NEITHER THIS
NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED,
SOLD, ASSIGNED OR TRANSFERRED UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND ANY
APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR
(II) EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT AND THE REGISTRATION OR QUALIFICATION REQUIREMENTS
OF APPLICABLE STATE SECURITIES LAWS ARE AVAILABLE.
CONVERTIBLE SUBORDINATED PROMISSORY
NOTE
Renegy Holdings, Inc., a Delaware corporation
(the “ Company ”), the principal office of which
is located at 301 W. Warner Road, Suite 132, Tempe, Arizona
85284, for value received hereby promises to pay to The Robert M.
Worsley and Christi M. Worsley Revocable Trust (the “
Holder ”), or its registered assigns, the sum of one
million dollars ($1,000,000), or such lesser amount as shall then
be outstanding hereunder. The principal amount hereof and any
unpaid accrued interest hereon, as set forth below, shall be due
and payable on the earlier to occur of (i) December 31,
2009, or (ii) when declared due and payable by the Holder upon
the occurrence of an Event of Default (as defined below). Payment
for all amounts due hereunder shall be made by mail to the
registered address of the Holder. Simultaneously with the execution
of this Note, the Holder and the Company shall execute a waiver (in
the form attached hereto as Exhibit B ) of various
provisions of that certain Contribution and Merger Agreement among
Catalyica Energy Systems, Inc.; the Company; Snowflake Acquisition
Corporation; Renegy, LLC; Renegy Trucking, LLC; Snowflake White
Mountain Power, LLC; Robert M. Worsley; Christi M. Worsley; and the
Holder dated May 8, 2007 (the “ Merger Agreement
”).
The following is a statement of the rights of
the Holder of this Note and the conditions to which this Note is
subject, and to which the Holder hereof, by the acceptance of this
Note, agrees:
1. Definitions . As used in this
Note, the following terms, unless the context otherwise requires,
have the following meanings:
(i) “ Company” includes any
corporation which shall succeed to or assume the obligations of the
Company under this Note.
(ii) “ Holder ,” when the
context refers to a holder of this Note, shall mean any person who
shall at the time be the registered holder of this Note.
2. Interest . Upon the maturity of
this Note, the Company shall pay interest at the rate of ten
percent (10.0%) per annum (the “ Initial Interest Rate
”) on the principal outstanding during the period beginning
on the date of issuance of this Note and ending on the date that
the principal amount of this Note becomes due and payable. In the
event that the principal amount of this Note is not paid in full
when such amount becomes due and payable, interest at the rate
equal to the lesser of (a) the Initial Interest Rate plus
three percent (3.0%) or (b) the highest rate then permitted by
law shall continue to accrue on the balance of any unpaid principal
until such balance is paid.
3. Events of Default . If any of
the events specified in this Section 3 shall occur
(herein individually referred to as an “ Event of
Default ”), the Holder of the Note may, so long as such
condition exists, declare the entire principal and unpaid accrued
interest hereon immediately due and payable, by notice in writing
to the Company:
(i) Default in the payment of the principal
and unpaid accrued interest of this Note when due and payable if
such default is not cured by the Company within ten (10) days
after the Holder has given the Company written notice of such
default; or
(ii) The institution by the Company of
proceedings to be adjudicated as bankrupt or insolvent, or the
consent by it to institution of bankruptcy or insolvency
proceedings against it or the filing by it of a petition or answer
or consent seeking reorganization or release under the federal
Bankruptcy Act, or any other applicable federal or state law, or
the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee, or other
similar official of the Company, or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the taking of corporate action by the Company in
furtherance of any such action; or
(iii) If, within sixty (60) days after
the commencement of an action against the Company (and service of
process in connection therewith on the Company) seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution,
or similar relief under any present or future statute, law, or
regulation, such action shall not have been resolved in favor of
the Company or all orders or proceedings thereunder affecting the
operations or the business of the Company stayed, or if the stay of
any such order or proceeding shall thereafter be set aside, or if,
within sixty (60) days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver, or
liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been
vacated; or
(iv) Any declared default of the Company
under any Senior Indebtedness (as defined below) that gives the
holder thereof the right to accelerate such Senior Indebtedness,
and such Senior Indebtedness is in fact accelerated by the
holder.
4. Subordination . The indebtedness
evidenced by this Note is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, in right of payment
to the prior payment in full of all the Company’s Senior
Indebtedness, as hereinafter defined.
4.1 Senior Indebtedness . As used in this
Note, the term “Senior Indebtedness” shall mean the
principal of and unpaid accrued interest on: (i) all
indebtedness of the Company to banks, commercial finance lenders,
insurance companies, or other financial institutions regularly
engaged in the business of lending money, which is for money
borrowed by the Company (whether or not secured), and (ii) any
such indebtedness or any debentures, notes, or other evidence of
indebtedness issued in exchange for or to refinance such Senior
Indebtedness, or any indebtedness arising from the satisfaction of
such Senior Indebtedness by a guarantor; provided ,
however , that the aggregate balance of all Senior
Indebtedness outstanding at any given time shall not exceed
$65.0 million in principal amount unless the Holder consents
in writing to an amount of Senior Indebtedness in excess of this
amount.
2
4.2 Default on Senior Indebtedness . If
there should occur any receivership, insolvency, assignment for the
benefit of creditors, bankruptcy, reorganization, or arrangements
with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets,
dissolution, liquidation, or any other marshalling of the assets
and liabilities of the Company, or if this Note shall be declared
due and payable upon the occurrence of an event of default with
respect to any Senior Indebtedness, then (i) no amount shall
be paid by the Company in respect of the principal of or interest
on this Note at the time outstanding, unless and until the
principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (ii) no claim or proof
of claim shall be filed with the Company by or on behalf of the
Holder of this Note that shall assert any right to receive any
payments in respect of the principal of and interest on this Note,
except subject to the payment in full of the principal of and
interest on all of the Senior Indebtedness then outstanding. If
there occurs an event of default that has been declared in writing
with respect to any Senior Indebtedness, or in the instrument under
which any Senior Indebtedness is outstanding, permitting the holder
of such Senior Indebtedness to accelerate the maturity thereof,
then, unless and until such event of default shall have been cured
or waived or shall have ceased to exist, or all Senior Indebtedness
shall have been paid in full, no payment shall be made in respect
of the principal of or interest on this Note, unless within three
(3) months after the happening of such event of default, the
maturity of such Senior Indebtedness shall not have been
accelerated.
4.3 Effect of Subordination . Subject to
the rights, if any, of the holders of Senior Indebtedness under
this Section 4 , including the right to receive cash,
securities, or other properties otherwise payable or deliverable to
the Holder of this Note, nothing contained in this
Section 4 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and
interest hereon as and when the same become due and payable, or
shall prevent the Holder of this Note, upon default hereunder, from
exercising all rights, powers, and remedies otherwise provided
herein or by applicable law.
4.4 Subrogation . Subject to the payment
in full of all Senior Indebtedness and until this Note shall be
paid in full, the Holder shall be subrogated to the rights of the
holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior
Indebtedness pursuant to the provisions of Section 4.2
above) to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of
Senior Indebtedness and the Holder, be deemed to be a payment by
the Company to or on account of this Note; and for the purpose of
such subrogation, no payments or distributions to the holders of
Senior Indebtedness to which the Holder would be entitled except
for the provisions of this Section 4 shall, as between
the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the
Company to or on account of the Senior Indebtedness.
4.5 Undertaking . By its acceptance of
this Note, the Holder agrees to execute and deliver such documents
as may be reasonably requested from time to time by the Company or
the lender of any Senior Indebtedness in order to implement the
foregoing provisions of this Section 4 .
5. Prepayment . Upon prior written
notice to the Holder, the Company may at any time prepay in whole
or in part the principal sum, plus accrued interest to date of
payment, of this Note.
3
6.1 Voluntary Conversion . Commencing on
December 31, 2008, the Holder of this Note has the right, at
the Holder’s option and by delivering notice to the Company
pursuant to Section 6.3.1 , to convert the outstanding
principal and accrued interest under this Note, in whole but not in
par
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