Monsanto Company (NYSE: MON), Solutia Inc. (OTC Bulletin Board: SOLUQ - News) and the Official Committee of Unsecured Creditors appointed in Solutia's bankruptcy case have reached an agreement in principle for a proposal for Solutia's reorganization that, if approved by the Bankruptcy Court and the respective company boards of directors, could result in a confirmed reorganization plan allowing Solutia to exit bankruptcy protection.
The comprehensive reorganization plan reflecting this agreement in principle is expected to be filed by Solutia later this summer with the U.S. Bankruptcy Court for the Southern District of New York.

"As we have said throughout this process, our goal has been to resolve the issues related to Solutia's bankruptcy to best protect our shareowners' interests," said Terry Crews, Monsanto's chief financial officer. "This proposal, if approved by the court, would be a major step toward finality in the Solutia bankruptcy process, help create a viable Solutia, and allow Monsanto to continue to focus on our agricultural businesses."

Solutia filed for Chapter 11 bankruptcy protection on Dec. 17, 2003. Solutia was formed in September 1997 when Pharmacia Corporation (now a subsidiary of Pfizer, Inc.), formerly known as Monsanto Company, spun it off to shareowners as an independent entity. Present-day Monsanto Company was established by Pharmacia in 2000, and it agreed to indemnify Pharmacia for certain liabilities assumed by Solutia at its spinoff to the extent that Solutia failed to pay, perform or discharge those liabilities.

Since Solutia filed for bankruptcy, Monsanto has assumed management of and committed funds for certain environmental and tort litigation liabilities previously managed by Solutia. In its Form 10-K for the fiscal year ended Aug. 31, 2004 filed with the U.S. Securities & Exchange Commission, Monsanto reported that it spent $58 million in regard to these liabilities. In the first quarter of fiscal 2005, Monsanto booked a charge of $284 million for certain environmental and tort litigation liabilities associated with Solutia, which represented the best current estimates by Monsanto legal and environmental advisors and consultants of the potential discounted cost to Monsanto for these liabilities.

Key elements of the agreement in principle reached by Monsanto, Solutia and the Creditors Committee include:

• A $250 million equity infusion to support such areas as medical, disability and life insurance benefit liabilities for retirees who worked for Pharmacia Corporation (formerly known as Monsanto) and were assigned to Solutia at the time of the spinoff on Sept. 1, 1997, and certain environmental and other liabilities. This funding would be underwritten by Monsanto in return for an equity position in Solutia.
  Other unsecured creditors may participate in this funding, for which they would receive ownership in Solutia common stock, with a corresponding decrease in equity allocable to Monsanto.
• Monsanto and Solutia would each manage designated environmental remediation programs. An advisory board, with members appointed by both companies, would oversee environmental remediation sites for which Monsanto and Solutia have agreed to share responsibility. Monsanto would retain oversight with respect to resolution of tort litigation claims. Monsanto's financial commitment would be essentially consistent with the previously booked $284 million charge recorded in the first quarter of fiscal year 2005.
• Monsanto could receive up to approximately 50 percent ownership of Solutia's common stock in exchange for the funds spent or committed by Monsanto to help bring Solutia out of bankruptcy, significant additional contributions to Solutia's reorganization, settlement of various litigation claims, expenditures made for environmental remediation programs, such as for the PCB settlement and remediation
  programs in Anniston, Ala., and the equity infusion described above. The actual amount of ownership would be determined in connection with participation in the $250 million dedicated fund by other parties
  described above and confirmation of the plan by the court.

"Assuming that Solutia is reorganized in a manner consistent with the parties' agreement in principle," Crews said, "Monsanto's recorded reserves appear adequate at this time."

Monsanto would continue to manage certain Solutia-related issues as it has since Solutia filed for bankruptcy, Crews said. A dedicated group will remain focused on managing these issues, allowing the vast majority of employees to continue to focus on Monsanto's agricultural strategy and businesses.

Monsanto Company (NYSE: MON - News) is a leading industry provider of technology-based solutions and agricultural products that improve farm efficiency and food quality.