Exhibit A-1
UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
In re: ss.
ss.
MOBILE ENERGY SERVICES ss. Case No. 99-10168
COMPANY, L.L.C., ss. Chapter 11
Debtor. ss.
ss.
In re: ss.
MOBILE ENERGY SERVICES ss. Case No. 99-10170
HOLDINGS, INC., ss. Chapter 11
ss.
Debtor. ss. (Jointly Administered Under 99-10168)
DISCLOSURE STATEMENT ACCOMPANYING the first
amended JOINT PLAN OF REORGANIZATION DATED
September 15, 2000 PROPOSED BY MOBILE ENERGY
SERVICES COMPANY, L.L.C., MOBILE ENERGY SERVICES
HOLDINGS, INC. AND THE BONDHOLDER STEERING COMMITTEE
THIS IS NOT A SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE PLAN.
ACCEPTANCES OR REJECTIONS OF THE PLAN MAY NOT BE SOLICITED UNTIL A
DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS
DOCUMENT IS BEING SUBMITTED TO THE BANKRUPTCY COURT FOR APPROVAL BUT
HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT.
DONALD J. STEWART JEFFREY E. SPIERS
CABANISS, JOHNSTON, GARDNER, DAVID A. ZDUNKEWICZ
DUMAS & O'NEAL ANDREWS & KURTH L.L.P.
700 RIVERVIEW PLAZA 600 TRAVIS, SUITE 4200
MOBILE, ALABAMA HOUSTON, TEXAS 77002
(334) 433-6961 (713) 220-4200
(334) 415-7350 (TELECOPY) (713) 220-4285 (TELECOPY)
COUNSEL TO THE DEBTORS SPECIAL COUNSEL TO THE DEBTORS
DAVID D. CLEARY
DAVID C. CHRISTIAN LAWRENCE B. VOIT
MCDERMOTT WILL & EMERY SILVER, VOIT & THOMPSON, P.C.
227 W. MONROE STREET 4317A MIDMOST DRIVE
CHICAGO, ILLINOIS 60606 MOBILE, ALABAMA 36609
(312) 372-2000 (334) 343-0800
(312) 984-7700 (TELECOPY) (334) 343-0862 (TELECOPY)
COUNSEL TO THE BONDHOLDER COUNSEL TO THE BONDHOLDER
STEERING COMMITTEE STEERING COMMITTEE
<PAGE>
MICHAEL E. WILES
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK
(212) 909-6000
(212) 909-6836 (TELECOPY)
COUNSEL TO THE BONDHOLDER
STEERING COMMITTEE
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION................................................2
II. NOTICE TO CREDITORS AND HOLDERS OF EQUITY INTERESTS.........3
III. PLAN SUMMARY................................................5
A. Introduction................................................5
B. Summary of Classification and Treatment.....................6
IV. BUSINESS PLAN...............................................11
A. Background..................................................11
B. Summary of Proposed Post-Reorganization Business Plan.......13
1. Servicing Existing Customers................................13
2. The New Pulp Mill...........................................14
3. Development of the Cogen Project............................15
4. Other Components of Business Plan...........................16
C. Summary of Post-Reorganization Structure....................17
1. Organizational Structure....................................17
2. Capital Structure...........................................18
D. Agreements Implementing the Proposed Business Plan..........21
1. KCTC Settlement Agreement...................................21
2. New Pulp Mill Agreements....................................22
3. Cogen Documents.............................................23
4. Existing Agreement with S.D. Warren.........................24
V. GENERAL INFORMATION ABOUT THE DEBTORS.......................25
A. Corporate Information.......................................25
B. Description of the Pre-Reorganization Business
of Mobile Energy..........................................26
1. The Energy Complex..........................................26
2. The Mobile Facility.........................................27
C. Events Precipitating Chapter 11 Filings.....................27
D. Project Documents...........................................29
1. Original Energy Services Agreements and
Master Operating Agreement................................29
2. Operations and Maintenance Agreement........................34
3. Direct Lease................................................35
4. Supplementary Lease.........................................37
5. Environmental Indemnity Agreements..........................38
6. Common Services Agreement...................................40
7. Water Procurement and Effluent Services Agreement...........41
E. Planned Post-Reorganization Business Activities
of Mobile Energy..........................................42
1. Post-Reorganization Energy Complex..........................42
2. New Tissue Mill ESA and Other KCTC Agreements...............42
3. The New Pulp Mill...........................................45
4. Cogeneration Project........................................48
5. Exempt Wholesale Generator/Qualifying Facility..............53
F. Operating Results...........................................54
G. Pre-Reorganization Senior Secured Indebtedness..............56
1. Working Capital Facility....................................56
2. The First Mortgage Bonds....................................57
i
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3. The Tax-Exempt Bonds........................................57
4. Agreements Common to Senior Debt............................58
5. Effect of Chapter 11 Filings on Senior Secured Debt.........60
VI. DESCRIPTION OF DEBTORS' ASSETS..............................61
A. Assets of Mobile Energy.....................................61
1. Property, Plant and Equipment...............................61
2. Personal Property...........................................62
B. Assets of Holdings..........................................62
1. Cash........................................................62
C. Causes of Action Owned by Both Mobile Energy and Holdings...63
VII. SIGNIFICANT EVENTS PRIOR TO AND DURING CHAPTER 11 CASES.....63
A. Pre-petition KCTC Disputes..................................63
1. Notice of Termination of Pulp Mill ESA and
Closure of Pulp Mill......................................63
2. Commencement of Arbitration Proceeding by KCTC..............63
3. Commencement of Lawsuit to Enjoin Arbitration Proceeding
by Mobile Energy..........................................64
B. Chapter 11 Petitions and Order Approving Joint
Administration............................................64
C. Post-Petition KCTC Disputes and the KCTC Settlement
Agreement.................................................65
1. Debtors' Adversary Proceeding against KCTC..................65
2. Arbitration of the KCTC Claims..............................66
3. KCTC Settlement Agreement...................................66
D. Motion to Approve Cogeneration Development Agreement........70
E. Orders Authorizing Use of Cash Collateral (Bar Date for
Challenges to Claims).....................................70
F. Order Approving Debtors' Cash Management System and
Authorizing Variances from U.S. Trustee's Investment
Guidelines................................................72
G. Conversion of Number 7 Recovery Boiler to the Number 8
Power Boiler..............................................72
H. Engagement Of Professional Persons..........................73
1. Engagement of Attorneys.....................................73
2. Engagement of Investment Banker.............................74
3. Engagement of Accountants...................................74
I. Southern Payment to Collateral Agent for Deposit in
Maintenance Reserve Account Pursuant to Guaranty in
Connection with First Mortgage Bonds and Tax-Exempt
Bonds.....................................................75
J. Appointment of Official Unsecured Creditors' Committee......75
K. Establishment of Bondholder Steering Committee..............76
L. Motions to Extend Exclusivity...............................76
M. Motions to Extend Time to Assume or Reject Real
Property Leases...........................................76
N. Motion to Approve Work Force Reduction-Severance Program....77
O. Motion to Approve Key Employee Retention Program............77
P. Motion to Pay Prepetition Wages.............................78
Q. SkyGen Proceeding Before the FERC...........................78
R. Motion to Approve Topping Fee and Related Relief............79
S. Motion to Approve Amendment No. 1...........................79
T. Disputes with S.D. Warren...................................80
VIII. CLASSIFICATION AND TREATMENT OF CLAIMS
AND EQUITY INTERESTS UNDER THE PLAN.........................80
A. General.....................................................80
B. Effective Date of the Plan..................................81
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<PAGE>
C. Classification Generally....................................81
D. Unclassified Claims.........................................81
1. Administrative Expenses.....................................81
2. Priority Tax Claims.........................................82
E. Classified Claims...........................................83
1. Class 1: Priority Non-Tax Claims..........................83
2. Class 2: Allowed Working Capital Facility Provider
Secured Claim....................................84
3. Class 3: Allowed Southern Post-Petition Claims..............86
4. Class 4: Allowed First Mortgage Bondholders Claims.........86
5. Class 5: Allowed Tax-Exempt Bondholders Claim..............89
6. Class 6: Allowed Other Secured Claims......................93
7. Class 7: Allowed Unsecured Claims..........................94
8. Class 8: Allowed Southern Claims...........................94
9. Class 9: Mobile Energy Equity Interests...................97
10. Class 10: Holdings Equity Interests.....................97
IX. IMPLEMENTATION OF THE PLAN..................................98
A. Administrative Consolidation................................98
B. Sources of Funds............................................98
C. Requisite Authority.........................................98
D. Distributions to Holders of Allowed Claims..................99
E. Distribution of Cash........................................99
F. Disputed Claims.............................................100
G. Bar Date for Fee Applications and Objections to Same........100
H. Description of Post-Effective Date Management...............101
I. Description of Post-Effective Date Capital Structure........101
1. New Taxable Bonds - General Terms...........................102
2. New Tax-Exempt Bonds - General Terms........................102
3. First Mortgage Bond Exchange................................103
4. Tax-Exempt Bond Exchange....................................104
5. Ranking and Security........................................104
6. Guarantors..................................................106
7. Optional Redemption.........................................107
8. Extraordinary Redemption....................................107
9. Mandatory Redemption........................................108
10. Book-Entry Global Security...............................108
11. Covenants................................................108
12. Events of Default under Indentures and New IDB Lease....109
13. Intercreditor Arrangements...............................110
14. New IDB Lease............................................111
15. Certain Modifications of Bond Documents with Supermajority
Vote Following Issuance of New Taxable Bonds and New
Tax-Exempt Bonds.......................................111
J. Issuance of the New Securities..............................112
1. Initial Issuance of the New Securities Under the Plan.......112
2. Resale of the New Securities................................113
3. Registration Rights Agreement...............................113
K. Modification Of Payment Terms...............................114
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L. Treatment Of Executory Contracts..............................114
1. General.....................................................114
M. Committees..................................................115
N. Retention Of Jurisdiction...................................115
O. Conditions To Confirmation and Effectiveness................115
1. Conditions To Confirmation..................................115
2. Conditions To Effective Date................................117
3. Waiver of Conditions........................................118
P. Effect Of Confirmation......................................119
1. Discharge...................................................119
2. Exculpation.................................................119
3. Releases....................................................121
4. Injunction against Interference with Plan...................122
5. Vesting of Assets...........................................122
Q. Consummation And Effectiveness..............................122
R. Amendments to Holdings Articles of Incorporation and
Holdings By-laws; Amendments to Mobile Energy Articles
of Organization and Mobile Energy Operating Agreement.....123
1. Amendments to Holdings Articles of Incorporation and Holdings
By-laws..................................................123
2. Amendments to Mobile Energy Articles of Organization and
Mobile Energy Operating Agreement..........................123
S. Events of Default...........................................124
T. Retention of Claims and Causes of Action....................124
X. RISK FACTORS ASSOCIATED WITH PROPOSED PLAN..................125
A. General.....................................................125
B. Fuel and Power Prices.......................................125
C. Operational Risks...........................................126
D. Financing Risks.............................................127
E. Operating and Maintenance Costs.............................128
F. Mill Risk; Dependence Upon Mill Owners for Revenue..........128
G. Transmission Capacity Risks.................................129
H. Cogen Project Development Risk..............................130
I. Tax Effect on the Projections...............................130
J. Extension of Lease and Other Contracts......................131
K. PUHCA; PURPA................................................131
L. Environmental Risks.........................................132
1. The Cluster Rule............................................133
2. The Combustion Rule.........................................133
3. CERCLA......................................................134
M. Permitting and Regulatory Matters...........................135
N. Subdivision of Real Property at the Mobile Facility.........138
O. The New Pulp Mill; Transfer of Number 8 Recovery Boiler.....138
P. IDB Approval................................................139
Q. Tax-Exempt Status of New Tax-Exempt Bonds...................140
XI. VALUATION ANALYSIS..........................................140
A. General.....................................................140
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B. Liquidation Value...........................................141
XII. BANKRUPTCY CAUSES OF ACTION................................141
A. Preferences.................................................141
B. Fraudulent Conveyances......................................142
XIII. CERTAIN INCOME TAX CONSEQUENCES.............................143
A. Scope And Limitations.......................................143
B. Tax Consequences To Creditors...............................144
1. General.....................................................144
2. Holders of First Mortgage Bondholder Claims.................145
3. Holders of Tax-Exempt Bondholder Claims.....................147
4. Installment Sale Rules......................................148
5. Receipt of Interest.........................................148
6. Backup Withholding and Reporting............................149
C. Importance Of Obtaining Professional Tax Assistance.........149
XIV. VOTING PROCEDURES AND REQUIREMENTS..........................150
A. Ballots and Voting Deadline.................................150
B. Creditors Solicited to Vote.................................151
C. Definition of Impairment....................................151
D. Classes Impaired Under the Plan.............................152
E. Vote Required for Class Acceptance..........................152
F. Distributions Only to Holders of Allowed Claims and Equity
Interests.................................................153
XV. CONFIRMATION OF THE PLAN.........................................153
A. Confirmation Hearing........................................154
B. Requirements for Confirmation of the Plan...................155
1. General.....................................................155
2. Feasibility.................................................157
3. Best Interests Of Creditors And Liquidation Analysis........158
C. Cramdown....................................................158
1. No Unfair Discrimination....................................159
2. Fair and Equitable Test.....................................159
v
<PAGE>
INTRODUCTORY STATEMENT
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF
THE FIRST AMENDED JOINT PLAN OF REORGANIZATION DATED SEPTEMBER 15, 2000 PROPOSED
BY MOBILE ENERGY SERVICES COMPANY, L.L.C. AND MOBILE ENERGY SERVICES HOLDINGS,
INC., AS DEBTORS AND DEBTORS IN POSSESSION AND THE BONDHOLDER STEERING COMMITTEE
(TOGETHER THE "PROPONENTS") AND SUMMARIES OF CERTAIN OTHER DOCUMENTS RELATING TO
THE CONSUMMATION OF THE PLAN OR THE TREATMENT OF CERTAIN PARTIES-IN-INTEREST,
AND CERTAIN FINANCIAL INFORMATION RELATING THERETO. WHILE THE PROPONENTS BELIEVE
THAT THESE SUMMARIES PROVIDE ADEQUATE INFORMATION WITH RESPECT TO THE DOCUMENTS
SUMMARIZED, AND THE BANKRUPTCY COURT HAS APPROVED THIS DISCLOSURE STATEMENT AS
CONTAINING ADEQUATE INFORMATION, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT
THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS. EACH HOLDER OF AN
IMPAIRED CLAIM OR AN IMPAIRED EQUITY INTEREST SHOULD REVIEW THE ENTIRE PLAN
ATTACHED TO THIS DISCLOSURE STATEMENT BEFORE CASTING A BALLOT.
NO PARTY IS AUTHORIZED BY THE PROPONENTS OR THE BANKRUPTCY COURT TO
PROVIDE ANY INFORMATION WITH RESPECT TO THE PLAN OTHER THAN THAT CONTAINED IN
THIS DISCLOSURE STATEMENT. NEITHER THE PROPONENTS NOR THE BANKRUPTCY COURT HAVE
AUTHORIZED ANY REPRESENTATIONS CONCERNING THE DEBTORS, THEIR ANTICIPATED
FINANCIAL POSITION OR OPERATIONS AFTER CONFIRMATION OF THE PLAN, OR THE VALUE OF
THEIR BUSINESSES AND PROPERTIES OTHER THAN AS SET FORTH IN THIS DISCLOSURE
STATEMENT. UNLESS STATED OTHERWISE IN THIS DISCLOSURE STATEMENT, THE DISCLOSURES
IN THIS DISCLOSURE STATEMENT ARE MADE BY THE PROPONENTS AND SHOULD NOT BE
CONSTRUED AS BEING MADE BY ANY OTHER PARTY. TO THE EXTENT INFORMATION IN THIS
DISCLOSURE STATEMENT RELATES TO THE DEBTORS, THE DEBTORS HAVE PROVIDED THE
INFORMATION IN THIS DISCLOSURE STATEMENT.
NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT, EXPRESS OR IMPLIED, IS
INTENDED TO GIVE RISE TO ANY COMMITMENT OR OBLIGATION OF THE DEBTORS OR SHALL
CONFER UPON ANY PERSON ANY RIGHTS, BENEFITS, OR REMEDIES OF ANY NATURE
WHATSOEVER.
THIS DISCLOSURE STATEMENT CONTAINS PROJECTED FINANCIAL INFORMATION
REGARDING THE DEBTORS, THE REORGANIZED DEBTORS AND CERTAIN OTHER FORWARD-LOOKING
STATEMENTS, ALL OF WHICH ARE BASED ON VARIOUS ESTIMATES AND ASSUMPTIONS AND WILL
NOT BE UPDATED TO REFLECT EVENTS OCCURRING AFTER THE DATE HEREOF. SUCH
INFORMATION AND STATEMENTS ARE SUBJECT TO INHERENT UNCERTAINTIES AND TO A WIDE
VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE RISKS, INCLUDING,
AMONG OTHERS, THOSE DESCRIBED HEREIN. CONSEQUENTLY, ACTUAL EVENTS,
CIRCUMSTANCES, EFFECTS AND RESULTS MAY VARY SIGNIFICANTLY FROM THOSE INCLUDED IN
OR CONTEMPLATED BY SUCH PROJECTED FINANCIAL INFORMATION AND SUCH OTHER
FORWARD-LOOKING STATEMENTS. THE PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN
IS THEREFORE NOT NECESSARILY INDICATIVE OF THE FUTURE FINANCIAL CONDITION OR
RESULTS OF OPERATIONS OF THE DEBTORS OR THE REORGANIZED DEBTORS, WHICH MAY VARY
SIGNIFICANTLY FROM THOSE SET FORTH IN SUCH PROJECTED FINANCIAL STATEMENTS.
CONSEQUENTLY, THE PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN SHOULD NOT BE REGARDED AS REPRESENTATIONS BY THE
PROPONENTS, THE PROPONENTS' ADVISORS, OR ANY OTHER PERSON THAT THE PROJECTED
FINANCIAL CONDITION OR RESULTS CAN OR WILL BE ACHIEVED.
EXCEPT AS HEREINAFTER NOTED, THE INFORMATION CONTAINED HEREIN IS
GENERALLY INTENDED TO DESCRIBE FACTS AND CIRCUMSTANCES ONLY AS OF SEPTEMBER 15,
2000, OR SPECIFIC DATES HEREIN, AND NEITHER THE DELIVERY OF THE DISCLOSURE
STATEMENT NOR THE CONFIRMATION OF THE PLAN WILL CREATE ANY IMPLICATION, UNDER
ANY CIRCUMSTANCES, THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AT ANY TIME AFTER SEPTEMBER 15, 2000, OR THAT THE PROPONENTS WILL BE UNDER ANY
OBLIGATION TO UPDATE SUCH INFORMATION IN THE FUTURE.
I.
INTRODUCTION
The Proponents have prepared this Disclosure Statement in connection
with the First Amended Joint Plan of Reorganization Proposed by the Debtors and
the Bondholder Steering Committee, dated as of September 15, 2000 (the "Plan").
The Plan has been filed with the United States Bankruptcy Court for the Southern
District of Alabama (the "Bankruptcy Court") in the Debtors' Chapter 11 Cases
now pending under Chapter 11 of Title 11, United States Code, 11 U.S.C. Sections
101-1330 (the "Bankruptcy Code"). A copy of the Plan is attached to this
Disclosure Statement as Exhibit A.
II.
NOTICE TO CREDITORS AND HOLDERS OF EQUITY INTERESTS
The Proponents submit this Disclosure Statement (the "Disclosure
Statement") pursuant to 11 U.S.C. ss. 1125 in connection with the solicitation
of votes in favor of acceptance of the Plan. The Disclosure Statement will be
transmitted to all Creditors and Holders of Equity Interests. However, as
provided by the Bankruptcy Code, the Proponents are seeking votes in favor of
acceptance or rejection of the Plan from only Holders of Claims classified in
Classes 4, 5, and 8 in the Plan, which are the only Claims that are Impaired
under the Plan and entitled to vote.
Capitalized terms used herein, if not separately defined in this
Disclosure Statement or the Definitions attached hereto, have the meanings
assigned to them in the Plan or in the Bankruptcy Code. All persons receiving
this Disclosure Statement and the Plan are encouraged to review fully the
provisions of the Plan and all attached appendices and exhibits, in addition to
reviewing this Disclosure Statement and all appendices and exhibits attached
hereto.
The Disclosure Statement is not intended to replace careful review and
analysis of the Plan. Rather, it is submitted as an aid and supplement to review
of the Plan and as an effort to explain the terms and implications of the Plan.
Every effort has been made to sufficiently explain the various aspects of the
Plan as they may affect all Creditors and Holders of Equity Interests. Creditors
and Holders of Equity Interests should read this Disclosure Statement and the
Plan in their entirety. If you have any questions, the Proponents urge you to
contact Debtors' legal counsel, and every effort will be made to assist you.
On ___________________, after notice and a hearing, the Bankruptcy
Court, the Honorable William S. Shulman presiding, entered an order approving
this Disclosure Statement as containing information of a kind, and in sufficient
detail, adequate to enable Creditors and Holders of Equity Interests whose votes
on the Plan are being solicited to make an informed judgment whether to vote for
acceptance or rejection of the Plan.
No solicitation of votes on the Plan may be made, except pursuant to
this Disclosure Statement and Section 1125 of the Bankruptcy Code. No party has
been authorized to utilize any information concerning the Debtors or their
businesses or their properties, other than the information contained in this
Disclosure Statement, to solicit votes on the Plan.
EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT AND THE
APPENDICES AND EXHIBITS ATTACHED HERETO, NO REPRESENTATIONS
CONCERNING THE DEBTORS, THEIR ASSETS, THE PAST OR FUTURE
OPERATIONS OF THE DEBTORS, OR THE PLAN ARE AUTHORIZED, NOR ARE
ANY SUCH REPRESENTATIONS TO BE RELIED UPON IN ARRIVING AT A
DECISION WITH RESPECT TO voting on THE PLAN. ANY
REPRESENTATIONS MADE TO SECURE ACCEPTANCE OR REJECTION OF THE
PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT
SHOULD BE DISREGARDED AND SHOULD BE REPORTED TO COUNSEL FOR
THE PROPONENTS.
EXCEPT AS SPECIFICALLY NOTED, THERE HAS BEEN NO INDEPENDENT
AUDIT OF THE FINANCIAL INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT. THE PROPONENTS ARE NOT ABLE TO WARRANT
OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT
ANY INACCURACY. THE FACTUAL INFORMATION REGARDING THE DEBTORS,
INCLUDING THE ASSETS AND LIABILITIES OF THE DEBTORS, HAS BEEN
DERIVED FROM NUMEROUS SOURCES, INCLUDING BUT NOT LIMITED TO
the DEBTORS' BOOKS AND RECORDS, SCHEDULES, AND DOCUMENTS
SPECIFICALLY IDENTIFIED HEREIN.
THE INFORMATION CONTAINED IN THE DISCLOSURE STATEMENT is also
compiled FROM RECORDS AVAILABLE TO THE proponents, INCLUDING,
BUT NOT LIMITED TO, PLEADINGS AND REPORTS ON FILE IN THE
BANKRUPTCY COURT, PLEADINGS AND REPORTS ON FILE IN OTHER
COURTS AND TRIBUNALS, LOAN AGREEMENTS, AND BUSINESS RECORDS.
THE APPROVAL OF THE DISCLOSURE STATEMENT BY THE BANKRUPTCY
COURT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY
COURT OF THE PLAN OR A GUARANTee OF THE ACCURACY AND
COMPLETENESS OF THE INFORMATION CONTAINED IN THis DISCLOSURE
STATEMENT.
After careful review of the Disclosure Statement and all appendices and
Exhibits attached thereto, each Creditor in Classes 4, 5 and 8 (as defined
below) should vote in favor of acceptance or rejection of the Plan on the
enclosed ballot and return the ballot in the enclosed self-addressed return
envelope by 5:00 p.m. Eastern Time on _______________, 2000 to Innisfree M&A
Incorporated, 501 Madison Avenue, 20th Floor, New York, New York 10022. PLEASE
NOTE THAT BALLOTS WILL NOT BE ACCEPTED BY FACSIMILE. A BALLOT BEARING AN
ORIGINAL SIGNATURE MUST BE RECEIVED, AND ANY BALLOTS RECEIVED AFTER 5:00 P.M.,
EASTERN TIME ON __________________, 2000 WILL NOT BE COUNTED.
III.
PLAN SUMMARY
A. Introduction
The following is a brief summary of the Plan's treatment of Claims
against and Equity Interests in the Debtors. This summary is qualified in its
entirety by reference to the provisions of the entire Plan. A copy of the Plan
is attached hereto as Exhibit A and incorporated herein by reference. You are
urged to read the Plan in its entirety. To the extent there is any conflict
between this Disclosure Statement and the Plan, the terms of the Plan control.
The Plan provides for the recapitalization of the Debtors and
continuation of the Debtors' business operations. The proposed recapitalization
reduces the indebtedness of the Debtors and replaces the existing holders of
equity in the Debtors with certain of the Holders of Claims against the Debtors.
As part of the Debtors' business plan, the Plan provides for the
continuation of the Debtors' existing business operations through continuation
of service to its existing customers, KCTC and S.D. Warren. The Plan also
contemplates (a) that the Debtors will receive revenues (i) directly from the
provision of energy services; and (ii) indirectly from the lease of certain
assets to a new 800 short ton per day pulp mill at the Mobile Facility which is
being developed by a third party, Jubilee Pulp or a higher bidder, and (b) a
Cogen Facility, comprised of a combustion turbine ("CT") and heat recovery steam
generator ("HRSG"), which the Debtors intend to develop at the Mobile Facility.
B. Summary of Classification and Treatment
<TABLE>
<CAPTION>
-------------------- -------------------------------------- --------------------------------------
CLASS DESCRIPTION TREATMENT
-------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Unclassified Allowed Administrative Expenses Except to the extent that the Holder
Estimated Claims: of an Allowed Administrative Expense
$5,032,396.00 agrees to a different treatment,
Allowed
Administrative
Expenses
shall
be
paid
in
full
in
Cash
(i)
as
soon
as
practicable
after
the
date
upon
which
such
Administrative
Expense
becomes
an
Allowed
Administrative
Expense,
or
(ii)
if
incurred
in
the
ordinary
course
of
the
Debtors'
businesses,
in
accordance
with
the
terms
and
conditions
of
the
particular
transaction.
Estimated
Recovery:
100%
-------------------- -------------------------------------- --------------------------------------
Unclassified Allowed Priority Tax Claims Except to the extent that the Holder
Estimated Claims: $0.00 of an Allowed Priority Tax Claim
agrees to a different treatment or
as otherwise ordered by the
Bankruptcy Court, each Holder of an
Allowed Priority Tax Claim shall be
paid in full in Cash as soon as
practicable after the date upon
which such Priority Tax Claim
becomes an Allowed Priority Tax
Claim, provided, however, that at
the option of the Reorganized
Debtors, the Reorganized Debtors may
pay Allowed Priority Tax Claims over
a period not exceeding six (6) years
after the date of assessment
pursuant to 11 U.S.C. Section
1129(a)(9)(C).
Estimated Recovery: 100%
-------------------- -------------------------------------- --------------------------------------
Class 1 Allowed Priority Non-Tax Claims Unimpaired. Except to the extent
Estimated Claims: $0.00 that the Holder of an Allowed
Priority
Non-Tax
Claim
agrees
to
a
different
treatment,
Allowed
Priority
Non-Tax
Claims
shall
be
paid
in
full,
in
Cash
as
soon
as
practicable
after
the
date
upon
which
such
Priority
Non-Tax
Claim
becomes
an
Allowed
Priority
Non-Tax
Claim.
Estimated
recovery:
100%
-------------------- -------------------------------------- --------------------------------------
Class 2 Allowed Working Capital Facility Unimpaired. With respect to the
----------
Provider Claim Allowed Claims in Class 2, the Plan
Estimated Claim: $0.00 may, at the Debtors' option: (i)
leave unaltered the legal, equitable
and contractual rights of the
Allowed Working Capital Facility
Provider Claim; (ii) provide for the
reinstatement of the underlying
obligation; or (iii) provide Cash in
the full amount of such Allowed
Claim. The Debtors do not believe
that any Class 2 Claim exists.
Estimated Recovery: 100%
-------------------- -------------------------------------- --------------------------------------
Class 3 Southern Post-Petition Claims Unimpaired. The Holders of Allowed
----------
Estimated Claims: $5,142,786.00 Claims in Class 3 shall receive in
complete settlement, satisfaction,
and discharge of their Class 3
Claims the treatment provided for in
the Cogeneration Development
Agreement, as amended by Amendment
No. 1, and the orders approving them.
Estimated Recovery: 100%
-------------------- -------------------------------------- --------------------------------------
Class 4 Allowed First Mortgage Bondholder Impaired. On the Effective Date, the
Claims First Mortgage Bonds will be
Estimated Claims: $230,030,000.00* exchanged for New Taxable Bonds in
an
aggregate
principal
amount
of
$51,535,000.
Each
Holder
shall
receive,
in
exchange
for
its
First
Mortgage
Bondholder
Claim,
an
amount
of
New
Taxable
Bonds
equal
to
the
product
of
(a)
the
outstanding
principal
amount
of
such
Holder's
First
Mortgage
Bonds
as
shown
on
the
books
and
records
of
DTC
on
the
Record
Date
and
(b)
0.24704.
In
addition,
on
the
Effective
Date,
the
Holders
of
First
Mortgage
Bonds
as
a
Class
will
receive
an
aggregate
of
7,259,400
shares
of
New
Common
Stock.
Each
Holder
shall
receive,
in
exchange
for
its
First
Mortgage
Bondholder
Claim,
an
amount
of
New
Common
Stock
equal
to
the
product
of
(a)
the
outstanding
principal
amount
of
such
Holders'
First
Mortgage
Bonds
as
shown
on
the
books
and
records
of
DTC
on
the
Record
Date
divided
by
214,820,000
and
(b)
7,259,400.
Any
such
share
of
New
Common
Stock
or
New
Taxable
Bond
received
by
such
Holder
shall
be
rounded
down
to
the
nearest
whole
dollar.
Each
such
Holder
may
elect
to
receive
all
or
part
of
its
New
Taxable
Bonds
and
shares
of
New
Common
Stock
in
the
form
of
one
or
more
Combined
Securities
rather
than
receiving
the
separate
debt
and
equity
securities.
Estimated
Recovery:
42.0
%
to
48.8%
of
the
First
Mortgage
Bondholder
Claims,
depending
on
the
option
elected
by
the
Holders
of
Tax-Exempt
Bondholder
Claims.**
-------------------- -------------------------------------- --------------------------------------
Class 5 Allowed Tax-Exempt Bondholder Claims Impaired. On the Effective Date,
--------
Estimated Claims: $85,000,000.00*** the Tax-Exempt Bonds will be
exchanged
for
New
Tax-Exempt
Bonds
in
an
aggregate
principal
amount
of
$20,035,000.
Each
Holder
shall
receive,
in
exchange
for
its
Tax-Exempt
Bondholder
Claim,
an
amount
of
New
Tax-Exempt
Bonds
equal
to
the
product
of
(a)
the
outstanding
principal
amount
of
such
Holder's
Tax-Exempt
Bonds
as
shown
on
the
books
and
records
of
DTC
on
the
Record
Date
and
(b)
0.24769.
In
addition,
on
the
Effective
Date,
the
Holders
of
Tax-Exempt
Bonds
as
a
Class
will
receive
either
(a)
up
to
an
aggregate
of
2,740,600
shares
of
New
Common
Stock
or
(b)
up
to
an
aggregate
of
$2,003,500
in
additional
New
Tax-Exempt
Bonds.
Each
Holder
exercising
its
option
to
receive
New
Common
Stock
for
any
portion
of
its
Tax-Exempt
Bondholder
Claim
shall
receive,
in
exchange
for
such
portion
of
its
Tax-Exempt
Bondholder
Claim,
an
amount
of
New
Common
Stock
equal
to
the
product
of
(a)
the
outstanding
principal
amount
of
Tax-Exempt
Bonds
shown
on
the
books
and
records
of
DTC
on
the
Record
Date
divided
by
80,889,000
and
(b)
2,740,600.
Each
Holder
exercising
its
option
to
receive
additional
New
Tax-Exempt
Bonds
for
any
portion
of
its
Tax-Exempt
Bondholder
Claim
shall
receive,
in
exchange
for
such
portion
of
its
Tax-Exempt
Bondholder
Claim,
an
amount
of
New
Tax-Exempt
Bonds
equal
to
the
product
of
(a)
the
outstanding
principal
amount
of
that
portion
of
such
Holder's
Tax-Exempt
Bonds
as
shown
on
the
books
and
records
of
DTC
on
the
Record
Date
and
(b)
0.024769.
Any
exchange
of
such
share
of
New
Common
Stock
or
New
Tax-Exempt
Bond
received
by
such
Holder
shall
be
rounded
down
to
the
nearest
whole
dollar.
Estimated
Recovery:
32.3%
to
40.7%
of
the
Tax-Exempt
Bondholder
Claims,
depending
on
the
option
elected
by
the
Holders
of
Tax-Exempt
Bondholder
Claims.****
-------------------- -------------------------------------- --------------------------------------
Class 6 Allowed Other Secured Claims Unimpaired. The Holders of Allowed
Estimated Claims: Claims in Class 6 shall retain,
$0.00 unaltered, their legal, equitable
and contractual rights or shall be
paid the full amounts of their
Allowed Claims, in Cash.
Estimated Recovery: 100%
------------------- -------------------------------------- --------------------------------------
Class 7 Allowed Unsecured Claims Unimpaired. Holders of Allowed
Estimated Claims: $431,286.00 Unsecured Claims will be paid as
soon as practicable after such Claim
becomes an Allowed Claim.
Estimated Recovery: 100%
-------------------- -------------------------------------- --------------------------------------
Class 8 Allowed Southern Claims Impaired. Holders of Allowed Claims
Estimated Claims: in Class 8 shall receive in complete
$50,000,000.00 settlement, satisfaction, and
discharge of their Class 8 Claims
the treatment provided for in the
Cogeneration Development Agreement,
as amended by Amendment No. 1, and
the orders approving them.
Estimated Recovery: 0.6%
-------------------- -------------------------------------- --------------------------------------
Class 9 Mobile Energy Equity Interests Unimpaired. Holdings will retain its
Mobile Energy Equity Interests.
Estimated Recovery: 100%
-------------------- -------------------------------------- --------------------------------------
Class 10 Holdings Equity Interest Impaired. The Holders of Holdings
Equity Interests shall not receive
any distributions under the Plan and
the Holdings Equity Interests shall
be canceled and extinguished.
Estimated Recovery: 0%
-------------------- -------------------------------------- --------------------------------------
</TABLE>
IV.
BUSINESS PLAN
A. Background
Mobile Energy owns and operates an energy and chemical recovery complex
(the "Energy Complex") located at the Mobile Facility. The Energy Complex
historically provided a variety of energy related services to the Mills.
Currently, the Pulp Mill and Tissue Mill are owned by KCTC, and the Paper Mill
is owned by S.D. Warren. The Energy Complex used the "black liquor" and biomass
fuels produced by the Pulp Mill, as well as coal and natural gas, to generate
electricity and steam that were used by all three of the Mills. The Energy
Complex received payments for providing the electricity and steam processing
services to the Mills. The Energy Complex also processed "black liquor" into
"green liquor" that was used by the Pulp Mill and received additional revenue
for that processing service. Mobile Energy provided services and received
payments pursuant to three Energy Services Agreements ("ESAs"), one with the
owner of each of the Mills.
In May 1998, the Debtors received a notice from KCTC that KCTC planned
to close the Pulp Mill and to terminate the Pulp Mill ESA effective on September
1, 1999. The Debtors recognized that the announced shutdown of the Pulp Mill
would result in Mobile Energy losing its largest customer in terms of annual
revenue and a principal source of inexpensive fuel. In addition, the suspension
of pulping operations at the Mobile Facility would create an imbalance between
steam demand and power demand, which would effectively raise Mobile Energy's
cost of power generation. Without the inexpensive biomass and black liquor
produced by the Pulp Mill and the revenue derived from providing services to the
Pulp Mill, and due to the increased cost of power generation, the Debtors did
not believe they could meet their financial obligations, and as a result, the
Debtors filed their Chapter 11 Cases.
The Plan is the culmination of months of negotiations among the
Debtors, the Bondholder Steering Committee, KCTC, Jubilee Pulp, and the Southern
Entities, as well as discussions with S.D. Warren. The Plan reflects a
settlement of claims that the Debtors made against KCTC arising out of the
closure of the Pulp Mill and a revised plan for operation of the Energy Complex.
The Proponents believe that the transactions proposed in the Plan will provide
recoveries to creditors under the very difficult circumstances that existed
after the Pulp Mill was shutdown.
B. Summary of Proposed Post-Reorganization Business Plan
1. Servicing Existing Customers
Mobile Energy intends to continue to provide services to KCTC's Tissue
Mill and S.D. Warren's Paper Mill as part of on-going operations. Mobile Energy
intends to provide electricity processing services through MESC Retail, a wholly
owned subsidiary of Holdings. MESC Retail's obligations under the ESA's will be
guaranteed by Mobile Energy. Unless otherwise agreed to by the parties, the
services provided to the Tissue Mill will be pursuant to the terms of the New
Tissue Mill ESA which was agreed to between Mobile Energy and KCTC under the
KCTC Settlement Agreement. The services provided to the Paper Mill will be
pursuant to the terms of the Paper Mill ESA; provided that in structuring the
Plan the Debtors have discounted the revenues expected to be received from S.D.
Warren under the Paper Mill ESA due to certain public announcements made by S.D.
Warren regarding the future of the Paper Mill. Mobile Energy estimates that it
will provide approximately 1.79 million MMBtus of steam annually to the Tissue
Mill, and approximately 3.0 million MMBtus of steam annually to the Paper Mill
after the Effective Date. It also is anticipated that Mobile Energy will provide
approximately 384,567 megawatt hours of electricity annually to the Tissue Mill
and approximately 201,480 megawatt hours of electricity annually to the Paper
Mill. Mobile Energy also intends to continue to sell electricity in excess of
the Mill Owners' demands during peak periods.
In connection with providing these services, the Debtors also are
seeking ways to further reduce operating and maintenance ("O&M") costs at the
Energy Complex. While the Debtors have substantially reduced O&M costs at the
Energy Complex since the Petition Date, the Debtors believe that further cost
reductions are possible. Mobile Energy has soliticited proposals from third
parties to act as operator of the Energy Complex. Some of the proposals received
by the Debtors offer the opportunity for Mobile Energy to reduce further the O&M
costs of the Energy Complex. Prior to confirmation of the Plan, the Debtors
expect to negotiate and execute, subject to any required court approval, an O&M
contract with a qualified firm that will assume operation of the Energy Complex
prior to March 31, 2001. The new operator will replace Southern Energy Resources
and will attempt to implement these further cost reductions. The Projections
attached to this Disclosure Statement are based on certain reductions in O&M
costs being achieved. 2. The New Pulp Mill
As part of the KCTC Settlement Agreement, the Proponents also
contemplate that a third party, Jubilee Pulp or a higher bidder, will acquire a
significant part of KCTC's pulp mill assets (the "Pulp Mill Assets") and will
use the Pulp Mill Assets to develop a New Pulp Mill at the Mobile Facility. The
New Pulp Mill is expected to produce 800 short tons per day of pulp, which is
one-half of the capacity of the former Pulp Mill. Mobile Energy will supply
power processing, steam processing and steam conditioning services to the New
Pulp Mill. In connection with the sale of the Pulp Mill Assets, Mobile Energy
will distribute certain of its surplus assets to Holdings, which will contribute
those assets to a new limited liability company that will lease the assets to
Jubilee Pulp for use in servicing the New Pulp Mill. The revenues from this
lease will be used to redeem Holdings' preferred interests in the new limited
liability company. These lease payments will provide annual revenues of $4.8
million for twenty (20) years to Holdings without any associated costs. In
addition, Mobile Energy will receive additional revenues of between $1.5 million
and $4.5 million from the Pulp Mill under the terms of the New Pulp Mill ESA.
3. Development of the Cogen Project
Under the Plan and Amendment No. 1, the Proponents contemplate that a
new Cogeneration Facility (the "Cogen Project") will be developed at the Mobile
Facility. The Debtors anticipate that the Cogen Project will be developed by a
wholly-owned subsidiary of Mobile Energy although a different structure could be
used if it provided more value to Mobile Energy. The Cogen Project as currently
contemplated is an approximately 165-megawatt facility comprised of the CT and
the HRSG, and is estimated to cost approximately $87 million, inclusive of fees
and construction interest, but exclusive of any costs for gas pipeline and
substation construction. The CT will produce electricity that will be sold to
the Mills through MESC Retail and to wholesale customers. MESC Retail also may
have the option to obtain the power sold to the Mills from other wholesale
suppliers. The exhaust thermal energy from the CT will be sent to the HRSG to
produce high pressure steam that will power three of Mobile Energy's steam
turbine generators and to provide steam processing services to the Mills at the
Mobile Facility. The HRSG is anticipated to be able to supply steam to Mobile
Energy's turbine generators to create 55 megawatts of electricity. The Cogen
Project is designed to (a) provide an additional source of revenue, and (b)
enhance service and lower Mobile Energy's cost of servicing its customers.
The Development Agreement providing for the Cogen Project was approved
by the Bankruptcy Court on January 24, 2000, and Amendment No. 1 was approved on
August 30, 2000. Mobile Energy has entered into an agreement with Deltak to
build the HRSG, and is preparing to begin construction on the Cogen Project. The
CT will be acquired from SEI pursuant to the Cogeneration Development Agreement,
as amended by Amendment No. 1. The CT is currently being manufactured by General
Electric Company and is scheduled to be shipped in April 2001. The site for the
Cogen Project will be acquired by the Debtors under the KCTC Settlement
Agreement. Many uncertainties exist with respect to the development of the Cogen
Project and the cogeneration project ultimately developed could vary materially
from the Cogen Project described in this Disclosure Statement. Certain of these
uncertainties and other risk factors are discuss below in Article X.
4. Other Components of Business Plan
a. Balance of Plant
Under the business plan, the Debtors anticipate that Mobile Energy will
operate its existing assets to provide services to the Tissue Mill, the Paper
Mill, and the New Pulp Mill until the development of the Cogen Project.
Generally, Mobile Energy will service its customers using two of its existing
power boilers, three of its existing turbine generators, and certain related
equipment. The Number 8 Recovery Boiler and most of the evaporator sets will be
distributed to Holdings and contributed to the new limited liability company as
described in more detail in Section V. below. The remaining assets of Mobile
Energy will be used only as back-up during the period prior to development of
the Cogen Project. Certain of those assets may be transferred to KCTC as
provided in Section VII.C. below, but will remain available to Mobile Energy for
back-up until June 2002. After the development of the Cogen Project, Mobile
Energy intends to provide services, either directly or through MESC Retail, to
the Tissue Mill, the Paper Mill and the New Pulp Mill using steam from the HRSG
and electricity from three of its existing turbine generators as well as certain
related equipment. Mobile Energy will augment the electricity generated from its
operations through purchases from the grid, purchases from the CT or from
operating additional equipment. Mobile Energy also will retain the No. 8 and No.
7 power boilers and will use one of these power boilers to provide back-up to
the steam provided by the CT and the HRSG. The choice of which power boiler to
use as back-up will be made by Mobile Energy on the basis of O&M costs and fuel
costs associated therewith. The remaining assets of Mobile Energy may be sold or
will become obsolete.
b. Exempt Wholesale Generator/Qualifying Facility
The Proponents contemplate that Mobile Energy will become an Exempt
Wholesale Generator under the Public Utility Holding Company Act ("PUHCA"),
which will allow it to generate electricity for sale at wholesale, and buy and
resell electricity at wholesale. To effect this change, the Debtors contemplate
formation of MESC Retail, which will take over Mobile Energy's obligations to
sell power to the Mills. MESC Retail will purchase wholesale power from Mobile
Energy and the wholesale market to meet MESC Retail's contractual obligations to
the Mills. Mobile Energy will guaranty MESC Retail's obligations to the Mill
Owners. If Mobile Energy becomes an Exempt Wholesale Generator, it will benefit
from certain economic advantages that are reflected in the projections attached
to this Disclosure Statement.
If Mobile Energy does not become an Exempt Wholesale Generator, the
Proponents believe it will qualify as a Qualifying Facility under the Public
Utility Regulatory Policies Act of 1978 ("PURPA"), which will allow Mobile
Energy to sell electricity, which it generates, to the Mills and to wholesale
customers, but not to buy electricity for resale from other wholesale suppliers.
Qualifying Facility status does not provide all of the economic advantages of
Exempt Wholesale Generator status because of a Qualifying Facility's inability
to resell electricity it does not produce. If Exempt Wholesale Generator or
Qualifying Facility status is achieved, it will mean that Reorganized Mobile
Energy will not be considered a public utility under PUHCA, and Holdings and its
owners will not be subject to regulation as public utility holding companies.
C. Summary of Post-Reorganization Structure
1. Organizational Structure
The Debtors' proposed post-reorganization ownership structure is
illustrated as set forth in Exhibit B attached hereto.
2. Capital Structure
Holdings' capital structure will depend on the option elected by
Holders of Allowed Tax-Exempt Bondholder Claims in Class 5. Set forth below is a
chart that illustrates the resulting capital structure based on two different
sets of assumptions. The chart does not assume any Working Capital Facility or
Equipment Facility (as defined in the New Intercreditor Agreement).
<TABLE>
<CAPTION>
---------------------------------------- -------------------------------------- --------------------------------------
Taxable Bonds plus 100% of the
Taxable Bonds plus 100% of the
Holders of Tax-Exempt Bonds elect Holders of Tax-Exempt Bonds elect
New Tax-Exempt Bonds New Common Stock
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
New Taxable Bonds (including debt $51,535,000 principal amount $51,535,000 principal amount
portion of Combined Securities)
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
New Tax-Exempt Bonds $22,038,500 principal amount $20,035,000 principal amount
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
Equity Securities Taxable Holders 7,259,400 shares (100% of issued New 7,259,400 shares (72.594% of issued
(including equity portion of Combined Common Stock) New Common Stock)
Securities)
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
Equity Securities Tax-Exempt Holders 0 shares (0% of issued New Common 2,740,600 shares (27.406% of issued
Stock) New Common Stock)
---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
The general economic terms of the New Securities will be as follows:
a. The New Taxable Bonds
The New Taxable Bonds will be issued in an aggregate principal amount
of $51,535,000 and bear interest at the rate of 10% per annum. The New Taxable
Bonds will be issued in whole dollar amounts Any conversion of Allowed First
Mortgage Claims not resulting in a whole dollar amount will be rounded down to
the nearest whole dollar. Interest will be paid quarterly on March 1, June 1,
September 1, and December 1 of each year. However, interest payable from the
issuance date of the New Taxable Bonds to the first of such dates to occur
following the earlier of (i) 30 months from the Effective Date, or (ii) the
Commercial Operation Date of the Cogen Facility will accrue and be added to
principal payable on the New Taxable Bonds pro rata across each installment on
such interest payment date. Amounts added to principal will thereafter bear
interest at the rate specified on the New Taxable Bonds. Principal payments on
the New Taxable Bonds will commence on March 1, 2007, and will be paid quarterly
thereafter on June 1, September 1, December 1 and March 1 with a final payment
in full on December 1, 2021, pursuant to an amortization schedule to be attached
to the First Mortgage Bonds.
b. The New Tax-Exempt Bonds
The New Tax-Exempt Bonds will be issued 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 Holder of Allowed
Tax-Exempt Bondholder Claims elects to receive additional New Tax-Exempt Bonds)
and bear interest at the rate of 8% per annum. The New Tax-Exempt Bonds will be
issued in whole dollar amounts. Any conversion of Allowed Tax-Exempt Bondholder
Claims not resulting in a whole dollar amount will be rounded down to the
nearest whole dollar. Interest will be paid quarterly on March 1, June 1,
September 1, and December 1 of each year. However, interest payable from the
issuance date of the New Tax-Exempt Bonds to the first of such dates to occur
following the earlier of (i) 30 months from the Effective Date, or (ii) the
Commercial Operation Date of the Cogen Facility will accrue and be added to
principal payable on the New Tax-Exempt Bonds pro rata across each principal
installment on the next principal payment date. Amounts added to principal will
thereafter bear interest at the rate specified in the New Tax-Exempt Bonds.
Principal payments on the New Tax-Exempt Bonds will commence on March 1, 2007,
and will be paid quarterly thereafter on June 1, September 1, December 1 and
March 1 with a final payment in full on December 1, 2021, pursuant to an
amortization schedule to be attached to the New Tax-Exempt Bonds.
c. New Common Stock
Concurrently with the issuance of the New Tax-Exempt Bonds and the New
Taxable Bonds, Reorganized Holdings will issue an aggregate of 10,000,000 shares
of New Common Stock. An aggregate of 7,259,400 shares of such New Common Stock
will be distributed to the Holders of Allowed Taxable Bondholder Claims and up
to an aggregate of 2,740,600 shares of such New Common Stock will be issued to
the Holders of Allowed Tax-Exempt Bondholder Claims (based on the number of
Holders of Allowed Tax-Exempt Bondholder Claims that elect to receive New Common
Stock). Each share of New Common Stock will be entitled to one vote per share.
Certain Holders will be entitled to registration rights. Prior to the
acquisition of the CT for the Cogen Project by Reorganized Mobile Energy from
SEI and the assignment of the LTSA to Reorganized Mobile Energy from SEI
pursuant to the Cogeneration Development Agreement, as amended by Amendment No.
1, the transfer of New Common Stock of Reorganized Holdings will be restricted
pursuant to the terms of the Amended and Restated Holdings Articles of
Incorporation (the "New Common Stock Transfer Restrictions") to the extent such
transfer would result in the failure to satisfy the following condition
precedent (specified in a consent agreement between GEII and SEI) to SEI's right
to assign to reorganized Mobile Energy all of SEI's rights under the LTSA: no
party (other than certain specified Holders of substantial amounts of Taxable
Bonds and Tax-Exempt Bonds) owning ten percent (10%) or more of the stock,
member interests, equity or other ownership interests of Reorganized Holdings or
of Reorganized Mobile Energy or having control of Reorganized Holdings or
Reorganized Mobile Energy ("Mobile Control Person") (1) is a turbine
manufacturer or affiliate thereof, or (2) sells, provides or performs any parts
or services for any electric power generation equipment or facility that it does
not own, or (3) is an affiliate of such a parts or services provider or any
affiliate thereof, or any affiliate thereof, shall be in litigation with GEII or
any affiliate of GEII; and no Mobile Energy Control Person shall own any
property adjacent to the Energy Complex (other than land on which it will
install a generation facility that includes the CT).
D. Agreements Implementing the Proposed Business Plan.
1. KCTC Settlement Agreement
The KCTC Settlement Agreement was the first step in the process leading
to the filing of the Plan, and is integral to the Debtors' ability to achieve
their business plan. Following the arbitration between KCTC and Mobile Energy
and the filing of the KCTC Adversary Proceeding, the parties engaged in
settlement discussions, which resulted in the KCTC Settlement Agreement. The
KCTC Settlement Agreement was approved by the Bankruptcy Court on January 24,
2000. Upon consummation of the transactions described in the KCTC Settlement
Agreement, Mobile Energy will receive approximately $30.12 million which will be
deposited with the Collateral Agent under the New Intercreditor Agreement. The
$30.12 million represents the unpaid portion of the $53 million KCTC agreed to
pay Mobile Energy under the KCTC Settlement Agreement. The $30.12 million may be
used in part to develop the Cogen Project, make other capital expenditures at
Mobile Energy, or if not used within two years from the Effective Date for such
purposes, or to redeem New Taxable Bonds and New Tax Exempt Bonds, or for other
purposes permitted under the New Intercreditor Agreement. The KCTC Settlement
Agreement also grants Mobile Energy through January 31, 2000, a transferable
option to purchase the Pulp Mill Assets (the "Pulp Mill Option") that will
comprise part of the New Pulp Mill. Upon implementation of the Plan, the Pulp
Mill Option will be assigned to the developer of the New Pulp Mill. Under the
KCTC Settlement Agreement, KCTC will receive a release of claims that MESC
asserted arising out of the closure of the Pulp Mill and market based pricing
for energy services provided to the Tissue Mill.
The Reorganized Debtors will continue to provide power processing and
steam processing services to the owner of the Tissue Mill pursuant to a New
Tissue Mill ESA. The Proponents estimate that the Reorganized Debtors will
realize approximately $21 million in annual revenues from the Tissue Mill.
2. New Pulp Mill Agreements
Under the terms of the Pulp Mill Acquisition Term Sheet (the "Term
Sheet"), Mobile Energy also has arranged to assign the Pulp Mill Option to
Jubilee Pulp, subject to a higher bid. The Term Sheet requires Jubilee Pulp, if
it is the highest bidder, to develop the New Pulp Mill, which will produce
approximately 800 short tons per day of pulp. A copy of the executed Term Sheet
is attached hereto as Exhibit C. Upon assignment to it of the Pulp Mill Option,
Jubilee Pulp, or a higher bidder, will enter into an Asset Purchase Agreement
with KCTC to purchase the assets to develop the New Pulp Mill.
Pursuant to the Term Sheet, Mobile Energy also will transfer the Number
8 Recovery Boiler and related equipment (together the "Recovery Boiler") to
Holdings, which will contribute the Recovery Boiler to a newly formed limited
liability company ("Pulpco LLC") in exchange for the common and preferred
membership interests set forth in the Term Sheet. Pulpco LLC will then enter
into a twenty (20) year lease of the Recovery Boiler to Jubilee Pulp (the
"Boiler Lease"). Pulpco LLC will use the lease payments to redeem Holdings'
preferred interests. The lease payments will result in net payments of
approximately $4.8 million annually without any additional costs to the Debtors
and will have a net present value of $47.5 million. The Recovery Boiler is not
being used in the Debtors' business because of the Pulp Mill shutdown. Holdings
will pledge its membership interest in Pulpco LLC to the New Collateral Agent
pursuant to the New Intercreditor Agreement to provide security for the Southern
Post Petition Claim, the New Taxable Bonds and the New Tax-Exempt Bonds.
Also, pursuant to the Term Sheet, Jubilee Pulp and Mobile Energy will
execute the New Pulp Mill ESA under which Mobile Energy will provide electric
power and steam processing services to Jubilee Pulp to the extent not supplied
in full from the steam and electricity produced from the Recovery Boiler, and
limited steam conditioning services. A copy of the New Pulp Mill ESA is attached
hereto as an exhibit to the Term Sheet. The New Pulp Mill ESA will result in
additional revenue to the Reorganized Debtors of between $1.5 million and $4.5
million annually, depending on Jubilee Pulp's ability to avoid installation of a
pulp dryer at the site and Jubilee's ability to sell pulp to S.D. Warren or
KCTC. Jubilee Pulp is required to provide an initial letter of credit (the
"Letter of Credit") of $12.5 million within five (5) business days following
approval of the Topping Fee Motion (as described below in Section VII.R.), which
at the closing of the Pulp Mill Asset Purchase Agreement shall be increased to
$30 million, or such amount that is required of Jubilee Pulp to satisfy the
Equity Investment (as used in the Term Sheet) required under the Term Sheet,
less any amounts already invested by Jubilee Pulp. Jubilee Pulp also has agreed
under the New Pulp Mill ESA to pay Mobile Energy for energy supplied to certain
other operations by Jubilee Pulp (for example, the pulp dryer, if installed). 3.
Cogen Documents
As more fully described below in Section V.E.4., below, the development
of the Cogen Project was undertaken by the Debtors under the Cogeneration
Development Agreement, as amended by Amendment No. 1. Under Amendment No. 1, the
original $10 million option fee payable to SEI has been waived, and Mobile
Energy instead will pay $2.9 million to SEI to exercise the right to acquire the
CT being manufactured by General Electric Company. Mobile Energy will continue
to have an obligation to reimburse SEI for the costs it has incurred related to
the CT, including repaying SEI the approximately $28 million purchase price of
the CT. Also pursuant to Amendment No. 1, if Mobile Energy exercises its option
to acquire the CT, it will assume SEI's rights and obligations under the Long
Term Service Agreement for Combined Cycle Generating Plant at MESC Electric
Generating Plant made effective March 26, 1999 (the "LTSA") between SEI and
General Electric International, Inc. ("GEII"). In addition to the $28 million
purchase price for the CT, Mobile Energy will be required to pay GEII under the
LTSA approximately $3 million in 2001 and an additional approximately $4.0
million per year thereafter for twelve (12) years for parts and maintenance on
the CT.
To develop the Cogen Project, Mobile Energy anticipates hiring a
construction manager to oversee the construction of the Cogen Project. Mobile
Energy is evaluating bids from potential managers of the Cogen Project. Also,
Mobile Energy is evaluating bids from third-parties to provide the engineering,
procurement and construction of the Cogen Project on a turnkey basis and is
prepared to negotiate an agreement with the preferred bidder. Mobile Energy
shortly intends to begin discussions with several entities regarding the
proposed financing required to develop the Cogen Project. The terms of such
financing have not been negotiated, but Mobile Energy expects that customary
terms and conditions will be agreed to, which will likely include a first
priority lien on the Cogen Project in favor of the lender being granted to
secure Mobile Energy's obligations. 4. Existing Agreement with S.D. Warren
After the Effective Date, Mobile Energy will continue to provide power
processing services and steam processing services to the owner of the Paper Mill
pursuant to the terms of the Paper Mill ESA. Based on certain public statements
made by S.D. Warren regarding the Paper Mill, which are more fully discussed in
Section X below, the Debtors have discounted the revenues to be received from
S.D. Warren in structuring the Plan. The Proponents assume approximately $21.5
million in annual revenues from the Paper Mill. Since S.D. Warren has announced
publicly that the future of the Paper Mill is uncertain, developments related to
S.D. Warren and the Paper Mill could adversely impact the financial results of
Mobile Energy.
V.
GENERAL INFORMATION ABOUT THE DEBTORS
A. Corporate Information
Holdings was incorporated in Alabama on August 25, 1994 under the name
of Mobile Energy Services Company, Inc. Its name was changed to Mobile Energy
Services Holdings, Inc. on May 17, 1995. Holdings was formed to acquire the
energy and chemical recovery complex located at the Mobile Facility (the "Energy
Complex") and commenced operations on December 16, 1994. Holdings transferred to
Mobile Energy the Energy Complex, those Project Documents then in existence and
related assets, permits, and agreements on July 14, 1995. Holdings currently is
the owner of 99% of the equity interests in Mobile Energy. Southern Energy
Resources is the Holder of 1% of the equity interests in Mobile Energy. It is
anticipated that, prior to the Confirmation Hearing, Southern Energy Resources
will transfer its 1% equity interest in Mobile Energy to Holdings. The executive
offices of Holdings are located at 900 Ashwood Parkway, Suite 450, Atlanta,
Georgia 30338-4780.
Southern currently is the Holder of 100% of the voting common stock of
Holdings. Mobile Energy was formed as a limited liability company in the State
of Alabama on July 13, 1995. The executive offices of Mobile Energy are located
at 900 Ashwood Parkway, Suite 300, Atlanta, Georgia 30338-4780. Mobile Energy's
business consists exclusively of the ownership and management of the Energy
Complex. The Energy Complex is operated by Southern Energy Resources pursuant to
the Facility Operations and Maintenance Agreement between Mobile Energy and
Southern Energy Resources dated as of December 12, 1994 (the "Mobile Energy
Operating Agreement").
The Debtors filed their voluntary petitions for relief under Chapter 11
of the Bankruptcy Code on January 14, 1999 (the "Petition Date"). The Chapter 11
Cases are being jointly administered, but have not been substantively
consolidated, and the Debtors have remained in control of their assets and
continue to operate their respective businesses as debtors-in-possession in
their Chapter 11 Cases. By corporate resolution, the Debtors have designated
Richard J. Koch as their Debtor-In-Possession representative in the Chapter 11
Cases. David T. Gallaspy is the president of both Mobile Energy and Holdings and
a director of Holdings. B. Description of the Pre-Reorganization Business of
Mobile Energy
1. The Energy Complex
The Energy Complex currently is comprised of four power boilers, one
recovery boiler, four turbine generators, two black liquor evaporator sets, and
associated feedwater systems, air emissions controls, and other auxiliary
systems. The combined facilities are currently designed to produce approximately
140 megawatts (gross) of electricity and approximately 2,200,000 lbs/hr of
steam. In addition, the Energy Complex currently is designed to process
approximately 2,750,000 lbs/day of virgin black liquor solids, although the
Energy Complex has not processed any black liquor since the Pulp Mill ceased
operations.
During 1998, the Energy Complex provided 100% of the steam processing
needs and 98% of the aggregate power processing needs of the Mills.
Additionally, the Energy Complex provided 100% of the black liquor processing
needs of the Pulp Mill. Generally, the type of equipment and technology utilized
at the Energy Complex is standard and has a long operating history in the pulp,
paper, and tissue industry and the electric generation industry.
The Energy Complex includes a significant amount of cross-connected,
redundant equipment. This configuration enhanced the operational reliability of
the Energy Complex and enabled Mobile Energy to minimize the partial or complete
loss of services to its customers as a result of scheduled and unscheduled
maintenance.
2. The Mobile Facility
The Mobile Facility is comprised of the Energy Complex, the Tissue
Mill, which is owned by KCTC, the Pulp Mill, which is also owned by KCTC, but
has been shut down by KCTC, and the Paper Mill, which is owned by S.D. Warren.
Attached as Exhibit D is a map of the Mobile Facility pre-reorganization. Prior
to KCTC's shutdown of the Pulp Mill, effective September 1, 1999, the Mobile
Facility operated as a physically integrated complex that produced tissue and
paper products from timber that was processed into bleached and unbleached pulp
by the Pulp Mill. The Pulp Mill provided 85% of the fuel used by the Energy
Complex in the form of biomass and black liquor, a byproduct of the pulping
process. Following the shutdown of the Pulp Mill, the Paper Mill and Tissue Mill
have obtained the pulp they require from offsite sources, which pulp is shipped
to the site in dried form. Mobile Energy currently acquires all of the fuel
required for the Energy Complex from offsite sources. Mobile Energy's current
fuel sources are natural gas, coal, and biomass.
C. Events Precipitating Chapter 11 Filings
Prior to the shutdown of the Pulp Mill, the Energy Complex used biomass
and black liquor from the Pulp Mill, as well as limited quantities of coal and
natural gas, as fuel to generate electricity and steam. Prior to the shutdown of
the Pulp Mill, electricity and steam processing services were purchased by KCTC
for use in the Pulp Mill, by KCTC for use in the Tissue Mill, and by S.D. Warren
for use in the Paper Mill. The Pulp Mill also purchased liquor processing
services from Mobile Energy. KCTC continues to purchase the electricity and
steam processing services needed in the Tissue Mill and S.D. Warren continues to
purchase the electricity and steam processing needed in the Paper Mill. The Pulp
Mill disposed of the boiler ash generated by the Energy Complex and provided
process water and waste water treatment services to the Energy Complex and each
of the Mills, which are services KCTC continues to perform.
In May, 1998, the Debtors received the notice from KCTC that it planned
to close the Pulp Mill and to terminate the Pulp Mill ESA effective on September
1, 1999. Upon receipt of that notice, the Debtors and KCTC attempted without
success to negotiate a resolution of the matters in dispute related to the
planned shutdown of the Pulp Mill. KCTC initiated an arbitration proceeding (the
"Arbitration") seeking to determine, among other things, that KCTC (i) would be
properly terminating the Pulp Mill ESA, (ii) could install facilities that
furnish dry fiber and recycled fiber to the Tissue Mill without continuing the
effectiveness of or reinstating the Pulp Mill ESA, and (iii) could continue to
operate (for the Energy Complex and the Mills) water and wastewater treatment
facilities that were defined by the Master Operating Agreement to be part of the
Pulp Mill without continuing the effectiveness of or reinstating the Pulp Mill
ESA. The Debtors maintained that the actions described in clauses (ii) and (iii)
above would result in KCTC's continuing liability under the Pulp Mill ESA.
On December 15, 1998, the Debtors filed a lawsuit in the Circuit Court
of Mobile County, Alabama to enjoin the Arbitration. The lawsuit, and the claims
and counterclaims asserted in the arbitration commenced by KCTC, have been
settled pursuant to the KCTC Settlement Agreement as described in Section
VII.C., below.
The Debtors realized that the shutdown of the Pulp Mill would result in the
Debtors losing their largest customer in terms of annual revenue and a primary
source of inexpensive fuel. Without the revenue derived from providing services
to the Pulp Mill, and due to the increased cost of power generation resulting
from the loss of inexpensive biomass and black liquor, the Debtors did not
believe they could meet their financial obligations, and as a result, they filed
their Chapter 11 Cases.
D. Project Documents
-----------------
Mobile Energy is a party to various long-term contracts relating to the
operation of the Energy Complex and the purchase of its products and services,
including the Term Sheet, the Pulp Mill ESA, the New Tissue Mill ESA, the Paper
Mill ESA, the Master Operating Agreement, the Direct Lease, the Supplementary
Lease, Easement Deeds, the Common Services Agreement, the Water Procurement and
Effluent Services Agreement, the Boiler Ash Disposal Agreement, the Mill
Environmental Indemnity Agreements, and the Scott Environmental Indemnity
Agreement. A summary of some of the agreements is provided below. Each of these
agreements, except to the extent it may be amended by agreement, will either be
assumed under the Plan or, to the extent required, will be approved under the
Plan or have been previously approved by the Bankruptcy Court.
1. Original Energy Services Agreements and Master Operating Agreement
Mobile Energy originally was a party to the Pulp Mill ESA and the
Tissue Mill ESA with KCTC, and party to the Paper Mill ESA with S.D. Warren
(together, the "Original Energy Services Agreements"). Of the Original Energy
Services Agreements, only the original Paper Mill ESA is expected to be assumed
under the Plan and continue in existence after the Effective Date. In the case
of the Paper Mill ESA, S.D. Warren's public statements regarding the future of
the Paper Mill have led the Debtors to discount the revenues to be received
under the Paper Mill ESA. A New Tissue Mill ESA has been entered into with KCTC
as part of the KCTC Settlement Agreement and a New Pulp Mill ESA will be entered
into with Jubilee Pulp or another developer of the New Pulp Mill upon the
implementation of the Plan. If the Plan is not confirmed, the New Tissue Mill
ESA will become void, the original Tissue Mill ESA will be effective as if it
had never been terminated, the New Pulp Mill ESA will not be entered into and
KCTC and Mobile Energy will have such rights under the original Pulp Mill ESA as
are determined in the Arbitration. In such event, the original Tissue Mill ESA,
along with the Paper Mill ESA, will continue in existence and the discussion
below will apply to both ESAs. If the Plan is not implemented, the Pulp Mill ESA
will be the subject of the Arbitration and the KCTC Adversary Proceeding.
Mobile Energy is also a party to the Master Operating Agreement with
KCTC and S.D. Warren. The Master Operating Agreement will be assumed under the
Plan and will continue in existence after the Effective Date.
The Master Operating Agreement and the Original Energy Services
Agreements set forth the existing obligations of Mobile Energy to provide, and
of KCTC and S.D. Warren to pay for, Liquor Processing Services (prior to the
Pulp Mill shutdown), Steam Processing Services, and Power Processing Services,
to deliver or dispose of certain waste products or by-products produced by the
Energy Complex, and to manage the operations of the Energy Complex and the
Mills. Unless terminated earlier according to their terms, the Original Energy
Services Agreements and the Master Operating Agreement each have an initial term
of 25 years, which began on December 16, 1994. As set forth above, out of the
Original Energy Services Agreements, only the Paper Mill ESA is currently in
effect. The following discussion of the Original Services Agreements therefor
applies only to the Paper Mill ESA and does not reflect the terms of the New
Tissue Mill ESA or the New Pulp Mill ESA. If the Plan is not confirmed and the
original Tissue Mill ESA or any portion of the original Pulp Mill ESA is
reinstated, then the following description would apply to the original Tissue
Mill ESA, the Pulp Mill ESA and the Paper Mill ESA.
During the term of each of the Original Energy Services Agreements,
Mobile Energy is required to provide Steam Processing Services and Power
Processing Services to each of the Mill Owners and Liquor Processing Services to
the Pulp Mill Owner. Each Mill Owner is obligated to purchase its entire
requirements for Processing Services, up to certain specified capacities, from
Mobile Energy unless Mobile Energy fails to satisfy such requirements due to
capacity constraints or for any other reason. Mobile Energy is obligated to
supply each Mill's requirements for the Processing Services, up to that Mill's
specified maximum demand for each Processing Service and subject to the maximum
capacity of the Energy Complex.
The Original Energy Services Agreements permitted Mobile Energy to sell
to any person, on an as-available, fully interruptible basis, any of the
services or products that the Energy Complex is capable of producing in excess
of the Mills' requirements for such services or products at any given time.
Mobile Energy is required to satisfy its obligations to provide Processing
Services under the Original Energy Services Agreements (up to specified
capacities) before making any Processing Services or steam or electricity
available to any other person.
The Original Energy Services Agreements obligate Mobile Energy to pay
liquidated damages to the Mill Owners if Mobile Energy fails to meet its
requirements to provide power, steam, or liquor processing services. The maximum
damages per day that could be assessed under the Original Energy Services
Agreements is $10,000 per day, plus a loss of Demand Charges on a pro rata basis
for the period of time such shortfall occurs.
The Original Energy Services Agreements and the Master Operating
Agreement obligate each Mill Owner to pay Mobile Energy each month a Demand
Charge for each of the Processing Services that such Mill Owner is entitled to
receive under its ESA and a Processing Charge for the Processing Services the
Mill Owner actually receives in such month. The Demand Charges are based upon
the Demand levels in effect from time to time. For each monthly billing period,
a Mill Owner's then-current Demand for a particular Processing Service is
multiplied by a fixed rate for that Processing Service which escalates over the
term of the Original Energy Services Agreements according to a composite
escalator reflecting inflation-based indices for capital equipment, labor and
materials.
S.D. Warren and the Debtors currently are in dispute over the amount of
Demand Charges and other amounts owed by S.D. Warren to Mobile Energy. S.D.
Warren contends that it has overpaid approximately $1.2 million in Demand
Charges through the time of filing this Disclosure Statement. S.D. Warren's
challenges are based on the effect of the Pulp Mill shutdown on the calculation
of Demand Charges and Processing Charges under the Master Operating Agreement.
S.D. Warren also challenges Mobile Energy's right to include fuel cost increases
in the Processing Charges. S.D. Warren contends that approximately $4.0 million
of fuel cost increases have been improperly charged to it by Mobile Energy.
The Processing Charges are based upon each Mill's actual monthly usage
of Processing Services. The Processing Charges were designed generally to cover
the balance of Mobile Energy's costs that are not projected to be covered by
Demand Charges, including variable costs such as fuel related expenses. There
can be no assurance, however, that the Processing Charges will at all times
cover such costs, including variable costs such as fuel related expenses. Mobile
Energy may, under certain circumstances, reduce the level of Processing Services
provided to the Mill Owners.
Each Mill Owner has the right to terminate the Original Energy Services
Agreement applicable to it upon a Mill Closure with respect to such Mill Owner's
Mill. A terminating Mill Owner is obligated to provide Mobile Energy and the
other Mill Owners six (6) months prior written notice of its intention to
terminate its ESA; termination is deemed to occur upon the expiration of such
six-month period. The terminating Mill Owner is obligated to pay Mobile Energy
such Mill's Demand Charges (at the levels in effect immediately prior to the
termination) for the greater of (a) six months from the date of termination; or
(b) the remainder of the then-current Demand Period (as defined in the Master
Operating Agreement). All obligations incurred by the terminating Mill Owner
prior to the termination of its ESA (and all obligations to pay Demand Charges
pursuant to the preceding sentence) survive the termination, and must be timely
performed or paid by the terminating Mill Owner. In addition, the terminating
Mill Owner must provide reasonable assistance to Mobile Energy in Mobile
Energy's endeavors to create new business opportunities for the Energy Complex;
however, the terminating Mill Owner will have no additional liability or other
monetary obligation to Mobile Energy if such business opportunities are not
available or are not created.
In May 1998, Mobile Energy received notice from KCTC of its intention
to close the Pulp Mill and to terminate the Pulp Mill ESA on September 1, 1999,
with Demand Charges continuing for an additional six months until March 1, 2000.
KCTC's shut-down of the Pulp Mill was the event that led to the filing of these
Chapter 11 Cases and the transactions described in this Disclosure Statement.
As more fully explained below in Section VII.A., the Debtors disputed
whether KCTC could terminate the Pulp Mill ESA and that dispute was settled in
early 2000 with the KCTC Settlement Agreement. The transactions arising under
the KCTC Settlement Agreement and the money to be paid to the Debtors by KCTC
are part of the foundation for the reorganization described in this Disclosure
Statement.
2. Operations and Maintenance Agreement
Mobile Energy and Southern Energy Resources are parties to the Mobile
Energy Operating Agreement pursuant to which Southern Energy Resources is
obligated to operate and maintain the Energy Complex and provide certain related
administrative and management services to Mobile Energy. The Debtors have no
employees at the Mobile Facility, as all employees who work at the Energy
Complex are employed by Southern Energy Resources. As discussed in Section IV.D.
below, under the Plan, the Mobile Energy Operating Agreement will be terminated
by mutual consent between Mobile Energy and Southern Energy Resources.
Upon termination, which shall occur no later than March 31, 2001,
Southern Energy Resources will cease to be the provider of the operation and
maintenance services for the Energy Complex. Mobile Energy engaged Power
Services Associates, Inc. ("PSA"), a consulting firm which specializes in the
engineering, operations and maintenance of power and steam generating systems,
to work with the Proponents to find a replacement operator for the Energy
Complex. The projections attached as Exhibit E assume a new operator of the
Energy Complex beginning January 1, 2001.
It is possible that the same operator will operate the Recovery Boiler
and the Energy Complex if combined operations result in economic advantages to
Mobile Energy and Jubilee Pulp. Each of the third party bidders is experienced
in operating and maintaining facilities with similar scope and complexity to the
Energy Complex, and each is qualified to operate the Energy Complex. The Mill
Owners may have the right to consent to a replacement operator in certain
circumstances. The Proponents believe that annual cost savings of between $2
million to $5 million may be achieved by a new operator. The projections
attached to this Disclosure Statement reflect certain of the anticipated cost
savings.
S.D. Warren has challenged Mobile Energy's ability to replace the
operator without S.D. Warren's consent. The Paper Mill ESA provides that S.D.
Warren's consent must be obtained to replace the operator with a non-Southern
related entity, and provided, however, that S.D. Warren's consent may not be
unreasonably withheld. If a proposed replacement operator is experienced in
operating and maintaining facilities with similar scope and complexity to the
Energy Complex, there is a presumption under the Paper Mill ESA that S.D.
Warren's consent cannot be withheld.
3. Direct Lease
Mobile Energy and KCTC are parties to a lease (including any amendments
thereto, the "Direct Lease") covering two lots comprising approximately 6.9
acres of land owned by KCTC located in Mobile County, Alabama, on which Mobile
Energy owns, uses, operates, repairs and maintains the Energy Complex and any
additions or modifications thereto. Base rent during the term of the Direct
Lease is $1.00 per year. In addition, Mobile Energy is required to pay all
expenses related to or arising from the Leased Premises or Mobile Energy's
activities thereon, except as expressly provided otherwise in the Direct Lease.
The term of the Direct Lease commenced on December 16, 1994, and will expire at
11:59 p.m. Eastern Standard Time on December 15, 2019. Mobile Energy has an
option to purchase the Leased Premises for a purchase price of $10.00 at various
times.
KCTC has an option to repurchase the Energy Complex from Mobile Energy
at the end of the term of the Direct Lease (the "Repurchase Option"), which may
occur at different points in time. KCTC may give Mobile Energy notice of its
intention to exercise the Repurchase Option: (a) if the Direct Lease is not
automatically renewed and extended, between July 16, 2014 and November 16, 2014
(the "Earlier Repurchase Option Period"); (b) if the Direct Lease is
automatically renewed and extended, between July 15, 2019 and November 15, 2019
(the "Later Repurchase Option Period"); or (c) if the Direct Lease is terminated
prior to the expiration of the Earlier Repurchase Option Period or the Later
Repurchase Option Period, as applicable, and KCTC shall not have exercised its
Repurchase Option, within 30 days after the date on which the Direct Lease
terminated. If KCTC were to exercise the Repurchase Option, it would not have
the right or obligation to assume any debt of Mobile Energy; however, pursuant
to the Consents to Assignment relating to the Direct Lease and the Supplementary
Lease (as hereinafter defined), KCTC has agreed that the Senior Secured Parties
have no obligation to release the lien and security interests granted by the
Financing Documents until all obligations secured thereby have been repaid in
full. IF KCTC exercises its option to repurchase the Energy Complex, KCTC and
Mobile Energy will jointly select an independent real estate appraiser to
determine the fair market value of the Energy Complex (which fair market value
must be within certain minimum and maximum values as specified in the Direct
Lease). If KCTC and Mobile Energy timely fail to select an appraiser, an
appraiser will be appointed pursuant to the arbitration provisions of the Master
Operating Agreement. The appraiser's determination of the fair market value of
the Energy Complex will be the purchase price to be paid by KCTC to Mobile
Energy, provided that (a) if the Direct Lease terminates on December 15, 2019,
the determined value cannot exceed $69,080,000 or be less than $50,240,000, and
(b) if the Direct Lease terminates between December 15, 2019 and December 15,
2024, the determined value cannot exceed $30,000,000 or be less than
$22,000,000. A termination of the Direct Lease between December 15, 2019 and
December 15, 2024 will only occur if the Plan is not confirmed and the Original
Energy Services Agreements are extended.
The Direct Lease will be assumed under the Plan and will continue in
effect after the Effective Date. The Reorganized Debtors will seek to extend the
term of the Direct Lease to be coterminous with the maturity of the New Taxable
Bonds and the New Tax-Exempt Bonds.
4. Supplementary Lease
Mobile Energy and KCTC also are parties to a lease (including any
amendments thereto, the "Supplementary Lease") covering land owned by KCTC
located at the Mobile Facility, on which Mobile Energy owns and operates a black
liquor tank and Mobile Energy's maintenance facility (collectively, the
"Supplementary Facility") and any additions or modifications thereto.
The Supplementary Lease is identical to the Direct Lease except in the
following respects: (1) the Supplementary Lease covers two portions of one lot
("Lot 11") of the Real Property comprising approximately 3.86 acres (the
"Supplementary Leased Premises"); (2) If Mobile Energy timely exercises and
consummates either its Transfer Option or its End of Term Option to purchase the
Leased Premises under and pursuant to the Direct Lease, the term of the
Supplementary Lease will automatically be renewed for an additional period of 25
years; (3) If the Supplementary Leased Premises are not assessed separately but
instead, assessed as part of a larger tract of land (because the Supplementary
Leased Premises comprise only a portion of Lot 11), KCTC and Mobile Energy will
be required to apportion any real estate taxes resulting from such assessment;
(4) Mobile Energy shall pay its proportionate share of the real estate taxes to
KCTC, and KCTC shall promptly deliver to Mobile Energy proof of KCTC's timely
payment of the entire amount of such real estate taxes to the applicable taxing
authorities; and (5) neither party has any purchase options under the
Supplementary Lease.
As additional grounds for termination, the Supplementary Lease may be
terminated upon KCTC's timely exercise and consummation of its Repurchase Option
pursuant to the Direct Lease.
The Supplementary Lease will be assumed under the Plan and will
continue in effect after the Effective Date. The Reorganized Debtors will seek
to extend the term of the Supplemental Lease to be coterminous with the maturity
of the New Taxable Bonds and the New Tax-Exempt Bonds.
5. Environmental Indemnity Agreements
Mobile Energy is a party to agreements with each of the Pulp Mill Owner
(including any amendments thereto, the "Pulp Mill Environmental Indemnity
Agreement"), the Tissue Mill Owner (including any amendments thereto, the
"Tissue Mill Environmental Indemnity Agreement") and the Paper Mill Owner
(including any amendments thereto, the "Paper Mill Environmental Indemnity
Agreement"), pursuant to which Mobile Energy and the applicable Mill Owner are
required to indemnify each other for certain environmental-related conditions
("Environmental Conditions") that give rise to, or could give rise to,
environmental claims or other liabilities ("Environmental Claims"), or any
violation of any environmental law ("Environmental Noncompliance"). Each of
these agreements will be assumed under the Plan and will continue in effect
after the Effective Date. (a) Environmental Covenants
Mobile Energy has agreed not to cause, or suffer the existence of, any
Environmental Conditions or Environmental Noncompliances at the Energy Complex
that could reasonably be expected to lead to any material Environmental Claim or
environmental expense asserted against, or incurred by, a Mill Owner or its
affiliates. Similarly, each Mill Owner has agreed not to cause, or suffer the
existence of, any Environmental Conditions or Environmental Noncompliances at
its Mill that could reasonably be expected to lead to any material Environmental
Claim or Environmental Expense asserted against, or incurred by, Mobile Energy
or its affiliates.
(b) Environmental Indemnification by Mill Owners and Mobile Energy
Each Mill Owner is required to indemnify, defend and hold harmless
Mobile Energy, its affiliates, and its and their respective officers, directors,
agents, attorneys and employees from and against any and all Environmental
Claims brought against, and any and all environmental expenses imposed upon or
reasonably incurred by, such indemnified party, in connection with (1) breaches
by such Mill Owner of any representations and warranties, covenants or other
obligations in its ESA or the Master Operating Agreement; or (2) any
Environmental Conditions that give rise to, or could give rise to, Environmental
Claims or other liabilities, or Environmental Noncompliances located at or
otherwise relating to its Mill or associated facilities, to the extent arising
out of facts or circumstances that occur or come into existence after December
12, 1994 (including without limitation (in the case of the Pulp Mill Owner) any
Environmental Condition or Environmental Noncompliance associated with the
present or future use of the two underground fuel-oil storage tanks owned by
KCTC and located on property leased to Mobile Energy). If any Mill Owner sells
its Mill, such Mill Owner will retain all of its obligations and liabilities
under its Mill Environmental Indemnity Agreement arising out of any facts or
circumstances existing as of or prior to the date of any such sale (whether
known at the time of any such sale or thereafter discovered as having existed as
of the date thereof), and the party to whom such Mill Owner sells its Mill will
be required to assume all obligations and liabilities of such Mill Owner arising
out of facts or circumstances that occur or come into existence after the date
of any such sale.
Mobile Energy is required to indemnify, defend and hold harmless each
Mill Owner, its affiliates, and its and their respective officers, directors,
agents, attorneys and employees from and against any and all Environmental
Claims brought against, and any and all environmental expenses imposed upon or
reasonably incurred by, any of such indemnified parties, in connection with (1)
breaches by Mobile Energy of any representations and warranties, covenants or
other obligations of Mobile Energy in any ESA or the Master Operating Agreement,
or (2) any Environmental Conditions that give rise to, or could give rise to,
Environmental Claims or other liabilities, or Environmental Noncompliances
located at or otherwise relating to the Energy Complex, to the extent arising
out of facts or circumstances that occur or come into existence after December
12, 1994. If any Mill Owner sells its Mill, such Mill Owner will retain all
rights of such Mill Owner arising out of any facts or circumstances existing as
of or prior to the date of any such sale (whether known at the time of any such
sale or thereafter discovered as having existed as of the date thereof), and the
party to whom the Mill Owner sells its Mill will, upon the assumption of the
relevant Mill Environmental Indemnity Agreement by such party, assume all rights
of such Mill Owner arising out of facts or circumstances that occur or come into
existence after the date of any such sale.
If any Environmental Claims or environmental expenses arise, directly
or indirectly, in whole or in part, out of the joint or concurrent negligence of
a Mill Owner and Mobile Energy, or their respective Affiliates, officers,
directors, agents, attorneys or employees, each party's liability therefor will
be limited to such party's proportionate degree of fault. The Mill Environmental
Indemnity Agreements provide that Mobile Energy and each of the Mill Owners will
only be liable for direct damages, not for claims of non-party customers, cost
of money, loss of profits, loss of use of capital or revenue or any other
incidental, special or consequential loss or damage of any nature, or for
punitive or exemplary damages.
6. Common Services Agreement
The Common Services Agreement provides for the sharing by Mobile Energy
and the Mill Owners of security services, computerized data concerning the
Energy Complex and the Mills and maintenance of common roads, as well as medical
services, cafeteria services and maintenance of certain parking lots, including,
in each case, the cost thereof. The term of the Common Services Agreement as to
any party to it began on December 16, 1994, and will end on the date of the
termination of the Master Operating Agreement with respect to that party, unless
otherwise agreed by the parties.
The Common Services Agreement will be assumed under the Plan and will
continue in effect after the Effective Date. A chart showing the current costs
for the services provided under the Common Services Agreement and how those
costs will be allocated is attached hereto as Exhibit F.
7. Water Procurement and Effluent Services Agreement
Mobile Energy and the Mill Owners are parties to the Water Procurement
and Effluent Services Agreement (the "Water Agreement") which, among other
things, defines and allocates among the Mill Owners and Mobile Energy certain
rights and obligations relating to water usage and procurement and the provision
of water treatment-related utilities and services, including wastewater
treatment services. The term of the Water Agreement commenced on December 16,
1994, and will terminate with respect to each party when such party is no longer
a party to the Master Operating Agreement. The Water Agreement will be assumed
under the Plan and will continue in effect after the Effective Date.
KCTC, Mobile Energy, and Jubilee Pulp also have entered into the
Water and Environmental Services Agreement, which provides
for the assignment by KCTC of certain of its rights and its obligations
as Pulp Mill Owner under the Water Agreement to Jubilee Pulp
and establishes effluent limits of Jubilee Pulp's discharges into the
wastewater treatment plant operated by KCTC.
E. Planned Post-Reorganization Business Activities of Mobile Energy
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1. Post-Reorganization Energy Complex
The Debtors anticipate that Mobile Energy will operate its existing
assets to provide services to the Tissue Mill, the Paper Mill, and the New Pulp
Mill until the development of the Cogen Project. Generally, Mobile Energy will
service its customers using two of its existing power boilers, three of its
existing turbine generators, and certain related equipment. The Number 8
Recovery Boiler and most of the evaporator sets will be distributed to Holdings
and transferred to the new limited liability company as described in Section
V.E.3. below. The remaining assets of Mobile Energy will be used only as back-up
during the period prior to development of the Cogen Project. Certain of those
assets may be transferred to KCTC as provided in Section VII.C. below, but will
remain available to Mobile Energy for back-up until June 2002. A chart showing
the planned operating configuration for Mobile Energy is attached hereto as
Exhibit G.
2. New Tissue Mill ESA and Other KCTC Agreements
The New Tissue Mill ESA between KCTC and Mobile Energy was entered into
pursuant to the KCTC Settlement Agreement and it became effective on February 8,
2000. The New Tissue Mill ESA changed the payment structure by which KCTC
purchases steam processing and power processing services from Mobile Energy.
Under the New Tissue Mill ESA through August 31, 2000, KCTC pays $4.50
per MMBtu of net steam heat delivered to KCTC indexed annually to gas and coal
prices. As of September 1, 2000, KCTC will pay $5.25 per MMBtu as a result of
price adjustments related to fuel indices used in the New Tissue Mill ESA. KCTC
shall also pay Mobile Energy for electricity delivered by Mobile Energy, or MESC
Retail, based on the rates charged by APCo to its customers under the high load
factor (HLF) tariff, which imposes a minimum demand charge regardless of the
customer's actual usage level, for approximately 75% of its expected load, and
the real time pricing day ahead (RTP) tariff, which has no minimum charge and is
priced based on APCo's incremental cost of production. If the tariffs are
terminated by APCo without a replacement, then the price for power processing
services to the Tissue Mill will be based on market indices. The New Tissue Mill
ESA sets a minimum demand for electricity and a minimum annual volume of steam
processing services. There also are limits set on the maximum amount of steam
and power processing services that Mobile Energy must supply, and Mobile Energy
has no obligation to deliver steam or electricity exceeding such contract
maximum amounts.
The New Tissue Mill ESA also provides incentives to Mobile Energy for
service reliability and compensates KCTC for tissue machine Down Time (as
defined in the New Tissue Mill ESA) caused by Mobile Energy service
interruptions. During a contract year, if Mobile Energy causes less than fifty
(50) hours of tissue machine Down Time, KCTC will pay Mobile Energy $5,000 for
each hour of tissue machine Down Time below fifty (50) hours during such
contract year. After the first fifty (50) hours of Down Time, Mobile Energy will
pay $10,000 per tissue machine hour of down time, with an aggregate maximum
payment of $1.5 million per contract year. The first contract year under the New
Tissue Mill ESA began February 8, 2000, and ended August 31, 2000. The fifty
(50) hours is reduced to twenty-eight (28) hours for that first contract year to
account for the less than one year period. If Mobile Energy incurs more than two
hundred (200) hours of Down Time in a contract year, KCTC may terminate the New
Tissue Mill ESA by giving ten (10) days notice to Mobile Energy unless Mobile
Energy: (1) restores the services within six (6) days; (2) places additional
temporary steam production capacity sufficient to provide Steam Processing
Services up to the KCTC Maximum Steam Processing Demand (as defined in the New
Tissue Mill ESA) by either activating an existing boiler or putting into service
one or more package boilers; and (3) provides a cure plan that addresses the
underlying causes of the Down Time and implements the cure plan within the
periods stated in the New Tissue Mill ESA. If Mobile Energy fails to perform the
actions above, the New Tissue Mill ESA will not terminate if Mobile Energy gives
KCTC notice within three (3) business days of receipt of KCTC's ten (10) day
notice of termination that Mobile Energy will pay $10,000 per hour of additional
Down Time for the remainder of the Contract Year (as defined in the New Tissue
Mill ESA). Mobile Energy experienced forty (40) hours of Down Time in the first
contract year ending August 31, 2000, and Mobile Energy currently owes KCTC
approximately $110,000 for such Down Time in excess of the twenty-eight (28)
hours that Mobile Energy could incur without creating any payment obligation to
KCTC in the first contract year.
Since the New Tissue Mill ESA became effective on February 8, 2000,
KCTC has been paying approximately $1.5 million per month in gross revenues to
Mobile Energy for services provided under the New Tissue Mill ESA. If all of the
conditions to the KCTC Settlement Agreement are not met, the parties will be
returned to their respective positions existing prior to the approval of the
KCTC Settlement Agreement. In such event, the parties will treat the New Tissue
Mill ESA as never having been in existence and the original Tissue Mill ESA will
be revived. Through July 2000, if the original Tissue Mill ESA were revived,
Mobile Energy estimates that KCTC would owe Mobile Energy approximately $5.2
million in addition to the amounts already paid under the New Tissue Mill ESA.
The Debtors estimate that through December 2000, KCTC would owe approximately
$9.0 million in addition to the amounts already paid and to be paid under the
New Tissue Mill ESA.
Mobile Energy and S. D. Warren are parties to the Paper Mill ESA
which is an Original Energy Services Agreement. S.D.
Warren and the Debtors have had some discussions about amending or replacing
the Paper Mill ESA. If Mobile Energy and S.D. Warren do
not agree on the terms of a new paper mill energy services agreement, the
Paper Mill ESA will be assumed under the Plan and will
continue in effect after the Effective Date. S. D. Warren currently is
paying approximately $2.4 million per month for Demand
Charges and Processing Charges under the Paper Mill ESA. As stated above,
S. D. Warren disputes some of the charges under the Paper
Mill ESA. As set forth below in Article X Risk Factors, the Projections
discount the revenues to be received from S.D. Warren under
the Paper Mill ESA.
The Proponents contemplate that Mobile Energy will enter into the New
Pulp Mill ESA with Jubilee Pulp, pursuant to which Mobile Energy will provide
certain services, including power processing, steam processing, and steam
conditioning, to Jubilee Pulp as set forth therein. Mobile Energy expects to
receive $1.5 million annually for these services. Additionally, upon Jubilee
Pulp's entering into an agreement with KCTC and/or S.D. Warren for the purchase
of slush pulp or other pulp, Jubilee Pulp will pay Mobile Energy an additional
amount equal to $27.81 per ton with respect to all pulp sold under such
agreement, not to exceed $3 million per year. In addition, during any period
when S.D. Warren has a contract to purchase 300 tons per day or more of slush
pulp from Jubilee Pulp and in certain other cases set forth in the Term Sheet,
Jubilee Pulp's payments to Mobile Energy increase and S.D. Warren may receive a
reduction in its payments to Mobile Energy.
3. The New Pulp Mill
The Plan contemplates that a new 800 short ton per day pulp mill will
be developed at the Mobile Facility. The transactions necessary to develop the
new pulp mill include (a) consummation of certain agreements with KCTC; (b)
consummation of certain agreements with the Debtors to effect the transfer of
the No. 8 Recovery Boiler to a new limited liability company which is expected
to yield approximately $4.8 million per year to Holdings; and (c) new energy
services agreements between Mobile Energy and the developer of the New Pulp
Mill, which is expected to provide payments of between $1.5 million and $4.5
million annually to Mobile Energy.
Pursuant to the KCTC Settlement Agreement described in Section VII.C.3.
below, 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 other successful bidder,
and Jubilee Pulp (if it is the successful bidder) has agreed to develop the New
Pulp Mill. The option required KCTC, Jubilee Pulp and Mobile Energy to agree on
the terms of an asset purchase agreement (the "Pulp Mill Asset Purchase
Agreement") under which Mobile Energy or its assignee would acquire the Pulp
Mill Assets from KCTC. The Pulp Mill Asset Purchase Agreement is attached to the
option agreement, which is attached to the KCTC Settlement Agreement as Exhibit
C to the Plan. Under the Pulp Mill Asset Purchase Agreement, Jubilee Pulp will
acquire the Pulp Mill Assets for nominal consideration. Jubilee Pulp is required
to assume certain obligations of KCTC as Pulp Mill Owner under the Master
Operating Agreement and other site agreements and documents governing the Mobile
Facility in order to have the right to operate the New Pulp Mill at the Mobile
Facility. Such obligations are more fully described in the Pulp Mill Asset
Purchase Agreement and, as applicable, the ancillary documents thereto.
Jubilee Pulp is a South Carolina corporation headquartered in
Greenville, South Carolina. It was organized in December 1999 for the purpose of
acquiring the Pulp Mill Assets and developing the New Pulp Mill (the
"Acquisition"). To date, Jubilee Pulp's activities have been focused on
conducting the necessary due diligence with respect to the Pulp Mill Assets and
the historical operations of the Pulp Mill by KCTC and negotiating the
agreements and instruments that will enable it to acquire the Pulp Mill Assets,
to lease the Recovery Boiler and to develop the New Pulp Mill. The significant
expenditures incurred by Jubilee Pulp for these activities have been funded
primarily through contributions of some of its owners, Southern Infrastructure,
LLC (a South Carolina company involved in developing and financing innovative
infrastructure projects) and Richard E. Greer, President of Jubilee Pulp.
The Term Sheet also provides that the Recovery Boiler will be
transferred to a new limited liability company (the "Pulpco LLC"), whose members
will be Holdings and Jubilee Pulp. Jubilee Pulp will own 98% of the member
interests and Holdings will own 2% of the member interests. An operating
agreement will be entered into between Holdings and Jubilee Pulp to form Pulpco
LLC. Holdings will own 100% of the preferred interests issued by the Pulpco LLC
(the "Participating Preferred Units"). Holdings will execute a Pledge Agreement
in favor of the Collateral Agent under the New Intercreditor Agreement creating
a security interest in favor of the Collateral Agent in its membership interest
(including participating preferred units) in Pulpco LLC. Jubilee Pulp will
execute a twenty (20) year lease agreement (the "Boiler Lease") with respect to
the Recovery Boiler with the Pulpco LLC. The present value of the lease payments
is expected to be $47.5 million. The stream of lease payments from the Boiler
Lease will be used to pay Holdings the preferred returns on its Participating
Preferred Units by providing for the redemption (in equal monthly installments)
of the Participating Preferred Units and to reimburse Pulpco LLC for, if not
assumed by Jubilee Pulp, certain service contract obligations related to the
Recovery Boiler. At the end of the Boiler Lease (at which time the Participating
Preferred Units will have been redeemed in full), Jubilee Pulp will have the
option to purchase the Recovery Boiler from the Pulpco LLC for its then Fair
Market Value (as defined in the Lease).
Also, pursuant to the Term Sheet, Jubilee Pulp and Mobile Energy will
execute the New Pulp Mill ESA under which Mobile Energy will provide electric
power, steam processing services and steam conditioning services to Jubilee
Pulp. A copy of the New Pulp Mill ESA is attached hereto as an exhibit to the
Term Sheet. The New Pulp Mill ESA will result in additional revenue to the
Reorganized Debtors of between $1.5 million and $4.5 million annually, depending
on Jubilee Pulp's ability to avoid installation of a pulp dryer at the site and
Jubilee's ability to sell pulp to S.D. Warren or KCTC.
The Term Sheet provides that Jubilee Pulp will provide an initial
letter of credit of $12.5 million, which at the closing of the Acquisition shall
increase to $30 million, or such amount that is required of Jubilee Pulp to
satisfy the Equity Investment required under the Term Sheet, less any amounts
already invested by Jubilee Pulp (the "Letter of Credit"). Jubilee Pulp must
fund the Letter of Credit by September 8, 2000. By the closing of the
Acquisition, the Purchaser shall make the Equity Investment available to the New
Pulp Mill. Subsequent to the closing of the Acquisition, Jubilee Pulp will
provide any additional amounts necessary to (a) modify, reconfigure or improve
the Pulp Mill Assets to enable the New Pulp Mill to produce an average of 800
short tons per day of pulp which is of marketable quality, and (b) comply with
the applicable environmental rules and any other applicable rules or laws. Such
investment may be funded by debt financing obtained by Jubilee Pulp, or
additional equity investment in Jubilee Pulp, or both.
4. Cogeneration Project
Development of the Cogen Project was approved by the Bankruptcy Court
on January 24, 2000. Mobile Energy, Holdings, SEI, and Southern Energy Resources
then entered into the Cogeneration Development Agreement on February 9, 2000.
The Cogeneration Development Agreement set forth the terms under which Mobile
Energy could develop a 165-megawatt cogeneration facility. Under the
Cogeneration Development Agreement, among other things, (a) Southern Energy
Resources agreed to provide development services to Mobile Energy, in connection
with the development, design, engineering, construction, and start-up of the
Cogen Project; (b) SEI and Southern Energy Resources and related parties agreed
to provide certain assets and services to Mobile Energy and the Cogen Project;
(c) Southern, SEI, and Southern Energy Resources and related parties were
released from certain claims; (d) SEI, Southern Energy Resources and their
affiliates were granted first priority liens on the Debtors' assets to secure
the obligations of Mobile Energy under the Cogeneration Development Agreement;
and (e) SEI or an affiliate committed to invest equity in the Cogen Project in
the event that the Equity Funding Conditions (as defined in the Cogeneration
Development Agreement) were satisfied and Mobile Energy required SEI to so
invest. Further, Mobile Energy was required to pay SEI a fee of $10 million (the
"Equity Option Fee") as early as July 31, 2000, unless the SEI Equity Investment
was made by SEI.
After the Cogeneration Development Agreement was entered into, a
dramatic rise in natural gas prices occurred that negatively affected the
economics of the transaction from the Debtors' and SEI's point of view.
Continuing with the development of the Cogen Project under the Cogeneration
Development Agreement, and with SEI investing in the equity under the terms
thereunder, would result in SEI, or its affiliates, realizing most of the value
of the Cogen Project, leaving little value for the Debtors. Under these
circumstances the Debtors and the Bondholder Steering Committee decided that
Mobile Energy should undertake development of the Cogen Project rather than
attempting to meet the conditions for SEI to make the SEI Equity Investment.
However, because SEI would not be making the SEI Equity Investment, the $10
million payment by Mobile Energy would be due as early as July 31, 2000. Thus,
rather than continuing with the transaction as structured under the Cogeneration
Development Agreement and having to make the $10 million payment, the Debtors
and the Bondholder Steering Committee decided to negotiate with SEI to amend the
Cogeneration Development Agreement.
A motion was filed with the Bankruptcy Court on August 11, 2000 seeking
Bankruptcy Court approval of Amendment No. 1. A true and correct copy of
Amendment No. 1 is attached hereto as Exhibit H and incorporated herein by
reference. Amendment No. 1 was approved by the Bankruptcy Court on September 1,
2000. Amendment No. 1 provides, among other things, that: (1) neither SEI,
Southern Energy Resources, or any affiliate thereof would make any additional
equity investment in Mobile Energy or the Cogen Project; (2) upon confirmation
of a plan of reorganization, Southern Energy Resources' 1% ownership interest of
Mobile Energy (if not transferred earlier to Holdings) and Southern Company's
ownership of Holdings will terminate and the Bondholders will acquire 100% of
the ownership of Holdings pursuant to the terms of the Plan; (3) Southern Energy
Resources will waive the $10 million Equity Option Fee; (4) Mobile Energy will
terminate the Mobile Energy Operating Agreement no later than March 31, 2001 and
Mobile Energy will pay one-half the actual cost of a retention and severance
program implemented by Southern Energy Resources up to a total of $2 million
paid by Mobile Energy; (5) the Cogen Facility Mobile Energy Operating Agreement
will terminate; (6) Mobile Energy will retain an option to purchase the CT,
including the rights in related agreements, upon Mobile Energy's satisfaction of
the MESC Transfer Obligations (as defined in the Cogeneration Development
Agreement, as amended by Amendment No. 1) other than the Equity Option Fee; (7)
Mobile Energy will pay SEI $2.9 million upon the earlier of the exercise of such
option, the effective date of the Plan, or July 31, 2001; (8) Mobile Energy will
be allowed to use the $2.1 million held by Holdings in its tax sharing account;
(9) Southern Energy, Inc. will cause Southern to pay to the Collateral Agent,
and release any claims Southern may have to, the $2.7 million that is subject to
dispute under the Maintenance Plan Funding Subaccount Southern Guaranty
Agreement; and (10) Mobile Energy will agree to indemnify Southern from
Southern's obligations under the Mill Owner Maintenance Reserve Account
Agreement, the Environmental Guaranty, and for certain income taxes on taxable
income of Mobile Energy and Holdings in excess of Southern's excess loss account
related to its investment in Holdings. Southern, Southern Energy Resources and
SEI will continue to 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 Amendment No. 1.
The Debtors will use the $30.12 million received under the KCTC
Settlement Agreement 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.
The Proponents' projections reflect that the Cogen Project will add annual
revenues of $14.5 million beginning in 2002 in wholesale revenues, when the
Cogen Project is expected to enter into commercial operations in mid-year, and
$30.5 million in 2003, the first full year of operation of the Cogen Project.
Mobile Energy has arranged for the fabrication of the HRSG by Deltak
and has contracted with Deltak for Deltak to perform certain work on the
construction of the HRSG. A copy of the agreement between Deltak and Mobile
Energy is attached hereto as Exhibit I. That contract required Mobile Energy to
provide, or cause to be provided, to Deltak letters of credit to secure Mobile
Energy's payment to Deltak. Pursuant to the Letter of Credit Procurement
Agreement between Mobile Energy and Southern Energy Resources executed as of
March 15, 2000 (the "LC Procurement Agreement"), Southern Energy Resources has
caused letters of credit to be posted in the aggregate amount of $5.5 million to
secure the amounts owed by Mobile Energy to Deltak. Letters of credit of up to
an aggregate of $11 million will be posted under the LC Procurement Agreement.
Under the terms of the LC Procurement Agreement, Mobile Energy must provide
Southern Energy Resources with cash collateral equal to the letters of credit
Southern Energy Resources arranges to be provided to Deltak. $1.0 million has
actually been paid to Deltak as of the filing of the Plan.
The CT required for the Cogen Project will be acquired by Mobile Energy
from SEI pursuant to the Cogeneration Development Agreement, as amended by
Amendment No. 1. Under Amendment No. 1, by December 31, 2000, Mobile Energy must
notify SEI that it intends to purchase the CT, and Mobile Energy must pay the
full purchase price of $28 million for the CT within two days of SEI's notifying
Mobile Energy that SEI has paid General Electric Company for the CT. Upon
payment of that amount by Mobile Energy, SEI will transfer the CT to Mobile
Energy and SEI will assign its remaining rights under its contract with GE for
the CT to Mobile Energy. Also pursuant to Amendment No. 1, SEI will assign to
Mobile Energy SEI's rights under the Long Term Service Agreement for Combined
Cycle Generating Plant at MESC Electric Generating Plant made effective March
26, 1999 (the "LTSA") between SEI and General Electric International, Inc.
("GEII"). In addition to the $28 million purchase price for the CT, Mobile
Energy will be required to pay GEII under the LTSA $3 million in 2001. Under the
LTSA, Mobile Energy also will be required to pay GEII approximately $4 million
per year for parts and maintenance on the CT beginning once the Cogen Project
begins operations and for a term of twelve (12) years. The Proponents believe
that the LTSA has considerable value to the Debtors because the costs under the
LTSA are lower than the costs which are otherwise currently available. Following
the assignment of the turbine contract and the LTSA to Mobile Energy, SEI will
remain liable to GEII and Mobile Energy will indemnify SEI for any cost SEI
incurs to GEII under the LTSA. All of Mobile Energy's obligations under
Amendment No. 1 to SEI will be secured by a first priority lien in favor of SEI,
Southern Energy Resources, and Southern. Such lien in favor of SEI, Southern
Energy Resources, and Southern may be junior to the liens of an entity that
provides financing for the Cogen Project.
Mobile Energy is evaluating bids from third-parties to provide the
engineering, procurement and construction of the Cogen Project on a turnkey
basis and is prepared to negotiate an agreement with the preferred bidder. Also,
Mobile Energy currently is in discussions with several entities regarding the
proposed financing required to develop the Cogen Project. The terms of such
financing have not been negotiated, but Mobile Energy expects that customary
terms and conditions will be agreed to, which will include a first priority lien
in favor of the lender on the Cogen Project, and the equity interest of any
subsidiary which owns the Cogen Project (the "Cogen Subsidiary"), being granted
to secure Mobile Energy's obligations.
5. Exempt Wholesale Generator/Qualifying Facility
It is contemplated that the Cogen Project will be owned and operated by
a subsidiary of Mobile Energy, and that both Mobile Energy and such subsidiary
will seek Exempt Wholesale Generator status under PUHCA, subject to the Risk
Factors discussed in Section X.K. below. With Exempt Wholesale Generator status,
Mobile Energy will be allowed to generate electricity, purchase electricity at
wholesale, and sell electricity it either generates or purchases to wholesale
customers. Holdings will form a wholly-owned subsidiary, MESC Retail. Pursuant
to agreements which have not yet been finally negotiated, Mobile Energy's
current obligations to sell power processing services to the Mill Owners will be
transferred to MESC Retail, which will allow Mobile Energy to sell electricity
only at wholesale, as required for exempt wholesale generator status. MESC
Retail will be required to reach an agreement with each of the Mill Owners in
order for Mobile Energy to become an Exempt Wholesale Generator. MESC Retail
will purchase electricity from Mobile Energy. Mobile Energy will supply
electricity to MESC Retail and also to other wholesale customers. Mobile Energy
will guarantee all of the obligations of MESC Retail under the agreements MESC
Retail enters into with the Mill Owners.
If Mobile Energy does not become an Exempt Wholesale Generator, the
Proponents believe the Energy Complex will qualify as a Qualifying Facility
under PURPA, which will allow Mobile Energy to sell electricity that it
generates to the Mills and to wholesale customers, but not to buy electricity
from other wholesale suppliers. If Qualifying Facility status is granted, it
will mean that the Reorganized Debtors will not be regulated as public utilities
for purposes of PUHCA.
F. Operating Results
Assuming the conditions in the KCTC Settlement Agreement are satisfied
and the agreement becomes final, and after the development of the New Pulp Mill
(assuming there are no further Mill Closures), operating revenues will include
(1) the payment of Demand Charges and Processing Charges by the Paper Mill
Owner; (2) payment for services under the New Tissue Mill ESA by KCTC; and (3)
the payment for services under the New Pulp Mill ESA by Jubilee Pulp. Funds will
also be deposited in the Revenue Accounts from (a) distributions received from
the Cogen Subsidiary or the Cogen Project (as described below), (b)
distributions received by Holdings from MESC Retail, and (c) moneys received
upon redemption of Holdings' interest in Pulpco LLC (as described below).
If the Cogen Project is developed, it will generate revenues from the
sale of power produced by the Cogen Project. Cogen Project revenues will be used
first to pay cogeneration expenses and cogeneration indebtedness and then will
be available for distributions to Mobile Energy subject to any limitations on
distributions contained in the Cogen Project financing agreements. Holdings will
receive the preferred payments of $4.8 million per year from Pulpco LLC to
redeem its preferred interest. Holdings will receive distributions from MESC
Retail. Future projections of the anticipated revenues and expenses after the
Effective Date (the "Projections") are attached hereto as Exhibit E. The
Projections are forward-looking statements, all of which are based on various
estimates and assumptions and will not be updated to reflect events occurring
after the date hereof. Such information and statements are subject to inherent
uncertainties and to a wide variety of significant business, economic and
competitive risks, including, among others, those described herein.
Consequently, actual events, circumstances, effects and results may vary
significantly from those included in or contemplated by such Projections. The
Projections, therefore, are not necessarily indicative of the future financial
condition or results of operations of the Debtors or the Reorganized Debtors,
which may vary significantly from those set forth in the Projections.
Consequently, the Projections and other forward-looking statements contained
herein should not be regarded as representations by the Proponents, the
Proponents' advisors, or any other person that the Projections can or will be
achieved.
Because the New Tissue Mill ESA and the New Pulp Mill ESA are on
substantially different terms than the Original Energy Services Agreements,
historical revenues and expenses cannot meaningfully be compared to future
projected results.
Income statements for 1998 and 1999 are attached hereto as Exhibit J
which reflect the revenues and expenses for those
years.
G. Pre-Reorganization Senior Secured Indebtedness
1. Working Capital Facility
In order to provide for Mobile Energy's working capital needs, in
August 1995, Mobile Energy entered into the Working Capital Facility with Banque
Paribas (the "Working Capital Facility Provider"). The Working Capital Facility
expires in 2002, but the Debtors anticipate terminating the Working Capital
Facility as part of the Plan. There is currently no outstanding indebtedness
under the Working Capital Facility, and there has not been any outstanding
indebtedness under the Working Capital Facility since December 31, 1998. The
Working Capital Facility provides for a maximum available amount of $15.0
million and may be drawn on by Mobile Energy from time to time. Borrowings under
the Working Capital Facility generally were used by Mobile Energy to pay for
operation and maintenance costs incurred by Mobile Energy. Each working capital
loan was due and payable no later than 90 days from the date such working
capital loan was advanced to Mobile Energy, and no more than $5.0 million (to be
adjusted in proportion to any adjustments to the maximum available amount under
the Working Capital Facility) of working capital loans may be scheduled to
mature during any calendar month.
As a result of the Chapter 11 Cases, Mobile Energy is currently in
default of the restrictive covenants associated with the Working Capital
Facility. Other defaults under the Working Capital Facility also may exist. The
Debtors anticipate that the Working Capital Facility will be terminated by
agreement with the Working Capital Facility Provider. Therefore, it is not
anticipated that any future borrowings will occur under the Working Capital
Facility. The Debtors may seek to establish a new working capital facility of up
to $3.0 million after the Effective Date. A new working capital facility is
permitted by the terms of the New Taxable Bonds and the New Tax-Exempt Bonds.
2. The First Mortgage Bonds
On August 1, 1995, Mobile Energy issued the First Mortgage Bonds in the
original principal amount of $255,210,000 due January 1, 2017 and bearing annual
interest at 8.665%. The First Mortgage Bonds were issued pursuant to a Trust
Indenture (the "Indenture") by and among Mobile Energy, Holdings, and First
Union National Bank of Georgia, now known as First Union National Bank (the
"Indenture Trustee"). All of Mobile Energy's obligations under the First
Mortgage Bonds are secured by liens and security interests against the First
Mortgage Bond Collateral and are unconditionally guaranteed by Holdings. The
First Mortgage Bond Collateral consists of the Shared Collateral, the Debt
Service Reserve Account, and the Indenture Securities Account established under
the Indenture.
3. The Tax-Exempt Bonds
In December, 1983, the Industrial Development Board of the City of
Mobile, Alabama (the "IDB") issued tax-exempt bonds (the "1983 Tax-Exempt
Bonds") to finance the construction of the Number 7 Power Boiler and certain
auxiliary systems (the "Solid Waste Disposal Facilities") which are "solid waste
disposal facilities" as such term is defined in the Internal Revenue Code and
the regulations promulgated thereunder. In December, 1984, the IDB issued
tax-exempt bonds (the "1984 Tax-Exempt Bonds") to refund the 1983 Tax-Exempt
Bonds.
In August, 1995, the IDB issued the Tax-Exempt Bonds in the original
principal amount of $85,000,000 under an Amended and Restated Trust Indenture
dated as of August 1, 1995 (the "Tax-Exempt Indenture") between the IDB and
First Union National Bank of Georgia, now known as First Union National Bank
(the "Tax-Exempt Trustee"). The Tax-Exempt Bonds bear annual interest at 6.95%
and mature on January 1, 2020. The proceeds of the offering of the Tax-Exempt
Bonds were used to refund the 1984 Tax-Exempt Bonds.
Concurrently with the issuance of the Tax-Exempt Bonds, the IDB and
Mobile Energy entered into an Amended and Restated Lease and Agreement with
respect to the Solid Waste Disposal Facilities (the "IDB Lease Agreement").
Under the IDB Lease Agreement, Mobile Energy makes lease payments to the IDB,
which applies such payments to repay the principal and interest on the
Tax-Exempt Bonds. Since the Petition Date, no payments have been made by Mobile
Energy on the IDB Lease Agreement. The IDB Lease Agreement will be assumed under
the Plan, and it is anticipated that the IDB will waive any cure amounts owed
under the IDB Lease Agreement.
All of Mobile Energy's obligations under the IDB Lease Agreement are
secured by liens and security interests against the Tax-Exempt Bond Collateral
and are unconditionally guaranteed by Holdings. The Tax-Exempt Bond Collateral
consists of the Shared Collateral and the Tax-Exempt Debt Service Reserve
Account established under the Tax-Exempt Indenture.
The Tax-Exempt Indenture provides that the Tax-Exempt Debt Service
Reserve Account would be funded in an amount equal to $5,908,000 (the
"Tax-Exempt Debt Service Reserve Account Required Balance"). Mobile Energy was
permitted to fund the Tax-Exempt Debt Service Reserve Account Required Balance
with a letter of credit in such amount. On March 17, 1999, Tax-Exempt Trustee
received payment of $5,908,000 under that letter of credit for deposit into the
Tax-Exempt Bonds Debt Service Reserve Account. This letter of credit was then
terminated.
4. Agreements Common to Senior Debt
a. Intercreditor Agreement
On August 1, 1995, the Indenture Trustee, the Tax-Exempt Trustee, the
Working Capital Facility Provider, the Collateral Agent, the IDB, Holdings, and
Mobile Energy entered into the Intercreditor and Collateral Agency Agreement
(the "Intercreditor Agreement") designating the Collateral Agent as the agent
for the Indenture Trustee (on behalf of the Holders of the First Mortgage
Bonds), the Tax-Exempt Trustee (on behalf of the Holders of the Tax-Exempt
Bonds), and the Working Capital Facility Provider (collectively, the "Senior
Secured Parties").
The Intercreditor Agreement describes the events that shall constitute
events of default, and it provides how the proceeds of any sale, disposition or
other realization upon any or all of the Shared Collateral will be distributed.
Under the Plan, the New Intercreditor Agreement will take the place of the
Intercreditor Agreement.
b. Mortgage
Mobile Energy and the IDB, as mortgagors, have entered into a Leasehold
Mortgage, Assignment of Leases, Rents, Issues and Profits and Security Agreement
and Fixture Filing dated as of August 1, 1995 (including any amendments thereto,
the "Mortgage") and have granted to the Collateral Agent, as mortgagee, for the
benefit of the Senior Secured Parties, mortgages and security interests in all
real property interests (including fee interests, easement interests, and
leasehold interests, if any) of Mobile Energy to the Energy Complex and the
Easement Deeds and all fixtures, equipment, and improvements thereon, and all
other personal property now owned or hereafter acquired.
At any time that a Trigger Event (as that term is defined in the
Mortgage and the Intercreditor Agreement) has occurred and is continuing (and,
except in the case of any such Trigger Event that shall have resulted from a
Bankruptcy Event in respect of Mobile Energy or Holdings, the Collateral Agent
shall have received from the requisite senior creditors the notice required by
the Intercreditor Agreement) then, to the maximum extent permitted by law, the
Collateral Agent may exercise any right, power, or remedy permitted to it under
the Mortgage and under certain other security documents or by law, and, without
limiting the generality of the foregoing, the Collateral Agent may, personally
or by its agents, to the maximum extent permitted by law, take possession of the
mortgaged property, sell all or any part of the mortgaged property, protect or
enforce its rights under the Mortgage by suit for specific performance, or
exercise any and all remedies available to a secured party under the Uniform
Commercial Code or other applicable law. Proceeds from the exercise of remedies
will be applied in accordance with the Intercreditor Agreement. The rights of
the Collateral Agent, however, are subject to limitations imposed under the
Consent to Assignment entered into by Mobile Energy and the Collateral Agent
with each of the Mill Owners.
c. Security Agreement
Mobile Energy has entered into the Security Agreement dated as of
August 1, 1995 (including any amendments thereto the "Security Agreement") with
the Collateral Agent for the benefit of the Senior Secured Parties, which grants
a lien and security interest in all of Mobile Energy's personal property
interests. The Security Agreement does not provide for the granting of a
security interest in Mobile Energy's rights under the Mill Owner Maintenance
Reserve Account and monies on deposit therein.
Pursuant to the terms of the Security Agreement, the Collateral Agent
may, upon the occurrence of a Trigger Event (as defined in the Intercreditor
Agreement) and satisfaction of certain conditions contained in the Intercreditor
Agreement, take possession of all of the foregoing capital, which also secures
the Working Capital Facility. Proceeds from the exercise of remedies will be
applied in accordance with the Intercreditor Agreement.
5. Effect of Chapter 11 Filings on Senior Secured Debt
The filings by Mobile Energy and Holdings of their Chapter 11 Cases
constituted an event of default under the Indenture, the Tax-Exempt Indenture,
and the Working Capital Facility, as well as a Trigger Event under the
Intercreditor Agreement, the Mortgage, and the Security Agreement. Upon the
filing of these Chapter 11 Cases, the Bankruptcy Code imposed the automatic stay
pursuant to 11 U.S.C. ss. 362 which stays certain actions by Creditors to
enforce their Claims against the Debtors. Until the automatic stay is modified
by final order of the Bankruptcy Court, such Creditors are precluded from
enforcing their valid and otherwise enforceable Claims against the Debtors.
Specifically, the Indenture Trustee, the Tax-Exempt Trustee, and the Collateral
Agent are precluded by the automatic stay from enforcing their claims against
the Debtors and their Estates without seeking modification of the automatic
stay. The automatic stay has not been modified with respect to such Claims.
As discussed below, pursuant to an order by the Bankruptcy Court, a bar
date for objections to the Claims of the Holders of the Senior Secured Debt was
set, and the bar date passed without any objections to such claims. VI.
DESCRIPTION OF DEBTORS' ASSETS
The following is a brief description of certain assets owned by the
Debtors reflecting book value as of August 31, 2000. All or substantially all of
the assets below are prepetition collateral in which the Senior Secured Parties
have valid and enforceable liens and security interests or collateral in which
the Senior Secured Parties are entitled to "replacement liens" under the terms
of Cash Collateral Orders issued by Bankruptcy Court. The values shown below
represent net book value as of August 31, 2000, and they may vary substantially
from the market value or liquidation value as of the date of the filing of this
Disclosure Statement or as of the Effective Date.
A. Assets of Mobile Energy
1. Property, Plant and Equipment
As of August 31, 2000, the land and buildings owned by Mobile Energy
consisted of the Energy Complex having a book value of
$335,452,739.59.
2. Personal Property
a. Cash
As of August 31, 2000, Mobile Energy had cash on hand of
$17,355,916.75, and restricted deposits of $64,328.96.
b. Trade Accounts Receivable
As of August 31, 2000, Mobile Energy had trade accounts receivable of
$9,120.498.67.
c. Office Equipment and Furnishings
Office equipment and furnishings includes computers, networking
equipment, fax machines, communications equipment, and
furnishings located at the Energy Complex. The book value as of
August 31, 2000, was $226,503.91.
d. Plant Materials, Supplies and Fuel Stock
As of August 31, 2000, the book value of this property was
$3,837,976.48.
e. Prepaid Expenses
Prepaid expenses primarily include payments of retainers to
professionals and insurance policy premiums. As of August 31, 2000, prepaid
expenses totaled $400,077.73.
B. Assets of Holdings
1. Cash
As of August 31, 2000, Holdings had cash on hand of $2,106,101.76.
a. Equity Interests
As of August 31, 2000, the Mobile Energy Equity Interest of Holdings
had a book value of $14,958,954.94.
b. Accounts Receivable
As of the Petition Date, Holdings owned accounts receivable of
$2,585,831.00. This amount is the account receivable owed to Holdings under the
Southern Master Tax Sharing Agreement. This amount was subsequently reduced to
approximately $1,300,000 and has been netted against amounts owed by Holdings to
Southern under the Southern Master Tax Sharing Agreement for taxes paid on
behalf of Holdings on taxable income recognized after the Petition Date, and the
remaining amount owed by Holdings has been waived under Amendment No. 1.
C. Causes of Action Owned by Both Mobile Energy and Holdings
The adversary proceeding filed by the Debtors against KCTC is
discussed in the section entitled Significant Events During
the Chapter 11 Cases.
VII.
SIGNIFICANT EVENTS PRIOR TO AND DURING CHAPTER 11 CASES
A. Pre-petition KCTC Disputes
1. Notice of Termination of Pulp Mill ESA and Closure of Pulp Mill
As described above in Section IV.A., in May 1998, the Debtors received
notice from KCTC of its intention to close the Pulp Mill and to terminate the
Pulp Mill ESA effective as early as September 1, 1999, with Demand Charges
continuing for an additional six (6) months until March 1, 2000. KCTC's planned
shutdown of the Pulp Mill, together with the effects on the Debtors arising
therefrom, led to the filing of the Chapter 11 Cases and to the transactions
described in this Disclosure Statement.
2. Commencement of Arbitration Proceeding by KCTC
On December 7, 1998, KCTC served on Mobile Energy a Notice of
Arbitration concerning matters related to KCTC's announced intention to cease
pulping operations at the Pulp Mill and to institute a "Pulp Mill Closure,"
within the meaning of the Master Operating Agreement. In the Arbitration, KCTC
sought a ruling that KCTC (i) would be properly terminating the Pulp Mill ESA
based on the cessation of pulping activities, (ii) could install facilities that
furnish dry fiber and recycled fiber to the Tissue Mill without continuing the
effectiveness of or reinstating the Pulp Mill ESA, and (iii) could continue to
operate (for the Energy Complex and the Mills) water and wastewater treatment
facilities that were defined by the Master Operating Agreement to be part of the
Pulp Mill without continuing the effectiveness of or reinstating the Pulp Mill
ESA. The Debtors asserted that such actions would result in KCTC's continuing
liability under the Pulp Mill ESA.
3. Commencement of Lawsuit to Enjoin Arbitration Proceeding by Mobile
Energy
On December 15, 1998, the Debtors brought an action in the Circuit
Court of Mobile County, Case No. 98-3951, to enjoin the aforementioned
Arbitration on the theory that the issues raised in that Notice were not
arbitrable. KCTC removed the lawsuit to the District Court, Case No.
CV98-1294-RV-C, and moved in that court to transfer the case to the Southern
District of New York. Mobile Energy opposed the transfer and moved for entry of
a temporary restraining order and/or a preliminary injunction to stop the
Arbitration. After a hearing on January 8, 1999, before Hon. Richard W. Vollmer,
Jr., the District Court entered a temporary restraining order against the
Arbitration to stop it from going forward until January 15, 1999, but did not
rule on KCTC's motion to transfer the case to New York or Mobile Energy's
request for a preliminary injunction.
B. Chapter 11 Petitions and Order Approving Joint Administration
On January 14, 1999, the Debtors filed the petitions in their Chapter
11 Cases and a Motion for Order Authorizing Joint Administration of Pending
Cases of Affiliates (the "Joint Administration Motion"). Pursuant to the Joint
Administration Motion, the Debtors sought joint administration of their Chapter
11 Cases, but not substantive consolidation of the Chapter 11 Cases. Mobile
Energy's case is pending in the Bankruptcy Court under Case No. 99-10168 and
Holdings' case is pending in the Bankruptcy Court under Case No. 99-10170. On
January 14, 1999, the Bankruptcy Court entered an order granting the Joint
Administration Motion and ordering that the cases be jointly administered under
Case No. 99-10168.
C. Post-Petition KCTC Disputes and the KCTC Settlement Agreement
1. Debtors' Adversary Proceeding against KCTC
On the Petition Date, the Debtors commenced an adversary proceeding
against KCTC in the Bankruptcy Court seeking money damages and/or rescission of
Mobile Energy's contracts with KCTC. In that proceeding, Holdings and Mobile
Energy alleged, among other things, that, if KCTC's announced plans to
"shutdown" the Pulp Mill were sufficient to allow it to escape its contractual
obligations to Mobile Energy, then Holdings and Mobile Energy did not receive
reasonably equivalent value in purchasing the Energy Complex at the Mobile
Facility and were rendered insolvent by the purchase. In the alternative, the
complaint alleged that KCTC breached its contract with Mobile Energy if it
refused to meet its obligations to Mobile Energy even while: (1) continuing to
generate and supply pulp to the Tissue Mill by means requiring new on-site
facilities; and (2) continuing to operate process water and waste water
treatment systems that are expressly defined to be part of the Pulp Mill.
With the filing of the Chapter 11 Cases, the Arbitration and the case
before Judge Vollmer were automatically stayed. After a scheduling conference on
January 21, 1999, the Bankruptcy Court established May 21, 1999 as the deadline
for completion of discovery in the Adversary Proceeding and scheduled trial of
the Adversary Proceeding to begin on June 21, 1999. At a hearing on March 3,
1999, on a Motion to Expedite Trial filed by Holdings and Mobile Energy, the
Bankruptcy Court advanced the date for the beginning of trial to June 2, 1999.
Meanwhile, KCTC moved the Bankruptcy Court: (1) to lift the automatic
stay of the Arbitration; (2) to compel arbitration of certain aspects of
Holdings' and Mobile Energy's complaint; and (3) to stay other claims or to
exercise its discretion to refrain from ruling on them pending the outcome of
Arbitration. By order dated March 23, 1999, the Bankruptcy Court directed that
certain aspects of the Debtors' contract claims be arbitrated and also ruled
that other aspects of Debtors' claims would be heard after the completion of the
Arbitration. The Bankruptcy Court also determined that it would abstain from
hearing other aspects of the Debtors' claims. KCTC has also moved to dismiss all
counts of the Debtors' complaint, or, in the alternative, to transfer some of
the counts to United States District Court in the Southern District of New York.
The Bankruptcy Court has not yet scheduled a hearing on that motion. The KCTC
Settlement Agreement resolves these disputes as discussed in Section VII.C.3.
below. 2. Arbitration of the KCTC Claims
The Bankruptcy Court ordered that the issue of whether KCTC had
effected a "Pulp Mill Closure" (as defined in the Master Operating Agreement)
under the contracts between KCTC and Mobile Energy be arbitrated, and a hearing
was held before the arbitrator in July, 1999. In August, 1999, the parties
requested the arbitrator to postpone the announcement of a decision pending the
outcome of settlement discussions between Mobile Energy and KCTC. Those
negotiations culminated in the KCTC Settlement Agreement and in the filing of
the Motion to Compromise Controversy Involving KCTC (the "KCTC Settlement
Motion") on December 31, 1999. 3. KCTC Settlement Agreement
The Bankruptcy Court heard the KCTC Settlement Motion on January 21,
2000, and the Bankruptcy Court approved the settlement with KCTC on January 24,
2000, over the objection of S.D. Warren, the owner of the Paper Mill. S.D.
Warren has appealed the Bankruptcy Court's approval of the KCTC Settlement
Agreement to the District Court, which appeal is now pending.
A copy of the KCTC Settlement Agreement is attached to the Plan as
Exhibit C. The KCTC Settlement Agreement encompasses certain transactions, some
of which occurred soon after the Bankruptcy Court approved the settlement, and
other transactions that will occur later if certain conditions are met. Pursuant
to the settlement, on February 8, 2000, Mobile Energy and KCTC executed (i) the
New Tissue Mill ESA, described above in Section V.E.2., which provides for
electricity and steam processing services to be supplied by Mobile Energy to
KCTC at market prices; and (ii) an Option Agreement for Mobile Energy or its
assignee to purchase KCTC's pulp mill and related assets to be used for the New
Pulp Mill. On the closing date, if certain conditions are met, (i) KCTC will pay
Mobile Energy $53 million plus and minus certain adjustments, which adjustments
are expected to result in a net payment of approximately $30.12 million; (ii)
KCTC will transfer certain properties to Mobile Energy as described in more
detail below; and (iii) Mobile Energy will transfer certain other properties to
KCTC as described in more detail below.
The properties KCTC will transfer to Mobile Energy on the Closing Date
(as defined in the KCTC Settlement Agreement) are: (i) real property interests
for the construction and operation of the Cogen Facility; (ii) real property
interests to accommodate a transmission substation to be used to connect the
Cogen Facility to Alabama Power Company's ("APCo") transmission system (the
"Substation"); (iii) real property interests for the construction and operation
of a new warehouse (the "Mobile Energy Warehouse"); (iv) real property
interests, equipment, and facilities to receive, unload, handle, store, and
deliver biomass to Mobile Energy (the "Biomass Facilities"); and (v) any
easements, licenses, leasehold interests, rights of way, or other conveyances of
interests reasonably necessary to allow Mobile Energy to install, own, operate,
and maintain (1) power lines from the Cogen Facility to Mobile Energy's existing
facilities, from the Cogen Facility to the Substation, and from the Substation
to the APCo transmission system; (2) a high pressure natural gas line from the
Cogen Facility to the natural gas pipeline that will be providing gas
transportation services to Mobile Energy for the Cogen Facility; (3) water and
steam lines from the Cogen Facility to Mobile Energy's existing facilities; (4)
compressed air lines from Mobile Energy's existing facilities to the Cogen
Facility and, as appropriate, the Mobile Energy Warehouse and the Biomass
Facilities; (5) facilities interconnecting, as appropriate, the Cogen Facility,
the Mobile Energy Warehouse and the Biomass Facilities with the effluent
treatment system and the storm water system; and (6) any other easements,
licenses, leasehold interests, rights of way, or other conveyances of interests
in portions of the Site, or any offsite rights of way held by KCTC, that are
reasonably necessary for the Cogen Facility, the Mobile Energy Warehouse, the
Substation, and the Biomass Facilities or for the construction of such power
lines, natural gas lines, water or steam lines, compressed air lines, and other
interconnecting facilities.
On the closing date Mobile Energy will transfer to KCTC Mobile Energy's
existing warehouse, its No. 6 Power Boiler, including certain ancillary
equipment, and a one-half undivided ownership interest in certain electrical
distribution facilities. KCTC and Mobile Energy will also enter into an
agreement which will set out the respective rights and obligations of Mobile
Energy and KCTC to operate and maintain the No. 6 Power Boiler and, in certain
cases, the South Power House. On January 1, 2002, Mobile Energy will also assume
responsibility for disposal of any boiler ash generated by the Energy Complex.
Prior to that time, KCTC will dispose of ash.
The KCTC Settlement Agreement is subject to certain conditions. Some of
these conditions have been modified by agreement subsequent to the execution of
the KCTC Settlement Agreement. If the conditions do not occur, then the
settlement will not take place and the parties will be restored to the status
quo ante in respect of the contractual or other legal relationships in effect
between them immediately prior to January 24, 2000. The conditions are (i)
closing those transactions required to be closed on or before February 29, 2000,
which condition has been met; (ii) on or before August 7, 2000, the filing of a
plan or plans of reorganization containing certain terms and conditions and, to
the extent necessary, the filing of a motion to assume the Master Operating
Agreement and certain other agreements among Mobile Energy, KCTC and S.D.
Warren, which condition has been met; (iii) on or before July 31, 2000,
agreement by Mobile Energy and KCTC on the Asset Purchase Agreement with respect
to the assets to be used for the New Pulp Mill, which agreement has been met;
(iv) on or before December 31, 2000, entry of orders of the Bankruptcy Court or
other applicable court confirming the Plan, approving KCTC Settlement Agreement,
as amended, and approving the assumption of the Master Operating Agreement must
be final and no longer subject to judicial review; (v) on or before January 31,
2001, effectiveness of the Plan and the assumption of the Master Operating
Agreement shall be in full force and effect; and (vi) no conversion or dismissal
of the Chapter 11 Cases shall have been made, and no appointment of a trustee
shall have been made.
The KCTC Settlement Agreement attached to the Plan contains certain
waivers and amendments which extend some of the deadlines and time periods set
forth in the KCTC Settlement Agreement. The Plan seeks approval of the KCTC
Settlement Agreement, as amended.
D. Motion to Approve Cogeneration Development Agreement
Contemporaneously with the negotiations leading to the KCTC Settlement
Agreement, the Proponents determined that it was in the best interests of the
Debtors to pursue the development of a 165-megawatt gas-fired cogeneration
facility at the Mobile Facility. Power produced by the Cogen Project would
primarily be sold through the regional power transmission system to wholesale
customers.
The Debtors, the Bondholder Steering Committee and Southern Energy
Resources and SEI discussed the terms and conditions under which SEI and
Southern Energy Resources would be willing to oversee the development of the
Cogen Project and under which SEI, or an affiliate, would potentially provide
the equity funding for the project. The Debtors estimated the cost of developing
the entire cogeneration project to be $87 million. The Debtors and the
Bondholder Steering Committee filed their Motion to Approve the Cogeneration
Development Agreement on December 31, 1999, and the Bankruptcy Court approved
the motion on January 24, 2000 over S.D. Warren's objection. S.D. Warren has
appealed the order approving the Cogeneration Development Agreement. Southern
Energy Resources and the Debtors executed the Cogeneration Development Agreement
on February 9, 2000 and filed copies of the executed documents with the
Bankruptcy Court. A copy of the Cogeneration Development Agreement is attached
as Exhibit K and incorporated herein by reference.
As set forth above in Section V.E.4., on August 11, 2000, the Debtors
filed the Motion to Approve Amendment No. 1 to Cogeneration Development
Agreement which will provide for the continued development of the Cogen Project
and the motion was approved on September 1, 2000.
E. Orders Authorizing Use of Cash Collateral (Bar Date for Challenges to Claims)
-----------------------------------------------------------------------------
On the Petition Date, the Debtors filed their Motion for an Order
Authorizing Use of Cash Collateral Pursuant to Section 363 of the Bankruptcy
Code. On March 15, 1999, the Bankruptcy Court granted the Debtors' Motion and
authorized the Debtors' use of cash collateral pursuant to the First Final Cash
Collateral Order. The First Final Cash Collateral Order, and each subsequent
order, provides for replacement liens in the Debtors' assets in favor of the
Senior Secured Lenders to the extent of an actual diminution in value of the
Senior Secured Lenders' collateral. The Debtors currently have the authority to
use cash collateral pursuant to the Fourth Final Cash Collateral Order entered
on May 17, 2000. The Debtors' authority to use cash collateral continues up
through and including December 31, 2000.
With the authorization of the Debtors' use of cash collateral, the
Bankruptcy Court set a bar date for objecting to the Claims of the Senior
Secured Creditors and for challenging their liens. The date set by the
Bankruptcy Court was May 15, 1999, and no objections were timely filed.
In connection with the issuance of the First Mortgage Bonds, the
Indenture required that a debt service reserve account be established for the
benefit of the Holders of the First Mortgage Bonds (the "First Mortgage Bonds
Debt Service Reserve Account"). Additionally, in connection with the issuance of
the Tax-Exempt Bonds, the Tax-Exempt Bonds Indenture required that a debt
service reserve account be established for the benefit of the Holders of the
Tax-Exempt Bonds (the "Tax-Exempt Debt Service Reserve Account"). The First
Mortgage Bonds Debt Service Reserve Account was funded in an amount equal to
$21.9 million (the "First Mortgage Bonds Debt Service Reserve Account Required
Balance"). Prior to March 15, 1999, Mobile Energy funded the Debt Service
Reserve Account with a guaranty from Southern in an amount equal to the Debt
Service Reserve Account Required Balance. On March 15, 1999, Southern paid $21.9
million to First Union National Bank, as trustee under the Indenture, for
deposit in the Debt Service Reserve Account. That payment terminated the
Southern guaranty. Prior to March 17, 1999, the Tax-Exempt Bonds Debt Service
Reserve Account was funded with a letter of credit in an amount equal to $5.9
million. On March 17, 1999, First Union National Bank, as trustee under the
Tax-Exempt Indenture, received payment of $5.9 million under that letter of
credit for deposit into the Tax-Exempt Bonds Debt Service Reserve Account.
Pursuant to an order of the Bankruptcy Court the Debtors made cash payments to
the Collateral Agent for further distribution under the terms of the
Intercreditor Agreement and the Indenture and the Tax-Exempt Indenture. Between
June, 1999 and January, 2000, the Debtors made payments thereunder totaling
$17,633,850.99.
F. Order Approving Debtors' Cash Management System and Authorizing
Variances from U.S. Trustee's Investment Guidelines
--------------------------------------------------------------------
On the Petition Date, the Debtors filed their Motion for an Order
Modifying Investment Guidelines of 11 U.S.C. ss. 345 (the "Investment Guidelines
Motion"). Pursuant to the Investment Guidelines Motion, the Debtors sought
modifications of the investment guidelines established in Section 345 of the
Bankruptcy Code. The Order granting the Investment Guidelines Motion was entered
on January 15, 1999. To maximize the value of the Debtors' Estates, the Debtors
deemed it advisable that the Cash be maintained in income producing investments
to the fullest extent possible, and in accordance with the Debtors' pre-petition
investment policies. Those investment policies permitted investments in
relatively low-risk, short-term investment instruments. Although such
investments were somewhat higher in risk than the investments permitted by
Section 345 of the Bankruptcy Code, the Debtors received a substantially higher
rate of return. The Debtors thereby maximized the value of their assets, with
little appreciable additional risk. G. Conversion of Number 7 Recovery Boiler to
the Number 8 Power Boiler
In the summer of 1999, the Debtors determined that in order to ensure
the continued viability of the Energy Complex after the Pulp Mill shutdown,
which was scheduled to occur on September 1, 1999, the Debtors were required to
reconfigure the Energy Complex. A large portion of the reconfiguration work
involved transforming one of the two existing recovery boilers, the Number 7
Recovery Boiler, to function as a power boiler. The Number 7 Recovery Boiler
burned black liquor from the Pulp Mill to create steam that ultimately was used
to create electricity. Because the fuel used by the Number 7 Recovery Boiler,
black liquor, would be discontinued when the Pulp Mill closed on September 1,
1999, Mobile Energy decided to reconfigure the Number 7 Recovery Boiler to burn
natural gas, instead of black liquor, to create the steam needed to generate
electricity and in order to meet the energy demands of the remaining Mills. As
reconfigured, the Number 7 Recovery Boiler was re-named the Number 8 Power
Boiler.
As reconfigured, the Number 8 Power Boiler, together with the
addition of the Number 7 Turbine Generator, allowed the Energy
Complex to meet the energy needs of the remaining Mills and it also
allowed Mobile Energy to sell electricity to wholesale
customers. The addition of the Number 7 Turbine Generator was approved by the
Bankruptcy Court.
H. Engagement Of Professional Persons
----------------------------------
1. Engagement of Attorneys
On the Petition Date, the Debtors filed with the Bankruptcy Court
applications to employ Cabaniss, Johnston, Gardner, Dumas & O'Neal ("Cabaniss,
Johnston") as general bankruptcy counsel, and Andrews & Kurth L.L.P. ("A&K") as
special bankruptcy counsel. An order granting the Cabaniss, Johnston and A&K
applications was signed that same day. Pursuant to the terms of the employment
application, the Debtors have agreed to pay Cabaniss, Johnston's and A&K's legal
fees on an hourly rate basis at the hourly rates customarily charged by them for
the services of the professionals involved. The Debtors have also agreed to
reimburse Cabaniss, Johnston and A&K for all reasonable and necessary expenses
incurred by them in performing services for the Debtors. Payment of such fees
and expenses is subject to the approval of the Bankruptcy Court in accordance
with the standards of Sections 327 through 330 of the Bankruptcy Code.
2. Engagement of Investment Banker
On the Petition Date, the Debtors filed an application to retain FORCAP
International Inc. ("FORCAP") to provide financial advisory and investment
banking services in connection with the Chapter 11 Cases (the "FORCAP
Application"). By Order entered on March 22, 1999, the Bankruptcy Court approved
the Debtor's employment of FORCAP pursuant to the terms of an engagement letter
(the "Engagement Letter") between FORCAP and Mobile Energy. The Engagement
Letter provides for the payment of $125,000 per month in advisory fees, all or a
portion of which may be offset against FORCAP's Transaction Fee. All of the
amounts paid to FORCAP are subject to further approval of the Bankruptcy Court.
Commencing with the February 14, 2000 payment, the advisory fees due FORCAP were
reduced to $25,000 per month.
On June 29, 2000, FORCAP filed its interim fee application seeking
preliminary approval of its fees and expenses for the period January 1, 2000
through April 30, 2000. The Debtors and the Bondholder Steering Committee have
objected to FORCAP's interim fee application. On July 20, 2000, Mobile Energy
gave FORCAP thirty days notice of the termination of the Engagement Letter for
cause, and FORCAP's engagement was terminated on August 19, 2000. FORCAP
disputes that cause existed for its termination. 3. Engagement of Accountants
The Debtors filed an application (the "PricewaterhouseCoopers
Application") for employment of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") to perform accounting services on behalf of the
Debtors. Pursuant to the terms of the employment application, the Debtors agreed
to pay PricewaterhouseCoopers' fees for services on an hourly rate basis at the
hourly rates customarily charged by it for the services of the professionals
involved. The Debtors also agreed to reimburse PricewaterhouseCoopers for all
reasonable and necessary expenses incurred by it in performing services for the
Debtors. Payment of such fees and expenses is subject to the approval of the
Bankruptcy Court. By Order entered on the Petition Date, the Bankruptcy Court
approved the Debtors' employment of PricewaterhouseCoopers pursuant to the terms
of the PricewaterhouseCoopers Application. I. Southern Payment to Collateral
Agent for Deposit in Maintenance Reserve Account Pursuant to Guaranty in
Connection with
First Mortgage Bonds and Tax-Exempt Bonds
Upon its establishment in August, 1995, at the time of the issuance of
the First Mortgage Bonds and the Tax-Exempt Bonds, the Maintenance Reserve
Account established under the Intercreditor Agreement was credited in an amount
equal to $11.0 million. In lieu of funding the Maintenance Reserve Account with
Cash at that time, Mobile Energy provided instead a guaranty from Southern in an
amount equal to $11.0 million. In March, 1999, Southern paid $8.3 million to the
Collateral Agent under that guaranty for deposit into the Maintenance Reserve
Account. Substantially all of these moneys were distributed by the Collateral
Agent to the Indenture Trustee and the Tax-Exempt Trustee pursuant to the terms
of the Intercreditor Agreement. Southern had asserted that because of a payment
of $2.7 million into the Maintenance Reserve Account in 1996 from funds borrowed
under the revolving credit facility maintained by Southern with Banque Paribas
(separate from the Working Capital Facility described above), no further amount
was available under the Southern guaranty. Under Amendment No. 1 the matter will
be resolved by Southern paying $2.7 million to the Collateral Agent.
J. Appointment of Official Unsecured Creditors' Committee
On February 4, 1999, the United States Trustee filed a Notice of
Appointment of Creditor's Committee, appointing the
following members to the Official Unsecured Creditors' Committee: Hargrove
and Associates, Inc., Iberville Insulations, Inc.,
Industrial Value, and Smith Industrial Service.
K. Establishment of Bondholder Steering Committee
The ad hoc committee of Holders of Tax-Exempt Bonds and First Mortgage
Bonds have established the Bondholder Steering Committee. The Bondholder
Steering Committee is currently composed of CS First Boston, Miller Anderson &
Sherrerd, LLP and Pan American Life Insurance Company (each of which holds First
Mortgage Bonds); Franklin Advisors, Inc. and Van Kampen Interest and Advisory
Corp. (each of which holds Tax-Exempt Bonds); and First Union National Bank (ex
officio), as Trustee for the First Mortgage Bonds and Tax-Exempt Bonds. The
Bondholder Steering Committee has retained Debevoise & Plimpton, McDermott Will
& Emery, and Silver, Voit and Thompson as their counsel and CIBC World Markets
as their financial advisor. The Bondholder Steering Committee is a Proponent of
the Plan.
L. Motions to Extend Exclusivity
Under Section 1121 of the Bankruptcy Code, the Debtors originally had
the exclusive right until May 14, 1999, to file a plan of reorganization, and
until July 13, 1999, to solicit acceptances of such plan. The Debtors requested
the Bankruptcy Court to extend the exclusive periods pending the negotiation of
the business arrangements that are the foundation of the Plan. The Bankruptcy
Court granted the Debtors' requests and the exclusive periods for the Debtors to
file and solicit a plan of reorganization were extended through July 31, 2000,
and September 29, 2000, respectively. The extensions of the exclusive periods
did not apply either to the Bondholder Steering Committee or to S.D. Warren.
M. Motions to Extend Time to Assume or Reject Real Property Leases
Under Section 365(d)(4) of the Bankruptcy Code, the Debtors
originally had until March 15, 1999, to decide whether to assume
or reject leases of real property. The Bankruptcy Court has granted the
Debtors' requests to extend the time period to decide
whether to assume or reject their real property leases until the confirmation
of a plan of reorganization.
N. Motion to Approve Work Force Reduction-Severance Program
--------------------------------------------------------
As a result of the cessation of the Pulp Mill's operations that
occurred on or about September 1, 1999, the number of hourly employees of
Southern Energy Resources who worked at the Mobile Facility could be reduced. In
order to facilitate an organized and controlled reduction in the hourly employee
workforce, Southern Energy Resources negotiated the terms and conditions of the
Workforce Reduction Severance Program (the "Program") with the hourly employees'
union representatives. The Debtors were authorized to reimburse Southern Energy
Resources for the costs of the Program by order of the Bankruptcy Court on
October 29, 1999.
Under the Program, the hourly employees elected to either receive a
voluntary severance or remain in the employ of Southern Energy Resources subject
to its right to terminate employment involuntarily. Those hourly employees that
elected to take a voluntary severance could have elected a Lump Sum Payment
("LSP") or alternatively to be party to an Employee Transition Program ("ETP").
The election took place between November 1, 1999 and November 12, 1999.
Twenty-three employees were terminated under the LSP, four employees chose the
ETP without recall rights, and four employees were terminated involuntarily. To
date, the Debtors have reimbursed Southern Energy Resources approximately $1.3
million under the Program.
O. Motion to Approve Key Employee Retention Program
In order to keep important salaried employees employed at the Mobile
Facility to assist with the reorganization effort, the Debtors sought Bankruptcy
Court approval to reimburse Southern Energy Resources for the costs of the Key
Employee Retention Program (the "Key Employee Retention Program"). On June 30,
1999, the Bankruptcy Court approved the Key Employee Retention Program. The Key
Employee Retention Program provided that salaried employees would continue with
their current salary and benefits, provided for a severance payment under
certain circumstances, and provided for a retention bonus if an employee
continues employment through May 28, 1999. All payments under the Key Employee
Retention Program were paid by Southern Energy Resources and reimbursed by
Mobile Energy pursuant to the Mobile Energy Operating Agreement.
P. Motion to Pay Prepetition Wages
On the Petition Date, the Debtors filed a motion with the Bankruptcy
Court to allow the reimbursement to Southern Energy Resources for payment of
prepetition wages and salaries owed to the employees of Southern Energy
Resources who work at the Mobile Facility. The Bankruptcy Court approved the
motion on February 22, 1999.
Q. SkyGen Proceeding Before the FERC
On May 18, 2000, SkyGen Energy LLC ("SkyGen") filed a complaint against
Southern Company Services, Inc. (which is owned by Southern Company and is an
affiliate of the Debtors) and certain affiliates thereof (collectively "SCS")
with the FERC, Docket No. EL00-77-000. SkyGen is developing a facility in
Florida with a net electrical output of 235 megawatts ("SkyGen Facility").
SkyGen claims it has negotiated an executable version of an agreement for the
sale of power at wholesale from the SkyGen Facility. SkyGen executed an
Interconnection Agreement on July 13, 1999 with Gulf Power, an affiliate of SCS.
On November 16, 1999, SkyGen requested firm point-to-point transmission
service for the calendar year 2002 between Florida and a point where SCS
transmission lines interconnect with transmission facilities of the Tennessee
Valley Authority (the "SkyGen Request"). In response, on March 6, 2000, SCS
denied SkyGen's request because of a "wide area stability problem" on SCS's
facilities in Florida and southern Alabama (among other areas). SkyGen contends
that SCS's denial of transmission services was improper because, among other
reasons, it was discriminatory as to SkyGen. Mobile Energy intervened in the
SkyGen Proceeding.
On July 31, 2000, the FERC denied in all respects SkyGen's complaint.
The FERC emphasized that it is the date of SkyGen's transmission service
request, not the date of an interconnection agreement that determines a
project's place in the transmission queue. Further, the FERC found that SCS has
properly calculated the amount of firm capacity available on the SCS
transmission system. Based upon information from (a) SkyGen's attorneys; and (b)
FERC's computerized filing tracking system, it appears that SkyGen did not seek
rehearing of the FERC's order within the statutorily-prescribed time period for
filing requests for rehearing of orders with the FERC. If SkyGen were to obtain
a reversal of the FERC's order either on rehearing or on appeal, the result
could be that SkyGen would have superior rights to transmission service ahead of
Mobile Energy, thereby reducing Mobile Energy's ability to sell power to
wholesale customers.
R. Motion to Approve Topping Fee and Related Relief
On August 11, 2000, the Debtors filed the Motion to Approve Sale and
Overbid Procedures and Reimbursement of Expenses with the Bankruptcy Court. The
Debtors sought Bankruptcy Court approval of the procedures by which other
potential bidders will have an opportunity to enter into the same, or a
substantially similar, transaction with the Debtors as the proposed transaction
with Jubilee Pulp under the Term Sheet. The motion was approved on August 30,
2000. The approval of the transactions with and the sale to Jubilee Pulp, or a
higher bidder, will be conducted as part of the confirmation hearing.
S. Motion to Approve Amendment No. 1
As more fully described above in Section V.E.4., on August 11, 2000,
the Debtors filed the Motion to Approve Amendment No. 1
to MESC Cogeneration Development Agreement with the Bankruptcy Court.
The Debtors sought Bankruptcy Court approval to enter
Amendment No. 1, which will allow for the continued development of the Cogen
Project. The Motion was approved on August 30, 2000.
T. Disputes with S.D. Warren
-------------------------
As stated above, S.D. Warren has appealed the orders approving the KCTC
Settlement Agreement and the Cogeneration Development Agreement. S.D. Warren and
Mobile Energy also are involved in a dispute over certain billings by Mobile
Energy to S.D. Warren for Demand Charges and Processing Charges beginning in
September 1999. S.D. Warren contends that Mobile Energy has improperly
calculated Demand Charges by allocating Relinquished Demand under the Master
Operating Agreement from the shutdown Pulp Mill in such a way that increases the
amounts payable by S.D. Warren to Mobile Energy. S.D. Warren also disputes the
charges associated with the pass through of fuel costs under the Master
Operating Agreement. S.D. Warren also disputes Mobile Energy's ability to
transfer the Number 8 Recovery Boiler to Pulpco LLC without its consent and
Mobile Energy's ability to replace the operator of the Energy Complex without
its consent. Mobile Energy disputes each of S.D. Warren's contentions.
VIII.
CLASSIFICATION AND TREATMENT OF CLAIMS
AND EQUITY INTERESTS UNDER THE PLAN
A. General
The general description of the Plan below is for informational
purposes only. Creditors and Holders of Equity Interests
should not rely solely on this description for voting purposes, but should
read the Plan in its entirety. THE PLAN IS CONTROLLING IN
THE EVENT OF ANY INCONSISTENCY BETWEEN THE CONTENTS OF THE PLAN AND THE
CONTENTS OF THIS DISCLOSURE STATEMENT.
B. Effective Date of the Plan
--------------------------
The "Effective Date" of the Plan determines when the performance of
many of the obligations under the Plan are due. Essentially, the Effective Date,
as defined in the Plan, occurs shortly after (i) entry of the Confirmation
Order; and (ii) satisfaction of all conditions to effectiveness set forth in the
Plan. However, the Proponents, the Bondholder Steering Committee, and KCTC may
waive certain conditions to effectiveness as described in Section 13.05 of the
Plan. Except where earlier performance by the Debtors is expressly required by
the Plan, the Debtors' performance under the Plan will be due on the Effective
Date if not stated otherwise. Nevertheless, the Debtors will have the right, but
not the obligation, to render any or all of such performance prior to the
Effective Date if the Proponents deem it appropriate to do so.
C. Classification Generally
The Plan divides Claims against, and Equity Interests in, the Debtors
into ten (10) separate Classes that the Debtors believe are in accordance with
the requirements of the Bankruptcy Code. Unless otherwise expressly stated in
the Plan, distributions to Holders of Allowed Claims are in full discharge and
satisfaction of those Allowed Claims. All Claims against the Debtors arising
prior to entry of the Confirmation Order will be discharged as of the Effective
Date pursuant to Bankruptcy Code ss. 1141(d) and Article XIV of the Plan.
D. Unclassified Claims
1. Administrative Expenses
This category of Claims consists of all Allowed Claims for the costs of
administration of the Chapter 11 Cases. Included in this Class are all Claims
for administrative expenses entitled to priority under Section 507(a)(1) of the
Bankruptcy Code, such as the actual and necessary expenses of preserving the
Debtors' Estates as approved by the Bankruptcy Court, including, but not limited
to, any actual and necessary expenses of operating the Debtors' businesses.
Administrative Expenses also include fees and expenses of Professional Persons,
including without limitation attorneys, valuation consultants, auditors, and
other professional persons employed by the Debtors as approved by the Bankruptcy
Court. In addition, Administrative Expenses include the fees and charges
assessed against the Debtors under Section 1930 of Title 28 of the United States
Code.
It is difficult to estimate the amount of the Administrative Expenses
due to uncertainties such as the amount of attorneys' fees the Debtors may incur
in the Chapter 11 Cases. Unpaid Allowed Administrative Expenses are estimated to
be approximately $5,032,396.00 as of the Effective Date (subject to revision
prior to the Disclosure Statement hearing), inclusive of payments made from time
to time in the ordinary course of business operations during the Chapter 11
Cases, and exclusive of amounts required to be paid in order to assume Executory
Contracts.
Pursuant to the Plan, each Allowed Administrative Expense will be paid
in full as soon as practicable after the later of the Effective Date or the date
upon which such Administrative Expense becomes an Allowed Administrative
Expense. Any Administrative Expense that is an Allowed Administrative Expense
representing a liability incurred in the ordinary course of the Debtors'
business will be paid in full in the ordinary course of business. The Debtors
will pay all outstanding Allowed Administrative Expenses on the Effective Date
and will reserve sufficient cash to pay estimated and Disputed Administrative
Expenses. 2. Priority Tax Claims
This category of Claims consists of all Allowed Priority Tax Claims of
governmental units entitled to priority under Bankruptcy Code Section 507(a)(8).
As of the date hereof, the Debtors estimate that there will be no Allowed
Priority Tax Claims. If, as of the Effective Date, no Creditor actually holds an
Allowed Priority Tax Claim, the Debtor will not reserve any Cash to pay such
Claims.
Pursuant to the Plan and unless otherwise agreed to by the parties,
each Holder of a Priority Tax Claim will receive Cash equal to the unpaid
portion of such Priority Tax Claim on or as soon as practical after the later
the Effective Date, or the date on which such Claim becomes an Allowed Claim;
provided, however, that at the option of the Reorganized Debtors, the
Reorganized Debtors may pay Priority Tax Claims over a period not exceeding six
(6) years after the date of assessment of the Priority Tax Claim as provided in
Section 1129(a)(9)(C) of the Bankruptcy Code. If the Reorganized Debtors elect
this option as to any Priority Tax Claim, then the payment of such Priority Tax
Claim shall be made in equal semiannual installments, with the first installment
due on the latest of (i) the Effective Date; (ii) 30 calendar days after the
date on which an order allowing such Priority Tax Claim becomes a Final Order;
or (iii) such other time as may be agreed to by the Holder of such Priority Tax
Claim and the Reorganized Debtors. Each installment shall include simple
interest on the unpaid portion of such Priority Tax Claim, without penalty of
any kind, at the statutory rate of interest provided for such taxes under
applicable nonbankruptcy law; provided, however, that the Reorganized Debtors
shall reserve the right to pay any Priority Tax Claim, or any remaining balance
of such Priority Tax Claim, in full, at any time on or after the Effective Date,
without premium or penalty.
E. Classified Claims
1. Class 1: Priority Non-Tax Claims
Class 1 consists of all Allowed Priority Non-Tax Claims that are
unsecured and entitled to priority under Bankruptcy Code Section 507(a)(3) and
(4), such as: (i) Unsecured Claims for accrued employee compensation, including
vacation, severance, and sick leave pay, earned within 90 days prior to the
Petition Date to the extent of $4,300 per employee; and (ii) unsecured Claims
for contributions to an employee benefit plan arising from services rendered
within the 180-day period immediately preceding the Petition Date, but only for
such plans to the extent of (a) the number of employees covered by such plan
multiplied by $4,300, less (b) the aggregate amount paid to such employees for
accrued employee compensation.
As of the date hereof, the Debtors have executive officers but do not
have any employees. The executive officers have received and continue to receive
compensation in respect of services performed by such persons in their
capacities as officers of the Debtors from Southern Energy Resources, their
primary employer and an Affiliate of the Debtors. These salaries, including a
portion of the overhead costs associated with each, are paid by Southern Energy
Resources, and Southern Energy Resources is reimbursed by Mobile Energy, in
accordance with a services agreement between Mobile Energy and Southern Energy
Resources. The executive officers receive no cash or non-cash compensation as a
result of these arrangements beyond that which they would otherwise receive from
Southern Energy Resources for the services performed by them for Southern Energy
Resources. Accordingly, the Debtors estimate that there will be no Allowed
Priority Non-Tax Claims. If, as of the Effective Date, no Creditor actually
holds an Allowed Priority Non-Tax Claim, the Debtor will not reserve any Cash to
pay such claims.
Pursuant to the Plan, each Allowed Priority Non-Tax Claim,
except to the extent that the Holder of an Allowed Priority
Non-Tax Claim agrees to a different treatment (or as otherwise ordered by
the Bankruptcy Court), will be paid as soon as practicable
after the later of the Effective Date or the date such Priority Non-Tax Claim
becomes an Allowed Priority Non-Tax Claim.
2. Class 2: Allowed Working Capital Facility Provider Secured Claim
Class 2 consists of the Allowed Secured Working Capital Facility
Provider Claim. The Debtors do not believe that the
Working Capital Facility Provider has a Claim entitled to allowance,
and the Working Capital Facility Provider has not filed a proof
of Claim. However, to the extent the Working Capital Facility Provider
is determined to have a Claim, it shall be treated as follows:
(i) Treatment. At the option of the Debtors (i) the Plan may leave
unaltered the legal, equitable and contractual rights of the
Allowed Working Capital Facility Provider Claim; or (ii) notwithstanding
any contractual provision or applicable law that entitles
the Working Capital Facility Provider to demand or receive accelerated
payment of the Allowed Working Capital Facility Provider Claim
after the occurrence of a default, the Debtors shall (A) cure any such
default, other than a default of a kind specified in Section
365(b)(2) of the Bankruptcy Code; (B) reinstate the maturity of
such Claim as such maturity existed before such default; (C)
compensate the Working Capital Facility Provider for any damages incurred
as a result of any reasonable reliance by such Holder on
any contractual provision creating a default other than a default of a
kind specified in Section 365(b)(2) of the Bankruptcy Code;
and (D) not otherwise alter the legal, equitable, or contractual rights to
which such Claim entitles the Holder thereof; or (iii) on
the later of the Effective Date or the date on which the Claim of the Working
Capital Facility Provider becomes an Allowed Working
Capital Facility Provider Claim, the Debtors may pay the Working Capital
Facility Provider, in full, or upon such less favorable
terms as may be agreed to in writing between the Working Capital Facility
Provider and the Debtors or the Reorganized Debtors.
(ii) Retention of Lien. The Working Capital Facility Provider will
retain its Liens. Except as modified by the terms of this
---------------------------
Plan, the existing documentation evidencing the Claim and Liens of the Working
Capital Facility Provider will remain in effect.
(iii) Status. The Working Capital Facility Provider is unimpaired
under the Plan. Acceptance of the Plan from the Working
---------------
Capital Facility Provider is conclusively presumed, and the Creditor in Class
2 are not entitled to vote on the Plan.
3. Class 3: Allowed Southern Post-Petition Claims
Class 3 consists of the Allowed Southern Post-Petition Claim. As of the
date hereof, the Debtors estimate that the amount of the Allowed Southern
Post-Petition Claims is $5,142,786. (i) Treatment of Allowed Southern
Post-Petition Claims. Pursuant to the Plan, the Holder of the Allowed Claims in
Class 3 shall receive in complete settlement, satisfaction, and discharge of its
Southern Post-Petition Claims, the treatment provided for in the Cogeneration
Development Agreement, as amended by Amendment No. 1, and the orders approving
them. (ii) Retention of Lien. The payment to the Holder of the Allowed Claims in
Class 3 shall be in full satisfaction of the Allowed Southern Post-Petition
Claim and Southern, SEI, and Southern Energy Resources shall retain their liens
on the Reorganized Debtors' assets to secure Mobile Energy's obligations
existing and set forth under the Cogeneration Development Agreement, as amended
by Amendment No. 1, including certain indemnity obligations.
(iii) Status. The Creditor in Class 3 is unimpaired. Acceptance of the
Plan from such Creditor is conclusively presumed, and
------
the Creditor in Class 3 is not entitled to vote on the Plan.
4. Class 4: Allowed First Mortgage Bondholders Claims
Class 4 consists of the First Mortgage Bondholder Claims. Under the
Plan, the First Mortgage Bondholders Claims are Allowed Claims. Claims in Class
4 are impaired, and the Holders of First Mortgage Bondholder Claims will be
entitled to vote to accept or reject the Plan using the enclosed Ballot.
(i) Treatment of Allowed Claims of First Mortgage Bondholders. On the Effective
Date, the First Mortgage Bonds will be exchanged for New Taxable Bonds in an
aggregate principal amount of $51,535,000. Each Holder shall receive, in
exchange for its First Mortgage Bondholder Claim, an amount of New Taxable Bonds
equal to the product of (a) the outstanding principal amount of such Holder's
First Mortgage Bonds as shown on the books and records of DTC on the Record Date
and (b) 0.24704. In addition, on the Effective Date, the Holders of First
Mortgage Bonds as a Class will receive an aggregate of 7,259,400 shares of New
Common Stock. Each Holder shall receive, in exchange for its First Mortgage
Bondholder Claim, an amount of New Common Stock equal to the product of (a) the
outstanding principal amount of such Holders' First Mortgage Bonds as shown on
the books and records of DTC on the Record Date divided by 214,820,000 and (b)
7,259,400. Any such share of New Common Stock or New Taxable Bond received by
such Holder shall be rounded down to the nearest whole dollar. Each such Holder
may elect to receive all or part of its New Taxable Bonds and shares of New
Common Stock in the form of one or more Combined Securities rather than
receiving the separate debt and equity securities. The option to take the New
Taxable Bonds and shares of New Common Stock in the form of one or more Combined
Securities is being offered since certain Holders may be limited or prevented
from owning equity securities except as part of a combined security. (ii) New
Common Stock of Reorganized Holdings. For a description of the capital structure
of Reorganized Holdings and Reorganized Mobile Energy after the Effective Date,
see Section IX.I. hereof.
(iii) Election of Treatment. Each Holder of a First Mortgage Bondholder Claim
will make its election as to whether it would like to receive all or a part of
its New Taxable Bonds and shares of New Common Stock in the form of one or more
Combined Securities under the Plan at the time such Holder is asked to vote to
accept or reject the Plan. Such election will be made by marking the applicable
box on the Ballot enclosed with the Disclosure Statement. The Ballot containing
the Holder's election must be received by ____________, the deadline for voting
in favor of acceptance or rejection of the Plan, in order to be effective. If a
Holder of a First Mortgage Bondholder Claim fails to make an election on the
Ballot or the Ballot is untimely, the Proponents, pursuant to the Plan, are
authorized to make the election for such Holder.
(iv) Retention of Liens. The First Mortgage Bondholders will retain their Liens
on the Reorganized Debtors' assets. (v) DTC Eligibility. The New Taxable Bonds,
the New Common Stock, and the Combined Securities will be eligible for the
book-entry delivery services provided by DTC, a national clearinghouse for the
settlement of security trades between and among DTC's participants (banks and
brokers). Certificated securities will not be issued.
(vi) Registration Rights. Certain Holders of First Mortgage Bondholder Claims
and Tax-Exempt Bondholder Claims will be entitled to become a party to a
registration rights agreement which will require the Reorganized Debtors in
certain circumstances to file a registration statement with the Securities and
Exchange Commission. It is contemplated that such registration statement will
allow such Holders to resell their New Taxable Bonds, New Common Stock, and
Combined Securities to the extent they otherwise would be unable to do so.
(vii) Restrictions on Transfer. Prior to the acquisition of the CT for the Cogen
Project by Reorganized Mobile Energy from SEI and the assignment of the LTSA to
Reorganized Mobile Energy from SEI pursuant to the Cogeneration Agreement, the
transfer of New Common Stock of Reorganized Holdings will be restricted pursuant
to the terms of the Amended and Restated Holdings Articles of Incorporation of
Reorganized Holdings to the extent such transfer would result in a violation of
the New Common Stock Transfer Restriction.
(viii) Distributions. The New Taxable Bonds, the New Common Stock, and the
Combined Securities will be transferred to the Disbursing Agent, and as soon as
practicable thereafter, the Disbursing Agent will make distributions of the New
Taxable Bonds, the New Common Stock, and the Combined Securities to the Exchange
Agent for distribution to Holders of First Mortgage Bondholder Claims in Class 4
in accordance with such Holders' election, or the Proponents' election if any
such Holder fails to make an election by the deadline established by the Court.
5. Class 5: Allowed Tax-Exempt Bondholders Claim
Class 5 consists of the Tax-Exempt Bondholder Claims. Under the Plan,
the Tax-Exempt Bondholders Claims are Allowed Claims. Tax-Exempt Bondholder
Claims are impaired under the Plan, and therefore Holders of Tax-Exempt
Bondholder Claims will be entitled to vote to accept or reject the Plan using
the enclosed Ballot.
(i) Treatment of Allowed Claims of Tax-Exempt Bondholders. On the Effective
Date, the Tax-Exempt Bonds will be exchanged for New Tax-Exempt Bonds in an
aggregate principal amount of $20,035,000. Each Holder shall receive, in
exchange for its Tax-Exempt Bondholder Claim, an amount of New Tax-Exempt Bonds
equal to the product of (a) the outstanding principal amount of such Holder's
Tax-Exempt Bonds as shown on the books and records of DTC on the Record Date and
(b) 0.24769. In addition, on the Effective Date, the Holders of Tax-Exempt Bonds
as a Class will receive either (a) up to an aggregate of 2,740,600 shares of New
Common Stock or (b) up to an aggregate of $2,003,500 in additional New
Tax-Exempt Bonds. Each Holder exercising its option to receive New Common Stock
for any portion of its Tax-Exempt Bondholder Claim shall receive, in exchange
for such portion of its Tax-Exempt Bondholder Claim, an amount of New Common
Stock equal to the product of (a) the outstanding principal amount of Tax-Exempt
Bonds shown on the books and records of DTC on the Record Date divided by
80,889,000 and (b) 2,740,600. Each Holder exercising its option to receive
additional New Tax-Exempt Bonds for any portion of its Tax-Exempt Bondholder
Claim shall receive in exchange for such portion of its Tax-Exempt Bondholder
Claim, an amount of New Tax-Exempt Bonds equal to the product of (a) the
outstanding principal amount of that portion of such Holder's Tax-Exempt Bonds
as shown on the books and records of DTC on the Record Date and (b) 0.024769.
Any exchange of such share of New Common Stock or New Tax-Exempt Bond received
by such Holder shall be rounded down to the nearest whole dollar.
The option specified above is being offered since certain Holders of
Tax-Exempt Claims in Class 5 may be limited or prevented from owning equity
securities. The total aggregate amount of bonds constituting New Senior Debt and
the aggregate number of shares of New Common Stock that have been allocated for
potential distribution to the Holders of Allowed Claims in Class 4 as a Class
and to the Holders of Allowed Claims in Class 5 as a Class was determined to
proportionally compensate each member of such Classes for their relevant Claim.
Those allocations were based on the assumption that each Holder of an Allowed
Claim in Class 5 would exercise its option to take shares of New Common Stock in
lieu of the additional New Tax-Exempt Bonds. By exercising the option to take
New Tax-Exempt Bonds in lieu of shares of New Common Stock, a Holder of an
Allowed Claim in Class 5 may potentially affect the recovery of a Holder of an
Allowed Claim in Class 4 by decreasing the actual value of the New Common Stock
taken by such Holder of an Allowed Claim in Class 4, since payments with respect
to such additional New Tax-Exempt Bond will rank senior to distributions on the
New Common Stock. In addition, since certain provisions of the documents
governing the New Tax-Exempt Bonds limit distributions on the New Common Stock,
the amount of New Tax-Exempt Bonds made available as an option to Holders of
Tax-Exempt Bondholder Claims was capped as result of negotiations between the
members of the Bondholder Steering Committee representing Holders of First
Mortgage Bonds and Tax-Exempt Bonds taking into account negotiated discounts for
liquidation preference and equity risk. Depending upon the value of the New
Common Stock, additional New Tax-Exempt Bonds may be more or less valuable than
the New Common Stock.
(ii) New Common Stock of Reorganized Holdings. The aggregate of the shares of
New Common Stock of Reorganized Holdings that are issued to the (a) Holders of
an Allowed Claim in Class 5 and (b) Holders of an Allowed Claim in Class 4, will
represent at the date of issuance 100% of the issued equity interest of
Reorganized Holdings, which will in turn own 100% of the issued equity interest
of Reorganized Mobile Energy. On the Effective Date the Tax-Exempt Bonds shall
be cancelled and extinguished. For a description of the capital structure of
Reorganized Holdings and Reorganized Mobile Energy after the Effective Date, see
Section IX.I. (iii) Election of Treatment. Each Holder of a Tax-Exempt
Bondholder Claim will make its election as to whether or not it would like to
receive New Tax-Exempt Bonds alone or a combination of New Tax-Exempt Bonds and
New Common Stock under the Plan at the time such Holder is asked to vote to
accept or reject the Plan. Such election will be made by marking the applicable
box on the Ballot enclosed with the Disclosure Statement. The Ballot containing
the Holder's election must be received by _____________, the deadline for voting
in favor of acceptance or rejection of the Plan, in order to be effective. If a
Holder of a Tax-Exempt Bondholder Claim fails to make an election on the Ballot
or the Ballot is untimely, the Proponents, pursuant to the Plan, are authorized
to make the election for such Holder.
(iv) Retention of Lien. The Tax-Exempt Bondholders will retain their Liens on
the Reorganized Debtors' assets. (v) DTC Eligibility. The New Tax-Exempt Bonds
and the New Common Stock will be eligible for the book-entry delivery services
provided by DTC, a national clearinghouse for the settlement of security trades
between and among DTC's participants (banks and brokers). Certificated
securities will not be issued.
(vi) Registration Rights. Certain Holders of First Mortgage Bondholder Claims
and Tax-Exempt Bondholder Claims will be entitled to become a party to a
registration rights agreement which will require the Reorganized Debtors in
certain circumstances to file a registration statement with the Securities and
Exchange Commission. It is contemplated that such registration statement will
allow such Holders to resell their New Taxable Bonds, New Common Stock, and
Combined Securities to the extent they otherwise would be unable to do so.
(vii) Restrictions on Transfer. Prior to the acquisition of the CT for the Cogen
Project by Reorganized Mobile Energy from SEI and the assignment of the LTSA to
Reorganized Mobile Energy from SEI pursuant to the Cogeneration Agreement, the
transfer of New Common Stock of Reorganized Holdings will be restricted pursuant
to the terms of the Amended and Restated Holdings Articles of Incorporation of
Reorganized Holdings to the extent such transfer would result in a violation of
the New Common Stock Transfer Restriction.
(viii) Distributions. The New Tax-Exempt Bonds and the New Common Stock
will be transferred to the Disbursing Agent, and as soon
----------------------
as practicable thereafter, the Disbursing Agent will make distributions of
the New Tax-Exempt Bonds and the New Common Stock to the
Exchange Agent for distribution to Holders of Tax-Exempt Bondholder Claims
in Class 5 in accordance with such Holders' election, or
the Proponents' election if any such Holder fails to make an election by the
deadline established by the Court.
6. Class 6: Allowed Other Secured Claims
Class 6 consists of all Allowed Other Secured Claims. Each Other
Secured Claim is deemed to be a separate subclass of Class 6. As of the date
hereof, the Debtors estimate that there are no Other Secured Claims. (i)
Treatment. Each Holder of an Allowed Claim in Class 6 will (i) retain,
unaltered, the legal, equitable, and contractual rights, including, without
limitation, any liens that secure such Allowed Claim, to which such Allowed
Claim entitles the Holder; or (ii) be paid in full, in Cash, at the election of
the Proponents, and with the Bondholder Steering Committee Consent; provided
however, that each person holding an Allowed Claim in Class 6 may only exercise
such rights and remedies with respect to the assets and property that secure
such Allowed Claim, without recourse of any kind against the Debtors. The excess
of any Allowed Claim in Class 6 over the value of the Assets securing such
Allowed Claim will become, and will be treated for all purposes under this Plan,
as an Allowed Unsecured Claim and shall be classified as a Class 7 Claim.
(ii) Retention of Lien. The Holders of Allowed Other Secured Claims
shall retain their Liens. Except as modified by the terms
--------------------------
of this Plan, the existing documentation evidencing the Claims and Liens of
such Holders shall remain in effect.
(iii) Status. Creditors in Class 6 are unimpaired. Acceptance of the
Plan from such Creditors is conclusively presumed, and
------
Creditors in Class 6 are not entitled to vote on the Plan.
7. Class 7: Allowed Unsecured Claims
Class 7 consists of Allowed Unsecured Claims against the Debtor. The
Proponents estimate that the number of Allowed Unsecured Claims will be
approximately 90 and that the aggregate amount of Allowed Unsecured Claims will
be approximately $431,286.00.
(i) Treatment of Allowed Unsecured Claims. Each Creditor holding an
Allowed Unsecured Claim shall receive payment in full in
------------------------------------------------
Cash as soon as practicable after the Effective Date and the date such Claim
becomes an Allowed Claim.
(ii) Impairment of Allowed Unsecured Claims and Voting Rights. Allowed
Unsecured Claims are unimpaired under the Plan, and
--------------------------------------------------------------------
acceptance of the Plan is conclusively presumed. The Debtors will not solicit
the votes of the Creditors holding Unsecured Claims.
8. Class 8: Allowed Southern Claims
Class 8 consists of the Allowed Southern Claims. Proofs of Claim were
filed by Southern asserting unliquidated and contingent Claims in the purported
amount of approximately $50 million arising from (a) the Environmental Guaranty
of a maximum of $15,000,000 (in 1994 dollars) dated as of December 12, 1994,
between Southern as guarantor and Scott Paper Company as owner of the Pulp Mill
and Tissue Mill and S. D. Warren Company as owner of the Paper Mill as the
beneficiaries (the "Environmental Guaranty"); (b) the Debt Service Reserve
Account Southern Guaranty Agreement of a maximum of $21,936,000 dated as of
August 1, 1995, between Southern as guarantor and the Indenture Trustee as the
beneficiary (the "Debt Service Reserve Account Southern Guaranty Agreement");
(c) the Maintenance Plan Funding Subaccount Southern Guaranty Agreement of a
maximum of $11,000,000 dated as of August 1, 1995, between Southern as guarantor
and Bankers Trust (Delaware) as collateral agent under the Intercreditor
Agreement as beneficiary (the "Maintenance Plan Funding Subaccount Southern
Guaranty Agreement"); and (d) the Mill Owner Maintenance Reserve Account
Agreement of a maximum of $2,000,000 between Southern as guarantor and Kimberley
Clark Company and S.D. Warren Company as beneficiaries (the "Mill Owner
Maintenance Reserve Account Agreement").
Pursuant to Section 2.5 of the Environmental Guaranty, Southern has
agreed to irrevocably waive any and all rights of subrogation to the rights of
the Pulp Mill Owner, the Tissue Mill Owner, and the Paper Mill Owner against
Mobile Energy and any and all rights of reimbursement, assignment,
indemnification, or implied contract, or any similar rights against Mobile
Energy or against any endorser or other guarantor of all or any part of the
payment obligations of Mobile Energy under the Mill Environmental Indemnity
Agreements until such payment obligations (up to the maximum guaranteed amount
of $15,000,000 (in 1994 dollars)) have been paid in full. If any amount is paid
to Southern on account of such subrogation rights at any time when the payment
obligations of Mobile Energy under the Mill Environmental Indemnity Agreements
(up to the maximum guaranteed amount of $15,000,000) have not been paid in full,
Southern must hold such amount in trust for the Pulp Mill Owner, the Tissue Mill
Owner, and the Paper Mill Owner, segregated from other funds of Southern, and
must turn such amount over to the Pulp Mill Owner, the Tissue Mill Owner, and
the Paper Mill Owner to be applied against the payment obligations of Mobile
Energy under the Mill Environmental Indemnity Agreements, whether matured or
unmatured, in such order as the Pulp Mill Owner, the Tissue Mill Owner, and the
Paper Mill Owner may determine.
Pursuant to Section 4 of the Debt Service Reserve Account Southern
Guaranty Agreement, Southern has agreed to irrevocably waive any and all rights
of subrogation to the rights of the Indenture Trustee against Mobile Energy and
any and all rights of reimbursement, assignment, indemnification, or implied
contract, or any similar rights against Mobile Energy or against any endorser or
other guarantor of all or any part of the payment obligations of Mobile Energy
under Section 4.6(c) of the Indenture until such payment obligations (up to the
maximum guaranteed amount of $21,936,000) have been paid in full. As of the
filing of the Plan the maximum amount has been paid in full.
Pursuant to Section 4 of the Maintenance Plan Funding Subaccount
Southern Guaranty Agreement, Southern has agreed to irrevocably waive any and
all rights of subrogation to the rights of the Collateral Agent against Mobile
Energy and any and all rights of reimbursement, assignment, indemnification, or
implied contract, or any similar rights against Mobile Energy or against any
endorser or other guarantor of all or any part of the payment obligations of
Mobile Energy under Section 3.15(c)(i) of the Intercreditor Agreement until such
payment obligations (up to the maximum guaranteed amount of $11,000,000) have
been paid in full. The full amount will have been paid when Southern Energy
Resources pays the $2.7 million to the Collateral Agent pursuant to Amendment
No. 1. If any amount is paid to Southern on account of such subrogation rights
at any time when the payment obligations of Mobile Energy under Section
3.15(c)(i) of the Intercreditor Agreement (up to the maximum guaranteed amount
of $11,000,000) have not been paid in full, Southern must hold such amount in
trust for the Collateral Agent, segregated from other funds of Southern, and
must turn such amount over to the Collateral Agent to be applied against the
payment obligations of Mobile Energy under Section 3.15(c)(i) of the
Intercreditor Agreement, whether matured or unmatured, in such order as the
Collateral Agent may determine.
Pursuant to Section 3 of the Mill Owner Maintenance Reserve Account
Agreement, Southern agreed under certain circumstances to make certain deposits
into the Mill Owner Maintenance Reserve Account Agreement, not to exceed an
aggregate total of $2,000,000. Pursuant to Section 9 of the Mill Owner
Maintenance Reserve Account Agreement, Southern has agreed to irrevocably waive
any and all rights of subrogation or contribution arising by contract or
operation of law by reason of any payment under Section 3 of the Mill Owner
Maintenance Reserve Account Agreement and further agreed with Mobile Energy for
the benefit of the latter's creditors, including the Pulp Mill Owner, the Tissue
Mill Owner, and the Paper Mill Owner, that any payment by Southern under Section
3 would be a contribution of capital to Mobile Energy.
(i) Treatment of Allowed Southern Claims. Southern shall receive in
complete settlement, satisfaction, and discharge of its
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Southern Claims, the treatment provided for in the Cogeneration Development
Agreement, as amended by Amendment No. 1, and the orders
approving them.
(ii) Impairment of Allowed Southern Claims and Voting Rights. The
Allowed Southern Claims are impaired under the Plan, and the
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Debtors will solicit the vote of the Creditor holding the Southern Claims.
9. Class 9: Mobile Energy Equity Interests
Class 9 consists of the Mobile Energy Equity Interests.
(i) Treatment of Mobile Energy Equity Interests. Under the Plan, Holdings
will retain its Mobile Energy Equity Interests.
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(ii) Impairment of Mobile Energy Equity Interests and Voting Rights.
Class 9 Mobile Energy Equity Interests are Unimpaired by
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the Plan, and the Holders of Class 9 Mobile Energy Equity Interests are deemed
to have accepted the Plan under Section 1126(g) of the
Bankruptcy Code.
10. Class 10: Holdings Equity Interests
Class 10 consists of the Holdings Equity Interests.
(i) Treatment of Holdings Equity Interests. The Holder of Holdings
Equity Interests shall not receive any distributions under
------------------------------------------------
the Plan, and the Holdings Equity Interests shall be canceled and extinguished.
Impairment of Holdings Equity Interests and Voting Rights. Class 10
Holdings Equity Interests are Impaired by the Plan, and
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are deemed to have rejected the Plan.
IX.
IMPLEMENTATION OF THE PLAN
A. Administrative Consolidation
Under the Plan, the claims against Mobile Energy and Holdings are
considered together for the purposes of confirming one
joint plan of reorganization.
B. Sources of Funds
The Reorganized Debtors will use Cash on hand of the Debtors as of the
Effective Date to make the payments to or reserves on account of Claims of
Creditors, including the payments and reserves to be made with respect to
Administrative Expenses, Priority Tax Claims, Priority Non-Tax Claims, the
Southern Post-Petition Claims, the Allowed First Mortgage Bondholders Claims,
the Allowed Tax-Exempt Bondholders Claims, Other Secured Claims, and Allowed
Unsecured Claims. Cash on hand will also be the source of funding of all
reserves and escrows provided for under the Plan, all amounts required to be
paid in connection with the assumption by the Debtors of Executory Contracts
assumed pursuant to the Plan, and all other payments required under the Plan. C.
Requisite Authority.
The Debtors and Reorganized Debtors are authorized to take any and all
actions required to implement the transactions provided for under the Plan,
including, without limitation, in connection with Mobile Energy the adoption of
an Amended and Restated Certificate of Organization and in connection with
Holdings the adoption an Amended and Restated Articles of Incorporation or
similar constituent documents for the Reorganized Debtors, the selection of
officers or managers for the Reorganized Debtors, and the distribution of Cash,
the adoption, execution, delivery, and implementation of all contracts,
instruments, releases, indentures, and other agreements relating to the
treatment of Claims and Equity Interests and distributions under the Plan. Any
action to be taken by or required of the Debtors or the Reorganized Debtors will
be authorized and approved in all respects without any requirement of further
action by the Bankruptcy Court.
D. Distributions to Holders of Allowed Claims
(a) Unless otherwise specifically set forth in the Plan, any Cash or other
consideration to be distributed to the Holder of an Allowed Claim, on
or after the Effective Date, will be distributed directly by the
Debtors or the Reorganized Debtors in accordance with the Plan and only
to Holders of Allowed Claims.
(b) If any payment or distribution date would otherwise fall due on any day
that is not a Business Day then such due date will be fall on the next
Business Day. Payment or distribution dates may also be extended by the
mutual written agreement of the Reorganized Debtors and the party or
parties affected.
(c) All distributions under the Plan shall be made to the Holder thereof at
the address as set forth on the Claims Register, or as set forth in
Debtors' Schedules, if any such Holder has not filed a proof of Claim
with an address marked thereon, unless such Holder notifies the
Reorganized Debtors of a different address in writing prior to such
distribution; provided, however, that distributions on account of
Claims classified in Classes 4 and 5 will be made through the
Disbursing Agent and the Exchange Agent in accordance with the
procedures applicable to such Claims.
E. Distribution of Cash.
--------------------
The Reorganized Debtors will ensure that on the Effective Date they
will have sufficient Cash on hand to make the payments
required to be made under the Plan. Payments required to be made under this
Plan may be made in Cash.
F. Disputed Claims
---------------
a. Objection Deadline. Objections to Claims, Administrative Expenses and Claims
arising from the rejection of Executory Contracts must be filed by no later than
(i) in the case of Administrative Expenses seventy-five (75) days after the
Effective Date, and (ii) sixty (60) days after the Effective Date for all other
Claims.
b. Resolution of Disputed Claims. No distribution or payment may be made on
account of a Disputed Claim or an Administrative Expense until such Disputed
Claim or Administrative Expense becomes an Allowed Claim or Allowed
Administrative Expense. After the Effective Date, the Reorganized Debtors will
be successors-in-interest to the Debtors with respect to any objections to
Claims or Administrative Expenses pending as of the Effective Date. Parties
filing objections must file and serve a copy of each objection upon the Holder
of the Claim to which an objection is made as soon as practicable.
c. Distributions Relating to Disputed Claims and Reserved Funds Upon
Allowance or Disallowance of Disputed Claims. At such
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time as all or any portion of a Disputed Claim or Disputed Administrative
Expense becomes an Allowed Claim or Allowed Administrative
Expense, respectively, the Debtors shall pay from available funds the Allowed
Claim or Allowed Administrative Expense in Cash.
G. Bar Date for Fee Applications and Objections to Same.
----------------------------------------------------
Unless otherwise ordered by the Bankruptcy Court, all Entities
requesting compensation or reimbursement of a Fee Claim for services rendered or
costs incurred on or before the Effective Date must file and serve on the
Debtors, their counsel, the Bondholder Steering Committee and its counsel, and
the Office of the United States Trustee, a Fee Application for final allowance
of compensation and reimbursement of expenses, not later than forty-five (45)
days after the Effective Date. The Debtors and Reorganized Debtors shall reserve
for all estimated Administrative Expenses, including Fee Claims. All such Fee
Claims for which application is not timely filed shall be forever barred.
Objections to such Fee Applications must be filed no later than seventy-five
(75) days after the Effective Date. The Bankruptcy Court will retain
jurisdiction to determine all such Fee Claims. H. Description of Post-Effective
Date Management
It is anticipated that Southern Energy Resources will not operate the
Energy Complex after January 1, 2001. As of the filing of this Disclosure
Statement, Mobile Energy is considering bids by third parties to operate the
Energy Complex. Each of the third party bidders is experienced in operating and
maintaining facilities with similar scope and complexity to the Energy Complex,
and each is qualified to operate the Energy Complex. The Mill Owners may have
the right to consent to a replacement operator in certain circumstances. The
Projections assume that by January 1, 2001, a new operating and maintenance
agreement will be in place. I. Description of Post-Effective Date Capital
Structure
At the Effective Date, 100% of the New Common Stock of Reorganized
Holdings will be owned by the Holders of Allowed First Mortgage Bondholder
Claims and, to the extent any Holders of Allowed Tax-Exempt Bondholder Claims
elect to receive New Common Stock, such Holders of Allowed Tax-Exempt Bondholder
Claims. Reorganized Holdings will own 100% of the Equity Interest in Reorganized
Mobile Energy, a 2% common membership interest in Pulpco LLC, and a 100%
preferred membership interest in Pulpco LLC. See discussion of the Pulpco LLC
acquisition set forth in Section V.E.3. A chart reflecting the planned
post-Effective Date ownership structure is attached as Exhibit B.
1. New Taxable Bonds - General Terms.
The New Taxable Bonds will be issued in an aggregate principal amount
of $51,535,000 and bear interest at the rate of 10% per annum. The New Taxable
Bonds will be issued in whole dollar amounts. Any conversion of Allowed First
Mortgage Claims not resulting in a whole dollar amount will be rounded down to
the nearest whole dollar. Interest will be paid quarterly on March 1, June 1,
September 1, and December 1 of each year. However, interest payable from the
issuance date of the New Taxable Bonds to the first of such dates to occur
following the earlier of (i) 30 months from the Effective Date, or (ii) the
Commercial Operation Date of the Cogen Facility will accrue and be added to
principal payable on the New Taxable Bonds pro rata across each principal
installment on the next principal payment date. Amounts added to principal will
thereafter bear interest at the rate specified on the New Taxable Bonds.
Principal payments on the New Taxable Bonds will commence on March 1, 2007, and
will be paid quarterly thereafter on June 1, September 1, December 1 and March 1
with a final payment in full on December 1, 2021, pursuant to an amortization
schedule to be attached to the First Mortgage Bonds.
2. New Tax-Exempt Bonds - General Terms.
The New Tax-Exempt Bonds will be issued 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 Holder of Allowed
Tax-Exempt Bondholder Claims elects to receive additional New Tax-Exempt Bonds)
and bear interest at the rate of 8% per annum. The New Tax-Exempt Bonds will be
issued in whole dollar amounts. Any conversion of Allowed Tax-Exempt Bondholder
Claims not resulting in a whole dollar amount will be rounded down to the
nearest whole dollar. Interest will be paid quarterly on March 1, June 1,
September 1, and December 1 of each year. However, interest payable from the
issuance date of the New Tax-Exempt Bonds to the first of such dates to occur
following the earlier of (i) 30 months from the Effective Date, or (ii) the
Commercial Operation Date of the Cogen Facility will accrue and be added to
principal payable on the New Tax-Exempt Bonds pro rata across each principal
installment on the next interest payment date. Amounts added to principal will
thereafter bear interest at the rate specified in the New Tax-Exempt Bonds.
Principal payments on the New Tax-Exempt Bonds will commence on March 1, 2007,
and will be paid quarterly thereafter on June 1, September 1, December 1 and
March 1 with a final payment in full on December 1, 2021, pursuant to an
amortization schedule to be attached to the New Tax-Exempt Bonds.
3. First Mortgage Bond Exchange
On the Effective Date, the First Mortgage Bonds will be exchanged for
New Taxable Bonds in an aggregate principal amount of $51,535,000. Each Holder
shall receive, in exchange for its First Mortgage Bondholder Claim, an amount of
New Taxable Bonds equal to the product of (a) the outstanding principal amount
of such Holder's First Mortgage Bonds as shown on the books and records of DTC
on the Record Date and (b) 0.24704. In addition, on the Effective Date, the
Holders of First Mortgage Bonds as a Class will receive an aggregate of
7,259,400 shares of New Common Stock. Each Holder shall receive, in exchange for
its First Mortgage Bondholder Claim, an amount of New Common Stock equal to the
product of (a) the outstanding principal amount of such Holders' First Mortgage
Bonds as shown on the books and records of DTC on the Record Date divided by
214,820,000 and (b) 7,259,400. Any such share of New Common Stock or New Taxable
Bond received by such Holder shall be rounded down to the nearest whole dollar.
Each such Holder may elect to receive all or part of its New Taxable Bonds and
shares of New Common Stock in the form of one or more Combined Securities rather
than receiving the separate debt and equity securities. If all Holders entitled
to elect equity were to elect equity, Reorganized Holdings would issue
10,000,000 shares of New Common Stock.
4. Tax-Exempt Bond Exchange
On the Effective Date, the Tax-Exempt Bonds will be exchanged for New
Tax-Exempt Bonds in an aggregate principal amount of $20,035,000. Each Holder
shall receive, in exchange for its Tax-Exempt Bondholder Claim, an amount of New
Tax-Exempt Bonds equal to the product of (a) the outstanding principal amount of
such Holder's Tax-Exempt Bonds as shown on the books and records of DTC on the
Record Date and (b) 0.24769. In addition, on the Effective Date, the Holders of
Tax-Exempt Bonds as a Class will receive either (a) up to an aggregate of
2,740,600 shares of New Common Stock or (b) up to an aggregate of $2,003,500 in
additional New Tax-Exempt Bonds. Each Holder exercising its option to receive
New Common Stock for any portion of its Tax-Exempt Bondholder Claim shall
receive, in exchange for such portion of its Tax-Exempt Bondholder Claim, an
amount of New Common Stock equal to the product of (a) the outstanding principal
amount of Tax-Exempt Bonds shown on the books and records of DTC on the Record
Date divided by 80,889,000 and (b) 2,740,600. Each Holder exercising its option
to receive additional New Tax-Exempt Bonds for any portion of its Tax-Exempt
Bondholder Claim shall receive in exchange for such portion of its Tax-Exempt
Bondholder Claim, an amount of New Tax-Exempt Bonds equal to the product of (a)
the outstanding principal amount of that portion of such Holder's Tax-Exempt
Bonds as shown on the books and records of DTC on the Record Date and (b)
0.024769. Any exchange of such share of New Common Stock or New Tax-Exempt Bond
received by such Holder shall be rounded down to the nearest whole dollar.
5. Ranking and Security
The New Taxable Bonds will be issued by Reorganized Mobile Energy and
be payable from the revenues of Reorganized Mobile Energy and from any and all
monies pledged to or held by the trustee for the New Taxable Bonds or the New
Collateral Agent for such purposes under the New Intercreditor Agreement. The
New Tax-Exempt Bonds will be issued by the IDB and will be payable from and
secured by rent payments to be made by Reorganized Mobile Energy under the New
IDB Lease Agreement and from any and all monies pledged to or held by the
trustee for the New Tax-Exempt Bonds or the New Collateral Agent for such
purposes under the New Intercreditor Agreement. The obligation to make payments
under the New IDB Lease Agreement will be the obligation solely of Reorganized
Mobile Energy and guaranteed by Reorganized Holdings and potentially by MESC
Retail.
The New Taxable Bonds and New Tax-Exempt Bonds will rank pari passu in
right of payment with all future additional New Senior Debt, if any (subject to
prior liens of the provider or providers of the Working Capital Facility (if
any), the Equipment Facility (if any), and the Southern Entities with respect to
the Southern Post-Petition Claims). The New Senior Debt will initially consist
of (i) the New Taxable Bonds, (ii) the New Tax-Exempt Bonds, and (iii) the
obligations to the Southern Entities with respect to the Southern Post-Petition
Claims. Additionally, it is contemplated that Reorganized Mobile Energy may
enter into a Working Capital Facility and a Equipment Facility, each of which
will be incurred at a date subsequent to the issuance of the New Taxable Bonds
and the New Tax-Exempt Bonds and, if incurred, would also be New Senior Debt. In
addition to the Working Capital Facility and the Equipment Facility, Reorganized
Mobile Energy will also be permitted to issue New Senior Debt in order to
finance modifications to the Energy Complex and to refund or replace outstanding
New Senior Debt. New Senior Debt to finance such modifications will only be
permitted if (among other requirements) certain historical and pro-forma senior
debt service coverage ratios are satisfied.
The New Taxable Bonds, the New Tax-Exempt Bonds and Reorganized Mobile
Energy's obligations under the New IDB Lease Agreement will be senior secured
obligations of Reorganized Mobile Energy secured ratably with all other New
Senior Debt (subject to the terms of the New Intercreditor Agreement described
in Section IX.I.13.) by a lien on and security interest in the New Shared
Collateral. In addition, the New Taxable Bonds will be secured by any and all
monies pledged to or held by the trustee for the New Taxable Bonds and the New
Tax-Exempt Bonds will be secured by any and all monies pledged to or held by the
trustee for the New Tax-Exempt Bonds. The lien of the Southern Entities with
respect to the Southern Post-Petition Claims will be senior to the liens granted
to the Holders of the New Taxable Bonds and the New Tax-Exempt Bonds with
respect to the New Shared Collateral. In addition, with the consent of the
Holders owning 66-2/3% of the aggregate principal amount of each of the New
Taxable Bonds and New Tax-Exempt Bonds, Reorganized Mobile Energy shall have the
right to grant a first priority lien on its assets to the Equipment Facility
lender or other lender to the Cogen Project prior to the lien in favor of the
New Taxable Bondholders and the New Tax-Exempt Bondholders. 6. Guarantors
Reorganized Holdings will guaranty all of Reorganized Mobile Energy's
obligations under the New Amended and Restated Taxable Indenture, the New
Amended and Restated Tax-Exempt Indenture, the New IDB Lease Agreement
(including its obligation to make rent payments thereunder), and the Southern
Post Petition Claim. The guaranty obligations of Reorganized Holdings will be
secured a pledge of Reorganized Holdings' equity interests in Reorganized Mobile
Energy and Pulpco LLC, and other equity ownership interests that it may acquire
through the terms of the Pledge Agreement. MESC Retail may guaranty all of
Reorganized Mobile Energy's obligations under the New Amended and Restated
Taxable Indenture, the New Amended and Restated Tax-Exempt Indenture, the New
IDB Lease Agreement (including its obligation to make rent payments thereunder),
and the Southern Post Petition Claim. 7. Optional Redemption
...............................The New Taxable Bonds will not be
subject to optional redemption prior to final maturity. The New Tax-Exempt Bonds
will not be subject to optional redemption prior to final maturity, except upon
a change in use the New Tax-Exempt Bonds shall not be subject to optional
redemption prior to 10-1/2 years after the issuance of the New Tax-Exempt Bonds.
No change of use may be made that would adversely affect the tax-exempt status
of the New Tax-Exempt Bonds as more fully described in Section X.Q.
8. Extraordinary Redemption
Subject to the parties' lien priorities set forth in the New
Intercreditor Agreement, the New Taxable Bonds and the New
Tax-Exempt Bonds will be subject to extraordinary redemption, in whole or
in part (if in part, ratably among all outstanding series
and maturities of New Taxable Bonds and New Tax-Exempt Bonds), at a
redemption price equal to the principal amount thereof plus
interest accrued thereon to the date of such redemption, (i) upon receipt
by the Reorganized Mobile Energy of casualty proceeds or
eminent domain proceeds if all or a portion of the Energy Complex is
destroyed or taken by eminent domain and either all or such
portion of the Energy Complex is not capable of being rebuilt, repaired,
restored or replaced or, if all or substantially all of the
Energy Complex is so destroyed or taken, Reorganized Mobile Energy
elects not to rebuild, repair, restore or replace the Energy
Complex, (ii) upon receive of liquidation proceeds from any affiliate of
Reorganized Mobile Energy or Reorganized Holdings, and (iii)
with respect to the New Tax-Exempt Bonds upon a Determination of Taxability
with respect to the New Tax-Exempt Bonds.
9. Mandatory Redemption
If any portion of the $30.12 million paid by KCTC pursuant to the KCTC
Settlement Agreement is not used to finance the Cogen Facility or for other
capital expenditures of Reorganized Mobile Energy within two years from the
Effective Date, such funds will be used to partially redeem the New Taxable
Bonds and New Tax-Exempt Bonds, pro rata.
10. Book-Entry Global Security
The New Taxable Bonds and the New Tax-Exempt Bonds will be issued in
book-entry form through the facilities of DTC, which will act as depositary for
the New Taxable Bonds and the New Tax-Exempt Bonds. One or more global bonds
will be issued in the aggregate principal amount of each of the New Taxable
Bonds and the New Tax-Exempt Bonds and will be deposited with DTC, and interests
therein will be shown on, and transfers thereof effected only through, records
maintained by DTC and its participants. 11. Covenants
The New Amended and Restated Taxable Indenture, the New Amended and
Restated Tax-Exempt Indenture and the New IDB Lease Agreement will contain
standard representations and warranties and contain affirmative and negative
covenants, including, without limitation, the delivery periodic financial
statements, annual budgets and other reports, compliance with tax laws
(including laws required to maintain the tax-exempt status of the New Tax-Exempt
Bonds), compliance with the Employee Retirement Income Security Act of 1974,
limitations on reorganizations, liquidations, dissolution and other fundamental
changes, limitations on transactions with affiliates, limitations on amendments
to Project Documents, limitations on liens, limitations on indebtedness,
limitations on investments and limitations on dividends, distributions and other
restricted payments.
12. Events of Default under Indentures and New IDB Lease
Events of Default under the New Taxable Indenture include the
following: (a) failure by Reorganized Mobile Energy or Reorganized Holdings to
pay any principal of or premium or interest on the New Taxable Bonds or any
other Taxable Indenture Securities when due for 15 days; (b) failure to comply
with certain federal, state or local laws, or covenants set forth in the project
documents and financing documents; (c) delivery of false or misleading
representations or warranties; (d) default by Reorganized Mobile Energy or
Reorganized Holdings on the payment of indebtedness in excess of specified
amounts and acceleration of such indebtedness; (e) an event of default under the
Working Capital Facility or the Equipment Facility, if any, or New Amended and
Restated Tax-Exempt Indenture; (f) a final non-appealable judgement or judgments
for the payment of money in excess of specified amounts; (g) any lien granted to
the New Collateral Agent or the trustee for the New Taxable Bonds shall no
longer be effective; or (h) the bankruptcy or insolvency of Reorganized Mobile
Energy or Reorganized Holdings, in each case subject to the expiration of any
applicable cure period.
Events of Default under the New Amended and Restated Tax-Exempt
Indenture will consist of the following: (a) failure by the IDB to pay any
principal of or premium or interest on the New Tax-Exempt Bonds or any other
Tax-Exempt Indenture Securities when due for 15 days; (b) an "Event of Default"
shall have occurred and be continuing under the New IDB Lease Agreement (as
described below); or (c) the IDB shall fail to perform or observe any material
covenant or agreement to be performed or observed by it under the provisions of
the Amended and Restated Tax-Exempt Indenture other than those referred to in
clause (a) of this paragraph), subject to the expiration of any applicable cure
period.
Events of Default under the New IDB Lease Agreement are substantially
similar to those contained under the New Amended and Restated Taxable Indenture;
provided that failure to make payments (including rent payments) under the New
IDB Lease Agreement will also constitute an Event of Default under the New IDB
Lease Agreement.
Upon the occurrence of any event of default under the New Amended and
Restated Taxable Indenture or the New Amended and Restated Tax-Exempt Indenture
(other than bankruptcy events of default which immediately accelerate payment of
the New Taxable Bonds and the New Tax-Exempt Bonds) the acceleration of payment
of the New Taxable Bonds and the New Tax-Exempt Bonds may only be effectuated by
the trustee for the respective bonds or, in the case of a payment default, 25%
of the Holders of the New Taxable Bonds or New Tax-Exempt Bonds, as the case may
be, and 33% with respect to any other event of default; provided that the rights
of the Holders of the New Taxable Bonds and New Tax-Exempt Bonds with respect to
entering into amendments, the granting of consents, approvals and waivers, the
serving of notices, the declaration of defaults, and the exercise of remedies in
the event of default under the respective indentures for the New Taxable Bonds
and New Tax-Exempt Bonds is also subject to the terms and provisions of the
other New Financing Documents, including without limitation the New
Intercreditor Agreement.
13. Intercreditor Arrangements
On the issuance date of the New Taxable Bonds and New Tax-Exempt Bonds,
First Union National Bank, as trustee for the New Taxable Bonds and the New
Tax-Exempt Bonds, the New Collateral Agent, the IDB, Reorganized Mobile Energy,
Reorganized Holdings and the Southern Entities will enter into the New
Intercreditor Agreement designating the New Collateral Agent as the agent for
the trustee for the New Taxable Bonds and New Tax-Exempt Bonds and the Southern
Entities (collectively, the "Senior Secured Parties"). Any successor to the
Senior Secured Parties and each person providing New Senior Debt (including the
provider of the Working Capital Facility and the Equipment Facility) or
Subordinated Debt will be required to become a party to the New Intercreditor
Agreement, which will be amended to the extent necessary to accommodate the
replacement or addition of such successor or other person. 14. New IDB Lease
Pursuant to the terms of the New IDB Lease Agreement, Reorganized
Mobile Energy will continue to lease the Tax-Exempt Facilities and to pay rent
to the trustee for the New Tax-Exempt Bonds for the account of the IDB in an
amount equal to the principal of and premium, if any, and interest on the New
Tax-Exempt Bonds when due, at the times, in the manner, in the amounts and at
the rate or rates of interest provided in the New Amended and Restated
Tax-Exempt Indenture. The obligation of Reorganized Mobile Energy to make any
payment shall be reduced by the amount of any reduction under the New Amended
and Restated Tax-Exempt Indenture of the corresponding payment required under
the New IDB Lease Agreement, will be absolute and unconditional and will not be
subject to abatement, diminution, postponement or deduction, or to any defense
other than payment or to any right of setoff, counterclaim or recoupment arising
out of any breach under the New IDB Lease Agreement, the New Amended and
Restated Tax-Exempt Indenture, any action by any paying agent or any holder of
Tax-Exempt Indenture Securities, or any obligation or liability at any time
owing to Reorganized Mobile Energy by any of the foregoing.
15. Certain Modifications of Bond Documents with Supermajority Vote
Following Issuance of New Taxable Bonds and New Tax-Exempt
Bonds
The Amended and Restated Taxable Indenture and the Amended and Restated
Tax-Exempt Indenture will provide that with the consent of the Holders owing
66-2/3% of the aggregate principal amount of each of the New Taxable Bonds and
New Tax-Exempt Bonds, Reorganized Mobile Energy shall have the right to grant
any liens on its assets to any Working Capital Facility lender or Equipment
Facility lender.
The foregoing is a description of certain terms and provisions of the
New Taxable Bonds, the New Tax-Exempt Bonds and certain related New Financing
Documents and does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the New Amended and Restated Taxable Indenture,
the New Amended and Restated Tax-Exempt Indenture, the New IDB Lease Agreement,
the New Intercreditor Agreement and the other financing documents, copies of
which will be made available upon request made in writing to the counsel for the
Proponents.
J. Issuance of the New Securities
THE ISSUANCE OF THE NEW SECURITIES UNDER THE PLAN RAISES CERTAIN
SECURITIES LAWS ISSUES UNDER THE BANKRUPTCY CODE AND FEDERAL AND STATE
SECURITIES LAWS, WHICH ARE DISCUSSED IN THIS SECTION. THIS SECTION SHOULD NOT BE
CONSIDERED APPLICABLE TO ALL SITUATIONS OR ALL HOLDERS OF ALLOWED CLAIMS
RECEIVING NEW SECURITIES UNDER THE PLAN. HOLDERS OF CLAIMS SHOULD CONSULT THEIR
OWN LEGAL COUNSEL CONCERNING THE FACTS AND CIRCUMSTANCES WITH RESPECT TO THE
ISSUANCE AND TRANSFER OF THE NEW SECURITIES IN THEIR PARTICULAR CASE.
1. Initial Issuance of the New Securities Under the Plan
Section 1145 of the Bankruptcy Code provides that the securities
registration and qualification requirements of federal and state securities laws
do not apply to the offer or sale of stock or other securities by a debtor if
the offer or sale occurs under a plan of reorganization and the securities are
transferred in exchange (or principally in exchange) for a claim against or
interest in a debtor. The Proponents believe that the initial issuance of the
New Securities to the Bondholders will be exempt from the registration and
qualification requirements of federal and state securities laws under Section
1145 of the Bankruptcy Code. 2. Resale of the New Securities
Any Bondholder who is not an "underwriter" under Section 1145 of the
Bankruptcy Code may resell the New Securities received under the Plan without
registering such sale under the Securities Act of 1933, as amended (the
"Securities Act"). To the extent that persons deemed "underwriters" receive
securities pursuant to the Plan, resales by such persons would not be exempted
by Section 1145 of the Bankruptcy Code from the registration requirements of the
Securities Act. GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER
A PARTICULAR HOLDER MAY BE AN "UNDERWRITER," THE PROPONENTS MAKE NO
REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW
SECURITIES. THE PROPONENTS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE NEW
SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE
SUCH SECURITIES 3. Registration Rights Agreement
Certain Holders of Allowed First Mortgage Bondholder Claims and Allowed
Tax-Exempt Bondholder Claims will be entitled to become a party to a
registration rights agreement which will require the Reorganized Debtors in
certain circumstances to file a registration statement with the Securities and
Exchange Commission. It is contemplated that such registration statement will
allow such Holders to resell their New Taxable Bonds, New Common Stock, and
Combined Securities to the extent they otherwise would be unable to do so.
K. Modification Of Payment Terms
The Proponents reserve the right to modify the treatment of any
Allowed Claim at any time after the Effective Date with the
consent of the Creditor whose Allowed Claim treatment is being modified,
provided, however, that the Proponents may not by any such
modification treat any Creditor in a particular Class more favorably than
other Creditors in the same Class.
L. Treatment Of Executory Contracts
--------------------------------
1. General
The Bankruptcy Code gives the Debtors the power, subject to the
approval of the Bankruptcy Court, to assume or reject executory contracts and
unexpired leases (collectively defined as "Executory Contracts" under the Plan).
Rejection or assumption may be effected either pursuant to the Plan or by order
of the Bankruptcy Court entered upon motion of the Debtors after notice and a
hearing. If an Executory Contract is rejected, the other party to the contract
or lease may file a Claim for damages incurred by reason of the rejection within
such time as the Bankruptcy Court may allow. In the case of rejection of
employment agreements and leases of real property, the damages allowable to
non-debtor parties are limited under the Bankruptcy Code. In the case of
assumption of an Executory Contract, the Bankruptcy Code requires that the
Debtor promptly cure, or provide adequate assurance that it promptly will cure,
any existing defaults (other than certain defaults based solely upon the Chapter
11 Cases, or the Debtors' financial condition).
With the exception of the contracts identified in Exhibit A of the
Plan, all Executory Contracts not previously rejected pursuant to a Final Order
of the Bankruptcy Court or subject to a pending motion to reject as of the date
of the Confirmation Hearing shall be deemed assumed by the Debtor that is a
party thereto and, to the extent necessary, assigned by such Debtor to the
appropriate Reorganized Debtor as of the Effective Date. The entry of the
Confirmation Order with respect to the Plan shall also be construed as an order
rejecting the Executory Contracts identified in Exhibit A of the Plan, and as an
order assuming all other Executory Contracts, in satisfaction of the
requirements of 11 U.S.C. ss. 365. The outstanding Claims under the Executory
Contracts required to be cured and paid in full (as of the Effective Date) as a
consequence of assumption are also set forth on Exhibit B of the Plan.
Claims created by the rejection of Executory Contracts must be filed
with the Bankruptcy Court and served upon counsel for
the Debtors and the Bondholder Steering Committee not later than thirty (30)
days after the earlier of service of (i) notice of entry
of the Confirmation Order, or (ii) other notice that such Executory
Contract has been rejected. Any Claims not filed within such
time will be forever barred pursuant to the Plan from assertion against the
Debtors or their Assets.
M. Committees
----------
The appointment of any committee pursuant to Bankruptcy Code Section
1102 during the Chapter 11 Cases will automatically
terminate, without further order of the Bankruptcy Court, on the Effective Date.
N. Retention Of Jurisdiction
As set forth in Section 12.01 of the Plan, the Bankruptcy Court shall
retain jurisdiction over all matters arising out of, or related to, the Chapter
11 Cases and the Plan for the purpose of determining all disputes relating to
Claims, Equity Interests, and other issues presented by or arising under the
interpretation, implementation, or enforcement of the Plan. The Plan also
provides for the retention of jurisdiction by the Bankruptcy Court to determine
all other matters properly before the Bankruptcy Court.
O. Conditions To Confirmation and Effectiveness
1. Conditions To Confirmation
The Plan provides that the Confirmation Order must contain the
following provisions: (a) authorizing Holdings to adopt and file the Amended and
Restated Holdings Articles and By-laws; (b) authorizing the issuance of the New
Securities; (c) approving the KCTC Settlement Agreement, as amended, and the
conveyances and transactions contemplated in Article IX of the
Plan, including findings necessary or appropriate to
effectuate the conveyances and transactions
contemplated by Article IX of the Plan;
(d) authorizing all of the other transactions contemplated by the Plan in
order to effectuate the Plan;
(e) exempting the New Securities from registration under the
Securities Act of 1933 and state and local laws pursuant to 11
U.S.C. Section 1145;
(f) findings that the SEI Pension Plan is not an
Executory Contract of the Debtors, that no Claims
exist under the SEI Pension Plan, and that neither
Debtor is a party to the SEI Pension Plan;
(g) findings that (a) there is no default under or other
breach of S.D. Warren's rights under the Master
Operating Agreement, Plan Documents, Amended Project
Documents, and Project Documents by Mobile Energy,
Holdings, or KCTC, by the execution and performance
of the Plan Documents, Amended Project Documents, or
Project Documents, which default or breach would
render unenforceable or invalid the Plan or any other
Plan Document, Amended Project Document, or Project
Document; and (b) no consent is required of S.D.
Warren pursuant to the Master Operating Agreement for
the execution and performance of the transactions
contemplated by the Plan, including the Plan
Documents and Amended Project Documents;
(h) findings that all Executory Contracts, except those
listed on Exhibit A to the Plan, are assumed, that no
cure amounts are owed under such contracts, or that
such amounts are waived; and
(i) making the provisions of the Confirmation Order non-severable and
mutually dependent.
2. Conditions To Effective Date
The conditions precedent to the effectiveness of the Plan are as
follows:
(a) All documents effectuating the KCTC Settlement, shall have been
executed and delivered;
(b) The Asset Purchase Agreement shall have been executed, and the
transaction contemplated thereby shall have been closed;
(c) All documents effecting the contribution of the No. 8 Recovery
Boiler to Pulpco LLC shall have been executed, and the
transactions contemplated pursuant to the Term Sheet
shall have been closed;
(d) The Confirmation Order shall have been entered, shall
have become a Final Order, and such order shall not
have been vacated, reversed, stayed, modified,
enjoined, or restrained by order of a court of
competent jurisdiction;
(e) All documents and agreements required to be executed
or delivered under the Plan on or prior to the
Effective Date shall have been executed and delivered
by the parties thereto including, without limitation,
the Plan Documents;
(f) All authorizations, consents, and regulatory approvals required,
if any, in connection with the Plan's effectiveness shall
have been obtained;
(g) No court of competent jurisdiction shall have entered an order
that remains in effect restraining the Debtors from
consummating the Plan;
(h) The Bond Counsel Opinion shall have been delivered to the New
Tax-Exempt Trustee; and
(i) Mobile Energy shall have become either a Qualifying
Facility upon occurrence of all transactions
scheduled to occur on the Effective Date, or an
Exempt Wholesale Generator.
3. Waiver of Conditions
The conditions in Section 13.02, 13.03 and 13.04 of the Plan may be
waived at any time in whole or in part by a writing signed by an authorized
representative of each of: (1) the Debtors; (2) the Bondholder Steering
Committee, as evidenced by the Bondholder Steering Committee Consent; and (3)
KCTC, provided that, with respect to Sections 13.02 and 13.03 and other than the
conditions required under the KCTC Settlement Agreement and the transactions
contemplated by the KCTC Settlement Agreement, KCTC's consent to a waiver of
conditions shall be required only if the waiver of such condition has a
materially adverse effect on KCTC's interests under the Plan or the transactions
contemplated under the Plan. The waivers described in Section 13.05 of the Plan
may be made without notice or order of the Bankruptcy Court, or any further
action other than proceeding to consummation of the Plan. The Debtors shall
provide written notice of the Effective Date to the Bondholder Steering
Committee. P. Effect Of Confirmation
1. Discharge
The Plan provides that the entry of the Confirmation Order discharges
and releases, as of the Effective Date, the Debtors and former, current, and
future officers, employees, attorneys, advisors, and Professionals Persons, in
their official and individual capacities, and all property of the Estates of the
Debtors from all Claims, debts, Liens, security interests, encumbrances, and
Equity Interests that arose at any time before the Effective Date including,
without limitation, any Claim of the kind specified in Sections 502(g), 502(h),
or 502(i) of the Bankruptcy Code, except as otherwise provided for in the Plan.
The discharge of the Debtors under the Plan will be effective as to any Claim
against the Debtors, regardless of whether a proof of Claim or proof of Equity
Interest thereof was scheduled or filed, whether the Claim is an Allowed Claim,
or whether the Holder thereof votes to accept or reject the Plan. To the fullest
extent permitted by applicable law (including, without limitation, Section 105
of the Bankruptcy Code), from and after the Effective Date, all Holders of
Claims or Equity Interests will be barred and enjoined from asserting against
the Debtors, the Reorganized Debtors, or any of their Assets any such Claim,
debt, Lien, security interest, encumbrance, or Equity Interest, except as
otherwise provided for in the Plan.
Except as provided in the Confirmation Order or the Plan, the
provisions of the Plan will not constitute a release or waiver of any Claim or
cause of action or affect the liability of any other Person which is or may be
liable with the Debtors on account of any Allowed Claim.
2. Exculpation
Under Section 14.04 of the Plan, none of the Debtors, the Reorganized
Debtors, the Bondholder Steering Committee, the Indenture Trustee, the
Tax-Exempt Trustee, the Collateral Agent, or their respective affiliates,
former, current and future members, officers, directors, employees, consultants,
agents, advisors, members, attorneys, accountants, financial advisors, other
representatives or any of their respective former, current and future officers,
directors, employees, consultants, agents, advisors, members, attorneys,
accountants, financial advisors, other representatives and Professional Persons,
nor any Professional Person employed by any of them (collectively, the
"Exculpated Persons"), shall have or incur any liability to any Person for any
act taken or omission made in good faith in connection with or in any way
related to (a) the filing, negotiating, prosecuting, administrating,
formulating, implementing, confirming, or consummating the Plan; or (b) the
property to be distributed under the Plan, including all prepetition activities
leading to the promulgation and confirmation of the Plan, the Disclosure
Statement (including any information provided or statement made in the
Disclosure Statement or omitted therefrom), or any contract, instrument, release
or other agreement or document created in connection with or related to the Plan
or the administration of the Debtors, their Estates, or these Chapter 11 Cases.
The Exculpated Persons shall have no liability to any Person for actions taken
under the Plan, in connection therewith, or with respect thereto, in good faith,
including, without limitation, failure to obtain confirmation of the Plan or to
satisfy any condition or conditions, or refusal to waive any condition or
conditions precedent to confirmation or to the occurrence of the Effective Date.
In addition, except as set forth in the Plan and the Plan Documents, the
Exculpated Persons will not have or incur any liability to any Holder of a
Claim, Holder of an Equity Interest, or party-in-interest herein or any other
Person for any act or omission in connection with or arising out of: (i)
administration of the Plan; (ii) the property to be distributed under the Plan;
(iii) the management and operations or other activities of the Debtors and the
Reorganized Debtors; (iv) any of the transactions provided for, or contemplated
in, the Plan; (v) any action taken in connection with either the enforcement of
the Debtors' rights against any Entities or the defense of Claims asserted
against the Debtors with regard to the Chapter 11 Cases; or (vi) the
administration of the Plan or the assets and property to be distributed pursuant
to the Plan, except for gross negligence or willful misconduct as finally
determined by a Final Order of the Bankruptcy Court, and the Exculpated Persons
are entitled to rely on, and act or refrain from acting on, all information
provided by other Exculpated Persons without any duty to investigate the
veracity or accuracy of such information.
3. Releases
The Plan provides that effective as of the Confirmation Date, but
subject to the occurrence of the Effective Date, and except as otherwise
provided in the Plan, the Plan Documents, or the Confirmation Order, (i) each
Holder (as well as the trustees and agents on behalf of each Holder) of a Claim
or Equity Interest and each Person who has filed a Proof of Claim in the Chapter
11 Cases, and any affiliate of any such Holder or Person, in consideration of
the obligations of the Debtors under this Plan and the consideration to be
provided by Releasees, shall be deemed to have forever waived, released, and
discharged the Releasees, from any and all claims, obligations, suits,
judgments, damages, rights, causes of action or liabilities whatsoever, whether
in tort, for fraud, in contract, whether in law or equity or otherwise,
violations of federal or state securities laws, or otherwise, whether known or
unknown, whether foreseen or unforeseen, existing or hereafter arising, based in
whole or in part upon any act or omission, transaction, or other occurrence
taking place on or before the Effective Date in any way relating to the Debtors,
their Estates, the Chapter 11 Cases, or the Plan, including the transactions to
be entered into under the Plan, which may have directly or indirectly impacted
or harmed in any way the value of any Claim against or Equity Interest in any of
the Debtors or their Affiliates, and (ii) the Confirmation Order will enjoin the
prosecution by any Entity, whether directly, derivatively, or otherwise, of any
claim, debt, right, cause of action, or liability that was or could have been
asserted against the Releasees, except as otherwise provided in the Plan.
4. Injunction against Interference with Plan
The Plan provides that from the Effective Date, all Holders of Claims
and other parties in interest, along with their respective present or former
employees, agents, officers, directors, or principals, will be enjoined from
taking any actions to interfere with the implementation or consummation of the
Plan.
5. Vesting of Assets
Upon the Effective Date, pursuant to Bankruptcy Code Section 1141(b)
and (c), all property of each Debtor's Estate will vest in the respective
Reorganized Debtor free and clear of all Claims, Liens, encumbrances, charges,
rights of setoff or recoupment, and other interests of Creditors, except as
otherwise provided for in the Plan. The Reorganized Debtors may operate their
businesses free of any restrictions imposed by the Bankruptcy Code and in all
respects as if there were no pending case under any chapter or provision of the
Bankruptcy Code, except as provided for in the Plan.
Q. Consummation And Effectiveness
The Plan will be substantially consummated on the Effective Date.
The Effective Date of the Plan will be a date selected by
the Debtors that is no more than ten (10) business days following the date
on which all conditions to effectiveness set forth in
Article XIII of the Plan have either occurred or been waived to the extent
permitted by Section 13.05 of the Plan.
R. Amendments to Holdings Articles of Incorporation and Holdings By-laws;
Amendments to Mobile Energy Articles of Organization and
Mobile Energy Operating Agreement
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1. Amendments to Holdings Articles of Incorporation and Holdings By-laws
The Confirmation Order will provide, to the extent required,
authorization for Holdings to file and for Judge of Probate of Mobile County,
Alabama to accept the filing by Holdings of the Amended and Restated Holdings
Articles of Incorporation and Amended and Restated Holdings By-laws, which, in
addition to the amendments described below, may substantially amend and restate
existing provisions of the Holdings Articles of Incorporation and Holdings
By-laws, including, but not limited to, provisions granting limitation of
liability and indemnification of officers and directors to the full extent
permitted under the laws of the State of Alabama. The Holdings Articles of
Incorporation and Holdings By-laws will be amended to provide, among other
items, for the issuance of the New Common Stock, for the prohibition against the
issuance of non-voting stock, and for such other changes necessary to effectuate
other provisions of the Plan and 11 U.S.C. Section 1123(a)(6).
2. Amendments to Mobile Energy Articles of Organization and Mobile Energy
Operating Agreement
The Confirmation Order shall provide authorization for Mobile Energy to
file and for the Judge of Probate of Mobile County, Alabama to accept the filing
by Mobile Energy of the Amended and Restated Mobile Energy Articles of
Organization and the Restated Mobile Energy Operating Agreement, which, in
addition to the amendments described below, may substantially amend and restate
existing provisions of the Mobile Energy Articles of Organization and Operating
Agreement, including, but not limited to, provisions granting limitation of
liability and indemnification of officers and directors to the full extent
permitted under the laws of the State of Alabama. The Mobile Energy Articles of
Organization and the Operating Agreement will be amended to provide, among other
items, for the issuance of the Reorganized Mobile Energy Equity Interests, for
the prohibition against the issuance of non-voting equity interests, and for
such other changes necessary to effectuate other provisions of the Plan and 11
U.S.C. Section 1123(a)(6).
S. Events of Default
In the event of a default under the provisions of the Plan (as opposed
to a default under the documents executed to implement the Plan, which documents
shall provide independent bases for relief), any Creditor or party in interest
desiring to assert such a default must provide the Reorganized Debtors with
written notice of the alleged default. The Reorganized Debtors have sixty (60)
days from receipt of the written notice in which to cure the default. Such
notice must be delivered by certified mail, return receipt requested to the
Reorganized Debtors and their attorney at the addresses identified in the Plan.
If the default is not timely cured, any Creditor or other party in interest may
thereafter file and serve upon the Reorganized Debtors and their attorneys a
motion to compel compliance with applicable provisions of the Plan. The
Bankruptcy Court, upon finding a material default, will issue such orders
compelling compliance with the pertinent provisions of the Plan.
T. Retention of Claims and Causes of Action
The investigation by the Debtors of their claims and causes of action,
including Avoidance Claims, is continuing. Pursuant to Bankruptcy Code Section
1123(b)(3), the Reorganized Debtors will retain and may enforce any and all
claims and causes of action of the Debtors which are believed to be meritorious,
including, but not limited to, any claims for contribution or indemnification,
and any Avoidance Claims, unless such claims have been released, settled, or
time-barred. At this time, the Debtors do not believe that any Avoidance Claims
exist.
X.
RISK FACTORS ASSOCIATED WITH PROPOSED PLAN
A. General
In considering whether to vote for or against the Plan, Holders of
Claims or Equity Interests in impaired Classes should consider the following:
there can be no assurance that the Plan as proposed will be accepted by the
requisite number of Holders or amounts of Claims or approved by the Bankruptcy
Court, and there can be no assurance that the Plan will not be modified up to
and through the Confirmation Date. Notwithstanding Bankruptcy Court approval, it
is possible that the Plan may not be consummated because of other external
factors that may adversely affect the funding of the distributions provided
therein and/or the making of distributions.
B. Fuel and Power Prices
The projections attached to this Disclosure Statement are sensitive to
the future price of natural gas, the principal fuel used to power the Cogen
Project and Mobile Energy's power boilers and turbine-generators, and the future
price of power sold into and purchased from the wholesale market. Under the New
Tissue Mill ESA and the New Pulp Mill ESA, Mobile Energy will be unable to pass
the fuel costs through to the Tissue Mill Owner and the New Pulp Mill Owner.
Thus, except to the extent that the charges for steam processing services in the
New Tissue Mill ESA and the New Pulp Mill ESA are partially indexed, one year in
arrears, to gas and coal prices, increases in natural gas prices will result in
a less than proportionate increase in the revenues to be received under the New
Tissue Mill ESA and the New Pulp Mill ESA. In addition, Mobile Energy and the
Cogen Project will be subject to pricing risk on that portion of its output
which is to be sold off-site or to any purchases it would make in the market.
Natural gas prices currently are at the highest level in many years and power
prices in the southeastern United States have not increased proportionately. The
Projections attached to this Disclosure Statement assume future prices of $3.12
per MMbtu and current spot market prices are greater than $4.50 per MMbtu.
Projections of commodity prices are generally difficult to make and often
unreliable. If natural gas prices stay at their current levels or increase, the
Projections will be negatively impacted. C. Operational Risks
In general, as with any sophisticated energy and chemical recovery
plant, operation of the Energy Complex involves many risks, including, among
other things, the risk of equipment breakdown, failure, fuel availability or
pricing, or explosion. Mobile Energy is subject to various risks and
uncertainties that may be outside its control, including, among other things:
(i) governmental, statutory, regulatory or administrative changes or initiatives
affecting Mobile Energy, or its contracts, including economic and environmental
regulation; (ii) changes in current prices and future prices of natural gas and
power that affect Mobile Energy's economic assumptions and predictions regarding
price levels and demand for power; (iii) permitting requirements and limitations
for the Energy Complex and its contracts; (iv) more streamlined operations may
impact the reliability of the Energy Complex and the result could lead to
additional penalties under the ESA's; (v) construction risks, including
unanticipated costs -- such as cost overruns and the assessment of property
taxes -- not included in the budget, completion delays and start-up problems;
(vi) operating risks, including equipment failure, environmental compliance
issues, dispatch or transmission levels, heat rate and output, transmission
credits and the amounts and timing of revenues and expenses; (vii) changes in
costs of ownership of the facilities, including property and franchise taxes and
taxes on gross receipts; (viii) the cost and availability of fuel and
transmission service for the Energy Complex; (ix) the enforceability of the
Original Energy Services Agreements, the New Tissue Mill ESA and the New Pulp
Mill ESA; (x) the financial viability of the Mills; (xi) the ongoing
creditworthiness of customers and Deltak; (xii) the price of power products in
Mobile Energy's market regions; (xiii) competition from other power plants,
including new power plants and new technologies that may be developed in the
future; (xiv) construction and development risks associated with the Cogen
Project; (xv) labor disputes or other events such as fires, hurricanes, floods,
droughts, other acts of God, changes in law or acts of eminent domain that could
disrupt or disable Mobile Energy's operations; and (xvi) legal risk that
entities will comply with their agreements with the Debtors. D. Financing Risks
In order to complete the development of the Cogen Project, Mobile
Energy must raise approximately $57 million in financing. Under the terms of
such financing, Mobile Energy may be required to grant a lien on its assets to
obtain such financing which is senior to the liens of the First Mortgage
Bondholders and the Tax-Exempt Bondholders. Failure to timely raise the required
funds also may put the CT development at risk. The CT may have to be purchased
under Amendment No. 1 prior to the time that Mobile Energy will be able to
obtain the financing. Thus, Mobile Energy could lose the right to purchase the
CT if it fails to obtain the financing in time. While the Debtors believe they
will be successful in raising the required capital, there is no guarantee that
they will be able to do so. If they fail to raise the required capital, it will
materially and adversely affect the Debtors' ability to make the payments to
Creditors contemplated by the Plan.
E. Operating and Maintenance Costs
Historically, operating and maintenance costs have been a significant
component of Mobile Energy's costs. Southern Energy Resources has been operating
the Energy Complex, but the Projections assume that it will cease to operate the
Energy Complex on January 1, 2001. The projections attached to this Disclosure
Statement assume annual cost savings beyond those already achieved by Mobile
Energy. The bids received to date to enter into a new operation and maintenance
agreement with Mobile Energy generally are consistent with the assumed costs in
the projections. However, if Mobile Energy is unable to reach an agreement with
a future operator of the Energy Complex, or if the facility cannot be operated
in line with the assumed costs, the results set forth in the Projections will
not be obtained.
F. Mill Risk; Dependence Upon Mill Owners for Revenue
Mobile Energy is highly dependent on the revenues and cost structure
provided under the ESA's. Risk of adverse consequences to Mobile Energy exists
if any of the counterparties to an ESA fails to comply with its obligations
thereunder. The Paper Mill Owner has the ability to reduce its operations or to
close the Paper Mill and terminate its ESA. KCTC has the ability to reduce its
operations or to close the Tissue Mill. If the Paper Mill ESA is terminated
because of a Mill Closure, it will significantly reduce the revenues payable to
Mobile Energy unless it is accompanied by a corresponding decrease in operating
costs, which is unlikely. If the Paper Mill, the Tissue Mill or the New Pulp
Mill reduce their operations it may also reduce the revenues payable to Mobile
Energy. If the Paper Mill, the Tissue Mill, or the New Pulp Mill ceases to
operate there is a significant likelihood that Mobile Energy will not be able to
meet its obligations under the New Securities.
The Paper Mill Owner has had limited participation in the process
resulting in the Plan. In addition, S.D. Warren has appealed certain previous
orders in the Chapter 11 Cases and has objected to certain amounts billed by
Mobile Energy under the Paper Mill ESA. The effects of the shutting down of the
Pulp Mill have resulted in the charges under the Paper Mill ESA being
significantly higher than market energy prices and the Paper Mill Owner has
shut-down its No. 9 paper machine for economic reasons in the past. The Paper
Mill's No. 4 paper machine is currently shut-down for economic reasons. In
addition, the Paper Mill Owner has announced in open court in the Chapter 11
Cases and to its employees that it may elect to close all or a portion of the
Paper Mill unless it can receive electricity and steam processing services from
Mobile Energy at substantially reduced prices. As a result of all of these
factors, the Proponents believe that the revenues to be received under the Paper
Mill ESA may be difficult to collect at the current levels. As a result, the
Proponents have discounted the revenues from the Paper Mill assumed in the
Projections. The Proponents have no assurance that all (or any) of the revenues
from the Paper Mill in the Projections will be received from the Paper Mill.
G. Transmission Capacity Risks
Future sales of electricity by Mobile Energy and the Cogen Project to
wholesale customers will depend on the existence of available transmission
capacity through APCo's transmission system. The Proponents' projections assume
that there will be sufficient transmission capacity to transmit and sell the
electricity that Mobile Energy and the Cogen Project will produce after the
Effective Date. However, transmission capacity is limited and is not likely to
be expanded in the near future. Although in the past APCo has had sufficient
capacity to accommodate Mobile Energy's power sales, Mobile Energy does not have
a firm commitment from APCo for APCo to transmit all of the electricity that
Mobile Energy or the Cogen Project are expected to produce for sale to wholesale
customers. APCo has stated that it has no available firm transmission capacity.
If Mobile Energy or the Cogen Project is unable to transmit electricity through
APCo's transmission system, it may materially and adversely affect the Debtors'
projections and their ability to make the payments to Creditors contemplated by
the Plan.
H. Cogen Project Development Risk
The Cogen Project will cost an estimated $87 million and will take
16-18 months to complete. In addition to the financing risks mentioned above,
and other operational risks discussed in this Article X, there is the risk that
the Cogen Project will not be completed or that it will not be completed on
time. Development projects are subject to inherent risk due to many factors not
within the control of the developer. The terms of the agreement for the
engineering, procurement and construction of the project have not yet been
negotiated. If such an agreement is finally negotiated, there is the risk that
the contractor may not perform under the agreement. There also is the risk that
the development of the Cogen Project may cost more than projected, and that
sub-contractors will not perform as expected.
I. Tax Effect on the Projections
The Projections attached to this Disclosure Statement do not provide
that Holdings is a taxpayer for income tax purposes. Holdings currently is
organized as a corporation and would therefore be a taxpayer. The Projections
are based on an assumption that Holdings will convert to a limited liability
company in the future. There is no assurance that Holdings will elect to convert
to a limited liability company or that such a conversion will not have an
adverse tax consequence on Holdings or its shareholders. If Holdings remains a
taxpayer, it would have an adverse impact on the results set forth in the
Projections. J. Extension of Lease and Other Contracts
The New Taxable Bonds and the New Tax-Exempt Bonds are scheduled to
mature in 2021. Certain of the underlying project contracts expire prior to 2021
and there is no assurance that extensions of those contracts can be achieved.
K. PUHCA; PURPA
If Mobile Energy can obtain the agreement of each of the Mill Owners to
modify the ESA with that Mill Owner to provide for the power processing services
to be provided by MESC Retail under a separate agreement, then the Debtors will
request a ruling from the FERC that Mobile Energy be determined to be an Exempt
Wholesale Generator under Section 32 of the Public Utility Holding Company Act,
15 U.S.C. Section 79z-5a ("PUHCA"). The significance of achieving Exempt
Wholesale Generator status is that Mobile Energy will be able to buy electricity
from and sell electricity to wholesale customers and yet not be regulated as a
public utility under PUHCA. However, there is no assurance that the FERC will
agree with the Proponents' position with respect to Mobile Energy qualifying as
an Exempt Wholesale Generator. If the Exempt Wholesale Generator status is not
achieved, Mobile Energy's ability to service its customers may suffer adverse
economic consequences resulting from it not being able to purchase and resell
power to S.D. Warren. The Proponents believe that Mobile Energy will obtain the
agreement of each of KCTC and Jubilee Pulp (or a higher bidder) to modify the
ESA between each of them and Mobile Energy so that MESC Retail will be able to
provide power processing services and purchase power for resale to each of them
when the cost of such purchased power is less than the cost Mobile Energy would
incur in producing such power.
If it cannot obtain Exempt Wholesale Generator status, Mobile Energy
will file with the FERC to have the Energy Complex qualified as a Qualifying
Facility under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The
FERC has established certain criteria to determine whether a facility is a
Qualifying Facility. A Qualifying Facility must meet specified thermal energy
output ratios and an efficiency standard. Based upon operating data that are
available, the Proponents believe Mobile Energy currently meets, and will
continue to meet, the requirements to become a Qualifying Facility, but there
can be no assurance that Mobile Energy will continue to meet the requirements in
the future. Qualifying Facility status could be jeopardized if a steam customer
closes its Mill and it results in a loss of a customer. The significance of
achieving the Qualifying Facility status is that Mobile Energy will not be a
public utility under PUHCA. As a Qualifying Facility, however, Mobile Energy
will not be able to resell power it did not produce, but purchased from a third
party.
If neither Exempt Wholesale Generator or Qualifying Facility
status is achieved, those entities owning at least 10%
(including the aggregation of any affiliated holdings) of the equity of
Mobile Energy and Holdings may be subject to reporting
requirements, and they likely will be required to register as public utility
holding companies under PUHCA.
L. Environmental Risks
-------------------
Mobile Energy is subject to comprehensive federal, state, and local
environmental laws and regulations, which are subject to
constant change, including those governing air emissions, waste water
discharges, and hazardous and non-hazardous waste disposal.
Mobile Energy recognizes that both it and the Mills may incur capital and
operating costs in the future to comply with currently
existing laws and regulations, new regulatory requirements and possible new
statutory requirements.
1. The Cluster Rule
The Cluster Rule, which was promulgated by the EPA in April, 1998,
provides for (1) certain effluent limitation guidelines and standards for the
control of waste water pollutants; and (2) national emission standards for
hazardous air pollutants from mills that chemically pulp wood fiber using kraft,
sulfite, soda, or semi-chemical methods. The Cluster Rule would principally
apply to the Mills and could require significant capital expenditures by, and
significant modifications to, the Mills. The Cluster Rule also may require
capital expenditures for additional air emission controls at the Energy Complex.
None of the Mills is contractually obligated to Mobile Energy to comply with the
Cluster Rule or any other environmental regulation. Thus, the Mills could choose
to close entirely rather than incur the costs imposed by the Cluster Rule. KCTC
cited the cost of complying with the Cluster Rule as one of the reasons for
shutting down the Pulp Mill. As such, the failure by the Mills to spend the
monies necessary to comply with the Cluster Rule could, indirectly, have a
material adverse impact on Mobile Energy's results of operations. Jubilee Pulp
(or a higher bidder) will have to make capital improvements to the Pulp Mill
Assets necessary to comply with the Cluster Rule. 2. The Combustion Rule
The Combustion Rule was proposed by the EPA in April 1998, when the
Cluster Rule was promulgated. If promulgated in the same form, the Combustion
Rule (which would principally apply to the Energy Complex) could require
significant capital expenditures by Mobile Energy and equipment and operational
modifications to the Energy Complex. Mobile Energy is still in the process of
studying the potential impacts of the rule and cannot estimate the expense
required to comply with such a rule.
Under the New Tissue Mill ESA and the New Pulp Mill ESA, Mobile Energy
cannot charge KCTC or Jubilee Pulp for any costs it incurs in complying with the
Combustion Rule, if finally adopted, or the Cluster Rule. Under the Master
Operating Agreement, Mobile Energy generally is permitted to charge the Paper
Mill Owner a portion of the reasonable cost of capital expenditures or Operation
and Maintenance expenses incurred by Mobile Energy as a result of the Combustion
Rule or the Cluster Rule. Nevertheless, there can be no assurance that the Paper
Mill Owner will comply with its obligations under the Master Operating Agreement
with respect to the Combustion Rule. As such, the promulgation of the Combustion
Rule, or the failure by the Paper Mill Owner to comply with such obligations
under the Master Operating Agreements, could have a material adverse effect on
the financial condition of Mobile Energy and the Debtors' ability to consummate
the Plan.
3. CERCLA
Another law that could affect Mobile Energy is the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known as
the "Superfund" law, which imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of a disposal site or
sites where the release occurred and companies that disposed or arranged for
disposal of the hazardous substances found at a site. Under CERCLA, such persons
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances, for damages to natural resources, and for the costs of
certain health studies. Furthermore, it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by hazardous substances or other pollutants
released into the environment. At this time, Mobile Energy is unaware of any
conditions on its property that would trigger CERCLA liability. Of course,
conditions might currently exist or might occur in the future which could expose
Mobile Energy to potential liability under CERCLA. M. Permitting and Regulatory
Matters
As with any project comparable in size and nature to the Energy
Complex, the Debtors are required to comply with the constantly changing
provisions of numerous statutes and regulations relating to the safety and
health of employees and the public during the operation of the Energy Complex,
including: emergency response and remediation or cleanup in connection with
hazardous and toxic materials or other substances associated with the Energy
Complex; limits on noise emissions from the Energy Complex; safety and health
standards; practices and procedures applicable to the operation of the Energy
Complex; environmental protection requirements (such as standards relating to
the discharge of pollutants into the air, water, and land); compliance with
pipeline safety requirements; and employment, hiring, and anti-discrimination
requirements. Compliance with such requirements may impose significant
additional costs on the Debtors. Failure to comply with any such statutes or
regulations could have material adverse effects on the Debtors and their
financial condition, including civil or criminal liability, imposition of
clean-up liens and fines, and expenditures of funds to bring the Energy Complex
into compliance. There can be no assurance that the Debtors at all times will be
in compliance with all applicable statutes and regulations or that steps to
bring Mobile Energy into compliance would not materially adversely affect the
Debtors' ability to pay the principal of and interest on the New Securities.
Additionally, there can be no assurance that the Mills or the Mill Owners at all
times will be in compliance with applicable statutes and regulations. Due to the
integrated nature of the Mills and the Energy Complex and the tax-exempt nature
of some of the obligations of Mobile Energy, failure by the Mills or the Mill
Owners to comply with applicable statutes and regulations could have a
materially adverse impact on the Debtors and their financial condition.
The Debtors also are obligated to comply with the constantly changing
provisions of the numerous federal, state, and local statutory and regulatory
regimes specifically applicable to its operations and to obtain and maintain
numerous governmental approvals pursuant to applicable laws.
The Debtors and Southern Energy Resources have obtained all material
discretionary governmental approvals required as of the date hereof in order to
operate the Energy Complex. Although not currently required, additional
governmental approvals, including without limitation, renewals, extensions,
transfers, assignments, reissuances or similar actions regarding governmental
approvals, may be required in the future due to a change in law, a change in the
Debtors' customers, a change in the configuration of the Energy Complex, or for
other reasons. For example, the Debtors anticipate using the permits for the
Number 5 and Number 6 Power Boilers for the Cogen Project. However, such permits
must be modified to reflect a June 2002, commercial operating date for the Cogen
Project. If Mobile Gas Company constructs a pipeline to provide gas to the
Energy Complex, a tariff for gas transportation service by Mobile Gas Company to
the Cogen Project must be approved by the Alabama Public Service Commission.
Also, if the Debtors were to sell electricity or steam to more than a limited
number of end users, the Debtors (and such sales) could be subject to rate and
other regulation by the Alabama Public Service Commission, which could
materially adversely affect the Reorganizing Debtors' revenues, costs, or
flexibility in providing services. However, no assurance can be given that the
Debtors will be able to obtain and/or maintain all required governmental
approvals that it does not yet have or that it may in the future require, or
that the Debtors will be able to obtain any necessary modifications to existing
governmental approvals. Delay in obtaining or failure to obtain and maintain in
full force and effect any such governmental approvals, or amendments thereto, or
delay or failure to satisfy any such conditions or other applicable
requirements, could prevent operation of the Energy Complex, sales to persons
other than the Mill Owners or delivery of fuel or ash disposal, or could result
in additional costs to the Company.
The Debtors' business also could be materially and adversely affected
as a result of statutory or regulatory changes or judicial or administrative
interpretations of existing laws that impose more comprehensive or stringent
requirements on the Energy Complex, the use or transportation of fuel, or the
transportation or disposal of ash. For example, a statutory or regulatory
change, or a new judicial or administrative interpretation of existing laws,
could subject Mobile Energy and its sales of Power Processing Services and Steam
Processing Services to regulation by the Alabama Public Service Commission even
if the Debtors' business does not change significantly. Any such changes could
substantially increase the cost of the Debtors' operations or decrease the
Debtors' revenues, and thereby impair the Debtors' ability to pay the principal
of and interest on the New Securities.
Under Chapter 14 of Title 37 of the Code of Alabama (the "Alabama
Territorial Law"), which regulates service territories for electric suppliers,
Alabama Power is the primary electric supplier in the City of Mobile. Secondary
electric suppliers are prohibited from extending facilities to serve existing or
new premises within the city limits. The Mobile Facility lies within the city
limits. At the time Mobile Energy acquired the Energy Complex from KCTC, Mobile
Energy obtained a statement from APCo (which relied upon Mobile Energy's
certification that it would not extend any transmission or distribution
facilities from the Mills) to the effect that by providing electric power to the
existing Mobile Facility, Mobile Energy would not be in violation of the Alabama
Territorial Law. However, there can be no assurance that the same conclusion
will apply to sales by MESC Retail or that the Alabama Public Service Commission
would reach the same conclusion if presented with the issue at this time or in
the future. If the Alabama Territorial Law were found to prohibit Mobile Energy
or MESC Retail from providing Power Processing Services to the Mills, Mobile
Energy's revenues and its ability to pay the principal of and interest on the
New Securities would be materially and adversely affected.
N. Subdivision of Real Property at the Mobile Facility
The real property transfers that will occur under the KCTC Settlement
Agreement and the development of the New Pulp Mill require a resubdivision of
the real property located at the Mobile Facility. To resubdivide the real
property at the Mobile Facility requires approval by the Mobile Planning
Commission. The Debtors anticipate submitting the resubdivision plans and
drawings to the Mobile Planning Commission on or before September 25, 2000, so
that the resubdivision may be considered at the October 19, 2000 meeting of the
Planning Commission. If the submission is timely filed and considered at the
October 19, 2000 meeting, a decision will be expected in mid-November 2000.
There is no assurance that the Mobile Planning Commission will approve the
resubdivision of the real property. Failure of the Mobile Planning Commission to
approve the resubdivision would materially and adversely affect the Debtors'
ability to consummate the Plan.
O. The New Pulp Mill; Transfer of Number 8 Recovery Boiler
The development of the 800 short ton per day pulp mill by Jubilee Pulp
is subject to several risks. The Pulp Mill at the Mobile Facility has not been
operational since it was shutdown by KCTC on September 1, 1999, and it is
uncertain that the equipment for the New Pulp Mill will function as planned,
particularly given that it has been mothballed for over a year. The pulp mill
has never functioned as an 800 short ton per day pulp mill and it is not certain
that the Pulp Mill Assets will function properly at one half of the capacity of
the former Pulp Mill.
Jubilee Pulp is a newly created special purpose corporation formed to
acquire the Pulp Mill Assets from KCTC and develop the New Pulp Mill. Jubilee
Pulp has no experience in the business of producing pulp or developing a pulp
mill. It is not certain that Jubilee Pulp will be successful in developing and
operating the New Pulp Mill. If Jubilee Pulp fails to develop the Pulp Mill, the
projections attached to this Disclosure Statement will be adversely affected.
It is not certain that Jubilee Pulp will be able to obtain the
financing it needs to develop the New Pulp Mill. If Jubilee Pulp does not obtain
the funds required to develop the New Pulp Mill, the New Pulp Mill may not be
developed and Mobile Energy may not receive the revenue assumed in the
Projections attached to this Disclosure Statement.
The structure of the transaction involving the Number 8 Recovery Boiler
has certain risks. The Proponents believe that the transfer of the Number 8
Recovery Boiler by Mobile Energy to Holdings and Holdings contribution to Pulpco
LLC as described above in Section V.E.3. will not result in a taxable gain to
the Reorganized Debtors. While the Proponents are confident of their legal
position, there is no guarantee that the applicable taxing authorities will
agree with the Proponents or, if the Debtors are challenged by a taxing
authority, that the Debtors will prevail on the matter in court. If it
ultimately is determined that the transfer and contribution of the Number 8
Recovery Boiler to Pulpco LLC is a taxable event to the Reorganized Debtors, a
gain of approximately $30 million would be recognized in the year in which the
transfer occurs resulting in significant additional tax liability for Holdings.
P. IDB Approval
Certain of the transactions contemplated under the Plan will require
the approval of the IDB. The IDB has not yet approved the Plan or the
transactions contemplated thereby. While the Proponents expect that the IDB will
approve the transactions contemplated by the Plan, there is no guaranty that it
will do so.
Q. Tax-Exempt Status of New Tax-Exempt Bonds
The exclusion of interest on the New Tax-Exempt Bonds is subject to the
condition that the IDB and the company comply with all requirements of the Tax
Code that must be satisfied subsequent to the issuance of the New Tax-Exempt
Bonds for federal income tax purposes. One requirement is that at least 65% of
the material burned each year in the Number 7 Power Boiler, measured by weight
or volume, constitute solid waste as defined in the Tax Code and the regulations
thereunder. There is no assurance that solid waste will be available during the
entire term of the New Tax-Exempt Bonds. Another requirement is that, if not in
use, the Number 7 Power Boiler must be kept in a condition so that it can be
reactivated and used for the disposal of solid waste and may not be converted to
an inconsistent use. These requirements limit the flexibility of, and may impose
additional costs on, Reorganized Mobile Energy with respect to the Number 7
Power Boiler.
XI.
VALUATION ANALYSIS
A. General
The Proponents believe that the Plan and the debt restructuring
contemplated therein will enable the Reorganized Debtors to continue to operate
their businesses on a going concern basis. In the course of the Chapter 11
Cases, the Proponents have considered alternatives to the Plan, including
liquidation under Chapter 7 of the Bankruptcy Code. Attached hereto as Exhibit L
is the Proponents' liquidation analysis. The Proponents believe that the Plan
provides the greatest possible recovery to all Creditors and is in the best
interests of all the creditors.
The Proponents believe that the value of the distributions to Creditors
under the Plan, as of the Effective Date, exceeds
the value such Holders would receive in a liquidation of the Debtors' assets
under Chapter 7 of the Bankruptcy Code.
B. Liquidation Value
The Proponents have considered the alternative of liquidating the
Debtors' assets in a Chapter 7 case under the Bankruptcy Code. The Proponents
have concluded that their best estimate of the value available for distribution
to unsecured creditors under this scenario would be zero. A shut-down of the
Energy Complex and disposition of available assets in a Chapter 7 case would
not, in the Debtors' view, yield an amount sufficient to repay the Southern
Post-Petition Claims, the First Mortgage Bondholder Claims and the Tax-Exempt
Bondholder Claims. Furthermore, the value available for distribution to the
First Mortgage Bondholders and the Tax-Exempt Bondholders under this scenario
would be less than the anticipated value they would receive under the Plan.
Unsecured Creditors would receive no distributions under this scenario.
Accordingly, the Debtors and the Bondholder Steering Committee believe
that a liquidation under Chapter 7 of the Bankruptcy Code would result in
smaller distributions to the First Mortgage Bondholders, the Tax-Exempt
Bondholders, and to General Unsecured Creditors than those distributions
provided for under the Plan.
XII.
BANKRUPTCY CAUSES OF ACTION
A. Preferences
Pursuant to the Bankruptcy Code, a debtor may recover certain transfers
of property, including cash, made while the debtor was insolvent during the
ninety (90) days immediately prior to the filing of its bankruptcy petition on
account of pre-existing debts to the extent the transferee received more than it
would have on account of the pre-existing debt had the debtor been liquidated
under Chapter 7 of the Bankruptcy Code (a "Preferential Transfer"). The recovery
period is one year if the recipient of the Preferential Transfer is an insider
of the debtor. There are certain defenses to Preferential Transfer Causes of
Action. Transfers made in the ordinary course of the debtor's and the
transferee's business according to the ordinary business terms in the industry
are not recoverable. Furthermore, if the transferee extended credit subsequent
to the transfer (and prior to the commencement of the bankruptcy case) for which
the transferee was not repaid, the transferee is entitled to an offset against
any otherwise recoverable transfer of property. If a transfer is recovered by
the debtor, the transferee has a general unsecured claim against the debtor to
the extent of the recovery. The Debtors are reviewing their books and records to
determine whether any transfers may constitute potential Preferential Transfers.
At this time, the Debtors are unaware of any potentially recoverable
preferential transfers of property.
B. Fraudulent Conveyances
Under the Bankruptcy Code and under various state laws, a debtor may
recover certain transfers of property, including the grant of a security
interest in property, made while insolvent or which rendered it insolvent if and
to the extent the debtor received less than fair value for such property. The
Debtors have asserted a fraudulent conveyance cause of action in the KCTC
Adversary Proceeding. The Debtors are examining their books and records for
other transfers which may constitute fraudulent conveyances. Other than the KCTC
Adversary Proceeding, which is being resolved pursuant to the KCTC Settlement
Agreement and as part of the Plan, the Debtors do not anticipate that a
significant amount of money will be recovered through the recovery of fraudulent
transfers.
Prior to the filing of the Motion to Approve the Cogeneration
Development Agreement, the Bondholder Steering Committee and the Debtors
investigated whether potential fraudulent transfer causes of action could be
asserted against Southern or its affiliates. Prior to the announced shutdown of
the Pulp Mill by KCTC, Southern had received dividends from Holdings. The
Proponents investigated whether the payment of such dividends could be a
fraudulent under the Bankruptcy Code or under applicable state law. All such
claims were released by the Debtors and by certain bondholders in connection
with the Cogeneration Development Agreement and the value of such claims was
taken into account in the negotiations leading to the Cogeneration Development
Agreement. XIII.
CERTAIN INCOME TAX CONSEQUENCES
A. Scope And Limitations
Under the Internal Revenue Code of 1986, as amended (the "Tax Code"),
there are significant federal income tax consequences associated with the Plan
described in this Disclosure Statement. It is not practicable to present a
detailed explanation of all of the federal income tax aspects of the Plan, and
the following is only a summary discussion of certain of the significant
consequences that affect Creditors. This summary is based upon laws,
regulations, rulings, and decisions now in effect and upon proposed regulations,
all of which are subject to change (possibly with retroactive effect) by
legislation, administrative action, or judicial decision.
Under present law, there is uncertainty surrounding many of the tax
consequences discussed below. Further, this summary does not discuss all aspects
of federal taxation that may be relevant to a particular Creditor and the
federal income tax consequences to any particular Creditor may be affected by
special considerations not discussed below. For example, certain types of
Creditors (including non-resident aliens, foreign corporations, broker-dealers,
financial institutions, life insurance companies, and tax-exempt organizations)
may be subject to special rules not discussed below. In addition to the federal
income tax consequences discussed below, the transactions contemplated herein
may have significant state and local tax consequences which are not discussed
herein. Neither a ruling from the Internal Revenue Service (the "IRS") nor an
opinion of counsel has been requested with respect to the federal income tax
consequences of the Plan.
ACCORDINGLY, HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH SPECIFIC REFERENCE TO THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE
PLAN WITH RESPECT TO THEIR CLAIM. NEITHER THE DEBTORS NOR DEBTORS' COUNSEL ARE
MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES OF
CONFIRMATION AND CONSUMMATION OF THE PLAN AS TO ANY CREDITOR NOR ARE THE DEBTORS
OR DEBTORs' COUNSEL RENDERING ANY FORM OF LEGAL OPINION AS TO SUCH TAX
CONSEQUENCES.
B. Tax Consequences To Creditors
The federal income tax consequences to Creditors arising from the Plan
will vary depending upon, among other things, the type of consideration received
by the Creditor in exchange for its Claim, whether the Creditor has taken a "bad
debt" or "worthless security" deduction with respect to its Claim, whether the
Creditor holds its Claim as a "capital asset" within the meaning of Section 1221
of the Tax Code, whether the Creditor receives consideration in more than one
tax year of the Creditor, whether the Creditor is a resident of the United
States, and whether all of the consideration received by the Creditor is deemed
to be received by that Creditor in an integrated transaction.
1. General
The Plan contemplates the distribution to the Holders of First Mortgage
Bondholder Claims, at the Holder's election, on a Pro Rata basis with other
Holders of Allowed Class 4 Claims, either: (1) a specified share of the New
Taxable Bonds, and a specified share of the New Common Stock; or (2) a specified
share of the Combined Securities. The Plan also contemplates the distribution to
the Holders of the Tax-Exempt Bondholder Claims, at the Holder's election, on a
pro rata basis with other Holders of Allowed Class 5 Claims a specified share of
the New Tax-Exempt Bonds, and either: (1) a specified share of the New Common
Stock; or (2) a specified additional share of the New Tax-Exempt Bonds.
2. Holders of First Mortgage Bondholder Claims
The federal income tax consequences of the Plan to the Holders of First
Mortgage Bondholder Claims will depend, in part, on whether the New Taxable
Bonds (whether issued separately or as part of Combined Securities) are treated
as obligations of Reorganized Holdings. Since, pursuant to the Plan, 100% of the
Mobile Energy Equity Interests will be owned by Reorganized Holdings, Mobile
Energy will be treated as a "disregarded entity" for federal income tax
purposes. If, as a result of that characterization, the issuance of the New
Taxable Bonds were to be treated as the issuance of obligations of Reorganized
Holdings, the Holders of First Mortgage Bondholder Claims would be treated for
federal income tax purposes as having transferred their Claims to Reorganized
Holdings in exchange for New Taxable Bonds and New Common Stock of Reorganized
Holdings. In that case, the Holder would not recognize any loss on the exchange,
but would recognize gain to the extent of the lesser of (i) the issue price of
the New Taxable Bonds received (less that portion treated as having been paid to
the Holder in respect of a Claim for accrued but unpaid interest on the Holder's
First Mortgage Bonds), or (ii) the Holder's "realized gain" on the exchange. For
this purpose, a Holder's realized gain on the exchange would be equal to the
excess of (x) the sum of the issue price of the New Taxable Bonds (less that
portion treated as having been paid to the Holder in respect of a Claim for
accrued but unpaid interest on the holder's First Mortgage Bonds) and the fair
market value of the New Common Stock of Reorganized Holdings received, over (y)
the Holder's adjusted tax basis in its Claim. The Holder's tax basis in the New
Taxable Bonds would be equal to their issue price, and the Holder's tax basis in
the New Common Stock would be equal to the Holder's tax basis in the Claim
surrendered (less that portion attributable to accrued but unpaid interest on
the First Mortgage Bonds), reduced by the issue price of the New Taxable Bonds,
and increased by the amount of gain recognized on the exchange. The holding
period for the New Taxable Bonds and New Common Stock would include the holding
period of the Claims surrendered.
Alternatively, if the issuance of New Taxable Bonds were not to be
treated as an issuance of obligations of Reorganized Holdings, then the exchange
could be treated for federal income tax purposes as though the Holders exchanged
a portion of their First Mortgage Bonds for the New Taxable Bonds in a taxable
event and a portion of their First Mortgage Bonds for New Common Stock in a
tax-free transaction. In that case, the Holder would recognize gain or loss
equal to the difference between: (i) the issue price of the New Taxable Bonds
(less that portion treated as having been paid to the Holder in respect of a
Claim for accrued but unpaid interest on the Holder's First Mortgage Bonds), and
(ii) that portion of the Holder's adjusted tax basis in its Claim that was
treated as having been satisfied with the New Taxable Bonds. The Holder's tax
basis in the New Taxable Bonds would be equal to their issue price and the
Holder's holding period for the New Taxable Bonds would begin the day following
the exchange. In addition, the Holder would not recognize gain or loss on the
receipt of the New Common Stock, but would have a basis in the New Common Stock
equal to that portion of the Holder's Claim that was treated as having been
satisfied with the New Common Stock. The holding period for the New Common Stock
would include the holding period of the Claim surrendered.
Because the issuer of the First Mortgage Bonds was Mobile Energy which,
pursuant to the Plan, will become a "disregarded entity" for federal income tax
purposes, the precise tax consequences of the exchange of First Mortgage Bonds
for New Taxable Bonds and New Common Stock is uncertain. Holders are urged to
consult with their tax advisors to determine whether, and to what extent, gain
or loss will be recognized as a result of the exchange.
3. Holders of Tax-Exempt Bondholder Claims
Holders of Tax-Exempt Bondholder Claims who choose to receive New
Tax-Exempt Bonds will recognize gain or loss equal to the difference between (i)
the issue price of the New Tax-Exempt Bonds received (in each case, less that
portion treated as having been paid to the Holder in respect of a Claim for
accrued but unpaid interest on the Holder's Tax-Exempt Bonds), and (ii) the
Holder's adjusted tax basis in its Claim. The Holder's tax basis in the New
Tax-Exempt Bonds will be equal to their issue price, and the holding period for
such bonds will begin on the day following the exchange.
Holders of Tax-Exempt Bondholder Claims who choose to receive New
Tax-Exempt Bonds and New Common Stock will likely be treated for federal income
tax purposes as having exchanged a portion of their Tax-Exempt Bonds for New
Tax-Exempt Bonds in a taxable event and a portion of their Tax-Exempt Bonds for
New Common Stock in a tax-free transaction. In that case, the Holder would
recognize gain or loss equal to the difference between: (i) the issue price of
the New Tax-Exempt Bonds (less that portion treated as having been paid to the
Holder in respect of a Claim for accrued but unpaid interest on the Holder's
Tax-Exempt Bonds), and (ii) that portion of the Holder's adjusted tax basis in
its Claim that was treated as having been satisfied with the New Tax-Exempt
Bonds. The Holder's tax basis in the New Tax-Exempt Bonds would be equal to
their issue price and the Holder's holding period for the New Tax-Exempt Bonds
would begin the day following the exchange. In addition, the Holder would not
recognize gain or loss on the receipt of the New Common Stock, but would have a
basis in the New Common Stock equal to that portion of the Holder's claim that
was treated as having been satisfied with the New Common Stock. The holding
period for the New Common Stock would include the holding period of the Claim
surrendered. Because the tax consequences of the exchange of Tax-Exempt Bonds
for New Tax-Exempt Bonds and New Common Stock are uncertain, Holders are urged
to consult with their tax advisers to determine whether, and to what extent,
gain or loss will be recognized as a result of the exchange.
4. Installment Sale Rules
Any gain recognized by a Holder may be eligible for deferral under the
installment sale rules. The installment sale rules are complex and are subject
to a number of limitations. In addition, following the enactment of the Tax
Relief Extension Act of 1999, the installment sale rules do not apply to accrual
method taxpayers. Holders are urged to consult their own tax advisors to
determine whether an exchange pursuant to the Plan will result in the
recognition of gain and, if so, whether the installment sale rules will apply to
defer the recognition of that gain.
5. Receipt of Interest
To the extent a portion of the New Taxable Bonds or New Tax-Exempt
Bonds, as the case may be, is treated as having been paid to a Holder in respect
of a Claim for accrued but unpaid interest, the amount of such interest payment
will be equal to the issue price of such portion. A Holder who has included
accrued interest on the First Mortgage Bonds in income may be entitled to
recognize a loss to the extent the amount previously included in income exceeds
the amount treated as having been paid in the exchange. Alternatively, a Holder
who has not previously included all accrued interest in income may be required
to recognize interest income (unless excludable under Section 103 of the Tax
Code) to the extent the amount of interest treated as having been paid in the
exchange exceeds the amount previously included in income. A Holder's tax basis
in the portion of the New Taxable Bonds or New Tax-Exempt Bonds treated as
having been paid in respect of a Claim for accrued but unpaid interest would be
equal to the issue price of such bonds. The holding period for such bonds would
begin on the day following the exchange. The extent to which consideration paid
under the Plan should be allocable to such interest is uncertain. Holders should
consult their own tax advisors to determine the amount of consideration received
under the Plan that is allocable to interest.
6. Backup Withholding and Reporting
Under the Tax Code, interest, dividends, and other "reportable
payments" may, under certain circumstances, be subject to "backup withholding"
at a 31% rate. Backup withholding generally applies if the Holder: (a) fails to
furnish its social security number or other taxpayer identification number
("TIN"); (b) furnishes an incorrect TIN; (c) fails properly to report interest
or dividends such that there has been a notified payee under-reporting; or (d)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding.
The Reorganized Debtors will withhold all amounts required by law
to be withheld from payments to Holders of Claims. In
addition, such Holders may be required to provide certain tax information
to the Reorganized Debtors as a condition of receiving
distributions under the Plan. The Disbursing Agent will comply with all
applicable reporting requirements of the Tax Code.
C. Importance Of Obtaining Professional Tax Assistance
---------------------------------------------------
THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE
COMPLEX AND, IN MANY AREAS, UNCERTAIN. THE FOREGOING IS INTENDED TO BE A SUMMARY
ONLY AND, AS SUCH, DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER OF A CLAIM IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. THE FOREGOING SHOULD NOT BE CONSIDERED
TAX ADVICE, AND IT IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX
PROFESSIONAL. ACCORDINGLY, EACH HOLDER OF A CLAIM IS STRONGLY URGED TO CONSULT
WITH ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER.
XIV.
VOTING PROCEDURES AND REQUIREMENTS
A. Ballots and Voting Deadline
A ballot to be used for voting to accept or reject the Plan is enclosed
with this Disclosure Statement mailed to Creditors entitled to vote. A Creditor
must (1) carefully review the ballot and instructions thereon; (2) execute the
ballot; and (3) return the ballot to Innisfree M&A Incorporated, 501 Madison
Avenue, 20th Floor, New York, New York 10022.
The record date for determining which Holders of public securities are
entitled to vote on the Plan is ________________, 2000. The Indenture Trustee
for the First Mortgage Bonds and the Tax-Exempt Bonds may not and will not vote
on behalf of the Holders of these securities. Holders must submit their own
ballots. Do not return your securities with your ballots.
YOU MAY NOT CHANGE YOUR VOTE AFTER IT IS CAST UNLESS THE
BANKRUPTCY COURT PERMITS YOU TO DO SO AFTER NOTICE AND A
HEARING TO DETERMINE WHETHER SUFFICIENT CAUSE EXISTS TO PERMIT
THE CHANGE. TO BE COUNTED, BALLOTS MUST BE RECEIVED NO LATER
THAN 5:00 P.M., eastern time ON ________________, 2000.
THE PLAN HAS BEEN FILED BY THE PROPONENTS. THE PROPONENTS
RECOMMEND THAT ALL CREDITORS ENTITLED TO VOTE ON THE PLAN CAST
THEIR BALLOTS in favor of acceptance of tHE PLAN. THE
PROPONENTS BELIEVE THAT THE PLAN PROVIDES THE GREATEST
POSSIBLE RECOVERIES TO CREDITORS. THE PROPONENTS FURTHER
BELIEVE THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS
OF the Debtors, the debtors' estates, and ALL PARTIES IN
INTEREST.
B. Creditors Solicited to Vote
Any Creditor of the Debtors whose Claim is Impaired under the Plan is
being solicited to vote, if either (i) its Claim has been scheduled by the
Debtors and such Claim or Equity Interest is not scheduled as disputed,
contingent, or unliquidated; or (ii) it has filed (or in the case of the Holders
of the First Mortgage Bonds and the Tax-Exempt Bonds, a claim has been filed on
their behalf) a proof of Claim on or before the last date set by the Bankruptcy
Court for such filings. Any Claim as to which an objection has been filed, and
such objection is still pending on the voting deadline date, is not entitled to
have its vote counted, unless the Bankruptcy Court estimates the Claim for
voting purposes upon motion by such Creditor. Such motion must be heard and
determined by the Bankruptcy Court prior to the date and time established by the
Bankruptcy Court for the Confirmation Hearing. In addition, a Creditor's vote
may be disregarded if the Bankruptcy Court determines that such Holder's ballot
in favor of acceptance or rejection was not solicited or procured in good faith
or in accordance with the provisions of the Bankruptcy Code. C. Definition of
Impairment
Under Section 1124 of the Bankruptcy Code, a class of claims or equity
interests is impaired under a plan of reorganization unless with respect to each
claim or equity interest of such class, the plan:
1. leaves unaltered the legal, equitable, and contractual rights
of the Holder of such claim or interest; or
2. notwithstanding any contractual provision or applicable
law that entitles the Holder of a claim or interest to
receive accelerated payment of his claim or interest after the occurrence of a
default:
(a) cures any such default that occurred before or after
the commencement of the case under the Bankruptcy
Code, other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code;
(b) reinstates the maturity of such claim or interest as it existed before the
default;
(c) compensates the Holder of such claim or interest for damages incurred
as a result of reasonable reliance on such contractual
provision or applicable law; and
(d) does not otherwise alter the legal, equitable, or
contractual rights to which such claim or equity
interest entitles the Holder of such claim or
interest.
D. Classes Impaired Under the Plan
Administrative Expenses, Priority Tax Claims, and Claims and Equity
Interests in Classes 1, 2, 3, 6, 7 and 9 are UNIMPAIRED under the Plan, and the
Holders of Administrative Expenses, Priority Tax Claims, and Claims and Equity
Interests in Classes 1, 2, 3, 6, 7, and 9 are not solicited to vote on the Plan
pursuant to 11 U.S.C. Section 1126(f).
Claims in Classes 4, 5, and 8 are IMPAIRED under the Plan, and the
votes of Holders of such Claims are being solicited in favor of acceptance of
the Plan.
Equity Interests in Class 10 will not receive any distributions under
the Plan, and are IMPAIRED under the Plan. The voters of Equity Interests in
Class 10 are not solicited to vote on the Plan because such Equity Interests are
deemed to have rejected the Plan.
E. Vote Required for Class Acceptance
The Bankruptcy Code defines acceptance of a plan by a class of
creditors as both acceptance by Holders of two-thirds (2/3) in dollar amount and
acceptance by a majority in number of the Claims of that class actually casting
ballots in favor of acceptance or rejection of the plan.
The Bankruptcy Code defines acceptance of a plan by a class of
interests as acceptance by Holders of two-thirds (2/3) in
amount of the allowed interests of such class casting ballots in favor of
acceptance or rejection of the plan.
F. Distributions Only to Holders of Allowed Claims and Equity Interests
--------------------------------------------------------------------
A Claim will receive a distribution under the Plan only if it is an
"Allowed Claim". An "Allowed Claim" means a Claim against the Debtors to the
extent a proof of Claim was filed with the Bankruptcy Court on or before the Bar
Date (May 3, 1999), or for a particular Claim, within such other time as the
Bankruptcy Court shall have set for such other Claim if different from the Bar
Date (or, in the case of Administrative Expenses, subject to Bankruptcy Court
approval), or which have been listed by the Debtors as liquidated in amount and
not disputed or contingent, and, in either case, a Claim as to which no
objection to the allowance thereof has been interposed within the period of time
fixed by the Plan, or which has been determined by an order or judgment of any
court of competent jurisdiction that is a Final Order, or which has been allowed
pursuant to the terms of the Plan.
The Allowed Mobile Energy Equity Interest which is owned by Holdings is
an Allowed Equity Interest and will retain its Equity Interest under the Plan.
The Allowed Equity Interests of Holdings will receive no distributions under the
Plan.
XV.
CONFIRMATION OF THE PLAN
Under the Bankruptcy Code, the following steps must be taken to confirm
the Plan:
A. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of the Plan (the "Confirmation
Hearing"). Section 1128(b) provides that any party in interest may object to
confirmation of the Plan if a written objection is timely filed with the
Bankruptcy Court.
By order of the Bankruptcy Court dated __________________, 2000, the
Confirmation Hearing has been scheduled for ___________________, 2000 at ____
_.m., United States Bankruptcy Court, Southern District of Alabama, 201 St.
Louis, Mobile, Alabama 36602. The Confirmation Hearing may be adjourned from
time to time by the Bankruptcy Court without further notice, except for an
announcement made at the Confirmation Hearing or any adjournment thereof. Any
objection to confirmation must be made in writing and filed with the Bankruptcy
Court, 201 St. Louis, Mobile, Alabama 36602 with proof of service and served
upon each of the following parties on or before ____________________, 2000:
PROPONENTS:
Mobile Energy Services Company, L.L.C. ANDREWS & KURTH L.L.P.
Mobile Energy Services Holdings, Inc. 600 Travis, Suite 4200
Houston, Texas 77002
(713) 220-4200
(713) 220-4285-telecopy
Attn: Jeffrey E. Spiers
......... CABANISS, JOHNSTON, GARDNER,
......... DUMAS & O'NEAL
......... 700 Riverview Plaza
......... Mobile, Alabama 36602
......... (334) 433-6961
......... (334) 415-7350 - Telecopy
Attn: Donald J. Stewart
Bondholder Steering Committee....... McDERMOTT, WILL & EMERY
227 W. Monroe Street, 44th Floor
Chicago, Illinois 60606
(312) 372-2000
(312) 984-7700 - Telecopy
Attn: David D. Cleary
SILVER, VOIT & THOMPSON, P.C.
4317A Midmost Drive
Mobile, Alabama 36609
(334) 343-0800
(334) 343-0862 Telecopy
Attention: Lawrence B. Voit
DEBEVOISE & PLIMPTON
875 Third Avenue
New York, New York
(212) 909-6000
(212) 906-6836 Telecopy
Attention: Michael E. Wiles
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY FILED AND SERVED, IT WILL NOT BE
CONSIDERED BY THE BANKRUPTCY COURT, AND THE COURT MAY ENTER AN ORDER CONFIRMING
THE PLAN PREPARED BY COUNSEL FOR THE PROPONENTS WITHOUT FURTHER NOTICE.
B. Requirements for Confirmation of the Plan
1. General
At the Confirmation Hearing, the Bankruptcy Court must determine
whether the confirmation requirements of Section 1129 of the Bankruptcy Code
have been satisfied, in which event the Bankruptcy Court shall enter an order
confirming the Plan. These applicable requirements are as follows:
1. The Plan complies with the applicable provisions of the
Bankruptcy Code.
2. The Proponents of the Plan have complied with the applicable
provisions of the Bankruptcy Code.
3. The Plan is proposed in good faith and not by any means
forbidden by law.
4. Any payment made or to be made by the Debtors, or by a person
issuing securities or acquiring property under the Plan for services,
costs or expenses in connection with the Chapter 11 Cases or the Plan
has been disclosed to the Bankruptcy Court, and any such payment made
before confirmation of the Plan is reasonable, or if such payment is to
be fixed after confirmation of the Plan, such payment is approved by or
is subject to approval by the Bankruptcy Court as reasonable.
5. The Debtors have disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as a
director, officer or voting trustee of the Debtors, an affiliate of the
Debtors participating in the Plan with the Debtors, or a successor to
the Debtors under the Plan, and (B) that the appointment to, or
continuance in, such office of such individual is consistent with the
interests of the Holders of Claims and Equity Interests and with public
policy.
6. The Debtors have disclosed the identity of any insider who
will be employed or retained by the Reorganized Debtors,
and the nature of any compensation for such insider.
7. With respect to each Class of Impaired Claims or Impaired Equity
Interests, either each Holder of a Claim or Equity Interest of such
Class has accepted the Plan, or will receive or retain under the Plan
on account of such Claim or Equity Interest property of a value, as of
the Effective Date of the Plan, that is not less than the amount that
such Holder would so receive or retain if the Debtors were liquidated
on such date under Chapter 7 of the Bankruptcy Code.
8. Each Class of Claims or Equity Interests has either accepted
the Plan or is not impaired under the Plan.
9. Except to the extent that the Holder of an Administrative Expense or
Priority Claim has agreed to a different treatment of such Claim, the
Plan provides that such Administrative Expense or Priority Claim (other
than Priority Tax Claims) will be paid in full within fifteen (15) days
of the Effective Date and that the Priority Tax Claim will receive on
account of such Claim deferred Cash payments over a period not
exceeding six years after the date of assessment of such Claim, of a
value as of the Effective Date, equal to the Allowed amount of such
Claim.
10. If a Class of Claims is Impaired by the Plan, at least one class of
Claims has accepted the Plan, determined without including any
acceptance of the Plan by any insider holding a Claim of such Class.
11. Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the
Debtors or any successor to the Debtors, under the Plan, unless such
liquidation or further reorganization is proposed in the Plan.
12. The Plan provides for the payment of all fees payable under
28 U.S.C. Section1930, as determined by the Bankruptcy
Court at the hearing on confirmation of the Plan, on the Effective
Date.
13. Under the Bankruptcy Code, a plan provides for the continuation, on
the effective date of the plan, of payment of all retiree benefits, as
that term is defined in Section1114 of the Bankruptcy Code, at the
level established pursuant to subsection (e)(1)(B) or (G) of
Section1114 of the Bankruptcy Code, at any time prior to confirmation
of the Plan, for the duration of the period the debtors have obligated
themselves to provide such benefits. The Debtors are not party to any
such plans.
14. Any governmental regulatory commission with jurisdiction, after
confirmation of the plan, over the rates of the debtor has approved any
rate change provided for in the plan, or such rate change is expressly
conditioned on such approval.
The Bankruptcy Court also may confirm the Plan if all of the above
requirements are met except the requirement set forth in subpart (8) above, as
described more fully in Section XV.C. below in the discussion of the "Cram Down"
provisions of the Bankruptcy Code.
Class 11 is deemed to have rejected the Plan and is impaired.
Therefore, the Proponents cannot meet the requirement of Section 1129(a), that
all Classes be unimpaired or accept the Plan. Accordingly, the Proponents must
seek confirmation under the "Cram Down" provisions of the Bankruptcy Code
pursuant to Section 1129(b) to confirm the Plan.
2. Feasibility
The Bankruptcy Code requires, as a condition to confirmation, that the
Bankruptcy Court find that liquidation of the Debtors or the need for future
reorganization is not likely to follow after confirmation. For the purpose of
determining whether the Plan meets this requirement, the Debtors have analyzed
their ability to meet their obligations under the Plan. As part of such
analysis, the Proponents have prepared projections of, among other things, the
Debtors' financial performance (assuming the transactions contemplated by the
Plan are consummated) for the twenty-nine year period ending in 2029. The
Projections are set forth in Exhibit E to this Disclosure Statement. The
Projections are forward-looking statements, all of which are based on various
estimates and assumptions and will not be updated to reflect events occurring
after the date hereof. Such information and statements are subject to inherent
uncertainties and to a wide variety of significant business, economic and
competitive risks, including, among others, those described herein.
Consequently, actual events, circumstances, effects and results may vary
significantly from those included in or contemplated by such Projections. The
Projections, therefore, are not necessarily indicative of the future financial
condition or results of operations of the Debtors or the Reorganized Debtors,
which may vary significantly from those set forth in the Projections.
Consequently, the Projections and other forward-looking statements contained
herein should not be regarded as representations by the Proponents, the
Proponents' advisors, or any other person that the Projections can or will be
achieved.
The Proponents have also prepared a Sources and Uses of Cash
Schedule that ties the current financial position of the
Debtors to the start date of the projections, which is attached as Exhibit M.
Based on such projections, the Proponents reasonably
believe that the Reorganized Debtors will be able to make all payments
required to be made pursuant to the Plan.
3. Best Interests Of Creditors And Liquidation Analysis
Under Bankruptcy Code Section 1129(a)(7), the Plan must provide that
Creditors and Holders of Equity Interests receive under the Plan as much as or
more than they would receive in a Chapter 7 liquidation of the Debtors. For
purposes of determining whether the Plan meets this requirement, the Debtors
have prepared projections of the estimated distributions to Creditors and
Holders of Equity Interests in a liquidation under Chapter 7 of the Bankruptcy
Code. These projections are described under "Liquidation Analysis" provided in
Article XI of this Disclosure Statement. Based upon such Liquidation Analysis,
the Proponents believe that the Plan satisfies the requirements of Bankruptcy
Code Section 1129(a)(7) because Creditors and Holders of Equity Interests will
receive as much or more under the Plan than they would receive in a Chapter 7
liquidation of the Debtors. C. Cramdown
The Bankruptcy Court can confirm the Plan at the request of the
Proponents if all the requirements of Section 1129(a) of the Bankruptcy Code
except Section 1129(a)(8) are met and at least one class of Claims or Equity
Interests Impaired by the Plan has accepted the Plan, and if, as to each
Impaired class which has not accepted the Plan, the Plan "does not discriminate
unfairly" and is "fair and equitable." As noted above, Class 11 (the Holders of
Equity Interests issues by Holdings) is deemed to have rejected the Plan. If any
of Classes 4, 5 or 8 vote to accept the Plan, the Proponents will seek
confirmation of the Plan pursuant to Section 1129(b). The Plan may be confirmed
under Section 1129(b)(2)(C) because there are no junior interests to Class 11
Equity Interest Holders that will receive or retain any property under the Plan.
1. No Unfair Discrimination
A plan of reorganization does not discriminate unfairly if: (i) the
legal rights of a nonaccepting Class are treated in a manner that is consistent
with the treatment of other Classes of equal rank; and (ii) no Class receives
payments in excess of those which it is legally entitled to receive for its
Claims or Equity Interests. The Proponents believe that under the Plan: (a) all
Classes of Impaired Claims and Impaired Equity Interests are treated in a manner
which is consistent with the treatment of other similar Classes of Claims and
Equity Interests; and (b) no Class of Claims or Equity Interests will receive
payments or property with an aggregate value greater than the sum of the Allowed
Claims and Allowed Equity Interests in such Class. The Proponents believe that
the Plan does not discriminate unfairly as to any Impaired Class of Claims or
Equity Interests. 2. Fair and Equitable Test
"Fair and equitable" has different meanings for secured and unsecured
claims and Holders of interests. For a class of secured claims, "fair and
equitable" means that the plan provides (a) (i) that the Holders of secured
claims retain the liens securing such claims, whether the property subject to
such liens is retained by the debtor or transferred to another entity, to the
extent of the allowed amount of such claims; and (ii) that the Holder of a claim
of such class receive on account of such claim deferred cash payments totaling
at least the allowed amount of such claim, of a value, as of the effective date
of the plan, of at least the value of such Holder's interest in the estate's
interest in such property; (b) for the sale of any property that is subject to
the liens securing such claims, free and clear of such liens, with such liens to
attach to the proceeds of such sale, and the treatment of such liens on proceeds
under (a) or (c) of this subsection; or (c) for the realization by such Holders
of the "indubitable equivalent" of such claims.
For a class of unsecured claims, "fair and equitable" means that the
plan provides (a) that the Holder of the claim receive or retain on account of
such claim, property of a value, as of the effective date of the plan, equal to
the allowed amount of the claim; or (b) the Holder of any claim that is junior
to the claims of such class will not receive or retain on account of such junior
claim any property.
For a class of equity interests, "fair and equitable" means either (i)
each impaired equity interest receives or retains on account of such interest
property of a value equal to the greatest of the allowed amount of any fixed
liquidation preference to which such Holder is entitled, any fixed redemption
price to which such Holder is entitled, or the value of such interest; or (ii)
the Holder of any interest that is junior to the interest of such class will not
receive or retain under the Plan on account of such junior interest any
property.
The Proponents believe that the Plan satisfies the "fair and equitable" test and
does not discriminate unfairly with respect to any Impaired Class.
<PAGE>
Dated: Mobile, Alabama
September __, 2000
MOBILE ENERGY SERVICES HOLDINGS, INC.
By: _____________________________________________________
Its: _____________________________________________________
MOBILE ENERGY SERVICES COMPANY, L.L.C.
By: _____________________________________________________
Its: _____________________________________________________
CABANISS, JOHNSTON, GARDNER,
DUMAS & O'NEAL
By:__________________________________________________
Donald J. Stewart
700 Riverview Plaza
Mobile, Alabama 36602
(334) 433-6961 - Telephone
(334) 415-7350 - Telecopy
COUNSEL FOR THE DEBTORS
ANDREWS & KURTH L.L.P.
By:__________________________________________________
Jeffrey E. Spiers
David A. Zdunkewicz
600 Travis, Suite 4200
Houston, Texas 77002
(713) 220-4200 - Telephone
(713) 220-4285 - Telecopy
SPECIAL COUNSEL FOR THE DEBTORS
<PAGE>
Bondholder Steering Committee:
By: MILLER ANDERSON & SHERRERD, LLP
Investment Advisor on Behalf of Certain Bondholders
And as Co-Chairperson of the Bondholder Steering Committee
By: _____________________________________________________
Its: _____________________________________________________
By: FRANKLIN ADVISORS, INC.
As Co-Chairperson of the Bondholder Steering Committee
By: _____________________________________________________
Its: _____________________________________________________
McDERMOTT, WILL & EMERY
By:
--------------------------------------------------
David D. Cleary
227 W. Monroe Street
Chicago, Illinois 60606
(312) 372-2000 - Telephone
(312) 984-7700 - Telecopy
DEBEVOISE & PLIMPTON
By:________________________________
Michael E. Wiles
875 Third Avenue
New York, New York 10022
(212) 909-6000 - Telephone
(212) 909-6836 - Telecopy
-and-
SILVER, VOIT & THOMPSON
By:
--------------------------------------------------
Lawrence B. Voit
4317A Midmost Street
Mobile, Alabama 36609
(334) 343-0800 - Telephone
(334) 343-0862 - Telecopy
COUNSEL FOR THE
BONDHOLDER STEERING COMMITTEE
<PAGE>
SELECTED DEFINITIONS
In addition to the terms defined in the text of this Disclosure
Statement, when used in this Disclosure Statement, the following terms will have
the meanings indicated:
"Administrative Expense" means a Claim against either of the Debtors
for payment of an administrative expense of the kind specified in Sections
503(b) of the Bankruptcy Code and referred to in Section 507(a)(1) of the
Bankruptcy Code, including, without limitation, the actual, necessary costs and
expenses incurred after the Petition Date of preserving the Estates and
operating the business of the Debtors, including wages, salaries or commissions
for services, compensation for legal, financial advisory, accounting and other
services and reimbursement of expenses awarded or allowed under Sections 330(a)
or 331 of the Bankruptcy Code, and all fees and charges assessed against either
or both of the Estates under Chapter 123 of Title 28, United States Code.
"Affiliate" has the same definition as in Section 101(2) of the
Bankruptcy Code.
"Aggregate Demand" means the sum of the Mills' Demand levels for a
particular Processing Service.
"Allowed Administrative Expense" means all or that portion of an
Administrative Expense which either (a) has been allowed by a Final Order as an
Administrative Expense, or (b) was incurred by either or both Debtors in the
ordinary course of business during these Chapter 11 Cases and is determined to
be due, owing, valid, and enforceable against either or both Debtors.
"Allowed Claims" means all or that portion of any Claim, other than an
Administrative Expense, (a) as to which (i) no proof of Claim has been filed
with the Bankruptcy Court; and (ii) the liquidated, noncontingent and undisputed
amount of which is identified in either or both of the Debtors' Schedules filed
in the Chapter 11 Cases; or (b) as to which a proof of Claim has been timely
filed in a liquidated amount with the Bankruptcy Court pursuant to the
Bankruptcy Code or any order of the Bankruptcy Court, or late filed with leave
of the Bankruptcy Court after notice and a hearing, provided that: (i) no
objection to the allowance of such proof of Claim or motion to expunge such
Claim has been interposed before any final date for the filing of such
objections or motions set forth in the Confirmation Order or other Bankruptcy
Court orders; or (ii) if such objection or motion has been filed, such objection
or motion has been overruled by a Final Order (but only to the extent such
objection or motion has been overruled); or (c) as to which a Final Order has
been entered allowing the Claim alleged in such proof of Claim; or (d) which is
deemed Allowed by the Plan.
"Allowed Equity Interest" or "Allowed Interest" means an interest that
is of record as of the Record Date in a register that is maintained by or on
behalf of the Debtors.
"Allowed First Mortgage Bondholder Claim" means a First Mortgage
Bondholder Claim to the extent that such Claim is allowed by the Plan or by a
Final Order of the Bankruptcy Court.
"Allowed Priority Non-Tax Claim" means any Priority Non-Tax Claim which
is an Allowed Claim.
"Allowed Priority Tax Claim" means any Priority Tax Claim which is an
Allowed Claim.
"Allowed Other Secured Claim" means any Other Secured Claim that is
Allowed.
"Allowed Southern Claim" means any portion of the Southern Claim that
is an Allowed Claim.
"Allowed Southern Post-Petition Claim" means any portion of the
Southern Post-Petition Claim that is an Allowed Claim.
"Allowed Tax-Exempt Bondholder Claim" means a Tax-Exempt Bondholder
Claim to the extent that such Claim is allowed by the Plan or by a Final Order
of the Bankruptcy Court.
"Allowed Unsecured Claim" means any Unsecured Claim which is an
Allowed Claim.
"Allowed Working Capital Facility Provider Claim" means the Working
Capital Facility Provider Claim to the extent that such Claim is allowed by the
Plan or by a Final Order of the Bankruptcy Court.
"Amended and Restated Holdings Articles of Incorporation" means the
articles of incorporation Holdings will file with the Judge of Probate of Mobile
County, Alabama to the extent required by the Confirmation Order.
"Amended and Restated Holdings By-laws" means the Amended and Restated
By-laws of Reorganized Holdings, which shall be substantially in the form set
forth in the exhibits attached to this Disclosure Statement and incorporated
herein by reference.
"Amended and Restated Mobile Energy Articles of Organization" means the
articles of organization Mobile Energy will file with the Judge of Probate of
Mobile County, Alabama to the extent required by the Confirmation Order.
"Amendment No. 1" means Amendment No. 1 to the MESC Cogeneration
Development Agreement, which is attached as an exhibit to
this Disclosure Statement.
"APCo" means Alabama Power Company.
"Asset Purchase Agreement" means the agreement between KCTC and Jubilee
Pulp (as assignee of Mobile Energy) attached as Exhibit 1.4 to the option
agreement by and between Mobile Energy and KCTC dated as of February 8, 2000,
pursuant to the KCTC Settlement Agreement.
"Assets" has the broadest possible meaning permitted by applicable law,
and includes all of the Debtors' assets or the Reorganized Debtors' assets, as
the case may be, wherever located.
"Avoidance Claim" means any Cause of Action or right that a trustee,
debtor-in-possession, bankruptcy estate, or other duly appointed authorized
estate representative may have or assert under one or more of Sections 502, 510,
522(f), 522(h), 542, 543, 544, 547, 548, 549, 550, 551, 553, and 724(a) of the
Bankruptcy Code (other than those which are released or dismissed as part of and
pursuant to the Plan or prior order of the Bankruptcy Court), including the
Debtors' rights of setoff, recoupment, contribution, reimbursement, subrogation,
or indemnity (as those terms are defined by applicable bankruptcy or applicable
non-bankruptcy law) and any other indirect claim of any kind whatsoever,
whenever and wherever arising or asserted.
"Bankruptcy Event" means, with respect to any person, (1) such Person's
general inability, or its admission of its inability, to pay its debts as such
debts become due, (2) the application by such Person for or its consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (3) the
commencement by such Person of a voluntary case under the Bankruptcy Code, (4)
the making by such Person of a general assignment for the benefit of its
creditors, (5) the filing of a petition by such Person seeking to take advantage
as a debtor of any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement, winding-up or readjustment of debts, (6)
the failure by such Person to controvert in a timely and appropriate manner, or
its acquiescence in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code, (7) the taking of any corporate or other action
by such Person for the purpose of effecting any of the foregoing, (8) the
commencement of a proceeding or case, without the application or consent of such
Person, in any court seeking (A) such Person's reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment of
its debts, (B) the appointment of a trustee, receiver, custodian, liquidator,
examiner or the like of such Person or all or any substantial part of its
property or (C) similar relief in respect of such Person under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect for a period of 60 or more days, or
(9) an order for relief against such Person shall be entered in an involuntary
case under the Bankruptcy Code.
"Bankruptcy Rule" and "Bankruptcy Rules" generally means, respectively,
the particular Federal Rule of Bankruptcy Procedure or Local Bankruptcy Rule of
the Southern District of Alabama referred to and the Federal Rules of Bankruptcy
Procedure or Local Bankruptcy Rules of the Southern District of Alabama,
together with all amendments, modifications, and replacements thereto as the
same may exist upon any relevant date to the extent applicable to the Chapter 11
Cases.
"Bar Date" means May 3, 1999, the date fixed by the Bankruptcy Court by
which proofs of Claim were to be filed in the Chapter 11 Cases.
"Bond Counsel Opinion" means the opinion, in a form satisfactory to
counsel to the Bondholder Steering Committee, of nationally recognized bond
counsel delivered in connection with the issuance of the New Securities.
"Bondholder Steering Committee" means both the prepetition and
postpetition unofficial committee of certain Holders of Senior Securities who
collectively hold more than 51% in the principal amount of the Senior
Securities, and currently composed of First Mortgage Bondholders represented by
CS First Boston, Miller Anderson & Sherrerd, LLP, Pan American Life Insurance
Company; Tax Exempt Bondholders represented by Franklin Advisors, Inc., and Van
Kampen Investment Advisory Corp; and First Union National Bank (ex-officio) as
Indenture Trustee and as Tax-Exempt Trustee.
"Bondholder Steering Committee Consent" means the affirmative vote of
Holders of Senior Securities who collectively hold more than 51% of the
principal amount of each issue of the Senior Securities, which shall not require
any formal or informal solicitation of, or notice to, all Holders of Senior
Securities.
"Bondholders" means the Holders of First Mortgage Bonds and the
Tax-Exempt Bonds.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Mobile, Alabama are authorized or required by law
to close.
"Cases" or "Chapter 11 Cases" or "Bankruptcy Cases" means the
above-captioned chapter 11 bankruptcy cases of the Debtors.
"Cash" means money, currency, coins, checks, drafts, other negotiable
instruments, balances in bank accounts and other lawful currency of the United
States of America and its equivalents.
"Causes of Action" means any and all actions, claims, rights, defenses,
third-party claims, damages, executions, demands, crossclaims, counterclaims,
suits, causes of action, choses in action, controversies, agreements, promises,
rights to legal remedies, rights to equitable remedies, rights to payment and
claims whatsoever, whether known, unknown, reduced to judgment, not reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured and whether asserted or assertable
directly, indirectly or derivatively, at law, in equity, or otherwise, accruing
to the Debtors, including, but not limited to, the Avoidance Claims.
"CIBC" means CIBC World Markets Corp. in its capacity as financial
advisor to the Bondholder Steering Committee.
"Claim" means, as against either of the Debtors, (i) any right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, unsecured; or (ii) any right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
"Claims Register" means the register completed and maintained by the
Clerk identifying proofs of Claim filed in the Chapter 11 Cases.
"Class" means any category of Holders of Claims or Equity Interests as
classified in Article III of the Plan.
"Clerk" means the clerk of the Bankruptcy Court.
"Closing Date" is defined in the KCTC Settlement Agreement.
"Cogen Development Agreement" means the MESC Cogeneration Development
Agreement entered into as of February 9, 2000, by and among Southern Energy
Resources, SEI, Mobile Energy, and Holdings, as such agreement may be amended
from time to time.
"Cogen Facility" means the approximately 165 megawatt cogeneration
facility to be developed in whole or in part by Mobile Energy or Reorganized
Mobile Energy.
"Collateral Agent" means Bankers Trust (Delaware), a Delaware banking
corporation, or any other Person appointed as a substitute or replacement
Collateral Agent under the Intercreditor Agreement.
"Combined Securities" means New Taxable Bonds with attached New Common
Stock as issued pursuant to the New Indenture substantially in the form as
attached as an exhibit to the Disclosure Statement.
"Commercial Operation Date of the Cogen Facility" means the first date
on which the Cogen Facility is determined to have achieved commercial operation,
as determined under the agreement for the engineering, procurement, and
construction of the Cogen Facility.
"Confirmation Date" means the date on which the Clerk of the Bankruptcy
Court enters the Confirmation Order on the docket of the Bankruptcy Court with
respect to the Chapter 11 Cases within the meaning of Bankruptcy Rules 5003 and
9021.
"Confirmation Order" means the order entered by the Bankruptcy Court
confirming the Plan pursuant to Section 1129 of the Bankruptcy Code.
"Creditor" means any Entity that is the Holder of a Claim against
either or both Debtors.
"Debevoise & Plimpton" means the law firm of Debevoise & Plimpton,
co-counsel to the Bondholder Steering Committee.
"Debt Service Reserve Account" means the account so designated and
established pursuant to the Indenture.
"Debtor" means Mobile Energy or Holdings, or both, as the context
requires, as debtors and debtors-in-possession.
"Debtors' Schedules" means the schedules and statements of affairs
filed by the Debtors with the Bankruptcy Court in these Cases.
"Deltak" means Deltak, L.L.C.
"Demand Charges" means the fixed capacity charges based upon formulas
set forth in the Master Operating Agreement.
"Disallowed Administrative Expense" means any claimed Administrative
Expense that is Disallowed.
"Disallowed Claim" means a Claim, or any portion thereof, that is
Disallowed.
"Disbursing Agent" means the Reorganized Debtors or such other entity
that is designated by the Reorganized Debtors to disburse Assets pursuant to the
Plan.
"Disputed Claim" or "Disputed Administrative Expense" means a Claim or
Administrative Expense, or any portion thereof, that is not an Allowed Claim, an
Allowed Administrative Expense, a Disallowed Claim, or a Disallowed
Administrative Expense.
"District Court" means the United States District Court for the
Southern District of Alabama.
"DTC" means the Depository Trust Company, New York, New York, and its
successors and assigns.
"Easement Deeds" means the bilateral easement deeds among the Mill
Owners and Mobile Energy which grant access, use and encroachment rights to
operate the Mills and the Energy Complex.
"Effective Date" means the first Business Day after entry of the
Confirmation Order that is no more than ten (10) Business Days following the
date on which all conditions to effectiveness set forth in Article XIII of the
Plan have either (a) been satisfied; or (b) if capable of being duly and
expressly waived, waived; provided, however, that the Effective Date may be
extended upon the written agreement of (i) the Debtors; (ii) KCTC; and (iii) the
Bondholders Steering Committee as evidenced by the Bondholder Steering Committee
Consent.
"End of Term Option" means Mobile Energy's option to purchase the
premises leased to Mobile Energy under the Direct Lease at the end of the Direct
Lease term.
"EPA" means the Environmental Protection Agency.
"Equity Account" means the Account so designated and established
pursuant to the Intercreditor Agreement.
"Equity Funding Conditions" has the same definition as in the
Cogeneration Development Agreement.
"Equity Interest" means an ownership interest in either of the Debtors,
whether or not transferable or denominated as "stock" or any similar security.
Equity Interests include the Mobile Energy Equity Interests and the Holdings
Equity Interests.
"Estates" or "Debtors' Estates" means the estates created in these
Chapter 11 Cases pursuant to Section 541 of the Bankruptcy Code upon
commencement of the Chapter 11 Cases.
"Exchange Agent" means an entity to be designated by the Debtors not
less than ten (10) days prior to the commencement of the Confirmation Hearing.
"Executory Contract" means any executory contract or unexpired lease of
real or personal property, within the meaning of Section 365 of the Bankruptcy
Code, in effect on the Petition Date, between the Debtors (or either Debtor) and
any other Entity.
"Exempt Wholesale Generator" means an exempt wholesale generator as
defined in Section 32 of the Public Utilities Holding Company Act, 15 U.S.C. ss.
78z-5(a).
"Fee Applications" means the applications of Professional Persons under
Sections 330, 331, or 503 of the Bankruptcy Code for allowance of Fee Claims.
"Fee Claims" means a Claim against either of the Debtors by
Professional Persons under Sections 330, 331, or 503 of the Bankruptcy Code for
allowance of compensation and/or reimbursement of expenses in the Chapter 11
Cases.
"Final Order" means an order of the Bankruptcy Court (a) as to which
the time to appeal, petition for certiorari, or move for reargument, rehearing,
or new trial has expired, and as to which no appeal, petition for certiorari, or
other proceedings for reargument, rehearing, or new trial are then pending; or
(b) in the event that an appeal, writ of certiorari, reargument, rehearing, or
new trial has been sought, as to which (i) such order of the Bankruptcy Court
shall have been affirmed by the highest court to which such order can be
appealed; (ii) certiorari has been denied as to such order on a final and no
longer appealable basis; or (iii) reargument or rehearing or new trial from such
order has been denied by a final and no longer appealable order.
"First Mortgage Bondholder" means an Entity that is the Holder of a
First Mortgage Bond.
"First Mortgage Bondholder Claims" means the Claims of the First
Mortgage Bondholders against either or both of the Debtors, which are Allowed as
Class 4 Claims by the Plan in the principal amount outstanding under the terms
of the First Mortgage Bonds, plus interest accrued and unpaid through the day
immediately prior to the Effective Date.
"First Mortgage Bond Collateral" means collectively the Shared
Collateral, the Debt Service Reserve Account, and the Indenture Securities
Account established under the Indenture.
"First Union National Bank" means First Union National Bank of Georgia,
now known as First Union National Bank, which is the Indenture Trustee and the
Tax-Exempt Trustee.
"Governmental Rule" means any rule, regulation, ordinance, order, code,
permit, interpretation, judgment, decree, directive, guideline, policy or
similar decision of any governmental authority having the effect and force of
law.
"Gulf Power" means Gulf Power Company, an affiliate of SCS.
"Holder" means the beneficial holder of a Claim or Equity Interest and,
when used in conjunction with a Class or type of Claim or Equity Interest, means
a Holder of a Claim or Equity Interest in such Class or of such type
"Holdings By-Laws" means the prepetition By-Laws of Holdings in effect
as of the Confirmation Date.
"Holdings Equity Interest" means the prepetition shares of common stock
issued by Holdings and owned by Southern.
"IDB" means the Industrial Development Board of the City of Mobile, a
public corporation organized under the laws of the State of Alabama.
"Impaired" means, when used with reference to a Claim or Equity
Interest, a Claim or Equity Interest that is impaired within the meaning of
Section 1124 of the Bankruptcy Code.
"Impaired Claim" means a Claim that is Impaired.
"Indenture Accounts" means the following accounts so designated and
created pursuant to the Indenture and which are pledged to the Indenture Trustee
as security for the First Mortgage Bonds: (i) the Indenture Securities Account;
(ii) Debt Service Reserve Account; and (iii) any Additional Debt Service Reserve
Account with respect to the Senior Securities.
"Indenture Collateral" means, collectively, (i) the Shared Collateral
and (ii) the Indenture Accounts and the monies on deposit therein.
"Indenture Securities Account" means the Indenture Securities Account
established under the Indenture.
"Intercreditor Agreement" means the Intercreditor and Collateral Agency
Agreement dated as of August 1, 1995, by and among Bankers Trust (Delaware) as
the collateral agent, Mobile Energy, Holdings, the Indenture Trustee, the
Tax-Exempt Trustee, the IDB, and the Working Capital Facility Provider.
"Intercreditor Agreement Accounts" means (i) the Completion Account,
(ii) the Revenue Account, (iii) the Mill Owner Reimbursement Account, (iv) the
Working Capital Facility Account, (v) the Operating Account, (vi) the
Maintenance Reserve Account, (vii) the Loss Proceeds Account, (viii) the
Subordinated Debt Account, (ix) the Subordinated Fee Account and (x) the
Distribution Account, each as so designated, established and/or governed by the
Intercreditor Agreement.
"Interest" means Equity Interest.
"Jubilee Pulp" means Jubilee Pulp, Inc., a South Carolina corporation.
"KCTC Adversary Proceeding" means Adversary Proceeding No. 99-1107
filed by Mobile Energy against KCTC alleging certain claims, including contract
claims arising out of or relating to or in connection with the Master Operating
Agreement, tort claims, as well as fraudulent transfer claims arising under
applicable state and federal laws.
"KCTC Settlement Agreement" means the Settlement Agreement by and among
KCTC, Mobile Energy, and Holdings, entered into as of February 8, 2000,
including the exhibits thereto, a copy of which is attached to the Plan as
Exhibit C, and any and all waivers and amendments related thereto, all of which
are incorporated herein by reference.
"Leased Premises" means the property leased to Mobile pursuant to the
Direct Lease.
"Lien" means, with respect to the Assets, any mortgage, lien, pledge,
charge, security interest, encumbrance, right of setoff, or other legally
cognizable security device of any kind affecting such Assets.
"Liquor Processing Services" means the processing of weak black liquor
produced by the Pulp Mill into green liquor as described in the Disclosure
Statement.
"Loss Proceeds Account" means the account so designated and established
pursuant to the Intercreditor Agreement.
"Master Operating Agreement" or "MOA" means the Amended and Restated
Master Operating Agreement among Mobile Energy, KCTC, and the Mill Owners dated
July 13, 1995, governing the provision of services by Mobile Energy at the
Energy Complex and coordinating operations at the Mobile Facility.
"McDermott Will & Emery" means the law firm of McDermott, Will & Emery,
counsel to the Bondholder Steering Committee.
"MESC Transfer Obligations" has the meaning given to it in the
Cogeneration Development Agreement, as amended by Amendment No. 1.
"Mill Closure" has the meaning given the term in the Master Operating
Agreement.
"Mill Environmental Indemnity Agreements" has the same meaning given
the term in Mobile Energy's 1997 Form 10-K a copy of which is attached hereto as
Exhibit __ and incorporated herein by reference.
"Mill Owners" means the Pulp Mill Owner, the Tissue Mill Owner, and the
Paper Mill Owner.
"Mill Owner Consents to Assignment" means the Consents to Assignment
executed by the Mill Owners with respect to the principal Project Contracts.
"Mills" means the Pulp Mill, the Tissue Mill and the Paper Mill.
"Mill Owner Maintenance Reserve Account" means the account so
designated and established pursuant to the Master Operating Agreement for the
sole benefit of the Mill Owners.
"Mill Owner Reimbursement Account" means the account so designated and
established pursuant to the Intercreditor Agreement.
"Mobile Energy Equity Interests" means the prepetition member interests
issued by Mobile Energy, and owned by Holdings and as of the Record Date.
"Mobile Facility" means the integrated pulp, paper and tissue
manufacturing facility in Mobile, Alabama, comprised of the Pulp Mill, the
Tissue Mill, the Paper Mill, and the Energy Complex.
"Mobile Planning Commission" means the City of Mobile Planning
Commission.
"New Amended and Restated Taxable Indenture" means the Amended and
Restated Trust Indenture among Reorganized Mobile Energy, Reorganized Holdings,
and First Union National Bank, as trustee.
"New Amended and Restated Tax-Exempt Indenture means the indenture for
the New Tax-Exempt Bonds.
"New Collateral Agent" means Banker's Trust (Delaware) as collateral
agent pursuant to the New Intercreditor Agreement.
"New Common Stock Transfer Restriction" means that no transfer of New
Common Stock shall be made to the extent that such transfer would result in the
failure to satisfy the following condition (specified in a current agreement
between GEII and SEI) precedent to SEI's right to assign to reorganized Mobile
Energy all of SEI's rights under the LTSA.
"New Financing Documents" means the financing, security and
intercreditor documents pursuant to which the New Taxable Bonds and the New
Tax-Exempt Bonds are being issued and secured.
"New IDB Lease Agreement" means the Second Amended and Restated Lease
and Agreement among Reorganized Mobile Energy, Reorganized Holdings, and the
IDB.
"New Intercreditor Agreement" means the Amended and Restated
Intercreditor Agreement by and among First Union National Bank, as trustee of
the New Amended and Restated Taxable Indenture, First Union National Bank, as
trustee of the New Amended and Restated Tax-Exempt Indenture, the Southern
Company, Southern Energy, Inc., Southern Energy Resources, Inc., the IDB,
Reorganized Mobile Energy, Reorganized Holdings, and the New Collateral Agent.
"New Pulp Mill" means the approximately 800 short ton per day pulp mill
to be developed by Jubilee Pulp, or a higher bidder, at the Mobile Facility.
"New Pulp Mill Owner" means Jubilee Pulp.
"New Securities" means, collectively, the New Taxable Bonds, the New
Common Stock, the New Tax-Exempt Bonds, and the Combined Securities.
"New Senior Debt" means initially (i) the New Taxable Bonds; (ii) the
New Tax-Exempt Bonds; and (iii) the obligations to SEI, Southern Company and
certain of their affiliates under the Cogeneration Development Agreement, and
any other indebtedness permitted under the New Indenture.
"New Shared Collateral" means (i) all real property owned or leased by
Reorganized Holdings, (ii) all personal property owned or leased Reorganized
Mobile Energy (including equipment, receivables, certain insurance and other
tangible and intangible assets, but excluding monies on deposit in the accounts
established pursuant to the New Amended and Restated Taxable Indenture and the
New Amended and Restated Tax-Exempt Indenture and monies on deposit in certain
reserve accounts; (iii) all of Reorganized Mobile Energy's right, title and
interest in and to certain contracts; (iv) all revenues of Reorganized Mobile
Energy and all accounts established pursuant to the New Intercreditor Agreement
and all monies on deposit therein and all permits and other governmental
approvals to the extent permitted by law, and (v) all property pledged by
Reorganized Holdings pursuant to the Pledge Agreement.
"New Taxable Bonds" means the Series (2000) Exchange Bonds, which will
continue to be secured by all of the Reorganized Debtors' Assets, and issued
pursuant to the New Indenture.
"New Tax-Exempt Bonds" means the Solid Waste Revenue Refunding Bonds
(Mobile Energy Services Company, L.L.C. Project Series 2000), which will
continue to be secured by all of the Reorganized Debtors' Assets, and issued
pursuant to the New Amended and Restated Tax-Exempt Indenture.
"No. 8 Recovery Boiler" means the No. 8 Recovery Boiler, and related
equipment, located at the Energy Complex.
"Operating Account" means the account so designated and established
pursuant to the Intercreditor Agreement.
"Option Agreement" means the option to purchase certain property
granted to Mobile Energy under the option agreement by and between Mobile Energy
and KCTC dated as of February 8, 2000, and attached to the KCTC Settlement
Agreement attached as Exhibit S-2 to the Plan.
"Other Secured Claim" means a Secured Claim against either of the
Debtors, including, but not limited to, the Indenture Trustee Claims and
Tax-Exempt Trustee Claims, but excluding the Working Capital Facility Provider
Claims, the First Mortgage Bondholder Claims, the Tax-Exempt Bondholder Claims,
and the Southern Post-Petition Claims.
"Paper Mill" means the paper mill located at the Mobile Facility.
"Paper Mill ESA" means the Paper Mill Energy Services Agreement dated
as of December 12, 1994 between S.D. Warren, in its capacity as Paper Mill
Owner, and Mobile Energy, as amended.
"Paper Mill Owner" means S. D. Warren.
"Person" means any individual, corporation, general partnership,
limited partnership, limited liability company, association, joint stock
company, joint venture, estate, trust, unincorporated organization, government
or any agency or political subdivision thereof or other Entity.
"Plan" means the First Amended Joint Chapter 11 Plan of Reorganization
proposed by the Proponents, dated September 14, 2000, including all exhibits,
appendices, schedules, and annexes, if any, attached thereto, including any plan
supplements, as submitted by the Proponents, as such Plan may be altered,
amended, supplemented, or modified from time to time in accordance with the
provisions of the Bankruptcy Code, the Bankruptcy Rules, the Confirmation Order,
and the terms and conditions of the Plan.
"Plan Documents" means the documents listed on an exhibit to the
Disclosure Statement.
"Pledge Agreement" means the Pledge Agreement executed and delivered by
Reorganized Holdings in favor of the New Collateral Agent creating a security
interest in the membership interest of Reorganized Holdings in Pulpco, LLC.
"Power Processing Services" means the processing of various fuels and
water provided by the Mills together with other fuel obtained by Mobile Energy
into electricity.
"Priority Non-Tax Claim" means any Claim that is entitled to priority
of payment pursuant to Section 507 of the Bankruptcy Code, excluding
Administrative Expenses and Priority Tax Claims.
"Priority Tax Claim" means a Claim that is entitled to priority in
payment under Section 507(a)(8) of the Bankruptcy Code.
"Processing Charges" has the meaning given to it in Section V.D.1 of
this Disclosure Statement.
"Processing Services" means has the meaning given to it in Section
V.D.1 of this Disclosure Statement.
"Professional Persons" means any person retained or to be compensated
pursuant to Sections 326, 327, 328, 330, 331, 503(b), or 1103 of the Bankruptcy
Code.
"Project Documents" means those documents executed in connection with
the transactions that occurred in 1994 and 1995 whereby Mobile Energy acquired
the Energy Complex from Scott Paper Company and entered into the energy services
agreements with the Pulp Mill Owner, the Paper Mill Owner, and the Tissue Mill
Owner.
"Pulpco LLC" means the limited liability company to be formed by
Holdings and Jubilee Pulp to own the No. 8 Recovery Boiler and related
facilities.
"Pulp Mill" means the pulp mill located at the Mobile Facility.
"Pulp Mill Owner" means KCTC.
"Pulp Mill ESA" means the Pulp Mill Energy Services Agreement, dated as
of December 12, 1994 between KCTC, in its capacity as Pulp Mill Owner, and
Mobile Energy.
"Qualifying Facility" means a qualifying facility as defined in
Sections 201 and 210 of the Public Utilities Regulatory Policies Act of 1978,
and any regulations promulgated thereunder.
"Record Date" means the deadline for voting to accept or reject the
Plan.
"Releasees" means the Debtors, Southern, SEI, Southern Energy
Resources, Southern Company Services, Inc., the Bondholder Steering Committee,
KCTC, the Indenture Trustee, the Tax-Exempt Trustee, and each of their
respective former, current and future members, officers, directors, employees,
consultants, agents, advisors, attorneys, accountants, financial advisors, other
representatives and professionals, in their official and individual capacities,
and each of their respective successors, executors, administrators, heirs and
assigns.
"Reorganized Debtors" means Reorganized Holdings and Reorganized
Mobile Energy.
"Reorganized Holdings" means Holdings, as reorganized under and
pursuant to the Plan from and after the Effective Date.
"Reorganized Mobile Energy" means Mobile Energy, as reorganized under
and pursuant to the Plan from and after the Effective Date.
"Reorganized Mobile Energy Equity Interests" means the company
interests in Reorganized Mobile Energy.
"Required Senior Creditors" means, at any time, 33 1/3% of the sum of
the outstanding principal amount of Taxable Bonds, the outstanding principal
amount Tax-Exempt Bonds, and the outstanding principal amount of advances made
under the Working Capital Facility.
"Restated Mobile Energy Operating Agreement" means the restated
operating agreement Mobile Energy will file with the Secretary of State of the
State of Alabama as provided for by the Confirmation Order.
"Revenue Account" means the account so designated and established
pursuant to the Intercreditor Agreement.
"Scott Environmental Indemnity Agreement" has the same meaning given
the term in Mobile Energy's 1997 Form 10-K, a copy of which is attached hereto
as Exhibit __ and incorporated herein by reference.
"Schedules" means the schedules of assets and liabilities and statement
of financial affairs filed by the Debtors with the Bankruptcy Court as they may
have been or may be amended or supplemented in accordance with Bankruptcy Rule
1009 or any Final Order of the Bankruptcy Court.
"Scott" means Scott Paper Company.
"Scheduled Outage" means a scheduled Energy Complex Outage (as defined
in the Master Operating Agreement) or a Scheduled Mill Outage (as defined in the
Master Operating Agreement), as the context may require.
"S.D. Warren" means S.D. Warren Alabama, L.L.C., an Alabama limited
liability company.
"Secured Claim" means the portion of any Claim that arose prior to the
Effective Date and that is secured, in whole or in part, as of the Petition
Date, by a valid, unavoidable, enforceable, and otherwise perfected Lien,
whether arising by contract, operation of law, or otherwise, as determined in
accordance with Section 506(a) of the Bankruptcy Code.
"Security Documents" means, collectively, (1) the Mortgage, (2) the
Security Agreement, (3) the Indenture, (4) the Intercreditor Agreement, (5) the
Tax-Exempt Indenture, (6) the IDB Lease Agreement, (7) the Consents to
Assignment and (8) each Uniform Commercial Code financing statement in
connection with the foregoing.
"SEI" means Southern Energy, Inc., a Delaware corporation.
"SEI Equity Investment" has the meaning set forth in the Cogeneration
Development Agreement.
"SEI Pension Plan" means the Southern Electric International, Inc.
Hourly Operations Pension Plan, effective January 1, 1995.
"Senior Debt" means the First Mortgage Bonds, the Tax-Exempt Bonds,
and the Working Capital Facility.
"Senior Securities" means the First Mortgage Bonds and the Tax-Exempt
Bonds collectively.
"Shared Collateral" means all Assets subject to Liens of the Senior
Secured Parties, including but not limited to the following: (i) all real
property owned or leased by Mobile Energy; (ii) all personal property owned or
leased by Mobile Energy (including equipment, receivables, certain insurance and
other tangible and intangible assets, but excluding monies on deposit in the
Indenture Accounts and the Tax-Exempt Indenture Accounts and monies on deposit
in the Mill Owner Maintenance Reserve Account); (iii) all of Mobile Energy's
right, title, and interest in and to all Project Contracts that have been or may
be entered into by Mobile Energy; (iv) all Revenues (as defined in the
Intercreditor Agreement) of Mobile Energy and all Intercreditor Agreement
Accounts and all monies on deposit therein; and (v) all permits and other
governmental approvals to the extent permitted by law.
"Site" means, collectively, the real property (including any leased
premises) located at the Mobile Facility, the Pulp Mill, the Tissue Mill, the
Paper Mill, and the Energy Complex.
"Solid Waste" means solid waste generally consisting of biomass and
sludge having certain characteristics.
"Sources and Uses of Cash Schedule" means the schedule attached as
Exhibit M which reflects the sources and uses of cash.
"Southern" means The Southern Company, a Delaware corporation.
"Southern Energy Resources" means Southern Energy Resources, Inc., a
Delaware corporation.
"Southern Claim" means all Claims of Southern, SEI, and Southern Energy
Resources and their respective affiliates which arose prior to the Petition Date
against either or both of the Debtors, excluding only the Southern Post-Petition
Claim and including, without limitation, all Claims against either or both of
the Debtors asserted by Southern, SEI, and/or Southern Energy Resources, or
their respective affiliates in any proofs of Claim arising from the following
agreements: (a) the Environmental Guaranty of a maximum amount of $15,000,000
dated as of December 12, 1994, by and between Southern as guarantor and Scott
Paper Company as owner of the Pulp Mill and Tissue Mill and S. D. Warren Company
as owner of the Paper Mill as the beneficiaries; (b) the Debt Service Reserve
Account Southern Guaranty Agreement of a maximum amount of $21,936,000 dated as
of August 1, 1995, between Southern as guarantor and the Indenture Trustee as
the beneficiary; (c) the Maintenance Plan Funding Subaccount Southern Guaranty
Agreement of a maximum of $11,000,000 dated as of August 1, 1995, between
Southern as guarantor and Bankers Trust (Delaware), as collateral agent under
the Intercreditor Agreement as beneficiary; and (d) the Mill Owner Maintenance
Reserve Account Agreement of a maximum of $2,000,000 between Southern as
guarantor and Kimberly Clark Company and S.D. Warren Company as beneficiaries.
The Southern Claim is liquidated pursuant to agreement with Southern as set
forth in Amendment No. 1.
"Southern Entities" means collectively, Southern, SEI, Southern Energy
Resources, SCS or any other Southern affiliate.
"Southern Post-Petition Claim" means all Claims of Southern, SEI, or
Southern Energy Resources arising under the Cogen Development Agreement, as such
Claims may be affected by Amendment No. 1.
"Steam Processing Services" means the processing of various fuels and
water provided by the Mills together with other fuel obtained by Mobile Energy
into steam.
"Subordinated Debt Account" means the account so designated and
established pursuant to the Intercreditor Agreement.
"Subordinated Fee Account" means the account so designated and
established pursuant to the Intercreditor Agreement.
"Tax" means any tax, charge, fee, levy, impost or other assessment by
any federal, state, local, or foreign governmental unit, including, without
limitation, income, excise, property, sales, transfer, employment, payroll,
franchise, profits, license, use ad valorem, estimated, severance, stamp,
occupation and withholding tax, together with any interest, penalty, fines, or
additions attributable to, imposed on, or collected by any such federal, state,
local, or foreign governmental unit.
"Tax-Exempt Bondholder" means a Person that is the owner of a
Tax-Exempt Bond.
"Tax-Exempt Bondholder Claim" means the Claims of Tax-Exempt
Bondholders against either or both of the Debtors which are Allowed as Class 5
Claims by the Plan in the principal amount outstanding under the Tax-Exempt
Bonds, plus accrued and unpaid interest through the day immediately prior to the
Effective Date.
"Tax-Exempt Bonds" means $85,000,000 original principal amount of 6.95%
Solid Waste Revenue Refunding Bonds (Mobile Energy Services Company, L.L.C.
Project) Series 1995 due 2020 issued by the IDB.
"Tax-Exempt Bond Collateral" means (i) the Shared Collateral; and (ii)
the Tax-Exempt Indenture Accounts and the monies on deposit therein.
"Tax-Exempt Indenture Accounts" means the following accounts so
designated under the Tax-Exempt Indenture: (i) the Tax-Exempt Indenture
Securities Account; (ii) the Tax-Exempt Debt Service Reserve Account; and (iii)
any Additional Debt Service Reserve Account with respect to the Tax-Exempt
Bonds.
"Tax-Exempt Security Documents" means, collectively, (1) the Mortgage,
(2) the Security Agreement, (3) the Tax-Exempt Indenture, (4) the IDB Lease
Agreement, (5) the Intercreditor Agreement, (6) the Consents to Assignment and
(7) each Uniform Commercial Code financing statement in connection with the
foregoing.
"Tax-Exempt Trustee" means First Union National Bank, the successor by
merger to First Union National Bank of Georgia, or any other Person duly
appointed as successor trustee.
"Tissue Mill" means the tissue mill located at the Mobile Facility.
"Tissue Mill ESA" means the Tissue Mill Energy Services Agreement dated
as of December 12, 1994 between KCTC, in its capacity as Tissue Mill Owner, and
Mobile Energy.
"Tissue Mill Owner" means KCTC.
"Transaction Fee" means Fee paid to a Professional Person pursuant to a
Bankruptcy Court order.
"Transfer Option" means the option by Mobile Energy to purchase the
Leased Premises from KCTC if KCTC elects to transfer its interest in the Leased
Premises to a third party other than another then Mill Owner.
"TVA" means the Tennessee Valley Authority.
"Uniform Commercial Code" means the Uniform Commercial Code of the
jurisdiction the law of which governs the document in which such term is used.
"Unimpaired" means, when used with reference to a Claim or Equity
Interest, a Claim or Equity Interest that is not impaired within the meaning of
Section 1124 of the Bankruptcy Code.
"Unsecured Claim" means any Claim against the Debtors that arose prior
to the Effective Date and that is not an Administrative Expense, Priority Tax
Claim, Priority Non-Tax Claim, First Mortgage Bondholder Claim, Tax-Exempt
Bondholder Claim, Working Capital Facility Provider Claim, Southern
Post-Petition Claim, Other Secured Claim, or Southern Claim.
"Water Agreement" has the definition given to it in Section V.D.7 of
the Disclosure Statement.
"Working Capital Facility" means, prior to the Effective Date, the
credit agreement between Mobile Energy and Banque Paribas executed in August
1995, and after the Effective Date the working capital facility to be
established pursuant to the New Intercreditor Agreement.
"Working Capital Facility Account" means, prior to the Effective Date,
the account so designated and established pursuant to the Intercreditor
Agreement, and after the Effective Date the account so designated and
established pursuant to the New Intercreditor Agreement.
"Working Capital Facility Provider Claim" means the Claim against any
of the Debtors of the Working Capital Facility Provider under the Working
Capital Facility arising prior to the Effective Date.
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* This amount represents the principal amount of the Claims in Class 4
as of the Petition Date.
** The estimated recovery percentages were calculated including cash
distributions made to the Holders of the First Mortgage Bondholder Claims from
the Petition Date to the Effective Date. See discussion in Section VII.E.
*** This amount represents the principal amount of the Claims in Class 5
as of the Petition Date.
**** The estimated recovery percentages were calculated including cash
distributions made to the Holders of the Tax-Exempt Bondholder Claims from the
Petition Date to the Effective Date. See discussion in Section VII.E.
