UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-12
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RENEGY HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials:
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for
which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or
the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [
], 2009
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the Special Meeting) of
Renegy Holdings, Inc., a Delaware corporation (the Company, Renegy, we, us, or our), will
be held on [ ] 2009, at 10:00 a.m., local time, at the principal executive offices of Renegy
Holdings, Inc., 3418 N. Val Vista Drive, Mesa, Arizona 85213 for the following purpose:
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To approve a series of amendments to Renegys Amended and Restated Certificate of
Incorporation (Certificate of Incorporation) to effect a reverse stock split (Reverse Stock
Split) of our common stock at a ratio of either one-for-[ ] or one-for-[ ], as the Board
of Directors may determine in its discretion, and the repurchase of the resulting fractional
shares held by each stockholder with less than one share after the Reverse Stock Split,
followed immediately by an amendment of Renegys Certificate of Incorporation to effect a
forward stock split of Renegys common shares using the inverse of the ratio used in the
Reverse Stock Split (collectively the Stock Splits). As a result of the Stock Splits, (a)
each stockholder owning less than one share after the Reverse Stock Split will receive $[
] in cash, without interest, for each Renegy common share owned by such stockholder
immediately prior to the Stock Splits and will no longer be a stockholder of Renegy, and (b)
each stockholder owning one or more shares after the Reverse Stock Split will receive common
shares equal to the number of common shares they held prior to the Stock Splits. The Stock
Splits are proposed for the purpose of taking Renegy private, delisting from the Nasdaq
Capital Market and terminating its reporting obligations under the Securities Exchange Act of
1934, as amended (the Transaction). Forms of the proposed amendments to the Companys
Certificate of Incorporation to effect the Reverse Stock Split and the Forward Stock Split are
attached hereto as Exhibits A and B, respectively, to the accompanying Proxy Statement.
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The Transaction is more fully described in the Proxy Statement accompanying this Notice of
Special Meeting of Stockholders. Please give your careful attention to all of the information in
the Proxy Statement.
Renegys board of directors has carefully considered and unanimously determined that the
Transaction is advisable, fair to and in the best interests of Renegy stockholders, and recommends
that Renegy stockholders vote FOR the Transaction.
Only stockholders of record at the close of business on [ ], 2009, the record date for
the Special Meeting, are entitled to notice of, and to vote at, the Special Meeting and any
adjournments or postponements thereof. Approval of the proposal will require the affirmative vote
of the holders of a majority of the shares of Renegys common stock outstanding on the record date.
All stockholders are cordially invited to attend the Special Meeting in person. However, to
assure your representation at the Special Meeting, you are urged to vote your Proxy as promptly as
possible by following the voting instructions included on the enclosed proxy card. Any stockholder
attending the Special Meeting may vote in person even if he or she has previously voted a Proxy.
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By Order of the Board of Directors,
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Robert M. Worsley
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Chairman, Chief Executive Officer and Director
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Mesa, Arizona
[ ], 2009
NEITHER THE SECURITIES AND EXCHANGE COMMISION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THIS TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION, OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RENEGY HOLDINGS, INC.
3418 N. Val Vista Drive
Mesa, Arizona 85213
(480) 556-5555
PROXY STATEMENT
GENERAL INFORMATION
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This Proxy Statement is furnished in connection with the solicitation by Renegy Holdings, Inc. (the
Company, Renegy, we, us, or our) of proxies to be used at Renegys Special Meeting of
Stockholders (the Special Meeting) to be held on [ ], 2009, at 10:00 a.m., local time, at
Renegys principal executive offices located at 3418 N. Val Vista Drive, Mesa, Arizona 85213, or
any postponement(s) or adjournment(s) thereof.
At the Special Meeting, the stockholders are being asked to consider and act upon a going private
transaction by means of a reverse stock split, which will be either a 1-for-[ ] or a 1-for-[ ]
reverse stock split (Reverse Stock Split), of Renegys common stock, $0.001 par value, (Common
Stock) followed immediately by a forward stock split of the Common Stock (Forward Stock Split)
upon the inverse of the ratio used in the Reverse Stock Split (the Transaction). As a result of
the Transaction, (a) each share of Common Stock held by a stockholder holding fewer than either [
] or [ ] shares immediately before the effective time of the Transaction will be converted into
the right to receive $[ ] in cash; and (b) each share of Common Stock held by a stockholder owning
either [ ] or more shares or [ ] or more shares, as applicable, immediately before the
effective time of the Transaction will continue to represent one share of Common Stock after
completion of the Transaction. The Reverse Stock Split and Forward Stock Split will be effected
through a series of amendments to Renegys Amended and Restated Certificate of Incorporation (the
Certificate of Incorporation). Forms of the proposed amendments to the Companys Certificate of
Incorporation are attached hereto as Exhibits A and B.
Upon receiving stockholder approval, the board of directors of Renegy (the Board) will have the
sole discretion pursuant to Section 242(c) of the Delaware General Corporation Law, to elect, as it
determines to be in the best interests of Renegy and its stockholders, whether or not to effect a
Reverse Stock Split, and if so, whether to effect a 1-for-[ ], or 1-for-[ ] Reverse Stock Split
(the Reverse Stock Split Ratio). Our Board believes that stockholder approval of the proposed
amendments to the Certificate of Incorporation granting the Board this discretion, rather than
approval of only one specified Reverse Stock Split Ratio, provides the Board with maximum
flexibility to react to then-current conditions and the factors described in this Proxy Statement
and, therefore, is in the best interests of Renegy and its stockholders.
We urge you to read this Proxy Statement carefully and in its entirety, including the attached
Annex. These Proxy solicitation materials are being mailed on or about [ ], 2009 to all
stockholders entitled to vote at the Special Meeting.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY RENEGY.
TABLE OF CONTENTS
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i
TABLE OF CONTENTS
(continued)
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Page
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A-1
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B-1
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ii
SUMMARY TERM SHEET
The following is a summary of the material terms of the Transaction, which terms are described in
greater detail elsewhere in this Proxy Statement. You are urged to read carefully the remainder of
this Proxy Statement for a more complete description of all material information regarding the
proposed transaction. We have included section references to direct you to a more complete
description of the topics described in this summary.
The Company
Renegy is a Delaware corporation. Renegy was formed through a merger transaction completed on
October 1, 2007, which combined Catalytica Energy Systems, Inc. (Catalytica) with the renewable
energy divisions of NZ Legacy LLC (the Merger Transaction). The Companys Common Stock is
currently trading on the Nasdaq Capital Market (Nasdaq) under the trading symbol RNGY. Please
see the section of this Proxy Statement entitled Information About the Company for a more
detailed discussion of the Company and its business.
The Transaction
The Board of Directors of the Company (the Board), which is comprised of a majority of
independent directors, has reviewed and authorized a reverse stock split (Reverse Stock Split),
which will be either a 1-for-[ ] or a 1-for-[ ] Reverse Stock Split, of our common stock,
$0.001 par value (Common Stock), followed immediately by a forward stock split (Forward Stock
Split) (together with the Reverse Stock Split, the Stock Splits) of the Common Stock upon the
inverse of the ratio used in the Reverse Stock Split (the Reverse Split Ratio), which we refer to
as the Transaction. Upon receiving stockholder approval, the Board will have the sole
discretion, pursuant to Section 242(c) of the Delaware General Corporation Law, to elect, as it
determines to be in the best interests of Renegy and its stockholders, whether or not to effect a
Reverse Stock Split, and if so, whether to effect a 1-for-[ ], or 1-for-[ ] Reverse Stock
Split. Our Board believes that stockholder approval of the proposed amendments granting the Board
this discretion, rather than approval of only one specified Reverse Split Ratio, provides the
Board with maximum flexibility to react to then-current conditions and the factors listed below
and, therefore, is in the best interests of Renegy and its stockholders.
The Stock Splits will consist of the following steps:
As used throughout this Proxy Statement, the term Stock Splits refers to a transaction consisting
of the following steps:
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The Stock Splits will take effect on the date (the Effective Date) that the Delaware
Secretary of State accepts for filing certificates of amendment to our Certificate of
Incorporation (one amendment effecting the Reverse Stock Split, the other effecting the
Forward Stock Split).
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On the Effective Date, the Company will first effect a Reverse Stock Split of its Common
Stock, which will be either a 1-for-[ ] or 1-for-[ ] Reverse Stock Split, depending
on the approval of the stockholders and the final determination of the Board as to the
appropriate Reverse Split Ratio.
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Each holder of less than one whole share of Common Stock after effecting the Reverse Stock
Split will receive cash instead of a fractional share. The Company will pay each of these
holders an amount in cash (the Cash-Out Price) equal to $[ ] per share held by such holder
immediately before effecting the Reverse Stock Split.
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On the Effective Date, following the completion of the Reverse Stock Split, the Company
will effect a Forward Stock Split of the Common Stock, which will be either a [ ]-for-1 or [
]-for-1 Forward Stock Split, depending on the final determination of the Board as to the
Reverse Split Ratio as described above. The Board will use a forward ratio which will be the
inverse of the Reverse Split Ratio. Each holder of one or more shares of Common Stock
immediately after the Reverse Stock Split will participate in the Forward Stock Split, which
will result in such holder holding the same number of shares after the Forward Stock Split as
was held by such holder immediately prior to the Reverse Stock Split.
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Please see the sections entitled Proposal Stock Splits Summary and Structure beginning on
page 13 and Special Factors How the Board Will Select the Reverse Split Ratio on page 26 for a
more detailed discussion of the Stock Splits.
The Board retains the discretion to abandon the Stock Splits even if the stockholders approve it.
The Board currently expects that the costs will remain within the acceptable range and plans to
complete the Transaction, if it is approved by the stockholders, which is expected given that an
affiliate of an insider, Chairman and Chief Executive Officer Robert M. Worsley, holds a
controlling interest in the Company. However, after the Special Meeting, the Board will meet and
consider whether or not the Transaction remains in the best interest of Renegy and its
stockholders. The Board desires to complete the Transaction for the lowest cost possible,
consistent with reducing the number of holders, both of record and beneficial holders, to less than
200. The Company is dependent on maintaining a stable financial condition to continue its
operations as currently conducted, and the Board does not want to significantly lower the
Companys liquidity or incur debt on terms unsatisfactory to the Company in order to complete the
Transaction. A number of factors or situations could cause the Board to decide to abandon the
Transaction, even if approved by the stockholders. These factors or situations include:
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Both control of the total costs of the Transaction and the reduced number of holders needs
to be achieved. Should the Company not be able to sufficiently reduce the number of holders,
within a total maximum dollar expenditure amount acceptable to the Board, to a level that
reasonably assures that the Company would not revert to a public reporting entity in the
foreseeable future after the Transaction is completed, then the Board would likely abandon the
Transaction.
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It is possible that the Board will also abandon the Transaction should the overall
expenditure necessary to complete it approach $[ ] million.
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Even if the overall cost of the Transaction is within the budgetary guideline set by the
Board, the Board may still decide to abandon the Transaction should the then economic
conditions or the financial condition of the Company, or their outlook, be such that in the
judgment of the Board it is no longer advisable to use its cash resources or incur debt to
effect the Transaction.
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In the event the Company has insufficient cash or is unable to secure debt on terms
satisfactory to the Company necessary to complete the Transaction, the Board would likely
abandon or postpone the Transaction.
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In the event the Board determines that it is in the Companys best interest to enter into a
strategic transaction that may arise in the future, such as an asset or stock sale or a
business combination transaction, the Board may elect to abandon the Transaction as a result
of such strategic transaction.
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If, after the completion of the Transaction, the Companys financial condition was
projected to violate, or approach a violation of, its covenants with its lenders, the Board
may decide not to complete the Transaction even if the lenders were to agree to waive such
violation or be agreeable to loosen the covenants.
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The Boards decision is subject to continuing favorable business conditions and other factors.
Factors that the Board will consider in making the final determination are discussed in the
section entitled Special Factors How the Board Will Select the Reverse Split Ratio on page 26.
Purpose of and Reasons for the Transaction
The Transaction is a part of a plan to make the Company a non-Securities and Exchange Commission
(SEC) reporting company in what is commonly referred to as a going private transaction. In
connection with the going private transaction, the shares of Common Stock will no longer be quoted
on Nasdaq and trades in such shares would only be possible through privately negotiated
transactions or, if the Company qualifies, in the Pink Sheets
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(a centralized quotation service
that collects and publishes market maker quotes for securities). The Board, including Robert M.
Worsley, the Companys Chairman of the Board, principal executive officer and largest stockholder,
has concurred that the Transaction is fair to, and in the best interests of, all of our
unaffiliated
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stockholders, including those being cashed out pursuant to the terms of the Transaction. Our
reasons for proposing the Transaction include:
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The current financial condition of the Company and the need for the Company to restructure
and downsize its operations with the objective of significantly reducing its costs and
positioning the Company to fully fund its operations through future cash flows generated by
the Snowflake Plant.
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The significant costs savings that we expect to realize as a result of the termination of
the registration of our Common Stock under the Securities Exchange Act of 1934, as amended
(the Exchange Act) and the elimination of costs associated with being listed on Nasdaq.
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The fact that we have not realized many of the benefits associated with being a
publicly-traded, Nasdaq-listed company, such as enhanced stockholder value, stock liquidity,
business credibility and the ability to use company stock as currency for acquisitions, due to
the limited liquidity and low market price of our Common Stock.
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The additional savings in terms of our managements and employees time that will no longer
be spent preparing the periodic reports required of publicly traded companies under the
Exchange Act, managing stockholder relations and communications and complying with Nasdaq
listing requirements.
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The ability of small stockholders (those holding less than [ ] or [ ] shares) to
liquidate their holdings in us and receive a premium over market prices prevailing at the time
of the approval of the Transaction, without incurring brokerage commissions.
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The decrease in expenses resulting from no longer being required to service a relatively
large number of stockholders holding small positions in our Common Stock.
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The reduced premiums for our directors and officers insurance policies as a result of us
no longer being a public reporting company.
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The ability to control the dissemination of certain business information, which is
currently disclosed in our periodic reports and, accordingly, made available to our
competitors, vendors, customers and other interested parties, potentially to our detriment.
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The ability to gain greater operational flexibility by being able to focus on long-term
growth without an undue emphasis on short-term fluctuations in the market price of our Common
Stock.
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Please see the sections entitled Special Factors Purpose of the Transaction beginning on page
14 and Special Factors Reasons for Transaction and Timing of the Transaction beginning on page
20 for a more detailed description of the purpose of and reasons for the Transaction.
Effects of the Reverse Stock Split
As a result of the Reverse Stock Split:
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The number of record holders of our Common Stock will be reduced below 300, which will
allow us to terminate the registration of our Common Stock under the Exchange Act.
Accordingly, upon deregistration we will no longer be subject to any reporting requirements
under the Exchange Act or the rules of the SEC applicable to public companies. We will,
therefore, cease to file annual, quarterly, current, and other reports and documents with the
SEC, and stockholders will cease to receive annual reports and proxy statements. Persons that
remain our stockholders after the Transaction and subsequent deregistration are effected will,
therefore, have access to much less information about us and our business, operations and
financial performance. We will also no longer be subject to the provisions of the
Sarbanes-Oxley Act of 2002 and the liability provisions of the Exchange Act, including the
requirement that our officers certify the accuracy of our financial statements, and our
officers and directors will no longer be subject to the reporting requirements of Section 16
of the Exchange
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Act or be subject to the prohibitions against short-swing profits. In addition, our shares of
Common Stock will no longer be quoted on Nasdaq and trades in such shares would only be possible
through privately negotiated transactions or, if the Company qualifies, in the Pink Sheets.
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Holders of less than one share of our Common Stock after effecting the Reverse Stock Split
will receive cash in exchange for the shares of our Common Stock held by them, prior to giving
effect to the Reverse Stock Split, and will no longer be stockholders or have any ownership
interest in us and shall cease to participate in any of our future earnings and growth. The
cash payment will be equal to $[ ] per share held prior to the effectiveness of the Reverse
Stock Split.
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Holders of more than one share of our Common Stock after effecting the Reverse Stock Split
will not receive any payment for their shares and shall continue to hold the same number of
shares as before the Transaction.
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Please see the section entitled Special Factors Effects of the Transaction beginning on page 22
for a more detailed description of the effects of the Reverse Stock Split.
Effects of the Forward Stock Split
As result of the Forward Stock Split:
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Holders of less than one share of our Common Stock after the Reverse Stock Split will
receive cash in exchange for their shares of our Common Stock and will not be effected by the
Forward Stock Split.
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Holders of more than one share of our Common Stock after the Reverse Stock Split will, as a
result of the Forward Stock Split, continue to hold the same number of shares as before the
Reverse Stock Split without having to tender their shares to the Companys stock transfer
agent.
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Please see the section entitled Special Factors Effects of the Transaction beginning on page
22 for a more detailed description of the effects of the Forward Stock Split.
Interests of Officers, Directors and Affiliates of the Company
An affiliate of our Chairman, Chief Executive Officer and Director, Robert M. Worsley (Mr.
Worsley), the Robert M. Worsley and Christi M. Worsley Revocable Trust (the Worsley Trust),
beneficially owns approximately 61.94% of the outstanding shares of our Common Stock. Thus, Mr. Worsley is
our controlling stockholder. Mr. Worsley has fully participated in all Board discussions relating
to the approval of the Transaction. However, Mr. Worsley abstained from the vote with respect to
the approval of the Transaction and the independent directors separately deliberated and approved
the terms and conditions of the Transaction. Please see the section entitled Special Factors -
Fairness of the Transaction Procedural Fairness beginning on page 31 and Additional Information
Regarding the Transaction Special Interests of the Affiliated Persons beginning on page 33.
Fairness of the Transaction
The Board has unanimously approved the Transaction. The Board, including Mr. Worsley acting as a
director and on his own behalf, have each determined that the Transaction and the price to be paid
for the fractional shares resulting from the Reverse Stock Split are substantively and procedurally
fair to and in the best interest of us and our unaffiliated stockholders (including both
unaffiliated stockholders who will remain stockholders and those whose entire interest will be
cashed out). The Board, including Mr. Worsley acting as a director and on his own behalf,
considered various factors regarding the fairness of the Transaction to us and our unaffiliated
stockholders, both those who may be fully cashed out as a result of the Transaction and those who
may remain as stockholders, including the following:
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The direct and indirect cost savings to be realized from the elimination of expenses
related to our disclosure and reporting requirements under the Exchange Act and expenses
related to listing our Common Stock on Nasdaq.
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The ability of stockholders with less than one share after the Reverse Stock Split to
exchange their shares of Common Stock for cash at a premium to market prices prevailing at the
time of the approval of the Transaction, and without incurring brokerage commissions or,
alternatively, to purchase additional shares if they desire to remain a stockholder.
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The fact that the Reverse Stock Split will apply to all stockholders.
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There are no unusual conditions to the consummation of the Transaction.
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The likely reduction in the liquidity for our Common Stock following our delisting from
Nasdaq and the termination of our Exchange Act registration and periodic reporting and the
possible significant decrease in the value of the shares of Common Stock.
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The reduction in publicly available information about us that will result from the
Transaction.
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The inability of stockholders whose interests are cashed out in the Transaction to
participate in any future increases in the value of our Common Stock.
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The fact that, due to the stock holdings of Mr. Worsley and other Board members, the
Transaction will not require the vote of unaffiliated stockholders.
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Please see the section entitled Special Factors Fairness of the Transaction beginning on page
27 for a more detailed analysis regarding the fairness of the Transaction.
Vote
Required for Approval of the Transaction at the Special Meeting
An affiliate of our Chairman, Chief Executive Officer, and Director, Mr. Worsley, beneficially owns
approximately 61.94% of the outstanding shares of our Common Stock. Mr. Worsley and the Companys
directors and executive officers have indicated to us that they intend to vote in favor of the
Transaction. The shares held by the Companys directors and executive officers, including Mr.
Worsley, represent approximately 59.0% of the voting power of the Company (65.1% if all options
and warrants held by such officers and directors were exercised) and, if voted as indicated, assure
the approval of the Transaction. Please see the sections entitled Principal Stockholders
beginning on page 45, Special Factors Effects of the Transaction Effect on Affiliated
Stockholders beginning on page 24 and Additional Information Regarding the Transaction -
Stockholder Approval beginning on page 34.
Effectiveness of the Reverse Stock Split
We anticipate that the Stock Splits will be affected as soon as practicable after the date of the
Special Meeting and we intend to file Certificates of Amendment to our Certificate of Incorporation
to the effect the Stock Splits on the same day as the Special Meeting. Following the Special
Meeting, transmittal materials will be sent to you that will describe how to turn in your old share
certificates and receive the cash payment to which you are entitled. Please see the section
entitled Additional Information Regarding the Transaction Effective Date on page 34.
Financing for the Reverse Stock Split
We estimate that approximately $[ ] will be required to pay for the fractional shares of Common
Stock resulting from the Reverse Stock Split, and that we will incur approximately $[ ] in
expenses relating to the preparation and distribution of this Proxy Statement and the consummation
of the Stock Splits. We expect to pay such costs from proceeds received from a tax entity transaction completed in January 2009 and from borrowings from our lender or Mr. Worsley. Please see the section
entitled Additional Information Regarding the Transaction Source
of Funds and Expenses on page 36.
Appraisal Rights
A holder of common stock does not have the right under Delaware law or Renegys Certificate of
Incorporation or Bylaws to demand the appraised value of such Common Stock or any other
dissenters rights if the holder votes
5
against the Stock Splits. Please see the section entitled
Additional Information Regarding the Transaction Unavailability of Appraisal or Dissenters
Rights beginning on page 36 for a more detailed discussion of the foregoing. The Company will
continue to be governed by Delaware corporate law upon consummation of the Transaction.
Tax Information
The receipt by you of cash in exchange for any fractional share resulting from the Reverse Stock
Split will be taxable to you and you will be treated as if you sold the shares that resulted in the
fractional share in the market for such amount. Please see the section entitled Additional
Information Regarding the Transaction Material Federal Income Tax Consequences beginning on page
32.
Other Matters
Pursuant to our Bylaws, no matters may be brought before the Special Meeting other than as
reflected in the attached notice of the Special Meeting.
6
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE SPECIAL MEETING
Following are some commonly asked questions that may be raised by our stockholders and answers to
each of those questions.
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1.
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WHAT AM I BEING ASKED TO VOTE ON AT THE SPECIAL MEETING?
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Our stockholders will consider and vote upon a proposal to amend our Certificate of Incorporation
to effect a reverse/forward stock split of our Common Stock that will provide for either a 1-for-[
] or 1-for-[ ] Reverse Stock Split followed immediately by a Forward Stock Split upon the
inverse of the ratio used in the Reverse Stock Split. Stockholders whose shares of Common Stock
are converted into less than one share in the Reverse Stock Split (meaning they held fewer than
either [ ] or [ ] shares of Common Stock, depending upon the ratio used to effect the Reverse
Stock Split, on the Effective Date of the Transaction) will receive a cash payment from the Company
for their fractional share interests equal to $[ ] in cash, without interest, for each share of
Common Stock they held immediately before the Reverse Stock Split. Stockholders who own either [
] or more shares or [ ] or more shares, depending upon the ratio used to effect the Reverse Stock
Split, prior to the Transaction will continue to own the same number of shares after the
Transaction.
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2.
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WHY IS THE BOARD SEEKING STOCKHOLDER APPROVAL FOR TWO DIFFERENT REVERSE SPLIT RATIOS?
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The Board is seeking the authority to effect the Reverse Stock Split using a Reverse Split Ratio of
either [ ]-to-1, or [ ]-to-1. The Board believes it needs to have the flexibility to select
one of these ratios so that the Company may effect the Stock Splits at the lowest possible cost,
and at the same time, have assurance that the Stock Splits will be effective in allowing the
Company to terminate its Exchange Act registration and realize the benefits of a going private
transaction. Based upon an initial analysis of the size and composition of the stockholder base
provided by management to the Board, the Board concluded that a [ ]-to-1 ratio would reduce the
number of stockholders to a sufficiently low number that the Company could go private, and
reasonably expect to remain private. However, in the period between the date of the Boards
approval of the Transaction and the Effective Date, the number or composition of the Companys
stockholders could change significantly. The Board desires to have the ability to complete the
Transaction without having the Company incur the additional expense of re-soliciting proxies and
calling an additional stockholders meeting.
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3.
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HOW WILL THE BOARD SELECT THE REVERSE SPLIT RATIO?
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Stockholders will consider and vote upon a proposal to amend our Certificate of Incorporation to
effect a reverse/forward stock split of our Common Stock that will provide for either a 1-for-[ ]
or 1-for-[ ] Reverse Stock Split followed immediately by a Forward Stock Split upon the inverse
of the ratio used in the Reverse Stock Split. If the stockholders approve the Transaction, this
would give the Board the authority to effect the Reverse Stock Split using a Reverse Split Ratio of
either [ ]-to-1 or [ ]-to-1. Since our Chief Executive Officer controls a sufficient number of
the outstanding shares, approval of both ratios is assured. Should the Board determine it is in
the best interest of the Company and the stockholders to proceed with the going private
transaction, then the Board will obtain an updated analysis of the Companys stockholder base in
close proximity to the date of Special Meeting. The Board currently intends to use [ ]-to-1 as
the Reverse Split Ratio and to reduce the number of stockholders to approximately [ ] at a cost
of $[ ], or less, for the aggregate cash-out price (the Cash-Out Price) for all the
fractional shares of Common Stock to be cancelled. This will enable the Company to effect a going
private transaction while keeping the cost as low as possible. However, the Board reserves the
right to select either Reverse Split Ratio and exceed the target cost and its budgetary guideline
based on its judgmental assessment of the Companys financial condition and business
situation as of the fiscal period immediately preceding the Effective Date. The Board also may, at
its discretion, elect to abandon the going private transaction even if the Transaction is approved
by the stockholders.
7
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4.
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WHAT IS THE PURPOSE OF THE TRANSACTION?
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If approved, the Transaction will enable the Company to go private if there are fewer than 300
registered holders of Common Stock and thus terminate our obligations to file annual and periodic
reports and make other filings with the SEC, and delist our Common Stock from the Nasdaq Capital
Market (Nasdaq). The purpose behind the proposal and the benefits of going private include:
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eliminating the costs associated with filing documents under the Exchange Act with the SEC
and costs associated with being listed on Nasdaq;
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eliminating the costs of compliance with the Sarbanes-Oxley Act of 2002 and related
regulations;
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reducing the direct and indirect costs of administering stockholder accounts and responding
to stockholder requests; and
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affording stockholders holding fewer than either [ ] or [ ] shares immediately before
the Transaction, depending upon the Reverse Split Ratio used to effect the Reverse Stock
Split, the opportunity to receive cash for their shares of Common Stock without having to pay
brokerage commissions and other transaction costs.
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5.
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WHAT DOES GOING PRIVATE MEAN?
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Following the Transaction, the Company expects to have fewer than 300 stockholders of record, which
will enable us to terminate the registration of our Common Stock under the Exchange Act and delist
from Nasdaq. After we complete the Transaction, we will no longer have to file periodic reports,
such as annual, quarterly, and other reports, with the SEC, and our executive officers, directors,
and 10% stockholders will no longer be required to file reports relating to their transactions in
our Common Stock. Additionally, it is expected that any trading in our Common Stock will occur
primarily in privately negotiated sales.
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6.
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WHAT WILL I RECEIVE IN THE TRANSACTION?
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If you own fewer than either [ ] or [ ] shares of Common Stock, depending upon the Reverse
Split Ratio used to effect the Reverse Stock Split, immediately before the Effective Date, you will
receive $[ ] in cash, without interest, from the Company for each pre-split share of Common Stock
that you own. If you own either [ ] or more shares or [ ] or more shares, depending upon the
Reverse Split Ratio used to effect the Reverse Stock Split, of Common Stock on the Effective Date,
you will not receive any cash payment for your shares in connection with the Transaction and will
continue to hold the same number of shares of Common Stock as you did before the Transaction.
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7.
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WHAT IF I HOLD MY SHARES IN STREET NAME?
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If you hold your shares in street name your broker, bank or other nominee is considered the
stockholder of record with respect to those shares and not you. It is likely that such nominee also
holds shares for other beneficial owners of the Companys Common Stock and that its total of such
holdings may be in excess of either [ ] shares or [ ] shares, as applicable. Therefore,
depending upon your nominees procedures, such nominee may not be legally obligated to treat the
Transaction as affecting beneficial holders shares, if such shares would be cashed out by the
Transaction. It is the Companys desire to treat stockholders holding Common Stock in street name
through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are
registered in their name. However, the Company and its transfer agent will not have the necessary
information to compare the record holdings of any stockholder with the street name holdings in a
brokerage account. In addition, we will lack the information to compare holdings across multiple
brokerage firms. As a result, a stockholder holding more than the minimum number of shares may
nevertheless have the shares cashed out if the stockholder holds a combination of street name
shares or shares in several brokerage firms. If you are in this situation and desire to remain a
stockholder after the Transaction, we recommend that you consolidate your holdings into one
brokerage account or record holder position prior to the Effective Date. You should be able to
determine whether your shares will be
8
cashed out by examining your brokerage account statements to see if you hold more than the minimum
number of shares in any one account. To determine the Transactions effect on any shares you hold
in street name (and possible payment of the cash consideration), you should contact your broker,
bank or other nominee.
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8.
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WHAT WILL HAPPEN IF THE TRANSACTION IS APPROVED BY OUR STOCKHOLDERS?
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Assuming that we have fewer than 300 stockholders of record after the Transaction, the Company will
file a Form 15 with the Securities and Exchange Commission (SEC) to deregister our Common Stock
under federal securities laws. Immediately upon filing the Form 15 with the SEC, the Companys
reporting and related requirements under the federal securities laws that are applicable to public
companies will be suspended and, upon the effectiveness of such filing, will be terminated. In
addition, the Company will file a Form 25 with Nasdaq prior to or immediately following the
Transaction to delist our Common Stock. Our Common Stock will be delisted from Nasdaq 10 days
after we file the Form 25 with Nasdaq.
As a result of the Transaction, stockholders who receive cash for their shares of Common Stock in
the Transaction will no longer have a continuing interest as stockholders of the Company and will
not share in any future increase in the value of the Company. Also, any trading in our Common Stock
will occur in privately negotiated sales or possibly on the Pink Sheets, which will adversely
affect the liquidity of our Common Stock.
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9.
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WHAT WILL HAPPEN IF THE TRANSACTION IS NOT APPROVED OR IT IS APPROVED BUT THE BOARD OF
DIRECTORS DETERMINES IT IS NOT IN THE BEST INTERESTS OF ITS STOCKHOLDERS TO CONSUMMATE THE
TRANSACTION?
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In the event that the Transaction is not approved by stockholders, or it is approved but the Board
determines it is not in the best interests of its stockholders to consummate the transaction, we
will continue to evaluate and explore all available alternatives for the Company. We will continue
to work to maximize stockholder interests with a goal of returning value to our stockholders;
however, we will continue to incur the significant costs associated with being a public company.
Although our Board has not yet made any determination, such alternatives may include, a different
going private transaction in order to reduce the costs associated with being a public company, a
share repurchase, a sale of the Company, a sale of Company assets, a liquidation, or other
transactions, to maximize stockholder value and manage our outstanding liabilities.
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10.
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WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION TO ME?
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Generally, a stockholder that receives cash in exchange for shares of Common Stock as a result of
the Transaction will recognize a capital gain or loss for United States federal income tax
purposes. A stockholder who does not receive cash for a fractional share as a result of the
Transaction will not recognize any gain or loss for United States federal income tax purposes.
Please see the section entitled Additional Information Regarding the Transaction Material
Federal Income Tax Consequences for further information.
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11.
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IF I OWN FEWER THAN [ ] OR [ ] SHARES, IS THERE ANY WAY I CAN CONTINUE TO BE A
STOCKHOLDER OF THE COMPANY AFTER THE TRANSACTION?
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If you own fewer than either [ ] or [ ] shares of Common Stock, as applicable, before the
Reverse Stock Split, the only way you can continue to be a stockholder of the Company after the
Transaction is to purchase, prior to the Effective Date, sufficient additional shares to cause you
to own a minimum of either [ ] or [ ] shares, depending upon the Reverse Split Ratio used to
effect the Reverse Stock Split, as of the Effective Date. Further, if the Company trades in the
Pink Sheets, you may have the opportunity to purchase shares at that time. However, we cannot
assure you that any shares will be available for purchase, either before or after the Transaction
is consummated.
9
12.
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IS THERE ANYTHING I CAN DO IF I OWN MORE THAN THE MINIMUM NUMBER OF SHARES, BUT WOULD LIKE TO
TAKE ADVANTAGE OF THE OPPORTUNITY TO RECEIVE CASH FOR MY SHARES AS A RESULT OF THE
TRANSACTION?
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If you own either [ ] or more shares or [ ] or more shares of Common Stock before the
Transaction, you can only receive cash for all of your shares if, prior to the Effective Date, you
reduce your stock ownership either to fewer than [ ] or [ ] shares, depending upon the Reverse
Split Ratio used to effect the Reverse Stock Split, by selling or otherwise transferring shares.
However, we cannot assure you that any purchaser for your shares will be available.
13.
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SHOULD I SEND IN MY CERTIFICATES NOW?
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No. After the Transaction is completed, we will send instructions on how to receive any cash
payments you may be entitled to receive.
14.
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WHAT IS THE TOTAL COST OF THE TRANSACTION TO THE COMPANY?
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We estimate that the total cash requirement of the Transaction to the Company will be approximately
$[ ] of legal, accounting, and financial advisory fees and other costs to effect the Transaction,
along with approximately $[ ] to cash out fractional shares of Common Stock in the case of a
1-for-[ ] Reverse Stock Split, or approximately $[ ] in the case of a 1-for-[ ] Reverse Stock
Split. The total amount could be larger or smaller if the estimated number of fractional shares
that will be outstanding after the Transaction changes as a result of purchases or sales of Common
Stock by unaffiliated stockholders.
15.
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AM I ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE TRANSACTION?
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Under Delaware law and our Certificate of Incorporation and Bylaws, you do not have the right to
demand the appraised value of your shares or any other dissenters rights if you vote against the
Transaction. Please see the section entitled Additional Information Regarding the Transaction -
Unavailability of Appraisal or Dissenters Rights for a more detailed discussion of the foregoing.
16.
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HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THE PROPOSAL?
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The Board recommends that you vote FOR the proposal to approve the Transaction.
If a broker, bank or other nominee holds your shares, you will receive instructions from them that
you must follow in order to have your shares voted. The instructions from your broker, bank or
other nominee will also provide details regarding Internet and telephone voting. If a bank, broker
or other nominee holds your shares and you wish to attend the Special Meeting and vote in person,
you must obtain a legal proxy from the record holder of the shares giving you the right to vote
the shares.
If you hold your shares in your own name as a holder of record, follow the voting instructions
included in the enclosed proxy card. You can appoint a proxy to vote your shares (i) by using the
Internet (http://www.proxyvote.com), (ii) by calling the toll-free telephone number
(1-800-690-6903), or (iii) by completing, signing, and dating the proxy card where indicated and by
mailing or otherwise returning the card to us by 10:00 a.m. Arizona time on [ ], 2009. Telephone
and Internet voting facilities for stockholders of record will be available 24 hours a day and will
close at 11:59 p.m., Eastern Time, on [ ]. Of course, you may also choose to attend the Special
Meeting and vote your shares in person. The proxy holders will vote your shares in accordance with
your instructions. If you sign and return a proxy card without giving specific voting
instructions, your shares will be voted as recommended by our Board.
10
18.
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CAN I CHANGE MY VOTE?
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Yes. You may change your proxy instructions at any time before your proxy is voted at the Special
Meeting. If you are a holder of record and you vote by proxy using any method, you may later revoke
your proxy instructions by:
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sending a written statement to that effect to Renegy Holdings, Inc., Attn: Corporate
Secretary, 3418 N. Val Vista Drive, Mesa, Arizona 85213;
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submitting a proxy card with a later date and signed as your name appears on the stock
account;
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voting at a later time by telephone or the Internet; or
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voting in person at the Special Meeting (although attendance at the meeting will not, by
itself, revoke a proxy).
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If a broker, bank or other nominee holds your shares and you vote by proxy, you may later revoke
your proxy instructions by informing the broker, bank or other nominee in accordance with that
entitys procedures.
19.
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WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
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The shares on your proxy card(s) represent ALL of your shares. If you do not return your proxy
card(s), your shares will not be voted.
20.
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WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
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If your shares are registered differently and are in more than one account, you will receive more
than one proxy card. Sign and return all proxy cards to ensure that all your shares are voted.
21.
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WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
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Only holders of record of our Common Stock as of the close of business on [ ] are entitled to
notice of and to vote at the Special Meeting.
22.
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HOW MANY SHARES WERE OUTSTANDING ON THE RECORD DATE?
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At the close of business on [ ], 2009, there were 6,293,312 shares of Common Stock outstanding
and entitled to vote. A stockholder may vote (a) shares that are held of record directly in the
stockholders name, and (b) shares held for the stockholder, as the beneficial owner, through a
broker, bank or other nominee. At the meeting, each outstanding share of Common Stock will be
entitled to one vote.
23.
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WHAT IS A QUORUM FOR PURPOSES OF THE SPECIAL MEETING?
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In order to conduct business at the Special Meeting, a quorum must be present. A quorum is a
majority of the outstanding shares entitled to be voted. The shares may be present in person or
represented by proxy at the Special Meeting. Both abstentions and broker non-votes are counted as
present for the purpose of determining the presence of a quorum.
24.
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WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL?
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Under Delaware law and our Certificate of Incorporation and Bylaws, the affirmative vote of at
least a majority of our issued and outstanding shares of Common Stock as of the Record Date is
necessary to approve the Transaction.
If your shares are held in street name, your broker will vote your shares for you only if you
provide instructions to your broker on how to vote your shares. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your shares. Your broker
cannot vote your shares of Common Stock without specific instructions from you. Because the
affirmative vote of a majority of the outstanding shares present at the meeting is required to
approve the Transaction, a failure to provide your broker with instructions on how to vote your
shares will have the effect of a vote against the proposal to approve the Transaction.
25.
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WHAT HAPPENS IF I ABSTAIN?
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Proxies marked abstain will be counted as shares present for the purpose of determining the
presence of a quorum. Because the affirmative vote of a majority of the shares of Common Stock
outstanding is necessary to approve the Transaction, broker non-votes and abstentions will have the
same effect as a vote AGAINST the proposal.
11
PROPOSAL STOCK SPLITS
Board Recommendation
The Board has authorized and recommends that you approve amendments, as determined by the Board of
Renegy in their discretion, to Renegys Certificate of Incorporation to effect a Reverse Stock
Split of our Common Stock at one of the following ratios: 1-for-[ ] or 1-for-[ ], and the
repurchase of the resulting fractional shares held by each stockholder with less than one share
after the Reverse Stock Split, followed immediately by an amendment of Renegys Certificate of
Incorporation to effect a Forward Stock Split of the Common Stock upon the inverse of the ratio
used in the Reverse Stock Split (collectively the Stock Splits). As a result of the Stock
Splits, (a) each stockholder owning fewer than [ ] shares or [ ] shares, depending upon the
ratio used to effect the Reverse Stock Split, of outstanding Common Stock immediately before the
Stock Splits will receive $[ ] in cash, without interest, for each Renegy common share owned by
such stockholder immediately prior to the Stock Splits and will no longer be a stockholder of
Renegy; and (b) each stockholder owning one or more shares of Common Stock after the Reverse Stock
Split was effected will receive common shares equal to the number of common shares they held prior
to the Stock Splits. The Stock Splits are proposed for the purpose of taking Renegy private,
delisting from Nasdaq and terminating its reporting obligations under the Securities Exchange Act
of 1934, as amended (the Transaction).
The Board has unanimously determined that the Transaction is in the best interest of Renegy and is
fair to Renegys stockholders who would not retain their interest in Renegy, and those who would
retain their interest, after the Transaction, in each case excluding executive officers, directors
and affiliates of the Company.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
TRANSACTION, INCLUDING THE PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION TO EFFECT THE
TRANSACTION.
The Board has retained the absolute authority to reject (and not implement) the Transaction (even
after stockholder approval of the amendment). If for any reason the Transaction is not approved,
or, if approved, not implemented, the Common Stock will not be deregistered under the Exchange Act
unless and until such time as the Company otherwise is eligible and our Board decides to do so.
Summary and Structure
The Transaction consists of two steps. First, Renegy will conduct a Reverse Stock Split of the
Common Shares, using one of two ratios, either 1-for-[ ] or 1-for-[ ]. In the Reverse Stock
Split, (i) each lot of [ ] or [ ] shares of Common Stock held by a stockholder of Renegy prior
to the Reverse Stock Split will be converted into one whole share of Common Stock after the Reverse
Stock Split; and (ii) any shares of Common Stock held by a stockholder owning fewer than [ ] or [
] shares, as applicable, will not be converted into a whole share and will be cancelled and
exchanged for $[ ] in cash per pre-reverse split share. After the Reverse Stock Split is
completed, it will be followed immediately by a Forward Stock Split of the Common Stock, which will
convert each whole share of Common Stock issued in connection with the Reverse Stock Split into [
] or [ ] shares of Common Stock, as applicable. The Stock Splits are intended to take effect
on the effective date (the date the Delaware Secretary of State accepts for filing
Certificates of Amendment to the Certificate of Incorporation (the Effective Date). The proposed
amendments to the Certificate with respect to the Reverse Stock Split and the Forward Stock Split
are attached to this Proxy Statement as Exhibits A and B, respectively, and are incorporated herein
by reference.
Stockholders will receive payment for their shares of Common Stock that are exchanged for cash in
lieu of issuing fractional shares in accordance with the procedures described in the section
entitled Additional Information Regarding the Transaction Exchange of Certificates and Payment
for Fractional Shares on page 34.
At least a majority of the Common Stock outstanding and entitled to vote at the Special Meeting
must approve the Stock Splits before they can be completed. The executive officers, directors and
affiliates of Renegy, who together beneficially own approximately 65.09% of the Common Stock outstanding and
entitled to vote at the Special Meeting, have indicated that they will vote in favor of the
Transaction. Therefore, approval of the proposal is essentially assured.
12
The Transaction is considered a going-private transaction as defined in Rule 13e-3 promulgated
under the Exchange Act because they are intended to terminate the registration of the Common Stock
and suspend Renegys filing and reporting obligations under the Exchange Act. In connection with
the Transaction, we have filed, as required by the Exchange Act, a Rule 13e-3 Transaction Statement
on Schedule 13E-3 (the Schedule 13E-3) with the SEC. Please see the section entitled Available
Information beginning on page 53.
SPECIAL FACTORS
Purpose of the Transaction
The Board has determined that the significant costs of being a public company currently outweigh
the benefits of being a public company and, thus, that it is no longer in the best interests of the
Company or its stockholders, creditors, or other stakeholders, including its unaffiliated
stockholders, for the Company to remain a public company. Accordingly, the Company proposes to
undertake the Transaction for the purpose of reducing the number of record stockholders of the
Common Stock to fewer than 300 so that it can then terminate the registration of its Common Stock
under the Exchange Act, and thereby suspend the Companys reporting and other obligations as a
public company under the United States federal securities laws. In connection with the termination
of the registration of our Common Stock under the Exchange Act, shares of our Common Stock would no
longer be quoted on Nasdaq and trades in such shares would only be possible through privately
negotiated transactions or, if the Company qualifies, in the Pink Sheets.
Since its inception, the Company has not been able to take advantage of the benefits of being a
public company, such as enhanced stockholder value, stock liquidity, business credibility and the
ability to use the Companys Common Stock as currency for acquisitions, due to the limited
liquidity and low market price of our Common Stock. The Company was formed through a merger
transaction, which combined Catalytica Energy Systems, Inc. (Catalytica) with the renewable
energy divisions of NZ Legacy LLC (the Merger Transaction), for the purpose of engaging in
acquiring, developing and operating a portfolio of biomass power generation facilities to address
an increasing demand for economical power relying on alternative energy sources. The Merger
Transaction, which closed on October 1, 2007, is described in more detail in the section entitled
Transactions with Related Persons beginning on page 48.
Over
the past year, the Company has been focused on growing its portfolio of renewable energy
assets through the acquisition of existing biomass facilities (both operating and idle), in
addition to the development, construction and operation of new facilities. To fund its growth
strategy, the Company has been actively pursuing opportunities to use its
Common Stock to raise capital since November 2007. These efforts included engaging an investor relations firm and
several investment banking firms to assist us with seeking out such opportunities, and meetings
with more than 100 prospective investors.
However, since mid-2008, when the capital markets began to decline precipitously, the share price
and volume of the Companys Common Stock also significantly declined. As the value and liquidity of
its shares decreased, it was no longer practicable for the Company to consider using its Common
Stock as a basis to raise capital to pursue its growth strategy. Neither the stock price of the
Companys shares nor the market for such shares has recovered and the Company does not see the
prospects for any significant increase in either stock price or liquidity for the foreseeable
future.
We are currently required to comply with the disclosure and reporting requirements under the
Exchange Act, as well as requirements of the Sarbanes-Oxley Act of 2002. The cost of complying with
these requirements is substantial. We believe these obligations have become more burdensome on
small SEC reporting companies like ours as a result of the enactment of the Sarbanes-Oxley
Act of 2002, and the cost of remaining a public company would further increase in the near future.
The Board determined, and Mr. Worsley concurred, that it is in our best interest to proceed with
the Transaction in order to deregister our Common Stock due to preliminary estimates of management
and our outside auditors of the significant ongoing SEC reporting costs and the one-time cost
associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. If we do not
deregister imminently, we will be forced to incur such cost, and be required to use our limited
resources in order to comply with the new internal control audit requirements imposed by Section
404 of the Sarbanes-Oxley Act of 2002, which became applicable to us
in 2008. The Company
does not currently have the funds to comply with such
requirements. See the section below entitled - Reasons for Transaction and Timing of the
Transaction for additional information about the Companys reasons for proceeding with the
Transaction at this time.
13
Background / Alternatives to the Transaction
Prior to deciding to engage in a going private transaction, management pursued and the Board
considered alternatives to the Transaction which may have achieved Renegys strategic objectives,
including seeking third party debt and equity financing to fund its continued operations and growth
strategy, as well as a sale of the business or merger and acquisition transactions. Additional
details of these activities are included below.
Since our inception, we had been focused on growing our renewable energy assets using our access to
the capital and credit markets to execute our vision of becoming a leading independent power
producer (IPP) of biomass electricity in North America. With this goal in mind, we established a
corporate infrastructure sized to support rapid growth and expansion in the biomass power
generation sector and to comply with our public company disclosure requirements and reporting
obligations with the SEC.
During the fourth quarter of 2007, the Company began meeting with numerous potential investors
actively involved in the biomass power generation sector, and renewable energy in general, to
determine the feasibility of securing strategic financing through a financial sponsor to help
advance our strategic growth initiatives and provide working capital necessary to strengthen the
Companys future. Conversations, including discussions around non-binding term sheets for
transactions, were evaluated from December 2007 through December 2008.
On October 18, 2007, the Company presented at the Ardour Capital 5
th
Energy Technology
Conference as it was exploring the possibility of raising capital. There were over 40 qualified
investors in attendance and the Company met one-on-one with approximately six investment firms as
part of break-out sessions following managements presentation.
On November 7, 2007, the Company held a board meeting during which it secured approval from the
Board to pursue multiple paths simultaneously to secure the financing necessary to execute its
business plan and growth strategy, including the hiring of an investment banking firm to assist in
this process.
On November 26, 2007, the Company retained the investment banking firm of Ardour Capital
Investments, LLC (Ardour Capital) to assist with seeking opportunities to raise capital in the
equity markets via a private investment in public equity (PIPE) transaction. Ardour Capital was
selected due to its exclusively focused efforts with renewable energy clients and its success in
raising capital in smaller transactions such as the one contemplated for the Company.
On February 5, 2008, the Company held a board meeting during which management presented to the
Board an update on its efforts to secure funding, including details on continuing discussions with
multiple parties relating to a private equity investment and its plans to proceed with pursuing a
PIPE transaction.
Following the February board meeting, under the guidance of Ardour Capital, the Company actively
commenced the process to pursue a PIPE transaction with the objective of raising between $15
million and $20 million through a sale of common stock or preferred stock. It was determined at
the time that securing an investment within this dollar range represented the appropriate amount of
financing to achieve the Companys near-term growth objectives and working capital requirements
without overly diluting existing stockholders.
To further assist with its capital raising efforts, the Company announced on February 25, 2008 that
it had retained Genesis Select Corporation, an investor relations firm, to help introduce the
Company to a broader base of institutional investors and raise awareness of the Company within the
financial community.
On March 28, 2008, the Company entered into a credit agreement with Comerica Bank (Comerica)
providing for a non-revolving line of credit facility of up to $6.2 million from Comerica (the
Comerica Credit Agreement) that expires on March 31, 2009. The Comerica Credit Agreement was
substantially modified in November and December 2008 as described below to, among other things,
increase the amount available under the line of credit.
14
During April 2008, the Company conducted a road show led by Ardour Capital during which management
met with more than 40 investment firms to present the Companys business model and growth strategy
associated with its efforts to secure a PIPE transaction. Subsequent meetings and discussions with
many of these firms ensued over a period of six months in response to their interest in exploring
further a potential investment. Further, throughout the second half of 2008, Ardour has continued
to introduce the Company to several potential investors for both PIPE transactions as well as a
sale or go-private transaction.
On May 6, 2008, the Company participated in the AeA Micro Cap Financial Conference that took place
in Monterey, California, during which management presented the Company to an audience of more than
50 investors and met one-on-one with approximately 20 investment firms as part of break-out
sessions following managements presentation.
On June 5, 2008, simultaneous with our efforts to raise capital via a PIPE transaction and our
ongoing activities to broaden visibility of the Company within the investment community, we
retained financial advisor Meridian Investments, Inc. to assist us with pursuing an opportunity to
monetize the tax attributes associated with our biomass power plant in Snowflake, Arizona (the
Snowflake Plant) by selling a partial interest in the Snowflake Plant to an institutional tax
equity investor.
On June 11, 2008, the Company held a board meeting during which management presented an update on
its continuing efforts to secure equity financing, including its lack of success in securing a lead
investor for a PIPE transaction on terms acceptable to the Company. Management advised the Board
that while opportunities were continuing to be explored in this regard, the prospects of completing
such a transaction were diminishing as a result of rapidly deteriorating conditions in the capital
markets and the onset of a broader economic crisis. As a result, management discussed with the
Board a variety of alternatives that could be explored in the event it was unable to raise the
capital necessary via an equity investment to execute its growth strategy and support its corporate
overhead. Such alternatives included actively pursuing a financing strategy with a private equity
investor to take the Company private, pursuing a public offering of its Common Stock, pursuing a
strategy to monetize the tax attributes associated with the Snowflake Plant as an additional source
of financing, pursuing a joint venture, merger/acquisition transaction or sale of the Company, and
significantly downsizing and restructuring the Company to extend its cash reserves in an attempt to
weather the challenging market conditions.
On June 20, 2008, following unsuccessful initial attempts to secure a lead investor for a PIPE
transaction, the Company retained the investment banking firm of Pacific Growth Equities, LLC
(Pacific Growth) to serve as a subcontractor to Ardour Capital and assist with securing a lead
investor. Meetings with six additional investment firms introduced to us by Pacific Growth and
subsequent due diligence by several of these firms ensued over the course of two months.
On June 30, 2008, the Company engaged the investment banking firm of Canaccord Adams in an advisory
capacity with the objective of exploring opportunities for a joint venture, merger/acquisition
transaction or sale of the Company simultaneous with its ongoing efforts to raise capital via a
PIPE transaction.
In July 2008, the Company secured a $1.0 million cash advance from Mr. Worsley to help fund the
Companys continuing operations.
On July 24, 2008, the Company received a term sheet from two institutional investment firms
proposing to serve as co-lead investors in a PIPE transaction targeted at raising in excess of $15
million for the Company. Over the course of 12 weeks, management proceeded to negotiate the terms
of this investment and actively pursued follow-on investors to complete the PIPE, but was
unsuccessful in securing a sufficient number of follow-on investors to participate in the
transaction under the terms proposed by the co-lead investors.
On July 31, 2008, the Company held a board meeting during which management presented an update on
its continuing efforts to secure financing and pursue other strategic alternatives for the Company,
including ongoing pursuit of both a PIPE transaction and other strategic transactions. Management
also discussed ongoing discussions underway with a private equity group associated with the
potential of securing project level financing for the acquisition of various biomass power
generating facilities. At the meeting, Meridian presented an update to the Board with respect to a
possible tax equity financing associated with the Snowflake Plant, and Canaccord Adams
presented an update to the Board with respect to strategic alternatives, including a possible joint
venture, merger/acquisition transaction or sale of the Company.
15
On August 10, 2008, the Company retained Canaccord Adams to actively pursue a joint venture,
merger/acquisition transaction or sale of the Company. Meetings with six companies ensued, in
addition to several discussions with companies with whom we had previously engaged in discussions,
in this regard over the course of three months.
In August 2008, Mr. Worsley committed to use commercially reasonable efforts to personally provide
the Company up to an additional $4.0 million to help fund operations of the Company for the
remainder of 2008.
On September 24, 2008, the Company received a non-binding letter of intent from a renewable energy
company for a proposed acquisition of the Company. As of the date of this filing, discussions and
negotiations are continuing with this party; however, to date, the renewable energy company has not
been able to raise sufficient capital to acquire the Company. In addition, on such date, the
Company also received a non-binding proposal from a private equity group for the acquisition of a
controlling interest in the Company. As of the date of this filing, discussions and negotiations
are no longer continuing with this party.
On September 24, 2008, the Company held a board meeting during which management presented an update
on its continuing efforts to secure financing, including through the extension of additional credit
from Comerica or Mr. Worsley, and its efforts to pursue various strategic transactions. Management
also presented to the Board various cash conservation initiatives being employed or to be employed
by management given the current financial condition of the Company, including the payment of board
fees and 50% of Mr. Worsleys salary for the fourth quarter of 2008 in restricted stock in lieu of
cash.
By October 2008, as a result of the continued deterioration of the capital markets, our diminishing
cash reserves and lack of adequate financing to cover our significant corporate overhead, the value
and liquidity of our shares had declined to a level that it was no longer practicable for the
Company to consider using its Common Stock as a basis to raise capital to pursue its growth
strategy. Accordingly, the Company began to more aggressively pursue strategic alternatives for
the business, including a sale of the Company.
On October 1, 2008, the Company held a board meeting during which management presented an update on
its continuing efforts to secure financing and pursue other strategic transactions for the Company,
including with respect to the tax equity financing associated with the Snowflake Plant and other
strategic transactions with potential investors or acquirors. Management also provided an update
to the Board regarding the status of increasing the amount available under the Companys line of
credit with Comerica. The Board also approved the payment of director fees and 50% of Mr.
Worsleys salary for the fourth quarter of 2008 in restricted stock in an effort to conserve the
Companys cash, and Mr. Worsleys employment agreement was amended as of October 1, 2008 to effect
Mr. Worsleys new payment arrangement.
On October 8, 2008, the Company received a non-binding letter of intent from a private equity group
for a proposed acquisition of the Company. However, the terms proposed in the letter of intent
were subsequently significantly reduced due to the Companys stock price falling and at present the
terms may not be satisfactory to the Company. As of the date of this filing, discussions and
negotiations are continuing.
On October 30, 2008, the Company held a board meeting during which management presented an update
on the Companys current financial condition and strategies given the current financial condition
of the Company. In addition, Canaccord Adams presented an update to the Board with respect to
various strategic alternatives. The Canaccord Adams presentation was negative as to the prospects
in the current capital market to consummate a strategic transaction.
In November 2008, after unsuccessful attempts to secure sufficient financing or a strategic
alternative for the business, management began to explore opportunities to pursue a going private
transaction through a deregistration of its common stock with the objective of terminating its
associated reporting obligations with the SEC in order to eliminate the significant costs of being
a listed public reporting company.
16
On November 7, 2008, the Company held a board meeting during which management presented an update
with respect to the Companys current cash situation, the status of securing additional credit from
Comerica, the status of the proposed tax equity transaction associated with the Snowflake Plant and
the status of various strategic transactions with potential investors or acquirors. The Board also
discussed pursuing a strategy of significantly reducing costs by restructuring and downsizing its
operations.
On November 14, 2008, the Company entered into a modification agreement of the Comerica Credit
Agreement which, among other things, allowed the Company to utilize up to a maximum of $300,000 of
its security deposit for the sole purpose of meeting its payroll obligations.
On November 26, 2008, the Company entered into a second modification agreement of the Comerica
Credit Agreement which, among other things, increased the amount available under its line of credit
from $6.2 million to $6.5 million.
On December 5, 2008, the Company held a board meeting during which management presented an update
with respect to the Companys cash situation and the status of its activities with respect to
securing financing and pursuing various strategic transactions.
On December 8, 2008, the Company held a board meeting during which a representative of Squire,
Sanders & Dempsey L.L.P., the Companys outside legal counsel, presented the advantages and
disadvantages of becoming a non-SEC reporting company, including those advantages and disadvantages
as described in this Proxy Statement, and the strategy of reducing the number of record
stockholders through a going-private transaction to allow the Company to suspend its SEC reporting
requirements.
On December 12, 2008, the Company held a board meeting during which management presented an update
with respect to the Companys cash situation and the status of its activities with respect to
securing financing and pursuing various strategic transactions. In addition, the Board again
considered the option of becoming a non-SEC reporting company. The Board discussed with the
representative of Squire, Sanders & Dempsey L.L.P. the steps required to effect a potential reverse
stock split and going-private transaction, such as document preparation, filing, and mailing, the
stockholders meeting, the process involved in cashing out fractional shares following the reverse
stock split, and the likely timing related to a potential reverse stock split. The parties
determined that the reverse stock split would require stockholder approval of an amendment to the
Companys Certificate of Incorporation, which would be filed with the Delaware Secretary of State
promptly following receipt of stockholder approval and would evidence the effective date of the
transaction. To obtain such approval, a proxy statement would need to be prepared, reviewed by the
SEC and sent to stockholders, with the stockholders meeting being likely (although not guaranteed)
to occur during the first quarter of 2009. The payment of the cash payment to holders of
fractional shares following the reverse stock split would follow shortly after the Effective Date.
In connection with such discussion, forms of resolutions approving the foregoing actions were
provided by the representative of Squire, Sanders & Dempsey L.L.P.
On December 19, 2008, the Company held a board meeting during which the Board further discussed its
strategic alternatives, including the proposed tax equity transaction associated with its Snowflake
Plant and the option of becoming a non-SEC reporting company.
On December 18, 2008, the Company entered into amended employment agreements with three of its
senior executive officers to reduce such officers employment with the Company to a part time basis
beginning January 1, 2009 and to agree upon reduced severance benefits for such officers. The
agreements with the officers were made for the purpose of significantly reducing the Companys
labor costs and severance obligations.
On December 31, 2008, the Company entered into a third modification agreement of the Comerica
Credit Agreement which, among other things, increased the Companys line of credit facility amount
under the Comerica Credit Agreement from $6.5 million to $7.25 million for the period beginning on
December 30, 2008 and ending on February 15, 2009.
17
On January 1, 2009, the Company secured $12.3 million of tax equity financing from an institutional
equity investor, in exchange for a partial interest in the Snowflake Plant. The release of the
funds to the Company were restricted pending the satisfaction of certain conditions.
On January 2, 2009, the Company announced plans to restructure and downsize its operations with the
objective of significantly reducing its costs and positioning the Company to fully fund its
operations through future cash flows generated by the Snowflake Plant.
On January 9, 2009, the Company held a board meeting during which the Board discussed that, based
on the Companys current financial condition, and a review of the advantages and disadvantages of
going private and being a non-SEC reporting Company as advised by outside counsel, it appeared that it
would be in the best interests of the Company and its stockholders to become a non-SEC reporting
company. The Board determined that a reverse stock split, followed by a forward stock split, was
the surest, easiest, most expeditious, and most cost effective method for achieving that end. The
Board resolved to initiate the process of moving forward with the Transaction to reduce the number
of stockholders below 300 in order to termination its registration with the SEC. Management
presented to the Board, and the Board discussed at length, possible ratios for effecting the stock
splits based on the Companys current stockholder base and the cash out amount to be paid to
stockholders holding fractional interests after effecting a reverse stock split. The Board
authorized the Companys outside counsel to prepare the proxy statement and other necessary
documentation related to the going-private transaction.
On
January 14, 2009, the Company entered into a fourth modification agreement of the Comerica
Credit Agreement which, among other things, converted the Companys non-revolving line of credit
facility into a revolving line of credit facility, subject to the Company maintaining a security
deposit in the amount of $7.25 million, that expires December 31, 2009.
On January 16, 2009, the Company held a board meeting during which the directors discussed the
Companys current financial position and cash conservation strategies. The Board discussed at
length the Companys current and pending payment obligations and its cash position, including the
allocation of funds received from the tax equity transaction. The Board discussed the projected
costs of completing a going private transaction, and determined that the Company may need to secure
additional funds from a lender or from Mr. Worsley in order to complete the transaction and continue to fund its costs
of operations. The Board discussed with Squire, Sanders & Dempsey L.L.P. the costs associated with
not completing the transaction, including the costs associated with completing and filing the
Companys annual report for 2008. The Board reviewed possible Reverse Split Ratios and Cash-Out
Prices to effect the going private transaction, and authorized and instructed Squire, Sanders &
Dempsey L.L.P. to coordinate with management to finalize and file a preliminary proxy statement
which excluded information with respect to the Reverse Split Ratio and Cash-Out Prices pending
further discussion by the Board. At the meeting, the Board also discussed the status of the
proposed transaction with a private equity group and determined that the terms of the proposal were
currently unsatisfactory to the Company and would result in a per share price less than the
Cash-Out Price currently being considered by the Board. The Board also discussed and approved the
payment of the directors fees and 50% of Mr. Worsleys salary for the first quarter of 2009 in
restricted stock to further reduce the Companys cash payment obligations. The Board also
discussed further reducing staff and the Companys severance obligation associated with such
reduction. Finally, the Board discussed and approved a fourth modification to the Comerica Credit
Agreement as described below.
On [ ], 2009, the Company held a board meeting during which the directors discussed the possible
Cash-Out Price and stock split ratios which could be used to reduce the number of record
stockholders to less than 300. Based upon an initial analysis of the size and composition of the
stockholder base provided by management to the Board, the Board concluded that a 1-for-[ ] ratio
would reduce the number of stockholders to a sufficiently low number that the Company could go
private, and reasonably expect to remain private. However, the Board discussed the need to have
the flexibility to change the ratio to 1-for-[ ] in the event the number or composition of the
Companys stockholders changes prior to effecting the stock splits, without having the Company
incur the additional expense of re-soliciting proxies and calling an additional stockholders
meeting. The Board also discussed the Cash-Out Price including the valuation methodologies and
factors described in this section entitled Special Factors Fairness of the Transaction on page
27.
18
At the end of the meeting, Mr. Worsley, as controlling stockholder, absented himself from the
meeting. Thereafter, the independent members of the Board, Ricardo Levy, Richard Abdoo, William
Ellis, and Susan Tierney, discussed and determined that both Reverse Split Ratios be submitted to
stockholders for approval for the reasons discussed in the Board meeting, and as described in this
Proxy Statement, and determined that a Cash-Out Price of $[ ] represented a substantial premium
over the Companys current trading price and was fair to the Companys stockholders. The
independent directors then authorized and instructed Squire, Sanders & Dempsey L.L.P. to coordinate
with management to file a definitive proxy statement with the SEC reflecting the foregoing Reverse
Split Ratios and the Cash-Out Price in substantially the form of the preliminary proxy statement
previously filed with the SEC.
Reasons for Transaction and Timing of the Transaction
The Company was formed for the purpose of acquiring, developing and operating a portfolio of
biomass power generation facilities. To fund this growth strategy, the Company has been actively
pursuing since its inception opportunities to use common or preferred stock to raise capital.
However, in mid-2008, the capital markets began to decline precipitously and, consequently, the
Company has been unsuccessful in raising funds from the capital market. In addition, the Company
has been experiencing losses from operations and negative cash flows. As a result of the Companys
inability to secure funds from the capital markets to expand its business and fund its current
operations, the Company began to explore in mid-2008 strategic transactions such as a joint
venture, merger/acquisition transaction or sale of the Company. As discussed above under the
section entitled - Background/Alternatives to the Transaction, the Company has been unsuccessful
in entering into an agreement for such a strategic transaction on terms satisfactory to the
Company.
As a result of the Companys inability to access the capital markets, combined with the fact that
the Company had not received an offer for a strategic transaction on terms satisfactory to the
Company, the Company began in mid-2008 to explore alternative sources of funds, such as from bank
debt, additional loans from Mr. Worsley, the Companys controlling stockholder, or proceeds from a
tax equity transaction associated with the Snowflake Plant. By Fall 2008, the Company began to
pursue a strategy of significantly reducing costs by restructuring and downsizing the Companys
operations and focusing on the operations of the Snowflake Plant and the Companys fuels business.
In connection with such cost reduction strategy, the Company began to evaluate ways to reduce its
corporate overhead costs and preserve cash, including, through a reduction in its labor force and
by completing a going private transaction that would terminate its SEC reporting obligations as a
public company, among other cost reduction initiatives.
In January 2009, the
Company successfully completed a tax equity transaction with an institutional
investor; however, the funds received from such transaction are likely not sufficient to fund the
Companys ongoing operations. In connection with the tax equity transaction, the Company is also
obligated to fund a $6.5 million working capital loan to its subsidiary, Snowflake White Mountain
Power, LLC, if Snowflake has insufficient capital on hand to cover operating costs and working
capital needs. The Company may not, without securing additional funds or assistance from Mr.
Worsley, be able to fund such working capital loan. In addition, in January 2009,
the Companys
construction loan with its project lender for the Snowflake Plant related to the construction of
the Snowflake Plant converted to a term loan that requires the Company to begin making principal
payments in addition to the interest payments that have been made during the
construction period, which interest payments will continue. As a result of the Companys current financial condition and the factors
described above, the Company is continuing to aggressively pursue a cost reduction strategy.
In mid-January 2009, given the current financial condition of the Company, the Board determined
that consummating a going private transaction is a necessary step to reduce corporate overhead
costs by eliminating the costs associated with being a listed, public company, including with
respect to filing reports with the SEC, complying with certain of the rules and regulations under
the Sarbanes-Oxley Act of 2002, and complying with Nasdaq listing and corporate governance
requirements. As disclosed in this Proxy Statement, the Board and Mr. Worsley have determined that
the costs of being a public company currently outweigh the benefits of being a public company and,
thus, that it is no longer in the best interests of the Company or its stockholders, creditors, or
other stakeholders, including unaffiliated stockholders, for the Company to remain a public
company, including for the reasons described below. The primary purpose of the Transaction is to
reduce the number of holders of record of our
Common Stock to less than 300 to enable us to elect to terminate the registration of our Common
Stock pursuant to Section 12(g) of the Exchange Act, delist from Nasdaq and become a private
company. The Board and Mr. Worsley believe that the Transaction provides the most certainty for the
Company to achieve this purpose.
19
Exchange Act Reporting and Cost Savings; Competitive Disadvantage.
The Company incurs significant
direct and indirect costs in complying with its periodic reporting and other obligations under the
Exchange Act (collectively, the Public Company Costs), including: the legal, accounting,
printing, mailing, public relations, compliance and administrative costs of preparing, reviewing,
filing, printing, and distributing the reports and other filings required under the Exchange Act;
the broker and transfer agent charges for forwarding materials to beneficial holders of Common
Stock; managements time and attention expended in preparing and reviewing such reports and other
filings; costs associated with listing on Nasdaq and complying with Nasdaq listing requirements;
the substantially higher premiums for directors and officers insurance policies payable by public
companies; and the disadvantage of publicly disclosing detailed operational and financial
information of the Company when non-public competitors are not required to make comparable
disclosures. The direct, out-of-pocket costs comprising the Public Company Costs were in excess of
$[ ] during 2008. Additionally, the Company anticipates that the out-of-pocket costs will
increase significantly commencing with the 2009 fiscal year and thereafter due to the requirements
of complying with new laws and regulations, such as, but not limited to, certain requirements under
the Sarbanes-Oxley Act of 2002. The Company has projected the Public Company Costs in fiscal year
2009 will be approximately $[ ].
Upon consummation of the Transaction and subsequent deregistration under the Exchange Act, the
Company anticipates that its legal, accounting, printing and other compliance and administrative
costs will be less than $[ ] in the aggregate. While we presently have no specific plans to do
so, we may, periodically, send stockholders financial and/or other information. At the present
time, we do not anticipate our consolidated financial statements audited, except to the extent
required by covenants in our loan agreements. We expect that in connection with any pending
litigation, contractual, regulatory and general business issues we will, from time to time, engage
and confer with outside counsel, as needed.
Administrative Expenses to Maintain Small Stockholder Accounts.
As of the date of this Proxy
Statement, the Company had approximately 660 stockholders of record. On that date, approximately [
] stockholders of record and approximately [ ] holders beneficially, but not of record, owned
fewer than [ ] shares each, while approximately [ ] stockholders of record and approximately [
] holders beneficially, but not of record, owned fewer than [ ] shares each. Although holders
of fewer than [ ] and [ ] shares constitute over [ ]% and [ ]%, respectively, of the
stockholders of the Company, such stockholders own only approximately [ ]% and [ ]%,
respectively, of the outstanding shares of Common Stock. The cost of administering each registered
stockholders account is the same regardless of the number of shares held in that account.
Therefore, the Companys costs to maintain such small accounts are disproportionately high when
compared to the total number of shares involved and the value of each share.
Liquidity for Small Stockholders.
The Company believes that holders of fewer than [ ] or [ ]
shares of Common Stock may be deterred from selling their shares because of the lack of an active
trading market and because of disproportionately high brokerage costs. The trading volume in the
Companys Common Stock has been, and continues to be, limited. The Common Stock does not trade
every day and trades fewer than 9,000 shares on many other days. The average trading volume of the
Common Stock over the past 12 months prior to the announcement of the Transaction was approximately
6,800 shares per day. The Board believes that the Transaction would give stockholders who are
cashed out an opportunity to receive a fair price in cash for their shares without having to pay
disproportionately high brokerage commissions. The Cash-Out Price of $[ ] per share of Common
Stock held prior to the Reverse Stock Split represents a premium of approximately [ ]% over the
average closing price per share of the Common Stock during the [ ] days prior to the announcement
of the Transaction.
Lack of Capital from Public Markets.
In addition to the Public Company Costs, the Company does not
presently intend to exploit the principal benefits of being a public company namely to raise
capital through sales of securities in a public offering or to acquire additional renewable energy
facilities or related businesses using Common Stock as consideration (collectively, the Public
Company Benefits). Historically, our strategy for growth was focused on expanding our portfolio of
renewable energy assets by making acquisitions of existing biomass power generation facilities
(both operating and idle) at a discount to new construction costs. When this strategy was
formulated, our Common Stock price was relatively attractive and thus, a key component of the
purchase price of
these assets was to be cash raised through the sale of our Common Stock. Since the price of our
Common Stock has
20
significantly declined from its levels at the time our acquisition strategy was
conceived, the use of payment in the form of our Common Stock as consideration in acquiring biomass
facilities would be extremely dilutive to our stockholders. Consequently, we have been unable to
pursue our plans for growth though acquisition. As a result, our focus at present is on maximizing
revenues and profitability from our existing 24 megawatt (MW) Snowflake Plant and from our
associated fuel aggregation business, which collects and transports forest thinning and woody waste
biomass fuel to the Snowflake Plant, and which sells logs, shaved wood products and other high
value wood by-products to provide additional value to the Companys primary business operations. As
a result of the foregoing, the Company is not receiving any of the traditional Public Company
Benefits, yet, the Public Company Costs continue to increase, substantially depleting the limited
resources of the Company. The increase in costs arises because of an increase in securities
regulation. The Company believes that the cost of these ongoing expenses, together with the Public
Company Costs, if continued, would be extremely detrimental to the financial condition of the
Company.
Other Public Company Benefits which exist for the benefit of public stockholders include: (i) the
rights and protections afforded stockholders by the federal securities laws; (ii) the substantive
requirements of the federal securities laws, including the Sarbanes-Oxley Act of 2002, which are
imposed on public companies; and (iii) limitations imposed on officers and directors of public
companies, including restrictions on short-swing trading and the reporting obligations of officers
and directors. These benefits were not considered to outweigh the costs of being a public company
due to the small size of the Company, its limited staffing and the lack of a liquid trading market
for its Common Stock. Accordingly, the Board has determined that the Public Company Costs,
currently and in the foreseeable future, will continue to outweigh the Public Company Benefits and,
thus, it is no longer in the best interests of the Company or its stockholders, creditors, or other
stakeholders, including its unaffiliated stockholders, for the Company to remain a public company.
Mr. Worsley has reviewed, relied upon and adopted the position of the Board, as described in this
Proxy Statement, with respect to the reasons for, advantages of, disadvantages of and purpose of
the Transaction.
Effects of the Transaction
Reduction in Number of Stockholders
. The Company expects that, as a result of the Transaction, the
number of stockholders of record of the Company will be reduced from approximately 660 stockholders
to approximately [ ] stockholders, in the case of a 1-for-[ ] Reverse Split Ratio, or
approximately [ ] stockholders in the case of a 1-for-[ ] Reverse Split Ratio, while the number
of holders beneficially, but not of record (i.e., held in street name) of fewer than [ ] or [
] shares would be reduced from approximately 3,480 to approximately [ ] and [ ], respectively,
depending upon the number of holders of fewer than [ ] or [ ] shares on the Effective Date.
Termination of Exchange Act Registration and Reporting
. Shares of Common Stock are currently
registered under the Exchange Act. Such registration may be terminated upon application by the
Company to the SEC if there are fewer than 300 holders of record of the Common Stock or if the
number of holders of Common Stock falls below 500 and the Companys total assets have been no more
than $10 million at the end of each of its last three fiscal years. If, after termination of
registration, on the first date of any of the Companys subsequent fiscal years, the number of
stockholders of the Company exceeds (a) 300 and the Company has total assets of more than $10
million or (b) 500, then the Companys reporting obligations under the Exchange Act will be
reinstated. In such case, the Company must file an annual report on Form 10-K for its preceding
fiscal year within 120 days of the end of such fiscal year.
The Board intends to terminate the registration of the Common Stock under the Exchange Act as soon
as practicable after the Transaction, if approved, is effected. Termination of registration of
shares of the Common Stock would substantially reduce the information required to be furnished by
the Company to its stockholders and to the SEC and would make certain provisions of the Exchange
Act no longer applicable to the Company. These provisions include:
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the beneficial ownership reporting and short-swing profit recovery provisions of Section
16;
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the requirement to file and furnish proxy material in connection with stockholders
meetings pursuant to Section 14;
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21
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the requirement to file periodic and current reports pursuant to Section 13; and
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the requirements of Rule 13e-3 with respect to going private transactions.
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Furthermore, affiliates of the Company may be deprived of the ability to dispose of shares of
Common Stock pursuant to Rule 144, as amended.
Delisting from Nasdaq and Effect on Market for Shares.
The Company intends to delist its Common
Stock from Nasdaq immediately upon effecting the Transaction. Following such delisting, the
Companys Common Shares will no longer be quoted on Nasdaq and trades of its Common Shares would
only be possible through privately negotiated transactions or, if the Company qualifies, in the
Pink Sheets. There can be no assurance that any trading will occur after the Company terminates
the listing of the Common Stock on Nasdaq.
Effect on the Company.
In the case of a 1-for-[ ] Reverse Split Ratio, the Company estimates
that the Transaction would reduce the number of shares of Common Stock of the Company by up to
approximately [ ] shares (approximately [ ]% of the current outstanding shares) with a cash
requirement to the Company (including expenses) of approximately $[ ]. In the case of a 1-for-[
] Reverse Split Ratio, the Company estimates that the Transaction would reduce the number of
shares of Common Stock of the Company by up to approximately [ ] shares (approximately [ ]%
of the current outstanding shares) with a cash requirement to the Company (including expenses) of
approximately $[ ]. Please see the section entitled Additional Information Regarding the
Transaction Source of Funds and Expenses for further details. The repurchased fractional shares
would be retired. The Transaction would also reduce the number of stockholders of the Company.
Please see the section entitled Effects of the Transaction-Reduction in Number of Stockholders
above for further details. Termination of registration of the Common Stock would substantially
reduce the information required to be furnished by the Company to its stockholders and to the SEC
and would make certain provisions of the Exchange Act no longer applicable to the Company. Please
see the section entitled Effects of the Transaction-Termination of Exchange Act Registration and
Reporting above for further details. The liquidity and market value of the Common Stock will
likely be adversely affected by the Transaction and by termination of the registration of Common
Stock under the Exchange Act. Please see the section entitled Effects of the Transaction-Delisting
from Nasdaq and Effect on Market for Shares above for further details. The Company estimates that
termination of the registration of the Common Stock under the Exchange Act will save the Company
approximately $[ ] per year in legal, accounting and other expenses.
Effect on Holders of Fewer than [ ] or [ ] shares of Common Stock.
Following the Transaction,
holders of fewer than [ ] or [ ] shares of Common Stock, depending on the approval of the
stockholders and the final determination of the Board as to the appropriate Reverse Split Ratio,
would receive payment of $[ ] per Common share held prior to the Reverse Stock Split and would
cease to be stockholders of the Company. They would have no further interest in the Company with
respect to any cashed-out shares and would only have a right to receive cash for such shares. The
Company will send stockholders who are cashed out in the Transaction a letter of transmittal as
soon as practicable after the Transaction is approved with instructions on how to surrender
existing certificate(s) in exchange for the cash payment.
The Company intends to permit stockholders holding Common Stock in street name through a nominee
(such as a bank or broker) to be treated in the Transaction in the same manner as stockholders
whose shares are registered in their names and will instruct nominees to effect the Transaction for
their beneficial holders. However, nominees may have different procedures and stockholders holding
Common Stock in street name should contact their nominees to (a) determine whether or not they are
eligible to be cashed out in the Transaction and (b) instruct the nominee as to how the beneficial
stockholder wishes to proceed. The Transaction structure will focus on the number of shares held by
record holders. Thus, beneficial owners of fewer than [ ] or [ ] shares of Common Stock,
depending on the Reverse Split Ratio, holding shares in street name will not be required to cash
in their shares if the record holder of such shares owns either [ ] or more or [ ] or more
shares prior to the Transaction. The Company and its transfer agent will not have the necessary
information to compare the record holdings of any stockholder with street name holdings in a
brokerage account. In addition, we will lack the information to compare holdings across multiple
brokerage firms. As a result, a stockholder holding more than the minimum number of shares may
nevertheless have the shares cashed out if the stockholder holds a combination of street name
shares or shares in several brokerage firms. If you are in this situation and desire to remain a
stockholder after the transaction, we recommend that you consolidate your holdings into one
brokerage account or record holder
22
position prior to the Effective Date. Conversely, if you hold less than [ ] or [ ] shares in
street name and want to ensure that your shares are cashed out, you may want to change the manner
in which your shares are held from street name into your own name so that you will be a record
owner of the shares. You should be able to determine whether your shares will be cashed out by
examining your brokerage account statements to see if you hold more than the minimum number of
shares in any one account.
Effect on Unaffiliated Stockholders Who Own Either [ ] or More or [ ] or More Shares.
With
respect to unaffiliated stockholders who own, depending on the Reverse Split Ratio, either [ ] or
more or [ ] or more shares of Common Stock, and who will therefore continue to be stockholders of
the Company following the Transaction, the termination of the registration of the Common Stock
under the Exchange Act would substantially reduce the information required to be furnished by the
Company to them as stockholders and to the SEC and would make certain provisions of the Exchange
Act no longer applicable to the Company, which may adversely affect such unaffiliated stockholders.
Such provisions include:
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the elimination of the Company from the duty to comply with the regulations promulgated by
the Sarbanes-Oxley Act of 2002;
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the liability provisions of the Exchange Act;
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the requirement of the Companys officers to certify the accuracy of the Companys
financial statements; and
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the applicability of the prohibition of the short-swing profit rules of the Exchange Act.
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If the Company effects the Transaction as described in this Proxy Statement, the Common Stock will
no longer be registered under the Exchange Act, and the Company will no longer be a reporting
company under the Exchange Act. The Company will, therefore, cease to file annual, quarterly,
current, and other reports and documents with the SEC, and stockholders will cease to receive
annual reports and proxy statements. Persons that remain stockholders of the Company after the
Transaction is effected will, therefore, have access to much less information about the Company and
its business, operations, and financial performance. Please see the section entitled Effects of
the Transaction-Termination of Exchange Act Registration and Reporting above for further details.
The liquidity and market value of the shares of Common Stock held by unaffiliated stockholders may
be adversely affected by the Transaction and by termination of the listing of the Common Stock on
Nasdaq and registration of the Common Stock under the Exchange Act. Please see the section entitled
Effects of the Transaction-Effect on Delisting from Nasdaq and Market for Shares above for
further details.
Effect on Affiliated Stockholders.
The Transaction would have various effects on stockholders who
are affiliates of the Company. The Company expects that the substantial majority of the Companys
executive officers and directors would continue to beneficially own the same number of shares
immediately after the Transaction and the percentage of ownership of the Common Stock held by the
executive officers and directors of the Company, as a group, would increase by approximately [ ]%
of outstanding shares, from approximately 65.09% of the outstanding shares to approximately [ ]%
of the outstanding shares (excluding the exercise, if any, of stock options or warrants held by
such officers and directors, and the percentage of ownership of the Common Stock of Mr. Worsley
would increase by approximately [ ]% of the outstanding shares from approximately 61.94% of the
outstanding shares to approximately [ ]% of the outstanding shares (excluding the exercise, if
any, of stock options and warrants held by Mr. Worsley). The following is a description of the
effects of Mr. Worsleys interest in the net book value and net earnings of the Company upon
consummation of the Transaction:
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At December 31, 2007
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At September 30, 2008
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Net Book Value
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Net Earning/Loss
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Net Book Value
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Net Earnings/Loss
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$
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$
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$
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$
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Interest In:
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Pre-trans
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$
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$
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$
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$
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Post-trans
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As described in the section entitled Effects of the Transaction-Termination of Exchange Act
Registration and Reporting, if the registration of the Common Stock is terminated under the
Exchange Act:
23
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Executive officers, directors and other affiliates would no longer be subject to any of the
reporting requirements and restrictions of the Exchange Act, including the short-swing profit
provisions of Section 16.
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Executive officers, directors and other affiliates of the Company might be deprived of the
ability to dispose of shares of Common Stock pursuant to Rule 144, as amended.
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Strategic Alternatives Considered By the Board
In making the determination to proceed with the Transaction, the Board evaluated other strategic
alternatives. As discussed below, the Board ultimately rejected the alternatives to the
Transaction because the Board believed that the Transaction would be the simplest and most
cost-effective approach, if not the only approach, to achieve the purposes described in this Proxy
Statement. These alternatives were:
Raising Funds through the Capital Markets.
As discussed in the sections above entitled - Purpose
of the Transaction, - Background / Alternatives to the Transaction and - Reasons for
Transaction and Timing of Transaction, the Company has aggressively pursued since its inception
raising capital through the capital markets, including through one or more PIPE transactions. In
furtherance of this strategy, the Company has retained several investment bankers and other
advisors and has engaged in discussions with more than 100 potential investors. However, the
Company has been unsuccessful to date in securing funds from investors, largely due to the
precipitous decline of the capital markets and the economy in general in 2008 and the Companys
deteriorating financial condition.
Asset Sale or Business Combination.
The Board considered selling substantially all of our assets
or stock or undertaking another type of business combination. As described above in the section
Special Factors Background / Alternatives to the Transaction above, the Board engaged various
financial advisers during 2008 to assist in this effort. During 2008, we received preliminary,
conditional offers or letters of interest from various parties to acquire all or a portion of our
outstanding shares of Common Stock for various prices, whether through the purchase of capital
stock of the Company or through a business combination transaction. In each case, the transaction
was subject to completion of due diligence and documentation of a final agreement. On January 1,
2009, the Company was successful in completing a tax equity financing transaction with respect to
the Companys Snowflake Plant, as described in the section Special Factors Background /
Alternatives to the Transaction above. To date, the Board has been unsuccessful in securing any
other potential counterparties to an asset or stock sale or a business combination transaction
under terms acceptable to the Board other than the tax equity financing transaction.
Comerica Debt.
The Company has been negotiating with Comerica for increased borrowings of funds
under its non-revolving line of credit facility with Comerica, which expires on March 31, 2009. As
described in the section Special Factors Background / Alternatives to the Transaction above,
Comerica agreed to increase the amount available under the non-revolving line of credit from $6.2
million to $6.5 million on November 26, 2008, and then on December 31, 2009, to $7.25 million until
February 15, 2009. On January 14, 2009, Comerica agreed to convert the Companys non-revolving
line of credit facility into a revolving line of credit facility that expires December 31, 2009,
provided that the Company deposit $7.25 million into a cash collateral account, which deposit has
been made. As of the date of this Proxy Statement, all $7.25 million available under this line of credit have been drawn. The Company anticipates that it may have access to a portion of the security deposit if needed upon Comericas release of such deposit, although no assurance can be given that
Comerica will release any of such funds. The Board does not believe that the Company can secure
alternative bank financing from another institution.
Worsley Loans.
As described in the section entitled Transactions with Related Persons beginning
on page 48, the Company has issued a note to Mr. Worsley in the principal amount of $1.0 million,
and Mr. Worsley had previously agreed to use commercially reasonable efforts to loan the Company up
to an additional $4.0 million, at the option of the Company, at any time during the period
commencing October 1, 2008 through the earlier of December 31, 2009 or the date upon which the
Company completes an equity funding transaction. However, Mr. Worsleys obligation was terminated
upon the closing of the tax equity transaction described above under Asset Sale or Business
Combination. The Board and Mr. Worsley do not currently have any additional loans approved from
Mr. Worsley to the Company.
24
Maintaining the Status Quo.
The Board also considered taking no action to reduce the number of our
stockholders and therefore remaining a public company. However, due to the significant and
increasing costs of being a listed, public reporting company, as described in detail in this Proxy
Statement, the Board believed that maintaining the status quo would be detrimental to all of our
stockholders. We would continue to incur the costs of being a public company without realizing the
benefits of public company status. Furthermore, given the current financial condition of the
Company, as described in more detail under the section entitled Special Factors Reasons for
Transaction and Timing of the Transaction, the Company is currently pursuing a strategy of
restructuring and downsizing its operations in an effort to reduce costs, and the Board believes
that completing the Transaction is an essential step to reducing costs and ensuring the ongoing
viability of the Company at this time.
Why the Board is Seeking Stockholder Approval for Two Different Reverse Split Ratios
The Board is seeking the authority to effect the Reverse Stock Split using a Reverse Split Ratio of
either [ ]-to-1, or [ ]-to-1. The Board believes it needs to have the flexibility to select
one of these ratios so that the Company may effect the Stock Splits at the lowest possible cost,
and at the same time, have assurance that the Stock Splits will be effective in allowing the
Company to terminate its Exchange Act registration and realize the benefits of a going private
transaction. Based upon an initial analysis of the size and composition of the stockholder base
provided by management to the Board, the Board concluded that a [ ]-to-1 ratio would reduce the
number of stockholders to a sufficiently low number that the Company could go private, and
reasonably expect to remain private. However, in the period between the date of the Boards
approval of the Transaction and the Effective Date, the number or composition of the Companys
stockholders could change significantly. The Board desires to have the ability to complete the
Transaction without having the Company incur the additional expense of resoliciting proxies and
calling an additional stockholders meeting.
How the Board Will Select the Reverse Split Ratio
The stockholders will consider and vote on the Transaction. If the stockholders approve the
Transaction, the Board would have the authority to effect the Reverse Stock Split using a Reverse
Split Ratio of either [ ]-to-1 or [ ]-to-1. Since our Chief Executive Officer controls a
majority of the outstanding shares of our Common Stock, approval of the Transaction is essentially
assured. In close proximity to the date of the stockholder meeting, the Board will obtain an
updated analysis of the Companys stockholder base. The Board currently intends to use [ ]-to-1
as the Reverse Split Ratio and to reduce the number of stockholders to approximately [ ] at a
cost of $[ ], or less, for the aggregate Cash-Out Price for all the fractional shares to
be cancelled. This will enable the Company to effect a going private transaction while keeping the
cost as low as possible. However, the Board reserves the right to select either Reverse Split
Ratio and exceed the target cost and its budgetary guideline based on its judgmental assessment
of the Companys financial condition and business situation as of the fiscal period
immediately preceding the Effective Date.
If the Transaction is approved by the stockholders, which appears to be assured based on the
percentage of our shares of Common Stock that are owned or controlled by our Chief Executive
Officer, then the Board, at its discretion, may elect to either abandon the Transaction or effect
a Reverse Stock Split at one of two ratios: either [ ]-to-1 or [ ]-to-1. If the Board elects
to abandon the Transaction, then no funds will be paid and the total transaction costs will consist
solely of the expenses incurred to that date in connection with Transaction. These expenses are
estimated at $[ ].
If the Board determines it is in the best interest of the Company and the stockholders to proceed
with the Transaction, then the Board will select one of the Reverse Split Ratios approved by the
stockholders of the Company. Depending on the ratio selected, either [ ]-to-1 or [ ]-to-1,
stockholders having fewer than [ ] or [ ] shares on the Effective Date will then hold less than
one full share of our Common Stock and will be cashed out at the price of $[ ] per share of
Common Stock held prior to the Reverse Stock Split. It is the objective of the Board to complete
the transaction for as little cost as possible, while reducing the number of holders of record
after the Transaction is completed to approximately [ ].
The table below, based upon information as of [ ], 2009 shows the number of holders, both
beneficially in brokerage accounts and of record, the shares of Common Stock that will remain
outstanding and the total estimated transaction costs under several scenarios, including if
the Transaction were abandoned or if the Transaction were completed with each of the Reverse
Split Ratios. As of [ ], 2009 we had outstanding 6,293,312 shares of Common Stock.
25
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As of [ ]
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Holders(1)
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Shares Outstanding
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Estimated Transaction Costs
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To be
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To be
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Cost of
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Share Range Information
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cashed out
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After(2)
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cashed out
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After(2)
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Shares(3)
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Expenses
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Total
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Total, if Abandoned
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[ ]
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[ ]
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$
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$
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[ ]
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$
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[ ]
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[ ]-to-1
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[ ]
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[ ]
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[ ]
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[ ]
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$
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[ ]
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$
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[ ]
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$
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[ ]
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[ ]-to-1
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[ ]
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[ ]
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[ ]
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[ ]
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$
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[ ]
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$
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[ ]
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$
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[ ]
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(1)
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Holders include certificates of record and the number of brokerage account holders.
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(2)
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After is either the number of holders or the number of shares remaining after the
Transaction is completed at each of the share ranges.
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(3)
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The total amount paid at $[ ] per share of Common Stock to repurchase the Common Stock at
each of the share ranges, corresponding to the Reverse Split Ratio available at the discretion
of the Board.
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Immediately following the Special Meeting, the Board intends to decide to either abandon the
Transaction or to select the Reverse Split Ratio the Company will use to effect the Transaction.
The Company intends to file a Form 8-K report with the SEC thereafter, announcing to the
stockholders of the Company the decision of the Board in this regard. Thereafter, the Form 8-K
will be posted on the investor relations section of the Companys website at www.renegy.com under
SEC Filings.
Additionally, if the Company does not abandon the Transaction, we expect that management, at the
direction of the Board, will effect the Reverse Stock Split on the date of the Special Meeting or
soon as reasonably practicable thereafter by filing an amendment to the Companys Certificate of
Incorporation with the Secretary of State of the State of Delaware.
Fairness of the Transaction
The Board has fully reviewed and considered the terms, purpose, alternatives and effects of the
Transaction and has determined that the Transaction is in the best interests of the Company and is
substantively and procedurally fair to the affiliated and unaffiliated stockholders of the Company,
including stockholders who will receive cash in lieu of fractional shares and the stockholders who
will remain stockholders of the Company following the Transaction. After studying the Transaction
and its anticipated effects on our stockholders, the Board and Mr. Worsley, each unanimously
approved the Transaction and deemed it procedurally and substantively fair to all of the Companys
affiliated and unaffiliated stockholders and to the Company.
Fairness of the Substance of the Transaction
:
In determining the fairness of the Transaction, the Board considered the factors discussed below,
in addition to the strategic alternatives discussed above in the section Special Factors -
Strategic Alternatives Considered by the Board beginning on page 25. The Board believes that the
Transaction is substantively fair to the Companys unaffiliated stockholders, including
stockholders who are cashed out and stockholders who will continue to hold shares following the
Transaction, in light of these factors. The Board did not assign specific weight to the following
factors in a formulaic fashion. Moreover, in their considerations, individual directors may have
given differing weights to different factors. However, the Board did place special emphasis on the
significant cost and time savings we expect the Company to realize from deregistration of our
shares and the necessity of reducing costs of operations, as described below under the section
entitled -Financial Condition and the section entitled Special Factors Reasons for Transaction
and Timing of the Transaction beginning on page 20.
Significant Cost and Time Savings
. By deregistering the Common Stock and suspending our reporting
obligations under the Exchange Act, we expect to realize recurring annual cost savings of
approximately $[ ] and non-recurring savings of approximately $[ ] in consulting fees that we
would otherwise expect to
incur due to
26
compliance with the internal controls audit requirements of
Section 404 of the Sarbanes-Oxley Act. In addition, the Board has determined that the Public
Company Costs (as described above), currently and in the foreseeable future, will continue to
outweigh the Public Company Benefits and, thus, it is no longer in the best interests of the
Company or its stockholder, creditors, or other stakeholders, including its unaffiliated
stockholders, for the Company to remain a public company. Please see the section entitled Special
Factors Purpose of the Transaction beginning on page 14 and Special Factors Reasons for the
Transaction and Timing of the Transaction beginning on page 20.
Financial Condition.
During 2008 and, to date, in 2009, despite efforts to reduce our expenses, we
have experienced losses from operations and negative cash flows. The Board recognized that
additional financing or cost-reduction measures are still required. Please see the sections
entitled Special Factors Purpose of the Transaction beginning on page 14 and Special Factors -
Reasons for Transaction and Timing of the Transaction on page 20 for more information.
Opportunity to Remain a Holder of or to Liquidate Common Stock
. Another factor considered by the
Board in determining the fairness of the Transaction to holders of Common Stock is the opportunity
the Companys stockholders have to remain stockholders or to liquidate their Company holdings.
Current holders of fewer than [ ] shares or [ ], depending on the Reverse Split Ratio, can
either remain Company stockholders by acquiring additional shares so that they own at least [ ]
shares or [ ] shares, as applicable, of Common Stock immediately before the Effective Date or
sell their shares to the Company. If a stockholder purchases additional shares, the stockholder
may incur brokerage fees or commissions. Holders of fewer than [ ] shares or [ ] shares, as
applicable, of Common Stock at the time of the Transaction are able to sell their shares to the
Company at a premium price without paying any brokerage fees or commissions. The Board did not
quantify the consideration of brokerage fees and commissions paid for a share purchase or saved by
selling the shares to the Company in the Transaction since such fees, if any, vary significantly
depending upon the method used to acquire or dispose of shares. Conversely, stockholders who own [
] shares or more or [ ] shares or more, as applicable, and who desire to liquidate their shares
in connection with the Transaction at the premium price offered can reduce their holdings to less
than [ ] shares or [ ], as applicable, by selling or gifting shares prior to the Effective
Date. The Board did not place undue emphasis on this factor due to the limited trading market for
the Common Stock. Please see the section entitled Special Factors Reasons for the Transaction -
Liquidity for Small Stockholders beginning on page 21 for more information.
Current and Historical Market Prices
. The Board considered recent and historical trades of the
Companys Common Stock. The Common Stock has traded since October 1, 2007 on the Nasdaq Capital
Market. That market has represented the principal outlet for a stockholders who wished to dispose
of shares of Common Stock. The Board viewed that market as a good indicator of what a willing
buyer would pay to a willing seller, neither one of whom is under any compulsion to buy or sell,
after considering such factors as their estimate of the Companys value as a whole, its earnings
and performance history, its prospects, the prospects of the industry as a whole, an assessment of
the control parties and management of the Company, and other factors that typically bear on a
common stock purchase or sale decision. Due to the current financial condition of the Company and
the current market conditions, as described below under - Financial Condition, the Board
determined that in reviewing historical market prices for the Common Stock on Nasdaq and comparing
such prices to the Cash-Out Price, more weight should be attributed to recent market prices. The
Cash-Out Price determined by the Board to be paid for fractional shares, $[ ], exceeds the price
a stockholders selling his or her shares would likely receive (but for the Reverse Stock Split),
based on the average closing bid price reported by Nasdaq for the period [ ], 2008 through [ ],
2009 (the day before the Board established the Cash-Out Price), which was $[ ] per share. The
Board noted that the Cash-Out Price of $[ ] exceeds the closing bid price for the Common Stock on
[ ], 2009, and represents a premium of [ ]% over such closing bid price.
Liquidity of Common Stock.
The Board discussed the lack of an active trading market for the Common
Stock, the lack of substantial analyst coverage of us and our inability to access the public
capital markets as some of the indications that our stockholders are not receiving the typical
benefits of public company stock ownership. Since we and our stockholders were not receiving these
typical benefits, the Board considered that the lack of liquidity of our Common Stock was an
additional indication of fairness to the holders of Common Stock to be cashed out. Please
see the section entitled Special Factors Reasons for Transaction and Timing of the Transaction
beginning on page 20 for more information.
27
Equal Treatment of Affiliated and Unaffiliated Holders of the Company Shares.
The Transaction will
not affect holders of Common Stock differently on the basis of affiliate status. The sole
determining factor in whether a stockholder will be cashed out or will continue as a holder of
Common Stock as a result of the Transaction is the number of shares of Common Stock held by the
stockholder immediately prior to the Transaction.
Minimum Effect on Voting Power.
The Transaction will have a minimum effect on the voting power of
the Companys stockholders. The shares of Common Stock are the only voting shares of the Company
and will continue to be the only voting shares after the Transaction. The voting and other rights
of the Common Stock will not be affected by the Transaction. The only effect of the Transaction on
the Companys voting power will be a slight change in the overall ownership percentage of the
continuing holders following the Transaction.
No Material Change in Ownership Percentage of Executive Officers and Directors.
Since only an
estimated [ ] out of 6,293,312 outstanding shares of Common Stock will be eliminated as a result
of the Transaction, the percentage ownership of the continuing holders following the Transaction
will be approximately the same as it was prior to the Transaction. For example, the executive
officers and directors of the Company currently beneficially own approximately 65.09% of the
outstanding shares of Common Stock, and will beneficially own approximately [ ]% of the
outstanding shares of Common Stock following the Transaction. Please see the section entitled
Special Factors Effects of the Transaction Effect on Affiliated Stockholders.
The Board also considered the following possible disadvantages of effecting the Transaction:
Reduction of Market for Common Stock.
After the completion of the Transaction and the
deregistration of our shares of Common Stock, we will no longer be listed on Nasdaq. As a result,
we anticipate that the public market for our Common Stock may be reduced. The Board, however,
considered that potential trades in the Common Stock could be facilitated by a market maker in the
Pink Sheets following deregistration. Please see the section entitled Special Factors Effects
of the Transaction Delisting from Nasdaq and Effect on Market for Shares beginning on page 23
for more information.
Possible Decline in Price of the Company Shares.
After the completion of the Transaction, the
liquidity of our shares may be reduced. In addition, the lack of publicly available financial and
other information about the Company and the diminished opportunity for the Companys stockholders
to monitor the Companys management due to the reduced availability of public information may cause
the continuing holders of Common Stock following the Transaction to experience a decrease in the
price at which they may sell their shares. Please see the section entitled Special Factors -
Effects of the Transaction Effect on Unaffiliated Stockholders Who Own Either [ ] or More or [
] or More Shares beginning on page 24 and Termination of Publicly Available Information about
the Company immediately below.
Termination of Publicly Available Information About the Company.
After deregistration of the
Company shares under the Exchange Act, information regarding our operations and financial results
that is currently available to the general public and our investors will not be readily available
after deregistration, and investors seeking information about us will have to contact us directly
to receive such information. We may or may not provide investors with requested information that we
are not required by law to provide. The Board believes that the overall benefits to the Company of
no longer being a public reporting company substantially outweigh the disadvantages associated with
a lack of publicly available information about the Company. Please see the section entitled
Special Factors Effects of the Transaction Effect on Unaffiliated Stockholders Who Own Either
[ ] or More or [ ] or More Shares beginning on page 24 for more information.
Sarbanes-Oxley Act and Other Reporting and Disclosure Provisions Will No Longer Apply to the
Company.
After the completion of the Transaction and the deregistration of our shares of Common
Stock, we will no longer be subject to the provisions of the Sarbanes-Oxley Act or the liability
provisions of the Exchange Act that apply to public companies, including the requirement that the
chief executive officer and the chief financial officer certify the accuracy of the financial
statements contained in our Exchange Act filings. Please see the section entitled Special
Factors Effects of the Transaction Effect on Unaffiliated Stockholders Who Own Either [ ] or
More or [ ] or More Shares beginning on page 24 for more information.
28
The Company Will No Longer Have the Potential Benefits Normally Associated with Public Reporting
Company Status.
Another potential disadvantage of the Transaction is that we will no longer have
the benefits normally associated with being a public reporting company, such as better access to
the capital markets for issuances of securities. We would still have access to capital markets, but
if we were to conduct an offering of the Company shares or other securities, we would have to again
become a reporting company, and the expenses that we are seeking to eliminate would then be
reinstated. We believe that the cost savings of deregistration outweigh the drawbacks of losing
more ready access to the capital markets. We have not issued Common Stock or any other securities
in a public offering since we listed on Nasdaq on October 1, 2007, and we do not presently foresee
any need to do so.
Cashed Out Holders of Common Stock will not Participate in Future Increases in the Value of the
Company Stock or Payments of Dividends.
Following the Transaction, cashed out holders of Common
Stock will have no further financial interest in the Company and will not have the opportunity to
participate in the potential appreciation in the value of, or the payment of dividends on, the
Common Stock. Please see the section entitled Special Factors Effects of the Transaction -
Effect on Holders of Fewer than [ ] or [ ] Shares of Common Stock beginning on page 23 for
more information.
Although potentially relevant to a determination of fairness of the Transaction, the factors listed
below, for the reasons given, were determined by the Board to not be applicable to the Company and
were not considered or were not given any weight by the Board.
Net Book Value.
The Board did not view net book value to be a reliable measure of fair value. Net
book value is based on the historical cost of a companys assets and does not take into account the
value of a company if the company does not have the the necessary access to capital and/or
liquidity to continue to operate. In addition, the Board determined that net book value does not
take into account the other considerations that might be part of the willing buyer/willing seller
evaluation discussed above under the subsection - Current and Historical Market Prices.
Liquidation Value.
The Board viewed the liquidation value of the Company to be an inappropriate
measure for the purpose of evaluating the cash price to be paid for fractional shares. There is no
present intention of liquidating the Company or selling a substantial portion of its assets in the
near term. Further, the Transaction will only result in the termination of an equity interest by
the stockholders reduced to fractional shares as a result of the Transaction. The total of all
such shares represent only about [ ]% or [ ]%, depending on the Reverse Split Ratio, of the
total outstanding shares of Common Stock prior to the Reverse Stock Split and the maximum amount
applicable to any single stockholder is only [ ] shares of Common Stock. A liquidation process
would also involve additional legal fees, costs of sale and other expenses that would reduce any
amounts that stockholders might receive upon a liquidation. Given the other factors considered by
the Board as described in this Proxy Statement, the Board did not pursue a liquidation value
approach. In any event, given the current state of the capital markets, the Company did not locate
a potential acquirer that was willing to pay in excess of net book value for the power plant
located in Snowflake, Arizona.
No firm, unconditional offers to acquire control of the Company on terms satisfactory to the
Company.
While our Board and management have been involved in discussions with third parties from
time to time, as discussed under the section entitled Special Factors Background / Alternatives
to the Transaction beginning on page 15, we have not received, since October 1, 2007, any firm,
unconditional offers for a merger or consolidation with or into another company, or vice versa, or
the sale or transfer of all or substantially all of our assets to another company, or a purchase of
our securities by another person that would involve a change in our control on terms satisfactory
to the Company. With respect to certain of the non-binding letters or intent or other proposals
made by third parties regarding a possible strategic transaction, as discussed in the section
entitled Background / Alternatives to the Transaction, such offers were either for stock
consideration, involved financially unstable third parties, or included terms otherwise
unsatisfactory to the Company.
Purchase Price Paid for Repurchases of Common Stock.
We have not previously repurchased shares of
our Common Stock, and therefore the Board could not consider any such repurchases as the basis for
fairness.
29
Conclusion.
The Board believes that all of the factors mentioned above, in addition to both
favorable and unfavorable, when viewed together support a conclusion that the Transaction is
substantively fair to all the Company stockholders, including the unaffiliated cashed out holders
of Common Stock and continuing holders of Common Stock following the Transaction. The Board set
the Cash-Out Price at $[ ] based on the factors described above, and in particular, the premium
that the Cash-Out Price represents over recent closing bid prices of the Companys Common Stock.
Procedural Fairness
:
In addition to the fairness of the substance of the transaction, the Board believes that the
process by which decisions were made regarding the Transaction is fair to the Companys
unaffiliated stockholders who will be cashed out and to those who will retain an equity interest in
the Company as a result of the Transaction.
The Board noted that stockholders can purchase, subject to availability, prior to the Effective
Date, such additional shares of Common Stock through the market in order to make their holdings of
Common Stock evenly divisible by [ ] or [ ], depending on the Reverse Split Ratio, and thereby
avoiding the result of fractional shares from the Reverse Stock Split.
No special committee composed of the independent members of the Board was formed to appraise or
negotiate the proposed transaction. The independent members considered whether to form such a
committee and concluded that there were already sufficient procedural safeguards so as to make such
a committee unnecessary. The independent members of the Board noted in this regard that they
already comprised a majority of the entire Board (constituting four of the five directors). The
independent directors who were involved in the deliberations and decisions regarding the
Transaction include Messrs. Levy, Abdoo and Ellis and Ms. Tierney. None of the independent
directors are employees of the Company nor are they otherwise controlled by, or under common
control with, the Company. Each is an experienced and knowledgeable business person and is deemed
to be independent under Nasdaq Marketplace Rules. With regard to shares of Common Stock
beneficially owned by the directors, none of such directors have any agreement with the Company or
Mr. Worsley, as controlling stockholder, regarding such shares. In addition, each of the directors
will be treated identically with the unaffiliated stockholders of the Company.
Mr. Worsley absented himself from the portion of the [ ], 2009 Board meeting during which the
vote was taken regarding whether or not to engage in the Transaction and from the selection of the
split ratio, the Cash-Out Price and the appropriate procedural safeguards, and the independent
directors discussed these issues fully in executive session. The independent directors did not
meet in executive session at an earlier point because they comprised a majority of the Board,
viewed Mr. Worsleys participation in, and contributions to, earlier meetings to be valuable to
their decision-making process and did not consider their collective or individual independence to
be jeopardized in any respect. Based on the factors described above, the independent members of the
Board concluded that they had the independence and experience to fairly represent the interests of
the unaffiliated stockholders and had a sufficient opportunity to discuss and form their own
conclusions as to the fairness of the Transaction without the necessity of forming a special
committee. All of the independent members of the Board voted in favor of the Transaction on the
terms and conditions described in this Proxy Statement.
The Company did not receive a report, opinion, or appraisal from an outside party as to the value
of our Common Stock, or the fairness of the Transaction to stockholders who will receive cash in
the Transaction, stockholders who will remain stockholders following the Transaction, the
affiliated stockholders or the Company.
The independent members of the Board concluded that there were already sufficient procedural
safeguards without the expense of retaining an independent fairness advisor, particularly since
unaffiliated and affiliated stockholders would be treated the same in the Transaction and any of
such stockholders could change his or her stock holdings prior to the Effective Date, as described
above, in order to either get cashed out in the Transaction or continue as a stockholder of the
Company following the Transaction. In addition, given the distressed financial condition of the
Company and the current state of the capital markets, as described above, the Board emphasized the
importance of preserving the Companys cash position and completing the Transaction as
expeditiously as practicable.
30
No representative or advisor was retained by the independent members of the Board on behalf of the
unaffiliated stockholders to prepare a fairness evaluation or otherwise appraise or negotiate the
proposed Transaction. The independent members of the Board concluded that there were already
sufficient procedural safeguards without the expense of retaining an external representative or
advisor to negotiate the proposed Transaction, particularly since unaffiliated and affiliated
stockholders would be treated the same in the Transaction and any of such stockholders could change
his or her stock holdings prior to the Effective Date, as described above, in order to either get
cashed out in the Transaction or continue as a stockholder of the Company following the
Transaction.
The Board determined not to condition the approval of the Transaction on approval by a majority of
our unaffiliated stockholders because the Board believed that any such vote would not provide
meaningful additional protection to those unaffiliated stockholders. The Board considered that the
Transaction will apply equally to all stockholders. In addition, based on information available to
us, approximately 34.91% of our outstanding Common Stock is held by non-affiliates. The Board did
not believe it was in our best interest and the best interest of our stockholders to incur the
increased costs associated with allowing a minority of investors to make a determination with
respect to the Transaction alone, and the Board was also concerned that if the Transaction were
structured to require the approval of a majority of the unaffiliated stockholders, that
stockholders representing disproportionately few shares could unduly influence the vote, especially
if minority stockholder participation in the voting were limited. Finally, the Board noted that
the vote of a majority of unaffiliated stockholders was not required under Delaware law.
The Board has not granted unaffiliated stockholders access to our corporate files, except as
required by Delaware law, nor has it extended the right to retain counsel or appraisal services at
our expense. With respect to unaffiliated stockholders access to our corporate files, the Board
believes that this Proxy Statement, together with our other filings with the SEC, provide adequate
information for unaffiliated stockholders. The Board also considered the fact that under Delaware
law, and subject to specified conditions set forth under Delaware law, stockholders have the right
to review our relevant books and records of account. In deciding not to adopt these additional
procedures, the Board also took into account factors such as our size and financial capacity and
the costs of such procedures.
ADDITIONAL INFORMATION REGARDING THE TRANSACTION
Material Federal Income Tax Consequences
The discussion of the United States federal income tax consequences set forth below is based on the
law as currently in effect and as currently interpreted. The tax consequences to each stockholder
will depend in part upon such stockholders particular situation. Special tax consequences not
described herein may be applicable to particular classes of taxpayers, such as financial
institutions, brokers, dealers, persons who are not citizens or residents of the United States,
foreign corporations, tax exempt organizations, persons that acquired Common Stock as part of a
straddle, hedge or other integrated instrument, and stockholders who acquired their Common Stock
through the exercise of an employee stock option or otherwise as compensation.
Consequences of the Proposed Transaction.
The Transaction will not have material United
States federal income tax consequences to the Company, Mr. Worsley, an affiliate of the Company, or
to stockholders who do not receive cash in lieu of fractional shares. The receipt of cash in lieu
of fractional shares pursuant to the Reverse Stock Split will be a taxable transaction for United
States federal income tax purposes and also may be a taxable transaction under applicable state,
local or foreign tax laws for stockholders receiving cash. Generally, a stockholder that receives
cash in lieu of fractional shares pursuant to the Transaction will recognize gain or loss for
United States federal income tax purposes in an amount equal to the difference between the amount
of cash received in exchange for the fractional shares and such stockholders adjusted tax basis in
the Common Stock. Provided that the Common Stock constitutes a capital asset in the hands of the
stockholder, such gain or loss will be a capital gain or loss, and will be long-term gain or loss
if the stockholder has held the Common Stock for more than one year at the time of sale. Under
current law, the maximum United States federal income tax rate applicable to non-corporate
taxpayers
on net long-term capital gains is fifteen percent (15%) and the maximum regular United States
federal income tax rate on ordinary income is thirty-five percent (35%). The deductibility of
capital losses is subject to limitations.
31
Backup Withholding.
A stockholder (other than exempt stockholders, including, among others,
all corporations) that receives cash in lieu of a fractional share may be subject to twenty-eight
percent (28%) backup withholding unless the stockholder provides its taxpayer identification number
(TIN) and certifies that such number is correct or properly certifies that it is awaiting a TIN,
or unless an exemption applies. A stockholder that does not furnish its TIN may be subject to a
penalty imposed by the Internal Revenue Service (the IRS). If backup withholding applies to a
stockholder, the corporation is required to withhold twenty-eight percent (28%) from payments to
such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup
withholding can be credited against the United States federal income tax liability of the person
subject to the backup withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder
upon filing an appropriate income tax return on a timely basis.
ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES
OF THE PROPOSED TRANSACTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX AND ANY STATE, LOCAL, OR FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX
LAWS.
Special Interests of the Affiliated Persons
In considering the recommendation of the Board with respect to the proposed Transaction,
stockholders should be aware that the Companys executive officers and directors, including its
Chief Executive Officer, who is a controlling stockholder (the Affiliated Persons), have
interests in the Transaction that are in addition to, or different from, the stockholders
generally. These interests may create potential conflicts of interest and include the following:
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Each executive officer and each member of the Board holds shares or vested options or
warrants in excess of [ ] or [ ] shares, as applicable, and will, therefore, retain
shares of Common Stock or options to purchase Common Stock after the Transaction.
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As a result of the Transaction, the stockholders who own more than [ ] or [ ] shares of
Common Stock, as applicable, on the Effective Date of the Transaction, including the Companys
executive officers and directors, will slightly increase their percentage ownership interest
in the Company because only an estimated [ ] shares of Common Stock (in the case of a
1-for-[ ] Reverse Stock Split), or [ ] shares of Common Stock (in the case of a 1-for-[
] Reverse Stock Split), will be eliminated as a result of the Transaction. For example,
assuming the Transaction is implemented and based on information and estimates of record
ownership and shares outstanding and other ownership information and assumptions as of [ ],
2009, the beneficial ownership percentage of the Companys executive officers and directors
will increase from 65.09% to approximately [ ]% (including exercisable options and warrants
and shares held by family members) and the beneficial ownership percentage of the Chief
Executive Officer, Robert M. Worsley (Mr. Worsley), will increase from approximately 61.94%
to approximately [ ]% (including exercisable options and warrants and shares held by family
members).
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The legal exposure for board members of public companies has increased significantly,
especially in the aftermath of recent legislation and related regulations. While there are
still significant controls, regulations and liabilities for directors and executive officers
of private companies, the legal exposure for the Companys directors and executive officers
will be reduced after the Transaction.
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Robert M. Worsley, who is the Chairman of the Board, the Chief Executive Officer owns a
majority of the Companys outstanding shares of Common Stock and is the controlling
stockholder of the Company. In addition, Mr. Worsley has previously provided a $1.0 million
loan to the Company that expires on the earlier of December 31, 2009 or the closing of at
least $5.0 million in equity financing, and which may be prepaid at any time by the Company
without penalty. See Transactions with Related Persons beginning on page 48.
In addition, the Company may borrow additional funds from Mr. Worsley
to fund the Transaction
of continuing operations of the Company.
For the foregoing reasons, Mr. Worsley may have a conflict of interest with respect to the Transaction, and he
has had a role in electing to pursue it and structuring its terms.
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Each of the Affiliated Persons has indicated to the Company that he will vote his Common Stock in
favor of the Transaction.
32
Stockholder Approval
The Transaction, of which the Stock Splits are a part, requires the affirmative vote of the
majority of outstanding shares of the Common Stock under Delaware law. An affiliate of Mr.
Worsley, the Worsley Trust, owns a majority of the Common Stock and intends to vote in favor of the
Transaction, essentially assuring approval of the Transaction. Submitting the Stock Splits to a
vote of holders of the Common Stock could benefit the Company in that if a majority of the
unaffiliated stockholders of the Company were to approve the Transaction, the Company could, in the
event the Transaction is judicially challenged, rely on that vote as proof of fairness of the
Transaction to unaffiliated stockholders.
In the event that the Transaction is not approved by the affirmative vote of a majority of the
outstanding shares of Common Stock, or the Transaction fails to reduce the number of record holders
of our Common Stock to below 300 to allow us to terminate the registration of our Common Stock
under the Exchange Act, we will continue to evaluate and explore all available alternatives. We
will continue to work to maximize stockholder interests with a goal of returning value to our
stockholders; however, we will continue to incur the costs associated with of being a public
company. Although our Board has not yet made any determination, such alternatives may include,
alternative methods of effecting a going private transaction in order to reduce the costs
associated with being a public company, a share repurchase, an extraordinary dividend, a sale of
the Company, or other transactions, to maximize stockholder value and manage our outstanding
liabilities.
Effective Date
The Transaction will become effective as of the date that the Delaware Secretary of State accepts
for filing Certificates of Amendment to our Certificate of Incorporation (one amendment effecting
the Reverse Stock Split, the other effecting the Forward Stock Split). We intend to effect the
Transaction through the filing of such Certificates of Amendment on the day the Transaction is
approved by our stockholders or as soon as practicable thereafter. The shares of Common Stock
acquired by the Company in connection with the Transaction will be restored to the status of
authorized but unissued shares.
The suspension of the Companys obligation to file periodic reports and other documents under the
Exchange Act will become effective upon the filing with the SEC of a certification and notice of
termination of registration on Form 15, and the termination of the registration of the Common Stock
will become effective ninety days thereafter.
In addition, the Company will file a Form 25 with Nasdaq prior to or immediately following the
Transaction to delist our Common Stock. Our Common Stock will be delisted from Nasdaq 10 days
after we file the Form 25 with Nasdaq.
Exchange of Certificates and Payment for Fractional Shares
The Companys transfer agent, BNY Mellon Shareowner Services (the Transfer Agent), will act as
the Companys agent for purposes of exchanging certificates and paying for fractional shares in
connection with the Transaction.
Stockholders owning less than [ ] or [ ] shares, depending upon the Reverse Split Ratio used to
effect the Reverse Stock Split, at the Effective Date will receive $[ ] for each pre-split share
of Common Stock. Stockholders who own either [ ] or more or [ ] or more shares, depending upon
the Reverse Split Ratio used to effect the Reverse Stock Split, at the Effective Date of the
Transaction will not be entitled to receive any cash for their fractional share interests resulting
from the Reverse Stock Split. The Forward Stock Split that will immediately follow the Reverse
Stock Split will reconvert their whole shares and fractional share interests back into the same
number of shares of Common Stock they held immediately before the Effective Date. As a result, the
total number of shares of Common Stock held by such a stockholder will not change after completion
of the Transaction. Such stockholder will not receive new certificates for his or her shares of
Common Stock.
33
As soon as practicable after the Effective Date, the Company will send to each holder of record of
Common Stock and to each beneficial owner of Common Stock held in street name on behalf of such
owner, instructions for surrendering any certificates held thereby representing shares of Common
Stock which will be converted to a right to receive cash as a result of the Transaction. Only
holders of either [ ] or fewer shares or [ ] or fewer shares of Common Stock, immediately prior
to the Reverse Split, depending upon the Reverse Split Ratio used to effect the Reverse Stock
Split, should surrender their shares. Holders of either [ ] or more shares or [ ] or more
shares, immediately prior to the Reverse Split, depending upon the Reverse Split Ratio used to
effect the Reverse Stock Split, should not surrender their shares. Such instructions will include a
letter of transmittal to be completed and returned to the Transfer Agent by the holder of such
certificates, together with such certificates.
As soon as practicable after the Transfer Agent receives any surrendered certificate from holders
of either [ ] or fewer shares or [ ] or fewer shares of Common Stock immediately prior to the
Effective Date, depending upon the Reverse Split Ratio used to effect the Reverse Stock Split,
together with a duly completed and executed letter of transmittal with respect thereto and such
other documents as the Company may require, the Transfer Agent will deliver to the person cash in
an amount equal to $[ ] per pre-split share of Common Stock that is represented by such
fractional share.
There will be no differences between the respective rights, preferences or limitations of the
Common Stock prior to the Transaction and the Common Stock after the Transaction. There will be no
differences with respect to dividend, voting, liquidation or other rights associated with the
Common Stock. There are no accrued or unpaid dividends on the Common Stock.
For purposes of determining ownership of shares of Common Stock on the Effective Date, such shares
will be considered held by the person in whose name such shares are registered on the records of
the Company or, in the case of shares held by a broker, bank or other third party in street name
on behalf of its client, in the name of the person whose account such shares are held in by such
broker, bank, or other third party on the Effective Date, regardless of the beneficial ownership of
those shares. Upon effecting the Transaction, the Company intends to treat stockholders holding
Common Stock in street name in the same manner as registered stockholders whose shares are
registered in their names. Prior to the Effective Date, the Company will conduct an inquiry of all
the brokers, banks and other third parties (Participants) that hold shares of Common Stock in
street name. These Participants will be instructed to effect the Transaction for their beneficial
holders holding Common Stock in street name. These Participants will provide the Company with
information on how many fractional shares will be cashed out.
However, such Participants may have different procedures than registered stockholders for
processing the Transaction. Investors that hold an aggregate of at least [ ] shares in multiple
accounts with one or more brokers may want to consider combining their holdings into one account if
they wish to retain their holdings and ensure that they are not inadvertently cashed out. If you
hold your shares in street name with a bank, broker or other third party and you have any
questions in this regard, we encourage you to contact your bank, broker or nominee.
No service charge, brokerage commission, or transfer tax will be payable by any holder of any old
certificate evidencing shares of Common Stock in connection with the issuance of a new certificate
in respect thereof, except that if any new certificate is to be issued in a name other than that in
which the old certificate that is surrendered for exchange is registered, it will be a condition to
such issuance that: (i) the person requesting such issuance pay to the Company any transfer taxes
payable by reason of such transfer (or any prior transfer of such surrendered certificate, if any)
or establish to the satisfaction of the Company that such taxes have been paid or are not payable;
and (ii) the surrendered certificate is properly endorsed and otherwise in proper form for
transfer.
If any certificate evidencing Common Stock has been lost or destroyed, the Company may, in its sole
discretion, accept in lieu thereof a duly executed affidavit and indemnity agreement in a form
satisfactory to the Company. The
holder of any shares of Common Stock evidenced by any certificate that has been lost or destroyed
must submit, in addition to the letter of transmittal sent by the Company, the above-referenced
affidavit and indemnity agreement, and any other document required by the Company, a bond or other
security satisfactory to the Company indemnifying the Company and all other persons against any
losses incurred as a consequence of issuing a certificate evidencing new shares of Common Stock or
paying cash in lieu of issuing fractional shares of Common Stock in exchange for the existing
shares of Common Stock evidenced or purported to be evidenced by such lost or destroyed
certificate. Additional instructions with respect to lost or destroyed certificates will be
included with the letter of transmittal that the Company will send to stockholders after the
Effective Date.
34
DO NOT SEND SHARE CERTIFICATES TO THE COMPANY OR THE TRANSFER AGENT UNTIL AFTER YOU HAVE RECEIVED
THE ABOVE-REFERENCED LETTER OF TRANSMITTAL AND ACCOMPANYING INSTRUCTIONS.
Unavailability of Appraisal or Dissenters Rights
No appraisal or dissenters rights are available under Delaware law or under Renegys Certificate
of Incorporation or Bylaws to holders of Common Shares who vote against the Stock Splits. Other
rights or actions may exist under Delaware law or federal and state securities laws for
stockholders who can demonstrate that they have been damaged by the Stock Splits.
Escheat Laws
The unclaimed property and escheat laws of each state provide that, under circumstances defined in
that states statutes, holders of unclaimed or abandoned property must surrender that property to
the state. Persons whose shares are cashed out and whose addresses are unknown to us or who do not
return their stock certificates and request payment for their cashed-out shares generally will have
a period of years from the Effective Date in which to claim the cash payment payable to them. For
example, with respect to stockholders whose last known addresses are in Delaware, as shown by our
records, the period is five years. Following the expiration of that five-year period, Delaware
escheat laws would likely cause the cash payments to escheat to the State of Delaware. For
stockholders who reside in other states or whose last known addresses, as shown by our records, are
in states other than Delaware, such states may have abandoned property laws which call for such
state to obtain either (i) custodial possession of property that has been unclaimed until the owner
reclaims it; or (ii) escheat of such property to the state. Under the laws of such other
jurisdictions, the holding period or the time period which must elapse before the property is
deemed to be abandoned may be shorter or longer than five years. If we do not have an address for
the holder of record of the shares, then unclaimed cash-out payments would be turned over to our
state of incorporation, the State of Delaware, in accordance with its escheat laws.
Source of Funds and Expenses
Based on estimates of record ownership of shares of Common Stock, the number of shares outstanding
and other information as of [ ], 2009, and assuming that either [ ] or [ ] fractional shares
are cashed out, depending upon the Reverse Split Ratio used to effect the Reverse Stock Split, we
estimate that the total funds required to consummate the Transaction will be approximately $[ ]
or $[ ], respectively, of which approximately $[ ] will be used to pay the costs of the
Transaction and approximately $[ ] or $[ ] will be used to pay consideration to stockholders
entitled to receive cash for their shares, depending upon the Reverse Split Ratio used to effect
the Reverse Stock Split:
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1-for-[ ]
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1-for-[ ]
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Reverse Stock Split
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Reverse Stock Split
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Cash Consideration to Stockholders
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$
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$
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Legal fees
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$
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$
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Accounting fees
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$
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$
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Transfer Agent fees
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$
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$
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Printing costs
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$
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$
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Other
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$
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$
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Total Estimated Expenses
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$
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$
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The Company plans to use proceeds from the tax equity transaction completed in January 2009 and borrowings from its lender or from Mr. Worsley to fund the foregoing costs.
No specific plans or arrangement with any lender or Mr. Worsley have been made as of the date of this Proxy
Statement.
Regulatory Approvals
The Company is not aware of any material governmental or regulatory approval required for
completion of the Stock Splits, other than compliance with the applicable federal and state
securities laws, Nasdaq rules and Delaware corporate laws.
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MEETING AND VOTING INFORMATION
Time and Place
The Special Meeting will be held on [ ], 2009, at 10:00 a.m., local time, at the Companys
principal executive offices located at 3418 N. Val Vista Drive, Mesa, Arizona 85213.
Who May Vote
Only stockholders of record at the close of business on [ ], 2009 (the Record Date) are
entitled to receive notice of and to vote at the Special Meeting. The outstanding voting
securities of the Company as of [ ], 2009, consisted of 6,293,312 shares of Common Stock. Every
stockholder of record on the Record Date is entitled, for each share held, to one vote on the
proposal.
Voting Your Proxy
If a broker, bank or other nominee holds your shares, you will receive instructions from them that
you must follow in order to have your shares voted. The instructions from your broker, bank or
other nominee will also provide details regarding Internet and telephone voting. If a bank, broker
or other nominee holds your shares and you wish to attend the meeting and vote in person, you must
obtain a legal proxy from the record holder of the shares giving you the right to vote the
shares.
If you hold your shares in your own name as a holder of record, you may instruct the proxy holders
how to vote your common stock by following the voting instructions included in the enclosed proxy
card. You can appoint a proxy to vote your shares (i) by using the Internet
(http://www.proxyvote.com), (ii) by calling the toll-free telephone number (1-800-690-6903), or
(iii) by completing, signing and dating the proxy card where indicated and by mailing or otherwise
returning the card to us by 10:00 a.m. Arizona time on [ ], 2009. Telephone and Internet voting
facilities for stockholders of record will be available 24 hours a day and will close at 11:59
p.m., Eastern Time, on [ ], 2009. Of course, you may also choose to attend the meeting and vote
your shares in person. The proxy holders will vote your shares in accordance with your
instructions. If you sign and return a proxy card without giving specific voting instructions,
your shares will be voted as recommended by our Board of Directors.
Revoking Your Voting Instructions to Your Proxy Holders
If you are a holder of record and you vote by proxy using any method, you may later revoke your
proxy instructions by:
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sending a written statement to that effect to Renegy Holdings, Inc., Attn: Corporate
Secretary, 3418 N. Val Vista Drive, Mesa, Arizona 85213;
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submitting a proxy card with a later date and signed as your name appears on the stock
account;
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voting at a later time by telephone or the Internet; or
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voting in person at the Special Meeting.
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If a broker, bank or other nominee holds your shares and you vote by proxy, you may later revoke
your proxy instructions by informing the broker, bank or other nominee in accordance with that
entitys procedures.
Cost of This Proxy Solicitation
The cost of this solicitation will be borne by the Company. The Company may reimburse expenses
incurred by brokerage firms and other persons representing beneficial owners of shares in
forwarding solicitation material to beneficial owners. Proxies may be solicited by certain of the
Companys directors, officers and employees, without additional compensation, personally or by
telephone, letter, electronic mail or facsimile.
36
Required Vote; Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Special Meeting is a majority of the
votes eligible to be cast by holders of shares of Common Stock issued and outstanding on the Record
Date, which number is 3,146,657 shares of Common Stock, present or represented by proxy at the
Special Meeting. Shares of Common Stock present at the Special Meeting or represented by proxy,
including shares which abstain or do not vote with respect to one or more of the matters presented
for stockholder approval, will be counted for purposes of determining whether a quorum is present
at the Special Meeting.
The affirmative vote of the holders of a majority of the shares of Common Stock issued and
outstanding on the Record Date is required for approval of the Transaction.
Shares which abstain from voting on the proposal at the Special Meeting and shares held in street
name by brokers or nominees who indicate on their proxies that they do not have discretionary
authority to vote on the proposal will not be voted in favor of the proposal. Accordingly,
abstentions and broker non-votes will have the same effect as a vote AGAINST the proposal.
Delivery of Documents to Stockholders Sharing an Address
Certain stockholders who share an address are being delivered only one copy of this Proxy Statement
unless the Company or one of its mailing agents has received contrary instructions.
Upon the written or oral request of a stockholder at a shared address to which a single copy of the
Companys Proxy Statement was delivered, the Company will promptly deliver a separate copy of such
documents to such stockholder. Written requests should be made to Renegy Holdings, Inc.,
Attention: Investor Relations, 3418 N. Val Vista Drive, Mesa, Arizona 85213. Oral requests may be
made by calling the Company at (480) 556-5555.
Stockholders sharing an address who are receiving multiple copies of the Companys Proxy Statement
may request delivery of a single copy by writing to the address above or calling the telephone
number above.
INFORMATION ABOUT THE COMPANY
Renegy is a Delaware corporation. Renegy was formed through a merger transaction completed on
October 1, 2007, which combined Catalytica Energy Systems, Inc. (Catalytica) with the renewable
energy divisions of NZ Legacy LLC (the Merger Transaction). The Companys Common Stock is
currently trading on the Nasdaq Capital Market under the trading symbol RNGY.
Renegy is a renewable energy company engaged in biomass power generation utilizing wood waste as a
primary fuel source to address an increasing demand for economical power relying on alternative
energy sources. The Company historically had been seeking to grow its portfolio of renewable energy
assets through the acquisition of existing biomass facilities (both operating and idle), in
addition to the development, construction and operation of new facilities. Other business
activities include an established fuel aggregation business, which collects and transports forest
thinning and woody waste biomass fuel to the Companys power plants, and which sells logs, shaved
wood products and other high value wood by-products (Wood Product Operations) to provide
additional value to the Companys primary business operations.
The Companys revenues are primarily derived through the sale of electricity produced by its 24
megawatt (MW) biomass power generating facility near Snowflake, Arizona (the Snowflake Plant),
which began generating and selling commercial power during the second quarter of 2008 to Arizona
Public Service (APS) and Salt River Project (SRP) under power purchase agreements in place with
these utility companies. Renegy also generates revenue from its Wood Product Operations, which
support the fuel requirements of its Snowflake Plant.
37
Renegys other biomass assets include an idle 13 MW biomass plant in Susanville, California (the
Susanville Plant), which the Company may refurbish and restart by early 2010.
The Company is the person filing this proxy statement with the SEC and furnishing it to the
stockholders of the Company.
Since its inception, the Company has not made an underwritten public offering of its Common Stock
for cash that was registered under the Securities Act or exempt from registration under Regulation
A, nor has the Company repurchased any shares of its Common Stock.
PLANS OR PROPOSALS
As described above under the section entitled Special Factors Background / Alternatives to the
Transaction beginning on page 15, the Company during the last 12 months considered possible
strategic transactions with other entities and investors, although it never executed definitive
agreements with such parties and has not received any proposals or offers with terms satisfactory
to the Company. Other than as described in this Proxy Statement, the Company has no current plans
or proposals to effect in the near term any extraordinary corporate transaction, such as a merger,
reorganization or liquidation, to sell or transfer any material amount of its assets, to change
either the Board or management, to change materially our indebtedness or capitalization, or
otherwise to effect any material change in our corporate structure or business. Although the
Company does not presently have any specific intent to enter into any transaction described above
in the near term, there is always a possibility that we may enter into such an arrangement or
transaction in the future, including, but not limited to, entering into a merger or acquisition
transaction, making a public or private offering of our shares or entering into any other
arrangement or transaction we may deem appropriate, including a transaction with any of the parties
discussed in the section Special Factors Background / Alternatives to the Transaction. In such
event, our continuing stockholders may receive payment for their shares in any such transaction
which may be lower than, equal to or in excess of the amount paid to the non-continuing
stockholders in the Transaction. Any acquisition strategy is dependent upon the opportunities that
might arise, and there can be no certainty that any such transactions will occur.
MARKET PRICE OF COMMON STOCK AND RELATED INFORMATION
Market Information
Since October 1, 2007, our Common Stock has traded on the Nasdaq Capital Market under the symbol
RNGY. The quarter-end high and low closing sales prices, as well as the price as of [ ], 2009
(the most recent practicable date prior to the announcement of the Transaction) of our Common Stock
were as reported by the Nasdaq Stock Market:
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
Low
|
December 31, 2007
|
|
$
|
8.40
|
|
|
$
|
6.14
|
|
March 31, 2008
|
|
|
6.98
|
|
|
|
4.02
|
|
June 30, 2008
|
|
|
4.73
|
|
|
|
3.50
|
|
September 30, 2008
|
|
|
3.48
|
|
|
|
2.00
|
|
December 31, 2008
|
|
|
2.30
|
|
|
|
0.24
|
|
Stockholders
As of [ ], 2009, there were approximately 660 holders of record of our Common Stock.
38
Dividends
We have never declared cash dividends on any class of our securities and have no present intention
to declare any dividends on any class of our securities in the future.
Common Stock Repurchase Information
The Company has not repurchased any shares of Common Stock since listing its Common Stock on Nasdaq
on October 1, 2007.
Purchases by Directors and Executive Officers
The table below sets forth information by fiscal quarters regarding purchases by directors and
officers of the Common Stock on Nasdaq since the Company listed its Common Stock on October 1,
2007, including the number of shares purchased, the range of prices paid and the average purchase
price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Shares
|
|
|
|
Purchase
|
Quarter Ended/Beneficial Owner
|
|
Purchased
|
|
Price Range
|
|
Price
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Levy Family Trust (Ricardo B. Levy)
|
|
|
7,000
|
|
|
$6.99-$7.35
|
|
$
|
7.15
|
|
In addition, restricted stock and stock options have been granted by the Company to certain
officers and directors, as described in the section entitled Principal Stockholders beginning on
page 45.
39
FINANCIAL INFORMATION
The following summary consolidated financial information was derived from and should be read in
conjunction with the Companys audited consolidated financial statements presented in the Companys
Annual Report on Form 10-KSB as of December 31, 2007 and from the Companys unaudited consolidated
financial statements presented in the Companys Quarterly Report on Form 10-Q as of September 30,
2008, all of which are incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
(in thousands)
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
12,171
|
|
|
$
|
24,525
|
|
Noncurrent assets
|
|
$
|
75,866
|
|
|
$
|
63,642
|
|
Current liabilities
|
|
$
|
14,109
|
|
|
$
|
7,024
|
|
Noncurrent liabilities
|
|
$
|
54,727
|
|
|
$
|
55,155
|
|
Book value per share
|
|
$
|
3.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
For the
|
|
|
For the Nine Months Ended
|
|
Ended
|
|
Ended
|
|
Year Ended
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
2007
|
|
2007
|
|
2006
|
|
|
(Successor)
|
|
(Predecessor)
|
|
(Successor)
|
|
(Predecessor)
|
|
(Predecessor)
|
|
|
(in thousands, except per share amounts)
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,776
|
|
|
$
|
997
|
|
|
$
|
91
|
|
|
$
|
997
|
|
|
$
|
1,895
|
|
Costs and expenses
|
|
$
|
16,321
|
|
|
$
|
4,212
|
|
|
$
|
4,815
|
|
|
$
|
4,212
|
|
|
$
|
4,918
|
|
Loss from continuing operations
|
|
$
|
(12,242
|
)
|
|
$
|
(3,619
|
)
|
|
$
|
(6,662
|
)
|
|
$
|
(3,619
|
)
|
|
$
|
(6,800
|
)
|
Net loss
|
|
$
|
(12,242
|
)
|
|
$
|
(3,619
|
)
|
|
$
|
(11,561
|
)
|
|
$
|
(3,619
|
)
|
|
$
|
(6,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share from continuing
operations, basic and diluted
|
|
$
|
(1.97
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(1.80
|
)
|
Loss per common share, basic and diluted
|
|
$
|
(1.97
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(1.80
|
)
|
Renegy is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not
required to provide ratio of earnings to fixed charges information.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the ages as of January 21, 2009 and present positions for each of
our executive officers and directors:
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Robert M. Worsley
|
|
52
|
|
Chairman, Chief Executive Officer and Director
|
Ricardo B. Levy (1)(2)(3)
|
|
64
|
|
Lead Independent Director
|
Richard A. Abdoo (4)
|
|
64
|
|
Director
|
William B. Ellis (1)(2)
|
|
68
|
|
Director
|
Susan F. Tierney (1)(2)(3)(4)
|
|
57
|
|
Director
|
Hugh W. Smith
|
|
50
|
|
President and Chief Operating Officer
|
Robert W. Zack
|
|
46
|
|
Executive Vice President and Chief Financial Officer
|
Scott K. Higginson
|
|
52
|
|
Senior Vice President
|
40
|
|
|
(1)
|
|
Member of the Special Committee.
|
|
(2)
|
|
Member of the Audit Committee.
|
|
(3)
|
|
Member of the Nominating / Governance Committee.
|
|
(4)
|
|
Member of the Compensation Committee.
|
The following is a brief description of the professional experience and background of our directors
and executive officers:
Robert M. Worsley
has served as our chairman and chief executive officer since October 2007, and
served as our president from October 2007 through September 2008. Previously, Mr. Worsley founded
and served as president of NZ Legacy, LLC (NZ Legacy), an Arizona land, mineral and energy
development company whose renewable energy divisions merged into Renegy. Prior to founding NZ
Legacy in March 2002, Mr. Worsley served as the chairman, chief executive officer and president of
SkyMall, Inc. (SkyMall), which he founded in 1989, until his retirement in 2003. During his
tenure at SkyMall, Mr. Worsley was successful in leading the Company through an initial public
offering (IPO) in 1996 and a sale to Newscorps Gemstar affiliate in 2001, and growing the
business to become the largest in-flight catalog company in the world with over $85 million in
annual revenues. From 1985 to 1989, Mr. Worsley was a principal of ExecuShare, Inc., an executive
services firm that provided time-shared financial executives for small companies. From 1980 to
1985, Mr. Worsley was an accountant with Price Waterhouse, a public accounting firm, where he most
recently held the position of Audit Manager. Mr. Worsley has a bachelors degree in accounting
from Brigham Young University. Mr. Worsley was a Certified Public Accountant for over twenty
years.
Ricardo Levy, Ph.D.
has served on our Board since June 2007. Previously, Dr. Levy served as
chairman of the board of Catalytica Energy Systems, Inc. (Catalytica Energy) from December 2000
through September 2007. In addition to his role as chairman, Dr. Levy also served as interim
president and chief executive officer of Catalytica Energy from June through December 2002, having
previously served as president and chief executive officer of the former parent company Catalytica,
Inc. (Catalytica). Dr. Levy founded Catalytica in 1974, serving as chief operating officer until
1991 and then as president and chief executive officer until December 2000, when Catalytica and its
subsidiary, Catalytica Pharmaceuticals Inc., were sold to DSM N.V concurrent with the spin-off of
Catalytica Energy. Before founding Catalytica, Dr. Levy was a founding member of Exxons chemical
physics research team. Dr. Levy currently serves on the board of directors of public companies
Accelrys, Inc. (formerly known as Pharmacopeia, Inc.) and StemCells, Inc. He has an M.S. from
Princeton University, a Ph.D. in chemical engineering from Stanford University and is an alumnus of
Harvard Universitys Executive Management Program.
Richard A. Abdoo
has served on our Board since June 2007. Previously, Mr. Abdoo served on the
board of directors of Catalytica Energy from July 2004 until September 2007, most recently as vice
chairman. Mr. Abdoo is president of R.A. Abdoo & Company LLC, and brings nearly three decades of
energy industry expertise to the Board, having retired in April 2004 from his position as chairman,
president and chief executive officer of Wisconsin Energy Corporation (WEC) after a 29-year
career with WEC and its subsidiary, Wisconsin Electric Power Company (WEPC), now known as We
Energies. Mr. Abdoo first joined WEC as a director of corporate planning in 1975 and held
positions of increasing responsibility in planning and operations for WEC through 1989 including
vice president, senior vice president and executive vice president. In 1989, Mr. Abdoo was named
president and chief operating officer of WEPC and several other WEC subsidiaries, and subsequently
served as chief executive officer of all WEC subsidiaries until 1991 when he was elected chairman,
president and chief executive officer of WEC. Under his executive leadership, WEC grew to become a
Fortune 500 company through a series of mergers and acquisitions which both enriched and enlarged
the offerings and markets of the WEC. He oversaw the merger of WEPC and Wisconsin Natural Gas into
a single utility in 1996, the acquisition of WICOR, Inc. and its Wisconsin Gas subsidiary in 2000,
and later that same year the introduction of the WECs Power the Future plan to meet the future
energy needs of southeastern Wisconsin. Mr. Abdoos experience includes planning and leadership in
coal both in Wisconsins energy plan and support of state regulation to support coal industry
initiatives. Mr. Abdoo currently serves on the boards of directors of AK Steel Holding Corporation
and NiSource, Inc. He earned a B.S. degree in electrical engineering from the University of Dayton
and a Masters degree in economics from the University of Detroit. He has also completed
post-graduate studies in engineering at Wayne State University.
41
William B. Ellis, Ph.D.
has served on our Board since June 2007. Previously, Dr. Ellis served on
the board of directors of Catalytica Energy from September 1995 until September 2007. Dr. Ellis is
a lecturer and senior visting fellow of the Yale University School of Forestry and Environmental
Studies. Dr. Ellis retired as chairman of Northeast Utilities in 1995, where he also served as
chief executive officer from 1983 to 1993. Dr. Ellis joined Northeast Utilities in 1976 as its
chief financial officer. He was a consultant with McKinsey & Co. from 1969 to 1976 and was a
principal in that firm from 1975 to 1976. Dr. Ellis serves on the boards of directors of the
Massachusetts Mutual Life Insurance Company and on the Pew Center on Global Climate Change. He has
a Ph.D. in chemical engineering from the University of Maryland.
Susan Tierney, Ph.D.
has served on our Board since June 2007. Previously, Dr. Tierney served on
the board of directors of Catalytica Energy from December 2001 until September 2007. Dr. Tierney
is currently a managing principal of Analysis Group Inc. where she specializes in energy industry
issues. Dr. Tierney served as senior vice president of Lexecon Inc. from 1995 to 2003. Dr.
Tierney is chairperson of the board of directors of The Energy Foundation and Clean Air-Cool Planet
non-profit organizations. Additionally, she previously served as a director of the following
non-profit organizations: American Council on Renewable Energy (ACORE), Climate Policy Center, and
the Northeast States Center for a Clean Air Future. During 2004, she was also chairperson of the
board for the Electricity Innovation Institute (a subsidiary of EPRI). She was also a director of
EPRI from 1998 to 2003 and from 2005 to 2006. Before joining Lexecon (and its predecessor company,
the Economics Resource Group) in November 1995, Dr. Tierney served in senior positions in federal
and state government from 1983 until 1995, most recently as assistant secretary for policy at the
U.S. Department of Energy, Secretary of Environmental Affairs for the Commonwealth of Massachusetts
and commissioner of the Massachusetts Department of Public Utilities. Previously, she was an
assistant professor at the University of California, Irvine from 1978 until 1982. Dr. Tierney has
a Ph.D. and a Masters degree in regional planning from Cornell University and a bachelors degree
from Scripps College.
Non-Director Executive Officers
Hugh W. Smith
has served as our chief operating officer since March 2008, and as our president
since October 2008. From July 2007 to March 2008, Mr. Smith was senior vice president of
generation and development for EnergyCo LLC where he was responsible for operations, strategic
assessment of new assets, and developing policies and procedures associated with the startup of a
non-regulated energy company. From 2004 to June 2007, Mr. Smith served as senior vice president of
energy resources at PNM Resources during which time he led operations of the companys power
generation fleet consisting of over 2,500 megawatts of coal, nuclear, gas-fired and renewable
assets. From 1979 to 2003, he held positions of increasing responsibility at Tampa Electric
Company, most recently as vice president of energy supply and trading. Mr. Smith previously
chaired the United Way Community Investment Council and served on the Board of Directors for the
United Way of Central New Mexico and for the All Faiths Receiving Home. Mr. Smith graduated with a
Bachelors degree from the University of Florida.
Robert W. Zack
has served as our executive vice president and chief financial officer since June
2007 and as our chief executive officer from inception to September 2007. Previously, Mr. Zack
served as the president and CEO of Catalytica Energy since July 2005 and as a member of the Board
of Directors since February 2006. During this time, Mr. Zack also continued to serve as chief
financial officer for Catalytica Energy, a position he had held since April 2003. Prior to that,
Mr. Zack had served as vice president, finance and controller of Catalytica Energy since February
2002. Before joining Catalytica Energy, Mr. Zack served as group vice president of finance for
MicroAge, Inc. From 1995 to 1999, he served as the chief financial officer of NIENEX. Previously,
Zack has held various executive and financial management roles at Active Noise and Vibration
Technologies, Pinnacle West Capital Corporation and Arthur Andersen L.L.P. He earned his B.S. in
accounting and his MBA from Arizona State University. He is also a certified public accountant.
Scott K. Higginson
has served as our senior vice president of business development & public affairs
since October 2007. Previously, Mr. Higginson was executive vice president of NZ Legacy since
January 2005. From 2001 to 2005, Mr. Higginson was an owner of Four Square Group, a government and
public affairs consulting firm that represented clients on issues related to natural resources,
healthcare, agriculture and renewable energy at the federal,
42
state and local levels of government
in Arizona and Nevada. From 1995 to 2001, Mr. Higginson was the corporate vice president of
government and public affairs at Del Webb Corporation. From 1989 to 1995, Mr. Higginson served two
terms on the Las Vegas City Council and was the owner of a public relations and advertising
consulting
business focusing on business communications and political campaign management. Mr. Higginson has
a Bachelors degree in political science and journalism from Brigham Young University.
There are no family relationships between any of the directors or executive officers of the
Company. No events have occurred in the past five years that are material to an evaluation of the
ability or integrity of any person serving in a director or executive officer role of the Company.
Each of the officers and directors of the Company intend to vote for the proposal and recommend to
the stockholders of the Company their support for the proposed Transaction for the reasons set
forth in the section entitled Special Factors Reasons for Transaction and Timing of the
Transaction beginning on page 20.
PRINCIPAL STOCKHOLDERS
Security Ownership of Principal Stockholders and Management
The following table sets forth, as of December 31, 2008 (except for the outstanding shares, which
is as of January 12, 2009), certain information with respect to the beneficial ownership of the
Companys common stock by (i) each person or entity known by the Company to own beneficially more
than five percent of the outstanding shares of the Companys Common Stock, (ii) each director or
nominee for director of the Company, (iii) each of the Companys Named Executive Officers listed in
the Summary Compensation Table and (iv) all current Executive Officers and directors as a group.
The table is based on information supplied by our officers, directors, principal stockholders and
Schedules 13F, 13D, 13G and other documents filed with the SEC. The number of shares of our Common
Stock beneficially owned by each 5% stockholder, director or executive officer is determined under
the rules of the SEC. Under the SEC rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power and also includes any
shares of Common Stock that the individual or entity has the right to acquire within 60 days after
December 31, 2008 through the exercise of stock options, warrants or other rights to acquire shares
of the Companys Common Stock, and any reference in the footnotes to this table to shares subject
to stock options, warrants or other rights to acquire Common Stock refers only to such stock
options, warrants and rights that are so exercisable. For purposes of computing the percentage of
outstanding shares of our Common Stock held by each individual or entity, all shares of Common
Stock subject to options, warrants and similar rights currently exercisable or exercisable within
60 days after December 31, 2008 are deemed to be outstanding for the purpose of computing the
percentage ownership of the individual or entity holding such options, warrants and similar rights,
but are not deemed to be outstanding for computing the percentage ownership of any other individual
or entity. Unless otherwise indicated below, we believe that each stockholder named in the table
has sole or shared voting and investment power with respect to all shares beneficially owned,
subject to applicable community property laws. The inclusion in the table of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated in the table, the address of each individual or entity listed in the
table is Renegy Holdings, Inc., 3418 N. Val Vista Drive, Mesa, Arizona 85213.
43
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
Beneficially Owned
|
|
|
|
|
|
|
Percentage
|
Name of Person or Identity of Group
|
|
Number
|
|
Ownership(1)
|
AWM Investment Company, Inc. (2)
|
|
|
547,241
|
|
|
|
8.70
|
%
|
153 East 53rd Street, 55
th
floor
New York, New York 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metalmark Capital LLC (3)
|
|
|
483,823
|
|
|
|
7.69
|
%
|
1177 Avenue of the Americas, 40
th
Floor
New York, New York 10036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert M. Worsley and Christi M. Worsley Revocable Trust (4)
|
|
|
4,377,498
|
|
|
|
61.50
|
%
|
3418 N. Val Vista Drive
Mesa, Arizona 85213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert M. Worsley (5)
|
|
|
4,419,300
|
|
|
|
61.94
|
%
|
Ricardo B. Levy (5)
|
|
|
106,965
|
|
|
|
1.69
|
%
|
Robert W. Zack (7)
|
|
|
105,876
|
|
|
|
1.66
|
%
|
|
|
|
|
|
|
|
|
|
Richard A. Abdoo (8)
|
|
|
43,040
|
|
|
|
*
|
|
Hugh W. Smith (9)
|
|
|
22,917
|
|
|
|
*
|
|
Scott K. Higginson (10)
|
|
|
21,436
|
|
|
|
*
|
|
William B. Ellis (11)
|
|
|
44,287
|
|
|
|
*
|
|
Susan F. Tierney (12)
|
|
|
45,022
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All current executive officers and Directors as a group (8
persons)(13)
|
|
|
4,808,843
|
|
|
|
65.09
|
%
|
|
|
|
*
|
|
Less than 1%
|
|
(1)
|
|
Based upon 6,293,312 shares of Common Stock outstanding as of January 12, 2009.
|
|
(2)
|
|
Based on information as of September 30, 2008 as set forth in a Schedule 13F filed on
November 14, 2008, and on information as of December 31, 2007 as set forth in a Schedule 13G
filed on February 13, 2008. Includes shares of Common Stock owned by Special Situations
Cayman Fund, L.P. (SSCF), Special Situations Fund III, L.P. (SSF) and Special Situations
Fund III QP, L.P. (SSFQ). AWM Investment Company, Inc. (AWM) serves as general partner of
SSCF, SSF and SSFQ and may be deemed to be the beneficial owner of the shares of Company
Common Stock held by these entities. Austin W. Marxe (Marxe) and David M. Greenhouse
(Greenhouse) are the controlling principals of AWM, the general partner of and investment
adviser to SSCF. AWM also serves as the general partner of MGP Advisers Limited Partnership,
the general partner of and investment adviser to SSF and the general partner of SSFQ. AWM
serves as the investment adviser to SSFQ.
|
|
(3)
|
|
Based on information as of December 31, 2008. Consists of 427,969 shares owned by Morgan
Stanley Capital Partners III, L.P. (MSCP III), 43,817 shares owned by MSCP III 892
Investors, L.P. (MSCP III 892), and 12,037 shares owned by Morgan Stanley Capital Investors
L.P. (MSCI). Pursuant to a subadvisory agreement between certain affiliates of Morgan
Stanley and Metalmark Capital LLC (Metalmark) and Metalmark Subadvisor LLC, Metalmark agreed
to manage MSCP III, MSCP III 892 and MSCI on a subadvisory basis, and as a result, may be
deemed to beneficially own 483,823 shares. Metalmark is an independent private equity firm
managed by Howard I. Hoffen and senior team members formerly from Morgan Stanley Capital
Partners. Mr. Hoffen disclaims beneficial ownership of all shares owned by these entities,
except to the extent of his pecuniary interest therein.
|
|
(4)
|
|
Includes (i) 3,553,157 shares of common stock held by the Robert M. Worsley and Christi M.
Worsley Revocable Trust (the Trust), and (ii) 824,341 shares of common stock issuable
pursuant to warrants held by the Trust which are exercisable within 60 days of December 31,
2008. Robert M. Worsley and his spouse, Christi M. Worsley, are the trustees of the Trust.
|
44
|
|
|
(5)
|
|
Includes (i) 3,578,157 shares of common stock held by the Trust, of which Mr. Worsley serves
as a trustee, (ii) 824,341 shares of common stock issuable pursuant to warrants held by the
Trust which are exercisable within 60 days of December 31, 2008 and (iii) 16,802 shares of common
stock issuable upon exercise of options held by Mr. Worsley which are exercisable within 60 days
of March 31, 2009. On January 16,
2009, the Company and Mr. Worsley entered into a Letter Agreement which provides that 50% of
Mr. Worsleys base salary to be earned for the first quarter of 2009 will be payable in
restricted stock instead of cash. Any restricted stock issued will vest in full on March 31,
2009, subject to Mr. Worsleys continued employment with the Company. As these shares do not
vest within 60 days of December 31, 2008, they were not included in the number of shares of
common stock beneficially owned by Mr. Worsley as of December 31, 2008. Had these shares
vested within 60 days of December 31, 2008, 100,000 additional shares would have been included
in the number of shares of common stock beneficially owned by Mr. Worsley as of December 31,
2008.
|
|
(6)
|
|
Includes (i) 28,165 shares of common stock held by Dr. Levy, (ii) 39,807 shares of common stock held by the
Levy Family Trust, of which Dr. Levy serves as trustee, (iii) 958 shares of common stock held
by the Polly Jean Cusumano Trust, of which Dr. Levy serves as trustee, and (iv) 38,035 shares
of common stock issuable upon exercise of options held by Dr. Levy, which are exercisable
within 60 days of December 31, 2008. Dr. Levy disclaims beneficial ownership of the shares
owned by the Polly Jean Cusumano Trust. In a meeting of the Board of Directors held on
January 16, 2009, the members of the Board agreed to accept payment for first quarter 2009
board retainer and committee fees in the form of restricted stock in lieu of cash payment.
Any restricted stock issued will vest in full on March 31, 2009, subject to Dr. Levys
continued employment with the Company. As these shares do not vest within 60 days of December
31, 2008, they were not included in the number of shares of common stock beneficially owned by
Dr. Levy as of December 31, 2008. Had these shares vested within 60 days of December 31,
2008, 38,000 additional shares would have been included in the number of shares of common
stock beneficially owned by Dr. Levy as of December 31, 2008.
|
|
(7)
|
|
Includes (i) 9,660 shares of common stock held by Mr. Zack and (ii) 96,216 shares of common
stock issuable upon exercise of options held by Mr. Zack, which are exercisable within 60 days
of December 31, 2008.
|
|
(8)
|
|
Includes (i) 16,930 shares of common stock held by Mr. Abdoo, (ii) 786 shares of common stock held by the Richard A. Abdoo
and Joan F. Abdoo revocable trust, and (iii) 25,324 shares of common stock issuable upon
exercise of options held by Mr. Abdoo, which options are exercisable within 60 days of
December 31, 2008. In a meeting of the Board of Directors held on January 16, 2009, the
members of the Board agreed to accept payment for first quarter 2009 board retainer and
committee fees in the form of restricted stock in lieu of cash payment. Any restricted stock
issued will vest in full on March 31, 2009, subject to Mr. Abdoos continued employment with
the Company. As these shares do not vest within 60 days of December 31, 2008, they were not
included in the number of shares of common stock beneficially owned by Mr. Abdoo as of
December 31, 2008. Had these shares vested within 60 days of December 31, 2008, 17,000
additional shares would have been included in the number of shares of common stock
beneficially owned by Mr. Abdoo as of December 31, 2008.
|
|
(9)
|
|
Includes 22,917 shares of common stock issuable upon exercise of options held by Mr. Smith,
which are exercisable within 60 days of December 31, 2008.
|
|
(10)
|
|
Includes (i) 7,143 shares of common stock held by Mr. Higginson, and (ii) 14,293 shares of
common stock issuable upon exercise of options held by Mr. Higginson, which are exercisable
within 60 days of December 31, 2008.
|
|
(11)
|
|
Includes (i) 17,679 shares of common stock held by Dr. Ellis and (ii) 26,608 shares of common
stock issuable upon exercise of options held by Dr. Ellis, which are exercisable within 60
days of December 31, 2008. In a meeting of the Board of Directors held on January 16, 2009,
the members of the Board agreed to accept payment for first quarter 2009 board retainer and
committee fees in the form of restricted stock in lieu of cash payment. Any restricted stock
issued will vest in full on March 31, 2009, subject to Dr. Elliss continued employment with
the Company. As these shares do not vest within 60 days of December 31, 2008, they were not
included in the number of shares of common stock beneficially owned by Dr. Ellis as of
December 31, 2008. Had these shares vested within 60 days of December 31, 2008, 18,000
additional shares would have been included in the number of shares of common stock
beneficially owned by Dr. Ellis as of December 31, 2008.
|
45
|
|
|
(12)
|
|
Includes (i) 15,415 shares held by Dr. Tierney and (ii) 29,607 shares of common stock
issuable upon exercise of options held by Dr. Tierney, which are exercisable within 60 days of
December 31, 2008. In a meeting of the Board of Directors held on January 16, 2009, the
members of the Board agreed to accept payment for first quarter 2009 board retainer and
committee fees in the form of restricted stock in lieu of cash payment. Any restricted stock
issued will vest in full on March 31, 2009, subject to Dr. Tierneys continued employment with
the Company. As these shares do not vest within 60 days of December 31, 2008, they were not
included in the number of shares of common stock beneficially owned by Dr. Tierney as of
December 31, 2008. Had these shares vested within 60 days of December 31, 2008, 17,000
additional shares would have been included in the number of shares of common stock
beneficially owned by Dr. Tierney as of December 31, 2008.
|
|
(13)
|
|
Includes (i) 3,714,700 shares of common stock held directly or indirectly by current
executive officers and directors, (ii) 269,802 shares of common stock issuable upon exercise
of options held by current executive officers and directors, which are exercisable within 60
days of December 31, 2008, and (iii) 824,341 shares of common stock issuable upon exercise of
warrants held by current executive officers and directors, which are exercisable within 60
days of December 31, 2008.
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys executive officers, directors and persons
who own more than ten percent (10%) of a registered class of the Companys equity securities to
file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and greater than ten percent (10%) stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely
on its review of the copies of such forms and amendments thereto received by it, or written
representations from certain reporting persons, the Company believes that, during fiscal year 2008,
all reporting persons complied with Section 16(a) filing requirements applicable to them, except
that: (i) Mr. Levy failed to timely file a Form 4 to report grants of restricted stock on November
11, 2008, November 15, 2008 and December 5, 2008; (ii) Mr. Abdoo failed to timely file a Form 4 to
report a grant of restricted stock on November 15, 2008; (iii) Mr. Ellis failed to timely file a
Form 4 to report grants of restricted stock on November 11, 2008, November 15, 2008 and December 5,
2008; and (iv) Ms. Tierney failed to timely file a Form 4 to report grants of restricted stock on
November 15, 2008 and December 5, 2008; however, each of such individuals filed the required Forms
4 on January 8, 2009 to report the foregoing grants of restricted stock.
TRANSACTIONS WITH RELATED PERSONS
We entered into a Contribution and Merger Agreement (the Contribution and Merger Agreement) on
May 8, 2007 by and among (i) us, (ii) Catalytica Energy Systems, Inc., a Delaware corporation
(Catalytica), (iii) Snowflake Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of us (Merger Sub), (iv) Renegy, LLC, an Arizona limited liability company (Renegy
LLC), (v) Renegy Trucking, LLC, an Arizona limited liability company (Renegy Trucking), (vi)
Snowflake White Mountain Power, LLC, an Arizona limited liability company (Snowflake and,
together with Renegy LLC and Renegy Trucking, the Snowflake entities), (vii) Robert M. Worsley
(Mr. Worsley), (viii) Christi M. Worsley (Mrs. Worsley) and (ix) the Robert M. Worsley and
Christi M. Worsley Revocable Trust (the Worsley Trust and, together with Mr. Worsley and Mrs.
Worsley, the Worsleys). At a special stockholders meeting held on September 27, 2007, Catalytica
stockholders holding a majority of the Catalytica common stock outstanding approved the adoption of
the Contribution and Merger Agreement, and, on October 1, 2007, the parties to the Contribution and
Merger Agreement completed the transactions contemplated thereby. In the transaction, Catalytica
and the Snowflake entities combined their businesses through the merger of Merger Sub with and into
Catalytica, with Catalytica surviving the merger, and the concurrent contribution to Renegy by the
Worsley Trust, the beneficial owners of the Snowflake entities, of all of the outstanding equity
interests of the Snowflake entities (the Merger Transaction). As a result of the Merger
Transaction, Catalytica and the Snowflake entities now operate under Renegy as wholly-owned
subsidiaries. In connection with the consummation of the Merger Transaction, Catalytica terminated
its registration under the Exchange Act with its filing of Form 15 on October 2, 2007.
Pursuant to the terms of the Contribution and Merger Agreement, each outstanding share of common
stock of Catalytica was converted into the right to receive one-seventh (1/7th) of a share of
Renegy Common Stock. Additionally, each outstanding option to purchase Catalytica common stock was
assumed by Renegy and now
46
represents an option to acquire shares of Renegy Common Stock, subject to
the conversion ratio, on the terms and conditions set forth in the Contribution and Merger
Agreement. Each outstanding Catalytica restricted stock unit award was accelerated immediately
prior to the consummation of the Merger Transaction and was treated in the same manner as other
shares of Catalytica common stock which were outstanding immediately prior to consummation of the
Merger Transaction.
Further, pursuant to the terms of the Contribution and Merger Agreement, the Worsley Trust received
3,774,048 shares of our Common Stock and warrants to purchase up to 2,473,023 shares of our Common
Stock in connection with the Merger Transaction. The warrants have an exercise price of $16.38 per
share, provide for vesting in three tranches conditioned upon the registrants achievement of
certain renewable energy-related milestones, and expire at specified times no later than six years
following the closing of the Merger Transaction. Upon the closing of the Merger Transaction, the
Catalytica stockholders held approximately 41.3% of our outstanding Common Stock and the Worsley
Trust held approximately 58.7%, which would increase to approximately 70% if the warrants issued to
the Worsley Trust are exercised in full.
On November 7, 2007, we consummated the sale of our SCR-Tech subsidiary, a provider of emissions
compliance services for coal-fired power plants, to CoaLogix Inc., a wholly-owned subsidiary of
Acorn Energy, Inc. In accordance with the terms of the Contribution and Merger Agreement, net
proceeds received in excess of a threshold amount as defined in the agreement were to be reflected
in a reduction of the number of shares of our Common Stock issued to the Worsley Trust. Net
proceeds from the sale of SCR-Tech were approximately $1.8 million in excess of the threshold.
Accordingly, the number of shares issued to the Worsley Trust was reduced by 220,891 shares, or
approximately 1.5%, thereby reducing the percentage of our Common Stock held by the Worsley Trust
to 57.2%, as compared to 58.7% at the effective time of the Merger Transaction.
The Contribution and Merger Agreement provided that the initial Class II directors, whose terms
would expire at the second annual meeting of stockholders, would consist of Robert Worsley and his
designee. Any vacancies in the Class II directorships could be filled by a vote of the
stockholders in accordance with the Certificate of Incorporation.
In connection with the Contribution and Merger Agreement, the Worsleys agreed to indemnify
Catalytica and Renegy and our respective affiliates, directors, officers and employees from and
against any and all damages arising out of, resulting from or in any way related to a breach of, or
the failure to perform or satisfy any of the representations, warranties, covenants and agreements
made by any of the Snowflake entities and/or the Worsleys in the Contribution and Merger Agreement.
Renegy and Catalytica agreed to indemnify the Worsleys from and against any and all damages
arising out of, resulting from or in any way related to (i) a breach of, or the failure to perform
or satisfy any of the representations, warranties, covenants and agreements made by Catalytica in
the Contribution and Merger Agreement, and (ii) the construction cost guarantee of the Worsleys to
CoBank ACB, (CoBank) up to $2.0 million. The respective obligations of the parties to indemnify
for any breaches of their respective representations and warranties will survive until April 1,
2009, except for any indemnification claim resulting from fraud or intentional misrepresentation.
No indemnification is required until the aggregate liability for a party exceeds $250,000, and the
indemnity obligations of each party are subject to a $10 million cap, except in the case of fraud
or intentional misrepresentation. The indemnification obligations of the Worsleys may be satisfied
in cash or shares of our Common Stock based on a value of $12.25 per share, rounded up to the
nearest whole share. Renegys obligation to indemnify the Worsleys may be satisfied by paying cash
or shares of Renegy Common Stock, grossed up to reflect the Worsleys anticipated 58.5% ownership
of our outstanding Common Stock, which percentage was projected at the time of execution of the
Contribution and Merger Agreement to exist at consummation of the Contribution and Merger Agreement
using the treasury stock method. Specifically, Renegy may pay cash to the Worsleys in an amount
equal to (i) the quotient obtained by dividing (A) the amount of the damages for which
indemnification is being made by (B) 0.415, less (ii) the amount of such damages (the adjusted
damages) or issue to the Worsley Trust such number of Renegy shares equal to the quotient obtained
by dividing (i) the adjusted damages by (ii) $12.25, rounded up to the nearest whole share.
In addition, in connection with the Contribution and Merger Agreement, we agreed to indemnify the
Worsleys for any claims arising under their guarantee to SRP relating to the payment of all sums
owed by Snowflake to SRP under its power purchase agreement with Snowflake and for maintaining a
net worth of at least $35 million.
47
Pursuant to the Contribution and Merger Agreement, we agreed to pay the first $2.0 million of
Project Costs, as defined in our Credit Agreement with CoBank (the CoBank Credit Agreement),
related to the construction of the Snowflake Plant that exceed the approximately $67.3 million
Project Cap, as defined in the CoBank Credit Agreement. The Worsleys agreed to pay to us the
amount by which Project Costs exceed the sum of the Project Cap and $2.0 million in sufficient time
for us to be able to pay such excess Project Costs pursuant to an overrun guaranty (the Overrun
Guaranty). A committee of independent directors (the Special Committee), acting on our behalf,
has the authority to enforce the Worsleys obligations under the Overrun Guaranty.
In February 2008, we issued a press release announcing that we expect the Project Costs for the
Snowflake Plant to exceed the Project Cap by approximately $12.5 million. Pursuant to a letter
agreement between us and the Worsleys (the First Letter Agreement), which constitutes an
amendment to the Contribution and Merger Agreement and the Overrun Guaranty, we, with the approval
of the Special Committee, and the Worsleys agreed that, notwithstanding the provisions of the
Contribution and Merger Agreement and the Overrun Guaranty, we will be responsible for the payment
of an additional $6.0 million of capital costs incurred beyond the Project Cap that have been, or
may be, incurred by us and the $2.0 million already payable by us as described above. We believe
that the $6.0 million in additional capital costs will enhance the Snowflake Plant and further
increase the efficiency, reliability and long-term operating performance of the plant. The First
Letter Agreement provided that we will have no obligation to pay for any Project Costs beyond the
$2.0 million previously agreed to and the $6.0 million described in this paragraph. Pursuant to a
Sponsor Guaranty, dated September 1, 2006 between the Worsleys and CoBank (the Sponsor Guaranty),
the Worsleys have guaranteed the payment of all Project Costs in excess of the Project Cap. The
First Letter Agreement provided that the Worsleys will deposit a minimum of $5.0 million in cash in
our general operating bank account by March 5, 2008 to be applied against the Worsleys obligations
pursuant to the Sponsor Guaranty and Overrun Guaranty, which deposit was made.
In accordance with the terms of the First Letter Agreement, we entered into a Revolving Credit
Agreement (the Credit Agreement) with the Worsleys pursuant to which the Worsleys agreed to lend
us up to $6.0 million, which could be drawn on by us beginning March 31, 2008 for general working
capital purposes, including to pay the capital costs that we have agreed to pay as described above.
Until March 31, 2009, interest was to accrue at the prime rate (as reported by the Wall Street
Journal) on the outstanding balance of the loan, but would not be payable until the termination of
the loan. Commencing April 1, 2009, interest would accrue on the unpaid balance of the loan and
would be payable monthly by us. The outstanding principal could be prepaid by us in whole or part
at any time without penalty, and any repaid amounts could be re-borrowed by us. Any unpaid balance
under the Credit Agreement would be due on the date that is the earlier of March 31, 2010 or such
date that we were able to obtain alternative debt or equity financing in the amount of at least
$6.0 million, unless terminated earlier in accordance with the terms of the Credit Agreement.
Also in accordance with the terms of the First Letter Agreement, the Worsleys agreed to personally
guarantee a line of credit in an amount of $6.0 million to be established for us at a bank or other
financial institution reasonably acceptable to us and that was on commercially reasonable terms
acceptable to us in our reasonable discretion. Upon the establishment of the line of credit or at
such time as we secured alternative debt or equity financing in an amount of a minimum of
$6.0 million, the Worsleys obligation to provide a line of credit to us was to be released.
On March 28, 2008, we entered into a credit facility with Comerica providing for up to $6.2 million
in borrowings, which facility was guaranteed by the Worsleys. As a result of the Comerica Credit
Agreement, the Worsley line of credit was terminated.
On August 13, 2008, we entered into a second letter agreement (the Second Letter Agreement) with
the Worsleys to finalize all amounts owed by the Worsleys for the Project Costs related to the
Snowflake Plant described above. The Special Committee, acting on behalf of the Company, agreed
pursuant to the Second Letter Agreement that the Worsleys obligation to pay for unpaid Project
Cost overruns incurred prior to the commencement of commercial operations of the Snowflake Plant,
which occurred on June 10, 2008, would be satisfied by the $5.0 million cash deposit previously
made by the Worsleys to the Company and funding by the Worsleys, through the direct deposit
of funds or a letter of credit, of the debt service reserve (the DSR) under the CoBank Credit
Agreement of approximately $2.8 million beginning at the time the Companys construction loans with
CoBank related to the Snowflake Plant convert into term loans, which, as of the date of this Proxy
Statement, the Company expects to occur during January 2009. The Second Letter Agreement provided
that the Worsleys will be released from their
48
obligation with respect to the DSR to the extent the
Snowflake Plant operates in excess of certain output parameters. Specifically, the Worsleys
obligation to fund the DSR will be reduced monthly in an amount equal to 70% of the revenue on a
daily output in excess of 576 MW-hours. In addition, the parties agreed that previous deposits by
the Worsleys with the Company in the aggregate amount of $1.0 million for purposes of paying
potential Project Cost overruns will be treated as loan proceeds in exchange for the issuance of
$1.0 million in convertible debt to the Worsleys, as evidenced by a Convertible Subordinated
Promissory Note issued by the Company to the Worsleys on August 13, 2008 (the Note), which Note
is described in more detail below. The Second Letter Agreement also required the Worsleys to use
commercially reasonable efforts to loan the Company up to $4.0 million, at the option of the
Company, at any time during the period commencing October 1, 2008 through the earlier of December
31, 2009 or the date upon which the Company completes an Equity Funding Event (as defined below),
under the same terms as the convertible debt represented by the Note to fund the Companys
operations for the remainder of 2008. Pursuant to the Second Letter Agreement, the Special
Committee also agreed that 824,341 of the Common Stock Warrants issued to the Worsleys on October
1, 2007 in connection with the Merger Transaction have vested as of June 10, 2008 as a result of
the achievement of commercial operation of the Snowflake Plant. The Second Letter Agreement
constitutes an amendment to the First Letter Agreement, the Overrun Guaranty and the Contribution
and Merger Agreement.
On August 13, 2008, we issued a Convertible Subordinated Promissory Note (the Note) to the
Worsleys in the principal amount of $1.0 million in exchange for cash advances made by the Worsleys
to us in the amounts of $600,000 and $400,000 on June 30, 2008 and July 7, 2008, respectively. The
Note is subordinate to all other Company secured debt and accrues interest at a rate of ten percent
(10%) per annum. The principal and accrued interest under the Note are due and payable by the
Company on December 31, 2009. The Note will automatically convert if, prior to December 31, 2009,
the Company obtains at least $5.0 million of equity financing pursuant to the issuance of equity
securities of the Company pursuant to a private placement to one or more bona fide third party
investors (an Equity Funding Event). Upon completion of the Equity Funding Event, the entire
principal amount of the convertible debt represented by the Note, together with accrued interest
thereon, will be converted as part of such financing into the same type of equity securities issued
in the Equity Funding Event and at the same purchase price for such equity securities in the Equity
Funding Event. Commencing December 31, 2008, the Worsleys will have the right, at their option, to
convert the outstanding principal and accrued interest under the Note, in whole but not in part,
into the Companys Common Stock, at a per share conversion price equal to the closing price of the
Companys Common Stock as quoted on the Nasdaq Capital Market (or such other national securities
exchange or other quotation medium that publishes quotes of the Common Stock) on the date prior to
the date of the Worsleys notice of conversion to the Company. The Note provides that any
conversion of the Note would be subject at all times to the applicable marketplace rules of the
Nasdaq Stock Market, LLC regarding stockholder approval (for so long as the Companys securities
are subject to such rules). Upon prior written notice to the Worsleys, the Company may at any time
prepay in whole or in part the principal of the Note, plus interest accrued to the date of such
payment.
On December 31, 2008, we entered into a third letter agreement (the Third Letter Agreement) with
the Worsleys to modify certain provisions of the Worsleys obligations to fund the DSR account
under the CoBank Credit Agreement pursuant to the Second Letter Agreement and to otherwise finalize
all of the Worsleys obligations to the Company relating to project cost overruns for the Snowflake
power plant. The Third Letter Agreement amends the Second Letter Agreement to provide that, in the
event Comerica provides a letter of credit for the account of the Company to satisfy the Companys
obligation to fund the DSR account, the Worsleys will be obligated to directly reimburse Comerica
for any draws on the letter of credit up to approximately $2.8 million. In the event the letter of
credit issued by Comerica is unavailable, the Worsleys will remain obligated to fund the DSR
account in accordance with the Second Letter Agreement. The Worsleys obligation with respect to
the DSR account and the reimbursement for draws on the letter of credit issued by Comerica
continues to be subject to reduction as provided in the Second Letter Agreement. The Third Letter
Agreement also requires the Worsleys to continue to guarantee the Companys debt with Comerica up
to $7.25 million until all borrowings under the Comerica Credit Agreement are repaid. Further, the
Third Letter Agreement provides that, in the event that a tax equity transaction associated with
the Snowflake Plant is completed, and except as provided in the Third Letter Agreement, the
Worsleys
obligations under the Overrun Guaranty as modified by the prior letter agreements will be deemed
satisfied in full, including with respect to the Worsleys obligation to use commercially
reasonable efforts to make one or more loans available to the Company in the amount of $4.0 million
as required under the Second Letter Agreement. The Third Letter Agreement was approved by the
Special Committee of the Company. The Third Letter Agreement constitutes an amendment to the First
Letter Agreement, the Second Letter Agreement, the Overrun Guaranty and the Contribution and Merger
Agreement.
49
We have entered into a Registration Rights Agreement with the Worsley Trust pursuant to which we
have agreed, at our expense, to prepare and file a registration statement pursuant to Rule 415
under the Securities Act of 1933, as amended covering the resale from time to time of all of the
shares of our Common Stock issued to the Worsley Trust in connection with the Merger Transaction as
well as all shares of Common Stock issuable upon exercise of the warrants issued to the Worsley
Trust. We must prepare and file such registration statement upon the request of the Worsley Trust
at any time from and after July 1, 2008, provided that we may delay any requested registration for
up to 60 consecutive days in any calendar year (or 120 days in the aggregate in any calendar year)
if and for so long as certain conditions exist.
Effective January 1, 2007, Catalytica entered into a one-year consulting agreement with Richard
Abdoo, a member of our Board. The agreement provided that Mr. Abdoo will provide assistance to
Catalytica and its management with respect to its subsidiary, SCR-Tech, LLC, including assisting on
business strategy and customer matters. The consulting agreement provided compensation to
Mr. Abdoo in the form of restricted stock units having a value on the date of grant of January 25,
2007 of $60,000, rounded down to the nearest whole share, with such units vesting monthly during
2007. Mr. Abdoo also was entitled to be reimbursed for reasonable travel and other out-of-pocket
expenses incurred by him in rendering such services. The consulting agreement also contained
customary invention assignment, confidentiality and other similar provisions. This agreement
expired in connection with the sale of SCR-Tech in November 2007.
50
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders may present proposals for action at a future meeting only if they comply with the
requirements of the proxy rules established by the SEC and our Bylaws. If our Exchange Act
registration is not terminated in connection with the Transaction, stockholder proposals that are
intended to be included in our Proxy Statement and form of Proxy relating to our 2009 Annual
Meeting of Stockholders under rules set forth in the Securities Exchange Act, must be received by
us no later than May 5, 2009 to be considered for inclusion.
If a stockholder intends to submit a proposal or nomination for director for our 2009 Annual
Meeting of Stockholders that is not to be included in Renegys Proxy Statement and form of Proxy
relating to the meeting, the stockholder must give us notice in accordance with the requirements
set forth in Renegys Bylaws no later than May 5, 2009. Renegys Bylaws require that certain
information and acknowledgments with respect to the proposal and the stockholder making the
proposal be set forth in the notice. A copy of the relevant Bylaw provision is available upon
written request to Renegy Holdings, Inc., 3418 N. Val Vista Drive, Mesa, Arizona 85213, Attention:
Corporate Secretary. You can also access our SEC filings, including our Annual Report on Form
10-KSB, on the SECs website located at www.sec.gov and on our website at www.renegy.com.
AVAILABLE INFORMATION
The Company has filed a Schedule 13E-3 with the SEC in connection with the proposed Transaction.
As permitted by the rules and regulations of the SEC, this Proxy Statement does not contain all of
the information set forth in the Schedule 13E-3. The Company is currently required to file reports
and other information with the SEC under the Exchange Act. Copies of these reports and other
information, including the Schedule 13E-3, are available at the SECs public reference facilities
at 100 F Street, N.W., Washington, D.C. 20549. Copies of such materials can also be obtained at
prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.W.,
Washington, D.C. 20549. These filing can also be viewed at the SECs website at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows the Company to incorporate by reference the information it files with the SEC into
this Proxy Statement. This permits the Company to disclose important information to you be
referring to these filed documents. The information incorporated by reference is an important part
of this Proxy Statement. The following documents that the Company has filed with the SEC are
incorporate by reference in this Proxy Statement:
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Our Annual Report on Form 10-KSB for the year ended December 31, 2007; and
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Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.
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Any statement contained in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document that is also or is
deemed to be incorporated by reference herein modifies or supersedes such statement.
If you are a beneficial owner of the Companys Common Stock and would like a copy of any of the
information incorporated by reference in this Proxy Statement (other than exhibits to such
information, unless such exhibits are specifically incorporated by reference into such
information), the Company will provide it to you without charge.
If you would like to receive any of this information, please call or write the Company at:
51
Renegy Holdings, Inc.
Attn: Investor Relations
3418 N. Val Vista Drive
Mesa, Arizona 85213
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Exchange Act that
involve risks and uncertainties. The words anticipates, believes, estimates, expects,
intends, plans, will and similar expressions identify forward-looking statements, which are
based on information available to us on the date hereof. We assume no obligation to publicly update
or revise any such forward-looking statements.
You should not place undue reliance on forward-looking statements. They are subject to known and
unknown risks, uncertainties, and other factors that may cause our actual results to be materially
different from any future results expressed or implied by the forward-looking statements.
Should the underlying assumptions associated with these forward-looking statements, or should one
or more of the risks or uncertainties described in the section entitled Risk Factors located
within Part I, Item 1 of our 2007 Annual Report on Form 10-KSB and elsewhere in our 2007 Annual
Report on Form 10-KSB, as well as in our most recently filed Form 10-Q, occur, our actual results
could differ materially from those anticipated in these forward-looking statements.
OTHER MATTERS
The Company does not currently intend to bring before the Special Meeting any matters other than
those set forth herein, and has no present knowledge that any other matters will or may be brought
before the meeting by others. However, if any other matters properly come before the meeting, it
is the intention of the persons named in the enclosed form of Proxy to vote the Proxies in
accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Robert M. Worsley
Chairman and Chief Executive Officer
[ ], 2009
52
EXHIBIT A
FORM OF
REVERSE STOCK SPLIT
AMENDMENT
(A) ARTICLE IV, Paragraph 1 entitled Total Capital Authorized, of the Amended and Restated
Certificate of Incorporation of Renegy Holdings, Inc. is hereby amended and replaced in its
entirety as follows:
1. Total Capital Authorized.
The total number of shares of which the Corporation shall have authority to issue is [INSERT #
(A) BELOW BASED ON PROPOSAL APPROVED BY STOCKHOLDERS], consisting of [INSERT # (B) BELOW BASED ON
PROPOSAL APPROVED BY STOCKHOLDERS] shares of Common Stock having a par value of $0.001 per share
(the
Common Stock
) and One Million Five Hundred Thousand (1,500,000) shares of Preferred Stock
with a par value of $0.001 per share (the
Preferred Stock
).
(B) Effective at the date and time this amendment to the Amended and Restated Certificate of
Incorporation is accepted by the Secretary of State of the State of Delaware (the
Effective
Time
), each [INSERT RATIO (C) BELOW ON PROPOSAL APPROVED BY STOCKHOLDERS] of the Corporations
Common Stock then issued and outstanding shall be automatically converted into one fully-paid and
non-assessable share of Common Stock (the
Reverse Stock Split
). In lieu of the issuance of any
fractional shares of Common Stock or scrip of less than one whole share of Common Stock that would
otherwise result from the Reverse Stock Split, any holder of shares of Common Stock who would
otherwise be entitled to receive less than one share in total shall be entitled to receive the
amount of $
[ ]
in cash for each share of Common Stock held immediately prior to the Effective
Time. This subsection (B) of this Certificate of Amendment shall affect only issued and
outstanding shares of the Corporation and shall not affect the total authorized number of shares.
(C) This Certificate of Amendment shall not change the stated capital or paid-in surplus referable
to the shares of Common Stock, if any.
Note:
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(a)
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(b)
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(c)
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Total
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Common
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Ratio
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1-for-[ ] Proposal
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1-for-[ ] Proposal
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A-1
EXHIBIT B
FORM OF
FORWARD STOCK SPLIT
AMENDMENT
(A) ARTICLE IV, Paragraph 1 entitled Total Capital Authorized, of the Amended and Restated
Certificate of Incorporation of Renegy Holdings, Inc. is hereby amended and replaced in its
entirety as follows:
1. Total Capital Authorized.
The total number of shares of stock which the Corporation shall have authority to issue is
Forty-Four Million Five Hundred (44,500,000) shares, comprised of Forty-Three Million (43,000,000)
shares of Common Stock with a par value of $0.001 per share (the
Common Stock
) and One Million
Five Hundred Thousand (1,500,000) shares of Preferred Stock with a par value of $0.001 per share
(the
Preferred Stock
).
(B) Effective at the date and time this amendment to the Amended and Restated Certificate of
Incorporation is accepted by the Secretary of State of the State of Delaware (the
Effective
Time
), each share of the Corporations Common Stock then issued and outstanding shall be
automatically converted into [INSERT RATIO BELOW BASED ON PROPOSAL APPROVED BY STOCKHOLDERS] fully
paid and non-assessable shares of Common Stock. This subsection (B) of this Certificate of
Amendment shall affect only issued and outstanding shares of Common Stock of the Corporation and
shall not affect the total authorized number of shares.
(C) This Certificate of Amendment shall not change the stated capital or paid-in surplus referable
to the shares of Common Stock, if any.
Notes:
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1-for-[ ] Proposal:
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[ ] ([ ])
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1-for-[ ] Proposal:
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[ ] ([ ])
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B-1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
RENEGY HOLDINGS, INC.
SPECIAL MEETING OF STOCKHOLDERS
[ ], 2009
The undersigned stockholder of Renegy Holdings, Inc., a Delaware corporation, hereby acknowledges
receipt of the Notice of Special Meeting of Stockholders and Proxy Statement, each dated [ ],
2009 and hereby appoints Robert M. Worsley and Robert W. Zack, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Special Meeting of Stockholders of Renegy
Holdings, Inc., to be held on [ ], 2009 at 10:00 a.m., local time, at Renegy Holdings, Inc., 3418
N. Val Vista Drive, Mesa, Arizona 85213, and at any postponement(s) or adjournment(s) thereof, and
to vote all shares of common stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side and, in their discretion, upon
such other matter or matters that may properly come before the meeting and any postponement(s) or
adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
(1) TO APPROVE AMENDMENTS TO RENEGYS CERTIFICATE OF INCORPORATE TO EFFECT EITHER A ONE-FOR-[ ]
REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF RENEGYS COMMON STOCK, FOLLOWED BY A [ ]-FOR-ONE
FORWARD STOCK SPLIT, OR A ONE-FOR-[ ] REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF RENEGYS
COMMON STOCK, FOLLOWED BY A [ ]-FOR-ONE FORWARD STOCK SPLIT, AND (2) AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT BOX ON THE REVERSE SIDE
(Continued and to be signed on reverse side)
(FOLD AND DETACH HERE)
SPECIAL MEETING OF STOCKHOLDERS [ ], 2009
10:00 a.m., local time, at Renegy Holdings, Inc.
3418 N. Val Vista Drive, Mesa, Arizona 85213.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR EACH OF THE FOLLOWING PROPOSALS.
Please Mark your votes as indicated in this example [X]
1.
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TO APPROVE AMENDMENTS TO RENEGYS CERTIFICATE OF INCORPORATE TO EFFECT, AT THE DISCRETION OF
THE BOARD OF DIRECTORS, EITHER (A) A ONE-FOR-[ ] REVERSE STOCK SPLIT OF THE OUTSTANDING
SHARES OF RENEGYS COMMON STOCK, FOLLOWED BY A [ ]-FOR-ONE FORWARD STOCK SPLIT OR (B) A
ONE-FOR-[ ] REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF RENEGYS COMMON STOCK, FOLLOWED
BY A [ ]-FOR-ONE FORWARD STOCK SPLIT (THE TRANSACTION).
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FOR
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AGAINST
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ABSTAIN
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I PLAN TO ATTEND THE MEETING
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COMMENTS/ADDRESS CHANGE
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Please mark this if you have written comments/address change
on the reverse side
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(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his or her name
appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held by joint tenants or as community property, both
should sign.)
(FOLD AND DETACH HERE)
Renegy Holdings (MM) (NASDAQ:RNGY)
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