------------------------- ---------- ---------- Refinance DIP Facility 975(1) 420(6) 555 Assumed Flexsys Debt 200 -- 200 Refinance 2009 Notes 223(2) 223(2) -- Refinance Euro Loan 210(3) 247(7) (37) 2007 & 2008 Pension Contribution 103 264 (161) Maryville Lease Facility 20 20 -- Admin and priority costs, financing costs, professional fees & other emergence costs 154(4) 151(8) 3 Less: Available cash (211)(5) -- (211) ----------- ---------- ---------- TOTAL PRO FORMA DEBT $1,674 $1,325 $349 =========== ========== ========== Less: Post-emergence cash balance (25) (95) 70 - ------------------------------------------------------------------------------------------- TOTAL PRO FORMA NET DEBT $1,649 $1,230 $419 - ------------------------------------------------------------------------------------------- (1) Includes $150 million of Flexsys acquisition debt. Assumes emergence date of 6/30/2007 (2) Portion of unamortized discount may be subject to litigation (3) Balance as of 12/31/2006 (4) Includes administrative and priority claims, debt issuance costs, professional fees and other emergence costs (5) Pro forma for the sale of the Dequest business. Excludes $25 million post-emergence cash balance (6) Assumes emergence date of 6/30/2006 (7) (euro)200 million Euronotes redeemed at 103% (8) Includes administrative and priority claims, debt issuance costs, professional fees and other emergence costs
- ------------------------------------------------------------------------------- [Solutia logo] 7 Valuation discussion - ------------------------------------------------------------------------------- SUMMARY VALUATION RANGE - CURRENT PROJECTIONS THE CHART BELOW ILLUSTRATES ROTHSCHILD'S SELECTED TOTAL ENTERPRISE VALUE RANGE OF SOLUTIA o Total Enterprise Value range based on equal weighting of Comparable Companies Analysis (33.3%), Precedent Transactions Analysis (33.3%) and DCF Analysis (33.3%) RANGE OF TOTAL ENTERPRISE VALUE(1) ($ IN MILLIONS) [bar chart] COMPARABLE COMPANIES $2,459 - $3,024 PRECEDENT TRANSACTIONS $2,258 - $3,183 DCF(4) $2,865 - $3,281 RANGE OF TOTAL ENTERPRISE VALUE(5) $2,527 - $3,163 BLENDED IMPLIED EBITDA MULTIPLES(2) - -------------------------------------------------------------------------------- LOW MID HIGH ------- ------- -------- 2006A EBITDA(3) 7.5x - 8.4x - 9.2x 2007P EBITDA 6.2x - 6.9x - 7.6x 2008P EBITDA 5.7x - 6.3x - 7.0x 2006A EBITDA(3) 6.9x - 8.3x - 9.7x 2007P EBITDA 5.7x - 6.8x - 8.0x 2008P EBITDA 5.2x - 6.3x - 7.3x 2006A EBITDA(3) 8.7x - 9.3x - 10.0x 2007P EBITDA 7.2x - 7.7x - 8.2x 2008P EBITDA 6.6x - 7.0x - 7.5x 2006A EBITDA(3) 7.7x - 8.7x - 9.6x 2007P EBITDA 6.3x - 7.1x - 7.9x 2008P EBITDA 5.8x - 6.5x - 7.3x (1) Excludes any potential impact to value related to outstanding litigation. Assumes the acquisition of Akzo Nobel's 50% ownership interest in Flexsys and the sale of the Dequest business (2) EBITDA excludes pre-spin OPEB expense, interest income, restructuring expenses / charges and other income (3) 2006 EBITDA includes Flexsys normalized EBITDA based on average of five-year forward Flexsys EBITDA (4) Includes value of discounted unlevered free cash flow analysis of Solutia assuming a normalized tax rate plus the estimated value of Solutia's NOL tax attributes. Excludes 2007 and 2008 projected pension payments (2007 - 2008 pension payments funded in exit facility) (5) Assumes equal weighting of valuation methodologies - ------------------------------------------------------------------------------- [Solutia logo] 8 Valuation discussion - ------------------------------------------------------------------------------- TOTAL ENTERPRISE VALUE - IMPLIED MULTIPLES o Rothschild's selected TEV range of $2.5 billion - $3.2 billion with a mid-point of $2.8 billion implies the following multiples: - EBITDA and EBIT exclude pre-spin OPEB expense, interest income, restructuring expenses / charges and other income; Net Income excludes pre-spin OPEB expense and restructuring expenses / charges - Assumes the acquisition of Akzo Nobel's 50% ownership interest in Flexsys and the sale of the Dequest business 2007P Net Income assumes $1,674 million debt balance at emergence. Positive free cash flow is assumed to pay down debt over time for illustrative purposes only IMPLIED MULTIPLES ANALYSIS ($ IN MILLIONS)
LOW MID HIGH ---------- ---------- ---------- RANGE OF TOTAL ENTERPRISE VALUE(1) $2,527 $2,844 $3,163 -------------------------------------- IMPLIED TEV MULTIPLES PROJECTION - --------------------- ------------ 2006A EBITDA(2) $328 7.7x 8.7x 9.6x 2007P EBITDA 398 6.3x 7.1x 7.9x 2008P EBITDA 435 5.8x 6.5x 7.3x 2006A EBIT(2) $186 13.6x 15.3x 17.0x 2007P EBIT 254 10.0x 11.2x 12.5x 2008P EBIT 303 8.3x 9.4x 10.4x LOW MID HIGH ---------- ---------- ---------- IMPLIED EQUITY VALUE RANGE(3) $878 $1,195 $1,514 -------------------------------------- - -------------------------------------------------------------------------------- IMPLIED P/E MULTIPLES - --------------------- 2006A Net Income(2)(4) $24 n.m.f. n.m.f. n.m.f. 2007P Net Income(4) 78 11.3x 15.3x 19.4x 2008P Net Income(4) 116 7.5x 10.3x 13.0x - -------------------------------------------------------------------------------- (1) Excludes any potential impact to value related to outstanding litigation (2) 2006A EBITDA, EBIT, and Net Income includes Flexsys normalized EBITDA, EBIT and Net Income based on average of five-year forward Flexsys EBITDA, EBIT and Net Income, respectively (3) Assumes net debt of $1,649 million (4) Excludes after-tax impact of restructuring expenses / charges at an effective tax rate of 30% for 2006A - 2008P
- -------------------------------------------------------------------------------- [Solutia logo] 9 Valuation discussion - -------------------------------------------------------------------------------- SUMMARY FINANCIALS - CURRENT PROJECTIONS Pro forma for the acquisition of Akzo Nobel's 50% ownership interest in Flexsys and the sale of the Dequest business EBITDA excludes pre-spin legacy OPEB expense of $12mm in 2006A, $7mm in 2007P and $2mm in 2008P - 2011P SUMMARY OF CONSOLIDATED FINANCIAL PROJECTIONS ($ IN MILLIONS)
06-'11 Year ended December 31 2006A 2007P 2008P 2009P 2010P 2011P CAGR - ---------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Sales $3,401 $3,618 $3,670 $3,838 $3,797 $3,846 2.5% % Growth 6.4% 1.4% 4.6% (1.1%) 1.3% Gross profit $513 $572 $633 $708 $773 $812 9.6% % margin 15.1% 15.8% 17.2% 18.4% 20.4% 21.1% MAT Expenses ($312) ($324) ($334) ($346) ($351) ($364) 3.1% % of Sales 9.2% 9.0% 9.1% 9.0% 9.2% 9.5% Other, net(1) ($1) ($1) ($1) ($1) ($1) ($0) n.m.f. Total Solutia + Unadjusted Flexsys EBIT(2) $218 $254 $303 $366 $427 $454 15.8% % margin 6.4% 7.0% 8.3% 9.5% 11.2% 11.8% Total Solutia + Normalized Flexsys EBIT(2) $186(3) $254 $303 $366 $427 $454 19.5% % margin 5.5% 7.0% 8.3% 9.5% 11.2% 11.8% ------ ------ ------ ------ ------ ------ ----- TOTAL SOLUTIA EBITDA (EXCLUDING FLEXSYS)(2)(4) $223 $209 $342 $399 $434 $467 $16.0% Unadjusted FLexsys EBITDA 147 100 93 100 120 114 (5.0%) - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL SOLUTIA + UNADJUSTED FLEXSYS EBITDA(2)(4) $370 $398 $435 $499 $554 $581 9.5% - ---------------------------------------------------------------------------------------------------------------------------------- % margin 10.9% 11.0% 11.9% 13.0% 14.6% 15.1% Normalized Flexsys EBITDA 106(5) 100 93 100 120 114 1.5% - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL SOLUTIA + NORMALIZED FLEXSYS EBITDA(2)(4)(5) $328 $398 $435 $499 $554 $581 12.1% - ---------------------------------------------------------------------------------------------------------------------------------- % margin 9.7% 11.0% 11.9% 13.0% 14.6% 15.1% Source: Company projections dated December 15, 2006 and Flexsys FOP (1) Includes other income / (expense), currency impact and amortization charges (2) EBITDA and EBIT exclude pre-spin OPEB expense, interest income, restructuring expenses / charges and other income. 2006A Nylon EBIT and EBITDA exclude a charge of approximately $10 million associated with AN fire (3) 2006A EBIT assumes Flexsys normalized EBIT based on average of five-year forward Flexsys EBIT (including synergies) (4) 50% of corporate expenses allocated to Nylon and 50% of corporate expenses allocated to PPD based on a percentage of sales of Saflex, CPFilms and Specialty Products. No corporate expenses of Solutia allocated to Flexsys (5) 2006A EBITDA assumes Flexsys normalized EBITDA based on average of five-year forward Flexsys EBITDA (including synergies)
- -------------------------------------------------------------------------------- [Solutia logo] 10 Appendix Appendix - -------------------------------------------------------------------------------- CASH PAID AT EMERGENCE ESTIMATED ADMINISTRATIVE AND PRIORITY COSTS, FINANCING COSTS, PROFESSIONAL FEES & OTHER EMERGENCE COSTS ($ IN MILLIONS) Exit financing - Banks, legal, etc. $37 Secured, administrative and priority claims (tax, reclaimation, mechanics liens, other) 34 Cure costs on executory contracts 20 Monsanto advisor fees 23 Professional and completion fees 14 Various insurance policies 7 Accrued interest on 2009 bonds 12 Other 6 - ------------------------------------------------------------------------------ TOTAL(1) $154 - ------------------------------------------------------------------------------ (1) Restructuring payments / emergence costs of $154 million are captured in the exit capitalization - ------------------------------------------------------------------------------- [Solutia logo] 12 EX-99.3 4 ex99p3.txt Exhibit 99.3 [Solutia logo] Preliminary exit financing observations and illustrative debt capacity analysis [Rothschild logo] Exit financing observations - ------------------------------------------------------------------------------ PRELIMINARY EXIT FINANCING OBSERVATIONS ROTHSCHILD AND SOLUTIA HAVE PROVIDED FIVE MARKET LEADING POTENTIAL EXIT FINANCING LENDERS WITH SELECTED SOLUTIA FINANCIAL AND OPERATING DATA * Based on these materials and current capital market conditions, these lenders provided preliminary proposals regarding Solutia's capital structure at emergence * These proposals validate Solutia's current pro forma net leverage assumption at exit of approximately $1.65 billion of net debt * The following chart provides an illustrative debt capital structure based on a composite of the preliminary proposals the Company has received to date PRELIMINARY ILLUSTRATIVE DEBT CAPITAL STRUCTURE(1) ($ IN MILLIONS)
TRANCHE SIZE ILLUSTRATIVE RATE TERM - ------------------------------------------------------ ----------------- ----------------- Bank debt Revolver(2) $254 L + 150 bps 5 years Term Loan B 600 L + 225 bps 7 years Euro-denominated Term Loan 400 E + 225 bps 7 years Maryville Note 20 7.20% 20 years Unsecured Bonds 400 10.00% 10 years ------ TOTAL PRO FORMA DEBT AT EMERGENCE $1,674 ====== Less: Post-emergence cash balance (25) ------ TOTAL PRO FORMA NET DEBT AT EMERGENCE $1,649 ====== (1) Debt capital structure reflects preliminary illustrative capital structure based on a composite of recently received bank proposals (2) Amount drawn at emergence. Illustrative sizing of $400 million
[Solutia logo] 1 [Rothschild logo] Preliminary illustrative sources and uses - ------------------------------------------------------------------------------ PRELIMINARY ILLUSTRATIVE SOURCES AND USES Assumes standalone reorganization with emergence at 6/30/2007 The following chart illustrates the hypothetical sources and uses at emergence based on the following key assumptions: * Emergence date of 6/30/2007 * Solutia purchases Akzo Nobel's 50% ownership interest in Flexsys * Sale of the Dequest business for net proceeds of approximately $60 million * Excludes any treatment of claims asserted by Monsanto, General Unsecured Claimants, holders of the 2027 and 2037 Bonds and Retirees, and excludes any treatment of "Funding Co." needs PRELIMINARY ILLUSTRATIVE SOURCES AND USES ANALYSIS ($ IN MILLIONS)
SOURCES AMOUNT USES AMOUNT - ------------------------------------------------------- ------------------------------------------------------------- New Exit Facility(1) $1,654 Refinance DIP Facility(3) 975 Implies funding need of $1,674 million Assumed Flexsys Debt 200 at emergence Refinance 2009 Notes(4) 223 Maryville Lease Facility 20 Refinance Euro Loan(5) 210 Available Cash 176 2007 & 2008 Pension Contribution 103 Net Proceeds from Sale of Dequest(2) 60 Maryville Lease Facility 20 Admin and priority costs, financing costs, professional fees & other emergence costs(6) 154 Minimum cash balance 25 ------ TOTAL USES $1,910 ------ ====== TOTAL SOURCES $1,910 ====== (1) Based on management estimates (2) On March 12, 2007, Solutia reached a definitive agreement to sell the Dequest business to Thermphos Trading GmbH for net proceeds of approximately $60 million (3) Includes $150 million of Flexsys acquisition debt. Assumes emergence date of 6/30/2007 (4) Portion of unamortized discount may be subject to litigation (5) Balance as of 12/31/2006 (6) Includes administrative and priority claims, debt issuance costs, professional fees and other emergence costs
- -------------------------------------------------------------------------------- [Solutia logo] 2 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS
NET DEBT+ TOTAL DEBT+ TOTAL DEBT+ S&P TOTAL DEBT/ NET DEBT/ PENSION(1)/ PENSION(1)/ OPEB(2)/ RATING EBITDA EBITDA EBITDA EBITDA EBITDA - ------------------------------------------------------------------------------------------------- Commodity Companies - ------------------------ Eastman BBB 1.7x 0.7x 1.0x 2.0x 2.3x Westlake Chemical Corp. BB+ 0.6x 0.5x 0.5x 0.7x 0.7x Celanese Corp. BB- 3.2x 2.5x 2.8x 3.5x 3.5x Georgia Gulf BB- 4.2x 4.1x 4.1x 4.2x 4.2x Huntsman Corp. BB- 3.3x 2.4x 2.7x 3.6x 3.6x Lyondell Chemical Co. BB- 2.7x 2.2x 2.4x 2.9x 2.8x Nova Chemicals Corp. BB- 2.7x 2.6x 2.6x 2.7x 2.8x Wellman B- 16.3x 16.3x 16.7x 16.7x 16.3x HIGH 16.3x 16.3x 16.7x 16.7x 16.3x AVERAGE 4.3x 3.9x 4.1x 4.6x 4.5x MEDIAN 3.0x 2.4x 2.7x 3.2x 3.1x LOW 0.6x 0.5x 0.5x 0.7x 0.7x Specialty Companies - ------------------------ PPG A 0.8x 0.5x 0.8x 1.1x 1.4x Rohm & Haas A- 1.3x 1.0x 1.0x 1.3x 1.4x Albemarle BBB- 1.9x 1.5x 1.6x 2.0x 2.1x Cytec BBB- 2.1x 2.1x 2.5x 2.5x 2.4x FMC Corp. BBB- 1.4x 1.0x 1.2x 1.6x 1.5x Lubrizol Corp. BBB- 2.8x 1.7x 2.1x 3.1x 2.9x Chemtura BB+ 2.5x 2.3x 2.9x 3.1x 2.8x Hercules BB 2.7x 2.2x 2.8x 3.3x 3.1x Rockwood Holdings B+ 5.3x 4.3x 4.9x 5.8x 5.3x Nalco Holding Co. B+ 4.7x 4.6x 5.1x 5.1x 4.8x Arch Chemicals NR 1.7x 0.5x 1.1x 2.3x 1.8x HIGH 5.3x 4.6x 5.1x 5.8x 5.3x AVERAGE 2.5x 2.0x 2.4x 2.8x 2.7x MEDIAN 2.1x 1.7x 2.1x 2.5x 2.4x LOW 0.8x 0.5x 0.8x 1.1x 1.4x - ------------------------------------------------------------------------------------------------- ALL COMPARABLE COMPANIES - ------------------------ HIGH 16.3x 16.3x 16.7x 16.7x 16.3x AVERAGE 3.3x 2.8x 3.1x 3.6x 3.5x MEDIAN 2.7x 2.2x 2.5x 2.9x 2.8x LOW 0.6x 0.5x 0.5x 0.7x 0.7x - ------------------------------------------------------------------------------------------------- TOTAL DEBT+ PENSION(1)+ EBITDA- OPEB(2)/ EBITDA/ CAPEX/ NET DEBT/ EBITDA INTEREST INTEREST TOTAL CAP.(3) - ---------------------------------------------------------------------------- Commodity Companies - ------------------------ Eastman 2.6x 11.7x 6.8x 10.9% Westlake Chemical Corp. 0.7x 25.0x 16.7x 10.4% Celanese Corp. 3.8x 4.3x 3.3x 34.8% Georgia Gulf 4.2x 4.0x 3.4x 73.4% Huntsman Corp. 3.8x 3.1x 1.6x 37.5% Lyondell Chemical Co. 3.0x 5.0x 4.3x 45.6% Nova Chemicals Corp. 2.8x 4.1x 3.0x 39.8% Wellman 16.7x 0.6x 0.5x 84.5% HIGH 16.7x 25.0x 16.7x 84.5% AVERAGE 4.7x 7.2x 4.9x 42.1% MEDIAN 3.4x 4.2x 3.3x 38.7% LOW 0.7x 0.6x 0.5x 10.4% Specialty Companies - ------------------------ PPG 1.7x 20.5x 16.0x 6.6% Rohm & Haas 1.4x 16.6x 12.4x 11.4% Albemarle 2.1x 8.6x 6.4x 12.6% Cytec 2.8x 8.0x 6.2x 24.0% FMC Corp. 1.6x 13.9x 10.4x 13.3% Lubrizol Corp. 3.2x 7.0x 5.3x 20.5% Chemtura 3.4x 4.4x 3.1x 27.5% Hercules 3.6x 5.2x 3.9x 25.1% Rockwood Holdings 5.8x 2.7x 1.9x 52.2% Nalco Holding Co. 5.3x 3.0x 2.6x 47.5% Arch Chemicals 2.4x 6.2x 4.9x 7.7% HIGH 5.8x 20.5x 16.0x 52.2% AVERAGE 3.0x 8.7x 6.6x 22.6% MEDIAN 2.8x 7.0x 5.3x 20.5% LOW 1.4x 2.7x 1.9x 6.6% - ---------------------------------------------------------------------------- ALL COMPARABLE COMPANIES - ------------------------ HIGH 16.7x 25.0x 16.7x 84.5% AVERAGE 3.7x 8.1x 5.9x 30.8% MEDIAN 3.0x 5.2x 4.3x 25.1% LOW 0.7x 0.6x 0.5x 6.6% - ---------------------------------------------------------------------------- Source SEC filings, annual and quarterly reports, press releases, research reports (1) Calculated as underfunded pension as of fiscal year end. Implied interest expense, calculated as the underfunded pension multiplied by the PBO discount rate, is added back to EBITDA (2) Calculated as unfunded OPEB expense as of fiscal year end. Implied interest expense, calculated as the unfunded OPEB expense multiplied by the discount rate, is added back to EBITDA (3) Calculated as net debt plus market value of equity
- -------------------------------------------------------------------------------- [Solutia logo] 3 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS (CONT'D) Assumes $1,674 million debt balance at emergence. Positive free cash flow is assumed to pay down debt over time for illustrative purposes only TOTAL DEBT / EBITDA [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 2.7x At emergence(1) 4.6x Average 3.3x 2008P 3.4x NET DEBT / EBITDA [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 2.2x At emergence(1) 4.5x Average 2.8x 2008P 3.3x EBITDA / INTEREST [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 5.2x At emergence(1) 2.7x Average 8.1x 2008P 3.4x EBITDA - CAPEX / INTEREST [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 4.3x At emergence(1) 2.2x Average 5.9x 2008P 2.3x (1) Assumes standalone reorganization with emergence at 6/30/2007 - -------------------------------------------------------------------------------- [Solutia logo] 4 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS (CONT'D) TOTAL DEBT + PENSION(1) / EBITDA [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 2.9x At emergence(3) 5.0x Average 3.6x 2008P 3.8x TOTAL DEBT + OPEB (2) / EBITDA [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 2.8x At emergence(3) 5.0x Average 3.5x 2008P 3.7x TOTAL DEBT + PENSION(1) + OPEB(2) / EBITDA [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 3.0x At emergence(3) 5.4x Average 3.7x 2008P 4.1x NET DEBT / TOTAL CAPITALIZATION [bar chart] Comparable companies Solutia - ------------------------ ------------------------ Median 25.1% At emergence(3) 58.0% Average 30.8% 2008P 54.8% (1) Calculated as underfunded pension as of fiscal year end. Implied interest expense, calculated as the underfunded pension multiplied by the PBO discount rate, is added back to EBITDA (2) Calculated as unfunded OPEB expense as of fiscal year end. Implied interest expense, calculated as the unfunded OPEB expense multiplied by the discount rate, is added back to EBITDA (3) Assumes standalone reorganization with emergence at 6/30/2007 - -------------------------------------------------------------------------------- [Solutia logo] 5 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ ILLUSTRATIVE DEBT CAPACITY ANALYSIS ($ in millions) DEBT/EBITDA
2007P EBITDA(1) ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450 - ------------------------------------------------------------------------------------------------------------------------- DEBT/ EBITDA ------ ----------------------------------------------------------- 3.50x $1,394 $1,225 $1,313 $1,400 $1,488 $1,575 3.75x 1,493 1,313 1,406 1,500 1,594 1,688 4.00x 1,593 1,400 1,500 1,600 1,700 1,800 4.25x 1,692 1,488 1,594 1,700 1,806 1,913 IMPLIED TOTAL DEBT 4.50x 1,792 1,575 1,688 1,800 1,913 2,025 4.75x 1,892 1,663 1,781 1,900 2,019 2,138 5.00x 1,991 1,750 1,875 2,000 2,125 2,250 ----------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- 3.50x ($280) ($449) ($362) ($274) ($187) ($99) 3.75x (181) (362) (268) (174) (80) 14 EXCESS/(SHORTFALL) OVER CURRENT 4.00x (81) (274) (174) (74) 26 126 PROJECTED DEBT AT EMERGENCE 4.25x 18 (187) (80) 26 132 239 OF $1,674 MILLION 4.50x 118 (99) 14 126 239 351 4.75x 218 (12) 107 226 345 464 5.00x 317 76 201 326 451 576 ----------------------------------------------------------- (1) Based on 2007E EBITDA of approximately $398 million
- -------------------------------------------------------------------------------- [Solutia logo] 6 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ ILLUSTRATIVE DEBT CAPACITY ANALYSIS (CONT'D) ($ in millions) EBITDA/INTEREST
2007P EBITDA(1) ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450 - ------------------------------------------------------------------------------------------------------------------------- EBITDA/ INTEREST -------- ----------------------------------------------------------- 2.00x $199 $175 $188 $200 $213 $225 2.25x 177 156 167 178 189 200 2.50x 159 140 150 160 170 180 TOTAL INTEREST 2.75x 145 127 136 145 155 164 3.00x 133 117 125 133 142 150 3.25x 123 108 115 123 131 138 3.50x 114 100 107 114 121 129 ----------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- 2.00x $2,342 $2,059 $2,206 $2,353 $2,500 $2,647 2.25x 2,082 1,830 1,961 2,092 2,222 2,353 IMPLIED TOTAL DEBT 2.50x 1,874 1,647 1,765 1,882 2,000 2,118 AT A 8.5% 2.75x 1,704 1,497 1,604 1,711 1,818 1,925 INTEREST RATE(2) 3.00x 1,562 1,373 1,471 1,569 1,667 1,765 3.25x 1,441 1,267 1,357 1,448 1,538 1,629 3.50x 1,339 1,176 1,261 1,345 1,429 1,513 ----------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- 2.00x $668 $385 $532 $679 $826 $973 2.25x 408 156 287 418 548 679 EXCESS/(SHORTFALL) OVER CURRENT 2.50x 200 (27) 91 208 326 444 PROJECTED DEBT AT EMERGENCE 2.75x 30 (177) (70) 37 144 251 OF $1,674 MILLION 3.00x (112) (301) (203) (105) (7) 91 3.25x (233) (407) (317) (226) (136) (45) 3.50x (335) (498) (413) (329) (245) (161) ----------------------------------------------------------- (1) Based on 2007E EBITDA of approximately $398 million (2) Per management guidance. For illustrative purposes only
- -------------------------------------------------------------------------------- [Solutia logo] 7 [Rothschild logo] Summary debt capacity analysis - ------------------------------------------------------------------------------ ILLUSTRATIVE DEBT CAPACITY ANALYSIS (CONT'D) ($ in millions) EBITDA - CAPEX/INTEREST
2007P EBITDA(1) ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450 - ------------------------------------------------------------------------------------------------------------------------- EBITDA- CAPEX/ INTEREST(2) ----------- ----------------------------------------------------------- 1.00x $246 $198 $223 $248 $273 $298 1.25x 197 158 178 198 218 238 1.50x 164 132 149 165 182 199 TOTAL INTEREST 1.75x 141 113 127 142 156 170 2.00x 123 99 111 124 136 149 2.25x 109 88 99 110 121 132 2.50x 98 79 89 99 109 119 ----------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- 1.00x $2,896 $2,328 $2,622 $2,917 $3,211 $3,505 1.25x 2,316 1,863 2,098 2,333 2,569 2,804 IMPLIED TOTAL DEBT 1.50x 1,930 1,552 1,748 1,944 2,140 2,337 AT A 8.50% 1.75x 1,655 1,330 1,499 1,667 1,835 2,003 INTEREST RATE(3) 2.00x 1,448 1,164 1,311 1,458 1,605 1,752 2.25x 1,287 1,035 1,166 1,296 1,427 1,558 2.50x 1,158 931 1,049 1,167 1,284 1,402 ----------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- 1.00x $1,222 $654 $948 $1,243 $1,537 $1,831 1.25x 642 189 424 659 895 1,130 EXCESS/(SHORTFALL) OVER CURRENT 1.50x 256 (122) 74 270 466 663 PROJECTED DEBT AT EMERGENCE 1.75x (19) (344) (175) (7) 161 329 OF $1,674 MILLION 2.00x (226) (510) (363) (216) (69) 78 2.25x (387) (639) (508) (378) (274) (116) 2.50x (516) (743) (625) (507) (390) (272) ----------------------------------------------------------- (1) Based on 2007E EBITDA of approximately $398 million (2) Based on 2007E Capital Expenditures of approximately $152 million (3) Per management guidance. For illustrative purposes only
- -------------------------------------------------------------------------------- [Solutia logo] 8 [Rothschild logo] EX-99.4 5 ex99p4.txt Exhibit 99.4 ============================================================================== [Solutia logo] OPENING REMARKS MARCH 29, 2007 [Solutia logo] WE DEFINED A FOUR PART REORGANIZATION STRATEGY.... ============================================================================== * MANAGE THE BUSINESS TO ENHANCE PERFORMANCE INCLUDING THE USE OF THE TOOLS OF BANKRUPTCY * MAKE CHANGES TO THE ASSET PORTFOLIO * ACHIEVE A REALLOCATION OF THE LEGACY LIABILITIES * ESTABLISH A COMPETITIVE BALANCE SHEET 1 [Solutia logo] ....SUCCESSFUL IMPLEMENTATION OF WHICH HAS DRAMATICALLY CHANGED OUR PORTFOLIO, IMPROVED COST AND ADDRESSED SIGNIFICANT AREAS OF RISK ============================================================================== * Company culture evolving to realistic and informed decision making with a strong bias for action * Strategic reviews undertaken of all significant businesses * Dramatically reduced cost structure * Plant cost reduction * Benefits reduced * Implemented Forsberg * Pension frozen * Leaner organization structure, controlled spending, headcount reductions * Rejected unfavorable contracts * Exited or sold chronically unprofitable/non-strategic businesses * Acrylic Fiber * Tire Fiber * Chlorobenzenes * Pharmaceutical Services Division, Axio Research * Astaris JV * Dequest * Strategic investments in our businesses * China, Ghent TEL, Puebla * Nylon CP conversions * Flexsys acquisition - --------------------------------------------------------------- RISK AREAS ADDRESSED - --------------------------------------------------------------- SIGNIFICANTLY ELIMINATED/ IMPROVED FROZEN - ----------------- LEGACY (TORT) / / / X / LITIGATION - ----------------- - ----------------- LEGACY / X / / X / ENVIRONMENTAL - ----------------- - ----------------- POST EMPLOYMENT / X / / / BENEFITS (OPEB) - ----------------- - ----------------- PENSION / / / X / - ----------------- - ----------------- LABOR RELATIONS / X / / / - ----------------- - ----------------- EXPOSURE TO RAW / X / / / MATERIALS - ----------------- - ----------------- VOLUME / X / / / UNCERTAINTY - ----------------- - ----------------- COST STRUCTURE / X / / / - ----------------- 2 [Solutia logo] THESE ACTIONS HAVE ENABLED US TO ESTABLISH EARNINGS CONSISTENCY AND GROWTH WHICH WILL CONTINUE AS EXECUTE ON OUR STRATEGIES ============================================================================== - ------------------------------------------------------------------------------ EBITDAR $MM (2003-2008) - ------------------------------------------------------------------------------ [graph] 2003 2004 2005 2006F 2007 2008 EBITDAR 125 147 226 262 361 440 EBITDAR MARGIN 5.2% 5.6% 8.2% 9.0% 10.6% 12.0% 3 [Solutia logo] BUSINESS PLAN UPDATE DRAFT EMERGENCE PLAN ($M) ==============================================================================
-------------------------------------------------- 2007 2008 2009 2010 2011 -------------------------------------------------- EBITDAR - BUDGET $334 $380 $435 $470 $503 Flexsys Acquisition Plus: Flexsys EBITDAR 54 87 94 112 105 Less: Budgeted Equity Income (18) (27) (27) (27) (27) Plus: Estimated Synergies 2 8 8 8 8 Impact of Dequest Divestiture (5) (7) (7) (8) (8) Emergence Timing (6) 0 0 0 0 EBITDAR - EMERGENCE PLAN $361 $440 $505 $555 $582 NET DEBT - BUDGET $1,226 $1,132 $1,042 $906 $673 Flexsys Acquisition Payment 270 0 0 0 0 Flexsys cash, net (post acquisition) (3) (45) (46) (29) (53) Delay in emergence 55 0 0 0 0 Dequest Divestiture (57) 6 4 6 6 Change in cash interest due to portfolio changes & emergence timing 7 4 3 3 1 Other 7 5 3 (12) (5) Cumulative effect of prior year differences 0 279 249 213 181 NET DEBT - EMERGENCE PLAN $1,505 $1,381 $1,255 $1,087 $803
4 [Solutia logo] BUSINESS PLAN UPDATE SUMMARY RISK ANALYSIS ============================================================================== BUSINESS RISKS BY DIVISION * INTEGRATED NYLON * MONSANTO REDUCTION IN HCN VOLUMES AT THE BAYOU * VOLUME SHORTFALLS IN CARPET AND NYLON PLASTICS AND POLYMERS * PPD * SLOWDOWN IN AUTOMOTIVE SECTOR, IMPACTING SAFLEX PRICING AND VOLUMES * THERMINOL & SKYDROL - NO SIGNIFICANT RISKS AT THIS TIME * CPFILMS * SLOW DOWN IN DOMESTIC DEMAND AND CORRESPONDING PROFESSIONAL FILM VOLUME * FLEXSYS * NO ADJUSTMENTS MADE TO THE FLEXSYS MANAGEMENT FOP PROJECTIONS * POSSIBLE UPSIDE POTENTIAL, TO BE QUANTIFIED IN UPCOMING MONTHS 5 Reconciliation of Non-GAAP Financial Measures to GAAP Measures of Performance Summary of Events Affecting Comparability Management believes that measures of income excluding non-recurring, non-operational items are meaningful because they provide insight with respect to ongoing operating results of the Company. Such measurements are not recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are detailed below for the fiscal years of 2006, 2005, 2004 and 2003. The below tables include the identification of non-recurring, non-operational items which have been excluded from the income statement used by management for internal evaluation purposes. EBITDAR, which is earnings before interest, taxes, depreciation, amortization and reorganization items, is a non-GAAP measure that is a typical financial measure for Companies during the restructuring process. Management uses this measure as a way to identify operating results of the Company had it not been in the reorganization process during the time period being reported upon.
INCREASE/(DECREASE) 2006 2005 2004 2003 ------------------- ---- ---- ---- ---- IMPACT ON: Cost of goods sold........................ $ 1 $ 1 $ 18 $ 29 (a) -- 9 26 26 (d) -- -- 8 -- (e) -- -- 1 -- (f) 9 -- -- -- (r) (20) -- -- -- (s) -- -- -- 27 (g) -- -- -- 99 (h) -- -- -- 20 (i) ---------------------------------------- Total cost of goods sold.................. (10) 10 53 201 Marketing................................. 2 -- -- 2 (a) -- 1 2 2 (d) Administrative............................ 1 -- - 6 (a) -- 2 4 4 (d) -- -- -- 22 (j) Technological............................. -- -- -- 6 (a) -- 1 3 3 (d) Impairment of Intangible Assets........... -- -- -- 3 (k) ---------------------------------------- Operating Income (Loss) Impact............ 7 (14) (62) (249) Equity earnings (loss) from affiliates.... (4) 52 (49) (134)(l) Loss on debt Modification................. -- -- (15) -- (m) (8) -- -- -- (t) Other Income.............................. -- -- -- 4 (n) ---------------------------------------- EBITDAR Impact............................ (5) 38 (126) (379) Interest Expense.......................... -- -- -- (14)(o) -- -- (25) -- (c) (1) -- -- -- (u) (3) -- -- -- (v) Reorganization Items, net................. (13) 5 (22) -- (p) -- -- -- 22 (j) ---------------------------------------- Pre-tax Income Statement Impact........... (22) 43 (173) (371) Income tax expense (benefit) impact....... (5) -- (6) 430 (q) ---------------------------------------- After-tax Income Statement Impact......... (17) 43 (167) (801) Income (Loss) from Discontinued Operations, net of tax.................. 58 4 (32) (82)(b) Cumulative Effect of Change in Accounting Principle, net of tax........ -- (3) -- (5)(w) ---------------------------------------- Net Income (Loss) Impact.................. $ 41 $ 44 $(199) $(888) - -------------------------------------------------------------------------------------------- 6 FOOTNOTES - --------- a) Restructuring costs related principally to the closure of certain non-strategic operations including costs for decommissioning and dismantling activities, asset impairments, future costs for non-cancelable operating leases and severance and retraining costs. b) Discontinued operations for the pharmaceutical services and UCB businesses are excluded from continuing operations in the internal financial statements. c) Write-off of unamortized debt issuance costs related to the retirement of the October 2003 and interim DIP credit facilities. d) Net pension and other postretirement benefit plan curtailments and settlements. e) Losses incurred directly related to the hurricanes experienced in the U.S. in 2004 resulting in the disruption of operations and property damage at Solutia's operations in the Integrated Nylon chain located principally in the Southeastern part of the U.S., and the Performance Products location in Martinsville, Virginia. These costs included primarily asset write-offs and repairs and maintenance costs. f) Loss on the sale of the assets of Axio Research Corporation. g) Charge for environmental remediation and funding for an educational trust related to the partial consent decree in Anniston, Alabama. h) Charge related to Solutia's share of the Anniston litigation settlement and to increase certain other litigation accruals. i) Increase to environmental reserves related to exiting the Nitro, West Virginia facility. j) Prior to the filing for bankruptcy in December, the Company incurred significant professional services expense related to the attempted out-of-court restructuring initiative. The amount had been re-classed from administrative expense to reorganization items, net in the internal financial statements. k) Write-down of non-deductible goodwill in accordance with SFAS No. 142 for Axio Research Corporation within the Performance Products segment. l) Net one-time gains (losses) related to Solutia's Flexsys and Siratsa (fka Astaris) joint ventures, in each of which Solutia has a fifty percent interest. m) Loss due to the modification of Solutia's Euronotes in January 2004. n) Recovery of certain receivables, established prior to 1997, which had previously been written off. o) Write-off of unamortized debt issuance cost related to retired credit facilities. p) Includes expenses related to asset write-offs associated with contract rejections and terminations, employee severance costs, adjustments to record certain pre-petition claims at estimated amounts of the allowed claims and differences between the settlement amount of certain pre-petition obligations and the corresponding amounts previously recorded. Only professional fees for services provided by debtor and creditor professionals directly related to Solutia's reorganization proceedings and costs associated with a retention plan for certain Solutia employees are included in reorganization items, net in the internal financial statements. q) With the exception of those items that relate to ex-U.S. operations, the above items are considered to have like pre-tax and after-tax impact as the tax benefit or expense realized from these events is offset by the change in valuation allowance for U.S. deferred tax assets resulting from uncertainty as to their recovery due to Solutia's Chapter 11 bankruptcy filing. r) Environmental charge precipitated by the notification by a third-party of its intent to terminate a tolling agreement at one of Solutia's facilities outside the U.S. that will likely result in the cessation of operations at the site. s) Gain resulting from the reversal of a litigation reserve with respect to a litigation matter that was decided favorably during 2006. t) Write-off of debt issuance costs and to record the DIP credit facility as modified at its fair value. u) Write off of unamortized debt issuance costs associated with the DIP credit facility at time of modification. v) Solutia refinanced its Euronotes and recorded early extinguishment costs at the time of refinancing. w) Cumulative effect of change in accounting principle is excluded from continuing operations in the internal financial statements.
7 EX-99.5 6 ex99p5.txt 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) - -------- (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...). - -------- (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. 2 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) 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: -------------------------- 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: 3 III. RIGHTS OFFERING: ---------------- 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: --------------------- 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. 4 V. FULLY-DILUTED EQUITY ALLOCATION: -------------------------------
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% ----- ------ Total 119.5 100.0%
VI. RECOVERY ANALYSIS ($ IN MILLIONS)(6): ------------------------------------- RECOVERY TO NOTEHOLDERS(7): - --------------------------- 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% - -------- (6) All recoveries are net of the cost to exercise the rights. (7) Assumes Noteholder Claims of $455.4 million. 5 RECOVERY TO GENERAL UNSECURED CREDITORS(8): - ------------------------------------------- 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): - ------------------------ Total Net Value $228.6 Net Recovery % 64.2% RECOVERY TO RETIREES(10): - ------------------------- Total Net Value $22.8 Net Recovery % 65.2% - -------- (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. 6 VII. PRO FORMA SOURCES AND USES: --------------------------- 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 ------ Total Sources: $1,910 Total Uses: $1,910 ====== ====== - -------- (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
7 EX-99.6 7 ex99p6.txt Exhibit 99.6 Jonathan S. Henes To Call Writer Directly: 212 446-4927 jhenes@kirkland.com April 16, 2007 VIA E-MAIL AND U.S. MAIL - ------------------------ Dear Ben, Lloyd and John: Thank you for attending both the March 29th and April 10th meetings with Solutia and Solutia's other major stakeholders in New York City. As you are aware, at the April 10th meeting, Solutia provided a detailed settlement proposal to each of its stakeholders. The settlement proposal, which Solutia believes sets forth a rational and reasonable settlement of all of the unresolved issues in the chapter 11 cases, was intended to act as a platform for discussion and good faith negotiations. On April 10th and thereafter, extensive discussions and negotiations have taken place between and among Solutia and its various stakeholders. On April 10th, Monsanto and the ad hoc committee of Noteholders (the "Noteholders' Committee") informed Solutia that they had reached a settlement between themselves and requested that Solutia join this settlement. In connection with the Monsanto/Noteholders' Committee settlement, you raised issues concerning (a) the impact on Solutia of (i) Monsanto's expressed desire to exit Chocolate Bayou and (ii) a reduced rights offering and strike price, and (b) the valuation of Flexsys. Since then, the Noteholders' Committee has expressed its opinion that the valuation of Solutia is less than that suggested by Solutia. As you are aware, Rothschild and Blackstone are meeting tomorrow to discuss valuation issues and hopefully Rothschild will get Blackstone's preliminary valuation materials so we can form a view of the Noteholders' Committee's valuation. In addition, Solutia's management team has reviewed these issues and others presented by an update of its business plan and discussed them with its Board of Directors. The Board has instructed that once the Chocolate Bayou negotiations are resolved, management should revise the business plan as appropriate. Rothschild will then update its preliminary valuation of reorganized Solutia based on those revisions. We anticipate this can be done very quickly once the Chocolate Bayou negotiations are concluded. As you may know, Solutia presented a proposal to Monsanto last week to resolve the Chocolate Bayou issues and Monsanto has committed to a quick response. No response has been received as of yet. Based on the Monsanto/Noteholders' Committee proposal and communications with other stakeholders and pending any further changes that might be appropriate as a result of an update of the business plan, Solutia proposes the following modifications to its April 10th proposal: o The percentage of Solutia's new common stock to be distributed to Monsanto will be reduced from 19.1% to 17%. April 16, 2007 Page 2 o The percentage of Solutia's new common stock to be distributed to the Noteholders, prior to any effect being given to the proposed Rights Offering, will increase from 38% to 40.2%. o Monsanto will receive an administrative claim for the amounts spent at the shared sites in excess of the $50 million for which Monsanto is responsible under the Global Settlement and Solutia's projections of sources and uses may, therefore, require adjustment. o All other aspects of the proposal, other than the Rights Offering, which is discussed immediately below, will remain the same. In addition to the foregoing, you requested modifications to the Rights Offering, including a reduction in the size of the Rights Offering and a decrease to the strike price. Subject to plan feasibility issues, Solutia is not opposed to these modifications. Accordingly, Solutia believes that the appropriate structure of the Rights Offering should be negotiated among Solutia, the Noteholders and the general unsecured creditors, who are the parties proposed to participate in the Rights Offering. Solutia believes that substantial progress can be made, and, with cautious optimism, consensus can be achieved, if the major stakeholders come together for a follow up settlement meeting. Solutia proposes a meeting among Monsanto, the Noteholders' Committee, the Creditors' Committee, the ad hoc committee of trade creditors and the equity committee (the attorneys for the Creditors' Committee, the ad hoc committee of trade creditors and the equity committee are copied on this letter), which will be hosted by Kirkland & Ellis LLP, on Wednesday at 10 a.m. Eastern Time, assuming the Chocolate Bayou negotiations have concluded, to discuss the modified proposal and engage in good faith negotiations. We will follow up with you by phone and email to arrange for the meeting. Once a date and time for the meeting is scheduled, please email me with a list of individuals who will be attending the meeting on April 18th as I need to provide an attendees list to security. If you have any questions, please feel free to call me. Very truly yours, /s/ Jonathan S. Henes --------------------- Jonathan S. Henes cma April 16, 2007 Page 3 cc: Jeffry N. Quinn Richard M. Cieri Todd R. Snyder Daniel Golden Ira Dizengoff James Savin Edward Weisfelner Steve Pohl Craig Barbarosh -----END PRIVACY-ENHANCED MESSAGE-----