EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
Release No. ________
December 6, 2000
Notice is hereby given that the following has been made with the
Commission pursuant to provisions of the Public Utility Holding Company Act of
1935, as amended (the "Act") and rules promulgated thereunder. All interested
persons are referred to the Application-Declaration for a complete statement of
the proposed transactions summarized below. The Application-Declaration and any
amendments thereto are available for public inspection through the Commission's
Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
Application-Declaration should submit their views in writing by
___________________, 2000 to the Secretary, U.S. Securities and Exchange
Commission, Washington, D.C. 20549, and serve Applicants- Declarants at the
addresses specified therein. Proof of service (by affidavit or, in the case of
an attorney-at-law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that
are disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in the matter.
After said date, the Application-Declaration, as filed or amended, may be
granted and/or permitted to become effective.
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I. SUMMARY
Mobile Energy Services Company, L.L.C. ("Mobile Energy"), Mobile Energy
Service Holdings, Inc. ("Holdings"), both of 900 Ashwood Parkway, Suite 500,
Atlanta, Georgia 30338 (collectively "Debtors"), and the Southern Company
("Southern"), 270 Peachtree Street, N.W., Atlanta, Georgia 30303, a holding
company registered pursuant to the Public Utility Holding Company Act of 1935,
as amended (the "Act") (the three of which are the "Applicants") filed an
Application-Declaration (the "Filing") on October 13, 2000. The Filing relies
upon sections 6, 7, 11 and 12 of the Act and inter alia Rules 23 and 64.
The Filing includes an amended plan of reorganization and disclosure
statement for Debtors and Exhibits thereto (the "Plan"), which were filed on
September 15, 2000 with the United States Bankruptcy Court for the Southern
District of Alabama (the "Bankruptcy Court") pursuant to the provisions of
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The
Applicants request the Commission to issue such authorization necessary to (i)
approve the Plan and certain related transactions thereunder, (ii) consummate
transactions contemplated in the Plan and described in the Filing, and (iii) as
necessary, provide a report on the Plan pursuant to Section 11(g) for use in the
proceedings before the Bankruptcy Court.
In 1998, Mobile Energy's largest customer (i.e., Kimberly-Clark Tissue
Company ("KCTC")) announced that it would cease operations at its pulp mill. The
cessation of KCTC's pulp mill operations meant that Mobile Energy would
experience significantly decreased sales revenues; the loss of the source of an
important, relatively expensive and previously plentiful fuel; and increased per
unit costs of generating power. The cessation of the KCTC purchases also would
idle facilities representing significant capital investments.
In response to these circumstances, Mobile Energy and Holdings filed
voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of
the Bankruptcy Code on January 14, 1999 (the "Petition Date"). The Debtors filed
their initial Joint Plan of Reorganization with the Bankruptcy Court on August
4, 2000. The Plan will be subject to comment by interested parties, including
creditors, in the course of the Bankruptcy Court review. The proponents of the
Plan include a Bondholder Steering Committee which represents more than 70% of
the current outstanding bondholders of the Debtors. The Bondholder Steering
Committee includes indenture trustees representing all of the bondholders.
The Plan pending before the Bankruptcy Court would be the subject of
solicitation and requests for authorization to implement the Plan. The Plan
incorporates a number of ancillary transactions detailed in the Filing. The
Commission may issue a report on the Plan pursuant to Section 11(g) of the Act.
The purposes of the transactions described in the Plan are to (1)
permit Mobile Energy and Holdings to reorganize and emerge from bankruptcy; (2)
maximize the recovery of Mobile Energy's bondholders on their capital
investment; (3) eliminate the direct and indirect equity ownership of Southern
in Mobile Energy and Holdings; and (4) allow Mobile Energy to operate a
qualifying facility under the Public Utility Regulatory Policies Act of 1978
("PURPA") after the effective date of the Plan, which will cause Mobile Energy
and Holdings to no longer be subject to the Act.
Upon implementation of the Plan, the ownership interests of Southern
and its affiliates in the Debtors will terminate. Applicants contend that
Southern's disaffiliation in the Debtors is beneficial to Southern because
Southern has written off its investment in the Debtors and it removes a drain on
Southern's management's time and attention. Southern and its affiliates will
have substantially reduced obligations going forward with respect to Mobile
Energy and Holdings.
II. The Plan
The Plan proponents believe that the transactions proposed in the Plan
will provide the best chance to maximize recoveries to creditors under the very
difficult circumstances confronting Debtors. The transactions proposed in the
Plan consist of the KCTC Settlement Agreement and the transactions contemplated
therein, the development of the Cogen Project, and the development of a new pulp
mill capable of producing approximately 800 short tons of pulp per day, all as
more fully described below.
a. KCTC Settlement Agreement
The settlement agreement between the Debtors and KCTC (the "KCTC
Settlement Agreement") encompasses a number of transactions over a period of
time. On February 8, 2000, Mobile Energy and KCTC executed (i) a new agreement
governing electricity and steam processing services to be supplied by Mobile
Energy to KCTC's tissue mill at market prices; and (ii) an agreement that allows
Mobile Energy or its assignee to purchase certain portions of KCTC's pulp mill
and related assets to be used for a new 800 short ton per day pulp mill. On the
closing date, if certain conditions are met, KCTC will pay Mobile Energy
approximately $30.12 million and KCTC will transfer certain properties to Mobile
Energy, including: real property to accommodate a new transmission substation;
real property for a new warehouse; facilities and related real property to
receive, unload, handle, store, and deliver to Mobile Energy biomass; and
certain other real property and easements, licenses, leasehold interests, rights
of way, or other conveyances of interests reasonably necessary to implement the
transactions contemplated by the Plan. Mobile Energy in turn will transfer its
existing warehouse, No. 6 Power Boiler (including certain ancillary equipment),
and either a security interest in an undivided ownership interest in or an
undivided ownership interest in certain electrical facilities used to deliver
power within the industrial complex, to KCTC.
If the conditions set forth in the settlement agreement with KCTC are
not met, then the transactions to be performed will not take place and any
transactions previously performed will be unwound and the parties will be
restored to the status quo ante as it existed on January 24, 2000. Two of those
conditions are that the Plan be confirmed by December 31, 2000 and is effective
by January 31, 2001.
b. Cogen Project
The development of the Cogen Project will occur under the MESC
Cogeneration Development Agreement dated as of February 9, 2000, between Mobile
Energy, Holdings, Southern Energy, Inc. ("SEI"), and Southern Energy Resources
Inc. ("Southern Energy Resources"), as amended by Amendment No. 1 dated August
11, 2000 (the "Development Agreement"), as approved by the Bankruptcy Court
following hearings. The Development Agreement is an Exhibit to the Filing. The
Development Agreement provides, among other things, that: (1) Mobile Energy has
an option to purchase from SEI a combustion turbine being manufactured for SEI
by General Electric ("GE") to be used to develop the Cogen Project at SEI's cost
and pay SEI $2.9 million as an option fee; (2) SEI will assign its rights under
a long term services agreement related to that turbine with General Electric
International, Inc. to Mobile Energy; (3) Mobile Energy will terminate an
Operating Agreement no later than March 31, 2001; (4) Mobile Energy will pay
one-half the actual cost of a retention and severance program implemented by
Southern Energy Resources for its workers at Mobile Energy's facilities, up to a
total of $2 million paid by Mobile Energy; (5) Southern, SEI, Southern Energy
Resources, Mobile Energy, Holdings, the indenture trustee and the collateral
agent will exchange releases of claims; (6) Southern, SEI, Southern Energy
Resources, Mobile Energy and Holdings will provide certain indemnities to each
other; and (7) Southern, Southern Energy Resources and SEI will hold a first
priority lien on the Debtors' assets and those of any affiliate set up to own
the Cogen Project to secure performance of all obligations which may be owed to
Southern, Southern Energy Resources and SEI under the Development Agreement.
The Debtors will use the $30.12 million to be received from KCTC in
part for the development of the Cogen Project. The balance of the cost of the
Cogen Project will be funded through debt and/or equity financing in addition to
the funds otherwise available to the Debtors. That financing must be completed
prior to April 2001 to enable Mobile Energy to purchase the combustion turbine
from SEI, which purchase is dependent on Mobile Energy's reimbursing SEI for the
$28 million cost of the combustion turbine. Arranging that financing in turn
depends on having the Plan become effective in early 2001, because negotiating
and memorializing the financing instruments against this factual backdrop will
involve significant amounts of time.
The combustion turbine generator that is the subject of the Development
Agreement presently is being manufactured by GE. Its delivery to the Mobile
facility is not anticipated until approximately April 1, 2001, at which point if
the Plan is approved and effective, equity ownership interests of Southern in
Holdings will have been extinguished.
c. The New Pulp Mill
The Plan contemplates that a new 800 short ton per day pulp mill will
be developed at the Mobile facility under a term sheet agreed to by Jubilee
Pulp, Inc. ("Jubilee Pulp") and Mobile Energy (the "Term Sheet"). The
transactions necessary to develop the new pulp mill include (a) consummation of
the KCTC Settlement Agreement; (b) consummation of certain agreements with the
Debtors to effect the distribution of the No. 8 Recovery Boiler by Mobile Energy
to Holdings and its contribution by Holdings to a new limited liability company;
and (c) a new energy services agreement between Mobile Energy and the developer
of the New Pulp Mill.
Pursuant to the settlement with KCTC, KCTC granted Mobile Energy a
transferable option to acquire certain assets from KCTC that could be used to
develop the new pulp mill. Mobile Energy has agreed to assign this option to
Jubilee Pulp, or another successful bidder, and Jubilee Pulp (if it is the
successful bidder) has agreed to develop the new pulp mill.
A recovery boiler (the "No. 8 Recovery Boiler") will be distributed by
Mobile Energy to Holdings and then contributed by Holdings to a new limited
liability company (the "Pulpco LLC"), whose members will be Holdings and Jubilee
Pulp.
Jubilee Pulp and Mobile Energy also will execute a new agreement under
which Mobile Energy will provide electric power processing services, steam
processing services and steam conditioning services to Jubilee Pulp.
III. Treatment of Claims Under the Plan
Under the Plan, the claims of the general unsecured creditors and the
claims of all other creditors, except Southern and its affiliates and the
bondholders, will be paid in full.
First mortgage bonds were issued by Mobile Energy on August 1, 1995, in
the original principal amount of $255,210,000 due January 1, 2017 and bearing
annual interest at 8.665%. Under the Plan, the first mortgage bonds will be
exchanged for new taxable bonds in an aggregate principal amount of $51,535,000,
which bear interest at the rate of 10% per annum and will be fully amortized on
December 1, 2021. In addition, 7,259,400 shares of new common stock of Holdings
will be distributed to the holders of the first mortgage bonds. Each share of
new common stock will be entitled to one vote per share.
Holders of tax-exempt bonds issued to finance the construction of the
Number 7 Power Boiler and certain auxiliary systems will receive in exchange new
tax-exempt bonds in an aggregate principal amount of $20,035,000 (subject to
increase of up to an additional $2,003,500 aggregate principal amount of new
tax-exempt bonds if each allowed tax-exempt bondholder receives additional new
tax-exempt bonds rather than common stock of Holdings as described below). The
new tax-exempt bonds will bear interest at the rate of 8% per annum and will be
fully amortized on December 1, 2021. In addition, up to an aggregate of
2,740,600 shares of new common stock will be issued to the tax-exempt
bondholders (based on the number of tax-exempt bondholders that elect to receive
new common stock). Each share of new common stock will be entitled to one vote
per share. Each of the tax-exempt bondholders may elect in lieu of receiving any
common stock in Holdings to receive additional new tax-exempt bonds equal to 10%
of the new bonds to be received by such holder from the $20,035,000 principal
amount of new tax-exempt bonds to be distributed to all such holders.
Equity ownership interests that Southern has in Holdings prior to the
effective date of the Plan will be extinguished upon the effective date of the
Plan, meaning that if the Plan and related steps are implemented, Mobile Energy
and Holdings will not be regulated under the Act after the Plan's effective
date.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
