Solutia Reaches Agreement-in-Principle with Monsanto and Unsecured Creditors' Committee on Reorganization of Company

ST. LOUIS, June 7 /PRNewswire-FirstCall/ -- Solutia Inc. (OTC Bulletin Board: SOLUQ), a leading manufacturer and provider of performance films, specialty chemicals and an integrated family of nylon products, today announced it has reached an agreement-in-principle with Monsanto Company and the Official Committee of Unsecured Creditors in its Chapter 11 case regarding the restructuring of the company. This agreement will serve as the framework for Solutia's Plan of Reorganization, which will contain the complete terms of the company's restructuring. Solutia anticipates filing its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court later this summer.

"This agreement-in-principle is a major milestone in the successful reorganization of Solutia. It provides significant relief from the historic liabilities that were a driving factor in our Chapter 11 filing, reduces the risk profile of the company in terms of contingent liabilities, and strengthens our balance sheet," said Jeffry N. Quinn, president and CEO, Solutia Inc. "This agreement is in the best interests of Solutia, our employees, retirees and other stakeholders. In combination with the steps we continue to take to improve business performance and enhance our strategic and competitive position, this agreement provides a solid foundation for a reorganized Solutia that is positioned for success."

The agreement-in-principle provides for $250 million of new investment in reorganized Solutia. This investment will be in the form of a rights offering to unsecured creditors, who will be given the opportunity to purchase 22.7% of the common stock in the reorganized company. The purchase price for this stock may or may not coincide with market value or with the reorganization value of the company as determined by the Bankruptcy Court. Monsanto will backstop the rights offering (i.e. exercise the remaining rights if the offering is not fully subscribed). Of the proceeds from the rights offering, $200 million will be used post-emergence to satisfy specific liabilities as described below, and the remaining $50 million will be used post-emergence at the discretion of the reorganized company to provide additional funding for satisfaction of those liabilities.

The liabilities Solutia assumed at the time it was spun off from Pharmacia Corporation included retiree benefit obligations, environmental remediation and litigation. The agreement-in-principle addresses these liabilities as follows:

1) Pre-Spin retiree benefit obligations: $150 million of the proceeds from the rights offering will be used to satisfy, in part, retiree medical, disability and life insurance benefits of those individuals who receive these benefits from Solutia but who retired prior to the spinoff. 2) Environmental remediation: * Sites Never Owned or Operated By Solutia. Monsanto will be responsible for paying the remediation costs related to these sites. * Anniston and Sauget Off-Site Environmental Remediation. $50 million of the proceeds from the rights offering would be used for off-site remediation in Anniston, Ala. and Sauget, Ill. After the proceeds from this portion of the rights offering are exhausted, Monsanto will pay the next $50 million in remediation costs at those sites, less certain expenses incurred at those sites during Solutia's Chapter 11 case. Solutia would then be responsible for the remediation costs at those sites up to a pre-determined level, after which Monsanto and Solutia would each pay for 50 percent of costs. 3) Litigation costs and toxic tort claims: Monsanto will contribute up to $107 million, minus certain related expenses incurred during Solutia's Chapter 11 case, to be used by Solutia to make distributions under its Plan of Reorganization to certain holders of unsecured claims, including current tort claims. Such unsecured creditors may also receive common stock in the reorganized company under Solutia's Plan. Solutia will remain responsible for and will continue to pay the $5 million annual installment and the education fund obligations relating to the August 2003 Anniston PCB settlement.

"Importantly, this agreement-in-principle does not require a termination of our pension plan, and it ensures that all environmental obligations related to the historic chemical business of our former parent will be satisfied," added Quinn.

Under the agreement-in-principle, the reorganized company will be an independent, publicly traded company. Solutia's secured debt and debtor-in- possession financing will be repaid in full from proceeds from an exit financing package to be arranged by the company to the extent that claims relating to such are allowed by the court.

In consideration for its contributions described above, the resolution of its claim, and the settlement of ongoing and potential litigation in the case, among other things, Monsanto will receive common stock in the reorganized company. If Monsanto is required to make the full new money investment contemplated by the rights offering due to its backstop commitment, Monsanto's equity interest in the reorganized company would be 52.5%. The holders of allowed unsecured claims would receive the remaining 47.5% of the common stock in the reorganized company. The ultimate equity ownership of both the holders of unsecured claims and Monsanto will be subject to adjustment based on the amount of allowed unsecured claims in the case. It is not contemplated that the holders of Solutia's existing equity will receive any distribution.

"Monsanto and the Unsecured Creditors' Committee and their respective advisors have been very constructive in working with the company to reach this agreement-in-principle," said Quinn. "We will continue to work with both of them and the other constituents in our case to confirm a plan of reorganization based on this agreement with the goal of emerging from Chapter 11 later this year."

Submission of a Disclosure Statement and a Plan of Reorganization as contemplated by this agreement-in-principle is subject to the approval of the board of directors of Solutia, the negotiation of definitive documents, and various other conditions and contingencies, some of which are not totally in the control of the company, Monsanto, or the Unsecured Creditors' Committee. For example, certain other constituents in the case must agree to terms, which are conditions to the agreement-in-principle. In addition, the purchase price for the stock made available through the rights offering may or may not coincide with market value or with the reorganization value of the company as determined by the Bankruptcy Court. Confirmation of a Plan of Reorganization consistent with this agreement-in-principle is subject to various conditions, including Bankruptcy Court approval.

Forward Looking Statements

This press release 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 and filings can be accessed through the "Reorganization" and "Investors" sections of Solutia's website at http://www.solutia.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.

Corporate Profile

Solutia (http://www.solutia.com/) uses world-class skills in applied chemistry to create value-added solutions for customers, whose products improve the lives of consumers every day. Solutia is a world leader in performance films for laminated safety glass and after-market applications; process development and scale-up services for pharmaceutical fine chemicals; specialties such as water treatment chemicals, heat transfer fluids and aviation hydraulic fluid and an integrated family of nylon products including high-performance polymers and fibers.

Solutia ... Solutions for a Better Life.