UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Under Rule 14a-12
WORLD WASTE TECHNOLOGIES, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT,
IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
World Waste Technologies, Inc. ("WWT") common stock, par value
$0.001 per share, WWT Series A preferred stock, par value $0.001 per
share, and WWT Series B preferred stock, par value $0.001per share
(2) Aggregate number of securities to which transaction applies: (i)
27,596,591 shares of WWT's common stock outstanding as of August 15,
2008 proposed to be acquired in the merger for the per share merger
consideration of one share of common stock, par value $0.001 per
share, of Vertex Energy, Inc. ("Vertex Nevada"); (ii) 4,619,481
shares of WWT's Series A preferred stock outstanding as of August
15, 2008 proposed to be acquired in the merger for the per share
merger consideration of 4.062 shares of Series A preferred stock,
par value $0.001 per share, of Vertex Nevada; and (iii) 244,615
shares of WWT's Series B preferred stock outstanding as of August
15, 2008 proposed to be acquired in the merger for the per share
merger consideration of 116.51 shares of Vertex Nevada's Series A
preferred stock.
(3) 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):
Calculated solely for purposes of determining the filing fee. The
transaction value was determined by adding (a) $446,762, which is
the book value of one share of Vertex Nevada's common stock
multiplied by 27,596,591 shares of Vertex Nevada's common stock (the
merger consideration issuable to the holders of WWT's common stock),
plus (b) $300,230, which is the book value of one share of Vertex
Nevada's Series A preferred stock multiplied by 18,764,331 shares of
Vertex Nevada's Series A preferred stock (the merger consideration
issuable to the holders of WWT's Series A preferred stock, plus (c)
$456,002, which is the book value of one share of Vertex Nevada's
Series A preferred stock multiplied by 28,500,093 shares of Vertex
Nevada's Series A preferred stock (the merger consideration issuable
to the holders of WWT's Series B preferred stock), plus (d) $4.4
million, which is the cash consideration being paid to Vertex
Energy, LP. In accordance with Section 14(g) of the Securities and
Exchange Act of 1934, as amended, the filing fee is equal to $39.30
per million dollars of transaction value.
(4) Proposed maximum aggregate value of transaction: $ 5,602,994
(5) Total fee paid: $221
|_| Fee paid previously with preliminary materials.
|_| 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.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY COPY, SUBJECT TO COMPLETION, AUGUST 28, 2008
WORLD WASTE TECHNOLOGIES, INC.
10600 NORTH DE ANZA BOULEVARD, SUITE 250
CUPERTINO, CALIFORNIA 95014
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
World Waste Technologies, Inc., which will be held on [__________], 2008,
beginning at 10:00 a.m., local time, at 10600 North De Anza Boulevard, Suite
250,Cupertino, California 95014. At the special meeting, our shareholders will
be asked to approve an Amended and Restated Agreement and Plan of Merger, dated
as of May 19, 2008, among World Waste, on the one hand, and Vertex Energy, LP,
Vertex Energy, Inc. (referred to as Vertex Nevada), Vertex Merger Sub, LLC, and
Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada, on the other
hand.
Upon the completion of the transactions described in the merger agreement,
World Waste will be merged with and into Vertex Merger Sub, LLC, which is a
wholly owned subsidiary of Vertex Nevada. If the proposed merger is completed,
(1) each outstanding share of World Waste Series A preferred stock will be
exchanged for 4.062 shares of Vertex Nevada Series A preferred stock, (2) each
outstanding share of World Waste Series B preferred stock will be exchanged for
116.51 shares of Vertex Nevada Series A preferred stock, and (3) each
outstanding share of World Waste common stock will be exchanged for one share of
Vertex Nevada common stock. Although the common stock of Vertex Nevada is not
currently publicly traded, it is anticipated that the common stock will be
traded on the OTC Bulletin Board following the completion of the merger.
In lieu of obtaining shares of Vertex Nevada stock in the merger, a World
Waste shareholder who exercises his or her dissenters' rights in accordance with
California law will be entitled to receive a cash payment from World Waste equal
to the fair market value of the shareholder's stock as of May 19, 2008, which
was the last trading day prior to the announcement of the merger.
As explained in the attached proxy statement, following the completion of
the merger:
o Vertex Nevada will continue to engage primarily in the recycling of
used motor oil and other hydrocarbons. This is accomplished (1)
through Vertex Nevada's Black Oil division, which aggregates used
motor oil from third-party collectors and manages the delivery of
its feedstock primarily to a third-party re-refining facility, and
(2) through Vertex Nevada's Refining and Marketing division, which
aggregates hydrocarbon streams from collectors and generators and
manages the delivery of the hydrocarbon waste products to a
third-party facility for further processing, and then manages the
sale of the end products. In addition, Vertex Nevada proposes to
implement proprietary re-refining technology that will process used
motor oil and convert it to higher value products such as marine
diesel oil and vacuum-gas oil; and
o Vertex Merger Sub, LLC will hold all of the assets and liabilities
of World Waste, including the right to operate World Waste's
existing business (although immediately following the merger, Vertex
Merger Sub will transfer at least $5.0 million to Vertex Nevada,
unless and to the extent this closing condition is modified by the
parties).
Immediately following the merger, World Waste's existing preferred
shareholders will own all of Vertex Nevada's Series A preferred stock, and Mr.
Cowart will own all of Vertex Nevada's Series B preferred stock. Immediately
following the merger and assuming that no shareholders exercise dissenters'
rights: (1) the existing partners of Vertex Energy, LP will own approximately
40% of the outstanding shares of Vertex Nevada capital stock; (2) approximately
4% of the outstanding shares will be held by advisors and consultants to Vertex
Energy, LP, including Chadbourn Securities, Inc., a non-exclusive broker dealer
engaged by World Waste to assist in capital raising and potential merger
transactions; and Liviakis Communications, Inc., World Waste's investor
relations firm and proxy solicitor for the merger; (3) the existing holders of
World Waste's common stock will own approximately 20.5% of the outstanding
shares of Vertex Nevada capital stock; (4) the existing holders of World Waste's
Series A preferred stock will own approximately 14% of the outstanding shares of
Vertex Nevada capital stock; and (5) the existing holders of World Waste's
Series B preferred stock will own approximately 21.5% of the outstanding shares
of Vertex Nevada capital stock (in each case treating as outstanding shares that
are issuable upon the exercise of warrants to acquire shares of common stock at
a nominal exercise price).
Completion of the merger is subject to the satisfaction of a number of
important closing conditions (any of which conditions may be modified or
waived), including:
o approval of the merger agreement by each class of World Waste's
preferred shareholders and its common shareholders;
o approval by the California Commissioner of Corporations of the
fairness of the terms of the issuance of Vertex preferred and common
stock to World Waste's shareholders pursuant to the merger agreement
following a hearing upon the fairness of such terms conducted by the
California Commissioner of Corporations (or, alternatively, a
registration statement registering the issuance of the merger
consideration must be declared effective by the SEC); and
o delivery by World Waste to Vertex Nevada's existing shareholders of
$4.4 million in cash.
AFTER CAREFUL CONSIDERATION, A SPECIAL COMMITTEE OF WORLD WASTE'S BOARD OF
DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT IS FAIR TO, AND IN
THE BEST INTERESTS OF, THE PREFERRED AND COMMON SHAREHOLDERS OF WORLD WASTE AND
RESOLVED TO RECOMMEND THE APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER
AGREEMENT BY WORLD WASTE'S SHAREHOLDERS. WORLD WASTE'S BOARD OF DIRECTORS,
TAKING INTO ACCOUNT THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE,
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER. THE BOARD OF DIRECTORS ALSO
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE ANY
ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT
ADDITIONAL PROXIES.
IN REACHING ITS DECISION, THE SPECIAL COMMITTEE CONSIDERED MANY FACTORS,
INCLUDING AN ORAL OPINION DELIVERED BY LIVINGSTONE PARTNERS, LLC, THE SPECIAL
COMMITTEE'S FINANCIAL ADVISOR, ON AUGUST 6, 2008 AND SUBSEQUENTLY CONFIRMED IN
WRITING THAT, AS OF THAT DATE, AND BASED ON AND SUBJECT TO THE MATTERS SET FORTH
IN THE OPINION, THE MERGER WAS FAIR FROM A FINANCIAL POINT OF VIEW TO EACH CLASS
OF WORLD WASTE'S SHAREHOLDERS.
THE ATTACHED PROXY STATEMENT PROVIDES YOU WITH DETAILED INFORMATION ABOUT
THE MERGER AGREEMENT AND THE SPECIAL MEETING. PLEASE CAREFULLY REVIEW THE PROXY
STATEMENT, INCLUDING ITS APPENDICES. IN PARTICULAR, YOU SHOULD CAREFULLY REVIEW
THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13 OF THE PROXY STATEMENT,
WHICH DESCRIBES RISK FACTORS RELATING TO THE MERGER AND TO THE POST-MERGER
OPERATION OF VERTEX NEVADA'S BUSINESS.
We would like you to attend the special meeting. However, whether or not
you plan to attend the special meeting, it is important for your shares to be
represented at the meeting. PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY
CARD IN THE POSTAGE-PAID ENVELOPE. If you attend the special meeting and vote in
person, your vote by ballot will revoke any proxy previously submitted. If your
shares are held in "street name," you must instruct your broker, bank, or other
nominee in order to vote. Remember, failing to vote has the same effect as a
vote AGAINST the approval of the merger agreement.
If the proposed merger is approved and completed, you will be sent written
instructions for exchanging your World Waste stock certificates for Vertex
Nevada stock certificates. Therefore, please do not mail your stock certificates
to us or to our transfer agent until you have received these instructions.
Sincerely,
/s/ John Pimentel
John Pimentel
Chief Executive Officer
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THE SHARES OF VERTEX NEVADA PREFERRED AND COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THE ATTACHED PROXY STATEMENT IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WORLD WASTE TECHNOLOGIES, INC.
10600 NORTH DE ANZA BOULEVARD, SUITE 250
CUPERTINO, CALIFORNIA 95014
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________], 2008
To the Shareholders of World Waste Technologies, Inc.:
We will hold a special meeting of shareholders of World Waste
Technologies, Inc., a California corporation, on [__________], 2008, beginning
at 10:00 a.m., local time, at 10600 North De Anza Boulevard, Suite
250,Cupertino, California 95014, in order to:
(1) Consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Merger, dated as of May 19, 2008, among World
Waste, on the one hand, and Vertex Energy, LP, Vertex Energy, Inc. (referred to
as Vertex Nevada), Vertex Merger Sub, LLC, and Benjamin P. Cowart, as agent for
the shareholders of Vertex Nevada, on the other hand, pursuant to which World
Waste will be merged with and into Vertex Merger Sub, which is a wholly owned
subsidiary of Vertex Nevada and, except with respect to World Waste shareholders
who exercise their dissenters' rights in compliance with California law:
o each outstanding share of World Waste Series A preferred
stock will be exchanged for 4.062 shares of Vertex
Nevada Series A preferred stock;
o each outstanding share of World Waste Series B preferred
stock will be exchanged for 116.51 shares of Vertex
Nevada Series A preferred stock; and
o each outstanding share of World Waste common stock will
be exchanged for one share of Vertex Nevada common
stock;
(2) Approve the adjournment of the special meeting, if necessary
or appropriate, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the merger agreement; and
(3) Transact such other business that may properly come before the
special meeting or any adjournment of the special meeting.
THE MERGER AND THE MERGER AGREEMENT ARE DESCRIBED MORE FULLY IN THE
ATTACHED PROXY STATEMENT. YOU ARE ENCOURAGED TO REVIEW THE ENTIRE PROXY
STATEMENT CAREFULLY, INCLUDING THE APPENDICES THAT ARE ATTACHED TO THE PROXY
STATEMENT. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THE PROXY
STATEMENT.
WORLD WASTE'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND "FOR" THE PROPOSAL TO APPROVE
ANY ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT
ADDITIONAL PROXIES.
Only shareholders of record of our common stock and preferred stock at the
close of business on [__________], 2008 are entitled to notice of and to vote at
the special meeting and at any adjournment of the special meeting. All
shareholders of record are invited to attend the special meeting in person.
We anticipate that our executive officers, directors and advisors and
their respective affiliates, who beneficially own approximately 12% of our
outstanding common stock, will vote in favor of the merger agreement. In
addition, Eddie Campos and the G&A Zabka Pederson Trust, who beneficially own a
total of approximately 7.4% of our outstanding common stock, have agreed to vote
in favor of the merger agreement.
Approval of the merger agreement requires the approval of the holders, as
of the close of business on the record date, of (1) a majority of the
outstanding shares of World Waste's Series A preferred stock, (2) a majority of
the outstanding shares of World Waste's Series B preferred stock, and (3) a
majority of the outstanding shares of World Waste's common stock.
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE VOTE AS SOON AS POSSIBLE. IF YOU HOLD STOCK IN YOUR NAME AS A SHAREHOLDER
OF RECORD, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU HOLD YOUR STOCK IN "STREET NAME"
THROUGH A BROKER, BANK, OR OTHER NOMINEE, PLEASE DIRECT THE BROKER, BANK, OR
OTHER NOMINEE HOW TO VOTE YOUR SHARES IN ACCORDANCE WITH THE INSTRUCTIONS THAT
YOU HAVE RECEIVED, OR WILL RECEIVE, FROM THAT PERSON.
If you sign, date, and mail your proxy card without indicating how you
wish to vote, your proxy will be voted in favor of the approval of the merger
agreement and in favor of the proposal to adjourn the special meeting to solicit
additional proxies if there are not sufficient votes at the time of the special
meeting to approve the merger agreement. If you fail to return your proxy card
and do not vote in person at the special meeting, it will have the same effect
as a vote against the approval of the merger agreement. Any shareholder
attending the special meeting may vote in person even if he or she has returned
a proxy card. Such a vote at the special meeting will revoke any proxy
previously submitted.
Each World Waste shareholder who does not vote in favor of the approval of
the merger agreement will have the right to require World Waste to purchase his
or her shares, in cash, for the fair value of the shares, but only if (1) the
merger is completed and (2) the shareholder complies with the requirements of
California law for the exercise of dissenters' rights that are summarized in the
attached proxy statement.
By Order of the Board of Directors
Matthew Lieb
Corporate Secretary
[__________], 2008
WORLD WASTE TECHNOLOGIES, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________], 2008
This proxy statement is being furnished to the shareholders of World Waste
Technologies, Inc., a California corporation ("WORLD WASTE"), in connection with
the solicitation of proxies by our board of directors for use at the special
meeting of our shareholders to be held on [__________], 2008, beginning at 10:00
a.m., local time, at 10600 North De Anza Boulevard, Suite 250,Cupertino,
California 95014, and at any adjournment of the special meeting.
At the special meeting, our preferred and common shareholders will be
asked to consider and vote upon a proposal to approve the Amended and Restated
Agreement and Plan of Merger, dated as of May 19, 2008 (the "MERGER AGREEMENT"),
among World Waste, on the one hand, and Vertex Energy, LP, a Texas limited
partnership ("VERTEX LP"), Vertex Energy, Inc., a Nevada corporation ("VERTEX
NEVADA"), Vertex Merger Sub, LLC, a California limited liability company and
wholly owned subsidiary of Vertex Nevada ("MERGER SUBSIDIARY"), and Benjamin P.
Cowart ("MR. COWART"), as agent for the shareholders of Vertex Nevada, on the
other hand.
If the merger agreement is approved, (1) World Waste will be merged with
and into Merger Subsidiary (the "MERGER"), and (2) you will receive shares of
Vertex Nevada stock in exchange for your shares of World Waste preferred stock
and common stock on the terms described in this proxy statement. The shares of
Vertex Nevada stock to be issued in the merger are referred to in this proxy
statement as the "MERGER CONSIDERATION". A copy of the merger agreement is
attached to this proxy statement as Appendix A.
WE URGE YOU TO READ THE ENTIRE PROXY STATEMENT, INCLUDING THE ATTACHED
APPENDICES. IN PARTICULAR, YOU SHOULD CAREFULLY REVIEW THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROXY STATEMENT, WHICH DESCRIBES
RISK FACTORS RELATING TO THE MERGER AND TO THE POST-MERGER OPERATION OF VERTEX
NEVADA'S BUSINESS.
This proxy statement is dated [_______], 2008 and is first being mailed to
shareholders on or about [_______], 2008.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER.................1
SUMMARY OF THE PROXY STATEMENT.................................................6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION....................13
RISK FACTORS..................................................................14
THE SPECIAL MEETING OF WORLD WASTE'S SHAREHOLDERS.............................25
THE MERGER....................................................................28
DISSENTERS' RIGHTS FOR SHAREHOLDERS OF WORLD WASTE............................52
THE MERGER AGREEMENT..........................................................55
ADJOURNMENT OF THE SPECIAL MEETING............................................65
BUSINESS OF VERTEX NEVADA.....................................................66
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION...................74
SELECTED HISTORICAL FINANCIAL DATA OF VERTEX ENERGY, L.P......................75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - VERTEX NEVADA.....................................76
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS - VERTEX NEVADA..........88
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF VERTEX NEVADA
FOLLOWING THE MERGER......................................................91
BUSINESS OF WORLD WASTE.......................................................95
BENEFICIAL OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.....................................................97
DESCRIPTION OF VERTEX NEVADA CAPITAL STOCK...................................100
COMPARISON OF THE RIGHTS OF WORLD WASTE AND VERTEX NEVADA SHAREHOLDERS.......105
SUBMISSION OF SHAREHOLDER PROPOSALS..........................................117
OTHER MATTERS................................................................117
WHERE YOU CAN FIND MORE INFORMATION..........................................117
INDEX TO FINANCIAL STATEMENTS................................................F-1
i
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
THE FOLLOWING QUESTIONS AND ANSWERS ADDRESS BRIEFLY SOME QUESTIONS YOU MAY
HAVE REGARDING THE SPECIAL MEETING AND THE PROPOSED MERGER. THESE QUESTIONS AND
ANSWERS MAY NOT ADDRESS ALL QUESTIONS THAT MAY BE IMPORTANT TO YOU AS A
SHAREHOLDER OF WORLD WASTE. PLEASE REFER TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE APPENDICES TO THIS
PROXY STATEMENT.
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND THE PROXY CARD?
A: You are being asked to approve the merger agreement between World Waste,
on the one hand, and Vertex LP, Vertex Nevada, Merger Subsidiary, and Mr.
Cowart, as agent for the shareholders of Vertex Nevada, on the other hand.
Q: WHAT IS THE PROPOSED TRANSACTION?
A: The proposed transaction is the merger of World Waste into Merger
Subsidiary. As a result of the merger, Vertex Nevada (through its
ownership of Merger Subsidiary) will succeed to all of the rights, assets,
and liabilities of World Waste.
Q: ARE THERE ANY CONDITIONS TO THE COMPLETION OF THE MERGER?
A: Yes. The merger agreement specifies various important closing conditions,
including (1) approval of the merger agreement by our shareholders, (2)
approval by the California Commissioner of Corporations of the fairness of
the terms of the issuance of Vertex Nevada's preferred and common stock to
World Waste's shareholders (or, alternatively, a registration statement
registering the issuance of the merger consideration has been filed and
declared effective by the Securities and Exchange Commission (the "SEC")),
(3) delivery by World Waste to Vertex Nevada's existing shareholders of
$4.4 million in cash prior to the completion of the merger, and (4)
following such payment, World Waste having remaining cash on hand of at
least $5.0 million.
Q: WHAT WILL I RECEIVE FOR MY SHARES OF WORLD WASTE PREFERRED OR COMMON STOCK
IN THE MERGER?
A: If the proposed merger is completed, (1) each outstanding share of World
Waste Series A preferred stock will be exchanged for 4.062 shares of
Vertex Nevada Series A preferred stock, (2) each outstanding share of
World Waste Series B preferred stock will be exchanged for 116.51 shares
of Vertex Nevada Series A preferred stock, and (3) each outstanding share
of World Waste common stock will be exchanged for one share of Vertex
Nevada common stock. Although the common stock of Vertex Nevada is not
currently publicly traded, it is anticipated that the common stock will be
traded on the OTC Bulletin Board following the completion of the merger
and that Vertex Nevada will continue to file reports and other documents
with the SEC as the successor to World Waste. The Vertex Nevada Series A
preferred stock will not be traded on any public market, and there will be
contractual restrictions on the ability of a holder to convert his or her
shares of Series A preferred stock into shares of Vertex Nevada common
stock.
Q: WILL I HAVE DISSENTERS' RIGHTS AS A RESULT OF THE MERGER?
A: Yes. If you do not wish to participate in the merger by receiving shares
of Vertex Nevada stock in exchange for your shares of World Waste stock,
you must not vote in favor of the merger agreement and you must exercise
your dissenters' rights in accordance with the requirements of California
law. A copy of the applicable California statutory provisions is included
as Appendix H to this proxy statement, and a summary of these provisions
can be found in the section entitled "Dissenters' Rights for Shareholders
of World Waste" beginning on page 52 of this proxy statement.
1
Q: WHAT TYPE OF BUSINESS WILL VERTEX NEVADA CONDUCT AFTER THE MERGER?
A: Vertex Nevada will continue to engage primarily in the recycling of used
motor oil and other hydrocarbons. This is accomplished (1) through Vertex
Nevada's Black Oil division, which aggregates used motor oil from
third-party collectors and manages the delivery of this feedstock
primarily to a third-party re-refining facility and (2) through Vertex
Nevada's Refining and Marketing division, which aggregates hydrocarbon
streams from collectors and generators and manages the delivery of the
hydrocarbon waste products to a third-party facility for further
processing, and then manages the sale of the end products. In addition,
Vertex Nevada proposes to implement proprietary re-refining technology
that will process used motor oil and convert it to higher value products
such as marine diesel oil and vacuum-gas oil.
Merger Subsidiary will hold all of the assets and liabilities of World
Waste, including the right to operate World Waste's existing business and
to evaluate and implement strategic options with respect to that business
(although immediately following the merger, Merger Subsidiary will
transfer at least $5.0 million of cash to Vertex Nevada, unless and to the
extent this closing condition is modified by the parties).
Q: WHERE AND WHEN IS THE SPECIAL MEETING?
A: The special meeting of shareholders will be held on [__________], 2008,
beginning at 10:00 a.m., local time at 10600 North De Anza Boulevard,
Suite 250,Cupertino, California 95014.
Q: ARE ALL WORLD WASTE SHAREHOLDERS AS OF THE RECORD DATE ENTITLED TO VOTE AT
THE SPECIAL MEETING?
A: Yes. All shareholders who own World Waste preferred or common stock at the
close of business on [__________], 2008, the record date for the special
meeting, are entitled to receive notice of the special meeting and to vote
the shares of World Waste preferred or common stock that they hold on the
record date at the special meeting, or at any adjournment of the special
meeting.
Q: ARE ALL WORLD WASTE SHAREHOLDERS AS OF THE RECORD DATE ENTITLED TO ATTEND
THE SPECIAL MEETING?
A: Yes. All World Waste shareholders as of the record date, or their legally
authorized proxies named in the proxy card, may attend the special
meeting. Cameras, recording devices, and other electronic devices will not
be permitted at the meeting. If your shares are held in the name of a
broker, bank, or other nominee, you should bring a proxy or letter from
the broker, bank, or other nominee confirming your beneficial ownership of
the shares.
Q: WHAT VOTE OF WORLD WASTE'S SHAREHOLDERS IS REQUIRED TO APPROVE THE MERGER
AGREEMENT?
A: Approval of the merger agreement requires the approval of the holders, as
of the record date of [__________], 2008, of (1) a majority of the
outstanding shares of World Waste's Series A preferred stock, (2) a
majority of the outstanding shares of World Waste's Series B preferred
stock, and (3) a majority of the outstanding shares of World Waste's
common stock. Accordingly, failure to vote or abstaining from voting will
have the same effect as a vote against approval of the merger agreement.
Q. HOW DO WORLD WASTE'S INSIDERS INTEND TO VOTE THEIR SHARES?
A: We expect that World Waste's officers, directors and advisors and their
respective affiliates, who beneficially own approximately 12% of our
outstanding common stock, will vote in favor of the merger agreement. In
addition, Eddie Campos and the G&A Zabka Pederson Trust, who beneficially
own approximately 7.4% of our outstanding common stock, have agreed to
vote in favor of the merger agreement.
2
Q: WHAT WILL HAPPEN IF THE MERGER IS NOT APPROVED?
A: The holders of World Waste's Series A and Series B preferred stock will
likely have the right to force World Waste to redeem their shares of
preferred stock in April 2010 for cash in the amount of approximately $46
million. It is extremely unlikely that World Waste will have funds to meet
this obligation. The shares of preferred stock to be issued to these
shareholders in the merger will not contain such a redemption right. If
the merger is not approved, World Waste's board of directors will review
other alternatives to address this potential obligation. If it is unable
to identify another opportunity or restructure the preferred stock, and if
the holders of World Waste's preferred sock exercise their redemption
right, World Waste would likely be rendered insolvent. In addition, if the
merger does not close, the holders of World Waste's Series A preferred
stock could exercise their right to elect a majority of World Waste's
board of directors, which would give such holders effective control over
World Waste.
Q: DOES OUR BOARD OF DIRECTORS RECOMMEND THAT OUR SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE MERGER AGREEMENT?
A: Yes. After careful consideration, and taking into account the unanimous
recommendation of a special committee of the board of directors formed to
review the terms of the merger, the board of directors, by a unanimous
vote of the directors, recommends that you vote "FOR" the approval of the
merger agreement and "FOR" the proposal to approve any adjournment of the
special meeting, if necessary or appropriate, to solicit additional
proxies. You should read "The Merger - World Waste's Reasons for the
Merger; Recommendation of World Waste's Board of Directors" beginning on
page 30 of this proxy statement for a discussion of the factors that our
board of directors considered in deciding to recommend the approval of the
merger agreement.
In considering the recommendation of the board of directors with respect
to the merger agreement, you should be aware that some of World Waste's
directors and executive officers who participated in meetings of the board
of directors have interests in the merger that are different from, or in
addition to, the interests of our shareholders generally. See "The Merger
- Interests in the Merger of World Waste's Directors, Executive Officers,
and Other Related Persons" beginning on page 44.
Q: WHAT DO I NEED TO DO NOW IF I HOLD WORLD WASTE SHARES IN MY NAME?
A: We urge you to read this proxy statement carefully, including its
appendices. You can then ensure that your shares are voted at the special
meeting by completing, signing, dating, and returning the accompanying
proxy card in the enclosed postage-paid envelope.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, BANK, OR OTHER
NOMINEE, WILL THAT PERSON VOTE MY SHARES FOR ME?
A: Your broker, bank, or other nominee will not vote your shares on your
behalf unless you provide instructions on how to vote. You should follow
the directions provided by your broker, bank, or other nominee regarding
how to provide voting instructions. Without those instructions, your
shares will not be voted, which will have the same effect as voting
AGAINST approval of the merger agreement.
Q: HOW CAN I REVOKE OR CHANGE MY VOTE?
A: You have the right to change or revoke your proxy at any time before the
vote is taken at the special meeting by: (1) attending the special meeting
in person and voting; (2) submitting a later-dated proxy card; or (3)
notifying us that you are revoking your proxy by delivering a later-dated
written statement to that effect to us at World Waste Technologies, Inc.,
10600 North De Anza Boulevard, Suite 250, Cupertino, California 95014,
Attention: Chief Executive Officer. Simply attending the special meeting,
however, will not be sufficient to revoke your proxy. Furthermore, if you
have instructed a broker, bank, or other nominee to vote your shares,
these options for changing your vote do not apply, and instead you must
follow the instructions received from your broker, bank, or other nominee
to change your vote.
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Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD OR VOTE INSTRUCTION
CARD?
A: If your shares are registered differently and are in more than one
account, you will receive more than one proxy card or, if your shares are
held in street name, more than one vote instruction card from your broker,
bank, or other nominee. Please sign, date, and return all of the proxy
cards that you receive to ensure that all of your shares are voted.
Q: WHAT HAPPENS IF I SELL MY SHARES BEFORE THE SPECIAL MEETING?
A: The record date for the special meeting is earlier than the date of the
special meeting and is earlier than the date that the merger, if approved,
will be completed. If you transfer your shares of World Waste preferred or
common stock after the record date but before the special meeting, you
will retain your right to vote those shares. If you transfer your shares
before the date of the merger, you will transfer your right to receive
shares of Vertex Nevada stock in the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible, and we
anticipate that it will be completed by October 15, 2008, assuming
satisfaction or waiver of all of the conditions to the merger that are
specified in the merger agreement. Because the merger is subject to
certain conditions, the exact timing of the completion of the merger and
the likelihood of the consummation of the merger cannot be predicted with
certainty. If any of the conditions in the merger agreement are not
satisfied or waived, the merger agreement may terminate as a result,
including as a result of the failure to satisfy any of the conditions
described under "The Merger Agreement - Closing Conditions" beginning on
page 61 of this proxy statement.
Q: WHO WILL BEAR THE COST OF THIS PROXY SOLICITATION?
A: The expenses of preparing, printing, and mailing this proxy statement and
the proxies solicited by this proxy statement will be borne by World
Waste. Upon request, we will reimburse brokerage houses and other
custodians, nominees, and fiduciaries for their reasonable expenses for
forwarding material to the beneficial owners of shares held of record by
others.
Q: WILL A PROXY SOLICITOR BE USED?
A: Yes. Our investor relations firm, Liviakis Financial Communications, will
assist us in the solicitation of proxies for the special meeting. In
addition, our directors, officers, employees, and other agents may solicit
proxies on our behalf from shareholders by telephone, by other electronic
means, or in person, although such persons will not receive additional
compensation from us for their proxy solicitation activities.
Q: SHOULD I MAIL MY STOCK CERTIFICATES NOW?
A: No. Shortly after the merger is completed, you will receive a letter of
transmittal with instructions informing you how and where to send your
stock certificates in order to receive your portion of the merger
consideration. Therefore, please do not deliver your stock certificates
with your proxy card.
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Q: WHO CAN HELP ANSWER MY OTHER QUESTIONS?
A: If you have more questions about the merger, need assistance in submitting
your proxy or voting your shares, or need additional copies of the proxy
statement or the enclosed proxy card, you can call our proxy solicitor,
Liviakis Financial Communications, at (415) 389-4670. If your broker,
bank, or other nominee holds your shares, you should call that person for
additional information.
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SUMMARY OF THE PROXY STATEMENT
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND
THE MERGER AGREEMENT AND THE MERGER MORE FULLY, YOU SHOULD CAREFULLY READ THIS
ENTIRE PROXY STATEMENT, INCLUDING ITS APPENDICES. THE MERGER AGREEMENT IS
ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT. WE ENCOURAGE YOU TO READ THE
MERGER AGREEMENT AS IT, AND NOT THIS SUMMARY, IS THE LEGAL DOCUMENT THAT GOVERNS
THE MERGER. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE DIRECTING YOU TO
A MORE COMPLETE DESCRIPTION IN THIS PROXY STATEMENT OF THAT TOPIC.
THE PARTIES TO THE MERGER (PAGE 28)
World Waste is a development stage company formed to develop, design,
build, own and operate facilities which employ systems and technologies designed
to profitably convert municipal solid waste and other waste streams into useable
commodities and products. World Waste's principal executive offices are located
at 10600 North De Anza Boulevard, Suite 250, Cupertino, California 95014.
Vertex LP is a Texas-based privately held limited partnership controlled
by Mr. Cowart. Among its various business activities, Vertex LP engages in the
business of recycling used motor oil and other hydrocarbons. This is
accomplished through (1) Vertex Nevada's Black Oil division, which aggregates
used motor oil from third-party collectors and manages the delivery of this
feedstock primarily to a third-party re-refining facility, and (2) through
Vertex Nevada's Refining and Marketing division, which aggregates hydrocarbon
streams from collectors and generators and manages the delivery of the
hydrocarbon waste products to a third-party facility for further processing, and
then manages the sale of the end products. In addition, Vertex Nevada proposes
to implement proprietary re-refining technology that will process used motor oil
and convert it to higher value products such as marine diesel oil and vacuum-gas
oil. The businesses described in the preceding sentence are collectively
referred to in this proxy statement as the "VERTEX NEVADA BUSINESS." The
principal executive offices of Vertex LP, Vertex Nevada, and Merger Subsidiary
are located at 1331 Gemini, Suite 103, Houston, Texas 77058.
Vertex Nevada is a Nevada corporation that was formed by Vertex LP in 2008
to engage in the transactions contemplated by the merger agreement. Vertex
Nevada is owned by Mr. Cowart and other partners of Vertex LP. Vertex Nevada has
not engaged in any business activities other than activities incidental to its
formation and the transactions contemplated by the merger agreement. Prior to
the completion of the merger, Vertex LP will transfer the Vertex Nevada Business
to Vertex Nevada and, as part of that transfer, Vertex Nevada will assume up to
$1.6 million of Vertex LP's indebtedness, as well as other specified liabilities
of Vertex LP.
Merger Subsidiary is a Nevada limited liability company that was formed by
Vertex LP in 2008 to engage in the transactions contemplated by the merger
agreement. Merger Subsidiary is a wholly owned subsidiary of Vertex Nevada and
has not engaged in any business activities other than activities incidental to
its formation and the transactions contemplated by the merger agreement.
THE MERGER (PAGE 28)
The merger agreement provides for World Waste to be merged with and into
Merger Subsidiary, which will continue as the surviving corporation under the
name "World Waste Technologies, Inc." In the merger, except with respect to
World Waste shareholders who exercise their dissenters' rights in compliance
with California law, (1) each outstanding share of World Waste Series A
preferred stock will be exchanged for 4.062 shares of Vertex Nevada Series A
preferred stock, (2) each outstanding share of World Waste Series B preferred
stock will be exchanged for 116.51 shares of Vertex Nevada Series A preferred
stock, and (3) each outstanding share of World Waste common stock will be
exchanged for one share of Vertex Nevada common stock. After the merger, Merger
Subsidiary will remain a wholly owned subsidiary of Vertex Nevada.
6
THE SPECIAL MEETING OF WORLD WASTE'S SHAREHOLDERS (PAGE 25)
TIME, DATE, AND PLACE. The special meeting will be held on [__________],
2008, beginning at 10:00 a.m., local time, at 10600 North De Anza Boulevard,
Suite 250,Cupertino, California 95014, and at any adjournment of the special
meeting.
PURPOSE. The purpose of the special meeting is to consider and vote upon a
proposal to approve the merger agreement and, if necessary or appropriate, to
approve the adjournment of the special meeting to solicit additional proxies if
there are insufficient votes at the time of the special meeting to approve the
merger agreement.
RECORD DATE AND QUORUM. We have fixed the close of business on
[__________], 2008 as the record date for the special meeting, and only
shareholders of record on the record date are entitled to vote at the special
meeting. You may vote all shares of preferred stock and common stock that you
owned of record at the close of business on the record date. The holders of a
majority of the outstanding shares of World Waste's preferred and common stock
entitled to vote at the special meeting, represented in person or by proxy, will
constitute a quorum for purposes of the special meeting.
VOTE REQUIRED. Approval of the merger agreement requires the approval of
the holders, as of the record date of [__________], 2008, of (1) a majority of
the outstanding shares of World Waste's Series A preferred stock, (2) a majority
of the outstanding shares of World Waste's Series B preferred stock, and (3) a
majority of the outstanding shares of World Waste's common stock. You are
entitled to one vote for each share of Series A preferred and/or common stock,
and 40 votes for each share of Series B preferred stock, in each case that you
own as of the record date.
VOTING AND PROXIES. If you hold stock in your name as a shareholder of
record, you may vote in person at the meeting, by returning the accompanying
proxy card in the enclosed postage-paid envelope. If you hold your stock in
"street name" through a broker, bank, or other nominee, you must direct the
broker, bank, or other nominee how to vote your shares in accordance with the
instructions that you have received, or will receive, from that person.
RIGHT TO REVOKE PROXIES. If you hold stock in your name as a shareholder
of record, you have the right to change or revoke your proxy at any time before
the vote is taken at the special meeting by: (1) attending the special meeting
in person and voting; (2) submitting a later-dated proxy card; or (3) notifying
us that you are revoking your proxy by delivering a later-dated written
statement to that effect to us at World Waste Technologies, Inc., 10600 North De
Anza Boulevard, Suite 250, Cupertino, California 95014, Attention: Chief
Executive Officer.
RISK FACTORS (PAGE 14)
In evaluating the merger and the merger agreement and before deciding how
to vote your shares of World Waste preferred or common stock, you should
carefully review the section of this proxy statement entitled "Risk Factors,"
which describes risk factors relating to the merger and to the post-merger
operation of Vertex Nevada's business.
REASONS FOR THE MERGER (PAGE 30)
World Waste's board of directors unanimously believes that the merger
represents the best available opportunity to maximize the value of our preferred
and common shareholders' ownership interests in World Waste given our current
financial condition and business prospects.
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RECOMMENDATION OF WORLD WASTE'S BOARD OF DIRECTORS (PAGE 30)
Our board of directors, after taking into account the unanimous
recommendation of a special committee of our board of directors formed to review
the terms of the merger, by a unanimous vote of the directors, has determined
that the merger agreement is fair to, and in the best interests of, the
preferred and common shareholders of World Waste, has approved and authorized in
all respects the merger agreement, and recommends that you vote "FOR" the
approval of the merger agreement. The board of directors also unanimously
recommends that you vote "FOR" the proposal to approve any adjournment of the
special meeting, if necessary or appropriate, to solicit additional proxies.
FAIRNESS OPINION OF LIVINGSTONE PARTNERS LLC (PAGE 34)
In connection with the merger and the merger agreement, the special
committee of our board of directors received a written opinion, dated August 6,
2008, from Livingstone Partners LLC, our financial advisor, as to the fairness,
from a financial point of view and as of the date of the opinion, of the merger
consideration to be received by holders of our preferred and common stock. The
full text of Livingstone's written opinion is attached to this proxy statement
as Appendix F. We encourage you to read the opinion carefully in its entirety
for a description of the assumptions made, procedures followed, matters
considered, and limitations on the review undertaken.
Livingstone's opinion was provided to the special committee of our board
of directors in connection with the special committee's evaluation of the merger
consideration from a financial point of view and does not address any other
aspect of the merger or the merger agreement. Livingstone's opinion does not
constitute a recommendation to any shareholder as to how such shareholder should
vote or act with respect to the merger, the merger agreement, or any other
matter.
INTERESTS IN THE MERGER OF WORLD WASTE'S DIRECTORS, EXECUTIVE OFFICERS AND OTHER
RELATED PERSONS (PAGE 44)
As of June 30, 2008, our directors and executive officers beneficially
owned approximately 18.50% of our outstanding common stock (including shares of
common stock issuable upon exercise of stock options). In considering the
recommendation of World Waste's board of directors, you should be aware that
some of our directors and executive officers have interests in the merger that
are different from, or in addition to, the interests of our shareholders
generally that may present actual or potential conflicts of interests. These
interests include the following:
Chadbourn Securities, Inc. ("Chadbourn"), a non-exclusive broker dealer
engaged by World Waste to assist in capital raising and potential merger
transactions, initially identified the Vertex Nevada merger opportunity (see
"Background of the Merger"). Chadbourn has advised Vertex Nevada and Mr. Cowart
in structuring the merger. In consideration therefore and for continued support
and involvement going forward, Vertex Nevada has agreed to issue Chadbourn and
some of its affiliates a total of 2,350,000 shares of Vertex Nevada's common
stock, representing approximately 1.7% of the total outstanding shares of
capital stock of Vertex Nevada immediately following the merger. Laird Q. Cagan
is a managing director of Chadbourn and of Cagan McAfee Capital Partners, a
strategic advisory firm at which John Pimentel has been affiliated with CMCP
since 2002 and it is anticipated that since 2002.
Kevin Martin and Dan Walsh, registered brokers with First Montauk
Securities, will each be issued 100,000 shares of Vertex Nevada common stock for
their ongoing support and advisory services to the combined company. First
Montauk previously served as a placement agent for World Waste's offering of
Series B preferred stock that closed in the second quarter of 2006, for which it
received investment banking fees.
8
Each existing director of World Waste (other than Mr. Pimentel) holds
restricted shares of World Waste's common stock that are subject to forfeiture
under certain circumstances. Because the merger will be deemed to be a "change
in control" (as defined in the agreements pursuant to which such shares were
issued), upon the closing of the merger, the forfeiture provisions will
automatically terminate.
Upon consummation of the merger, Mr. Pimentel will serve as a member of
Vertex Nevada's board of directors as the designee of the holders of Vertex
Nevada's Series A preferred stock. It is currently anticipated that, following
the merger, Mr. Pimentel will also serve Vertex Nevada in a consulting capacity,
assisting management with strategic planning, finance, and in formulating
business development initiatives. It is anticipated that Mr. Pimentel will
receive cash and/or additional equity compensation for providing such services,
the form and amount of which compensation has not yet been determined.
Certain other members of World Waste's management (including Matthew Lieb,
our Chief Operating Officer, and Adam Shore, our interim Chief Financial
Officer) may also be asked by Vertex Nevada to provide Vertex Nevada with
consulting or other services following the merger, for which they will receive
compensation.
VOTING AGREEMENT WITH CERTAIN SHAREHOLDERS (PAGE 44)
Eddie Campos and the G & A Zabka Pederson Trust, who beneficially own a
total of approximately 7.4% of our outstanding common stock, have entered into a
voting agreement with us pursuant to which they have agreed to vote their shares
of common stock in favor of the merger.
INTERESTS OF VERTEX NEVADA'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
(PAGE 45)
Certain directors and executive officers of Vertex Nevada have interests
in the merger that are different from, or in addition to, the interests of
Vertex Nevada shareholders generally, including the following:
o In connection with the merger, Vertex Nevada will enter into an employment
agreement with Benjamin P. Cowart pursuant to which Vertex Nevada will
hire Mr. Cowart to serve as its Chief Executive Officer for a term of five
(5) years at a base salary of $190,000, and a bonus payment (to be
determined in the sole discretion of Vertex Nevada's compensation
committee).
o It is a condition to the obligation of the parties to close the merger
that all personal guarantees given by Mr. Cowart and his family members
with respect to $1.6 million of certain of Vertex LP's indebtedness be
removed.
o In connection with the merger, Vertex Nevada will be entering into certain
agreements with companies controlled by Vertex LP. These agreements
include a sublease granting Vertex Nevada the exclusive right to use a
specified portion of the property for certain purposes in connection with
Vertex Nevada's business and operations, and an equipment purchase and
sale agreement providing for the sale to Vertex Nevada of equipment to be
used by Vertex Nevada on such property in the aggregate amount of $1.5
million, which purchase price would be funded from the earnings generated
by certain of Vertex Nevada's anticipated re-refining operations.
o Some of Vertex Nevada officers and directors will be receiving options to
acquire shares of Vertex Nevada's common stock.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 47)
We anticipate that the merger will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and
that a preferred or common shareholder of World Waste generally will not
recognize any gain or loss for U.S. federal income tax purposes by reason of the
exchange in the merger of shares of World Waste preferred or common stock for
shares of Vertex Nevada preferred or common stock.
9
THE FEDERAL INCOME TAX CONSEQUENCES SUMMARIZED ABOVE MAY NOT APPLY TO ALL
WORLD WASTE SHAREHOLDERS. YOUR TAX CONSEQUENCES WILL DEPEND UPON YOUR INDIVIDUAL
SITUATION. THEREFORE, WE STRONGLY ENCOURAGE YOU TO CONSULT WITH YOUR TAX ADVISOR
FOR A FULL UNDERSTANDING OF THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO
YOU.
DISSENTERS' RIGHTS (PAGE 52)
Under California law, you are entitled to dissenters' rights in connection
with the merger. If you submit a demand to us for the purchase of your shares in
accordance with Chapter 13 of the California General Corporation Law following
shareholder approval of the merger agreement, and if you do not vote your shares
in favor of the merger agreement, you will be entitled to receive a cash payment
equal to the fair market value of your preferred or common shares as of May 19,
2008, provided that you must comply with the procedures set forth in Chapter 13.
This cash payment from us for your shares may be more than, less than, or the
same as the value of the merger consideration for your shares.
Your failure to follow exactly the procedures specified under California
law will result in the loss of your dissenters' rights, and merely voting
against approval of the merger agreement will not perfect your dissenters'
rights. The relevant sections from Chapter 13 of the California General
Corporation Law are attached as Appendix H to this proxy statement.
IF YOU VOTE IN FAVOR OF THE MERGER AGREEMENT, YOU WILL WAIVE YOUR
DISSENTERS' RIGHTS UNDER CALIFORNIA LAW.
MATERIAL DIFFERENCES BETWEEN WORLD WASTE'S SECURITIES AND VERTEX NEVADA'S
SECURITIES (PAGE 104)
There are important differences between the rights, privileges,
restrictions, and preferences of World Waste's Series A preferred stock and
Series B preferred stock and those of the Vertex Nevada Series A preferred stock
that our preferred shareholders will receive in the merger. There are also
important differences between the rights and laws applicable to World Waste
common stock and the rights and laws applicable to the Vertex Nevada common
stock that our common shareholders will receive in the merger.
CONDITIONS TO CLOSING THE MERGER; REQUIRED REGULATORY APPROVALS (PAGE 61)
Before the merger can be completed, a number of closing conditions must be
satisfied or waived by both parties, including the following, among other
conditions:
o the merger agreement must be approved by our preferred and common
shareholders;
o the California Commissioner of Corporations must approve the
fairness of the terms of the issuance of Vertex Nevada preferred and
common stock to World Waste's shareholders pursuant to the merger
agreement following a hearing upon the fairness of such terms
conducted by the California Commissioner of Corporations (or,
alternatively, a registration statement registering the issuance of
the merger consideration must be declared effective by the SEC);
o we must be satisfied with the results of our due diligence
investigation of Vertex Nevada;
o Vertex LP must transfer the Vertex Nevada Business to Vertex Nevada;
10
o each current Vertex Nevada shareholder must sign a lock-up agreement
prohibiting such shareholder from, among other things, selling any
shares of Vertex Nevada common stock for one year;
o we must deliver to Vertex Nevada's existing shareholders $4.4
million in cash;
o after taking into account the payment of $4.4 million by us to
Vertex Nevada's shareholders, we must have cash and cash equivalents
of at least $5.0 million, inclusive of the proceeds of up to $2.4
million of permitted indebtedness; and
o guarantees given by Mr. Cowart and members of his family of Vertex
LP indebtedness to be assumed by Vertex Nevada must be terminated.
CERTAIN CLOSING CONDITIONS MAY BE WAIVED IN WHOLE OR IN PART (PAGE 63)
Because we may not be able to satisfy all of the conditions to closing the
merger, we may seek to have Vertex Nevada waive or modify certain of these
conditions prior to closing. For example, we may seek to modify the requirement
that we pay the Vertex Nevada shareholders $4.4 million in cash, to provide that
a portion of this consideration may be payable in the form of post-closing
indebtedness of Vertex Nevada or in additional equity of Vertex Nevada. We may
also seek to modify the requirement that we have at least $5.0 million of cash
on hand at closing, to provide that a portion of this amount may be in the form
of non-cash consideration. We may also seek a waiver of the condition that the
personal guarantees of Mr. Cowart be removed from the existing indebtedness of
Vertex LP being assumed by Vertex Nevada in the merger, by providing some
additional form of debt or equity consideration to Mr. Cowart. Approval of the
merger by our shareholders includes approval of any of these modifications to
the closing conditions.
TREATMENT OF OUTSTANDING STOCK OPTIONS AND WARRANTS IN THE MERGER (PAGE 56)
Each option and warrant to acquire shares of World Waste common stock
outstanding immediately prior to the merger will be assumed by Vertex Nevada in
the merger and become an option or warrant to acquire the equivalent number of
shares of Vertex Nevada common stock. In addition, pursuant to the merger,
certain shareholders of Vertex Nevada immediately prior to the merger will be
issued options and warrants of Vertex Nevada with generally the same terms and
conditions as World Waste's options and warrants being assumed by Vertex Nevada
in the merger, in an amount such that such existing Vertex Nevada shareholders
will hold, immediately upon closing of the merger, 40% of the total number of
outstanding options and warrants of Vertex Nevada (exclusive of warrants to
purchase shares with a nominal exercise price and exclusive of up to 6,000,000
outstanding options which will be held by Vertex Nevada's employees, directors,
and consultants at the time of the merger).
RIGHT TO ELECT DIRECTORS OF VERTEX NEVADA (PAGE 43)
Mr. Cowart is the sole holder of shares of Vertex Nevada Series B
preferred stock, which shares have no economic rights but entitle the holder to
elect four of the five members of Vertex Nevada's board of directors, at least
one of whom must be "independent" as defined by the New York Stock Exchange. The
holders of Vertex Nevada Series A preferred stock will be entitled to elect the
fifth Vertex Nevada director. Accordingly, so long as the shares of Vertex
Nevada Series B preferred stock are outstanding, the holders of shares of Vertex
Nevada common stock will not have the right to vote for the election of
directors.
Mr. Cowart has advised us that immediately subsequent to the merger, the
board of directors of Vertex Nevada will consist of: Dan Borgen, Benjamin P.
Cowart, Ingram Lee, David Phillips and John Pimentel. Mr. Pimentel will be
deemed to be the designee of the holder of the Vertex Nevada Series A preferred
stock.
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STOCK MARKET OF VERTEX NEVADA AFTER THE MERGER (PAGE 50)
Although the common stock of Vertex Nevada is not currently publicly
traded, we anticipate that the Vertex Nevada common stock will be traded on the
OTC Bulletin Board following the completion of the merger and that Vertex Nevada
will continue to file reports and other documents with the SEC as the successor
to World Waste. The Vertex Nevada Series A preferred stock will not be traded on
any public market, and there will be restrictions on the ability of a holder to
convert his or her shares of Vertex Nevada Series A preferred stock into shares
of Vertex Nevada common stock.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We caution you that this proxy statement contains forward-looking
statements regarding, among other things, the proposed merger and the
anticipated consequences and benefits of such transaction, and other financial,
business, and operational items relating to the parties to the merger agreement.
Forward-looking statements involve known and unknown risks, assumptions,
uncertainties, and other factors. Statements made in the future tense, and
statements using words such as "may," "can," "will," "could," "should,"
"predict," "aim'" "potential," "continue," "opportunity," "intend," "goal,"
"estimate," "expect," "expectations," "project," "projections," "plans,"
"anticipates," "believe," "think," "confident" "scheduled" or similar
expressions are intended to identify forward-looking statements. Forward-looking
statements are not a guarantee of performance and are subject to a number of
risks and uncertainties, many of which are difficult to predict and are beyond
our control. These risks and uncertainties could cause actual results to differ
materially from those expressed in or implied by the forward-looking statements,
and therefore should be carefully considered. We caution you not to place undo
reliance on the forward-looking statements, which speak only as of the date of
this proxy statement. We disclaim any obligation to update any of these
forward-looking statements as a result of new information, future events, or
otherwise, except as expressly required by law.
YOU SHOULD REVIEW THE SECTION OF THIS PROXY STATEMENT ENTITLED "RISK
FACTORS" FOR A DISCUSSION OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
13
RISK FACTORS
IN ADDITION TO THE INFORMATION THAT IS CONTAINED IN OTHER SECTIONS OF THIS
PROXY STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE
DECIDING WHETHER TO VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
RISKS RELATING TO THE MERGER
WE MAY NOT BE ABLE TO SATISFY THE CONDITIONS TO CLOSE THE MERGER, IN WHICH CASE
THE MERGER MAY NOT BE CONSUMMATED.
The closing of the merger is subject to a number of closing conditions,
many of which are beyond our control. These conditions include, but are not
limited to, (1) approval of the merger by each class of our shareholders, (2)
that we have sufficient cash on hand in order to pay the Vertex Nevada
shareholders $4.4 million, (3) that we have at least $5.0 million of cash on
hand at closing, and (4) that the terms of Vertex Nevada's capital stock to be
issued to our stockholders in the merger are approved by the California
Department of Corporations following a hearing upon the fairness of such terms
(or that the issuance of such shares is registered with the SEC). Based on our
current cash position, we may not have sufficient cash on hand to satisfy the
latter two conditions. If this were to be the case, we would attempt to
renegotiate these closing conditions with Vertex Nevada. However, Vertex Nevada
would be under no obligation to agree to any such modifications, in which case
we would be unable to close the merger.
AN ALTERNATIVE TO THE MERGER MAY NOT BE AVAILABLE TO US AND, IF AVAILABLE AND
COMPLETED, MAY BE LESS ATTRACTIVE TO OUR EQUITY HOLDERS THAN THE MERGER.
We believe that the completion of the merger is critical to our continuing
viability. If the merger is not completed we may be forced to consider an
alternative transaction, including a restructuring of our capitalization. An
alternative transaction or restructuring arrangement may not be available, or if
available, may not be on terms as favorable to our equity holders as the terms
of the merger.
CONSUMMATION OF THE MERGER WILL RESULT IN SIGNIFICANT DILUTION TO OUR COMMON
SHAREHOLDERS.
Upon consummation of the merger, the equity interests of our existing
common shareholders, as a percentage of the total number of outstanding shares
of our capital stock, will be significantly diluted. Assuming that none of our
shareholders properly exercise their dissenters' rights under California law,
holders of our common stock, who currently own an aggregate of approximately 65%
of our total outstanding shares of capital stock (assuming full conversion of
our outstanding shares of preferred stock), will be issued an aggregate of
approximately 27.6 million shares of Vertex Nevada's common stock in the merger,
representing approximately 20.5% of Vertex Nevada's outstanding capital stock
immediately following the merger. Vertex Nevada may need to issue additional
shares of capital stock in the future to fund its business, which could lead to
further dilution of the common shareholders' ownership interests.
FOLLOWING THE MERGER, BENJAMIN P. COWART WILL CONTROL VERTEX NEVADA.
Following the merger, Benjamin P. Cowart, Vertex Nevada's Chairman and
Chief Executive Officer, will beneficially own a total of approximately 35.5% of
the total outstanding shares of Vertex Nevada capital stock, and 100% of the
Vertex Nevada Series B preferred stock. The Vertex Nevada Series B preferred
stock entitles the holder thereof to appoint four of the five Vertex Nevada
directors. Accordingly, following the merger, and at least until all of the
shares of Vertex Nevada Series B preferred stock have been redeemed, Mr. Cowart
will have the right, subject to certain restrictions on his ability to
participate in decisions regarding related-party transactions, to exercise
significant control over Vertex Nevada, including making decisions with respect
to issuing additional shares, entering into mergers, asset sales, and other
fundamental transactions, and amending the terms of Vertex Nevada's articles of
incorporation.
14
WE CANNOT ASSURE YOU THAT A MARKET WILL EXIST FOR VERTEX NEVADA'S COMMON STOCK.
There is currently no market for any of the shares of Vertex Nevada common
or preferred stock to be issued in the merger. Although Vertex Nevada is
expected to continue filing reports with the SEC as the successor to World Waste
in the merger, we cannot assure you that any market will develop for the Vertex
Nevada common stock. In addition, although Vertex Nevada will seek to have its
shares of common stock approved for quotation on the OTC bulletin board, it is
likely that such approval will not occur until following the merger. In any
event, we cannot assure you that you will be able to sell your shares on the
open market.
BENJAMIN P. COWART, VERTEX NEVADA'S CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD, OWNS AND IS INVOLVED IN OTHER BUSINESSES THAT HAVE RELATIONSHIPS AND
AGREEMENTS WITH VERTEX LP RELATING TO THE VERTEX NEVADA BUSINESS THAT ARE
EXPECTED TO CONTINUE FOLLOWING THE CLOSING OF THE MERGER. THESE RELATIONSHIPS
MAY CAUSE CONFLICTS OF INTEREST WITH VERTEX NEVADA.
Benjamin P. Cowart, Vertex Nevada's Chief Executive Officer and Chairman
of the Board, also serves as the General Partner of and controls several other
entities through VTX, Inc. (collectively, the "VERTEX ENTITIES"), that have
entered into transactions with, supplied feedstock for, and performed various
business services for, the Vertex Nevada Business. It is anticipated that these
transactions and relationships will continue following the merger, and are
expected to include the following:
o Cross Road Carriers will transport Vertex Nevada's feedstock and refined
and re-refined petroleum products;
o Vertex Recovery and its subsidiaries will resell feedstock to Vertex
Nevada;
o Vertex Nevada will sublease terminal space from Cedar Marine Terminal LP
and may purchase certain re-refining assets, and perform certain other
services for, Cedar Marine Terminal pursuant to agreements described
elsewhere in this proxy statement; and
o Vertex Residual Management Group LP will perform environmental compliance
and regulatory oversight for Vertex Nevada.
Vertex Nevada has (1) a right of first refusal to match any third-party
offer to purchase any of the Vertex Entities on the terms and conditions set
forth in such offer; and (2) the option, exercisable in Vertex Nevada's sole
discretion any time after the 18-month anniversary of the closing of the merger
and so long as Mr. Cowart is employed by Vertex Nevada, to purchase all or any
part thereof of the outstanding stock of any of the Vertex Entities owned by
Vertex LP or VTX, Inc., at a price based on an independent third-party
evaluation and appraisal of the fair market value of such Vertex Entity (the
"RIGHT OF FIRST Refusal"). Pursuant to the merger agreement, Vertex Nevada is
required to form a committee of its board of directors (the "RELATED PARTY
TRANSACTION COMMITTEE") that includes at least two "independent directors"
(defined as any individuals who do not beneficially own more than 5% of the
outstanding voting shares of Vertex Nevada, are not employed by, or officers of,
Vertex Nevada or any entity related to Mr. Cowart, are not directors or managers
of any such company, are not family members of Mr. Cowart, and would qualify as
"Independent Directors" as defined in the rules and regulations of the New York
Stock Exchange). The Related Party Transaction Committee will be charged with
the review and pre-approval of any and all related party transactions, including
between Vertex Nevada and Vertex LP, Mr. Cowart, or any other company or
individual which may be affiliated with Mr. Cowart.
15
Notwithstanding the Right of First Refusal and the Related Party
Transaction Committee, perceived or actual conflicts of interest may exist
between Mr. Cowart and Vertex Nevada in connection with the Vertex Entities
and/or any other entity which Mr. Cowart may be affiliated and/or control in the
future. Furthermore, if any disagreement were to occur between Mr. Cowart and/or
any Vertex Entity, Vertex Nevada may be forced to find alternative suppliers and
contractors to supply the services or products then supplied by any of the
Vertex Entities, which new arrangements may not be on as favorable terms to
Vertex Nevada, and/or Mr. Cowart may be forced to make a decision between
remaining in control of any of the Vertex Entities and/or Vertex Nevada. Such
perceived or actual conflicts of interest may cause potential investors to not
be willing to invest in Vertex Nevada, which could make it harder for Vertex
Nevada to raise funds through the sale of debt and/or equity securities and/or
cause Vertex Nevada's securities to be devalued. As a result of these perceived
and/or actual conflicts of interest, the value of Vertex Nevada's securities may
decrease in value and/or be valued less than similarly situated publicly traded
companies without such potential conflicts of interest.
DUE TO THE DIFFERENCES IN THE PRIVILEGES, PROTECTIONS AND PREFERENCES BETWEEN
THE VERTEX NEVADA SERIES A PREFERRED STOCK AND THE EXISTING WORLD WASTE
PREFERRED STOCK, EXISTING HOLDERS OF WORLD WASTE PREFERRED STOCK WILL LOSE
SIGNIFICANT PROTECTIONS IF THE MERGER IS CONSUMMATED.
The shares of Vertex Nevada Series A preferred stock issuable in the
merger possess significantly fewer preferences and rights than the existing
shares of World Waste Series A preferred stock and Series B preferred stock.
Among other things, existing holders of World Waste preferred stock will lose
anti-dilution protection for below-market issuances, cumulative paid-in-kind
dividends will be eliminated, holders will suffer a significant diminution in
their preferences upon a liquidation or sale of Vertex Nevada, holders will lose
the right to force the company to redeem their shares, and thresholds that
trigger mandatory conversion of their shares will be significantly reduced.
Additionally, holders of World Waste Series A preferred stock will lose the
right to appoint a majority of the board of directors upon certain conditions
and will lose significant veto rights over certain corporate actions.
VERTEX NEVADA HAS ESTABLISHED PREFERRED STOCK WHICH CAN BE DESIGNATED BY THE
VERTEX NEVADA BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL AND HAS
ESTABLISHED SERIES A PREFERRED STOCK, WHICH GIVES THE HOLDERS A LIQUIDATION
PREFERENCE AND THE ABILITY TO CONVERT SUCH SHARES INTO VERTEX NEVADA'S COMMON
STOCK, AND SERIES B PREFERRED STOCK, WHICH GIVES THE HOLDER THE RIGHT TO APPOINT
FOUR MEMBERS OF VERTEX NEVADA'S BOARD OF DIRECTORS.
Upon consummation of the merger, Vertex Nevada will have 50,000,000 shares
of preferred stock authorized, 47,250,000 shares of Series A preferred stock
issued and outstanding, and 100 shares of Series B preferred stock issued and
outstanding. The Vertex Nevada Series A preferred stock has a liquidation
preference of $0.149 per share. As a result, if Vertex Nevada were to dissolve,
liquidate or sell its assets, the holders of Vertex Nevada Series A preferred
stock would have the right to receive up to the first approximately $7.0 million
in proceeds from any such transaction. Consequently, holders of Vertex Nevada
common stock may receive less consideration or no consideration in connection
with such a transaction. Furthermore, the conversion of Series A preferred stock
into common stock may cause substantial dilution to Vertex Nevada's existing
common shareholders. The Vertex Nevada Series B preferred stock, all of which is
held by Vertex Nevada's Chief Executive Officer and Chairman, Benjamin P.
Cowart, entitles the holder thereof the right to appoint four of the five
members of Vertex Nevada's board of directors. The holders of Vertex Nevada
Series A preferred stock have the right, voting as a separate class, to appoint
the remaining member. Accordingly, so long as shares of Vertex Nevada Series B
preferred stock are outstanding, holders of Vertex Nevada common stock will not
be entitled to elect any members of Vertex Nevada's board of directors.
Additionally, because the Vertex Nevada's board of directors is entitled to
designate the powers and preferences of the preferred stock without a vote of
its shareholders, Vertex Nevada's shareholders will have no control over what
designations and preferences Vertex Nevada's preferred stock will have.
16
VERTEX NEVADA'S SHAREHOLDERS MAY HAVE DIFFICULTY SELLING THEIR SHARES BECAUSE
SUCH SHARES WILL LIKELY BE DEEMED "PENNY STOCK."
Since the shares of Vertex Nevada common stock to be issued in the merger
will not be listed on a national securities exchange, if the trading price of
such shares is below $5.00 per share, trading in such shares will be subject to
the requirements of certain rules promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any equity security not listed on a national securities
exchange that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally defined as an investor with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with a spouse). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
the sale. The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Such information
must be provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in Vertex Nevada's common stock, which could
severely limit the market liquidity of such shares of common stock and the
ability of such holders to sell their shares.
THE MARKET PRICE OF VERTEX NEVADA'S COMMON STOCK MAY BE ADVERSELY AFFECTED BY
MARKET VOLATILITY.
The market price of Vertex Nevada's common stock is likely to be volatile
and could fluctuate widely in response to many factors, including:
o actual or anticipated variations in Vertex Nevada's operating results;
o developments with respect to patents or proprietary rights;
o announcements of technological innovations by Vertex Nevada or its
competitors;
o announcements of new products or new contracts by Vertex Nevada or its
competitors;
o changes in financial estimates by securities analysts and whether Vertex
Nevada's earnings meet or exceed such estimates;
o conditions and trends in the industries in which Vertex Nevada operates;
o changing environmental standards;
o new accounting standards;
o general economic, political and market conditions and other factors; and
o the occurrence of any of the other risks described in this proxy
statement.
RISKS RELATING TO VERTEX NEVADA'S BUSINESS
VERTEX NEVADA'S CONTRACTS MAY NOT BE RENEWED.
Vertex Nevada's current contracts in the black oil business include
feedstock purchasing agreements with local waste oil collectors and an offtake
agreement with one major re-refinery. The agreements with the local waste oil
collectors do not generally have a stated term and can therefore be terminated
by such collectors at will. Vertex Nevada's agreement with the major re-refinery
expires on September 30, 2008. Additionally, Vertex Nevada operates only one
contract in connection with its refining operations, which contract expires on
17
November 1, 2008. None of these contracts are expected to be renewed on terms
longer than one year. Because Vertex Nevada's operations are extremely dependent
on the black oil agreement with the major refinery and the third-party refining
contract, any failure of Vertex Nevada to renew either contract would have a
material adverse effect on Vertex Nevada's operations. If Vertex Nevada were to
lose any of its current local waste oil collectors, Vertex Nevada could be
required to spend additional resources locating and incentivizing other waste
oil collectors, which could cause Vertex Nevada's expenses to increase and/or
cause it to curtail or abandon its business plans.
THE VERTEX NEVADA BUSINESS IS OPERATED IN COMPETITIVE MARKETS, AND THERE CAN BE
NO CERTAINTY THAT VERTEX NEVADA WILL MAINTAIN ITS CURRENT CUSTOMERS OR ATTRACT
NEW CUSTOMERS OR THAT ITS OPERATING MARGINS WILL NOT BE IMPACTED BY COMPETITION.
The industries in which the Vertex Nevada Business is operated are highly
competitive. The Vertex Nevada Business competes with numerous local and
regional companies of varying sizes and financial resources in its refining and
feedstock consolidation operations, and expects to compete with larger oil
companies, with significantly greater resources than Vertex Nevada, in its
planned oil re-refining operations. Vertex Nevada expects competition to
intensify in the future. Furthermore, numerous well-established companies are
focusing significant resources on providing refining and re-refining services
that will compete with Vertex Nevada's services. We cannot assure you that
Vertex Nevada will be able to effectively compete with these other companies or
that competitive pressures, including possible downward pressure on the prices
Vertex Nevada charges for its products and services, will not arise. In the
event that Vertex Nevada cannot effectively compete on a continuing basis, or
competitive pressures arise, such inability to compete or competitive pressures
could have a material adverse effect on Vertex Nevada's business, results of
operations and financial condition.
DISRUPTIONS IN THE SUPPLY OF FEEDSTOCK COULD HAVE AN ADVERSE EFFECT ON VERTEX
NEVADA'S BUSINESS.
Vertex Nevada depends on the continuing availability of raw materials,
including feedstock, to remain in production. A serious disruption in supply of
feedstock, or significant increases in the prices of feedstock, could
significantly reduce the availability of raw materials at Vertex Nevada's plant,
increase production costs and could have a material adverse effect on its
business, results of operations and financial condition.
THE VERTEX NEVADA BUSINESS IS SUBJECT TO NUMEROUS ENVIRONMENTAL AND OTHER LAWS
AND REGULATIONS AND, TO THE EXTENT VERTEX NEVADA IS FOUND TO BE IN VIOLATION OF
ANY SUCH LAWS AND REGULATIONS, VERTEX NEVADA'S BUSINESS COULD BE MATERIALLY AND
ADVERSELY AFFECTED.
The Vertex Nevada Business is subject to extensive federal, state,
provincial and local laws and regulations relating to the protection of the
environment which, among other things:
o regulate the collection, transportation, handling, processing and disposal
of hazardous and non-hazardous wastes;
o impose liability on persons involved in generating, handling, processing,
transporting or disposing hazardous materials;
o impose joint and several liability for remediation and clean-up of
environmental contamination; and
o require financial assurance that funds will be available for the closure
and post-closure care of sites where hazardous wastes are stored,
processed or disposed.
18
The breadth and complexity of all of these laws and regulations affecting
the Vertex Nevada Business make consistent compliance extremely difficult and
often result in increased operating and compliance costs, including requiring
the implementation of new programs to promote compliance. Even with these
programs, Vertex Nevada and other companies in the industry are routinely faced
with legal and administrative proceedings which can result in civil and criminal
penalties, interruption of business operations, fines or other sanctions and
require expenditures. Under current law, Vertex Nevada may be held liable for
damage caused by conditions that existed before it or Vertex LP acquired its
assets and/or before it or Vertex LP took control of its leased properties or if
it arranges for the transportation, disposal or treatment of hazardous
substances that cause environmental contamination. In the future, Vertex Nevada
may be subject to monetary fines, civil or criminal penalties, remediation,
clean-up or stop orders, injunctions, orders to cease or suspend certain
practices or denial of permits required to operate its facilities and conduct
its operations. The outcome of any proceeding and associated costs and expenses
could have a material adverse impact on Vertex Nevada's operations and financial
condition.
Environmental laws and regulations are subject to change and may become
increasingly stringent or relaxed. Interpretation or enforcement of existing
laws and regulations, or the adoption of new laws and regulations, may require
Vertex Nevada to modify or curtail its operations or replace or upgrade its
facilities or equipment at substantial costs which it may not be able to pass on
to its customers. On the other hand, if new laws and regulations are less
stringent, then Vertex Nevada's customers or competitors may be able to compete
with Vertex Nevada more effectively, without reliance on its services, which
could decrease the need for its services and/or increase competition which could
adversely affect its revenues and profitability, if any.
Vertex LP is, and Vertex Nevada will be, required to obtain and maintain
permits, licenses and approvals to conduct its operations in compliance with
such laws and regulations. If Vertex Nevada is unable to maintain its currently
held permits, licenses and approvals, it may not be able to continue certain of
its operations. If it is unable to obtain any additional permits, licenses and
approvals which may be required as Vertex Nevada expands its operations, it may
be forced to curtail or abandon its current and/or future planned business
operations.
VERTEX NEVADA COULD BE SUBJECT TO INVOLUNTARY SHUTDOWNS OR BE REQUIRED TO PAY
SIGNIFICANT MONETARY DAMAGES OR REMEDIATION COSTS IF IT IS FOUND TO BE A
RESPONSIBLE PARTY FOR THE IMPROPER HANDLING OR THE RELEASE OF HAZARDOUS
SUBSTANCES.
As a company engaged in the sale, handling, transportation, storage,
recycling and disposal of materials that are or may be classified as hazardous
by federal, state, provincial or other regulatory agencies, Vertex Nevada faces
risks of liability for environmental contamination. The federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
"CERCLA" or Superfund, and similar state laws impose strict liability for
clean-up costs on current or former owners and operators of facilities that
release hazardous substances into the environment, as well as on the businesses
that generate those substances or transport them. As a potentially responsible
party, or "PRP," Vertex Nevada may be liable under CERCLA for substantial
investigation and cleanup costs even if it operates its business properly and
complies with applicable federal and state laws and regulations. Liability under
CERCLA may be joint and several, which means that if it were found to be a
business with responsibility for a particular CERCLA site, Vertex Nevada could
be required to pay the entire cost of the investigation and cleanup, even though
it was not the party responsible for the release of the hazardous substance and
even though other companies might also be liable. Even if Vertex Nevada is able
to identify who the other responsible parties might be, it may not be able to
compel them to contribute to the remediation costs, or they might be insolvent
or unable to contribute due to lack of financial resources.
Vertex Nevada's facilities and the facilities of its clients and
third-party contractors may have generated, used, handled and/or disposed of
hazardous substances and other regulated wastes. Environmental liabilities could
exist, including cleanup obligations at these facilities or at off-site
locations, which could result in future expenditures that cannot be currently
quantified and which could materially reduce Vertex Nevada's profits. In
addition, new services or products offered by Vertex Nevada could expose it to
further environmental liabilities for which it has no historical experience and
cannot estimate our potential exposure to liabilities.
19
VERTEX NEVADA IS DEPENDENT ON THIRD PARTIES FOR THE DISPOSAL OF ITS WASTE
STREAMS.
Vertex Nevada does not own any waste disposal sites. As a result, it is
dependent on third parties for the disposal of waste streams. To date, disposal
vendors have met its requirements, but we cannot assure you that they will
continue to do so. If for some reason Vertex Nevada's current disposal vendors
cannot perform up to standards, Vertex Nevada may be required to replace them.
Although Vertex Nevada believes there are a number of potential replacement
disposal vendors that could provide such services, it may incur additional costs
and delays in identifying and qualifying such replacements. In addition, any
mishandling of its waste streams by disposal vendors could expose Vertex Nevada
to liability. Any failure by disposal vendors to properly collect, transport,
handle or dispose of Vertex Nevada's waste streams could expose it to liability,
damage its reputation and generally have a material adverse effect on its
business, financial condition or results of operations.
WORSENING ECONOMIC CONDITIONS AND TRENDS AND DOWNTURNS IN THE BUSINESS CYCLES OF
THE INDUSTRIES VERTEX NEVADA SERVES WOULD IMPACT ITS BUSINESS AND OPERATING
RESULTS.
A significant portion of the Vertex Nevada Business customer base is
comprised of companies in the chemical manufacturing and hydrocarbon recovery
industries. The overall levels of demand for its products, refining operations,
and future planned re-refined oil products, are driven by fluctuations in levels
of end-user demand, which depend in large part on general macroeconomic
conditions in the U.S., as well as regional economic conditions. For example,
many of Vertex Nevada's principal consumers are themselves heavily dependent on
general economic conditions, including the price of fuel and energy,
availability of affordable credit and capital, employment levels, interest
rates, consumer confidence and housing demand. These cyclical shifts in Vertex
Nevada's customers' businesses may result in fluctuations in demand, volumes,
pricing and operating margins for its services and products.
VERTEX NEVADA'S OPERATING MARGINS AND PROFITABILITY MAY BE NEGATIVELY IMPACTED
BY CHANGES IN FUEL AND ENERGY COSTS.
Vertex Nevada transports its refined oil, and plans in the future to
transport re-refined oil, with trucks and by rail. As a result, increases in
shipping and transportation costs caused by increases in oil, gasoline and
diesel prices have a significant impact on its operating expenses. The price and
supply of oil and gas is unpredictable and fluctuates based on events beyond
Vertex Nevada's control, including geopolitical developments, supply and demand
for oil and natural gas, actions by OPEC and other oil and gas producers, war
and unrest in oil producing countries, regional production patterns and
environmental concerns. A significant increase in transportation or fuel costs
could lower Vertex Nevada's operating margins and negatively impact its
profitability.
Additionally, the price at which Vertex Nevada sells its refined oil and
plans to sell its re-refined oil is affected by changes in certain oil indexes.
If the relevant oil index rises, Vertex Nevada anticipates being able to
increase the prices for its refined and re-refined oil. If the relevant oil
index declines, Vertex Nevada anticipates having to reduce prices for its
refined and re-refined oil. However, the cost to collect used oil and refinery
feedstock, including the amounts that must be paid to obtain used oil and
feedstock, generally also increases or decreases when the relevant index
increases or decreases. Even though the prices that can be charged for Vertex
Nevada's refined (and in the future, re-refined) products and the costs to
collect, refine, and re-refine the feedstock generally increase and decrease
together, Vertex Nevada cannot assure you that when the costs to collect, refine
and re-refine used oil and petrochemical products increase, Vertex Nevada will
be able to increase the prices it charges for its refined and re-refined
products to cover such increased costs, or that the costs to collect, refine and
re-refine used oil and petrochemical products will decline when the prices
Vertex Nevada can charge for its products declines. If the prices Vertex Nevada
charges for its finished products and the costs to collect, refine and re-refine
products do not move together or in similar magnitudes, Vertex Nevada's
profitability may be materially and negatively impacted.
20
EXPANSION OF VERTEX NEVADA'S BUSINESS MAY RESULT IN UNANTICIPATED ADVERSE
CONSEQUENCES.
In the future, Vertex Nevada may seek to grow its business by investing in
new or existing facilities or technologies, making acquisitions or entering into
partnerships and joint ventures. Acquisitions, partnerships, joint ventures or
investments may require significant managerial attention, which may divert
management from its other activities and may impair the operation of Vertex
Nevada's existing businesses. Any future acquisitions of businesses or
facilities could entail a number of additional risks, including:
o the failure to successfully integrate the acquired businesses or
facilities or new technology into Vertex Nevada's operations;
o the inability to maintain key pre-acquisition business relationships;
o loss of key personnel of the acquired business or facility;
o exposure to unanticipated liabilities; and
o the failure to realize efficiencies, synergies and cost savings.
As a result of these and other factors, including the general economic
risk associated with the industries in which it operates, Vertex Nevada may not
be able to realize the expected benefits from any future acquisitions,
partnerships, joint ventures or other investments.
VERTEX NEVADA DEPENDS HEAVILY ON THE SERVICES OF ITS CHIEF EXECUTIVE OFFICER,
BENJAMIN P. COWART.
Vertex Nevada's success depends heavily upon the personal efforts and
abilities of Benjamin P. Cowart, who will be employed by Vertex Nevada under a
five-year employment contract as of the closing of the merger. Vertex Nevada
does not currently have any "key man" life insurance policy in place for Mr.
Cowart. Mr. Cowart has numerous business relationships with entities separate
from Vertex Nevada, which could take a significant portion of his time and/or
could cause conflicts of interest with Vertex Nevada's operations. The loss of
Mr. Cowart or other key employees could have a material adverse effect on Vertex
Nevada's business, results of operations or financial condition. In addition,
the absence of Mr. Cowart may force Vertex Nevada to seek a replacement who may
have less experience or who may not understand Vertex Nevada's business as well,
or Vertex Nevada may not be able to find a suitable replacement.
UNANTICIPATED PROBLEMS OR DELAYS IN BUILDING VERTEX NEVADA'S FACILITIES TO THE
PROPER SPECIFICATIONS MAY HARM ITS BUSINESS AND VIABILITY.
Vertex Nevada's future growth will depend on its ability to timely and
economically complete and operate its planned re-refining facility and operate
its existing refining operations. If Vertex Nevada's operations are disrupted or
its economic integrity is threatened for unexpected reasons, its business may
experience a substantial setback. Moreover, the occurrence of significant
unforeseen conditions or events in connection with the construction of Vertex
Nevada's planned facility may require it to reexamine its business model. Any
change to Vertex Nevada's business model or management's evaluation of the
viability of its planned services may adversely affect its business.
Construction costs for Vertex Nevada's facility may also increase to a level
that would make a new facility too expensive to complete or unprofitable to
operate. Contractors, engineering firms, construction firms and equipment
suppliers also receive requests and orders from other companies and, therefore,
Vertex Nevada may not be able to secure their services or products on a timely
basis or on acceptable financial terms. Vertex Nevada may suffer significant
delays or cost overruns as a result of a variety of factors, such as increases
in the prices of raw materials, shortages of workers or materials,
transportation constraints, adverse weather, equipment failures, fires, damage
to or destruction of property and equipment, environmental damage, unforeseen
difficulties or labor issues, any of which could prevent Vertex Nevada from
commencing operations as expected at its planned re-refining facility.
21
STRATEGIC RELATIONSHIPS ON WHICH VERTEX NEVADA MAY RELY ARE SUBJECT TO CHANGE.
Vertex Nevada's ability to identify and enter into commercial arrangements
with feedstock, suppliers and refined and re-refined oil clients will depend on
developing and maintaining close working relationships with industry
participants. Vertex Nevada's success in this area will also depend on its
ability to select and evaluate suitable projects as well as to consummate
transactions in a highly competitive environment. These factors are subject to
change and may impair Vertex Nevada's ability to grow.
DISRUPTIONS TO INFRASTRUCTURE COULD MATERIALLY AND ADVERSELY AFFECT VERTEX
NEVADA'S BUSINESS.
Vertex Nevada's business depends on the continuing availability of rail,
road, port, storage and distribution infrastructure. Any disruptions in this
infrastructure network, whether caused by labor difficulties, earthquakes,
storms, other natural disasters, human error or malfeasance or other reasons,
could have a material adverse effect on Vertex Nevada's business. Vertex Nevada
relies on third parties to maintain the rail lines from their plants to the
national rail network, and any failure by these third parties to maintain the
lines could impede the delivery of products, impose additional costs and could
have a material adverse effect on Vertex Nevada's business, results of
operations and financial condition.
VERTEX NEVADA'S COMMERCIAL SUCCESS WILL DEPEND IN PART ON ITS ABILITY TO OBTAIN
AND MAINTAIN PROTECTION OF ITS INTELLECTUAL PROPERTY.
Vertex Nevada's success will depend in part on its ability to maintain or
obtain and enforce any future patent rights and/or other intellectual property
protection for its technologies and to preserve its trade secrets, and to
operate without infringing upon the proprietary rights of third parties. Vertex
Nevada has not obtained patents nor filed any patent applications in the United
States or internationally for its technology to date. We cannot assure you that
if Vertex Nevada files patent applications for its technologies, such patents
will be granted or that the scope of any claims granted in any patent will
provide Vertex Nevada with proprietary protection or a competitive advantage. We
cannot assure you that if granted, such patents will be valid or will afford
Vertex Nevada with protection against competitors with similar technology. The
failure to obtain or maintain patent or other intellectual property protection
on the technologies underlying Vertex Nevada's planned re-refining process and
other technologies may have a material adverse effect on its competitive
position and business prospects. It is also possible that Vertex Nevada's
technologies may infringe on patents or other intellectual property rights owned
by others. Vertex Nevada may have to alter its products or processes, pay
licensing fees, defend an infringement action or challenge the validity of the
patents in court, or cease activities altogether because of patent rights of
third parties, thereby causing additional unexpected costs and delays to it. We
cannot assure you that a license will be available to Vertex Nevada, if at all,
upon terms and conditions acceptable to it or that it will prevail in any
intellectual property litigation. Intellectual property litigation is costly and
time consuming, and we cannot assure you that Vertex Nevada will have sufficient
resources to pursue such litigation. If Vertex Nevada does not obtain a license
under such intellectual property rights, is found liable for infringement or is
not able to have such patents declared invalid, Vertex Nevada may be liable for
significant money damages and may encounter significant delays in bringing
products to market.
COMPETITION MAY IMPAIR VERTEX NEVADA'S SUCCESS.
New technologies may be developed by others that could compete with Vertex
Nevada's refining and planned re-refining technologies. In addition, Vertex
Nevada faces competition from other producers of oil substitutes and related
products. Such competition is expected to be intense and could significantly
drive down the price for Vertex Nevada's products. Competition will likely
increase as prices of energy in the commodities market, including refined and
re-refined oil, rise. Additionally, new companies are constantly entering the
market, thus increasing the competition even further. These companies may have
greater success in the recruitment and retention of qualified employees, as well
as in conducting their own refining and re-refining operations, and may have
greater access to feedstocks, market presence, economies of scale, financial
resources and engineering, technical and marketing capabilities, which may give
them a competitive advantage. In addition, actual or potential competitors may
be strengthened through the acquisition of additional assets and interests. If
Vertex Nevada is unable to compete effectively or adequately respond to
competitive pressures, this may materially adversely affect its results of
operation and financial condition and could also have a negative impact on its
ability to obtain additional capital from investors.
22
COMPETITION DUE TO ADVANCES IN RENEWABLE FUELS MAY LESSEN THE DEMAND FOR VERTEX
NEVADA'S PRODUCTS AND NEGATIVELY IMPACT ITS PROFITABILITY.
Alternatives to petroleum-based products and production methods are
continually under development. For example, a number of automotive, industrial
and power generation manufacturers are developing alternative clean power
systems using fuel cells or clean-burning gaseous fuels that may address
increasing worldwide energy costs, the long-term availability of petroleum
reserves and environmental concerns, which if successful could lower the demand
for Vertex Nevada's services. If these non-petroleum based products and oil
alternatives continue to expand and gain broad acceptance such that the overall
demand for Vertex Nevada's products is reduced, it may not be able to compete
effectively.
VERTEX NEVADA WILL RELY ON TECHNOLOGY TO CONDUCT ITS BUSINESS AND ITS TECHNOLOGY
COULD BECOME INEFFECTIVE OR OBSOLETE.
Vertex Nevada will be required to continually enhance and update its
technology to maintain its efficiency and to avoid obsolescence. The costs of
doing so may be substantial and may be higher than the costs that Vertex Nevada
anticipates for technology maintenance and development. If Vertex Nevada is
unable to maintain the efficiency of its technology, its ability to manage its
business and to compete may be impaired. Even if Vertex Nevada is able to
maintain technical effectiveness, its technology may not be the most efficient
means of reaching its objectives, in which case it may incur higher operating
costs than it would if its technology was more effective. The impact of
technical shortcomings could have a material adverse effect on Vertex Nevada's
prospects, business, financial condition, and results of operations.
VERTEX NEVADA'S BUSINESS IS SUBJECT TO LOCAL, LEGAL, POLITICAL, AND ECONOMIC
FACTORS WHICH ARE BEYOND ITS CONTROL.
Vertex Nevada believes that the current political environment for
construction of its planned re-refining facility is sufficiently supportive to
enable it to plan and implement its operations. However, there are risks that
conditions will change in an adverse manner. These risks include, but are not
limited to, environmental issues, land use, air emissions, water use, zoning,
workplace safety, restrictions imposed on the re-refining industry such as
restrictions on production, substantial changes in product quality standards,
restrictions on feedstock supply, price controls and export controls. Any
changes in financial incentives, investment regulations, policies or a shift in
political attitudes are beyond the control of Vertex Nevada and may adversely
affect its business and future financial results.
ENVIRONMENTAL RISKS AND REGULATIONS MAY ADVERSELY AFFECT VERTEX NEVADA'S
BUSINESS.
All phases of designing, constructing and operating Vertex Nevada's
refining and planned re-refining plant present environmental risks and hazards.
Vertex Nevada is subject to environmental regulation implemented or imposed by a
variety of federal, state and municipal laws and regulations as well as
international conventions. Among other things, environmental legislation
provides for restrictions and prohibitions on spills and discharges, as well as
emissions of various substances produced in association with Vertex Nevada's
operations. Legislation also requires that facility sites be operated,
maintained, abandoned and reclaimed in such a way that would satisfy applicable
regulatory authorities. Compliance with such legislation can require significant
expenditures and a breach could result in the imposition of fines and penalties,
some of which could be material. Environmental legislation is evolving in a
manner Vertex Nevada expects may result in stricter standards and enforcement,
larger fines and liability, as well as potentially increased capital
expenditures and operating costs. The presence or discharge of pollutants in or
23
into the air, soil or water may give rise to liabilities to governments and
third parties and may require Vertex Nevada to incur costs to remedy such
presence or discharge. If Vertex Nevada is unable to remediate such conditions
economically or obtain reimbursement or indemnification from third parties, its
financial condition and results of operations could be adversely affected.
Vertex Nevada cannot assure you that the application of environmental laws to
its business will not cause it to limit its production, to significantly
increase the costs of its operations and activities, to reduce the market for
its products or to otherwise adversely affect its financial condition, results
of operations or prospects.
PENALTIES VERTEX NEVADA MAY INCUR COULD IMPAIR ITS BUSINESS.
Failure to comply with government regulations could subject Vertex Nevada
to civil and criminal penalties and may negatively affect the value of its
assets or its ability to conduct its business. Vertex Nevada may also be
required to take corrective actions, including, but not limited to, installing
additional equipment, which could require it to make substantial capital
expenditures. Vertex Nevada could also be required to indemnify its employees in
connection with any expenses or liabilities that they may incur individually in
connection with regulatory action against Vertex Nevada. These could result in a
material adverse effect on Vertex Nevada's prospects, business, financial
condition and its results of operations.
IF VERTEX NEVADA CANNOT MAINTAIN ADEQUATE INSURANCE COVERAGE, IT WILL BE UNABLE
TO CONTINUE CERTAIN OPERATIONS.
Vertex Nevada's business exposes it to various risks, including claims for
causing damage to property and injuries to persons that may involve allegations
of negligence or professional errors or omissions in the performance of its
services. Such claims could be substantial. Vertex Nevada believes that its
insurance coverage is presently adequate and similar to, or greater than, the
coverage maintained by other similarly situated companies in the industry. If
Vertex Nevada is unable to obtain adequate or required insurance coverage in the
future, or if such insurance is not available at affordable rates, Vertex Nevada
could be in violation of its permit conditions and other requirements of the
environmental laws, rules and regulations under which it operates. Such
violations could render Vertex Nevada unable to continue certain of its
operations. These events could result in an inability to operate certain assets
and significantly impair its financial condition.
INCREASES IN ENERGY COSTS WILL AFFECT OPERATING RESULTS AND FINANCIAL CONDITION.
Vertex Nevada's production costs will be dependent on the costs of the
energy sources used to run its facilities and to procure feedstock. These costs
are subject to fluctuations and variations, and Vertex Nevada may not be able to
predict or control these costs. If these costs exceed Vertex Nevada's
expectations, this may adversely affect its results of operations.
VERTEX NEVADA'S INSURANCE POLICIES DO NOT COVER ALL LOSSES, COSTS OR LIABILITIES
THAT IT MAY EXPERIENCE.
Vertex Nevada maintains insurance coverage, but these policies do not
cover all of its potential losses, costs or liabilities. Vertex Nevada could
suffer losses for uninsurable or uninsured risks, or in amounts in excess of its
existing insurance coverage, which would significantly affect its financial
performance. Vertex Nevada's insurance policies also have deductibles and
self-retention limits that could expose it to significant financial expense.
Vertex Nevada's ability to obtain and maintain adequate insurance may be
affected by conditions in the insurance market over which it has no control. The
occurrence of an event that is not fully covered by insurance could have a
material adverse effect on Vertex Nevada's business, financial condition and
results of operations. In addition, Vertex Nevada's business requires that it
maintain various types of insurance. If such insurance is not available or not
available on economically acceptable terms, Vertex Nevada's business would be
materially and adversely affected.
24
THE SPECIAL MEETING OF WORLD WASTE'S SHAREHOLDERS
DATE, TIME, AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on [__________], 2008, beginning at 10:00
a.m., local time, at 10600 North De Anza Boulevard, Suite 250,Cupertino,
California 95014, and at any adjournment of the special meeting.
PURPOSE OF THE SPECIAL MEETING
The purpose of the special meeting is to consider and vote upon a proposal
to approve the merger agreement and, if necessary or appropriate, to approve the
adjournment of the special meeting to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the merger
agreement. This proxy statement is being furnished to our shareholders as part
of the solicitation of proxies by our board of directors for use at the special
meeting. A copy of the merger agreement is attached to this proxy statement as
Appendix A.
RECOMMENDATION OF WORLD WASTE'S BOARD OF DIRECTORS
Our board of directors, after taking into account the unanimous
recommendation of a special committee of our board of directors formed to review
the terms of the merger, by a unanimous vote of the directors, has determined
that the merger agreement is advisable, fair to, and in the best interests of
the preferred and common shareholders of World Waste, has approved and
authorized in all respects the merger agreement, and recommends that you vote
"FOR" the approval of the merger agreement. If our shareholders fail to approve
the merger agreement, the merger will not occur.
RECORD DATE AND SHARES ENTITLED TO VOTE AT THE SPECIAL MEETING
We have fixed the close of business on [__________], 2008 as the record
date for the special meeting, and only shareholders of record on the record date
are entitled to vote at the special meeting. You may vote all shares of
preferred stock and common stock that you owned of record at the close of
business on the record date.
As of the record date, (1) 27,596,591 shares common stock were outstanding
and entitled to vote at the special meeting, (2) 4,619,481 shares of Series A
preferred stock were outstanding and entitled to vote at the special meeting,
and (3) 244,615 shares of Series B Preferred stock were outstanding and entitled
to vote at the special meeting.
If you beneficially own shares that are held in "street name" by your
broker, bank, or other nominee, you must follow the directions that you have
received, or will receive, from your broker, bank, or other nominee regarding
how to provide voting instructions. You are not entitled to vote directly shares
that are registered in someone else's name. Unless you instruct your broker,
bank, or other nominee how to vote your shares, they will not be voted at the
special meeting, which will have the same effect as a vote against approval of
the merger agreement.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The holders of a majority of the outstanding shares of World Waste
preferred and common stock entitled to vote at the special meeting, represented
in person or by proxy, will constitute a quorum for purposes of the special
meeting. A quorum is necessary to hold the special meeting.
25
Once a share of World Waste preferred or common stock is represented at
the special meeting, it will be counted for the purpose of determining a quorum
and any adjournment of the special meeting unless the holder is present solely
to object to the special meeting. However, if a new record date is set for an
adjourned meeting, then a new quorum will need to be established.
Abstentions and "broker non-votes" will be treated as shares that are
present and entitled to vote at the special meeting for purposes of determining
whether a quorum exists and will have the same effect as votes against approval
of the merger agreement. A "broker non-vote" with respect to specified shares
will result from a beneficial owner's failure to instruct a broker, bank, or
other nominee how to vote the shares with respect to the proposal to approve the
merger agreement.
ATTENDANCE AT THE SPECIAL MEETING
All World Waste shareholders as of the record date, or their legally
authorized proxies named in the proxy card, may attend the special meeting.
Cameras, recording devices, and other electronic devices will not be permitted
at the meeting. If your shares are held in the name of a broker, bank, or other
nominee, you should bring a proxy or letter from the broker, bank, or nominee
confirming your beneficial ownership of the shares. We reserve the right to
refuse admittance to anyone not presenting proper proof of share ownership.
VOTE REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT
Approval of the merger agreement requires the approval of the holders, as
of the record date of [__________], 2008, of (1) a majority of the outstanding
shares of World Waste's Series A preferred stock, (2) a majority of the
outstanding shares of World Waste's Series B preferred stock, and (3) a majority
of the outstanding shares of World Waste's common stock. You are entitled to one
vote for each share of World Waste Series A preferred and/or common stock and 40
votes for each share of World Waste Series B preferred stock, in each case that
you own as of the record date.
We anticipate that our officers, directors and advisors and their
respective affiliates, who beneficially own approximately 12% of our outstanding
common stock, will vote in favor of the merger agreement. In addition, Eddie
Campos and the G&A Zabka Pederson Trust, who beneficially own a total of
approximately 7.4% of our outstanding common stock, have agreed to vote in favor
of the merger agreement.
VOTING BY PROXY
If you hold stock in your name as a shareholder of record, please
complete, sign, date, and return the accompanying proxy card in the enclosed
postage-paid envelope. If you hold your stock in "street name" through a broker,
bank, or other nominee, please direct the broker, bank, or other nominee how to
vote your shares in accordance with the instructions that you have received, or
will receive, from that person.
If you sign, date, and mail your proxy card without indicating how you
wish to vote, your proxy will be voted in favor of the approval of the merger
agreement and in favor of the proposal to adjourn the special meeting to solicit
additional proxies if there are not sufficient votes at the time of the special
meeting to approve the merger agreement. If you fail to return your proxy card
and do not vote in person at the special meeting, it will have the same effect
as a vote against the approval of the merger agreement.
RIGHT TO REVOKE PROXIES
You have the right to change or revoke your proxy at any time before the
vote is taken at the special meeting by: (1) attending the special meeting in
person and voting; (2) submitting a later-dated proxy card; or (3) notifying us
that you are revoking your proxy by delivering a later-dated written statement
to that effect to us at World Waste Technologies, Inc., 10600 North DeAnza
Boulevard, Suite 250, Cupertino, California 95014, Attention: Chief Executive
Officer. Simply attending the special meeting, however, will not be sufficient
to revoke your proxy. Furthermore, if you have instructed a broker, bank, or
other nominee to vote your shares, these options for changing your vote do not
apply, and instead you must follow the instructions received from your broker,
bank, or other nominee to change your vote.
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OTHER BUSINESS
Management of World Waste is not aware of any matters to be presented for
action at the special meeting other than those set forth in this proxy
statement. However, should any other business properly come before the special
meeting, or any adjournment of the meeting, the enclosed proxy confers upon the
persons entitled to vote the shares represented by such proxy discretionary
authority to vote the same in respect of any such other business in accordance
with their best judgment in the interest of World Waste.
ADJOURNMENT
Although it is not currently expected, the special meeting may be
adjourned for the purpose of soliciting additional proxies. Whether or not a
quorum exists, a proposal to adjourn the special meeting for the purpose of
soliciting additional proxies will be approved upon the affirmative vote of the
holders of a majority of the shares entitled to vote at the special meeting and
present in person or by proxy at the special meeting. The proxy holders will be
authorized to vote any signed proxies received by World Waste in which no voting
instructions are provided on such matter in favor of an adjournment in these
circumstances. Any adjournment of the special meeting for the purpose of
soliciting additional proxies will allow World Waste's shareholders who have
already sent in their proxies to revoke them at any time prior to their use at
the special meeting as adjourned.
EXPENSES OF PROXY SOLICITATION
The expenses of preparing, printing, and mailing this proxy statement and
the proxies solicited by this proxy statement will be borne by World Waste. Upon
request, we will reimburse brokerage houses and other custodians, nominees, and
fiduciaries for their reasonable expenses for forwarding material to the
beneficial owners of shares held of record by others.
Liviakis Financial Communications, our investor relations firm and a
beneficial holder of shares of our common stock, will assist us in the
solicitation of proxies for the special meeting. Although Liviakis will not be
paid a fee in connection with providing those services, it will be issued 3.2
million shares of Vertex Nevada's common stock prior to consummation of the
merger in consideration for providing investor relations services to Vertex
Nevada. In addition, our directors, officers, employees, and other agents may
solicit proxies on our behalf from shareholders by telephone, by other
electronic means, or in person, although such persons will not receive
additional compensation from us for their proxy solicitation activities.
QUESTIONS AND ADDITIONAL INFORMATION
If you have more questions about the merger, need assistance in submitting
your proxy or voting your shares, or need additional copies of the proxy
statement or the enclosed proxy card, you can call our proxy solicitor, Liviakis
Financial Communications, at (415) 389-4670. If your broker, bank, or other
nominee holds your shares, you should call that person for additional
information.
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THE MERGER
GENERAL DESCRIPTION OF THE MERGER
World Waste will be merged with and into Merger Subsidiary, which will
continue as the surviving corporation under the name "World Waste Technologies,
Inc." In the merger, except with respect to World Waste shareholders who
exercise their dissenters' rights in compliance with California law, (1) each
outstanding share of World Waste Series A preferred stock will be exchanged for
4.062 shares of Vertex Nevada Series A preferred stock, (2) each outstanding
share of World Waste Series B preferred stock will be exchanged for 116.51
shares of Vertex Nevada Series A preferred stock, and (3) each outstanding share
of World Waste common stock will be exchanged for one share of Vertex Nevada
common stock. After the merger, Merger Subsidiary will remain a wholly owned
subsidiary of Vertex Nevada and the Vertex Nevada Business will be conducted
through Vertex Nevada under the name "Vertex Energy, Inc".
Prior to the completion of the merger, Vertex LP will transfer the Vertex
Nevada Business to Vertex Nevada and, as part of that transfer, Vertex Nevada
will assume up to $1.6 million of Vertex LP's indebtedness as well as other
specified liabilities of Vertex LP. It is anticipated that Vertex Nevada's
common stock will be traded on the OTC Bulletin Board following the completion
of the merger, and that Vertex Nevada will file reports with the SEC as the
successor to World Waste. The Vertex Nevada Series A preferred stock will not be
traded on any public market. It is a condition to the closing of the merger
that, prior to the completion of the merger, World Waste delivers to Vertex
Nevada's existing shareholders $4.4 million in cash. We may seek to modify this
condition by providing that a portion of this consideration may be payable in
the form of post-closing indebtedness of Vertex Nevada or in additional equity
of Vertex Nevada, although we cannot assure you that any such proposed
modification would be agreed to by Vertex Nevada or Benjamin P. Cowart.
Immediately following the merger and assuming that no shareholders
exercise dissenters' rights: (1) the existing partners of Vertex LP will own
approximately 40% of the outstanding shares of Vertex Nevada's capital stock;
(2) approximately 4% of the outstanding shares of Vertex Nevada's capital stock
will be held by advisors and consultants to Vertex LP, including Chadbourn
Securities, Inc., a non-exclusive broker dealer engaged by World Waste to assist
in capital raising and potential merger transactions; and Liviakis Financial
Communications, our investor relations firm and proxy solicitor for the merger;
(3) the existing holders of World Waste's common stock will own approximately
20.5% of the outstanding shares of Vertex Nevada capital stock; (4) the existing
holders of World Waste's Series A preferred stock will own approximately 14% of
the outstanding shares of Vertex Nevada capital stock, in the form of Vertex
Nevada Series A preferred stock; and (5) the existing holders of World Waste's
Series B preferred stock will own approximately 21.5% of the outstanding shares
of Vertex Nevada capital stock, in the form of Vertex Nevada Series A preferred
stock (in each case treating as outstanding shares that are issuable upon the
exercise of warrants to acquire shares of common stock at a nominal exercise
price).
Merger Subsidiary will hold all of the assets and liabilities of World
Waste, including the right to operate World Waste's existing business.
Immediately following the merger, Merger Subsidiary will transfer at least $5.0
million of cash to Vertex Nevada, and Vertex Nevada will assume up to $2.4
million of World Waste indebtedness that World Waste is permitted to incur prior
to the merger (unless and to the extent these closing conditions are modified by
the parties). As a result of the these transactions, immediately following the
merger the existing shareholders of World Waste will own approximately 56% of
the capital stock of Vertex Nevada, in exchange for which World Waste will have
made net payments of $7.0 million (comprised of (1) the $4.4 million payment
that World Waste is required to make to Vertex Nevada's existing shareholders,
plus (2) the $5.0 million that World Waste is required to transfer to Vertex
Nevada, less (3) the $2.4 million of World Waste indebtedness being assumed by
Vertex Nevada).
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Immediately following the merger, World Waste's existing preferred
shareholders will own all of Vertex Nevada's Series A preferred stock, and Mr.
Cowart will own all of Vertex Nevada's Series B preferred stock. Each share of
Vertex Nevada's Series A preferred stock to be issued in the merger will be
convertible, at the holder's option, exercisable any time after the one-year
anniversary of the closing of the merger, into one share of Vertex Nevada common
stock, subject to the following: after the one-year anniversary of the closing
of the merger and prior to the three-year anniversary of the closing of the
merger, a holder of Vertex Nevada Series A preferred stock may not, in any given
three-month period, convert more than that number of shares of Vertex Nevada
Series A preferred stock as equals 5% of the total number of shares of Vertex
Nevada Series A preferred stock then beneficially owned by such holder. Each
share of the Vertex Nevada Series A preferred stock will automatically convert
into shares of Vertex Nevada common stock upon the approval of the holders of a
majority of the outstanding shares of Vertex Nevada Series A preferred stock, or
if the shares of Vertex Nevada common stock trade at a price of at least $1.50
per share for a period of 20 consecutive days with an average volume of at least
75,000 shares during such period. The sale of shares of Vertex Nevada common
stock issuable upon conversion of shares of Vertex Nevada Series A preferred
stock will not be subject to any transfer restrictions, except as imposed by
federal and state securities laws. Holders of Vertex Nevada Series A preferred
stock will vote with the holders of Vertex Nevada common stock as a single class
(on an as-converted basis), except with respect to the election of directors.
Holders of Vertex Nevada Series A preferred stock will be entitled to a
preference of $0.149 per share upon the sale or liquidation of Vertex Nevada,
which preference will be senior to the rights of the holders of Vertex Nevada
common stock. Holders of Vertex Nevada Series A preferred stock will not have
the right to cumulative dividends or to require Vertex Nevada to redeem their
shares. The rights, privileges, restrictions, and preferences of the Vertex
Nevada Series A preferred stock are set forth in the Vertex Nevada Series A
Preferred Stock Certificate of Designation which is attached to this proxy
statement as Appendix D.
The Vertex Nevada Series B preferred stock has no economic rights but
entitles the holder to elect four of the five members of Vertex Nevada's board
of directors. The rights, privileges, restrictions, and preferences of the
Vertex Nevada Series B preferred stock are set forth in the Vertex Nevada Series
B Preferred Stock Certificate of Designation which is attached to this proxy
statement as Appendix E.
BACKGROUND OF THE MERGER
World Waste's board of directors and senior management have periodically
reviewed and assessed strategic alternatives for World Waste, including the
possible merger or combination of World Waste with another company. In the
fourth quarter of 2006, our board determined that it would be in the best
interests of World Waste and our shareholders to investigate a possible sale or
other strategic transaction aimed at increasing shareholder value in light of
the difficulties encountered in pursuing our then business strategy, in
particular as related to the performance of our autoclave and pulping facility
located in Anaheim, California. In making this determination, our board also
focused on the fact that in April 2010 we could be required to redeem our shares
of Series A and Series B preferred stock for payments that could total in excess
of $46 million. Our board authorized senior management to initiate discussions
with acquisition or merger candidates that management believed could result in a
potential increase in shareholder value. Our board and management also decided
to simultaneously pursue opportunities in the conversion of municipal solid
waste (MSW) to renewable electricity and fuel alcohols.
In the first quarter of 2007, representatives of Chadbourn Securities were
introduced to Benjamin P. Cowart, Chief Executive Officer of Vertex LP.
Chadbourn informed John Pimentel, our Chief Executive Officer, of the Vertex
Nevada Business and Mr. Cowart's interest in exploring strategic alternatives.
On April 12, 2007, Mr. Pimentel and Laird Q. Cagan of Chadbourn met with Mr.
Cowart to discuss the Vertex Nevada Business in more detail and the conceptual
possibilities of a strategic combination. Mr. Cowart and Mr. Pimentel had
subsequent interactions to discuss a possible business combination in more
detail, but in the late second quarter of 2007, both sides concluded that a
transaction at that time was not in either party's best interest. Of major
concern for Mr. Cowart was World Waste's complex preferred stock structure (in
particular, the mandatory redemption right) and how such structure would impact
the combined companies. There was no further contact between World Waste and
Vertex LP until September 2007. At that time, Chadbourn contacted Mr. Cowart
again to inquire as to the status of the Vertex Nevada Business. Mr. Cowart
expressed a renewed interest in exploring a transaction, and conversations
between Mr. Cowart and Mr. Pimentel were resumed. During these conversations,
Mr. Cagan of Chadbourn played a role in structuring the transaction and
assisted in developing general terms of an agreement.
29
Following a series of more detailed conversations between the parties, a
preliminary memorandum of understanding was executed by the parties in October
2007. At this point, our management team began its preliminary due diligence
investigation of the Vertex Nevada Business. Following this initial due
diligence effort, Mr. Pimentel recommended to our board that we continue our due
diligence investigation of the Vertex Nevada Business. Additional conversations
and sharing of information continued from January through March of 2008. Our
management provided our board with periodic updates as the diligence and deal
negotiation progressed. The parties entered into an updated memorandum of
understanding on January 28, 2008. In March 2008, our board recommended that
management pursue a transaction with Vertex LP. In making this recommendation,
our board considered alternatives to a transaction with Vertex LP, including the
further pursuit of renewable electricity project development using construction
and demolition debris and MSW as a biomass feedstock and the possibility of
acquiring waste wood processing facilities and MSW transfer stations. At this
time, our board created a special committee comprised of James Ferris, Sam
Cortez, Ross Patten and David Gutacker. The special committee was charged with
reviewing the terms of the transaction and providing its recommendation to the
full board.
Following the recommendation from the special committee of our board, our
management team, in conjunction with relevant outside consulting experts,
performed further technical and business due diligence on the Vertex Nevada
Business. Upon completion of the second phase of due diligence in the second
quarter of 2008, World Waste, Vertex LP and their respective counsel negotiated
the terms of a definitive merger agreement. At the same time, we entered into a
series of discussions with the majority holder of our Series A preferred stock
to obtain such holder's view on the terms of the merger. The parties entered
into a definitive agreement on May 16, 2008. On May 19, 2008, the parties made
some technical changes to the merger agreement, reflected in an amended and
restated merger agreement. Since the signing of the definitive agreement, our
management team and outside advisors have continued to work with the management
team and outside advisors of Vertex LP to satisfy the closing conditions and
fulfill the other requirements of the proposed merger, and to support business
development initiatives with respect to the Vertex Nevada Business.
WORLD WASTE'S REASONS FOR THE MERGER; RECOMMENDATION OF WORLD WASTE'S BOARD OF
DIRECTORS
World Waste was formed to pursue a business plan developed by its founders
to convert MSW into a recycled paper fiber for use as a raw material in the
manufacture of cardboard boxes. The original plan called for constructing a
facility that would consume up to 500 tons per day of incoming MSW, which in
this case was a stream of material rejected from a large volume material
recovery facility (or "MRF") operated by a large waste hauler. Plans for that
demonstration-sized plant were developed by World Waste's initial management
team with the assistance of third-party consulting engineers with extensive
experience in the paper industry, and leading equipment providers from the
material handling and paper industries. Feedstock agreements and construction
permits were acquired and World Waste commenced plant construction in earnest in
2005.
As construction progressed, complications related to plant design,
equipment layout and financing led to delays and cost increases from the
original management team's initial plan. In late 2005, the World Waste board of
directors replaced its then-Chief Executive Officer and altered several
management roles, while World Waste continued the construction and commissioning
of the plant. In mid-2006, the plant was completed and, after several months of
additional process modifications, refinement of control systems, and operational
experience, the plant was able to run in a sustainable manner to produce
significant quantities of pulp product. The resulting pulp product was delivered
to customers in bulk and World Waste was informed by such customers that the
product met technical specifications as a replacement fiber for producing
recycled corrugated containers. However, the total capital expended to get the
plant operational, the operating costs of the process, and the yield of the
final product, all varied substantially from the initial plan. The initial
problems identified included lower than expected throughput in the front-end
sorting system, more debris than expected getting into the back-end fiber
cleaning system, high levels of odor and biochemical oxygen demand in the
plant's wastewater, and ultimately, higher reject rates and lower than expected
yield of the paper grade pulp product.
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The plant was operated by World Waste for several quarters in late 2006
and early 2007 in a research and development mode, with the focus on determining
what adjustments could be made to the manufacturing process in a second,
larger-scale iteration of the plant which would improve yields and reduce
capital and operating costs. It was concluded that scaling up the facility and
incorporating lessons learned from the first plant would likely improve a future
plant's financial performance at a larger scale. However, management and the
World Waste board were concerned that the projected returns were based on
assumptions about pricing and operating costs that might not be achieved and
that the plan to scale up and improve the operation might not successfully
attract the capital necessary to build subsequent pulp focused plants. As a
result of these efforts, World Waste's board concluded that the pulp product,
while technically feasible, was not commercially viable. Accordingly, World
Waste began the process of selling off machinery and ultimately closing the
Anaheim, California facility.
During this same period in 2007, the World Waste board also authorized a
plan by management to pursue two new initiatives intended to create shareholder
value. The first initiative was to investigate the feasibility of redirecting
World Waste's strategy, management expertise, and accumulated knowledge to focus
efforts on the development of facilities which could produce renewable energy
from various waste streams such as municipal solid waste, wood waste, and
construction and demolition debris. The second initiative was to evaluate the
feasibility of utilizing World Waste's cash and public company status in a
merger or acquisition with an existing company in the general field of
environmental services, or in any other field which could create shareholder
value. To assist in both of these initiatives the board authorized management to
engage specialized technical and project development consultants, and to engage
an investment bank to provide introductions to possible investors for the first
initiative and offer ideas and introductions of potential acquisition candidates
for the second initiative.
A complicating factor in both initiatives was World Waste's capital
structure, which includes two classes of preferred stock, the Series A preferred
stock and the Series B preferred stock. The terms of each of these classes of
preferred stock include a provision that would require World Waste to redeem the
holders' shares of preferred stock in April 2010 for a total cash payment of
approximately $46 million, upon the request of such holders. If such a request
is made, World Waste will not have sufficient funds to make such redemption
payments in full. Furthermore, the holders of these classes of preferred stock
have blocking rights to new rounds of equity and debt investment, full ratchet
provisions on any down round of equity investment, equity payment-in-kind, and
various other control provisions. Successfully attracting new equity investment
was deemed to be critical to the renewable energy project development
initiative, and World Waste endeavored through 2007 and 2008 to present a
well-developed investment opportunity. To that end, World Waste simultaneously
pursued its project development process on several sites in California and on
the East Coast of the U.S. while also working to identify a reliable technology
partner who could feasibly provide gasification and/or pyrolysis technology to
the proposed projects.
Progress was made on project development. Management identified multiple
projects, negotiated the terms of complex off-take agreements with large
utilities, and was in the process of working with several companies to negotiate
site and waste supply agreements. However, all of these efforts took longer than
expected and did not result in any completed agreements for feedstock, off-take
or site control. Finding a credible technology partner was also difficult
despite the many new entrants into the field over the past three years. World
Waste's criteria for finding such a technology partner included a conversion
technology that was demonstrated in some commercial setting, a process that was
scaleable up to a utility sized application (approximately 20 megawatts of
production), and technology that could provide a sustainable competitive
advantage for a biomass fed renewable energy power plant. In looking for such a
technology partner, World Waste researched dozens of options but was unable to
find a partner who could provide sufficient capital and operating guarantees to
facilitate debt financing for a full-sized plant. This meant that a substantial
amount of new equity capital would need to be raised for the creation of a
demonstration-sized conversion facility and for the first-issue of a commercial
plant.
31
After speaking with a number of potential capital sources for the
renewable energy project development initiative, it was the belief of World
Waste management that if such equity could be obtained, terms for the investment
would likely dilute the existing common and preferred shareholders
significantly. This meant that existing common shareholders faced the likely
prospect of having their positions dramatically diluted, and the preferred
shareholders would likely have to participate in a series of complicated
negotiations which would leave preferred shareholders significantly diluted as
well. These facts led management to conclude that unless significant, material
progress could be made gaining the commitment of a reliable technology provider,
and significant progress could be made on the project development front with
finalized feedstock agreements, site control contracts, and off-take agreements,
then the likely outcome would be substantial dilution to existing shareholders.
After reviewing management's progress on technology procurement and
project development during a series of meetings in the first quarter of 2008,
the board concluded that while progress had been made on renewable energy
project development, this initiative contained a high degree of risk for our
shareholders. The board concluded that in addition to the expected dilution to
existing shareholders from the new investment required for the plan, due to the
very long-term, multi-year development cycle required to develop renewable
energy power plants, it was likely to be several years before any of the project
development efforts might result in revenues for World Waste. Furthermore, given
the board's assessment of the technical, political, environmental, operational
and financing risks inherent in developing renewable energy power plants, it was
concluded that until a number of such plants are up and running it may be
challenging to predict the profitability of such a process and therefore it may
be extremely difficult to successfully secure equity and/or debt financing for
such a large capital project.
In light of these facts, the board encouraged management to increase its
effort to consider strategic options for a successful merger and/or acquisition
(or "M&A") option. Since 2006, management had been evaluating several M&A
candidates. One such candidate, Vertex LP, was introduced to the company through
Chadbourn Securities, a broker dealer that has assisted World Waste in prior
capital raising activities.
World Waste's board of directors and management believe that the Vertex
Nevada merger opportunity represents a superior potential increase in World
Waste shareholder value than the opportunities currently available to World
Waste in the renewable energy project development sector. By pursuing the
merger, World Waste hopes to benefit from the potential results of Vertex
Nevada's core business of recycling used motor oil, including its established
revenue and cash flow and potential growth prospects. In addition, management of
Vertex Nevada may, if it so chooses, decide to pursue the potential returns from
World Waste's renewable energy project development business model.
In evaluating whether to merge with Vertex Nevada or to focus exclusively
on renewable energy project development, the World Waste board and management
considered factors, including, but not limited to, the following:
o The risks inherent in the renewable energy project development initiative
including but not limited to:
o the technical sufficiency of the conversion technology and the
inability of technology and equipment providers to provide
clear, consistent commitments on expected capital and
operating costs substantiated by significant operating
experience on municipal solid waste or construction and
demolition debris;
o the lack of certainty in the project development effort
related to feedstock supply contracts from municipal solid
waste or construction and demolition debris providers and site
control;
32
o the expected long lead times inherent in project development
work for renewable energy power plants and potential delays
and complications from environmental reviews, local permitting
requirements, potential opposition from environmental groups,
potential opposition from local activists, complex contracting
for long term power contracts, and other unforeseen
contingencies; and
o the high capital costs required to build a facility which
would require World Waste to raise a large amount of new
equity and debt capital on a newly developed technology;
o World Waste's preferred stock structure, including a provision that could
require World Waste to make a cash redemption payment of approximately $46
million in April 2010, and the complication that presented for
successfully completing a new equity financing;
o Vertex Nevada's established used motor oil and hydrocarbon recycling
business, including its ongoing revenues and cash flow and potential
growth prospects;
o The terms of the merger, including the consideration paid, and the common
and preferred shareholder ownership of the combined company;
o That holders of World Waste's preferred stock will be giving up
significant rights and preferences, including the redemption provision;
o The opinion of our financial advisor that the merger is fair to us and to
each class of our stockholders;
o The determination of our special committee that the merger is fair to and
in the best interests of each class of our stockholders;
o That significant dilution that will occur to our existing holders of
common stock as a result of the transactions contemplated by the merger;
and
o The interests of certain of our officers and directors in the merger (see
"Interests of Certain Persons in the Merger").
The board did not attempt to quantify, rank or otherwise assign relative
weights to the factors considered in connection with its evaluation of the
merger and the transactions contemplated thereby. Furthermore, the board did not
undertake to make any specific determination as to whether any particular factor
was essential to its decision to approve the terms of the merger. Instead, the
board conducted an overall analysis of the factors described above, which
included a thorough discussion of all of the above-listed factors with its legal
advisors and management. In considering the factors described above, individual
directors may have given different weights to different factors or reached
different conclusions as to whether a specific factor weighed in favor of or
against approving the merger.
AFTER CAREFUL CONSIDERATION, A SPECIAL COMMITTEE OF WORLD WASTE'S BOARD OF
DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT WAS FAIR TO, AND IN
THE BEST INTERESTS OF, THE PREFERRED AND COMMON SHAREHOLDERS OF WORLD WASTE AND
RESOLVED TO RECOMMEND APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER
AGREEMENT BY WORLD WASTE'S SHAREHOLDERS. THE WORLD WASTE BOARD OF DIRECTORS,
TAKING INTO ACCOUNT THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE,
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE MERGER AGREEMENT AND "FOR" THE ADJOURNMENT OF THE SPECIAL
MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES.
33
IN REACHING ITS DECISION, THE SPECIAL COMMITTEE CONSIDERED MANY FACTORS,
INCLUDING AN ORAL OPINION DELIVERED BY LIVINGSTONE PARTNERS LLC, THE SPECIAL
COMMITTEE'S FINANCIAL ADVISOR, ON AUGUST 6, 2008 AND SUBSEQUENTLY CONFIRMED IN
WRITING THAT, AS OF THAT DATE, AND BASED ON AND SUBJECT TO THE MATTERS SET FORTH
IN THE OPINION, THE MERGER WAS FAIR FROM A FINANCIAL POINT OF VIEW TO EACH CLASS
OF WORLD WASTE'S SHAREHOLDERS.
OPINION OF THE FINANCIAL ADVISOR OF THE SPECIAL COMMITTEE OF WORLD WASTE'S BOARD
OF DIRECTORS
Livingstone Partners LLC ("LIVINGSTONE") has been retained by the special
committee of the board of directors of World Waste to render its opinion with
respect to the fairness, from a financial point of view, as of the date thereof,
to the special committee, of the consideration to be received by each class of
World Waste's shareholders in the merger. In rendering its opinion, Livingstone
assumed that: (1) the merger will be consummated on the principal terms
described in the merger agreement without additional material terms or
conditions and that the conditions to the consummation of the merger, including
all necessary consents and approvals, will be satisfied without material
expense; (2) all representations, warranties and covenants to be made by the
parties in the merger agreement will be true, accurate and complete in all
material respects at closing; (3) all assets and liabilities (contingent or
otherwise, known or unknown) of Vertex Nevada are as set forth in its
consolidated financial statements; and (4) the final form of the documents
relating to the merger will be substantively similar in all respects to the
drafts thereof reviewed by Livingstone.
On August 6, 2008, at a meeting of the special committee of World Waste
held to evaluate the merger, Livingstone delivered to the special committee
Livingstone's written opinion dated August 6, 2008, to the effect that, as of
the date of the opinion and based on and subject to various assumptions and
limitations described in its opinion, the merger consideration to be received by
holders of World Waste's Series A preferred stock, Series B preferred stock and
common stock is fair, from a financial point of view, to each class of such
shareholders.
THE FULL TEXT OF LIVINGSTONE'S WRITTEN OPINION TO THE SPECIAL COMMITTEE,
WHICH DESCRIBES, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX F TO THIS PROXY STATEMENT AND IS INCORPORATED BY REFERENCE IN ITS
ENTIRETY INTO THIS PROXY STATEMENT. THE FOLLOWING SUMMARY OF LIVINGSTONE'S
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE REVIEWED
TOGETHER WITH, THE FULL TEXT OF THE OPINION. WORLD WASTE SHAREHOLDERS ARE URGED
TO READ THE OPINION AND CONSIDER IT CAREFULLY.
LIVINGSTONE DELIVERED ITS OPINION TO THE SPECIAL COMMITTEE FOR THE BENEFIT
AND USE OF THE BOARD OF DIRECTORS IN CONNECTION WITH AND FOR PURPOSES OF ITS
EVALUATION OF THE MERGER CONSIDERATION TO BE RECEIVED BY WORLD WASTE
SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. LIVINGSTONE'S OPINION DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY SHAREHOLDER AS TO HOW TO VOTE OR ACT IN CONNECTION WITH THE PROPOSED
MERGER. THE TERMS OF THE MERGER, INCLUDING THE CONSIDERATION TO BE RECEIVED BY
HOLDERS OF WORLD WASTE'S SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK AND
COMMON STOCK, WERE DETERMINED THROUGH NEGOTIATIONS BY AND AMONG WORLD WASTE,
VERTEX NEVADA AND THE MAJORITY HOLDER OF WORLD WASTE'S SERIES A PREFERRED STOCK,
AND WERE NOT DETERMINED OR RECOMMENDED BY LIVINGSTONE.
Livingstone's opinion does not address the merits of World Waste's
underlying decision to engage in the merger nor does it constitute, nor should
it be construed as, a recommendation to any of World Waste's shareholders as to
how to vote on the merger or on any matter related thereto. Livingstone is not
opining and does not express any opinion in any manner as to (1) the solvency or
financial condition of Vertex Nevada, (2) any tax consequences that may result
from the consummation of the merger, (3) the prices at which shares of World
Waste's common stock will trade at any time, or (4) the fairness of the amount
or the nature of any compensation to any officers, directors or employees of any
parties to the merger, relative to the consideration paid in the merger or
otherwise.
34
In arriving at its opinion, Livingstone, among other things:
o Reviewed the merger agreement and principal terms of the merger;
o Reviewed Vertex Nevada's audited financial statements for the periods
ended December 31, 2006 and 2007;
o Reviewed unaudited historical, estimated and projected financial and
operating information with respect to the business, operations and
prospects of Vertex Nevada furnished by Vertex Nevada;
o Conducted interviews and facility tours with Vertex Nevada's senior
management team to understand in detail Vertex Nevada's business,
operations, financial condition, and future business prospects;
o Compared the results of operations of Vertex Nevada with those of certain
public companies which Livingstone deemed to be reasonably comparable to
Vertex Nevada;
o Reviewed the financial terms, to the extent publicly available, of certain
comparable transactions which Livingstone deemed reasonably comparable to
the merger;
o Reviewed independent third-party diligence reports and supplemental
analyses;
o Reviewed Vertex Nevada's contracts with Omega and KMTEX;
o Reviewed Vertex Nevada's revolving line of credit promissory note;
o Reviewed the purchase and sale agreement and sublease agreement between
Cedar Marine Terminals, L.P., a Texas limited partnership ("CMT"), and
Vertex Nevada;
o Reviewed Vertex Nevada's list of assets and liabilities;
o Reviewed Vertex Nevada's related party transactions;
o Reviewed Vertex Nevada's employment agreement with Benjamin P. Cowart;
o Reviewed the Certificate of Designation of Rights, Preferences and
Privileges of the Vertex Nevada Series A Preferred Stock;
o Reviewed the Certificate of Designation of Rights, Preferences,
Limitations and Relative Rights of the Vertex Nevada Series B preferred
stock;
o Reviewed such other documents, leases, agreements, and permits included in
the closing documents;
o Conducted such other analyses and examinations, and such other financial,
economic, and market criteria as Livingstone deemed necessary to develop
its opinion;
o Reviewed World Waste's SEC filings, audited financial statements and other
financial information received from World Waste; and
o Conducted interviews with members of World Waste's management team and
their consultants to discuss the remaining assets, financial prospects and
residual value of World Waste.
35
In arriving at its opinion, Livingstone assumed and relied upon the
accuracy and completeness of the historical audited and unaudited financial
statements and other financial and operating information that Vertex Nevada
furnished to it, without assuming any responsibility for independent
verification of such information, and has further relied upon the assurances of
Vertex Nevada management that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the
actual financial information of Vertex Nevada for the fiscal year ended December
31, 2007 and the projected financial information of Vertex Nevada for the fiscal
years ending December 31, 2008 through 2013, Livingstone assumed that such
estimates and projections had been reasonably prepared on a basis reflecting the
best currently available information and judgments of the management of Vertex
Nevada as to the present and future financial performance of Vertex Nevada.
Livingstone's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to it as of, the date of the opinion. Subsequent
developments may affect the opinion and Livingstone has no obligation to update,
revise or reaffirm its opinion. In the event that there is any change of fact or
matter affecting Livingstone's opinion after its date and prior to the
consummation of the merger, Livingstone reserves the right to change, modify, or
withdraw its opinion.
At the August 6, 2008 special committee meeting and in connection with
preparing its opinion for the special committee, Livingstone made a presentation
of certain financial analyses of the transaction. The following is a summary of
the material analyses contained in the presentation that was delivered to the
special committee. Some of the summaries of financial analyses include
information presented in tabular format. In order to understand fully the
financial analyses performed by Livingstone, the tables must be read together
with the accompanying text of each summary. The tables alone do not constitute a
complete description of the financial analyses, including the methodologies and
assumptions underlying the analyses, and if viewed in isolation could create a
misleading or incomplete view of the financial analyses performed by
Livingstone.
The following summary is not a complete description of all of the analyses
performed and factors considered by Livingstone in connection with its opinion,
but rather is a summary of the material financial analyses performed and factors
considered by Livingstone. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analysis. Selecting portions of the analyses or of the summary below,
without considering the analyses as a whole, could create an incomplete view of
the processes underlying Livingstone's analyses.
Neither the reference to a specific analysis nor its order of appearance
in the summary below is meant to indicate that the analysis was given more
weight than any other analysis. In reaching its conclusion, Livingstone arrived
at its ultimate opinion based on the results of all analyses undertaken by it
and assessed as a whole and believes the totality of the factors considered and
performed by Livingstone in connection with its opinion operated collectively to
support its determinations as to the fairness from a financial point of view to
the holders of World Waste preferred and common stock of the merger
consideration contemplated to be received by holders of World Waste preferred
and common stock. Livingstone did not draw, in isolation, conclusions from or
with regard to any one factor or method of analysis.
The analyses summarized below reflect selected companies and transactions,
and not necessarily all companies or transactions that may be considered
relevant in evaluating Vertex Nevada or the transaction. In addition, no company
or transaction used as a comparison is either identical or directly comparable
to Vertex Nevada or the transaction. These analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the public trading or acquisition values of
the companies concerned.
36
The estimates of future performance of Vertex Nevada provided by Vertex
Nevada management in or underlying Livingstone's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than those estimates. In performing its analyses, Livingstone
considered industry performance, general business and economic conditions and
other matters, many of which are beyond Vertex Nevada's control. Estimates of
the financial value of companies do not purport to be appraisals or reflect the
prices at which these companies actually may be sold. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, neither
Livingstone nor any other person assumes responsibility if future results are
materially different from those forecasted.
The consideration payable in the merger was determined through
negotiations among Vertex LP, World Waste and the majority holder of World
Waste's Series A preferred stock. The decision to enter into the merger
agreement was solely that of Vertex LP and World Waste. The opinion and
financial analyses of Livingstone were only one of many factors considered by
the special committee in its evaluation of the merger and should not be viewed
as determinative of the views of World Waste's board of directors with respect
to the merger or the merger consideration to be received by holders of World
Waste's preferred and common stock.
BASIS OF FINANCIAL ANALYSIS
For the purposes of the analyses discussed below, Livingstone developed
the financial analysis utilizing financial data (collectively referred to as the
"EVALUATION MATERIALS") provided by Vertex Nevada and World Waste. In addition,
Livingstone received and utilized various third-party technical and financial
diligence reports, management presentations, and projected income statements for
the fiscal years ending December 31, 2008 through December 31, 2013. Livingstone
also made site visits to Vertex Nevada's facilities in Houston and Baytown,
Texas and conducted interviews and discussions with various members of Vertex
Nevada's senior management team.
With respect to determining the value of World Waste, Livingstone reviewed
World Waste's SEC filings and audited financial statements, the agreement
between World Waste and Clean Earth Solutions regarding the sale by World Waste
of specified assets and intellectual property, and information relating to World
Waste's remaining bio-gasification assets, and conducted interviews with World
Waste's management team and consultants. In summary, Livingstone determined that
the value of World Waste approximated its residual cash balance based on the
status of World Waste's existing operations, its agreement with Clean Earth
Solutions, and the aforementioned review of relevant financial information of
World Waste.
MERGER CONSIDERATION
Livingstone calculated the implied merger equity value and enterprise
value based on the terms set forth in the merger agreement. World Waste is
paying $7.0 million for approximately 56% of Vertex Nevada. This establishes an
implied merger transaction equity value for Vertex Nevada of $12.7 million. As a
result, the shareholders of Vertex Nevada immediately prior to the merger will
collectively own approximately 44% of Vertex Nevada, with an implied equity
valuation of $5.7 million.
Based on the $12.7 million implied merger transaction equity valuation,
Livingstone calculated the merger transaction enterprise value of Vertex Nevada
to be $14.8 million, taking into account the following components:
o Vertex Long-Term Debt - Per the merger agreement, Vertex Nevada will
assume approximately $1.6 million of long-term debt currently held by
Vertex LP;
o New Long-Term Debt - Per the merger agreement, Vertex Nevada will raise
approximately $2.4 million in long-term debt to meet the minimum cash
requirement of $5.0 million at closing; this amount is added to the
enterprise value contribution;
o Cash - Per the merger agreement, Vertex Nevada must have $5.0 million in
cash at closing, which cash is subtracted from the enterprise value
calculation; and
37
o Working Capital Adjustment - Based on the merger agreement and Vertex
Nevada's post-close projected cash flow statement, Vertex Nevada will use
approximately $3.2 million in cash during the first six months of
post-close operations to fund working capital. As a result, the working
capital adjustment is added to the merger transaction enterprise value in
the same manner debt is because it is the economic equivalent thereof.
FAIRNESS METHODOLOGY
Livingstone analyzed the relative fairness of the merger, from a financial
perspective, from several different perspectives. The analyses set forth below
analyze and compare the merger transaction implied enterprise value and equity
value to the following:
o Vertex Nevada's implied enterprise value and equity value based on the
four valuation methodologies;
o Relative implied equity contribution from both World Waste and Vertex
Nevada compared to equity allocation terms per the merger agreement; and,
o Relative fairness to World Waste's shareholders.
1(a) COMPARABLE COMPANY ANALYSIS
After reviewing publicly-traded companies involved in used oil
recovery/recycling, alternative energy, materials recycling and oil refining,
Livingstone selected 46 companies across four relevant subsectors which it
deemed comparable to Vertex Nevada. Because no publicly-traded company was
directly comparable to Vertex Nevada, however, Livingstone's analysis is based
upon the characteristics of the entire sample.
o Clean Harbors Inc. o Waste Connections Inc. o Hunting plc
o Heritage-Crystal Clean, Inc. o Waste Management, Inc. o Husky Energy Inc.
o Newalta Income Fund o Alon USA Energy Inc. o Imperial Oil Ltd.
o Abengoa SA o BP plc o Marathon Oil Corp.
o Aventine Renewable Energy Holdings, Inc. o Calumet Specialty Products o Murphy Oil Corp.
Partners LP
o Covanta Holding Corporation o Chevron Corp. o Neste Oil Corp.
o Green Plains Renewable Energy, Inc. o Compania Espanola de Petroleos SA o Petro-Canada
o Pacific Ethanol, Inc. o ConocoPhillips o Royal Dutch Shell plc
o VeraSun Energy, Corp. o Delek US Holdings Inc. o Suncor Energy Inc.
o Allied Waste Industries, Inc. o EnCana Corp. o Sunoco Inc.
o BFI Canada Income Fund o Eni SpA o Tesoro Corporation
o Casella Waste Systems, Inc. o Esso S.A.F. o Total SA
o Industrial Services of America Inc. o Exxon Mobil Corp. o Valero Energy Corp.
o Metalico Inc. o Frontier Oil Corp. o Western Refining Inc.
o Republic Services Inc. o Hess Corporation
o Schnitzer Steel Industries, Inc. o Holly Corp.
For each of the publicly-traded companies listed above, Livingstone
calculated its ratio of enterprise value to the estimated earnings before
interest, taxes, depreciation and amortization, or EBITDA, for the latest
trailing twelve month financial performance as of its most recent public filing.
For purposes of its analysis, Livingstone calculated the enterprise value as the
market capitalization (as of June 24, 2008) plus total debt, minority interests
and preferred stock, less cash and marketable securities.
38
Essential to the development of the market approach is the appropriate
measure of earnings with which to compare Vertex Nevada to its peer group. In
determining the appropriate metric, Livingstone reviewed the historical trends,
as well as the projections for future operations of Vertex Nevada in terms of
revenue, earnings, and cash flow. The market approach generally focuses on
trailing twelve month ("TTM") as the appropriate metric for three primary
reasons: (i) TTM EBITDA represents proven and verifiable performance (i.e., not
affected by projections); (ii) TTM EBITDA provides the closest comparison with
publicly-available financial information from comparable companies and
transactions; and (iii) the debt financing markets typically lend capital based
largely on TTM EBITDA performance. The use of TTM is a well-established and
generally accepted valuation metric.
Livingstone calculated the following trading multiples for the above
publicly-traded companies identified as comparable to Vertex Nevada:
METHODOLOGY LOW MEDIAN MEAN HIGH
- --------------------------------- ------------- ------------- ------------- -------------
Enterprise Value / TTM EBITDA 3.0x 7.8x 8.2x 18.1x
Based upon its analysis of the full ranges of multiples calculated for the
companies identified above and its consideration of various factors and
judgments about current market conditions and the characteristics of the
companies (including qualitative factors and judgments involving
non-mathematical considerations), Livingstone determined relevant ranges of
multiples for the companies (which relevant ranges were narrower than the full
ranges of these multiples).
The following table summarizes the derived relevant ranges of multiples
for the publicly traded companies identified as comparable to Vertex Nevada and
the ranges of Vertex Nevada's implied enterprise value based on Vertex Nevada's
TTM EBITDA as of May 31, 2008:
IMPLIED ENTERPRISE VALUE OF
METHODOLOGY MULTIPLE RANGE VERTEX NEVADA
- ------------------------------- ------------------------ -------------------------------------
Enterprise Value / TTM EBITDA 6.8x - 8.8x $14.8 - $19.1 million
It should be noted that no company used in the above analysis is identical
to Vertex Nevada. In evaluating companies identified by Livingstone as
comparable to Vertex Nevada or otherwise relevant to its analysis of Vertex
Nevada, Livingstone made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters. Many of these matters are beyond Vertex Nevada's control, such as
the impact of competition on Vertex Nevada's business, the industry generally or
the companies identified above, industry growth and the absence of any material
change in Vertex Nevada's financial condition and prospects, the industry, the
financial markets in general or the companies identified above. A complete
analysis involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies identified above and
other factors that could affect the public trading values of these companies.
39
1(b) COMPARABLE TRANSACTION ANALYSIS
Using publicly available information, Livingstone examined certain
multiples paid or proposed to be paid in certain transactions that Livingstone
deemed to be relevant. The precedent transactions with publicly available
transaction valuation metrics that Livingstone considered to be relevant were:
CLOSED DATE TARGET NAME ACQUIROR NAME
- --------------------------- ------------------------------------- --------------------------------------
May 2008 Waste Industries USA Inc. Goldman Sachs Group, Macquarie
Infrastructure Partners
April 2008 Biffa plc Montagu Private Equity Limited
March 2008 US BioEnergy Corp. VeraSun Energy, Corp.
March 2008 Waste Services of Florida, Inc., Advanced Disposal Services, Inc.
Hauling and Materials Recycling
March 2008 (announced) Petron Corp. SEA Refinery Holdings
December 2007 Siemens Water Technologies, Two Oil Fomento de Construcciones Y
Waste Treatment Units Contrates SA (FCC)
August 2007 Delta-T Corporation Batewin Litwin NV
June 2007 Hydrochem Industrial Services Inc. Aquilex Services Corp.
May 2007 Thomson Metals and Disposal Quantam Murray LP
May 2007 Giant Industries Inc. Western Refining
April 2007 Synagro Technologies Inc. The Carlyle Group
March 2007 Shell Canada Ltd. Royal Dutch Shell plc
July 2006 Houston Refining LP Lyondell Chemical Company
All calculations of multiples paid or proposed to be paid in the
transactions identified above were based on public information available near
the time of public announcement of these transactions. Livingstone's analysis
did not take into account different market and other conditions during the
period in which the transactions identified above occurred.
For each of the transactions identified above, Livingstone calculated the
ratio of enterprise value implied by the transaction to the estimated EBITDA for
the identified company for the latest TTM period prior to when the relevant
transaction was announced. The table below summarizes TTM EBITDA trading
multiples for the above transactions identified as comparable to the proposed
transaction:
BENCHMARK LOW MEDIAN MEAN HIGH
- ----------------------------------- ------------- ------------- ------------- -------------
Enterprise Value / TTM EBITDA
(all transactions) 4.1x 9.1x 9.9x 19.6x
Enterprise Value / TTM EBITDA 4.1x 8.5x 9.6x 19.6x
(transaction size < $500 million)
Based upon its analysis of the full ranges of multiples calculated for the
transactions identified above and its consideration of various factors and
judgments about current market conditions and the characteristics of the
transactions and the companies involved in such transactions (including
qualitative factors and judgments involving non-mathematical considerations),
Livingstone determined the relevant range of multiples for the transactions
(which relevant range was narrower than the full ranges of such multiples).
The following table summarizes the derived relevant ranges of multiples
for the transactions identified above as comparable to Vertex Nevada and the
ranges of Vertex Nevada's implied enterprise value based on Vertex Nevada's TTM
EBITDA as of May 31, 2008:
IMPLIED ENTERPRISE VALUE OF
METHODOLOGY MULTIPLE RANGE VERTEX NEVADA
- ------------------------------- ------------------------ ------------------------------------
Enterprise Value / TTM EBITDA 7.9x - 9.9x $17.1 - $21.4 million
It should be noted that no transaction utilized in the analysis above is
identical to the merger. A complete analysis involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved in these transactions and other factors that could affect
the transaction multiples in these transactions to which the merger is being
compared.
1(c) DISCOUNTED CASH FLOW ANALYSIS
Livingstone performed a discounted cash flow analysis of Vertex Nevada for
the period from the third and fourth quarters of fiscal year ending December 31,
2008 through fiscal year ending December 31, 2013.
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In applying the discounted cash flow valuation approach, unlevered free
cash flow (i.e., free cash flow assuming a debt-free capital structure) is
projected into the future and discounted back to a present value at a discount
rate meant to reflect the relative riskiness of the investment, commonly
referred to as weighted average cost of capital ("WACC"). Unlevered free cash
flow is defined as net operating profit after taxes ("NOPAT"), plus depreciation
and amortization, less incremental annual working capital investment and capital
expenditures. The resulting free cash flow represents cash available to service
debt, distribute dividends to investors, and/or reinvest in the business without
inhibiting current operations.
The discounted cash flow analysis forecasts the after-tax free cash flow
available to both debt and equity investors. Livingstone's analysis incorporates
Vertex Nevada's management's projections through December 31, 2013. The
forecasted free cash flow is discounted utilizing a risk-adjusted WACC that
accounts for an appropriate long-term targeted capital structure for the
company. A terminal (or residual) value reflecting the value of Vertex Nevada's
free cash flows from year five into perpetuity is calculated using the Gordon
Growth Model, an approach that values the business under the assumption of
stable cash flows continuing into perpetuity with a nominal long-term cash flow
growth rate.
The estimated unlevered free cash flows for the period from the third and
fourth quarters of fiscal year ending December 31, 2008 through fiscal year
ending December 31, 2013 and the terminal values as of December 31, 2013 were
then discounted to present values using a range of discount rates from 23.2% to
25.2% in order to derive the unlevered enterprise values for Vertex Nevada.
Based on this analysis, Livingstone derived a range of implied enterprise
values for Vertex Nevada using the Evaluation Materials and above discounted
cash flow methodology to arrive at a range of $28.3 million to $31.7 million.
While discounted cash flow analysis is a widely accepted and practiced
valuation methodology, it relies on a number of assumptions, including
projections, discount rates and terminal value growth. The valuation derived
from the discounted cash flow analysis is not necessarily indicative of Vertex
Nevada's present or future value or results.
1(d) LEVERAGED BUYOUT ANALYSIS
The leveraged buyout ("LBO") approach is a variation of the discounted
cash flow approach and is based on the projections included in the Evaluation
Materials. The LBO approach, however, looks at valuation from the perspective of
institutional financial buyers and the returns that they target. These returns
are generated primarily through the sale of the company, typically exiting five
to seven years from the date of the initial investment.
In general, the amount a financial buyer is willing to pay for a company
is not only dependent on the company's projected performance, but also
constrained by the capital structure that the buyer can utilize to acquire the
business. The LBO approach incorporates assumptions for how much, and what types
of leverage can be supported by the company under current market conditions.
The LBO analysis forecasts the cash flow available to the financial buyer
over an investment horizon. A terminal value, reflecting the equity value of the
company's free cash flow at the end of the investment horizon is calculated
using the EBITDA multiple approach.
Based on Vertex Nevada's current and projected financial performance,
Livingstone formulated a pro forma capitalization and transaction structure for
a leveraged buyout of Vertex Nevada. Sources and uses of funds as well as
potential returns to debt holders are based on direct discussions with lenders
and Livingstone's knowledge of the financing markets. Livingstone assumed total
leverage of approximately $6 million (2.8x) and a total equity investment of $10
million (4.6x) based on Vertex's TTM May 2008 EBITDA.
The exit value represents free cash flow in year five available after
subtracting debt obligations and adding back any residual cash, and calculated
based on an EBITDA exit multiple of 7.5x. The EBITDA exit multiple approach is
utilized to estimate the enterprise value of Vertex Nevada and approximates the
current sale EBITDA multiple and thus no multiple arbitrage.
41
Based on this analysis, Livingstone derived a range of implied enterprise
values for Vertex Nevada using the Evaluation Materials and above leveraged
buyout methodology to arrive at a range of $13.8 million to $18.2 million, with
a midpoint implied enterprise value of $16.0 million based on the above pro
forma capitalization.
TRANSACTION FAIRNESS SUMMARY
To determine the fairness, from a financial perspective, of the merger
with respect to Vertex Nevada and World Waste, Livingstone compared the merger
enterprise value of Vertex Nevada to the implied fairness opinion enterprise
value of Vertex Nevada in each of the four methodologies described above. In
addition, Livingstone calculated the respective implied equity contributions of
Vertex Nevada and World Waste based on the terms outlined in the merger
agreement. Livingstone calculated Vertex Nevada's implied equity contribution as
Vertex Nevada's implied fairness opinion enterprise value less cash, assumed
long-term debt by the public company, and an adjustment for working capital. In
summary, Livingstone is of the opinion that, from a financial point of view, as
of the date of its opinion, the merger is fair to World Waste's shareholders as
a whole.
In addition, as part of the merger, Benjamin P. Cowart will be issued 100
shares of Series B preferred stock of Vertex Nevada, which shares have no
economic rights but provide the holder therewith with the right to elect four of
the five members of the board of directors of Vertex Nevada (at least one of
whom must be "independent" as defined by the New York Stock Exchange), with the
remaining director to be appointed by the holders of the Vertex Nevada Series A
preferred stock. Accordingly, the holders of shares of Vertex Nevada common
stock, as such, will not have the right to vote for the election of directors.
It is this "control" feature that accounts for the variance between what the
shareholders of Vertex Nevada immediately prior to the merger will own of Vertex
Nevada post-close relative to the fairness opinion enterprise value. World
Waste's shareholders are in effect being compensated for giving up control to
such Vertex Nevada shareholders. Vertex Nevada is also expected to benefit from
the merger through increased shareholder liquidity and access to capital.
RELATIVE CONTRIBUTION ANALYSIS
With respect to the relative equity contribution to the merger
transaction, Livingstone analyzed and compared the implied equity contribution
of Vertex Nevada based on each valuation methodology compared to World Waste's
$7.0 million investment for 56% of Vertex Nevada. In each valuation methodology
case, from a relative contribution perspective, Livingstone is of the opinion
that, from a financial point of view, as of the date of its opinion, the merger
is fair to World Waste's shareholders as a whole.
WORLD WASTE SHAREHOLDER FAIRNESS SUMMARY
In evaluating the fairness of the merger, from a financial perspective, to
each class of World Waste's shareholders, Livingstone calculated a post-close
equity value based on Vertex Nevada's implied fairness opinion enterprise value
plus cash remaining in the public company less adjustments for the assumption of
long-term debt and working capital requirements, and based on 136,565,511 shares
of common stock outstanding (including shares of common stock issuable upon
conversion of preferred stock and upon exercise of warrants with a nominal
exercise price).
Livingstone compared the estimated post-close equity valuation to the
estimated value of the pre-close equity, which Livingstone valued as the
residual cash remaining with World Waste. Livingstone assumed that World Waste's
Series A preferred shareholders exercised their ability to take control of the
World Waste board and dissolve World Waste. In this scenario, Livingstone
assumed that World Waste would incur at least $2.0 million in wind-down costs
(e.g., severance, legal, etc.). Livingstone further assumed the preference
rights of the World Waste Series A and Series B preferred shareholders would
ultimately prevail and they would receive 100% of the estimated $5.0 million net
liquidation proceeds on a pro-rata basis based on the pre-close World Waste
common share ownership (on an "as converted" basis) as of June 30, 2008. In
summary, the Series A and Series B preferred shareholders and common
shareholders would receive more implied equity value by entering into the merger
agreement compared to the estimated proceeds distributed on a pro-rata basis
from liquidating World Waste's remaining cash. Therefore, Livingstone is of the
opinion that, from a financial point of view, as of the date of its opinion, the
merger is fair to each class of World Waste's shareholders.
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MISCELLANEOUS
The special committee of the board of directors of World Waste retained
Livingstone based upon Livingstone's experience and expertise. Livingstone is an
internationally recognized investment banking firm with substantial experience
in transactions similar to the merger. Livingstone, as part of its investment
banking business, is continually engaged in the valuation of businesses and
securities in connection with business combinations and acquisitions and for
other purposes.
Livingstone and its affiliates are engaged in investment banking and
financial advisory services, securities trading, hedging, financing, brokerage
activities and other financial and non-financial activities and services for
various persons and entities. In the ordinary course of these activities and
services, Livingstone and its affiliates may actively trade securities of World
Waste for its own account or the account of its customers, and, accordingly, may
at any time hold a long or short position in such securities. Livingstone may
also, in the future, provide investment banking and financial advisory services
to World Waste, Vertex Nevada or entities that are affiliated with World Waste
or Vertex Nevada, for which Livingstone would expect to receive compensation.
FEES PAYABLE TO LIVINGSTONE
Under the terms of an engagement agreement with Livingstone, dated as of
March 7, 2008, the special committee of our board of directors engaged
Livingstone as its exclusive financial advisor in connection with the merger and
the merger agreement and agreed to pay Livingstone (1) a retainer fee of $50,000
upon the execution of the agreement, (2) a monthly retainer of $25,000 beginning
on the third month of the agreement, (3) $75,000 upon delivery of Livingstone's
opinion, which payment is not contingent upon the completion of the merger, and
(4) $250,000 upon completion of the merger, less the $50,000 initial retainer
fee. World Waste also agreed to reimburse Livingstone for its reasonable
out-of-pocket expenses, including the fees and expenses of its legal counsel,
subject to World Waste's right to approve in advance cumulative expenses in
excess of $15,000, and agreed to indemnify Livingstone and related persons
against liabilities, including liabilities under the federal securities laws,
arising out of its engagement.
MANAGEMENT AND OPERATIONS OF VERTEX NEVADA AND MERGER SUBSIDIARY AFTER THE
MERGER
Mr. Cowart will own 100 shares of Vertex Nevada's Series B preferred stock
immediately prior to the merger, which shares have no economic rights but which
entitle the holder thereof to elect four of the five members of Vertex Nevada's
board of directors, at least one of whom must be "independent" as defined by the
New York Stock Exchange. The holders of Vertex Nevada's Series A preferred stock
will be entitled to elect the remaining Vertex Nevada director. Accordingly, so
long as any shares of Vertex Nevada Series B preferred stock remain outstanding,
the holders of shares of Vertex Nevada common stock will not have the right to
vote for the election of directors. The rights, privileges, restrictions, and
preferences of the Vertex Nevada Series A and Series B preferred stock are set
forth in the Certificates of Designation, which are attached to this proxy
statement as Appendices D and E, respectively.
Mr. Cowart has advised us that immediately subsequent to the merger, the
board of directors of Vertex Nevada will consist of: Dan Borgen, Benjamin P.
Cowart, Ingram Lee, David Phillips and John Pimentel. Mr. Pimentel will be
deemed to be the designee of the holders of the Vertex Nevada Series A preferred
stock.
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INTERESTS IN THE MERGER OF WORLD WASTE'S DIRECTORS, EXECUTIVE OFFICERS, AND
OTHER RELATED PERSONS
As of June 30, 2008, our directors and executive officers beneficially
owned approximately 18.50% of our outstanding common stock. In considering the
recommendation of World Waste's board of directors, you should be aware that
some of our directors, executive officers and other related persons have
interests in the merger that are different from, or in addition to, the
interests of our shareholders generally that may present actual or potential
conflicts of interests. These interests include the following:
Chadbourn Securities assisted World Waste in capital raising, initially
identified the Vertex Nevada merger opportunity (see "Background of the Merger")
and has advised Vertex Nevada and Mr. Cowart in structuring the merger. In
consideration therefore and for continued support and involvement going forward,
Vertex Nevada has agreed to issue Chadbourn and some of its affiliates a total
of 2,350,000 shares of Vertex Nevada's common stock, representing approximately
1.7% of the total outstanding shares of capital stock of Vertex Nevada
immediately following the merger. Laird Q. Cagan is a managing director of
Chadbourn and of Cagan McAfee Capital Partners, a strategic advisory firm at
which John Pimentel has been affiliated since 2002.
Kevin Martin and Dan Walsh, registered brokers with First Montauk
Securities, will each be issued 100,000 shares of Vertex Nevada's common stock
for their ongoing support and advisory services to the combined company. First
Montauk previously served as a placement agent for World Waste's offering of
Series B preferred stock that closed in the second quarter of 2006, for which it
received investment banking fees.
Each existing director of World Waste (other than Mr. Pimentel) holds
restricted shares of World Waste's common stock that are subject to forfeiture
under certain circumstances. Because the merger will be deemed to be a "change
in control" (as defined in the agreements pursuant to which such shares were
issued), upon the closing of the merger, the forfeiture provisions will
automatically terminate.
Upon consummation of the merger, Mr. Pimentel will serve as a member of
Vertex Nevada's board of directors as the designee of the holders of Vertex
Nevada's Series A preferred stock. It is currently anticipated that, following
the merger, Mr. Pimentel will also serve Vertex Nevada in a consulting capacity,
assisting management with strategic planning, finance and in formulating
business development initiatives. It is anticipated that Mr. Pimentel will
receive cash and/or additional equity compensation for providing such services,
the form and amount of which compensation has not yet been determined.
Certain other members of World Waste's management (including Matthew Lieb,
our Chief Operating Officer, and Adam Shore, our interim Chief Financial
Officer) may also be asked by Vertex Nevada to provide Vertex Nevada with
consulting or other services following the merger, for which they will receive
compensation.
VOTING AGREEMENT WITH CERTAIN SHAREHOLDERS
In May 2008, Eddie Campos and the G&A Zabka Pederson Trust, who
beneficially own a total of approximately 7.4% of our outstanding common stock,
entered into a voting agreement with us pursuant to which such holders agreed to
vote their shares of common stock in favor of the merger. In addition, under the
voting agreement, each such holder has agreed to vote against any action which
would reasonably be expected to result in a breach of the merger agreement, or
other documents and agreement contemplated by the merger agreement, or to
compete with, interfere with or delay timely consummation of the merger and
related transactions. With respect to matters not covered by the voting
agreement, such holders may vote their shares of World Waste common stock in
their sole discretion, provided that such vote is not reasonably expected to
compete with, interfere with or delay timely consummation of the merger and
related transactions.
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The voting agreement specifically covers all shares of common stock owned
by the holders as of the date of the voting agreement, together with any other
shares of common stock, the voting power over which is acquired by such holders
during the period from and including the date of the voting agreement through
and including the date on which the voting agreement is terminated in accordance
with its terms.
The voting agreement includes customary representations made by World
Waste and each holder, and contains restrictions on the transferability of the
shares by the holders. The voting agreement terminates on the earliest to occur
of (1) the date on which the merger is consummated, (2) one year following the
date on which the voting agreement is executed, or (3) upon notice of
termination by World Waste to the holders.
INTERESTS OF VERTEX NEVADA'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
COWART EMPLOYMENT AGREEMENT
In connection with the merger, Vertex Nevada will enter into an employment
agreement with Benjamin P. Cowart pursuant to which Mr. Cowart will serve as
Vertex Nevada's Chief Executive Officer effective for a term of five years
following the closing of the merger.
Mr. Cowart's compensation package includes (1) a base salary of $190,000,
subject to annual increases as determined in the sole discretion of the
compensation committee of Vertex Nevada's board of directors, and (2) a bonus
payment determined in the sole discretion of the compensation committee. Mr.
Cowart will also be eligible to participate in Vertex Nevada's stock option plan
and other benefit plans. Vertex Nevada may terminate Mr. Cowart's employment for
"cause" (which is defined to include, among other things, a material breach of
the agreement by Mr. Cowart). Mr. Cowart may terminate his agreement upon
delivery to Vertex Nevada of written notice of termination for any reason,
including "good reason," which is defined to include, among other things, a
material breach of the agreement by Vertex Nevada, or a modification of Mr.
Cowart's duties such that they are inconsistent with the position and title of
Chief Executive Officer.
Upon termination of the agreement on the five-year anniversary thereof, or
for "cause," Mr. Cowart will be entitled to any salary accrued through such
termination date, as well as any other benefits to which he may be entitled
under any stock plan or other benefit plan that Vertex Nevada maintains. If such
agreement is terminated without "cause" or Mr. Cowart resigns for "good reason,"
Mr. Cowart will be entitled to continue to receive his salary then in effect for
a period of six months following the date of termination.
Pursuant to the agreement, as long as Mr. Cowart is employed thereunder,
he may not engage or participate in any business that is in competition in any
manner whatsoever with Vertex Nevada's business (as presently or hereafter
conducted), subject to certain exceptions.
OTHER EMPLOYMENT AGREEMENTS
Following the merger, it is anticipated that Vertex Nevada will enter into
employment agreements with each of Chris Carlson (Secretary), Greg Wallace
(Operations) and John Strickland (Manager of Supply). The terms of these
agreements have not yet been determined.
TERMINATION OF COWART GUARANTEES
Pursuant to the merger agreement, as a condition to the obligation of the
parties to close the merger, the parties to the merger have agreed to use their
commercially reasonable efforts to obtain the termination of all personal
guarantees given by Mr. Cowart and his family members with respect to $1.6
million of certain indebtedness owed by Vertex LP. The foregoing indebtedness
will be assumed by Vertex Nevada upon the transfer to it of the Vertex Nevada
Business.
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VERTEX NEVADA - CMT SUBLEASE
As a condition to the closing of the merger, Cedar Marine Terminal, L.P.,
a Texas limited liability partnership ("CMT") owned by Vertex LP (but not part
of the Vertex Nevada Business being transferred to Vertex Nevada), must enter
into a sublease with Vertex Nevada for Vertex Nevada's use of a portion of
certain real property leased by CMT from a third-party and located in Baytown,
Chamber County, Texas. The property was originally leased by CMT under a master
lease from CP Terminal, LLC, a Texas limited liability company unrelated to
Vertex LP. CP Terminal's consent is required in order for CMT and Vertex Nevada
to enter into the sublease.
It is a condition to the closing of the merger that the sublease is
entered into in connection with a purchase and sale agreement between CMT and
Vertex Nevada. Pursuant to this agreement, Vertex Nevada would agree to purchase
from CMT certain equipment for use on the property. Under the sublease, Vertex
Nevada would have the exclusive right to use a specified portion of the property
and the right to use, in common with others, the common areas on the property.
In addition, Vertex Nevada would have the right to use the subleased premises
for manufacturing marine diesel, vacuum gas oil, alternative fuels and any other
products, consistent with Vertex Nevada's current business plans, which Vertex
Nevada may choose to manufacture in the future, so long as such usage is a
permitted use on the property.
The sublease would terminate on February 28, 2017, subject to an extension
option if the master lease is extended. The sublease could also be terminated if
the purchase agreement is terminated.
Vertex Nevada's rent under the sublease would initially be $1 per month
commencing 90 days following the closing of the merger, provided that the rent
would increase to $4,500 per month following the date on which Vertex Nevada
commences any construction activities on the property. However, if CMT and
Vertex Nevada enter into an operating agreement under which CMT is compensated
for its services as operator of the property, the rent would remain at $1 per
month during the period in which such an operating agreement is in effect. In
addition to the rent, Vertex Nevada would also pay to CMT Vertex Nevada's pro
rata share of charges for utilities, including gas, electricity, light and heat,
among others.
VERTEX NEVADA - CMT PURCHASE AGREEMENT
As a condition to the closing of the merger, CMT and Vertex Nevada are
required to enter into an equipment purchase and sale agreement pursuant to
which CMT will agree to sell to Vertex Nevada equipment to be used by Vertex
Nevada on the subleased property described above.
The equipment will be purchased in its current condition, as-is, with all
faults, and without any warranty. Vertex Nevada will have responsibility for
operating and maintaining the equipment, and for operating the equipment in
compliance with all applicable laws.
At the time the purchase agreement is executed, there will be security
interests on the equipment as a result of payments owed by CMT to a third-party
lender, as well as a lien on the equipment in connection with certain litigation
against CMT. Pursuant to the purchase agreement, Vertex Nevada will agree to
make the payments owed to the lender prior to delinquency. It is a condition to
closing the transactions contemplated by the purchase agreement that Vertex
Nevada receives a written agreement from the lender stating that, upon CMT's
receipt of $1,000,000 from Vertex Nevada, the lender will release its security
interests in the equipment. Any lien on the equipment in connection with the
above-referenced lawsuit must also be removed prior to the purchase of the
equipment, and the equipment must be delivered free and clear of any liens and
claims.
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The purchase price for the equipment will be $1,500,000, and will be
payable in installments. Vertex Nevada will be required to make a payment to CMT
within 45 days of the end of each fiscal quarter. The quarterly payment will be
equal to Vertex Nevada's net profits from operations for the preceding fiscal
quarter, if any, not to exceed $250,000. The quarterly payments will be continue
until such time as the purchase price is paid in full. For the purposes of the
purchase agreement, "net profits" will be defined as Vertex Nevada's total
revenues from its operations using the equipment for any fiscal quarter minus
the total expenses for that fiscal quarter in connection with the operations of
the equipment.
Until the security release amount is paid in full, the equipment will
remain the property of CMT. However, Vertex Nevada will have the right, with
CMT's reasonable consent, to improve and modify the equipment prior to the
transfer of title. Regardless of the transfer of title to the equipment, all
improvements, and all trade secrets, patents, copyrights, and other intellectual
property related to thereto, will be the property of Vertex Nevada.
Under the purchase agreement, Vertex Nevada will not be deemed to be in
default if there are no Vertex Nevada net profits for any fiscal quarter or
number of fiscal quarters (and therefore no payments toward the purchase price).
However, CMT will be permitted to terminate the purchase agreement with thirty
days' prior written notice to Vertex Nevada, if (1) there are no net profits for
any quarter following the first twenty fiscal quarters after the closing; or (2)
at any time (whether before or after five years have elapsed), Vertex Nevada's
board of directors has provided CMT with written notice of its intent not to
move forward with operation of the equipment. In such event, CMT's only remedy
will be to terminate the purchase agreement, and Vertex Nevada will have no
other liability or obligation to CMT thereunder, except that CMT will have the
right to retain any payments made to it by Vertex Nevada as of the date of the
termination of the purchase agreement.
In addition, Vertex Nevada will have the right to terminate the purchase
agreement, without liability or obligation to CMT, if Vertex Nevada does not
achieve net profits reasonably satisfactory to it.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) whose shares of
World Waste preferred or common stock are exchanged in the merger for shares of
Vertex Nevada preferred or common stock. This summary does not purport to
consider all aspects of U.S. federal income taxation that might be relevant to
our shareholders. For purposes of this discussion, we use the term "U.S. holder"
to mean a beneficial owner of shares of World Waste preferred or common stock
who is, for U.S. federal income tax purposes:
o a citizen or resident of the United States;
o a corporation created or organized under the laws of the United
States or any of its political subdivisions;
o a trust that (1) is subject to the supervision of a court within the
United States and the control of one or more U.S. persons or (2) has
a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person; or
o an estate that is subject to U.S. federal income tax on its income
regardless of its source.
If a partnership (including an entity treated as a partnership for U.S.
federal income tax purposes) holds World Waste preferred or common stock, the
tax treatment of a partner generally will depend on the status of the partner
and the activities of the partnership. A partner of a partnership holding World
Waste preferred or common stock should consult the partner's tax advisor
regarding the U.S. federal income tax consequences of the merger to the partner.
47
This discussion is based on current law, which is subject to change,
possibly with retroactive effect. The discussion applies only to beneficial
owners who hold shares of World Waste preferred or common stock as capital
assets, and does not apply to shares of preferred or common stock received in
connection with the exercise of employee stock options or otherwise as
compensation or to certain types of beneficial owners who may be subject to
special rules (such as insurance companies, banks, tax-exempt organizations,
financial institutions, broker-dealers, partnerships, S corporations or other
pass-through entities, mutual funds, traders in securities who elect the
mark-to-market method of accounting, shareholders subject to the alternative
minimum tax, shareholders who have a functional currency other than the U.S.
dollar, or shareholders who hold preferred or common stock as part of a hedge,
straddle, or a constructive sale or conversion transaction). This discussion
also does not address the U.S. tax consequences to any shareholder who, for U.S.
federal income tax purposes, is a non-resident alien individual, foreign
corporation, foreign partnership, or foreign estate or trust, and does not
address any receipt of cash in connection with the cancellation of shares of
stock appreciation rights, restricted stock units, or options to purchase shares
of common stock, or any other matters relating to equity compensation or benefit
plans. Furthermore, this discussion does not address any aspect of state, local,
or foreign tax laws, and no ruling has been or will be sought from the Internal
Revenue Service on the tax consequences of the merger.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO WORLD WASTE SHAREHOLDERS WHO
PARTICIPATE IN THE MERGER
Subject to the qualifications and limitations set forth above, the
material U.S. federal income tax consequences of the merger, as a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended, to U.S.
holders should be as follows:
o a holder of World Waste preferred or common stock will not recognize
any gain or loss upon the exchange in the merger of that
shareholder's shares of preferred or common stock for shares of
Vertex Nevada preferred or common stock;
o a holder of World Waste preferred or common stock will have a tax
basis in the Vertex Nevada preferred or common stock received in the
merger equal to the tax basis of the World Waste stock surrendered
in the merger by that holder;
o the holding period for shares of Vertex Nevada preferred or common
stock received in the merger in exchange for shares of World Waste
preferred or common stock will include the holding period for the
shares of World Waste stock surrendered in the merger; and
o in the case of a holder of World Waste preferred or common stock who
holds shares of World Waste stock with differing tax bases and/or
holding periods, the preceding rules will be applied to each
identifiable block of World Waste stock.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO WORLD WASTE SHAREHOLDERS WHO
EXERCISE DISSENTERS' RIGHTS
Subject to the qualifications and limitations set forth above, for U.S.
federal income tax purposes, any U.S. holder of World Waste preferred or common
stock who exercises dissenters' rights in connection with the merger will
generally be required to recognize gain or loss upon the exchange of that
shareholder's shares of World Waste preferred or common stock for cash, measured
by the difference between the amount of cash received and the tax basis in that
holder's shares of World Waste preferred or common stock. This gain or loss will
generally be a capital gain or loss and will be a long-term capital gain or loss
if the holding period for the shares of World Waste preferred or common stock is
more than one year at the date of the exchange.
Backup withholding of tax may apply to cash payments to which a
non-corporate U.S. holder is entitled under the merger agreement upon the
exercise of dissenters' rights, unless the U.S. holder or other payee provides
World Waste with a signed Substitute Form W-9 containing a taxpayer
identification number and a certification that that such number is correct, and
otherwise complies with the backup withholding rules.
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Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be allowable as a refund or a credit against a
U.S. holder's U.S. federal income tax liability provided the required
information is timely furnished to the Internal Revenue Service.
Cash received by U.S. holders in the merger upon the exercise of
dissenters' rights will also be subject to information reporting unless an
exemption applies.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE ARE NOT INTENDED
TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE
MERGER. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER SHOULD
CONSULT THE SHAREHOLDER'S TAX ADVISOR REGARDING THE APPLICABILITY OF THE RULES
DISCUSSED ABOVE TO THE SHAREHOLDER IN LIGHT OF THE SHAREHOLDER'S PARTICULAR
CIRCUMSTANCES AND REGARDING THE APPLICABILITY OF STATE, LOCAL, AND FOREIGN TAX
LAWS.
ACCOUNTING TREATMENT
The merger will be accounted for as a reverse acquisition of World Waste
pursuant to which Vertex Nevada is considered to be the acquiring entity. In the
merger, the shareholders of World Waste will exchange 100% of their shares for
approximately 56% of the shares of Vertex Nevada, and World Waste will merge
with and into Merger Sub, a wholly owned subsidiary of Vertex Nevada. The share
exchange will be treated as a recapitalization of Vertex Nevada. Vertex Nevada
will be the continuing entity for financial reporting purposes. The audited
financial statements of Vertex Nevada have been prepared as if Vertex Nevada has
always been a reporting company. After the closing of the merger and as a result
of the share exchange, Vertex Nevada will account for the recapitalization of
its capital stock.
CALIFORNIA HEARING REGARDING THE FAIRNESS OF THE MERGER
Section 3(a)(10) of the Securities Act of 1933, as amended, provides an
exemption from the registration requirements of the Securities Act for "any
security which is issued in exchange for one or more bona fide outstanding
securities . . . where the terms and conditions of such issuance and exchange
are approved, after a hearing upon the fairness of such terms and conditions at
which all persons to whom it is proposed to issue securities in such exchange
have the right to appear . . . by any state or territorial banking or insurance
commission or other governmental authority expressly authorized by law to grant
such approval."
Section 25142 of the California Corporate Securities Law of 1968
authorizes the California Commissioner of Corporations to (1) hold a hearing
upon the fairness of the terms and conditions of the Vertex Nevada preferred and
common stock to be issued in the merger in exchange for World Waste preferred
and common stock and (2) approve the terms and conditions of such issuance and
exchange. Approval by the California Commissioner of the fairness of the terms
of the issuance of Vertex preferred and common stock means that the issuance of
such shares will be exempt from registration under the Securities Act pursuant
to the exemption provided by Section 3(a)(10) of the Securities Act.
On June 30, 2008, World Waste submitted an application to the California
Commissioner for purposes of scheduling a "fairness hearing" for a permit
regarding the issuance of Vertex Nevada preferred and common stock in the merger
in exchange for World Waste preferred and common stock. We plan to send a notice
of the California Commissioner's fairness hearing to our shareholders promptly
following the mailing of this proxy statement. The notice will explain how our
shareholders will have the opportunity to appear and be heard at the fairness
hearing in connection with the merger.
At the fairness hearing, the California Commissioner will be asked to
issue a permit approving the fairness of the terms of the issuance of Vertex
preferred and common stock to World Waste's shareholders pursuant to the merger
agreement. If issued, the effectiveness of the permit will be conditioned upon
approval of the merger agreement at the special meeting by World Waste's
preferred and common shareholders.
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VERTEX NEVADA TRADING AND STOCK MARKET AFTER THE MERGER
Although the common stock of Vertex Nevada is not currently publicly
traded, we anticipate that the Vertex Nevada common stock will be traded on the
OTC Bulletin Board following the completion of the merger and that Vertex Nevada
will continue to file reports and other documents with the SEC as the successor
to World Waste.
RESTRICTIONS ON THE RESALE OF VERTEX NEVADA STOCK AFTER THE MERGER
The shares of Vertex Nevada preferred and common stock that are issued in
the merger to our shareholders in exchange for their World Waste preferred and
common stock will be freely transferable without registration under the
Securities Act, except that any shareholder who is an "affiliate" of Vertex
Nevada (as the term "affiliate" is defined in Rule 144 of the Securities Act)
may not resell such Vertex Nevada shares unless the transaction is registered
under the Securities Act or unless a registration exemption is available, such
as that provided by Rule 144. Rule 144(a)(1) defines an affiliate of Vertex
Nevada as "a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer." Furthermore, the Vertex Nevada preferred stock will not be traded
on any public market and, as described in the section of this proxy statement
entitled "Description of Vertex Nevada Capital Stock - Preferred Stock - Vertex
Nevada Series A Preferred Stock" beginning on page 99, there are restrictions on
the ability of a holder to convert his or her shares of Vertex Nevada preferred
stock into shares of Vertex Nevada common stock.
Under Rule 144 as currently in effect, a person (or persons whose shares
are aggregated) who is an affiliate of Vertex Nevada would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the then-outstanding shares of Vertex Nevada common
stock or the average weekly trading volume of the Vertex Nevada common stock
during the four calendar weeks preceding such sale. Such sales are also subject
to certain manner of sale provisions and notice requirements, require that
Vertex Nevada have been subject to the Exchange Act periodic reporting
requirements for at least three months before the sale (which requirement will
be satisfied if Vertex Nevada is treated as a successor to World Waste for SEC
reporting purposes), and require that Vertex Nevada has filed all required
reports under the Exchange Act for the twelve months preceding the sale (or for
such shorter period as it has been subject to such reporting requirements).
The shares of Vertex Nevada Series A preferred stock that are issued in
the merger to our shareholders in exchange for their World Waste Series A or
Series B preferred stock will not be transferable by a Vertex Nevada affiliate
unless the transaction is registered under the Securities Act or unless a
registration exemption is available. Because the Vertex Nevada Series A
preferred stock will not be traded on any public market, the manner of sale
requirements of Rule 144 will not be satisfied and the affiliate will be unable
to rely upon the resale exemption provided by Rule 144.
THE DISCUSSION IN THE PRECEDING THREE PARAGRAPHS DOES NOT ADDRESS ANY
RESALE RESTRICTIONS THAT MAY BE IMPOSED BY STATE OR FOREIGN SECURITIES LAWS,
RULES, AND REGULATIONS, NOR DOES IT ADDRESS ANY U.S. FEDERAL, STATE, OR FOREIGN
RESALE RESTRICTIONS THAT MAY APPLY TO (1) SHARES OF VERTEX NEVADA PREFERRED OR
COMMON STOCK ACQUIRED UPON THE EXERCISE OF OPTIONS OR WARRANTS OR (2) SHARES OF
VERTEX NEVADA COMMON STOCK THAT ARE ACQUIRED UPON THE CONVERSION OF SHARES OF
VERTEX NEVADA SERIES A PREFERRED STOCK. YOU SHOULD CONSULT WITH YOUR COUNSEL
REGARDING SUCH RESALE RESTRICTIONS. THE SEC HAS NOT APPROVED OR DISAPPROVED OF
THE SHARES OF VERTEX NEVADA PREFERRED AND COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prior to the merger, each holder of Vertex Nevada stock will be required
to execute an agreement pursuant to which he or she agrees not to sell any of
his or her shares until the one-year anniversary of the closing of the merger,
and thereafter until the three-year anniversary of the closing, not to sell, in
any given three-month period, more than that number of shares as equals 5% of
the total number of shares then beneficially owned by such holder (in each case,
subject to early termination in the event that Vertex Nevada's common stock
trades at or above $1.50 per share for 20 consecutive trading days on average
daily volume of at least 75,000 shares). Although holders of World Waste's
common stock who receive shares of Vertex Nevada's common stock in the merger
will not be required to enter into such an agreement, we have agreed to attempt
to obtain a similar agreement from certain of our directors, officers and other
common shareholders. In addition, certain holders of World Waste's common stock
are currently parties to a contractual lock-up with World Waste with respect to
their shares, which lock-ups may remain in place following the Closing.
MATERIAL DIFFERENCES BETWEEN WORLD WASTE'S SECURITIES AND VERTEX NEVADA'S
SECURITIES
The following is a summary of material differences between the existing
World Waste common stock, World Waste Series A preferred stock, and World Waste
Series B preferred stock, and the Vertex Nevada common stock and Vertex Nevada
Series A preferred stock issuable pursuant to the merger. Please see "Comparison
of the Rights of World Waste and Vertex Nevada Shareholders" beginning on page
104 for a further discussion of such differences.
COMMON STOCK
Holders of World Waste and Vertex Nevada common stock possess similar
rights. Each is entitled to equal dividends and distributions per share with
respect to the common stock when, as and if declared by their respective board
of directors from funds legally available therefor. No holder of any shares of
World Waste or Vertex Nevada common stock has a preemptive right to subscribe
for any of their respective securities, nor are any of the respective common
shares subject to redemption or convertible into other securities. Upon
liquidation, dissolution or winding-up of either corporation, and after payment
of creditors and preferred stockholders, if any, the assets of such corporation
would be divided pro rata on a share-for-share basis among the common
shareholders of each of Vertex Nevada and World Waste, respectively. Each share
of World Waste's common stock and Vertex Nevada common stock is entitled to one
vote on all matters presented to shareholders, except that, so long as any
shares of Vertex Nevada Series A preferred stock and Vertex Nevada Series B
preferred stock are outstanding, holders of Vertex Nevada common stock will not
have the right to vote for the election of directors.
The Articles of Incorporation of World Waste provide for cumulative voting
whereas the Articles of Incorporation of Vertex Nevada do not contain such a
provision.
PREFERRED STOCK
The following outlines material differences between the Vertex Nevada
Series A preferred stock issuable to existing holders of World Waste preferred
stock under the merger, and the currently outstanding shares of World Waste
Series A preferred stock and World Waste Series B preferred stock:
o DIVIDENDS. Holders of World Waste Series A preferred stock and World Waste
Series B preferred stock are currently entitled to receive cumulative
dividends at the rate of 8% per annum. In addition, each share of World
Waste preferred stock is entitled to fully participate in any dividends
paid to the holders of World Waste common stock on a common stock
equivalent basis. Holders of shares of Vertex Nevada Series A preferred
stock will be entitled to receive non-cumulative dividends only if and
when declared by Vertex Nevada's board of directors.
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o LIQUIDATION RIGHTS. In the event of a sale, liquidation or dissolution of
World Waste, and prior to any liquidation payment on any junior capital
stock of World Waste, holders of shares of World Waste Series A preferred
stock and Series B preferred stock are entitled to receive a liquidation
preference of $2.50 per share and $100 per share, respectively (in each
case plus accrued but unpaid dividends), and to participate fully with
holders of World Waste's common stock (on an as if converted basis) with
respect to the distribution of any remaining assets of World Waste. Each
holder of Vertex Nevada Series A preferred stock will be entitled to a
liquidation payment of $0.149 per share, prior to any liquidation payment
made on any junior shares of Vertex capital stock. After they receive
their full liquidation payments, holders of Vertex Nevada Series A
preferred stock will not be entitled to any additional distributions.
o MANDATORY REDEMPTION. Holders of World Waste Series A preferred stock and
Series B preferred stock are entitled to demand that World Waste redeem
their shares in April 2010 at a price equal to the original purchase price
of such shares plus accrued but unpaid dividends. Holders of shares of
Vertex Nevada Series A preferred stock will have no such redemption
rights.
o VETO RIGHTS. As long as at least 50% of the World Waste Series A preferred
stock remains outstanding (but subject to certain other conditions), World
Waste is prohibited from taking certain corporate actions without the
approval of the holders of a majority of the outstanding shares of World
Waste Series A preferred stock. Holders of Vertex Nevada Series A
preferred stock have no such veto rights.
o BOARD OF DIRECTORS. Holders of World Waste Series A preferred stock have
the right to elect two of the members of World Waste's board of directors
and, under certain circumstances, to elect a majority of the members of
the board of directors. By contrast, as long as at least 50% of the Vertex
Nevada Series A preferred stock remains outstanding, holders of Vertex
Nevada Series A preferred stock are entitled to elect one of Vertex
Nevada's five-member board of directors.
o OPTIONAL CONVERSION. Subject to certain exceptions, the World Waste Series
A preferred stock and World Waste Series B preferred stock will
automatically convert into shares of World Waste common stock upon the
occurrence of certain conditions, and may be converted into World Waste
common stock at any time at the option of the holder. By contrast, the
holders of Vertex Nevada Series A preferred stock are restricted in their
ability to convert their shares during the first three years following
issuance of the Vertex Nevada Series A preferred stock.
DISSENTERS' RIGHTS FOR SHAREHOLDERS OF WORLD WASTE
If you do not vote your World Waste preferred or common shares in favor of
the merger agreement, then, by making a written demand for payment and complying
with the procedures set forth in Chapter 13 of the California General
Corporation Law, you will be entitled to exercise dissenters' rights and receive
an amount equal to the fair market value of your shares as of May 19, 2008,
which was the last trading day before the public announcement of the merger.
The closing price for World Waste's common stock on May 19, 2008 was $.19
per share. Our preferred stock is not publicly traded. CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW PROVIDES THAT FAIR MARKET VALUE FOR PURPOSES
OF DISSENTERS' RIGHTS SHALL BE DETERMINED WITHOUT TAKING INTO ACCOUNT ANY
APPRECIATION FROM THE PROPOSED MERGER.
A copy of Chapter 13 of the California General Corporation Law is attached
to this proxy statement as Appendix H. You should read it for more complete
information concerning dissenting shareholders' rights. The following discussion
in this section is qualified in its entirety by reference to Appendix H, and the
following discussion does not constitute legal advice or a recommendation that
shareholders should exercise their dissenters' rights.
THE REQUIRED PROCEDURES SET FORTH IN CHAPTER 13 OF THE CALIFORNIA GENERAL
CORPORATION LAW MUST BE FOLLOWED EXACTLY OR ANY DISSENTING SHAREHOLDERS' RIGHTS
MAY BE LOST. FURTHERMORE, THE FAIR MARKET VALUE OF YOUR SHARES DETERMINED UNDER
CHAPTER 13 MAY BE MORE THAN, LESS THAN, OR THE SAME AS THE VALUE OF THE MERGER
CONSIDERATION FOR YOUR SHARES.
52
In order to be entitled to exercise dissenting shareholders' rights, you
may not vote in favor of the merger agreement. Thus, if you wish to dissent and
you execute and return a proxy in the accompanying form, you must specify that
your shares are to be voted "AGAINST" the merger agreement or you must return
the proxy with instructions to vote "ABSTAIN." You will lose your potential
dissenting shareholders' rights by voting "FOR" the merger agreement.
To be effective, an exercise of dissenting shareholder's rights must be
made by, or on behalf of, the registered shareholder. Beneficial owners who do
not also hold their shares of record may not directly make dissenters' rights
demands. The beneficial holder must, in such cases, have the registered owner
submit the required demand in respect of those shares. If you hold your shares
of preferred or common stock in a brokerage account or in other nominee form and
you wish to exercise dissenters' rights, you should consult with your broker or
the other nominee to determine the appropriate procedures for the making of a
demand by the nominee.
Upon shareholder approval of the merger agreement, World Waste will have
ten days following the approval to send to those shareholders who did not vote
in favor of the merger agreement a written notice of such shareholder approval
accompanied by:
o a copy of Chapter 13 of the California General Corporation Law;
o a statement of the price determined by World Waste to represent the fair
market value of the dissenting shares as of May 19, 2008; and
o a brief description of the procedures to be followed if a shareholder
desires to exercise dissenting shareholders' rights.
Within 30 days after the date on which the notice of the approval of the
merger agreement is mailed, a shareholder who plans to exercise dissenting
shareholders' rights must make written demand upon World Waste for the purchase
of dissenting shares and payment to the shareholder of their fair market value.
The written demand must specify the number of shares held of record by the
shareholder and a statement of what the shareholder claims to be the fair market
value of those shares as of May 19, 2008. At the same time, the shareholder must
surrender, at World Waste's principal office or the office of its transfer
agent, the certificates representing the dissenting shares to be stamped or
endorsed with a statement that they are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed. Any shares of
World Waste preferred or common stock that are transferred prior to their
submission for endorsement will lose their status as dissenting shares, and a
dissenting shareholder may not withdraw his or her dissent or demand for payment
unless World Waste's consents to the withdrawal.
If World Waste and the dissenting shareholder agree that the surrendered
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder will be entitled to the agreed price with interest from
the date of such agreement. The applicable interest rate will be the rate then
set by law for the accrual of interest on judgments for money. World Waste must
pay the fair value of the dissenting shares within thirty days after the amount
thereof has been agreed upon or thirty days after any statutory or contractual
conditions to the merger have been satisfied, whichever is later. The obligation
to pay for the dissenting shares is subject to receipt of the certificates
representing them.
If World Waste denies that the shares surrendered are dissenting shares,
or if the dissenting shareholder and World Waste fail to agree upon a fair
market value of such shares, then the dissenting shareholder must, within six
months after the notice of approval is mailed, file a complaint in the Superior
Court of the proper County in California requesting the court to make such
determination(s) or intervene in any pending action brought by any other
dissenting shareholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' rights will be lost. If the fair market value of the dissenting
shares is at issue, the court will determine, or will appoint one or more
impartial appraisers to determine, such fair market value.
53
If any of the actions or events described above occurs after the effective
time of the merger, the foregoing references to "World Waste" shall instead be
deemed to refer to "Merger Subsidiary" as the surviving corporation in the
merger.
54
THE MERGER AGREEMENT
THIS SECTION DESCRIBES THE MATERIAL TERMS OF THE MERGER AGREEMENT. THE
DESCRIPTION IN THIS SECTION AND ELSEWHERE IN THIS PROXY STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND WHICH, TOGETHER WITH ALL
OTHER APPENDICES TO THIS PROXY STATEMENT, WE INCORPORATE BY REFERENCE INTO THIS
PROXY STATEMENT. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND MAY NOT
CONTAIN ALL OF THE INFORMATION ABOUT THE MERGER AGREEMENT THAT IS IMPORTANT TO
YOU. WE ENCOURAGE YOU TO READ CAREFULLY THE MERGER AGREEMENT IN ITS ENTIRETY.
THE MERGER AGREEMENT HAS BEEN INCLUDED AS AN APPENDIX TO THIS PROXY
STATEMENT TO PROVIDE YOU WITH INFORMATION REGARDING ITS TERMS. EXCEPT FOR THE
MERGER AGREEMENT'S STATUS AS A CONTRACTUAL DOCUMENT THAT ESTABLISHES AND GOVERNS
THE LEGAL RELATIONS AMONG THE PARTIES WITH RESPECT TO THE MERGER, THE MERGER
AGREEMENT IS NOT INTENDED TO BE A SOURCE OF FACTUAL, BUSINESS, OR OPERATIONAL
INFORMATION ABOUT THE PARTIES TO THE MERGER AGREEMENT, NAMELY, WORLD WASTE,
VERTEX LP, VERTEX NEVADA, MERGER SUBSIDIARY, AND MR. COWART.
THE MERGER AGREEMENT CONTAINS REPRESENTATIONS AND WARRANTIES OF THE
PARTIES TO THE MERGER AGREEMENT, WHICH ARE MADE TO AND SOLELY FOR THE BENEFIT OF
EACH OTHER. THE ASSERTIONS EMBODIED IN THE REPRESENTATIONS AND WARRANTIES ARE
QUALIFIED AND MODIFIED BY INFORMATION CONTAINED IN DISCLOSURE SCHEDULES THAT THE
PARTIES EXCHANGED IN CONNECTION WITH THE SIGNING OF THE MERGER AGREEMENT.
ACCORDINGLY, YOU SHOULD NOT RELY ON THE REPRESENTATIONS AND WARRANTIES AS
CHARACTERIZATIONS OF THE ACTUAL STATE OF FACTS ABOUT WORLD WASTE, VERTEX LP,
VERTEX NEVADA, MERGER SUBSIDIARY, OR MR. COWART BECAUSE (1) THEY WERE MADE ONLY
AS OF THE DATE OF THE MERGER AGREEMENT OR A PRIOR SPECIFIED DATE, (2) IN SOME
CASES THEY ARE SUBJECT TO QUALIFICATIONS WITH RESPECT TO MATERIALITY AND
KNOWLEDGE, AND (3) THEY ARE MODIFIED IN IMPORTANT PART BY THE UNDERLYING
DISCLOSURE SCHEDULE. WORLD WASTE'S DISCLOSURE SCHEDULE CONTAINS INFORMATION THAT
HAS BEEN INCLUDED IN OUR PRIOR FILINGS WITH THE SEC, AS WELL AS NON-PUBLIC
INFORMATION. MOREOVER, INFORMATION CONCERNING THE SUBJECT MATTER OF THE
REPRESENTATIONS AND WARRANTIES MAY HAVE CHANGED SINCE THE DATE OF THE MERGER
AGREEMENT, AND SUCH SUBSEQUENT INFORMATION MAY OR MAY NOT BE FULLY REFLECTED IN
OUR PUBLIC DISCLOSURES.
STRUCTURE OF THE MERGER
World Waste will be merged with and into Merger Subsidiary; the separate
corporate existence of World Waste will cease; Merger Subsidiary will continue
as the surviving corporation under the name "World Waste Technologies, Inc.";
and Merger Subsidiary will succeed to and assume all of the rights, assets, and
liabilities of World Waste.
Prior to the completion of the merger, Vertex LP will transfer the Vertex
Nevada Business to Vertex Nevada and, as part of that transfer, Vertex Nevada
will assume up to $1.6 million of Vertex LP's indebtedness as well as other
specified liabilities of Vertex LP. It is currently contemplated that Vertex
Nevada's common stock will be traded on the OTC Bulletin Board following the
completion of the merger, and that Vertex Nevada will file reports with the SEC
as the successor to World Waste. The Vertex Nevada Series A preferred stock will
not be traded on any public market, and there will be restrictions on the
ability of a holder to convert his or her shares of Vertex Nevada Series A
preferred stock into shares of Vertex Nevada common stock. Prior to the
completion of the merger, World Waste will deliver to Vertex Nevada's existing
shareholders $4.4 million in cash (unless and to the extent that such condition
to closing is waived or modified).
EFFECTIVE TIME OF THE MERGER
The closing of the transactions contemplated by the merger agreement will
occur on the second business day after all of the conditions to the merger set
forth in the merger agreement have been satisfied or waived, or on such other
date as the parties may agree. The effective time of the merger will occur at
the time that the parties to the merger agreement file a short-form agreement of
merger (with attached officers' certificates) with the Secretary of State of the
State of California on the closing date of the merger or on a later date agreed
to by the parties.
55
MERGER CONSIDERATION
At the effective time of the merger, except with respect to World Waste
shareholders who exercise their dissenters' rights in compliance with California
law, (1) each outstanding share of World Waste's Series A preferred stock will
be converted into the right to receive 4.062 shares of Vertex Nevada Series A
preferred stock, (2) each outstanding share of World Waste's Series B preferred
stock will be converted into the right to receive 116.51 shares of Vertex
Nevada's Series A preferred stock, and (3) each outstanding share of World
Waste's common stock will be converted into the right to receive one share of
Vertex Nevada common stock. After the merger, Merger Subsidiary will remain a
wholly owned subsidiary of Vertex Nevada.
After the effective time of the merger, each outstanding stock certificate
or book-entry share representing shares of World Waste preferred or common stock
converted in the merger will represent only the right to receive the merger
consideration described above. Any World Waste shares that are held by Vertex
Nevada will be cancelled at the effective time of the merger without the payment
of any consideration for such shares.
In lieu of fractional shares, each World Waste shareholder who would
otherwise be entitled to a fraction of a share of Vertex Nevada preferred or
common stock (after aggregating all shares that otherwise would be received by
such shareholder) will receive one additional share of Vertex Nevada preferred
or common stock, as applicable.
DISSENTERS' RIGHTS
If you do not wish to participate in the merger by receiving shares of
Vertex Nevada stock in exchange for your shares of World Waste stock, you must
not vote in favor of the merger agreement and you must exercise your dissenters'
rights in accordance with the requirements of California law. A copy of the
applicable California statutory provisions is included as Appendix H to this
proxy statement, and a summary of these provisions can be found in the section
entitled "Dissenters' Rights for Shareholders of World Waste" beginning on page
52 of this proxy statement.
TREATMENT OF WORLD WASTE OPTIONS AND WARRANTS IN THE MERGER
Each option and warrant to acquire shares of World Waste common stock
outstanding immediately prior to the merger will be assumed by Vertex Nevada in
the merger and become an option or warrant to acquire the equivalent number of
shares of Vertex Nevada common stock. In addition, pursuant to the merger,
certain shareholders of Vertex Nevada immediately prior to the merger will be
issued options and warrants of Vertex Nevada with generally the same terms and
conditions as World Waste's options and warrants being assumed by Vertex Nevada
in the merger, in an amount such that such existing Vertex Nevada shareholders
will hold, immediately upon closing of the merger, 40% of the total number of
outstanding options and warrants of Vertex Nevada (exclusive of warrants to
purchase shares with a nominal exercise price and exclusive of 6,000,000
outstanding options which will be held by Vertex Nevada's employees, directors,
and consultants at the time of the merger). After the effective time of the
merger, holders of options and warrants issued by World Waste will no longer
have any rights to purchase World Waste stock.
EXCHANGE PROCEDURES
After the effective time of the merger, Vertex Nevada will make available,
and each holder of World Waste preferred or common stock will be entitled to
receive, upon surrender to Vertex Nevada of any certificates evidencing such
preferred or common stock for cancellation and a letter of transmittal or
assignment separate from certificate in customary form, the portion of the
merger consideration into which such shares of preferred or common stock have
been converted pursuant to the merger. Until so surrendered or delivered, each
such certificate will be deemed after the effective time of the merger to
evidence only the right to receive upon surrender the corresponding pro rata
portion of the merger consideration.
56
After the effective time of the merger, the stock transfer book of World
Waste will be closed and there will be no further registration or transfers of
World Waste preferred or common stock.
If a shareholder has lost a World Waste stock certificate, or if the
certificate has been stolen or destroyed, then before the shareholder will be
entitled to receive any portion of the merger consideration, he or she will need
to make an affidavit of the fact of such loss, theft, or destruction and, if
required by Vertex Nevada, post an indemnity or bond in a reasonable amount
sufficient to protect Vertex Nevada against any claim that may be made with
respect to such certificate.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO US, TO VERTEX NEVADA, OR TO
OUR TRANSFER AGENT UNTIL THE MERGER IS COMPLETED AND YOU HAVE RECEIVED
TRANSMITTAL INSTRUCTIONS FROM VERTEX NEVADA.
CHARTER DOCUMENTS OF VERTEX NEVADA; EXECUTIVE OFFICERS AND DIRECTORS
Copies of the Articles of Incorporation and Bylaws of Vertex Nevada are
attached to this proxy statement as Appendices B and C, respectively.
A copy of the Certificate of Designation that will govern the rights,
privileges, restrictions, and preferences of the Vertex Nevada Series A
preferred stock is attached to this proxy statement as Appendix D, and a copy of
the Certificate of Designation that will govern the rights, privileges,
restrictions, and preferences of the Vertex Nevada Series B preferred stock is
attached to this proxy statement as Appendix E.
The persons who are expected to serve as Vertex Nevada's executive
officers and directors immediately after the effective time of the merger are
identified in the section of this proxy statement entitled "Executive Officers,
Directors and Key Employees of Vertex Nevada Following the Merger" beginning on
page 90.
CHARTER DOCUMENTS AND MANAGEMENT OF MERGER SUBSIDIARY
Unless otherwise agreed by Vertex Nevada and World Waste, (1) the articles
of organization and operating agreement of Merger Subsidiary in effect
immediately prior to the effective time of the merger will continue in effect
after the effective time until thereafter amended; (2) the manager of Merger
Subsidiary immediately prior to the effective time of the merger will continue
in office until his or her successor is appointed or until such manager's
earlier death, resignation, or removal; and (3) each officer of Merger
Subsidiary immediately prior to the effective time of the merger will continue
in office until his or her successor is appointed or until the officer's earlier
death, resignation, or removal.
REPRESENTATIONS AND WARRANTIES; SURVIVAL
World Waste, on the one hand, and Vertex LP, Vertex Nevada, Merger
Subsidiary, and Mr. Cowart, as agent of the shareholders of Vertex Nevada, on
the other hand, have made representations and warranties in the merger agreement
to each other regarding, among other things:
o due organization, valid existence, good standing, and qualification
to do business;
o the power and authority to enter into the merger agreement and to
consummate the transactions contemplated by the merger agreement,
including approval of the merger agreement by the party's board of
directors or other governing body;
o the enforceability of the merger agreement against it or them;
57
o capitalization, including the number of shares of stock and options
and warrants outstanding;
o the absence of certain specified violations of, or conflicts with,
organizational documents, applicable law, and certain agreements as
a result of entering into the merger agreement and consummating the
merger;
o the required consents and approvals of governmental authorities in
connection with the execution, delivery, and performance of the
merger agreement, the merger, and the other transactions
contemplated by the merger agreement;
o the maintenance of accurate books and records;
o the accuracy of financial statements;
o assets used and owned, including title to the assets, and
outstanding liabilities, including the absence of undisclosed
liabilities;
o taxes, including the filing of tax returns and the payment of taxes;
o intellectual property;
o material contracts, including compliance with such contracts;
o employment and labor matters, including matters relating to employee
benefit plans;
o legal proceedings;
o compliance with applicable laws, rules, and regulations;
o licenses and permits granted by governmental authorities;
o the absence of a material adverse effect and certain other changes
or events since December 31, 2007;
o insurance policies;
o restrictions on business activities;
o related party transactions;
o the absence of undisclosed brokers' and finders' fees; and
o the accuracy of representations and warranties in the merger
agreement, including no omission to state any material facts.
Many of the representations and warranties are qualified by a "material
adverse effect" or "material adverse change" standard. For purposes of the
merger agreement, a "material adverse effect" or a "material adverse change"
with respect to a specified person or entity means a material adverse effect on
(1) the assets, liabilities, condition (financial or otherwise), properties,
business or prospectus of that person or entity, (2) the validity, binding
effect, or enforceability of the merger agreement or any of several specified
related documents against that person or entity, or (3) the ability of the
person or entity to perform its obligations under the merger agreement or any of
several specified related documents.
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The representations and warranties made by Vertex LP, Vertex Nevada,
Merger Subsidiary, and Mr. Cowart in the merger agreement will survive the
effective time of the merger.
COVENANTS
The merger agreement contains covenants among the parties relating to the
following matters, among other things, and the majority of these covenants must
be performed prior to the completion of the merger:
o CONDUCT OF BUSINESS PRIOR TO THE MERGER - Each of World Waste,
Vertex LP, and Vertex Nevada must conduct its activities in the
ordinary course prior to the completion of the merger, which
includes an agreement not to sell any of its assets, amend its
organizational documents, pay dividends, or repurchase stock;
o COWART EMPLOYMENT AGREEMENT - Mr. Cowart and Vertex Nevada must
enter into an employment agreement (the "COWART EMPLOYMENT
AGREEMENT") with material terms summarized in the section of this
proxy statement entitled "The Merger - Interests of Vertex Nevada's
Directors and Executive Officers in the Merger" beginning on page
45;
o TERMINATION OF COWART GUARANTEES - The parties must use their
commercially reasonable efforts to obtain the termination of all
personal guarantees given by Mr. Cowart and his family members
regarding $1.6 million of indebtedness owed by Vertex LP to Regents
Bank (the "COWART GUARANTEES"), which indebtedness will be assumed
by Vertex Nevada upon the transfer to it of the Vertex Nevada
Business by Vertex LP;
o TRANSFER OF THE VERTEX NEVADA BUSINESS - Vertex LP must transfer the
Vertex Nevada Business to Vertex Nevada (see the section of this
proxy statement entitled "Summary of the Proxy Statement - The
Parties to the Merger" beginning on page 5);
o CALIFORNIA FAIRNESS HEARING - The parties must attempt to obtain
approval by the California Commissioner of Corporations of the
fairness of the terms of the issuance in the merger of Vertex
preferred and common stock (see the section of this proxy statement
entitled "The Merger - California Hearing Regarding the Fairness of
the Merger" beginning on page 49;
o SEC REPORTING - As the post-merger successor to World Waste for SEC
reporting purposes, Vertex Nevada must comply with the reporting
requirements of the Exchange Act and maintain the trading of the
Vertex Nevada common stock on the OTC Bulletin Board;
o DUE DILIGENCE - Each party to the merger agreement must cooperate
with the other parties in their pre-merger due diligence
investigation;
o CONSENTS AND APPROVALS - The parties must use commercially
reasonable efforts to obtain any necessary consents and approvals
required to permit the completion of the merger;
o NOTIFICATION OF ADVERSE CHANGES - Each party to the merger agreement
must notify the others of any material adverse change in its
condition, of any breach in its representations or warranties
(including an obligation to update its disclosure schedule), or of
any fact that is reasonably likely to cause the party to be unable
to be able to comply with its covenants in the merger agreement;
o SPECIAL MEETING - World Waste must hold the special meeting and use
commercially reasonable efforts to obtain shareholder approval of
the merger agreement;
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o NO SOLICITATION OF ALTERNATIVE ACQUISITION PROPOSALS - Neither
Vertex LP nor Vertex Nevada, nor any of their representatives, is
permitted, directly or indirectly, to (1) solicit, engage in
discussions, or negotiate with any person (regardless of who
initiates such discussions or negotiations), or take any other
action intended or designed to facilitate the efforts of any person,
relating to the possible acquisition of Vertex LP or any significant
portion of its interests, capital stock, or assets by any person,
(2) provide information to any person with respect to Vertex LP
relating to such a possible alternative acquisition, (3) enter into
an agreement with any person providing for a possible alternative
acquisition, or (4) make or authorize any statement, recommendation,
or solicitation in support of any possible alternative acquisition;
o CONFIDENTIALITY - Each party must maintain the confidentiality of
non-public information that it obtains about other parties to the
merger agreement;
o LOCK-UP AGREEMENTS - Each existing Vertex Nevada shareholder must
enter into an agreement with Vertex Nevada (the "VERTEX NEVADA
LOCK-UP AGREEMENTS") pursuant to which the shareholder agrees that,
unless and until Vertex Nevada's common stock trades at a price of
at least $1.50 per share for 20 consecutive trading days on volume
averaging at least 75,000 shares, it will not sell or otherwise
transfer any of its shares of Vertex Nevada common stock during the
12-month period following the merger closing date and that, prior to
the three-year anniversary of the closing, it will not, in any given
three-month period, sell more than that number of shares of Vertex
Nevada common stock as equals 5% of the total number of shares of
Vertex Nevada common stock then beneficially owned by the
shareholder (in each case except for transfers to recipients who
agree to comply with the foregoing restrictions); and World Waste
must use commercially reasonable efforts to cause its officers,
directors, and certain founders to enter into similar lock-up
agreements;
o VERTEX NEVADA FINANCIAL STATEMENTS - As required by the merger
agreement, Vertex LP has prepared audited balance sheets of Vertex
Nevada as of December 31, 2007, 2006, and 2005, and audited
statements of operations and shareholders' equity for the periods
then ended, in each case taking into account the transfer of the
Vertex Nevada Business to Vertex Nevada (the "VERTEX NEVADA
FINANCIAL STATEMENTS");
o INDEMNIFICATION AGREEMENTS - At the closing of the merger, Vertex
Nevada must assume all of World Waste's obligations under existing
indemnification agreements with World Waste's officers and directors
(the "WORLD WASTE INDEMNIFICATION AGREEMENTS");
o CMT AGREEMENTS - The parties must negotiate a ground sub-lease, a
purchase and sale agreement, and other necessary documentation
relating to Cedar Marine Terminal (the "CMT AGREEMENTS");
o RELATED PARTY TRANSACTION COMMITTEE - Promptly after the closing,
Mr. Cowart must cause the board of directors of Vertex Nevada to
create a board committee known as the "Related Party Transaction
Committee"; a majority of the members of this committee must be
independent directors (as defined in the merger agreement) and the
committee must include at least two independent directors; Mr.
Cowart may not serve on the committee, which will be responsible for
the review and pre-approval of any and all related party
transactions, including between Vertex Nevada and Vertex LP and Mr.
Cowart or any other company or individual which may be affiliated
with Mr. Cowart;
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o RIGHT OF FIRST REFUSAL AND RELATED RIGHTS - Effective as of the
merger closing date, Vertex Nevada will have: (1) a right of first
refusal to match any third-party offer to purchase any Cowart Party
(as defined below) on the terms and conditions set forth in such
offer; and (2) the option, which can be exercised in Vertex Nevada's
sole discretion, exercisable after the expiration of eighteen months
following the closing, to purchase all or any part thereof of the
outstanding stock of any Cowart Party owned by Vertex LP or VTX,
Inc., at a price based on an independent third-party evaluation and
appraisal of the fair market value of such Cowart Party; the option
will be exercisable in the sole discretion of the majority vote of
the Related Party Transaction Committee; a "COWART PARTY" means one
or more of the following: Cross Road Carriers, Vertex Recovery (or
its subsidiaries), Cedar Marine Terminal, LP, Vertex Residual
Management Group, LP, Vertex Green, LP, VTX, Inc. or any other
entity which is majority owned or controlled by Mr. Cowart; the
right of first refusal and the option will be exercisable by Vertex
Nevada only during such time as Mr. Cowart is employed by Vertex
Nevada as the President and Chief Executive Officer of Vertex
Nevada;
o LICENSE - At the closing, Vertex LP must grant to Vertex Nevada a
perpetual, royalty-free, transferable, irrevocable license to the
name "Vertex";
o VERTEX NEVADA DIRECTORS - As required by the merger agreement, Mr.
Cowart has notified World Waste of the four directors who will be
appointed by him to the Vertex Nevada board of directors in his
capacity as the holder of the Vertex Nevada Series B preferred stock
(see the section of this proxy statement entitled "Executive
Officers, Directors and Key Employees of Vertex Nevada Following the
Merger" beginning on page 90; and
o VERTEX NEVADA OPTIONS - Whether prior to or after the merger closing
date, Vertex Nevada is not permitted to issue any compensatory
options unless the options have an exercise price at or above the
fair market value of the Vertex Nevada common stock as of the date
of grant and such issuances are approved by the Related Party
Transactions Committee; if any such options are issued by Vertex
Nevada prior to the closing, the determination of the fair market
value of the Vertex Nevada common stock must be made by Vertex
Nevada in consultation with World Waste and Livingstone Partners LLC
and may not be inconsistent with any valuation of Vertex Nevada
utilized by Livingstone Partners LLC in connection with its opinion
described in this proxy statement.
CLOSING CONDITIONS
The obligations of the parties to complete the merger are subject to the
satisfaction or waiver (if permitted under applicable law) of the following
conditions:
o SHAREHOLDER APPROVAL - The merger agreement must have been approved
by our preferred and common shareholders at the special meeting;
o CALIFORNIA COMMISSIONER OF CORPORATIONS APPROVAL - The California
Commissioner of Corporations must have approved the fairness of the
terms of the issuance of Vertex Nevada preferred and common stock to
World Waste's shareholders pursuant to the merger agreement
following a hearing upon the fairness of such terms conducted by the
California Commissioner of Corporations (or, alternatively, a
registration statement registering the issuance of the merger
consideration must have been filed and declared effective by the
SEC);
o CONSENTS - All consents, approvals, permits, authorizations, and
orders required to be obtained from, and all registrations, filings
and notices required to be made with or given to, any governmental
authority or other person must have been so obtained or filed; and
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o NO LAWSUITS - There must not be any injunction, action, suit, or
other proceeding pending or threatened by or before any governmental
authority and no law may have been enacted or deemed applicable to
any of the transactions contemplated by the merger agreement or any
of several specified related documents which would (1) prevent
consummation of any of the transactions contemplated by the merger
agreement or such other documents, (2) cause any of the transactions
contemplated by the merger agreement or such other documents to be
rescinded following consummation, or (3) have a material adverse
effect on a party to the merger agreement, the merger, the merger
agreement, or the other transactions contemplated by the merger
agreement.
The obligation of Vertex LP, Vertex Nevada, Merger Subsidiary, and Mr.
Cowart to complete the merger is subject to the satisfaction or waiver (if
permitted under applicable law) of the following additional conditions:
o ACCURACY OF REPRESENTATIONS AND WARRANTIES - All representations and
warranties of World Waste contained in the merger agreement and in
several specified related documents must be, if specifically
qualified by materiality, true in all respects and, if not so
qualified, true in all material respects, in each case on and as of
the merger closing date with the same effect as if made on and as of
the closing date, except for representations and warranties
expressly stated to be made as of the date of the merger agreement
or as of another date other than the closing date and except for
changes contemplated or permitted by the merger agreement, and World
Waste must have delivered to Vertex LP and Vertex Nevada a
certificate dated the closing date to the foregoing effect;
o PERFORMANCE OF COVENANTS - World Waste must have performed, in all
material respects, each of its covenants contained in the merger
agreement and in several specified related documents that are to be
performed or complied with by it at or prior to closing date, and
World Waste must have delivered to Vertex LP and Vertex Nevada a
certificate dated the closing date to the foregoing effect;
o MINIMUM WORLD WASTE CASH - After taking into account the payment of
$4.4 million by World Waste to Vertex Nevada's shareholders, World
Waste must have cash and cash equivalents of at least $5.0 million
as of the merger closing date, inclusive of the proceeds of up to
$2.4 million of permitted indebtedness;
o COWART GUARANTEES - The Cowart Guarantees must have been terminated;
o WORLD WASTE'S LIABILITIES - World Waste may have no liabilities as
of the merger closing date other than $2.4 million of indebtedness;
it is contemplated, however, that some World Waste liabilities may
be transferred to Vertex Nevada if agreed to by Vertex Nevada
(although we cannot assure you that Vertex Nevada will agree to any
such transfer);
o DISTRIBUTION OF CASH AND WARRANTS - World Waste must have delivered
to Vertex Nevada's existing shareholders $4.4 million in cash, and
World Waste must have delivered to shareholders of Vertex Nevada
immediately prior to the merger options and warrants with generally
the same terms and conditions as World Waste's options and warrants
being assumed by Vertex Nevada in the merger, in an amount such that
such existing Vertex Nevada shareholders will hold, immediately upon
closing of the merger, 40% of the total number of outstanding
options and warrants of Vertex Nevada (exclusive of warrants to
purchase 933,920 shares with a nominal exercise price and exclusive
of 6,000,000 outstanding options which will be held by Vertex
Nevada's employees, directors, and consultants at the time of the
merger); and
o RESIGNATIONS - World Waste's officers and directors must have
resigned by the merger closing date.
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The obligation of World Waste to complete the merger is subject to the
satisfaction or waiver (if permitted under applicable law) of the following
additional conditions:
o ACCURACY OF REPRESENTATIONS AND WARRANTIES - All representations and
warranties of Vertex LP, Vertex Nevada, Merger Subsidiary, and Mr.
Cowart contained in the merger agreement and in several specified
related documents must be, if specifically qualified by materiality,
true in all respects and, if not so qualified, true in all material
respects, in each case on and as of the merger closing date with the
same effect as if made on and as of the closing date, except for
representations and warranties expressly stated to be made as of the
date of the merger agreement or as of another date other than the
closing date and except for changes contemplated or permitted by the
merger agreement, and such parties must have delivered to World
Waste a certificate dated the closing date to the foregoing effect;
o PERFORMANCE OF COVENANTS - Vertex LP, Vertex Nevada, Merger
Subsidiary, and Mr. Cowart must have performed, in all material
respects, each of their covenants contained in the merger agreement
and in several specified related documents that are to be performed
or complied with at or prior to closing date, and such parties must
have delivered to World Waste a certificate dated the closing date
to the foregoing effect;
o VERTEX NEVADA'S FINANCIAL STATEMENTS - As required by the merger
agreement, World Waste has received the Vertex Nevada Financial
Statements with an unqualified report by an independent accounting
firm acceptable to us;
o DUE DILIGENCE INVESTIGATION - World Waste must be satisfied with the
results of its due diligence investigation of Vertex LP, Vertex
Nevada, and Merger Subsidiary;
o NO MATERIAL ADVERSE CHANGE - Since May 19, 2008, no material adverse
change in the Vertex Nevada Business shall have occurred;
o VERTEX NEVADA LOCK-UP AGREEMENTS - Each shareholder of Vertex Nevada
immediately prior to the closing date of the merger must have
entered into a Vertex Nevada Lock-Up Agreement;
o TRANSFER OF VERTEX NEVADA BUSINESS - Vertex LP must have transferred
the Vertex Nevada Business to Vertex Nevada;
o INDEMNIFICATION AGREEMENTS - Vertex Nevada must have assumed all of
World Waste's obligations under the World Waste Indemnification
Agreements;
o CMT AGREEMENTS - The CMT Agreements must have been executed by all
of the parties to such agreements; and
o PROPRIETARY INVENTIONS AGREEMENTS - Vertex LP, Vertex Nevada, Merger
Subsidiary, and Mr. Cowart must have delivered to World Waste
proprietary inventions agreements with each of the employees and
consultants of Vertex LP.
CERTAIN CLOSING CONDITIONS MAY BE WAIVED IN WHOLE OR IN PART
Because we may not be able to satisfy all of the conditions to closing the
merger, we may seek to have Vertex Nevada waive or modify certain of these
conditions prior to closing. For example, we may seek to modify the requirement
that we pay the Vertex Nevada shareholders $4.4 million in cash, to provide that
a portion of this consideration may be payable in the form of post-closing
indebtedness of Vertex Nevada or in additional equity of Vertex Nevada. We may
also seek to modify the requirement that we have at least $5.0 million of cash
63
on hand at closing, to provide that a portion of this amount may be in the form
of non-cash consideration. We may also seek a waiver of the condition that the
personal guarantees of Mr. Cowart be removed from the existing indebtedness of
Vertex LP being assumed by Vertex Nevada in the merger, by providing some
additional form of debt or equity consideration to Mr. Cowart. We may further
seek Vertex Nevada's consent to an increase in the amount of indebtedness that
World Waste is permitted to have at the closing. Approval of the merger by our
shareholders includes approval of any of these modifications to the closing
conditions.
INDEMNIFICATION FOR A BREACH OF THE MERGER AGREEMENT
World Waste must indemnify, defend, and hold harmless Vertex LP, Vertex
Nevada, Merger Subsidiary, and Mr. Cowart, and each of their respective
shareholders, members, partners, directors, officers, managers, employees,
agents, attorneys, and representatives, from and against any and all claims,
liabilities, losses, damages, judgments, settlements, and other costs and
expenses (including, without limitation, legal fees) that may be incurred or
suffered by any such party and which may arise out of or result from any breach
of any of World Waste's material representations, warranties, or covenants
contained in the merger agreement.
Vertex LP, Vertex Nevada, Merger Subsidiary, and Mr. Cowart must, jointly
and severally, indemnify, defend and hold harmless World Waste and its
shareholders, members, partners, directors, officers, managers, employees,
agents, attorneys, and representatives, from and against any and all claims,
liabilities, losses, damages, judgments, settlements, and other costs and
expenses (including, without limitation, legal fees) that may be incurred or
suffered by any such party and which may arise out of or result from any breach
of any of such indemnifying party's material representations, warranties, or
covenants contained in the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated, and the merger may be abandoned,
at any time prior to the effective time of the merger (notwithstanding any prior
approval of the merger agreement by World Waste's shareholders) as follows:
o by mutual written agreement of the parties to the merger agreement;
o by any party if the closing of the transactions contemplated by the
merger agreement does not occur on or before December 31, 2008;
o by any party if World Waste's shareholders fail to approve the
merger agreement;
o by any party if any court of competent jurisdiction or other
governmental authority issues an order making illegal or otherwise
permanently restricting, preventing, or otherwise prohibiting the
merger and such order has become final; or
o by any party upon written notice in the event of a breach of any
covenant contained in the merger agreement, or if any representation
or warranty made by a party becomes inaccurate; provided, however,
that such breach or inaccuracy would cause the related closing
condition, if any, not to be satisfied in accordance with the merger
agreement and provided further that, prior to any termination by the
non-breaching party, such party must provide written notice to the
breaching party specifically identifying the breach or inaccurate
representation and the breaching party does not cure or correct such
breach or inaccuracy within thirty days following receipt of the
written notice.
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If the merger agreement is validly terminated, there will be no further
liability or obligation of the parties under the merger agreement. However, a
party will not be relieved from liability for the willful breach of its
representations, warranties, or covenants contained in the merger agreement.
ADJOURNMENT OF THE SPECIAL MEETING
We are asking our preferred and common shareholders to vote on a proposal
to approve any adjournment of the special meeting, if necessary or appropriate,
for the purpose of soliciting additional proxies if there are not sufficient
votes at the special meeting to approve the merger agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR
APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES.
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BUSINESS OF VERTEX NEVADA
GENERAL
Upon closing of the merger, the business of Vertex Nevada will be combined
with World Waste, with the combined business being known as "Vertex Energy,
Inc."
The Vertex Nevada Business being transferred to Vertex Nevada in the
merger is currently a part of Vertex LP. Vertex LP and its subsidiaries provide
a range of services designed to aggregate, process, and recycle industrial and
commercial waste streams, including the services and assets which will be
transferred to Vertex Nevada immediately upon effectiveness of the merger. Not
all of Vertex LP's business will be transferred to Vertex Nevada. See "Certain
Relationships and Related Party Transactions - Vertex Nevada." Vertex LP
currently provides these services in 13 states, with its primary focus in the
Gulf Coast Region of the United States.
Vertex Nevada was incorporated in Nevada in 2008 for the purpose of
effecting the merger. Its principal executive office is located at 1331 Gemini
St., Houston, Texas 77058, and its telephone number is (281) 538-9802. Unless
otherwise indicated, this discussion assumes that the transfer of the Vertex
Nevada Business to Vertex Nevada has taken place.
Please see the "Glossary of Selected Terms" beginning on page 72 of this
proxy statement for a list of abbreviations and definitions used throughout this
proxy statement.
BUSINESS OPERATIONS
Vertex Nevada engages primarily in the recycling of used motor oil and
other hydrocarbons. This is accomplished (1) through Vertex Nevada's Black Oil
division, which aggregates used motor oil from third-party collectors and
manages the delivery of this feedstock primarily to a third-party re-refining
facility and (2) through Vertex Nevada's Refining and Marketing division, which
aggregates hydrocarbon streams from collectors and generators and manages the
delivery of the hydrocarbon waste products to a third-party facility for further
processing, and then manages the sale of the end products. In addition, Vertex
Nevada proposes to implement proprietary re-refining technology that will
process used motor oil and convert it to higher value products such as marine
diesel oil and vacuum-gas oil. Vertex Nevada generated revenues of approximately
$36.5 million and $42.0 million in 2006 and 2007, respectively.
BLACK OIL
Through its Black Oil division, which has been operational since 2001, Vertex
Nevada recycles used motor oil by purchasing it from a network of local and
regional collectors with which Vertex Nevada has existing relationships,
consolidating it for efficient delivery, and selling it to third-party
re-refiners. Historically, substantially all of the feedstock that is gathered
from these collectors has been transported by truck, rail, or barge to a
third-party re-refinery in Marrero, Louisiana. This re-refinery, which until
recently was owned by Chevron-Texaco, purchases Vertex Nevada's feedstock
pursuant to a contract with Vertex Nevada. The re-refinery then upgrades and
sells the product for its own account. The contract with Chevron-Texaco (which
was recently assigned by Chevron-Texaco to Omega Refining LLC ("OMEGA") in
connection with the sale of the re-refinery by Chevron-Texaco to Omega), sets
forth payment and other terms such as volume and oil specifications and minimum
purchase requirements, and includes a minimum fee per gallon plus a performance
margin. The contract was initially entered into for a 12-month term in September
2001 and has remained in effect pursuant to a series of annual renewals. The
next annual renewal is scheduled for September 2008. Based on conversations with
Omega, Vertex Nevada believes that the contract will once again be renewed on
similar terms prior to its expiration. If the contract is not renewed, Vertex
Nevada will seek to replace this re-refinery with other potential customers,
including (1) other re-refineries, (2) Gulfcoast #6 oil blenders that Vertex
Nevada believes could use Vertex Nevada's product as a cutter-stock for residual
fuel oil blends that are sold worldwide, and (3) inland manufacturers that could
use Vertex Nevada's product as a replacement btu fuel for #6 oil, #2 oil and
natural gas.
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Due to capacity restraints, the Omega re-refinery has been unable, at
certain times, to purchase all of the feedstock aggregated by Vertex Nevada. To
address this issue, to position itself for growth and to diversify its business,
Vertex Nevada recently began diverting a small portion of its feedstock to
Vertex Nevada's leased storage facilities in Baytown, Texas. As described in
more detail below under "Proposed Re-Refining Division," this feedstock is then
re-refined on a research and development basis by an affiliate of Vertex LP
utilizing proprietary technologies owned by this affiliate. In May 2008, small
amounts of this re-refined oil were successfully sold to third parties. To date,
however, substantially all of Vertex Nevada's Black Oil division revenue has
been generated through the Chevron-Texaco/Omega contract.
REFINING AND MARKETING DIVISION
Through its Refining and Marketing division, which has been operational
since 2004, Vertex Nevada recycles hydrocarbon streams by (1) purchasing and
aggregating these streams from collectors and generators, (2) managing the
delivery of these streams to a third-party facility for processing into
end-products, and (3) managing the sale of the end-products. Vertex Nevada
gathers hydrocarbon streams in the form of petroleum distillates, transmix and
other chemical products that have become off-specification during the
transportation or refining process. These feedstock streams are purchased from
pipeline operators, refineries, chemical processing facilities and third-party
providers, processed on Vertex Nevada's behalf by a third-party facility
pursuant to a contractual arrangement currently scheduled to expire in November
2008 (unless renewed by the parties), and then resold by Vertex Nevada. The end
products are typically three distillate petroleum streams (gasoline blendstock,
fuel oil cutterstock and marine diesel oil), which are sold to major oil
companies or to large petroleum trading and blending companies. The end products
are delivered by barge and truck to customers. Because the end products that
Vertex Nevada sells through this division are commodities, the profitability of
this division is driven by the ability of Vertex Nevada to efficiently acquire
and aggregate feedstock. In addition, Vertex Nevada seeks to reduce its
commodity price risk by maintaining a policy of quick inventory turnover and by
seeking to purchase feedstocks at discounts sufficient to provide adequate
protection against market volatility in commodity pricing.
PROPOSED RE-REFINING DIVISION
In an effort to diversify Vertex LP's business operations, in 2005, Cedar
Marine Terminal ("CMT"), an affiliate of Vertex LP, acquired a third-party's
development stage business formed to employ a proprietary re-refining technology
designed to process used motor oil and convert it to higher value products such
as vacuum gas oil, marine diesel oil, and asphalt flux. The pilot plant for this
business was completed and successfully commissioned by the original owner in
2002, and a full-scale facility was completed in 2003. This full-scale facility
failed, however, due to, among other issues, poor construction on the reactor.
CMT recently began re-refining and selling a limited amount of product utilizing
a second proprietary technology on a test-basis. In order to enable Vertex
Nevada to benefit from these proposed operations, and as described in greater
detail under "Certain Relationships and Related Party Transactions-Vertex
Nevada-Cedar Marine Terminal ("CMT")", beginning on page 88 of this proxy
statement, Vertex Nevada will have the right to license this technology from CMT
on a cost -plus -10% basis, and will have the right to purchase CMT (and
therefore the equipment and intellectual property used in the process) pursuant
to a right of first refusal described elsewhere in this proxy statement. Vertex
Nevada currently estimates that the cost to construct a functional full-scale
commercial process would be approximately $2.5 to $5.0 million, based on
throughput capacity. The facility infrastructure would be an additional expense
to these proposed process costs and would depend on the location and site
specifics of the facility. Vertex Nevada may also seek to utilize other
alternative technologies to take petroleum streams and transform them into
useful fuel products designed to bring a higher value. These technologies may be
available through internal development, acquisitions or licensing arrangements.
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MARKET
Vertex Nevada competes primarily in the used motor oil collection market,
as well as in the markets for the refining and trading of petrochemical
products. Based on a U.S. Department of Energy study dated July 2006, the
current estimated volume of used motor oil recycled each year is 945 million
gallons, of which it is estimated that 83% is burned and 17% is re-refined.
Vertex Nevada believes that there is a significant opportunity to increase the
percentage of used motor oil that is re-refined rather than burned. Vertex
Nevada collected approximately 30 million gallons of used motor oil in 2007,
which accounted for approximately 3% of the entire recycled volume and
approximately 19% of the estimated 160 million gallons that are re-refined. This
used motor oil is collected from garages, vehicle dealerships, quick lube change
installations, and other commercial and industrial businesses. Market
participants include used motor oil collectors, transporters/brokers,
processors, re-refiners and used motor oil burners. Collected used motor oil is
often recycled and subsequently burned by various users such as asphalt
companies, paper mills and industrial facilities as an alternative to their base
load natural gas or other liquefied fuels, to offset operational costs.
COMPETITIVE BUSINESS CONDITIONS
The industrial waste and brokerage of petroleum products industries are
highly competitive. There are numerous small to mid-size firms that are engaged
in the collection, transportation, treatment and brokerage of virgin and used
petroleum products. Competitors include, but are not limited to: Safety-Kleen,
Rio Energy, Inc., and FCC Environmental (formerly Siemens Hydrocarbon Recovery
Services). These competitors actively seek to purchase feedstock from local,
regional and industrial collectors, refineries, pipelines and other sources.
Competition for these feedstocks may result in increasing prices to obtain used
motor oil and transmix feedstocks critical to the success of Vertex Nevada's
business model. In order to remain competitive, Vertex Nevada must control costs
and maintain strong relationships with its feedstock suppliers. Vertex Nevada's
network of approximately 50 feedstock suppliers minimizes the reliance on any
single supplier. Sales of the aggregated used motor oil product are based on a
supply contract which includes a range of prices which changes based on
feedstock quality specifications and volumes. This pricing structure helps to
insulate Vertex Nevada from inventory risk by ensuring a spread between costs to
acquire used motor oil feedstock and the revenues paid for delivery of the
feedstock.
SUPPLIERS/CUSTOMERS
Vertex Nevada conducts business with approximately 50 feedstock suppliers
from various business segments, including motor oil change service stations,
automotive repair shops, manufacturing facilities, petroleum refineries and
petrochemical manufacturing operations, as well as brokers. The Black Oil
division aggregates, transports, and sells these feedstocks primarily to one
customer, which represents a significant portion of Vertex Nevada's revenues.
The contract with this customer has been renewed annually and is currently
scheduled to expire on September 30, 2008. With respect to its Refining and
Marketing division, Vertex Nevada does not rely solely on its contracts, but
also on a strong spot market to support the sale of its end products, which are
commodities. Vertex Nevada has and expects to continue to maintain positive
working relationships with its customers.
SEASONALITY
The industrial waste business is seasonal to the extent that it is
dependent on streams from seasonal industries. For example, asphalt plants burn
waste oil in their process, placing pricing and supply availability constraints
on the industry during the good weather construction and road building seasons.
In Vertex Nevada's current markets, road paving typically occurs from late
spring to early fall. Therefore, it is somewhat easier to procure certain waste
streams during winter months when competition for used motor oil feedstock is
not as strong.
68
REGULATORY ENVIRONMENT
Vertex Nevada operates in a highly regulated and competitive environment
that is subject to change, particularly in the area of environmental compliance.
Its operations are regulated by federal, state, county and, in some
jurisdictions, city, regulations. Vertex Nevada's compliance challenges arise
from various legislative and regulatory bodies influenced by political,
environmental, health and safety concerns.
For example, changes in federal regulations relating to the use of methyl
tertiary butyl ether and new sulfur limits for product shipped on domestic
pipelines resulted in tightened specifications of gasoline blendstock that
Vertex Nevada was refining, causing a corresponding decrease in revenue and
gross margin growth during 2006, as compared to prior years. This change in
regulation, as well as other emission-related regulations, had a material impact
on the entire petroleum industry, and Vertex Nevada adapted and managed its
operations to finding materials better suited to comply with these regulations.
Vertex Nevada must also obtain and maintain a range of federal, state and
local permits for its various logistical needs as well as its planned industrial
processes.
INFLATION AND COMMODITY PRICE RISK
To date, Vertex Nevada's business has not been significantly affected by
inflation. Vertex Nevada purchases petroleum and petroleum waste products for
consolidation and delivery, as well as for its own refining operations. By
virtue of constant changes in the market value of petroleum products, Vertex
Nevada is exposed to fluctuations in both revenues and expenses. Vertex Nevada
does not currently engage in an active hedging program, as the
inventory/finished product turnover occurs within approximately four to six
weeks, thereby limiting the timeline of potential exposure. The purchase of
Vertex Nevada's used motor oil feedstock tends to track with natural gas pricing
due to the market's typical practice of substituting used motor oil and natural
gas as a fuel source for various industrial processes. On the other hand, the
prices of the products that may in the future be generated through the
re-refining processes that Vertex Nevada hopes to develop are expected to track
with market pricing for marine diesel #2 oil and vacuum-gas oil. The recent rise
in oil prices has increased the spread between the price of used motor oil,
feedstock and re-refining end-products.
BIOMASS RENEWABLE ENERGY SUBSIDIARY
Upon consummation of the merger, the business development opportunities
related to World Waste's efforts to develop, design, build, own and operate
facilities designed to convert municipal solid waste and other waste streams
into useable commodities and products will be held in a wholly owned subsidiary
of Vertex Nevada. Following the merger, Vertex Nevada will consider all options
related to the subsidiary's future plans. Such options may include, but will not
be limited to: (1) shutting down the business development effort, (2)
endeavoring to sell the business development assets in the subsidiary to
generate cash to fund other Vertex Nevada growth initiatives, (3) raising new
funds for the division, or (4) finding other joint development opportunities
designed to result in some value for the shareholders of Vertex Nevada. If
Vertex Nevada pursues these project development efforts, we cannot assure you
that the subsidiary will successfully bring any projects to a point of financing
or successful construction and operation. For a more detailed discussion, see
"Business of World Waste," beginning on page 95 of this proxy statement.
VERTEX NEVADA STRATEGY
Vertex Nevada's goal is to continue to profitably grow its business of
recycling used motor oil and other hydrocarbons. Strategies to achieve this goal
include (1) growing revenues in its core businesses, (2) seeking to increase
margins through developing additional processing capabilities, and (3)
increasing market share through greenfield development or through acquisitions.
69
o Vertex Nevada's primary focus is to continue to supply used
motor oil and other hydrocarbons to its existing customers and
to cultivate additional feedstock supply volume by expanding
relationships with existing suppliers and developing new
supplier relationships. Vertex Nevada will seek to maintain
good relations with its existing suppliers, customers and
vendors and the high levels of customer service necessary to
maintain these businesses. Vertex Nevada plans to seek to
develop relationships with several other re-refining
facilities to serve as such facilities' primary and exclusive
feedstock provider.
o Vertex Nevada hopes to improve margins by applying new
technologies to existing and new feedstock streams. Vertex
Nevada plans to build various processes to implement
proprietary company-owned, leased, or potentially acquired
technologies to upgrade feedstock materials to create marine
diesel oil, vacuum gas oil and other value-added recycled
energy products. In so doing, Vertex Nevada hopes to
substantially improve margins from its historical results
operating as a value-added logistics provider, to actually
upgrading its used motor oil and transmix inventories and
selling the upgraded products rather than simply providing
feedstock to other re-refiners.
o Vertex Nevada plans to seek to grow market share by
consolidating feedstock supply through partnering with or
acquiring collection and aggregation assets. For example,
Vertex Nevada may seek to use a combination of stock and cash
to acquire or joint venture with various local used motor oil
collectors and aggregators, technology providers, real estate
partners and others. Such acquisitions, if successful, could
add to revenues and give Vertex Nevada better control over the
quality and quantity of feedstock available to it for resale
and/or upgrading. This may include the greenfield development
of collection assets, terminals, re-refining facilities and
equipment and opportunistic mergers and acquisitions.
EMPLOYEES
It is anticipated that, effective at the closing of the merger, Vertex
Nevada will have 11 full-time employees. Vertex Nevada believes that its
relations with its employees are satisfactory.
LEGAL PROCEEDINGS
Vertex LP is a party to several legal proceedings and certain pending
litigation matters in connection with its operations; however, Vertex Nevada
does not believe that any of those proceedings will have a material adverse
effect on the merger or the Vertex Nevada Business other than as described
below. Additionally, pursuant to the terms of the merger agreement, Vertex LP
has agreed to indemnify and hold World Waste harmless against any liability in
connection with such legal proceedings.
The only litigation of Vertex LP which is currently pending which Vertex
Nevada believes could have a material adverse affect on the Vertex Nevada
Business if the plaintiff were to prevail is:
WPS, INC., V. TRW TRADING, INC., AND VERTEX ENERGY, L.P., CAUSE # 21,507 IN THE
DISTRICT COURT, # 344TH JUDICIAL DISTRICT, CHAMBERS COUNTY, TEXAS, filed
November 15, 2005. On June 7, 2005, Vertex LP purchased certain leasehold
improvements related to TRW Trading, Inc.'s ("TRW'S") Alchemy Project at the
Cedar Marine Terminal in Baytown, Texas, at a foreclosure sale of such assets in
Chambers County, Texas. On November 15, 2005, WPS, Inc. ("WPS") filed suit
against Vertex LP alleging that it was owed money by TRW. Through the lawsuit,
WPS attempted to foreclose on mechanics and materialman's liens filed on the
equipment and labor supplied to TRW by WPS in connection with TRW's Cedar Marine
Terminal Alchemy Project. Vertex LP purchased the Arkansas State Bank's first
lien position on June 7, 2005, in a foreclosure sale in Chambers County, Texas.
70
Since the plaintiff's filing, no discovery has been served on Vertex LP, no
depositions have been taken, and no motions had been filed in over two years. In
June 2008, Vertex LP moved to have the case dismissed and, in response to this
request, the plaintiff moved to retain the case on the docket. Neither motion
had been set for a hearing as of the date of this proxy statement.
PROPERTIES
Upon the closing of the merger, Vertex Nevada will sub-lease office space
from Vertex LP at its current principal executive office located at 1331 Gemini
St., Houston, Texas 77058. The office rent is approximately $3,700 per month for
1,350 square feet, and the facility lease expires in April 2011. Additionally,
Vertex Nevada will lease approximately 20,000 barrels in storage capacity for
its Black Oil division at Cedar Marine Terminal, Texas, from an affiliate. See
"Certain Relationships and Related Party Transactions - Vertex Nevada." The
monthly lease expense is $17,700, and the lease expires in August 2009.
71
GLOSSARY OF SELECTED TERMS
The following abbreviations and definitions are terms commonly used in the
Vertex Nevada Business and throughout this proxy statement.
#2 OIL - A high sulfur diesel oil, which is used in off-road equipment and in
the marine industry such as tug boats and ships. It is also used to blend fuel
oil and has multiple applications to fuel furnaces ("boilers"). It is a low
viscosity, flammable liquid petroleum product.
#6 OIL - A lesser grade of oil than #2 oil, it is used only in certain
applications.
ASPHALT FLUX - Also called asphalt extender or blowdown, asphalt flux is a
by-product of re-refining used oil suitable for blending with bitumen or asphalt
to form a product of greater fluidity or softer consistency. It is a thick,
relatively nonvolatile fraction of petroleum used as flux. It is a derivative,
nearly or completely solid at room temperature, of certain crude oils. This
black, tarry material usually comes from vacuum residue. It has several
industrial applications. Pavers heat it to liquid form and mix it in gravel to
make road surface materials called "blacktop," "madcadam," "tarmac," or
"asphalt." Builders use it to make and join bricks, to coat roofs, and to form
shingles. It glues together various manufactured goods.
BLACK OIL - Any used or unused petroleum or synthetic oil that is dark in color
and heavier than diesel. Examples of black oil include used motor oil, #6 fuel
oil, marine diesel oil, gasoil, and other residual fuel oil.
BLENDER - An entity that combines various petroleum distillates to make a
finished product that meets the applicable customer's specification. In this
combining process, each hydrocarbon stream is analyzed through a distillation
cure as well as other testing to help ensure the quality of product is met.
Through this process, each stream is blended into a specific product, including
gasoline, #2 oil, marine diesel and fuel oils.
BLENDSTOCK - A bulk liquid component combined with other materials to produce a
finished petroleum product.
CUTTERSTOCK - Fuel oil used as a blending agent for other fuels to, for example,
lower viscosity.
DISTILLATE FUEL - A general classification for one of the petroleum fractions or
cuts produced in conventional distillation operations; includes marine diesel
oil and diesel fuels.
MARINE DIESEL OIL - A blend of petroleum products that is used as a fuel in the
marine industry.
PYGAS (pyrolysis gasoline) - An aromatics-rich gasoline stream produced in
sizeable quantities by an ethylene plant. These plants are designed to crack a
number of feedstocks, including ethane, butane, propane, butane, naphtha, and
gasoil. Pygas can serve as a high-octane blendstock for motor gasoline or as a
feedstock for an aromatics extraction unit.
RE-REFINING - A process involving extensive physical and chemical treatment of
used motor oil to yield a high quality marine diesel oil or lubricant base stock
comparable to a virgin lubrication oil product.
REFINING - The process of purification of a substance. The refining of liquids
is often accomplished by distillation or fractionation. Gases can be refined in
this way as well, by being cooled and/or compressed until they liquefy. Gases
and liquids can also be refined by extraction with a selective solvent that
dissolves away either the substance of interest, or the unwanted impurities
TOLL PROCESSING/THIRD PARTY PROCESSING - Refining or petrochemicals production
done on a fee basis. A plant owner puts another party's feedstock through his
equipment and charges for this service. A portion of the product retained by the
processor may constitute payment. This form of compensation occurs frequently in
refining because the feedstock supplier often is interested in retaining only
one part of the output slate.
72
TRANSMIX - A mix of transportation fuels, usually gasoline and diesel, created
by mixing different specification products during pipeline transportation,
stripping fuels from barges and bulk fuel terminals. Transmix processing plants
distill the transmix back into specification products, such as unleaded gasoline
and diesel fuel.
USED OIL - Any oil that has been refined from crude oil, or any synthetic oil
that has been used, and as a result of use or as a consequence of extended
storage or spillage has been contaminated with physical or chemical impurities.
Examples of used oil include used motor oil, hydraulic oil, transmission fluid,
and diesel and transformer oil.
VGO -VACUUM GAS OIL ( also known as cat feed)- a feedstock for a fluid catalytic
cracker typically found in a crude oil refinery and used to make gasoline #2 oil
and other byproducts.
73
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
We have presented below selected unaudited pro forma combined financial
information that reflects the purchase method of accounting and gives effect to
the merger, in the case of the income statement information, as though the
merger had occurred as of January 1, 2008 and, in the case of the balance sheet
information, as though the merger had occurred as of June 30, 2008.
The unaudited pro forma combined financial information gives effect to the
merger, which will be accounted for as a reverse acquisition under the purchase
method of accounting. For this purpose, Vertex Nevada will be deemed the
accounting acquirer, and World Waste will be deemed the accounting acquiree. The
pre-acquisition combined financial statements of Vertex Nevada will be treated
as the historical financial statements of the combined company and World Waste's
historical stockholders' deficit will not be carried forward to the combined
company as of the date of the merger. Vertex Nevada's historical financial
statements have been prepared as a carve-out set of financial statements. The
following summary unaudited pro forma combined financial information has been
derived from, and should be read together with, the unaudited pro forma combined
financial statements and accompanying notes.
The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available and, in management's opinion,
provide a reasonable basis for the fair presentation of the estimated effects
attributable directly to the merger. This selected unaudited pro forma combined
financial information is being presented for illustrative purposes only, and
this information should not be relied upon for purposes of making any investment
or other decisions.
The unaudited pro forma combined financial information may have been
different had the companies actually been combined as of January 1, 2008 or June
30, 2008. You should not rely on the selected unaudited pro forma combined
financial information as being indicative of the historical results that would
have occurred had the companies been combined or the future results that may be
achieved after completion of the merger.
For the six
months ended
June 30, 2008
-----------
Pro Forma Statement of Operations:
Total revenue $32,467,532
Total gross profit $ 2,585,175
Net income $ 1,762,399
As of June 30,
2008
-----------
Pro Forma Balance Sheet:
Total assets $ 5,000,000
Long-term debt $ 4,000,000
Additional paid-in capital $ 886,793
Stockholders' equity $ 1,000,000
74
SELECTED HISTORICAL FINANCIAL DATA OF VERTEX ENERGY, L.P.
(certain assets, liabilities and operations related to a significant
customer, and certain assets, liabilities and operations of the refining
division)
The following statement of operations data for the fiscal years ended
December 31, 2007, 2006 and 2005 have been derived from Vertex LP's audited
financial statements, which are contained in this proxy statement.
The statement of operations data for the six months ended June 30, 2008
and 2007 have been derived from Vertex LP's unaudited interim financial
statements, which are contained in this proxy statement.
You should read this selected historical financial data together with the
financial statements and the related notes thereto, and management's discussion
and analysis of operations and financial condition of Vertex Nevada, all of
which are included in this proxy statement. All references throughout this proxy
statement to Vertex Nevada's financial statements mean the financial statements
of certain assets, liabilities and operations related to a significant customer
of Vertex LP, and certain assets, liabilities and operations of the refining
division of Vertex LP.
(Unaudited)
Audited For the six months
For the year ended ended
December 31, June 30,
--------------------------- -----------------
2005 2006 2007 2007 2008
------- ------- ------- ------- -------
(in thousands)
Selected Statement of Operations data:
Total revenue ................................... $26,892 $36,513 $42,025 $17,154 $32,468
Cost of revenue ................................. 25,610 35,102 38,825 15,282 29,882
Gross profit .................................... 1,281 1,410 3,200 1,872 2,585
Selling, general, and administrative expenses ... 819 710 969 465 823
Income from operations .......................... 462 700 2,231 1,407 1,762
Net income ...................................... 58 499 2,231 1,407 1,762
December 31, (unaudited)
----------------- June 30,
2006 2007 2008
------- ------- -------
(in thousands)
Selected Balance Sheet data:
Total assets..................................... $ 3,606 $ 5,290 $ 9,297
Total liabilities................................ 3,734 4,010 7,091
Partners' capital (deficit)...................... (128) 1,280 2,206
75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - VERTEX NEVADA
FORWARD-LOOKING INFORMATION
THIS MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES OF VERTEX LP BEGINNING ON PAGE F-1 OF THIS PROXY
STATEMENT YOU ARE ALSO URGED TO REVIEW THE CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS ON PAGE 12 AND THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 13 OF THIS PROXY STATEMENT FOR A DESCRIPTION OF IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTED RESULTS.
OVERVIEW
The Vertex Nevada Business being transferred to Vertex Nevada in the
merger is currently a part of Vertex LP. Vertex LP and its subsidiaries provide
a range of services designed to aggregate, process, and recycle industrial and
commercial waste streams, including the services and assets which will be
transferred to Vertex Nevada immediately upon effectiveness of the merger. Not
all of Vertex LP's business will be transferred to Vertex Nevada. See "Certain
Relationships and Related Party Transactions - Vertex Nevada." Vertex LP
currently provides these services in 13 states, with its primary focus in the
Gulf Coast Region of the United States.
Vertex Nevada engages primarily in the recycling of used motor oil and
other hydrocarbons. This is accomplished (1) through Vertex Nevada's Black Oil
division, which aggregates used motor oil from third-party collectors and
manages the delivery of this feedstock primarily to a third-party refining
facility, and (2) through Vertex Nevada's Refining and Marketing division, which
aggregates hydrocarbon streams from collectors and generators and manages the
delivery of the hydrocarbon waste products to a third-party facility for further
processing, and then manages the sale of the end products. In addition, Vertex
Nevada proposes to implement proprietary re-refining technology that will
process used motor oil and convert it to higher value products such as marine
diesel oil and vacuum-gas oil.
The following discussion assumes that the transfer of the Vertex Business
to Vertex Nevada has occurred, retroactively reflects this transfer, and assumes
that Vertex Nevada (and the Vertex Business) has, for the periods presented,
operated as a stand-alone entity.
COMPONENTS OF REVENUES AND EXPENSES
REVENUES
Vertex Nevada generates revenues from its two existing operating divisions
as follows:
BLACK OIL. Through its Black Oil division, which has been operational
since 2001, Vertex Nevada recycles used motor oil by purchasing it from a
network of local and regional collectors with which Vertex Nevada has existing
relationships, consolidating it for efficient delivery, and selling it to
third-party re-refiners. Historically, substantially all of the feedstock that
is gathered from these collectors has been transported by truck, rail, or barge
to a third-party re-refinery in Marrero, Louisiana. This re-refinery, which
until recently was owned by Chevron-Texaco, purchases Vertex Nevada's feedstock
pursuant to a contract with Vertex Nevada. The re-refinery then upgrades and
sells the product for its own account. The contract with Chevron-Texaco (which
was recently assigned by Chevron-Texaco to Omega Refining LLC ("OMEGA") in
connection with the sale of the re-refinery by Chevron-Texaco to Omega), sets
forth payment and other terms such as volume and oil specifications and minimum
purchase requirements, and includes a minimum fee per gallon plus a performance
margin. The contract was initially entered into for a 12-month term in September
2001 and has remained in effect pursuant to a series of annual renewals. The
next annual renewal is scheduled for September 2008. Based on conversations with
Omega, Vertex Nevada believes that the contract will once again be renewed on
similar terms prior to its expiration. Revenues are recognized from this
division at the point of sale of the aggregated feedstock to the re-refiner.
76
REFINING. Through its Refining and Marketing division, which has been
operational since 2004, Vertex Nevada recycles hydrocarbon streams by (1)
purchasing and aggregating these streams from collectors and generators, (2)
managing the delivery of these streams to a third-party facility for processing
into end-products, and (3) managing the sale of the end-products. Vertex Nevada
gathers hydrocarbon streams in the form of petroleum distillates, transmix and
other chemical products that have become off-specification during the
transportation or refining process. These feedstock streams are purchased from
pipeline operators, refineries, chemical processing facilities and third-party
providers, processed on Vertex Nevada's behalf by a third-party facility
pursuant to a contractual arrangement currently scheduled to expire in November
2008 (unless renewed by the parties), and then resold by Vertex Nevada. The end
products are typically three distillate petroleum streams (gasoline blendstock,
fuel oil cutterstock and marine diesel oil), which are sold to major oil
companies or to large petroleum trading and blending companies. The end products
are delivered by barge and truck to customers. Because the end products that
Vertex Nevada sells through this division are commodities, the profitability of
this division is driven by the ability of Vertex Nevada to efficiently acquire
and aggregate feedstock. In addition, Vertex Nevada seeks to reduce its
commodity price risk by maintaining a policy of quick inventory turnover and by
seeking to purchase feedstocks, at discounts sufficient to provide adequate
protection against market volatility in commodity pricing. Vertex Nevada
recognizes revenue from this division upon sale of product.
OPERATING EXPENSES
Operating expenses for Vertex Nevada's Black Oil division are comprised
primarily of feedstock purchases from its network of providers. Other operating
expenses include transportation costs incurred by third parties, analytical
costs, and storage.
Vertex Nevada's Refining and Marketing division incurs operating expenses
relating to the purchase of feedstock, transportation, and processing of the
feedstock into gasoline blendstock and marine diesel oil by a third party.
Vertex Nevada's operating expenses are affected by changes in various
commodity indices, including crude, natural gas quoted on the New York
Mercantile Exchange, or NYMEX, and the 6-oil index. For example, if the price
for crude increases, the cost of solvent additives used in the production of
blended oil products, and fuel cost for transportation cost from third party
providers will generally increase. Similarly, if the price of crude falls, these
costs may also decline.
GENERAL AND ADMINISTRATIVE EXPENSES
Vertex Nevada's general and administrative expenses consist primarily of
salaries and other employee-related benefits for its executive, administrative,
legal, financial and information technology personnel, as well as outsourced and
professional services, rent, utilities, and related expenses at its
headquarters, as well as certain taxes.
Vertex Nevada will incur higher general and administrative expenses as a
result of the merger. These expenses are expected to include additional
accounting and finance expenses, audit fees, legal fees and corporate governance
expenses, exchange listing fees, transfer agent and stockholder-related fees,
and increased premiums for director and officer liability insurance coverage.
Vertex Nevada expects that it will incur additional expenses in the range of
approximately $400,000 to $800,000 annually.
77
INTEREST EXPENSE
Vertex Nevada's interest expense represents interest incurred by Vertex LP
from its line of credit. The initial draw-down of the related party note was
made in 2006, and the note was fully repaid in 2007.
GAIN (LOSS) FROM HEDGING ACTIVITIES
During 2005 and, to a lesser extent, 2006, Vertex Nevada entered into
contracts intended to partially hedge its exposure to price fluctuating
inventories. These contracts covered Vertex Nevada's inventories of feedstock at
amounts significantly less than its actual usage, and are not considered an
integral part of the cost of acquiring feedstock when purchased. In 2007, Vertex
Nevada discontinued such hedging activities. These losses are reflected in other
expense.
ALLOCATION OF EXPENSES
Allocation of indirect overhead to Vertex Nevada from Vertex LP, and
between the divisions of Vertex Nevada, is based on headcount. After taking into
consideration specific costs that relate or could be allocated to Vertex Nevada,
approximately two-thirds of such costs were allocated to the Black Oil division,
with the remaining one-third allocated to the refining and Marketing division.
Management of Vertex Nevada believes that the above allocation methodology
is reasonable and represents its best available estimate of actual costs
incurred by Vertex Nevada as a whole and by each of its divisions. Such
allocations, however, may not necessarily be representative of the actual costs
that would have been incurred by Vertex Nevada as a stand-alone company or by
its divisions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2007
Set forth below are the results of operations for the three months ended
June 30, 2008, as compared to the same period in 2007; in the comparative tables
below, increases in revenue/income or decreases in expense (favorable variances)
are shown without brackets while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with brackets in the "$ Change" and "%
Change" columns.
Three Months Ended June 30,
-------------------------
2008 2007 $ Change % Change
----------- ----------- ----------- -----------
Revenues $17,803,958 $ 9,284,417 $ 8,519,541 92%
Cost of revenues 16,176,634 7,990,715 8,185,919 (102)%
----------- ----------- ----------- -----------
Gross profit 1,627,324 1,293,702 333,622 26%
Selling, general and
administrative expenses 469,074 260,958 (208,116) (79)%
----------- ----------- ----------- -----------
Income from operations 1,158,250 1,032,744 125,506 12%
----------- ----------- ----------- -----------
Net income $ 1,158,250 $ 1,032,744 $ 125,506 12%
=========== =========== =========== ===========
78
Vertex Nevada's segments' gross profit during these periods was as follows:
Three Months Ended June 30,
-------------------------
2008 2007 $ Change % Change
----------- ----------- ----------- -----------
BLACK OIL SEGMENT
- -----------------
Total revenue $13,140,625 $ 6,748,879 $ 6,391,746 95%
Total cost of revenue 12,477,337 6,445,725 (6,031,612) (94%)
----------- ----------- ----------- -----------
Gross profit $ 663,288 $ 303,153 $ 360,135 119%
REFINING SEGMENT
- ----------------
Total revenue $ 4,663,333 $ 2,535,538 $ 2,127,795 84%
Total cost of revenue 3,699,297 1,544,990 (2,154,307) (139)%
----------- ----------- ----------- -----------
Gross profit $ 964,036 $ 990,548 $ 26,512 3%
=========== =========== =========== ===========
During the second quarter of 2008, revenues increased 92% over the same
period in 2007. This increase was due to higher commodity prices in the 2008
period driven by increases in crude oil prices, as well as increased volume and
production. Vertex Nevada experienced revenue growth in the 2008 period in both
its Refining and Black Oil divisions. The growth in revenue in the Black Oil
division of 95% was driven in part by increased commodity prices of
approximately 70%. Vertex Nevada sells its products at a discount to various
energy product indexes, which indexes increased approximately 50-75% for the
three months ended June 30, 2008 as compared to the comparable period in the
prior year. Delivered volumes grew 15% from 159,255 bbls during the three months
ended June 30, 2007, to 183,800 bbls during the same period in 2008.
The three principle products of Vertex Nevada's Refining division are
gasoline blendstock, pyrolysis gas ("PyGas") and marine diesel oil ("MDO").
During the second quarter of 2008, Refining division revenues increased 84%
compared to the same period in 2007, due to an average price increase of
approximately 62% as well as overall increased production during the three
months ended June 30, 2008, compared to the comparable period in the prior year.
Although production of PyGas decreased approximately 2% from 9,827 bbls for the
three months ended June 30, 2007 to approximately 9,643 bbls during the same
period in 2008, MDO volumes increased approximately 490% from 7,323 bbls in 2007
to 43,189 bbls during the same period in 2008. This increase was related to a
new product stream Vertex Nevada began receiving during the second quarter of
2008. It is uncertain whether this new product stream will continue in future
periods due to a short term supply opportunity. Vertex Nevada is continuing to
pursue similar opportunities, although there can be no assurance that it will be
able to achieve this revenue on a consistent basis in the future. Vertex
Nevada's gasoline blendstock stream volume decreased 29%, from 14,288 bbls
during the three months ended June 30, 2007, to 10,163 bbls during the three
months ended June 30, 2008. This decrease was related to the timing of inventory
builds as well as process timing related to Vertex Nevada's third-party process
facility.
Vertex Nevada's selling, general, and administrative expenses increased
79% during the 2008 period, primarily as a result of legal and accounting fees
associated with the pending merger with World Waste.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2007
Set forth below are the results of operations for the six months ended
June 30, 2008, as compared to the same period in 2007; in the comparative tables
below, increases in revenue/income or decreases in expense (favorable variances)
are shown without brackets while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with brackets in the "$ Change" and "%
Change" columns.
79
Six Months Ended
---------------------------
30-Jun-08 30-Jun-07 $ Change % Change
------------ ------------ ------------ ------------
Revenues $ 32,467,532 $ 17,153,739 $ 15,313,793 89%
Cost of revenues 29,882,357 15,281,497 14,600,860 (95)%
------------ ------------ ------------ ------------
Gross profit 2,585,175 1,872,242 712,933 38%
Selling, general and
administrative exp. 822,776 465,352 (357,424) (76%)
------------ ------------ ------------ ------------
Income from operations 1,762,399 1,406,890 355,509 25%
------------ ------------ ------------ ------------
Net income $ 1,762,399 $ 1,406,890 $ 355,509 25%
============ ============ ============ ============
Vertex Nevada's segments gross profit during these periods consisted of the following:
Six Months Ended
---------------------------
30-Jun-08 30-Jun-07 $ Change % Change
------------ ------------ ------------ ------------
BLACK OIL SEGMENT
- -----------------
Total revenue $ 24,673,881 $ 13,429,651 $ 11,244,230 84%
Total cost of revenue 23,510,233 12,741,528 (10,768,705) (85%)
------------ ------------ ------------ ------------
Gross profit $ 1,163,648 $ 688,123 $ 475,525 69%
REFINING SEGMENT
- ----------------
Total revenue $ 7,793,651 $ 3,724,088 $ 4,069,563 109%
Total cost of revenue 6,372,124 2,539,970 (3,832,154) (151%)
------------ ------------ ------------ ------------
Gross profit $ 1,421,527 $ 1,184,118 $ 237,409 20%
============ ============ ============ ============
During the first six months of 2008, Vertex Nevada's gross profit
increased when compared with the corresponding periods of 2007.
Revenues increased 88% during the first six months of 2008 compared to the same
period in 2007, primarily due to higher commodity prices driven by increases in
crude oil prices. Vertex Nevada experienced revenue growth in both its Refining
and Black Oil divisions. The growth in the Black Oil division revenues was
driven by a slight increase of 6% in volume from 339,115 bbls delivered during
the first six months of 2007 to 360,210 bbls delivered during the first six
months of 2008. In addition to increased volume Vertex Nevada also saw an
increase of 74% in average commodity pricing between the two periods. Vertex
Nevada sells its products at a discount to various energy product indexes, which
indexes increased approximately 50-75% during the six months ended June 30, 2008
as compared to the comparable period in the prior year.
During the first six months of 2008, Vertex Nevada's Refining division saw
substantial increases in its production as well as increases in commodity
prices. Vertex Nevada produced approximately 14,890 bbls of gasoline blendstock
during the six months ended June 30, 2008, as compared to 14,288 bbls produced
during the same period in 2007, a 4% increase. Production volumes for MDO
increased more than 230% from 49,709 bbls during the first six months of 2008 to
14,807 bbls during the same period in 2007. This increase was primarily related
to a new product stream Vertex Nevada began receiving during the second quarter
of 2008. It is uncertain whether this new product stream will continue in future
periods. Vertex Nevada is continuing to pursue similar opportunities, although
there can be no assurance that it will be able to achieve this revenue on a
consistent basis in the future. Vertex Nevada's PyGas streams remained
relatively flat with a slight decrease from 19,125 bbls during the first six
months of 2007 compared to 19,065 bbls during the same period in 2008. In
addition to these volume increases Vertex Nevada experienced substantial
commodity pricing increases as well. These commodity price increases on average
were greater than 50% and caused Vertex Nevada's inventory to become more
valuable by the end of its 4-6 week production process.
80
Vertex Nevada's selling, general, and administrative expenses increased
during the first six months of 2008 as compared to the same period in 2007 due
to the hiring of two new executives, along with substantial added costs related
to legal and accounting fees incurred in connection with its pending transaction
with World Waste.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007 COMPARED TO
THE FISCAL YEAR ENDED DECEMBER 31, 2006
Set forth below are the results of operations for the year ended December
31, 2007, as compared to the same period in 2006; in the comparative tables
below, increases in revenue/income or decreases in expense (favorable variances)
are shown without brackets while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with brackets in the "$ Change" and "%
Change" columns.
$ %
2007 2006 CHANGE CHANGE
------------ ------------ ------------ ------------
Revenues $42,024,499 $36,512,618 $ 5,511,881 15%
Cost of revenue $38,824,591 $35,102,408 $(3,722,183) (11%)
Gross profit 3,199,908 1,410,210 1,789,698 127%
Selling, general, and administrative expenses 968,563 710,215 (258,348) (36%)
------------ ------------ ------------
Income from operations 2,231,345 699,995 1,531,350 219%
Other income and (expense)
Other income (expense) - (132,674) (132,674) (100%)
Interest income (expense) - (68,767) (68,767) (100%)
------------ ------------ ------------
Net other income (expense) - (201,441) (201,441) (100%)
------------ ------------ ------------
Net income $ 2,231,345 $ 498,554 $ 1,732,791 348%
------------ ------------ ------------
Vertex Nevada's segments' gross profit during these periods was as follows:
BLACK OIL SEGMENT 2007 2006 $ CHANGE % CHANGE
- --------------------- ------------ ------------ ------------ -----------
Total revenue $ 34,026,749 31,321,714 $ 2,705,035 9%
Total cost of revenues 32,449,300 30,346,748 (2,102,551) (7%)
------------ ------------ ------------
Gross profit $ 1,577,450 974,966 $ 602,483 62%
REFINING SEGMENT
- ---------------------
Total revenue $ 7,997,749 5,190,904 $ 2,806,845 54%
Total cost of revenues 6,375,291 4,755,660 (1,619,632) (34%)
------------ ------------ ------------
Gross profit $ 1,622,458 435,244 $ 1,187,214 273%
81
Total revenues increased 15% in 2007 compared to 2006, due to revenue
growth in both the Refining and Marketing and Black Oil divisions. The Black Oil
division revenue growth of 9% was driven primarily by increased commodity
prices. Although Vertex Nevada's volumes with respect to the Black Oil division
decreased slightly from 751,652 bbls (barrels) in 2006 to 725,000 bbls in 2007,
this production decrease was more than offset by an 18% increase in average
commodity pricing between 2007 and 2006.
The three principle end-products of Vertex Nevada's Refining and Marketing
division are gasoline blendstock, pyrolysis gas and marine diesel oil. Whereas
overall revenues from this division increased from 2006 to 2007, new state
regulations issued in mid-2006 governing the use of Methyl Tertiary Butyl Ether
("MTBE") and lowering allowable sulphur levels resulted in a significant
curtailment of the gasoline blendstock market. During 2005 (as described below),
Vertex Nevada produced 84,735 bbls of gasoline blendstock, as compared to less
than 43,900 bbls in 2007. Vertex Nevada responded to this significant market
shift by focusing on the production of pyrolysis gas, producing 55,639 bbls in
2007 compared to 27,794 bbls in 2006. Vertex Nevada also almost doubled its
production of marine diesel oil, by producing 31,517 bbls in 2007. These
production increases and commodity price increases resulted in the favorable
revenues and gross profit in 2007 as compared to 2006. Vertex Nevada also
experienced lower operating costs as a percentage of revenues due to the
dragging effect of making these changes in 2006, as compared to its ramped-up
operations in 2007.
Selling, general, and administrative expenses increased 38% in 2007
compared to 2006, primarily due to Vertex Nevada's hiring of two new executives
and other administrative costs to support its growing organizations.
During 2006, Vertex Nevada utilized commodity-based derivatives to
partially hedge its exposure to the price fluctuations of its inventories. This
practice resulted in a $132,674 loss, due to steadily increasing commodity
prices. Vertex Nevada discontinued the use of such hedges in 2007.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 2005
Set forth below are the results of operations for the year ended December
31, 2006, as compared to the same period in 2005; in the comparative tables
below, increases in revenue/income or decreases in expense (favorable variances)
are shown without brackets while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with brackets in the "$ Change" and "%
Change" columns.
$ %
2006 2005 CHANGE CHANGE
------------ ------------ ------------ ------------
Revenues $36,512,618 $26,891,720 $ 9,620,898 36%
Cost of revenue $35,102,408 $25,610,392 (9,492,016) (37%)
Gross profit 1,410,210 1,281,328 128,882 10%
Selling, general, and administrative expenses 710,215 819,153 108,938 13%
------------ ------------ ------------
Income from operations 699,995 462,175 237,820 51%
Other income and (expense)
Other income (expense) (132,674) (347,081) 214,407 62%
Interest income (expense) (68,767) (56,381) (12,386) (22%)
------------ ------------ ------------
Net other income (expense) (201,441) (403,462) 202,021 50%
------------ ------------ ------------
Net income $ 498,554 $ 58,713 $ 439,841 749%
------------ ------------ ------------
82
Vertex Nevada's segments' gross profit during these periods was as follows:
BLACK OIL SEGMENT 2006 2005 $ CHANGE % CHANGE
- --------------------- ------------ ------------ ------------ -----------
Total revenue $ 31,321,714 19,492,146 $ 11,829,568 61%
Total cost of revenue 30,346,748 19,064,358 (11,282,390) (59%)
------------ ------------ ------------
Gross profit $ 974,966 427,788 $ 547,178 128%
REFINING SEGMENT
- ---------------------
Total revenue $ 5,190,904 7,399,574 $ (2,208,670) (30%)
Total cost of revenue 4,755,660 6,546,034 1,790,375 27%
------------ ------------ ------------
Gross profit $ 435,244 853,540 $ (418,295) (49%)
Revenues increased 36% from 2005 to 2006, primarily due to favorable
production and pricing of Vertex Nevada's Black Oil division. Total volumes of
Vertex Nevada's Black Oil division increased from 549,350 bbls to 751,652 bbls,
and average prices increased slightly, resulting in an $11.8 million increase in
revenue in 2006. Vertex Nevada's Refining and Marketing division, however,
experienced significant declines in production (from 53,520 bbls to 15,165 bbls)
for its marine diesel oil product for 2006, compared to 2005. This was due to
the impact of the MTBE and sulphur level regulations that were issued in 2006.
Vertex Nevada's gasoline blendstock product also experienced significantly lower
volumes (from 84,735 bbls to 43,900 bbls) during 2006, compared to 2005. This
decrease in production was also caused by the MTBE and sulphur level issue. As
discussed above, Vertex Nevada responded to this challenge by diversifying its
product offering with the production of pyrolysis gas, which it processed for
the first time in 2006. Although average commodity pricing increased in 2006 as
compared to 2005, it could not offset the aforementioned volume decreases, which
led to the decrease in gross profit associated with the Refining and Marketing
segment. This realignment and scaling of Vertex Nevada's product lines resulted
in higher operating costs in absolute terms and as a percentage of revenues, in
2006 as compared to 2005.
Selling, general and administrative expenses decreased 13% in 2006
compared to 2005. This was primarily due to the inclusion of start-up costs for
the Refining and Marketing division in 2005.
Other expense during the periods is comprised primarily of the loss on
hedging activities relates to derivatives that Vertex Nevada utilized to hedge
its inventories. Vertex Nevada incurred the losses as commodity prices increased
during 2005 and 2006, although the offset to these losses is included in
revenues. During 2006, Vertex Nevada decreased the use of these instruments.
LIQUIDITY AND CAPITAL RESOURCES
The success of Vertex Nevada's current business operations is not
dependent on extensive capital expenditures, but rather on relationships with
its feedstock suppliers and end-product customers. Through these relationships,
Vertex Nevada is able to achieve volume discounts in the procurement of its
feedstock, thereby increasing the margins of its segments' operations. The
resulting operating cash flow is crucial to the continued growth of its existing
business lines.
Vertex LP currently has a $3.5 million revolving line of credit, of which
it had drawn approximately $3.4 million as of June 30, 2008. As June 30, 2008,
none of the amount drawn on this line was attributable to the Vertex Nevada
Business. However, pursuant to the terms of the merger, Vertex Nevada will
assume $1.6 million of Vertex LP's outstanding indebtedness. Pursuant to the
terms of the merger, no working capital will be transferred from Vertex LP to
Vertex Nevada. Vertex Nevada's initial working capital will initially come from
the minimum $5.0 million of cash to be transferred to it by World Waste.
83
Vertex Nevada's development stage Re-refining business will require
significant capital to design and construct the related facilities. Vertex LP
currently has one such facility under development in Baytown, Texas. Vertex
Nevada currently estimates that the cost to construct the functional full-scale
commercial process would be approximately $2.5 to $5.0 million, based on
throughput capacity. The facility infrastructure would be an additional expense
to these proposed process costs and would depend on the location and site
specifics of the facility.
Vertex Nevada believes that the cash to be transferred to it at closing
plus available borrowings and cash from ongoing operations will be sufficient to
satisfy its existing cash requirements.
CASH FLOW ACTIVITIES -- The following table summarizes Vertex Nevada's
cash flow activities for the periods indicated:
Six Months Ended June 30, Years ended December 31,
-------------------------- ------------------------------------------
2008 2007 2007 2006 2005
----------- ----------- ----------- ----------- -----------
Beginning cash and cash equivalents $ 52,650 $ 102,063 $ 102,063 $ 69,954 $ 177,674
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in):
Operating activities (270,044) 1,309,100 1,919,654 (609,113) 194,794
Investing activities -- -- -- -- --
Financing activities 280,372 (1,197,297) (1,969,067) 641,222 (302,514)
----------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 10,328 111,803 (49,413) 32,109 (107,720)
----------- ----------- ----------- ----------- -----------
Ending cash and cash equivalents $ 62,978 $ 213,866 $ 52,650 $ 102,063 $ 69,954
=========== =========== =========== =========== ===========
CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 2007
Operating activities used $270,000 for the six months ended June 30, 2008
as compared to having used $1,309,100 during the corresponding period in 2007.
The primary reason for this decrease was an increase in inventory as well as
accounts receivable. Although there was an increase in net income in the 2008
period, it was offset by these changes in working capital. The net income
increase in the 2008 period was largely due to the impact of receipts, increased
commodity pricing, as well as increased volume for the six months ended June 30,
2008, compared to the comparable period in 2007.
Financing activities used $1.1 million during the six months ended June
30, 2007 as a result of repayments under Vertex LP's line of credit. For the
first six months of 2008, financing activities increased over the 2007 period
due to proceeds of approximately $1.1 million of working capital funding
received from the Partnership partially offset by $0.836 million of
distributions made to partners of the Partnership. The net effect was an
increase of $0.280 million in cash.
CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2006
Operating activities provided $1.9 million of cash in 2007 as compared to
using $0.6 million of cash in 2006. This $2.5 million increase was partially as
a result of the $1.7 million increase in net income in 2007 as compared to 2006.
Increased inventory levels in 2006 accounted for another $1.0 million of this
difference between 2007 and 2006. The remaining difference was comprised of
changes in operating assets and liabilities. Accounts receivable and accounts
payable balances grew in both years, as the number and size of transactions
increased with the growth of Vertex Nevada's business.
84
Financing activities used $2.0 million of cash in 2007 as compared to
having provided $0.6 million of cash in 2006. The principle cause of this
variance was the borrowing of $1.1 million under Vertex Nevada's line of credit
in 2006 and its subsequent repayment of this amount in 2007. Distributions to
limited partners also increased $0.3 million from 2006 to 2007, as there was
more income allocable to the partners.
CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2005
Operating activities used approximately $0.6 million of cash in 2006 as
compared to having provided $0.3 million of cash in 2005. The primary reason for
this variance was the increase of inventory in 2006, which used approximately
$0.7 million more cash than in 2005. The remaining $0.3 million variance of
operating cash flow was caused by changes in working capital. As stated above,
as Vertex Nevada has grown, its accounts receivable, prepaid expenses, and
accounts payable have increased. This activity, especially the growth in
accounts receivable, used $0.3 million more cash in 2006 than 2005.
Financing activities provided $0.6 million of cash in 2006 as compared to
having used $0.3 million of cash in 2005. The $0.9 million variance was caused
by $1.1 million of proceeds from Vertex Nevada's line of credit in 2006,
partially offset by a $0.2 million increase in distributions made to limited
partners as compared to 2005. Vertex Nevada's distributions to its partners
increased as a result of the growth in its income between years.
CONTRACTUAL AND OTHER OBLIGATIONS
Vertex Nevada has a total of five contracts with third parties for the
procurement of used oil and pygas. These contracts are for materials that are
subsequently processed and sold within a short time-frame, and linked to indexes
to maintain a spread to the purchase price. Generally, each contract's term is
for one year with an option for renewal on either an annual or monthly basis.
The pricing for these contracts are index based. These contracts cover up to
approximately 690,000 gallons per month of used oil and up to 400,000 gallons
per month of pyrolysis gas.
The following table summarizes Vertex Nevada's contractual and other
obligations at December 31, 2007, and the effect such obligations are expected
to have on liquidity and cash flow in future periods:
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------
LESS THAN MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
----------- ----------- ----------- ----------- -----------
Long-Term Debt Obligations $ -- -- -- -- --
Operating Lease Obligations $ -- -- -- -- --
Purchase Obligations $28,859,671 18,483,661 10,376,010 -- --
Other Long-Term Liabilities $ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total $28,859,671 $18,483,661 $10,376,010 -- --
=========== =========== =========== =========== ===========
OFF-BALANCE SHEET ARRANGEMENTS
Except as noted in the table above under "Contractual and Other
Obligations", as of June 30, 2008, Vertex Nevada had no material off-balance
sheet obligations.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Vertex Nevada's financial statements are prepared in accordance with GAAP.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. Management regularly evaluates its estimates and
judgments, including those related to revenue recognition, goodwill, intangible
assets, long-lived assets valuation, and legal matters. Actual results may
differ from these estimates. Vertex Nevada believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity. (See Note 2 to the Vertex Nevada financial statements.)
85
REVENUE RECOGNITION. Vertex Nevada recognizes revenue upon delivery of
feedstock to its re-refining customer and upon delivery of refined feedstock in
the form of gasoline blendstock, marine diesel oil, and pyrolysis gas to its
customers.
LEGAL MATTERS. Accruals are established for legal matters when, in Vertex
Nevada's opinion, it is probable that a liability exists and the liability can
be reasonably estimated. Actual expenses incurred in future periods can differ
materially from accruals established.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS NO. 157
In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS,
or SFAS No. 157. SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under this statement, fair value
measurements are required to be separately disclosed, by level, within the fair
value hierarchy. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FSP 157-2, which amends
SFAS No. 157 to delay the effective date of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, to
fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years. In February 2008, the FASB also issued FSP 157-1, that would
exclude leasing transactions accounted for under SFAS No. 13, ACCOUNTING FOR
LEASES, and its related interpretive accounting pronouncements. Vertex Nevada is
currently evaluating the impact of SFAS No. 157, but does not expect its
adoption to have a material impact on its financial statements.
SFAS NO. 158
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132R, or SFAS No. 158. SFAS No. 158 requires that
the funded status of defined benefit postretirement plans be recognized on a
company's balance sheet, and changes in the funded status be reflected in
comprehensive income. For companies without publicly traded equity securities,
SFAS No. 158 is effective for fiscal years ending after June 15, 2007. This
provision of SFAS No. 158 had no impact on us. SFAS No. 158 also requires
companies to measure the funded status of the plan as of the date of its fiscal
year-end, effective for fiscal years ending after December 15, 2008. Vertex
Nevada is currently evaluating the impact of the remaining provisions of SFAS
No. 158, but does not expect its adoption to have a material impact on its
financial statements.
SFAS NO. 159
In February 2007, the FASB issued Statement No. 159, THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115, or SFAS No. 159. SFAS No. 159 permits companies to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Vertex Nevada is
currently evaluating the impact of SFAS No. 159, but does not expect its
adoption to have a material impact on its financial statements.
86
SFAS NO. 141R
In December 2007, the FASB issued SFAS No. 141 (revised 2007), BUSINESS
COMBINATIONS, or SFAS No. 141R. SFAS No. 141R requires the acquiring entity in a
business combination to recognize the full fair value of assets acquired and
liabilities assumed in the transaction whether full or partial acquisition,
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed, requires expensing of most transaction
and restructuring costs, and requires the acquirer to disclose all information
needed to evaluate and understand the nature and financial effect of the
business combination. SFAS No. 141R applies to all transactions or other events
in which an entity obtains control of one or more businesses. SFAS No. 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first fiscal year beginning after December 15,
2008. Vertex Nevada is currently evaluating the impact SFAS No. 141R may have on
its financial statements.
SFAS NO. 160
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS
IN CONSOLIDATED FINANCIAL STATEMENTS--AN AMENDMENT OF ARB NO. 51, or SFAS No.
160. SFAS No. 160 requires reporting entities to present noncontrolling
(minority) interests as equity as opposed to a liability or mezzanine equity and
provides guidance on the accounting for transactions between an entity and
noncontrolling interests. SFAS No. 160 is effective the first fiscal year
beginning after December 15, 2008, and interim periods within that fiscal year.
SFAS No. 160 applies prospectively as of the beginning of the fiscal year it is
initially applied, except for the presentation and disclosure requirements which
are applied retrospectively for all periods presented. Vertex Nevada is
currently evaluating the impact of SFAS No. 160, but does not expect its
adoption to have an impact on its consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
By virtue of constant changes in the market value of petroleum products,
Vertex Nevada is exposed to fluctuations in both revenues and expenses. However,
Vertex Nevada believes that it is substantially insulated from the net impact of
volatility in such commodity-based markets. The revenue derived from its Black
Oil division is based on Vertex Nevada's ability to obtain feedstock from a
number of suppliers and then arrange for its delivery to third parties.
Therefore, Vertex Nevada's ability to aggregate and deliver drives its margins,
as opposed to commodity-pricing fluctuations which are effectively passed
through. Similarly, its Refining and Marketing division derives its margins
based on its ability to refine and sell its petroleum end-products. Any increase
or decrease in the underlying commodity cost of feedstock passes to the eventual
sales price.
While Vertex Nevada expects the pricing of raw materials and finished
goods of each division to track in a related manner, it does not currently
engage in an active hedging program of its inventory. Therefore, there is
potential exposure as a result of the four-to-six week period of inventory
turnover. Vertex Nevada seeks to reduce its commodity price risk by maintaining
a policy of quick inventory turnaround and by seeking to purchase feedstock at
discounts sufficient to provide adequate protection against market volatility in
commodity pricing.
Vertex Nevada did not have debt outstanding as of June 30, 2008 and there
is currently no financial market risk associated with any debt.
87
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS - VERTEX NEVADA
THE FOLLOWING INFORMATION DESCRIBES VARIOUS RELATED PARTIES AND AFFILIATES
OF VERTEX NEVADA. VTX, INC, WHICH IS WHOLLY OWNED BY MR. COWART, IS THE GENERAL
PARTNER OF ALL OF THE ENTITIES DESCRIBED BELOW.
CROSS ROAD CARRIERS ("CRC")
CRC is a transportation company engaged in the transporting of petroleum
fuels, bio fuels, and chemicals, and is 95.1% owned by Vertex LP and affiliated
with Benjamin P. Cowart, Vertex Nevada's Chairman and Chief Executive Officer,
who serves as the general partner of CRC through VTX, Inc., an entity owned by
Mr. Cowart. CRC provides transport services for Vertex LP as well as for various
third parties. It is anticipated that CRC will continue to provide such
transport service for Vertex Nevada following the merger. The total costs and
terms associated with the transportation fees that CRC is expected to charge
Vertex Nevada have not been determined yet, but are expected to be substantially
similar to the terms granted to CRC's other clients (including Vertex LP), which
Vertex Nevada believes approximate current market rates.
Historically, approximately 25% of CRC's revenue has been generated from
Vertex LP, and an additional 10% from companies affiliated with Vertex LP. In
addition, approximately 60% of feedstock that comes into Vertex LP is
transported by CRC, and 85-90% of Vertex LP's trucking needs are fulfilled by
CRC. It is currently anticipated that the same percentages will apply with
respect to Vertex Nevada following the merger.
VERTEX RECOVERY ("VR")
VR is a generator solutions company for the proper recycling and
management of petroleum products, 92.5% owned by Vertex LP, whose general
partner is VTX. VR receives used petroleum products from various third parties
and generally works as a broker for used petroleum products. VR sells products
to Vertex LP and/or acts as a broker in connection with sales. It is currently
anticipated that approximately 25-35% (including H&H and H&H Baytown (described
below)) of Vertex Nevada's total feedstock will come from VR following the
merger.
VR's established business practice (which is anticipated to remain the
same for Vertex Nevada) is for Vertex LP to have the first option to accept or
not to accept any feedstock streams which VR becomes aware of at the current
market price.
VR is a "third party supplier" - a company that collects used petroleum
products ("Feedstock") from various Generators and then resells such Feedstock.
A "Generator" is any person or entity whose activity or process produces used
oil or whose activity first causes used oil to be subject to regulation (for
example, an automotive service center that performs oil changes). Vertex Nevada
is not currently a Generator or a Third Party Supplier, but will only be a
purchaser of Feedstock, through VR and/or through an alternative third party
supplier.
H&H OIL (AUSTIN, TEXAS) ("H&H")
H&H is a wholly-owned business unit of VR and is a used oil collection
company. H&H sells product to Vertex LP and third parties. It is anticipated
that H&H will continue to sell product to Vertex Nevada. Historically,
approximately 10-15% of Vertex LP's feedstock has come from H&H, and
approximately 90% of H&H's feedstock has been sold to Vertex LP.
H&H OIL (BAYTOWN, TEXAS) ("H&H-BAYTOWN")
H&H Baytown is a wholly-owned business unit of VR and is a used oil
collection company. H&H Baytown sells product to Vertex LP. It is anticipated
that H&H-Baytown will continue to sell product to Vertex Nevada following the
merger. Historically, approximately 10-15% of Vertex LP's feedstock has come
from H&H Baytown, and approximately 90% of H&H-Baytown's, feedstock has been
sold to Vertex LP.
88
CEDAR MARINE TERMINAL ("CMT")
CMT is a marine terminal 99% owned by Vertex LP that is engaged in the
storage and terminalling of petroleum fuels. CMT is contracted to store products
for Vertex LP as well as third parties. CMT's general partner is VTX. It is
anticipated that Vertex Nevada will need to share in water treatment operations
from CMT, which will be supplied at cost plus 10%.
Approximately 40% of Vertex LP's feedstock is terminaled and stored at
CMT. Approximately 40% of the feedstock that is terminated at CMT belongs to
Vertex LP, with an additional approximately 20% owned by companies affiliated
with Vertex LP and Vertex-affiliated companies. The remaining approximately 40%
belongs to an unrelated third party.
CMT is also working on new "thermal/chemical extraction technology" - a
process infrastructure located at the Cedar Marine Terminal, operated and
managed by CMT, consisting of multiple tanks, associated piping and proprietary
design and engineering for the thermal/chemical extraction of used motor oil.
Pursuant to an agreement to be entered into upon the closing of the merger, CMT
will license the thermal/chemical extraction technology to Vertex Nevada at a
price equal to the documented development costs of such technology. It is
anticipated that CMT will operate the actual thermal/chemical extraction
technology and Vertex Nevada will pay an operations fee to CMT. Although it is
currently anticipated that Vertex LP and Vertex Nevada will be the only entities
using the thermal/chemical extraction technology, because the license will be
non-exclusive, CMT may license the technology to other parties and/or sell the
technology outright. CMT currently provides terminalling services to Vertex
Nevada's competitors and may increase the volume of such services in the future.
It is anticipated that Vertex Nevada will enter into an addendum to CMT's
lease agreement with the Terminal. Vertex Nevada has agreed to purchase the
process assets located on the plot plan of the Terminal (as specifically
detailed therein) for a total of $1.5 million, which will be payable to CMT
quarterly in an amount of up to $250,000 of the total net income generated by
Vertex Nevada in connection with the first Oil Processing Unit located at the
Terminal, until such time as the purchase price of the process assets are paid
in full.
VERTEX RESIDUAL MANAGEMENT ("VRM")
VRM is an environmental consulting services company which is 69% owned by
Vertex LP and controlled by Mr. Cowart through his ownership of VTX. VRM
provides environmental compliance, residual management and regulatory oversight
services (including permitting) to Vertex LP and other affiliated companies, as
well as third parties. It is currently anticipated that VRM will provide
compliance services to Vertex Nevada following the closing of the merger.
Currently Vertex LP has an arrangement with VRM pursuant to which VRM
provides services to Vertex LP and all of the other Vertex LP-related parties at
cost, at the rate of 426 hours per month at $50 per hour for each entity,
adjustable every six months. It is anticipated that subsequent to the merger,
Vertex Nevada will be responsible for its pro-rata share of the monthly fee
payable to VRM pursuant to the pre-existing arrangement between VRM and Vertex
LP.
89
B&S COWART, FLP (BENJAMIN P. COWART)
Vertex LP rents a condominium owned by Mr. Cowart at a rate of
approximately $700 per month, for the use of an employee of Vertex LP, who will
become an employee of Vertex Nevada following the merger. It is currently
anticipated that following the merger, Vertex Nevada will assume Vertex LP's
obligations under this lease.
It is also anticipated that Vertex Nevada will enter into a lease with
Vertex LP, pursuant to which Vertex Nevada will sublease office space, office
equipment and support services from Vertex LP at the rate of approximately
$3,710 per month.
AFFILIATED EMPLOYEES
It is anticipated that certain employees of Vertex Nevada will be spending
a portion of their time working on behalf of companies that are affiliates of
Mr. Cowart. These employees will not be compensated by Vertex Nevada for any
time dedicated to those companies.
90
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF VERTEX NEVADA
FOLLOWING THE MERGER
It is anticipated that, following the merger, the directors of Vertex
Nevada will be as follows:
DAN BORGEN (47): Mr. Borgen was appointed a director of Vertex Nevada in
June 2008. Mr. Borgen currently serves as Chairman, Chief Executive Officer and
President of U.S. Development Group LLC ("USD"), where he has worked since May
1995. In his current role, Mr. Borgen guides all senior aspects of USD's
corporate activities. USD is comprised of wholly owned subsidiaries that focus
on industrial development, logistics, products terminaling, power corridors,
financial services and gasification. In addition to his work with USD, Mr.
Borgen has served as President of U.S. Right-of-Way Corporation since June 1993.
Prior to this, Mr. Borgen worked for eleven years as an investment banker
serving as Merger & Acquisition Director, Portfolio Manager and as a member of
the Executive Committee for strategic planning and development. His activities
were focused on manufacturing, food service, oil and gas exploration/production,
telecommunications, banking and Western European finance. In his capacity as an
investment banker, Mr. Borgen served as Vice President of The Oxford Group from
July 1990 to June 1993, Vice President/Principal of The Paramount Companies from
July 1985 to April 1990 and Manager - Investor relations of Invoil Inc. from
April 1982 to June 1985.
BENJAMIN P. COWART (39): Mr. Cowart, the president of the General Partner
for Vertex LP, has been involved in the petroleum recycling industry for over 20
years. Mr. Cowart is the founder of the Vertex group of companies and has served
such companies since 2001. Mr. Cowart is the founder, Chief Executive Officer,
President and Chairman of the Board of Vertex Nevada. As a leader in the
recycling field, Mr. Cowart helped pioneer the reclamation industry by
developing recycling options for many residual materials once managed as a
hazardous waste. Mr. Cowart co-authored the industry's first e-commerce
operating system for the digital management of petroleum waste and residual
materials. Mr. Cowart was awarded the 2003 Business Man of the Year from The
National Republican Congressional Committee, and serves on NORA's Board of
Directors and President for 2008. Mr. Cowart has taken an active role in the
petroleum industry with his involvement in speaking, consulting, chairing, and
serving on various committees and industry associations. Prior to the formation
of Vertex LP, Mr. Cowart served as the Vice President of Aaron Oil Company, a
regional recycler in Alabama.
INGRAM LEE (48): Mr. Lee has been a director and treasurer of Vertex
Nevada since its inception in May 2008. Since May 1993, he has worked at PTI,
Incorporated ("PTI") where he currently serves as the President. In his current
role with PTI, Mr. Lee is responsible for overseeing trading, purchasing,
blending, training and sales of both residual and distillate petroleum products.
Prior to joining PTI, Mr. Lee was a Trading Manager at Coastal Corporation
(currently El Paso Corporation) from 1988 to 1993, responsible for the trading
of over 20 million barrels per year of heavy oil and distillate products in and
out of South America, Mexico and the Caribbean. From 1985 to 1988, Mr. Lee was
an Operations/Blending Manager for Challenger Petroleum USA, Inc. Prior to this,
he worked as a field manager for Torco Oil Company from 1982 to 1985 and a
petroleum dispatcher and laboratory coordinator for E.W. Saybolt Petroleum
Inspection Company from 1979 to 1982. Mr. Lee has been involved in aspects of
the petroleum products trading industry for 28 years, from purchasing and sales
to operations and transportation.
DAVID L. PHILLIPS (51): Mr. Phillips was appointed a director of Vertex
Nevada in June 2008. Mr. Phillips is currently the Managing Partner of Bilateral
Initiatives LLP, an international business-to-business consulting firm
specializing in providing key strategic expansion and corporate growth advice to
the chairman and chief executive level members of various firms. Mr. Phillips is
also Managing Partner of Phillips International Law Group PLLC, a worldwide
recognized international law firm specializing in mergers, acquisitions, project
development and EPC construction work with a focus on the international energy
landscape in the oil, gas, chemical and power downstream sector and the
alternative energy industry. Mr. Phillips' clients include worldwide energy
companies, including several Middle East National Oil Companies. Prior to his
founding of Bilateral Initiatives LLP and the Phillips International Law Group,
91
Mr. Phillips was a Partner at the law firm of Jackson Walker LLP from May 2002
until May 2008 and chaired several of the firm's practice areas over that
period. Prior to working at Jackson Walker LLP, from May 1995 to May 2002 Mr.
Phillips served as a chief executive officer of KeySpan Energy Corporation, a
$14 billion public energy conglomerate based in New York City, and as a member
of the board of directors of certain KeySpan subsidiaries. From June 1991 to May
1995, Mr. Phillips served as a chief executive officer in Equitable Resources,
Inc. a $6 billion public gas utility holding company based in Pittsburgh,
Pennsylvania, and as a member of the board of directors of certain Equitable
subsidiaries. Mr. Phillips also served as the General Counsel to Eastex Energy
Inc., a public midstream energy company, from June 1985 to May 1991, which was
later acquired by El Paso Energy and ultimately Enterprise Products LP.
In addition to his current roles at Bilateral Initiatives LLP and Phillips
International Law Group PLLC, Mr. Phillips is the Chairman of the Board of
Directors and the Executive Board of Advisors, Ambassadors, Ministers & Former
US Cabinet Secretaries of the Bilateral US Arab Chamber of Commerce (BUSACC).
Mr. Phillips received his bachelor's degree from the University of Texas
in August 1984 and his Juris Doctor from the South Texas College of Law in
August 1988. Mr. Phillips is a member of State Bar of Texas, International Bar
Association, American Bar Association, and the Houston Bar Association; he is
also a member of the Oil, Gas & Energy Law Section, the Business Law Section,
and the Corporate Counsel Section of the State Bar of Texas and Houston Bar
Association. Additionally, he is a member of the Natural Resources, Energy and
Environmental Law Section of the American Bar Association & International Bar
Association.
JOHN PIMENTEL (42): Mr. Pimentel has served as the Chief Executive Officer
of World Waste since the fourth quarter of 2005 and as a member of the World
Waste board of directors since early 2004. It is anticipated that Mr. Pimentel
will be appointed as a member of the Vertex Nevada board of directors upon
closing of the merger. Previously, he worked with Cagan McAfee Capital Partners,
responsible for portfolio company management, strategy and investment
structuring in industries including energy and technology. Mr. Pimentel was one
of the co-founders of Pacific Ethanol (NASDAQ: PEIX) where he served as a
director from 2003 to 2005. He has also served on the boards of Particle
Drilling (NASDAQ: PDRT) and Evolution Petroleum (Amex: EVO). Mr. Pimentel has
also worked for Bain & Company in their Private Equity Group, as well as the
firm's general consulting practice. Mr. Pimentel has extensive operating
experience including service as Deputy Secretary for Transportation for the
State of California where he oversaw a $4.5 billion budget and 28,000 employees.
Mr. Pimentel has an MBA from Harvard Business School and a BA from the
University of California, Berkeley.
In addition to Mr. Cowart, it is anticipated that, following the merger,
the officers and other key employees of Vertex Nevada will be as follows:
CHRIS CARLSON, SECRETARY (36): Mr. Carlson has served as Secretary of
Vertex Nevada since inception. Mr. Carlson brings a range of experience to his
role as the Vice President for Vertex LP. Mr. Carlson oversees all risk
management, investments, e-commerce applications, and day-to-day financial
accounting of Vertex LP and its subsidiaries. Mr. Carlson worked for FuelQuest,
Inc. before joining Vertex LP in 2001. There he worked as a Project Lead
managing implementations of e-commerce services for new customers. In addition,
he also planned and developed testing requirements for e-commerce applications.
Mr. Carlson was with Pagenet, a wireless communications company prior to
FuelQuest, Inc. where he worked as a Strategic Account Supervisor. Mr. Carlson
earned his BS degree in Business Finance from the University of Houston.
92
SIGNIFICANT EMPLOYEES:
GREG WALLACE - OPERATIONS
Mr. Wallace provides Vertex Nevada with over 17 years in the petroleum and
chemicals trading industry. Mr. Wallace manages several departments for Vertex
LP, including processing, used oil recovery technology, purchasing and selling
of various petrochemical products, and transportation of lube oils and solvents.
Prior to joining Vertex LP in 2005, Mr. Wallace was President of TRW Trading, a
company that he co-founded in 2001. Mr. Wallace has served in various management
roles ranging from marketing a variety of gasoline blendstocks, various
solvents, waste recycling, hazardous/non-hazardous handling, and then later
becoming qualified to perform oil spill prevention and response. Mr. Wallace
began his petrochemical career with Valley Solvents & Chemicals, where he served
as project General Manager responsible for sourcing used feedstocks and selling
products into favorable markets.
JOHN STRICKLAND - MANAGER OF SUPPLY
Mr. Strickland joined Vertex LP in late 2007 where he currently serves as
the Manager of Supply for Vertex Energy. Mr. Strickland has over 21 years
experience in management roles of developing companies in the recycling of used
oils and the fuel blending business. In his various positions, he has developed
used oil collection fleets, environment services (non-hazardous),Terminal
business of #6-oil from water ports and helped develop software for used oil
collection fleets. Mr. Strickland was the General Manager of Texpar Energy inc.
from 1999 to 2003 and Special Project Manager for Texpar Energy, L.L.C. from
2004 to 2007.From 1986 to 1999, he was the General Manager and Vice- President
of Sellers Oil Inc., then one of the largest recycling and fuel marketers of
used oil and #6-fuel oil in the southeast.
DAVID BRAYKOVICH - BUSINESS DEVELOPMENT
Mr. Braykovich joined Vertex LP in July 2007. Mr. Braykovich brings over
16 years experience in the Water/Wastewater and Environmental Services industry.
From August 1991 to 2007, he worked at Siemens Water Technologies Corp., most
recently as Business Unit Manager. While at Siemens, Mr. Braykovich had P&L
responsibilities for seven operating profit centers within Florida, Georgia, and
Louisiana. He also completed the due diligence, acquisition, and integration of
Earth Liquids Corporation.
RELATED PARTY TRANSACTION COMMITTEE
Vertex Nevada anticipates forming a committee (THE "RELATED PARTY
TRANSACTION COMMITTEE") on or about the date of the closing of the merger. The
Related Party Transaction Committee will include at least two "independent
directors" (defined to mean any individual who does not beneficially own more
than 5% of the outstanding voting shares of Vertex Nevada, is not employed by,
or an officer of, Vertex Nevada or any entity related to Benjamin P. Cowart, is
not a director or manager of any such company, is not a family member of Mr.
Cowart, and would qualify as an "Independent Director" as defined in the rules
and regulations of the New York Stock Exchange). This Related Party Transaction
Committee will be charged with the review and pre-approval of any and all
related party transactions, including between Vertex Nevada and Vertex LP, Mr.
Cowart, or any other company or individual which may be affiliated with Mr.
Cowart. It is anticipated that at the closing of the merger, the Related Party
Transaction Committee will consist of Mr. Phillips, Mr. Borgen and Mr. Pimentel.
93
COMPENSATION OF OFFICERS AND DIRECTORS
In consideration for agreeing to serve as a director of Vertex Nevada, on
May 16, 2008 each of Messrs. Borgen, Lee and Phillips was issued an option to
acquire up to 200,000 shares of Vertex Nevada's common stock at an exercise
price of $0.12 per share. The options expire if unexercised on the earlier of
(a) the tenth anniversary of the grant date or (b) three months after the
termination of the director's service to Vertex Nevada. The options vest at the
rate of 25% of the total options per year on each annual anniversary of the
grant date, assuming that the director is continuing to provide services to
Vertex Nevada on such date. The options also contain a cashless exercise
provision.
In connection with the merger, Vertex Nevada will enter into an employment
agreement with Benjamin P. Cowart pursuant to which Vertex Nevada will hire Mr.
Cowart to serve as its Chief Executive Officer for a term of five years at a
base salary of $190,000, and a bonus payment (to be determined in the sole
discretion of Vertex Nevada's compensation committee). Please see the section of
this proxy statement entitled "The Merger-Interests of Vertex Nevada's Directors
and Executive Officers in the Merger" beginning on page 45 for a more detailed
description of the terms of this agreement.
Upon consummation of the merger, Mr. Pimentel will serve as a member of
Vertex Nevada's board of directors as the designee of the holders of Vertex
Nevada's Series A preferred stock. It is currently anticipated that following
the merger Mr. Pimentel will also serve Vertex Nevada in a consulting capacity,
assisting management with strategic planning, finance, and in formulating
business development initiatives. It is anticipated that Mr. Pimentel will
receive cash and/or additional equity compensation for providing such services,
the form and amount of which compensation has not yet been determined.
94
BUSINESS OF WORLD WASTE
World Waste management is currently focused on completing the merger with
Vertex Nevada while maintaining the viability of its renewable energy business
plan. Following the merger, it is anticipated that renewable energy business
plan will continue to be pursued by Vertex Nevada through a subsidiary following
the merger. Expenditures related to the renewable energy business are being
minimized as World Waste seeks to maintain relationships, contract negotiations
and other relevant activities related to the potential development of renewable
energy projects without encumbering its ability to meet the closing conditions
of a merger in a timely manner. The following is an overview of World Waste and
its business operations prior to consummation of the merger and other
transactions contemplated by the merger agreement.
COMPANY OVERVIEW
World Waste is a development stage company formed to develop, design,
build, own and operate facilities which employ systems and technologies designed
to profitably convert municipal solid waste (MSW) and other waste streams, such
as wood waste and construction and demolition debris, into usable commodities
and products. These products are expected to include renewable energy,
recyclable commodities, and potentially bio-fuels. World Waste plans to continue
to concentrate its efforts on producing renewable energy from waste materials
through the use of gasification and pyrolysis technologies in order to meet the
rapidly growing demand for renewable power. World Waste believes that this
increased demand is being driven, to a large extent, by the adoption of
Renewable Portfolio Standards in a number of states, which require or encourage
utilities to have a specific percentage of their electricity sales come from
renewable sources.
To accelerate implementation of its renewable energy platform, World Waste
plans to pursue the development of facilities in targeted markets where it
believes World Waste will be able to earn a "tipping" fee for accepting wastes
and a premium for the sale of renewable energy products or receive a very low
cost biomass feedstock. World Waste also plans to develop or obtain the rights
to use gasification or other biomass conversion technologies in demonstration
application to gain operating experience with the unique aspects of gasifying
biomass derived from municipal solid waste and other waste streams such as
construction and demolition debris, and to develop detailed design criteria for
larger-scale systems.
World Waste anticipates that the development of projects using these
technologies could position it to generate three distinct revenue streams: (a)
"tipping" fees charged to the entities that supply it with MSW or other waste
materials, (b) recycling revenue from the sale of commodity recyclables (such as
beverage containers, aluminum, steel, plastics, and glass) that its process
recovers and which otherwise would be interred in landfills, and (c) revenue
from the sale of its end products, anticipated to be primarily renewable
electricity, and potentially bio-fuels. World Waste believes that its receipt of
fees from waste generators or handlers could provide it with a low cost fuel
source, which is an important and beneficial characteristic of its business
model.
RENEWABLE ELECTRICITY OPPORTUNITIES
World Waste plans to continue to focus its efforts on the utilization of
one or more gasification and/or pyrolysis technologies that may be used to
generate various renewable energy products from MSW and other waste streams. It
plans to seek to continue to enter into strategic relationships with companies
that have developed gasification technologies, and to further investigate the
commercialization of its own technology. A process, which it believes, has
significant potential for successful commercialization involves using a
gasification technology to produce a synthesis gas (or "syngas") from the
cellulose biomass fraction of MSW and construction and demolition debris derived
from a materials' separation and classification process. Wood waste, sewage
sludge and other commercial waste streams are also potential feedstocks. The
resulting syngas or bio-oil would be used to fire a boiler driving a steam
turbine. World Waste also believes that after a gas clean-up process, it may be
possible to put the syngas directly into a gas-fired turbine. In either case,
World Waste believes the process has the potential to produce a significant
amount of renewable electricity for sale to utilities.
95
STRATEGY
World Waste's goal is to develop and/or acquire full-scale commercial
facilities which profitably transform residual MSW, wood waste and other waste
streams into usable renewable energy or products, including electricity,
synthetic gas and bio-oil and/or bio-fuels.
96
BENEFICIAL OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
WORLD WASTE
The following table sets forth certain information regarding the
beneficial ownership of World Waste's common stock as of June 30, 2008 by (i)
each person who is known by World Waste to own beneficially more than five
percent of World Waste's outstanding common stock; (ii) each of World Waste's
directors; (iii) each of World Waste's executive officers; and (iv) all of World
Waste's current executive officers and directors as a group. As of June 30,
2008, 27,542,170 shares of World Waste's common stock were issued and
outstanding.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and/or investing power with respect to securities. World
Waste believes that, except as otherwise noted and subject to applicable
community property laws, each person named in the following table has sole
investment and voting power with respect to the shares of common stock shown as
beneficially owned by such person.
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (1) CLASS (1)
------------------------------------------------ ------------------ --------------
John Pimentel (2) 2,140,625 7.57%
David A. Rane (3) 791,667 2.81%
Matthew Lieb (4) 166,667 *
James L. Ferris (5) 685,300 2.43%
Ross M. Patten (6) 915,000 3.22%
Sam Pina Cortez (7) 699,167 2.48%
David Gutacker (8) 466,667 1.67%
Steven Racoosin (9) 2,361,910 8.58%
One World Zero Waste, LLC (9) 2,361,910 8.58%
Laird Q. Cagan (10) 2,446,275 8.88%
All directors and executive officers as a group
(7 persons) 5,898,425 18.50%
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Shares of common stock subject to options, warrants or other convertible
securities (including approximately 17 million shares of common stock
issuable upon conversion of World Waste's preferred stock) that are
currently exercisable or convertible, or exercisable or convertible within
60 days of June 30, 2008, are deemed to be outstanding and to be
beneficially owned by the person or group holding such options, warrants
or other convertible securities for the purpose of computing the
percentage ownership of such person or group, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person or group. Unless otherwise indicated, the address for each of
the individuals listed in the table is care of World Waste Technologies,
Inc., 10600 N. DeAnza Boulevard, Suite 250, Cupertino, California (05014.)
(2) Includes (i) 350,000 shares owned by Mr. Pimentel's spouse, (ii) 12,500
shares issuable upon conversion of preferred stock and upon exercise of
warrants and (iii) 728,125 shares issuable upon exercise of options
currently exercisable or exercisable within 60 days of June 30, 2008. Does
not include options to acquire 521,875 shares of common stock not
exercisable within 60 days of June 30, 2008.
97
(3) Includes 350,000 shares issuable upon exercise of a stock option which is
immediately exercisable but subject to repurchase by World Waste in the
event that optionee's service to World Waste terminates. World Waste's
repurchase right lapses as to 1/48th of the shares upon the passing of
each month of continuance service to World Waste after April 18, 2005. The
repurchase right also fully lapses in the event that World Waste is
subject to a change in control. Also includes 291,667 shares issuable upon
exercise of stock options currently exercisable or exercisable within 60
days of June 30, 2008. Does not include options to acquire 241,667 shares
of common stock not exercisable within 60 days of June 30, 2008.
(4) Represents shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of June 30, 2008. Does
not include options to acquire 233,333 shares of common stock not
exercisable within 60 days of June 30, 2008.
(5) Includes (i) 10,800 shares of common stock issuable upon the conversion of
preferred stock and the exercise of warrants and (ii) 674,500 shares of
common stock issuable upon exercise of options currently exercisable or
exercisable within 60 days of June 30, 2008. Does not include options to
acquire 62,500 shares of common stock not exercisable within 60 days of
June 30, 2008.
(6) Includes 915,000 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of June 30, 2008. Does
not include options to acquire 75,000 shares of common stock not
exercisable within 60 days of June 30, 2008.
(7) Includes (i) 12,500 shares of common stock issuable upon conversion of
preferred stock and exercise of warrants and (ii) 686,667 shares issuable
upon exercise of options currently exercisable or exercisable within 60
days of June 30, 2008. Does not include options to acquire 33,333 shares
of common stock not exercisable within 60 days of June 30, 2008.
(8) Includes 200,000 shares issuable upon exercise of a stock option which is
immediately exercisable but subject to repurchase by World Waste in the
event that optionee's service to World Waste terminates. The repurchase
right lapses with respect to 1/24th of the shares upon the passing of each
month of continuing service to World Waste after December 31, 2006. The
repurchase right also fully lapses in the event that World Waste is
subject to a change in control.
(9) Address: 3849 Pala Mesa Drive, Fallbrook, CA 92028. Mr. Racoosin has
voting and dispositive power over the shares that are owned of record by
One World Zero Waste, LLC, and such shares are also included in the table
opposite Mr. Racoosin's name. Includes 51,563 shares issuable upon
exercise of a warrant. Does not include 23,437 shares issuable upon
exercise of a warrant that are not currently exercisable or exercisable
within 60 days of June 30, 2008.
(10) Includes (i) 1,585,000 shares owned of record by Laird Q. Cagan, (ii)
200,000 shares owned of record by the KQC Trust, of which Mr. Cagan is the
sole trustee, (iii) 426,122 shares that Mr. Cagan currently has the right
to acquire pursuant to warrants, (iv) 95,000 shares out of a total of
190,000 shares that Cagan McAfee Capital Partners, LLC, an entity in which
Mr. Cagan holds a 50% interest and shares voting and dispositive power,
currently has the right to acquire pursuant to warrants, and (v) 126,400
shares of common stock issuable upon the conversion of preferred stock and
the exercise of warrants held by Cagan Capital Private Equity Fund II,
LLC, an entity that Mr. Cagan controls. Excludes the remaining 95,000
shares that Cagan McAfee Capital Partners, LLC has the right to acquire
pursuant to warrants and as to which Mr. Cagan disclaims beneficial
ownership. Mr. Cagan also disclaims beneficial ownership over the shares
held by Cagan Capital Private Equity Fund. Address is c/o Cagan McAfee
Capital Partners, LLC, 10600 N. De Anza Blvd., Suite 250, Cupertino, CA
95014.
98
VERTEX NEVADA
The following table sets forth certain information regarding the
beneficial ownership of Vertex Nevada common stock immediately prior to the
consummation of the merger by (i) each person who owns beneficially more than
five percent of Vertex Nevada's outstanding common stock; (ii) each director and
director nominee of Vertex Nevada, (iii) each executive officer of Vertex
Nevada, and (iv) all of Vertex Nevada's executive officers, directors and
director nominees as a group:
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED (1) CLASS (2)
-------------------------------------------------- ------------------------- --------------
Benjamin P. Cowart, President, Chief Executive
Officer and Chairman (3) 48,536,340(4) 79.87%
Ingram Lee, Treasurer and Director (3) 0(6) -
Chris Carlson, Secretary (3) 2,005,450(7) 3.30%
David Phillips, Director (3) 0(8) -
Dan Borgen, Director (3) 0(8) -
John Pimentel, Director Nominee (6) 0(9) -
All directors, director nominees and executive
officers as a group (6 persons) 50,541,790 83.17%
(1) Shares of common stock subject to options, warrants or other convertible
securities that are currently exercisable or convertible, or exercisable
or convertible within 60 days of June 30, 2008, are deemed to be
outstanding and to be beneficially owned by the person or group holding
such options, warrants or other convertible securities for the purpose of
computing the percentage ownership of such person or group, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
(2) Based on 60,770,000 shares of common stock issued and outstanding.
(3) Address is 1331 Gemini, Suite 103, Houston, Texas 77058.
(4) Includes 550,200 shares of Vertex Nevada common stock owned by VTX, Inc.,
a company owned 100% by Mr. Cowart.
(5) Address is 10600 North De Anzo Blvd., Cupertino, California.
(6) Does not include options to acquire 200,000 shares of Vertex Nevada's
common stock not exercisable within 60 days of June 30, 2008. The options
have an exercise price of $0.12 per share, a grant date of May 16, 2008
and expire if unexercised on the earlier of (a) the tenth anniversary of
the grant date or (b) three months after the termination of the
individual's service to Vertex Nevada. The options vest at the rate of 25%
of the total options per year on each annual anniversary of the grant
date, assuming that the individual is continuing to provide services to
Vertex Nevada on such date. The options also contain a cashless exercise
provision.
(7) Does not include options to acquire 1,400,000 shares of Vertex Nevada's
common stock not exercisable within 60 days of June 30, 2008. The options
have an exercise price of $0.12 per share, a grant date of May 16, 2008
and expire if unexercised on the earlier of (a) the tenth anniversary of
the grant date or (b) three months after the termination of the
individual's employment with Vertex Nevada. The options vest at the rate
of 25% of the total options per year on each annual anniversary of the
grant date, assuming that the individual is employed by Vertex Nevada on
such date. The options also contain a cashless exercise provision.
(8) Does not include options to acquire 200,000 shares of Vertex Nevada's
common stock not exercisable within 60 days of June 30, 2008. The options
have an exercise price of $0.12 per share, a grant date of June 2, 2008
and expire if unexercised on the earlier of (a) the tenth anniversary of
the grant date or (b) three months after the termination of the
individual's service to Vertex Nevada. The options vest at the rate of 25%
of the total options per year on each annual anniversary of the grant
date, assuming that the individual is continuing to provide services to
Vertex Nevada on such date. The options also contain a cashless exercise
provision.
(9) Does not include any shares of Vertex Nevada common stock or options or
warrants to acquire such shares issuable to Mr. Pimentel upon closing of
the merger in exchange for his shares of World Waste common stock and
options and warrants to acquire such shares.
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DESCRIPTION OF VERTEX NEVADA CAPITAL STOCK
COMMON STOCK
The total number of authorized shares of Vertex Nevada common stock is
750,000,000 shares, $0.001 par value per share.
Each share of Vertex Nevada common stock is entitled to equal dividends
and distributions per share with respect to the common stock when, as and if
declared by Vertex Nevada's board of directors. No holder of any shares of
Vertex Nevada common stock has a preemptive right to subscribe for any Vertex
Nevada security, nor are any shares of Vertex Nevada common stock subject to
redemption or convertible into other securities. Upon liquidation, dissolution
or winding-up of Vertex Nevada, and after payment of creditors and preferred
shareholders of Vertex Nevada, if any, the assets of Vertex Nevada will be
divided pro rata on a share-for-share basis among the holders of Vertex Nevada
common stock. Each share of Vertex Nevada common stock is entitled to one vote,
except with respect to the election of directors. Shares of Vertex Nevada common
stock do not possess any rights in respect of cumulative voting.
PREFERRED STOCK
The total number of authorized shares of Vertex Nevada preferred stock is
50,000,000 shares, $0.001 par value per share. The total number of authorized
shares of Vertex Nevada's Series A Convertible Preferred Stock ("VERTEX NEVADA
SERIES A PREFERRED") is 47,250,000. The total number of authorized shares of
Vertex Nevada's Series B Preferred Stock ("VERTEX NEVADA SERIES B PREFERRED") is
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VERTEX NEVADA SERIES A PREFERRED
Outstanding shares of Vertex Nevada Series A Preferred are entitled to
receive dividends, when, as, and if declared by Vertex Nevada's board of
directors. No dividends or similar distributions may be made to shares of
capital stock or securities junior to the Vertex Nevada Series A Preferred until
dividends in the same amount per share on the Vertex Nevada Series A preferred
have been declared and paid. In connection with a liquidation, winding-up,
dissolution or sale of Vertex Nevada, each share of Vertex Nevada Series A
Preferred is entitled to receive $0.149 prior to similar liquidation payments
due on shares of Vertex Nevada common stock or any other class of securities
junior to the Vertex Nevada Series A Preferred. Shares of Vertex Nevada Series A
Preferred are not entitled to participate with the holders of Vertex Nevada
common stock with respect to the distribution of any remaining assets of Vertex
Nevada.
Each share of Vertex Nevada Series A Preferred is entitled to that number
of votes equal to the number of whole shares of Vertex Nevada common stock into
which it is convertible. Generally, holders of Vertex Nevada common stock and
Vertex Nevada Series A Preferred vote together as a single class.
Shares of Vertex Nevada Series A Preferred automatically convert into
shares of Vertex Nevada common stock on the earliest to occur of the following:
o The affirmative vote or written consent of the holders of a majority of
the then-outstanding shares of Vertex Nevada Series A Preferred;
o If the closing market price of Vertex Nevada common stock averages at
least $1.50 per share over a period of 20 consecutive trading days and the
daily trading volume averages at least 75,000 shares over such period;
o If Vertex Nevada consummates an underwritten public offering of its
securities at a price per share not less than $1.00 and for a total gross
offering amount of at least $10 million; or
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o If a sale of Vertex Nevada occurs resulting in proceeds to the holders of
Vertex Nevada Series A Preferred of a per share amount of at least $1.00.
Holders of Vertex Nevada Series A Preferred may not voluntarily convert
their shares into Vertex Nevada common stock for at least one year following the
issuance of the Vertex Nevada Series A Preferred. Thereafter, holders may
convert their shares of Vertex Nevada Series A Preferred subject to the
following conditions:
o At any time following the one-year anniversary of the issuance of Vertex
Nevada Series A Preferred, holders may convert only up to that number of
shares such that, upon conversion, the aggregate beneficial ownership of
Vertex Nevada common stock of any such holder does not exceed 4.99% of
Vertex Nevada's common stock then outstanding; and
o Prior to the three-year anniversary of the issuance of Vertex Nevada
Series A Preferred, no holder may, in any given three-month period,
convert more than that number of shares of Vertex Nevada Series A
Preferred that equals 5% of the total number of shares of Vertex Nevada
Series A Preferred then beneficially owned by such holder.
Each share of Vertex Nevada Series A Preferred converts into one share of
Vertex Nevada common stock, subject to adjustment.
VERTEX NEVADA SERIES B PREFERRED STOCK
Shares of Vertex Nevada Series B Preferred Stock are not entitled to
receive dividends, possess no liquidations rights or preferences in connection
with a liquidation, winding-up, dissolution or sale of Vertex Nevada, and are
not convertible into shares of Vertex Nevada common stock. The shares of Vertex
Nevada Series B Preferred will be automatically redeemed upon the first to occur
of the following:
o The termination or expiration of the employment agreement between Vertex
Nevada and Mr. Cowart, or if Mr. Cowart is no longer employed by Vertex;
o Shares of Vertex Nevada common stock have been approved for listing on a
national securities exchange;
o Shares of Vertex Nevada Series B Preferred are owned by anyone other than
Mr. Cowart; and
o The five-year anniversary of the closing of the merger.
SPECIAL VOTING RIGHTS
The holder of each share of Vertex Nevada Series A Preferred is entitled
to that number of votes equal to the number of whole shares of Vertex Nevada
common stock into which such holder's shares are convertible. In general,
holders of Vertex Nevada common stock and Vertex Nevada Series A Preferred vote
together as a single class. However, so long as at least 50% of the shares of
the Vertex Nevada Series A Preferred originally issued in the merger remain
outstanding, holders of Vertex Nevada Series A Preferred are entitled to elect
one member of Vertex Nevada's five-person board of directors. Any director
elected by holders of shares of Vertex Nevada Series A Preferred may be removed
during such director's term of office, either with or without cause, only by the
affirmative vote of at least 66-2/3% of the then outstanding shares of Vertex
Nevada Series A Preferred.
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The holder of shares of Vertex Nevada Series B Preferred (i.e., Mr.
Cowart) is entitled to elect four members of Vertex Nevada's five-person board
of directors. Any director elected by such holder may be removed during such
director's term of office, either with or without cause, only upon Mr. Cowart's
approval. Similarly, so long as any shares of Vertex Nevada Series B Preferred
are outstanding, Vertex Nevada may not amend its bylaws, articles of
incorporation or Statement of Designations in respect of the Vertex Nevada
Series B Preferred Stock, without Mr. Cowart's approval.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
Section 78.037 of the Nevada Revised Statutes, or NRS, allows a
corporation, through its articles of incorporation, to limit or eliminate the
personal liability of directors and officers to the corporation and its
shareholders for damages for breach of fiduciary duty. However, this provision
excludes any limitation on liability for:
o acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law; or
o the payment of distributions in violation of Section 78.300 of the NRS.
Vertex Nevada's articles of incorporation and bylaws provide that
directors and officers are not personally liable to the corporation or its
shareholders for damages for breach of fiduciary duty. Consistent with Nevada
law, this provision, however, does not eliminate or limit the liability of a
director for acts or omissions not in good faith or which involve intentional
misconduct, fraud, or a knowing violation of law, the payment of dividends in
violation of NRS Section 78.300 or for any receipt of an improper personal
benefit.
Section 78.7502 of the NRS permits a corporation to indemnify any agent of
the corporation who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the corporation), against
expenses, judgments, fines, settlements, and other amounts incurred in
connection with the proceeding. Further, Section 78.7502 of the NRS provides
that a corporation must indemnify directors, officers, employees and agents
against expenses actually and reasonably incurred to the extent the person was
successful on the merits in defending the proceeding. In addition, Section
78.7502 of the NRS permits indemnification against expenses actually and
reasonably incurred in connection with the defense or settlement of the action
by or in the right of the corporation to obtain a judgment in its favor. A
corporation may not provide indemnification for any:
o claim, issue or matter for which the person has been found liable to the
corporation; or
o amounts paid in settlement to the corporation, unless the court determines
that the person is fairly and reasonably entitled to indemnity for the
expenses.
Section 78.751 of the NRS provides that indemnification, unless ordered by
a court, may not be made to or on behalf of any director, officer, employee or
agent if a court establishes that the person's acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and were
material to the proceeding. In the case of a criminal proceeding, the person
must have had no reasonable cause to believe his or her conduct was unlawful.
Section 78.752 of the NRS permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation for any liability and expenses whether or not the
corporation has the authority to indemnify the person for the liability and
expenses. Vertex Nevada's by-laws permit the foregoing indemnification. This
indemnification is allowed only if the person acted in good faith and in a
manner the person believed to be in the best interests of the corporation. The
decision of whether indemnification will be provided must be made by the
shareholders, by the board by a majority vote of a quorum consisting of
directors who are not parties to the proceeding (or a committee thereof), or by
independent legal counsel in a written opinion if ordered by a majority vote of
a quorum of disinterested directors or if a quorum of disinterested directors
cannot be obtained.
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OPTIONS AND WARRANTS
Immediately prior to the merger, Vertex Nevada will have issued and
outstanding warrants to purchase 933,920 shares of its common stock, each at a
nominal exercise price.
Vertex Nevada will also have issued and outstanding an aggregate of
6,000,000 options, all of which will be held by Vertex Nevada's employees,
directors, and consultants at the time of the merger. In addition, in connection
with the merger, certain shareholders of Vertex Nevada immediately prior to the
merger will be issued options and warrants of Vertex Nevada with generally the
same terms and conditions as the World Waste options and warrants being assumed
by Vertex Nevada in the merger, in an amount such that such existing Vertex
Nevada shareholders will hold, immediately upon closing of the merger, 40% of
the total number of outstanding options and warrants of Vertex Nevada (exclusive
of warrants to purchase shares with a nominal exercise price and exclusive of
6,000,000 options referred to above.
REGISTRATION RIGHTS
No shareholder of Vertex Nevada currently has any registration rights with
respect to the shares of Vertex Nevada common stock or preferred stock held by
him or her.
ANTI-TAKEOVER PROVISIONS
BUSINESS COMBINATIONS
Sections 78.411 to 78.444 of the NRS prohibit a Nevada corporation from
engaging in a "combination" with an "interested stockholder" for three years
following the date that such person becomes an interested shareholder and place
certain restrictions on such combinations even after the expiration of the
three-year period. With certain exceptions, an interested stockholder is a
person or group that owns 10% or more of the corporation's outstanding voting
power (including stock with respect to which the person has voting rights and
any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement, or understanding or upon the exercise of conversion or exchange
rights) or is an affiliate or associate of the corporation and was the owner of
10% or more of such voting stock at any time within the previous three years.
A Nevada corporation may elect not to be governed by Sections 78.411 to
78.444 by a provision in its articles of incorporation. Vertex Nevada has such a
provision in its articles of incorporation, as amended, pursuant to which it has
elected to opt out of Sections 78.411 to 78.444; therefore, these sections will
not apply to Vertex Nevada.
CONTROL SHARES
Nevada law also seeks to impede "unfriendly" corporate takeovers by
providing in Sections 78.378 to 78.3793 of the NRS that an "acquiring person"
shall only obtain voting rights in the "control shares" purchased by such person
to the extent approved by the other shareholders at a meeting. With certain
exceptions, an acquiring person is one who acquires or offers to acquire a
"controlling interest" in the corporation, defined as one-fifth or more of the
voting power. Control shares include not only shares acquired or offered to be
acquired in connection with the acquisition of a controlling interest, but also
all shares acquired by the acquiring person within the preceding 90 days. The
statute covers not only the acquiring person but also any persons acting in
association with the acquiring person.
A Nevada corporation may elect to opt out of the provisions of Sections
78.378 to 78.3793 of the NRS. Vertex Nevada has no provision in its articles of
incorporation pursuant to which it has elected to opt out of Sections 78.378 to
78.3793; therefore, these sections will apply to Vertex Nevada.
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STOCK MARKET
Promptly following consummation of the merger, Vertex Nevada intends to
apply to have shares of its common stock quoted on the OTC Bulletin Board
trading platform. There is currently no public market for shares of Vertex
Nevada common stock or preferred stock.
TRANSFER AGENT AND REGISTRAR
Vertex Nevada intends to utilize World Waste's transfer agent following
consummation of the merger. World Waste's transfer agent is Continental Stock
Transfer & Trust.
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COMPARISON OF THE RIGHTS OF WORLD WASTE AND
VERTEX NEVADA SHAREHOLDERS
The rights of Vertex Nevada's shareholders are currently governed by the
General Corporation Law of the State of Nevada, Vertex Nevada's articles of
incorporation, and Vertex Nevada's by-laws. The rights of World Waste's
shareholders are governed by the California General Corporation Law ("CALIFORNIA
LAW"), World Waste's articles of incorporation, and World Waste's by-laws. Upon
consummation of the merger, existing shareholders of World Waste will become
shareholders of Vertex Nevada. As a result, the rights and obligations of the
former World Waste shareholders will be governed by the NRS, Vertex Nevada's
articles of incorporation, and Vertex Nevada's by-laws.
There are differences between the NRS, Vertex Nevada's articles of
incorporation, and Vertex Nevada's by-laws, on the one hand, and California Law,
World Waste's articles of incorporation, and World Waste's by-laws, on the other
hand. We have summarized certain of these differences below. However, the
following is only a summary of certain provisions, and is qualified in its
entirety by reference to the NRS, Vertex Nevada's articles of incorporation, and
Vertex Nevada's by-laws, California Law, World Waste's articles of
incorporation, and World Waste's by-laws.
COMMON STOCK
WORLD WASTE. The total number of authorized shares of capital stock of
World Waste is comprised of 100,000,000 shares of common stock, $0.001 par value
per share, and up to 10,000,000 shares of $0.001 par value preferred stock, of
which 9.1 million have been designated as World Waste Series A preferred stock,
and 500,000 have been designated as World Waste Series B preferred stock.
VERTEX NEVADA. The total number of authorized shares of capital stock of
Vertex Nevada is comprised of 750,000,000 shares of common stock, $0.001 par
value per share, and up to 50,000,000 shares of preferred stock, $0.001 par
value per share of which 47,250,000 shares have been designated as Vertex Nevada
Series A preferred stock.
VOTING RIGHTS
WORLD WASTE. Sections 700 and 708 of California Law permit a corporation
to create series of shares that are entitled to cast more or less than one vote
per share. Each share of World Waste's common stock is entitled to one vote with
respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote.
VERTEX NEVADA. Similarly, Section 78.350 of the NRS allows the
shareholders of a corporation to cast more or less than one vote per share for
any class or series of shares if provided for in the articles of incorporation.
Vertex Nevada's bylaws provide that Vertex Nevada's common stock is entitled to
one vote per share at all meetings of shareholders (although as described below
under "Voting Rights; Board of Directors," so long as any shares of Vertex
Nevada Series B preferred stock are outstanding, the holders of Vertex Nevada
common stock do not have the right to appoint any members of the Vertex Nevada
board of directors).
AMENDMENT TO ARTICLES OF INCORPORATION AND BY-LAWS
WORLD WASTE. Section 902 of California Law provides that, unless otherwise
stated in a corporation's articles of incorporation, an amendment to the
articles of incorporation requires the approval of the corporation's board of
directors and the affirmative vote of a majority of the outstanding shares
entitled to vote on those shares. Amendments to allow for stock splits, unless
the corporation has more than one class of shares outstanding (including a
proportionate increase in the authorized number of shares), do not require
shareholder approval. Unless otherwise provided in the articles of
incorporation, any provision in the articles of incorporation which requires a
greater vote than required by law cannot be amended or repealed except by such
105
greater vote. Section 903 of California Law provides that when the rights of a
class of shares will be affected by an amendment, the holders of those shares
may vote as a class even if the shares are non-voting shares. In addition, when
only one or more series in a class of shares, and not the entire class, will be
adversely affected by an amendment, only the affected shares may vote as a
class. Section 211 of California Law provides that, unless the board of
directors is prohibited by the articles of incorporation, the by-laws, or
Section 212 of California Law, the board or a majority of the outstanding shares
entitled to vote may amend the by-laws. World Waste's by-laws allow the
shareholders, by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, or the board of directors, to amend or
repeal the by-laws.
VERTEX NEVADA. Sections 78.385 and 78.390 of the NRS permit a corporation
to amend its articles of incorporation as long as the amendment contains only
provisions that would be lawful in the original articles of incorporation filed
at the time of amendment. To amend the articles of incorporation, the board must
adopt a resolution presenting the proposed amendment. In addition, a majority of
the shares entitled to vote, as well as a majority of shares by class of each
class entitled to vote, must approve the amendment. When the substantial rights
of a class of shares will be affected by an amendment, the holders of those
shares may vote as a class regardless of any limitations or restrictions on the
voting power of those shares. When only one or more series in a class of shares,
and not the entire class, will be adversely affected by an amendment, only the
affected series may vote as a class. Any provision in the articles of
incorporation which requires a greater vote than required by law cannot be
amended or repealed except by the greater vote. Section 78.120 of the NRS
provides that, subject to the by-laws, the directors may amend the by-laws of
the corporation. Generally, Vertex Nevada's by-laws allow the board of directors
or the shareholders to amend or repeal the by-laws.
BOARD OF DIRECTORS; QUORUM; CUMULATIVE VOTING
WORLD WASTE. Section 212 of California Law allows a corporation's articles
of incorporation or by-laws to determine the number of directors as long as
there will be at least three directors, with certain exceptions. In addition, a
corporation's articles of incorporation or by-laws may provide that the number
of directors may not be less than a stated minimum or more than a stated maximum
with the exact number of directors to be fixed by approval of the board or the
shareholders. The minimum number of directors also may not be less than three,
with certain exceptions. Approval by a majority of the outstanding shares is
needed to change the number of directors or the manner in which the number of
directors may be increased or decreased. World Waste's by-laws provide that the
board will consist of a minimum of four and a maximum of seven members. The
exact number of directors is currently fixed at five members until changed by an
amendment to the by-laws approved by the board or by the shareholders, or by a
board action. The indefinite number of directors may be changed, or a definite
number may be fixed without provision for an indefinite number, by an amendment
of the World Waste articles of incorporation or by-laws adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote. However, an amendment reducing the fixed number or the minimum number of
directors to a number less than five cannot be adopted if the votes cast against
its adoption at a shareholders meeting (or the shares not consenting in the case
of shareholder action by written consent) are equal to more than 16-2/3% of the
shares entitled to vote. In addition, holders of World Waste's Series A
preferred stock currently have the right to elect a majority of the members of
World Waste's board of directors; provided, however, that this right will
terminate upon the first to occur of the Operational Date (generally defined as
the first day of the month immediately following the end of the first
three-month period during which World Waste has generated aggregate earnings of
at least $672,000 for such three-month period) or the date on which less than
50% of the shares of World Waste Series A preferred stock remain outstanding.
Section 301 of California Law allows qualifying corporations to have a
classified board of directors. Section 307 of California Law provides that a
majority of the authorized directors constitutes a quorum unless a different
number is required by the articles of incorporation or the by-laws and provided
that the number not be less than one-third of the authorized number of directors
or less than two, whichever is larger, unless the number of authorized directors
is one, in which case one constitutes a quorum. World Waste's by-laws provide
that a majority of the authorized number of directors constitutes a quorum.
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Section 301.5 of California Law allows a corporation in its articles of
incorporation or its by-laws to eliminate cumulative voting. World Waste's
articles of incorporation provide for cumulative voting.
VERTEX NEVADA. Section 78.115 of the NRS provides that a corporation must
have at least one director. In addition, a corporation may provide in its
articles of incorporation or its by-laws for a fixed or a variable number of
directors within a fixed maximum and minimum number. A corporation may also
provide in its articles of incorporation or its by-laws for the manner in which
the number of directors may be increased or decreased. Vertex Nevada's articles
of incorporation and by-laws provide that the board will consist of a minimum of
one and a maximum of ten members, the exact number as may be determined by the
board or majority of shareholders from time to time. Section 78.330 of the NRS
provides that the articles of incorporation or the by-laws may provide for a
classified board of directors, but at least one-fourth of the directors must be
elected annually.
Section 78.315 of the NRS, as does Vertex Nevada's bylaws, provides that a
majority of the board of directors then in office is necessary to constitute a
quorum, unless otherwise provided in the articles of incorporation or the
by-laws. Further, Section 78.360 of the NRS allows a corporation to provide for
cumulative voting in the articles of incorporation. Vertex Nevada's articles of
incorporation do not provide for cumulative voting.
REMOVAL OF DIRECTORS
WORLD WASTE. Section 303 of California Law provides that any or all of the
directors may be removed without cause if the removal is approved by a majority
of the shares entitled to vote. However, under California Law, unless the entire
board of directors is removed, no single director may be removed if the votes
cast against the removal of the single director would be sufficient to elect
that director if voted cumulatively at an election with the same total number of
votes cast and number of directors authorized at the time of the single
director's most recent election. Section 304 of California Law permits
shareholders holding at least 10% of the outstanding shares in any class to sue
in superior county court to remove any director from office for fraud or
dishonest acts or gross abuse of authority or discretion. Section 302 of
California Law permits the board of directors to declare vacant the office of a
director who has been declared of unsound mind by any order of court or
convicted of a felony.
VERTEX NEVADA. Section 78.335 of the NRS permits directors to be removed
from office by a two-thirds shareholder vote, or by the vote of a larger
percentage of shares if provided in the articles of incorporation. However, if
the corporation's articles provide for cumulative voting to elect directors,
those directors may not be removed other than by a vote of a sufficient number
of shares that would have prevented their election at the time of removal.
Vertex Nevada's bylaws provide that shareholders holding two-thirds of the
outstanding shares entitled to vote at an election of directors may remove any
director or the entire board at any time with or without cause.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
WORLD WASTE. Section 305 of California Law provides that any vacancy on
the board of directors other than one created by removal of a director may be
filled by the board of directors, unless otherwise provided in the articles of
incorporation or by-laws. If the number of directors is less than a quorum, a
vacancy may be filled by the unanimous written consent of the directors, by the
affirmative vote of a majority of the directors or by a sole remaining director.
A vacancy created by removal of a director can only be filled by the
shareholders unless the board is authorized by the articles of incorporation or
by-laws to fill the vacancy. World Waste's by-laws permit vacancies in the board
to be filled by a majority of the remaining directors or by the shareholders.
However, any vacancy in the board created by the removal of a director by the
shareholders may be filled only by election by the shareholders.
107
VERTEX NEVADA. Section 78.335 of the NRS provides that, unless the
articles of incorporation provide otherwise, all vacancies may be filled by a
majority of the remaining directors, even if less than a quorum. In addition, if
a director gives notice of his or her resignation to the board of directors, to
become effective at a future date, the board may fill the vacancy to take effect
when the resignation becomes effective. The appointed director will hold office
during the remainder of the term of office of the resigning director. Vertex
Nevada's bylaws permit vacancies in the board to be filled by a majority of the
remaining directors or by a majority of the shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS
WORLD WASTE. Section 600 of California Law permits a special meeting of
the shareholders to be called by the board of directors, the chairman of the
board, the president, the holders of shares entitled to cast at least 10% of the
votes at the meeting, or any additional persons who are listed in the
corporation's articles of incorporation or by-laws. World Waste's by-laws
provide that special meetings of the shareholders for any purposes listed in the
notice of the meeting may be called by the board of directors, the chairman of
the board, the president of the company, or by one or more shareholders holding
shares in the aggregate entitled to cast not less than ten percent of the votes
at the meeting.
VERTEX NEVADA. Section 78.310 of the NRS provides that meetings may be
held in the manner provided by the by-laws of the corporation. Vertex Nevada's
by-laws provide that special meetings of the shareholders may be called by the
board of directors, the chairman of the board, the president of the company, or
by one or more shareholders holding at least 30% of the votes entitled to be
cast at such special meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
WORLD WASTE. Section 603 of California Law permits, unless otherwise
provided in the articles of incorporation, any action required to be taken or
which may be taken at an annual or special meeting to be taken without a meeting
and without prior notice if a written consent is signed by the holders of
outstanding stock having at least the minimum number of votes required to
authorize the action. If consent is sought from less than all shareholders
entitled to vote, the corporation must give notice. World Waste's bylaws provide
that any action required to be taken or which may be taken at an annual or
special meeting to be taken without a meeting and without prior notice if a
written consent is signed by the holders of outstanding stock having at least
the minimum number of votes required to authorize the action.
VERTEX NEVADA. In contrast, Section 78.320 of the NRS allows, unless
otherwise provided in a corporation's articles of incorporation or by-laws, any
action required or permitted to be taken at a meeting of shareholders to be
taken without a meeting if a written consent is signed by shareholders holding
at least a majority of the voting power, except that if a different proportion
of voting power is required for the action at a meeting, then that proportion of
written consents is required. Vertex Nevada's by-laws permit any action required
to be taken or which may be taken at a shareholder meeting to be taken without a
meeting if a written consent is signed by the holders of outstanding stock
having at least the minimum number of votes required to authorize the action.
TAKEOVERS: STATUTORY PROTECTION
WORLD WASTE. Section 1101 of California Law generally requires that, with
certain exceptions including a merger of a corporation with its subsidiaries of
which the corporation owns at least 90% of the outstanding shares of each class,
the holders of non-redeemable common stock or non-redeemable equity securities
receive non-redeemable common stock in a merger of the corporation where one of
the merging corporations or its parent owns more than 50% of the voting power of
the other merging corporation, unless all of the holders of the class consent to
the merger. Section 1203 of California Law also provides that, except in some
circumstances, when a tender offer or a proposal for a reorganization or a sale
of assets that would require shareholder approval is made by an interested
party, an affirmative opinion in writing as to the fairness of the consideration
108
to be paid to the shareholders must be delivered to shareholders, unless the
target corporation does not have shares held of record by at least 100 persons
or unless the transaction has been qualified under California state securities
laws. In addition, if a tender of shares or vote is sought concerning an
interested party's proposal and a later proposal that would require shareholder
approval is made by another party at least 10 days prior to the date of
acceptance of the interested party proposal, then shareholders must be informed
of the later offer and be given a reasonable opportunity to withdraw any vote,
consent, or proxy, or to withdraw any tendered shares. Section 1203 of
California Law defines an interested party, generally, as a person who:
o controls more than 50% of the votes of the target corporation;
o is an officer or director of the corporation or is controlled by an
officer or director of the corporation; or
o is an entity in which a material financial interest is held by a director
or executive officer of the corporation.
VERTEX NEVADA. Section 78.378 of the NRS provides that the directors of a
corporation may adopt or execute plans, arrangements or instruments that deny
rights, privileges, power or authority to a holder of a specified number of
shares or percentage of share ownership or voting power to protect the interests
of the corporation and its shareholders. Section 78.3792 of the NRS provides
that, under certain circumstances and if provided for in the articles of
incorporation or the by-laws in effect on the tenth day following the
acquisition of at least 20% of the voting power, the corporation may call for
redemption of all the shares that were acquired during the ninety day period
immediately before the date when the acquiring person became an owner of 20% of
the shares. A corporation's call for redemption must be made within 30 days
after the occurrence of certain specified events, and the shares must be
redeemed within 60 days after the call.
Further, Section 78.438 of the NRS prohibits, with certain exceptions, a
corporation from engaging in any combination with any interested shareholder for
three years after the date the interested shareholder acquired the shares unless
the combination or the purchase of shares is approved by the board of directors
before the date when the interested shareholder acquired the shares. Sections
78.439 through 78.444 of the NRS contain provisions restricting the ability of a
corporation to enter into business combinations with an interested shareholder
after the expiration of three years after the date the interested shareholder
acquired the shares. Section 78.423 of the NRS defines an interested
shareholder, generally, as a person who owns 10% or more of the outstanding
shares of the corporation's voting stock.
LIMITATIONS ON DIRECTORS' LIABILITY
WORLD WASTE. Section 309 of California Law provides that a director is not
liable to a corporation or its shareholders if the director acted in good faith,
in a manner that the director believed to be in the best interests of the
corporation and its shareholders, and with a proper duty of care in carrying out
his or her duties as a director. In the carrying out of any duty or power, the
director is entitled to rely on information, opinions, reports or statements
prepared or presented by officers or employees of the corporation, professional
or expert advisors or a board committee on which the director does not serve.
Sections 204 and 309 of California Law provide that a corporation's
articles of incorporation may eliminate or limit the liability of a director for
monetary damages in an action brought by or in the right of the corporation for
breach of a director's duties to the corporation and its shareholders. The
articles may not eliminate director liability for:
o intentional misconduct or knowing and culpable violation of law;
109
o acts or omissions that a director believes are contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
o the receipt of an improper personal benefit;
o acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders where the director in the ordinary
course of performing a director's duties is or should be aware of a risk
of serious injury to the corporation or its shareholders;
o acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abandonment of the director's duty to the corporation and
its shareholders;
o transactions between the corporation and a director in which a director
has a material financial interest; and
o some types of improper distributions.
Section 204 of California Law provides that a director's liability cannot
be eliminated or limited by any provision in the articles of incorporation for
any act or omission occurring prior to the date when the provision became
effective, or eliminate or limit the liability of an officer for any act or
omission as an officer, even if that officer is also a director, and even if his
or her actions, if negligent or improper, have been ratified by the board of
directors. World Waste's articles of incorporation eliminate the liability of
directors for monetary damages to the fullest extent permissible under law.
VERTEX NEVADA. Section 78.037 of the NRS allows a corporation, through its
articles of incorporation, to limit or eliminate the personal liability of
directors and officers to the corporation and its shareholders for damages for
breach of fiduciary duty. However, this provision excludes any limitation on
liability for:
o acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law; or
o the payment of distributions in violation of Section 78.300 of the NRS.
In addition, Section 78.138 of the NRS allows directors and officers of a
corporation to consider a variety of non-shareholder interests in carrying out
their duties to the corporation. Vertex Nevada's articles of incorporation and
bylaws provide that directors and officers are not personally liable to the
corporation or its shareholders for damages for breach of fiduciary duty. This
provision, however, does not eliminate or limit the liability of a director for
acts or omissions not in good faith or which involve intentional misconduct,
fraud, or a knowing violation of law, the payment of dividends in violation of
NRS 78.300 or for any receipt of an improper personal benefit.
INDEMNIFICATION
WORLD WASTE. Section 317 of California Law allows a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of the corporation to
obtain a judgment in its favor) because the person is or was an agent of the
corporation, against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with the proceeding. A
corporation must indemnify an agent against expenses actually and reasonably
incurred to the extent the agent was successful on the merits in defending the
proceeding. A corporation may also indemnify the person against expenses
actually and reasonably incurred by that person in connection with the defense
or settlement of the action by or in the right of the corporation to obtain a
judgment in its favor. This indemnification is allowed only if the person acted
in good faith and in a manner the person believed to be in the best interests of
the corporation and its shareholders. A corporation may advance expenses
incurred in defending any proceeding prior to the final disposition of the
proceeding if the corporation receives an undertaking by or on behalf of the
agent to repay that amount if it is ultimately determined that the agent is not
entitled to be indemnified.
110
Under California Law, however, a corporation may not provide
indemnification for:
o any claim, issue or matter for which the person has been found liable to
the corporation in the performance of that person's duty to the
corporation and its shareholders, unless the court determines that the
person is fairly and reasonably entitled to indemnification; or
o any amounts paid in settling or expense incurred in defending a pending
action that was concluded without court approval.
Under California Law and World Waste's bylaws, World Waste may obtain and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation for any liability asserted against him or
her, whether or not the corporation has the power to indemnify him or her
against liability under California Law. World Waste's articles of incorporation
permit the corporation through its bylaws, agreements with agents, vote of
shareholders or disinterested directors, or otherwise to provide for
indemnification in excess of the indemnification provided by law. They also
provide that the indemnification provisions in the bylaws are not exclusive of
any other rights to which a person seeking indemnification may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise. In addition, indemnification is not allowed under World Waste's
bylaws if it would be inconsistent with:
o a resolution of the shareholders;
o the company's articles of incorporation or bylaws;
o an agreement in effect at the time of the cause of action; or
o any condition expressly imposed by a court in approving a settlement.
VERTEX NEVADA. Section 78.7502 of the NRS permits a corporation to
indemnify any agent of the corporation who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
the corporation), against expenses, judgments, fines, settlements, and other
amounts incurred in connection with the proceeding.
Section 78.7502 of the NRS provides that a corporation must indemnify
directors, officers, employees and agents against expenses actually and
reasonably incurred to the extent the person was successful on the merits in
defending the proceeding. Section 75.751 of the NRS permits a corporation to pay
expenses in advance of the final disposition of the action, suit, or proceeding
if the corporation receives an undertaking by or on behalf of the director,
officer, employee or agent to repay the amount if it is ultimately determined
that such individual is not entitled to be indemnified. In addition, Section
78.7502 of the NRS permits indemnification against expenses actually and
reasonably incurred in connection with the defense or settlement of the action
by or in the right of the corporation to obtain a judgment in its favor. A
corporation may not provide indemnification for any:
o claim, issue or matter for which the person has been found liable to the
corporation; or
o amounts paid in settlement to the corporation, unless the court determines
that the person is fairly and reasonably entitled to indemnity for the
expenses.
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Section 78.751 of the NRS provides that indemnification, unless ordered by
a court, may not be made to or on behalf of any director, officer, employee or
agent if a court establishes that the person's acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was material
to the proceeding. In the case of a criminal proceeding, the person must have
had no reasonable cause to believe his or her conduct was unlawful. Section
78.752 of the NRS permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation for any liability and expenses whether or not the corporation has
the authority to indemnify the person for the liability and expenses. Vertex
Nevada's by-laws permit the foregoing indemnification. This indemnification is
allowed only if the person acted in good faith and in a manner the person
believed to be in the best interests of the corporation. The decision of whether
indemnification will be provided must be made by the shareholders, by the board
by a majority vote of a quorum consisting of directors who are not parties to
the proceeding (or a committee thereof), or by independent legal counsel in a
written opinion if ordered by a majority vote of a quorum of disinterested
directors or if a quorum of disinterested directors cannot be obtained.
OTHER MATTERS
Holders of World Waste and Vertex Nevada common stock are each entitled to
equal dividends and distributions per share with respect to the common stock
when, as and if declared by their respective board of directors from funds
legally available therefore. No holder of any shares of World Waste or Vertex
Nevada common stock has a preemptive right to subscribe for any of their
respective securities, nor are any of the respective common shares subject to
redemption or convertible into other securities. Upon liquidation, dissolution
or winding-up of either corporation, and after payment of creditors and
preferred stockholders, if any, the assets will be divided pro rata on a
share-for-share basis among their respective common stockholders.
PREFERRED STOCK
WORLD WASTE. The total number of authorized shares of World Waste's 8%
Series A Cumulative Redeemable Convertible Participating Preferred Stock is 9.1
million (the "WORLD WASTE SERIES A PREFERRED"). The total number of authorized
shares of World Waste's 8% Series B Cumulative Redeemable Convertible
Participating Preferred Stock is 500,000 (the "WORLD WASTE SERIES B PREFERRED").
VERTEX NEVADA. The total number of authorized shares of Vertex Nevada's
Series A Convertible Preferred Stock is 47,250,000 (the "VERTEX NEVADA SERIES A
PREFERRED"). The total number of authorized shares of Vertex Nevada's Series B
Preferred Stock is 100 (the "VERTEX NEVADA SERIES B PREFERRED").
DIVIDENDS
WORLD WASTE. Holders of the World Waste Series A Preferred are currently
entitled to receive cumulative dividends, payable quarterly in additional shares
of World Waste Series A Preferred, at the rate of 8% per annum. Holders of the
World Waste Series B Preferred are entitled to receive cumulative dividends,
payable quarterly in additional shares of World Waste Series B Preferred, at the
rate of 8% per annum. Shares of both the World Waste Series A Preferred and
World Waste Series B Preferred are entitled to fully participate in any
dividends paid to the holders of World Waste common stock on a common stock
equivalent basis.
VERTEX NEVADA. Holders of shares of Vertex Nevada Series A Preferred are
entitled to receive dividends, when, as, and if declared by Vertex Nevada's
board of directors. Further, no dividends or similar distributions are permitted
to be made with respect to any shares of capital stock or securities junior to
the Vertex Nevada Series A Preferred until dividends in the same amount per
share on the Vertex Nevada Series A Preferred have been declared and paid.
Holders of Vertex Nevada Series B Preferred are not entitled to receive
dividends.
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LIQUIDATION RIGHTS
WORLD WASTE. Upon the sale, liquidation, dissolution or winding-up of
World Waste, the holder of each share of World Waste Series A Preferred and
World Waste Series B Preferred is entitled to receive $2.50 per share and $100
per share, respectively (in each case plus accrued but unpaid dividends), prior
to any liquidation payment on World Waste's common stock or any other class of
preferred stock junior to the World Waste Series A or Series B Preferred. In
addition to the foregoing liquidation preference, holders of World Waste Series
A and Series B Preferred are entitled to participate fully with the holders of
World Waste common stock on a common stock equivalent basis with respect to the
distribution of any remaining assets.
VERTEX NEVADA. Upon the sale, liquidation, winding-up, or dissolution of
Vertex Nevada, the holder of each share of Vertex Nevada Series A Preferred is
entitled to receive $0.149 per share prior to any liquidation payment due on
shares of Vertex Nevada common stock or any other class of securities junior to
the Vertex Nevada Series A Preferred. Shares of Vertex Nevada Series A Preferred
are not entitled to participate with the holders of Vertex Nevada common stock
with respect to the distribution of any remaining assets of Vertex Nevada.
Holders of shares of Vertex Nevada Series B Preferred do not have
preferences or rights upon a liquidation, winding-up, dissolution or sale of
Vertex Nevada.
VOTING RIGHTS; BOARD OF DIRECTORS
WORLD WASTE. Holders of shares of World Waste Series A Preferred are
entitled to that number of votes equal to the number of whole shares of World
Waste common stock into which their shares of World Waste Series A Preferred are
convertible. In addition, so long as at least 50% of the shares of the World
Waste Series A Preferred remain outstanding (but prior to the Operational Date,
as defined below), World Waste is prohibited from taking certain actions without
the approval of the holders of a majority of the outstanding shares of World
Waste Series A Preferred, including, among other things, a sale of all or
substantially all of its assets, the making of certain restricted payments, the
incurrence of indebtedness (subject to certain exceptions), or a change in its
principal business.
Holders of shares of World Waste Series B Preferred are entitled to that
number of votes equal to the number of whole shares of World Waste common stock
into which their shares are convertible. Except as provided by law, or as
described below with respect to the election of directors, holders of World
Waste common stock, World Waste Series A Preferred and World Waste Series B
Preferred otherwise vote together as a single class.
Holders of World Waste Series A Preferred currently have the right to
elect a majority of the members of World Waste's board of directors. This right
will terminate, however, on the earlier to occur of the Operational Date or the
date on which less than 50% of the shares of World Waste Series A Preferred
remain outstanding.
VERTEX NEVADA. The holder of each share of Vertex Nevada Series A
Preferred is entitled to that number of votes equal to the number of whole
shares of Vertex Nevada common stock into which its shares are convertible.
Except as otherwise noted, holders of Vertex Nevada common stock and Vertex
Nevada Series A Preferred vote together as a single class.
In addition, so long as at least 50% of the shares of the Vertex Nevada
Series A Preferred originally issued remain outstanding, holders of Vertex
Nevada Series A Preferred are entitled to elect one of Vertex Nevada's
five-person board of directors. Any director elected by the holders of shares of
Vertex Nevada Series A Preferred may be removed during such director's term of
office, either with or without cause, only by an affirmative vote of at least
66-2/3% of the then outstanding shares of Vertex Nevada Series A Preferred.
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So long as shares of Vertex Nevada Series B Preferred remain outstanding,
holders of Vertex Nevada Series B Preferred, voting as a separate class, are
entitled to elect four of Vertex Nevada's five-person board of directors. Any
director elected by the holders of shares of Vertex Nevada Series B Preferred
may be removed during such director's term of office, either with or without
cause, only by an affirmative vote of at least 66-2/3% of the then outstanding
shares of Vertex Nevada Series B Preferred. Similarly, so long as any shares of
Vertex Nevada Series B Preferred are outstanding, Vertex Nevada may not amend
its bylaws, articles of incorporation or amend the Statement of Designations in
respect of the Vertex Nevada Series B Preferred Stock, without the affirmative
vote of at least 66-2/3% of the then outstanding shares of Vertex Nevada Series
B Preferred.
REDEMPTION
WORLD WASTE. Holders of a majority of shares of World Waste Series A
Preferred have the option to require World Waste to redeem all such outstanding
shares on the five-year anniversary of issuance (the "REDEMPTION DATE") at a
price of $2.50 per share (plus accrued and unpaid dividends). If the holders do
not exercise this redemption right, all shares of World Waste Series A Preferred
will automatically convert into shares of World Waste common stock on the
redemption date.
Holders of a majority of shares of World Waste Series B Preferred have the
option to require World Waste to redeem all such outstanding shares, on the
redemption date at a redemption price equal to $100.00 per share, (plus accrued
and unpaid dividends). If the holders do not exercise this redemption right, all
shares of World Waste Series B Preferred will automatically convert into shares
of World Waste common stock on the redemption date.
VERTEX NEVADA. Holders of shares of Vertex Nevada Series A Preferred do
not have the right to require Vertex Nevada to redeem such shares. Vertex Nevada
is obligated to redeem all outstanding shares of Vertex Nevada Series B
Preferred at a redemption price of $0.001 per share upon the first to occur of
the following:
o The termination or expiration of the employment agreement between Vertex
Nevada and Benjamin P. Cowart, or if Mr. Cowart is no longer employed by
Vertex Nevada;
o Shares of Vertex Nevada common stock have been approved for listing on a
national securities exchange;
o Shares of Vertex Nevada Series B Preferred are owned by anyone other than
Mr. Cowart; and
o the five year anniversary of the closing of the merger.
MANDATORY CONVERSION
WORLD WASTE. Each share of World Waste Series A Preferred will
automatically convert into shares of World Waste common stock if:
o World Waste consummates an underwritten public offering of its securities
at a price per share not less than $5.00 and for a total gross offering
amount of at least $10 million;
o a sale of World Waste occurs resulting in proceeds to the holders of World
Waste Series A Preferred of a per share amount of at least $5.00;
o the closing market price of World Waste common stock averages at least
$7.50 per share over a period of 20 consecutive trading days and the daily
trading volume averages at least 75,000 shares over such period;
114
o a majority of the then-outstanding shares of World Waste Series A
Preferred approve such conversion; or
o the holders of a majority of shares of World Waste Series A Preferred do
not require that World Waste redeem such shares on the redemption date.
Each share of World Waste Series B Preferred will automatically convert
into shares of World Waste common stock if:
o World Waste consummates an underwritten public offering of its securities
at a price per share not less than $5.00 and for a total gross offering
amount of at least $10 million;
o a sale of World Waste occurs resulting in proceeds to the holders of World
Waste Series B Preferred of a per share amount of at least $200.00;
o the closing market price of World Waste common stock averages at least
$7.50 per share over a period of 20 consecutive trading days and the daily
trading volume averages at least 75,000 shares over such period;
o a majority of the then-outstanding shares of World Waste Series B
Preferred approve such conversion; or
o the holders of a majority of shares of World Waste Series B Preferred do
not require that World Waste redeem such shares on the redemption date.
VERTEX NEVADA. Each share of Vertex Nevada Series A Preferred will
automatically convert into shares of Vertex Nevada common stock if:
o A majority of the then-outstanding shares of Vertex Nevada Series A
Preferred approve such conversion;
o The closing market price of Vertex Nevada common stock averages at least
$1.50 per share over a period of 20 consecutive trading days and the daily
trading volume averages at least 75,000 shares over such period;
o Vertex Nevada consummates an underwritten public offering of its
securities at a price per share not less than $1.00 and for a total gross
offering amount of at least $10 million; or
o A sale of Vertex Nevada occurs resulting in proceeds to the holders of
Vertex Nevada Series A Preferred of a per share amount of at least $1.00.
Shares of Vertex Nevada Series B Preferred do not have conversion rights.
OPTIONAL CONVERSION
WORLD WASTE. Holders of World Waste Series A and B Preferred have the
right to convert their shares into shares of World Waste common stock at any
time, provided, however, that a holder may convert only up to that number of
shares such that, upon conversion, the aggregate beneficial ownership of World
Waste common stock of such holder does not exceed 4.99% of World Waste common
stock then outstanding.
VERTEX NEVADA. Commencing on the one-year anniversary of the issuance of
Vertex Nevada Series A Preferred, and at any time thereafter, each holder of
Vertex Nevada Series A Preferred may convert such shares into shares of Vertex
Nevada common stock, subject to the foregoing:
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o At any time following the one-year anniversary of the issuance of Vertex
Nevada Series A Preferred, convert only up to that number of shares such
that, upon conversion, the aggregate beneficial ownership of Vertex Nevada
common stock by such holder does not exceed 4.99% of Vertex Nevada's
common stock then outstanding; and
o Prior to the three-year anniversary of the issuance of Vertex Nevada
Series A Preferred, no holder may, in any given three-month period,
convert more than that number of shares of Vertex Nevada Series A
Preferred that equals 5% of the total number of shares of Vertex Nevada
Series A Preferred then beneficially owned by such holder.
CONVERSION RATE
WORLD WASTE. Each share of World Waste Series A Preferred currently
converts into approximately 1.18 shares of World Waste common stock. Each share
of World Waste Series B Preferred currently converts into 40 shares of World
Waste common stock.
VERTEX NEVADA. Each share of Vertex Nevada Series A Preferred converts
into one share of Vertex Nevada common stock.
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SUBMISSION OF SHAREHOLDER PROPOSALS
The 2008 annual meeting of shareholders of World Waste will be held only
if the merger is not completed. If the 2008 annual meeting is held, shareholders
interested in submitting a proposal for inclusion in World Waste's proxy
statement for the 2008 annual meeting of shareholders may do so by following the
procedures prescribed in SEC Rule 14a-8. In accordance with the SEC's rules,
World Waste must receive proposals of shareholders intended to be presented at
the 2008 meeting of shareholders at its principal executive offices not later
than [__________], 2008 for inclusion in its proxy statement and form of proxy
relating to the annual meeting, and the proposals must otherwise comply with the
requirements of Rule 14a-8. Notice of shareholder proposals submitted outside of
SEC Rule 14a-8 will be considered untimely if received by World Waste after
[__________], 2008.
All notices of proposals by shareholders, whether or not to be included in
World Waste's proxy materials, should be sent to World Waste Technologies, Inc.,
10600 North De Anza Boulevard, Suite 250, Cupertino, California 95014,
Attention: Chief Executive Officer.
OTHER MATTERS
OTHER BUSINESS AT THE SPECIAL MEETING
Management of World Waste is not aware of any matters to be presented for
action at the special meeting other than those set forth in this proxy
statement. However, should any other business properly come before the special
meeting, or any adjournment of the meeting, the enclosed proxy confers upon the
persons entitled to vote the shares represented by such proxy discretionary
authority to vote the same in respect of any such other business in accordance
with their best judgment in the interest of World Waste.
MULTIPLE SHAREHOLDERS WITH ONE ADDRESS
To minimize our expenses, one proxy statement will be delivered to two or
more shareholders who share an address unless we have received contrary
instructions from one or more of the shareholders. We will deliver promptly upon
written or oral request a separate copy of the proxy statement to a shareholder
at a shared address to which a single copy of the proxy statement was delivered.
Requests for additional copies of the proxy statement, and requests that in the
future separate documents be sent to shareholders who share an address, should
be directed by writing to World Waste Technologies, Inc., 10600 North De Anza
Boulevard, Suite 250, Cupertino, California 95014, Attention: Chief Executive
Officer, or by calling John Pimentel, our Chief Executive Officer, at (858)
391-3400. In addition, shareholders who share a single address but receive
multiple copies of the proxy statement may request that in the future they
receive a single copy by contacting us at the address and phone number set forth
in the prior sentence.
WHERE YOU CAN FIND MORE INFORMATION
World Waste files annual, quarterly, and current reports, proxy
statements, and other information with the SEC. You may read and copy any
reports, proxy statements, or other information that we file with the SEC at the
Public Reference Room of the SEC at 100 F Street, N.E., Room 1580, Washington,
D.C. 20549. You may obtain information on the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. Our filings with the SEC
are also available at the Internet website maintained by the SEC at
http://www.sec.gov.
Any person, including any beneficial owner, to whom this proxy statement
is delivered may request copies of our SEC filings, without charge, by writing
to World Waste Technologies, Inc., 10600 North De Anza Boulevard, Suite 250,
Cupertino, California 95014, Attention: Chief Executive Officer, or by calling
John Pimentel, our Chief Executive Officer, at (858) 391-3400. If you would like
to request documents, please do so by [___________], 2008, in order to receive
them before the special meeting.
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WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION, OR TO MAKE ANY
REPRESENTATION, REGARDING THE MERGER AGREEMENT, THE SPECIAL MEETING, OR RELATED
MATTERS, THAT IS DIFFERENT FROM THAT CONTAINED IN THIS PROXY STATEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON BY YOU
AS HAVING BEEN AUTHORIZED BY US. THE INFORMATION IN THIS PROXY STATEMENT SPEAKS
ONLY AS OF THE DATE OF THIS PROXY STATEMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES. WORLD WASTE HAS SUPPLIED ALL
INFORMATION IN THIS PROXY STATEMENT RELATING TO WORLD WASTE. VERTEX LP AND
VERTEX NEVADA HAVE SUPPLIED ALL INFORMATION IN THIS PROXY STATEMENT RELATING TO
THOSE TWO ENTITIES.
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INDEX TO FINANCIAL STATEMENTS
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
Report of Independent Registered Public Accounting Firm.................................................. F-2
Balance Sheets - December 31, 2007 and December 31, 2006................................................. F-3
Statements of Operations and Partners' Capital for the years ended December 31, 2007, 2006 and
2005................................................................................................ F-4
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005............................ F-5
Notes to Financial Statement as of December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005....................................................................................... F-6-F-12
Balance Sheets - June 30, 2008 (unaudited) and December 31, 2007......................................... F-13
Statements of Operations and Partners' Capital for the three and six months ended June 30, 2008 and 2007
(unaudited)......................................................................................... F-14
Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)..................... F-15
Notes to Interim Financial Statements for the six months ended June 30, 2008 and June 30, 2007
(unaudited).......................................................................................... F-16-F-20
VERTEX ENERGY, INC.
Balance Sheet - June 30, 2008 (unaudited)................................................................ F-21
Statement of Operations for the period from inception (May 14, 2008) through June 30, 2008
(unaudited).......................................................................................... F-22
Statement of Stockholders' Equity for the period from inception (May 14, 2008) through June 30, 2008
(unaudited).......................................................................................... F-23
Statement of Cash Flows for the period from inception (May 14, 2008) through June 30, 2008
(unaudited).......................................................................................... F-24
Notes to Interim Financial Statements as of June 30, 2008 and for the period from inception
(May 14, 2008) through June 30, 2008 (unaudited)..................................................... F-25-F-26
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Combined Financial Information....................................... F-27
Unaudited Pro Forma Combined Balance Sheet at June 30, 2008.............................................. F-29
Unaudited Pro Forma Combined Statement of Operations for the six months ended June 30, 2008.............. F-31-F-32
Notes to Unaudited Pro Forma Combined Financial Statements as of June 30, 2008 and for the six
months ended June 30, 2008........................................................................... F-24
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Vertex Energy, L.P.
Houston, Texas
We have audited the accompanying balance sheets of Vertex Energy, L.P.
(certain assets, liabilities and operations related to a significant customer
and certain assets, liabilities and operations of the refining division) as of
December 31, 2007 and 2006, and the related statements of operations and
partners' capital, and cash flows for each of the years in the three-year period
ended December 31, 2007. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Vertex Energy, L.P.
(certain assets, liabilities and operations related to a significant customer
and certain assets, liabilities and operations of the refining division) as of
December 31, 2007 and 2006, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
/S/ LBB & Associates Ltd., LLP
Houston, Texas
July 28, 2008
F-2
VERTEX ENERGY, L.P.
(certain assets, liabilities and operations related to a significant customer
and certain assets, liabilities and operations of the refining division)
BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
2007 2006
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 52,650 $ 102,063
Accounts receivable, net 1,641,267 2,051,116
Accounts receivable - related parties 768,993 409,925
Inventory 2,181,376 893,644
Prepaid expenses 645,775 149,290
----------- -----------
Total current assets 5,290,061 3,606,038
----------- -----------
Total assets $ 5,290,061 $ 3,606,038
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 2,920,045 $ 2,001,864
Accounts payable - related parties 1,089,902 424,404
Other current liabilities -- 161,934
----------- -----------
Total current liabilities 4,009,947 2,588,202
Line of credit -- 1,145,422
----------- -----------
Total liabilities 4,009,947 3,733,624
----------- -----------
Commitments and contingencies
Partners' capital 1,280,114 (127,586)
----------- -----------
Total liabilities and partners' capital $ 5,290,061 $ 3,606,038
=========== ===========
See accompanying notes to the financial statements.
F-3
VERTEX ENERGY, L.P.
(certain assets, liabilities and operations related to a significant customer
and certain assets, liabilities and operations of the refining division)
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
2007 2006 2005
------------ ------------ ------------
Revenues $ 39,842,940 $ 33,595,396 $ 20,122,621
Revenues - related parties 2,181,559 2,917,222 6,769,099
------------ ------------ ------------
Total revenues 42,024,499 36,512,618 26,891,720
Cost of revenues 38,824,591 35,102,408 25,610,392
------------ ------------ ------------
Gross profit 3,199,908 1,410,210 1,281,328
Selling, general, and administrative expenses 968,563 710,215 819,153
------------ ------------ ------------
Income from operations 2,231,345 699,995 462,175
------------ ------------ ------------
Other income (expense)
Other income (expense) -- (132,674) (347,081)
Interest income (expense) -- (68,767) (56,381)
------------ ------------ ------------
Net other income (expense) -- (201,441) (403,462)
------------ ------------ ------------
Net income 2,231,345 498,554 58,713
Beginning partners' capital (127,586) (121,940) 121,861
Current year distributions (823,645) (504,200) (302,514)
------------ ------------ ------------
Ending partners' capital $ 1,280,114 $ (127,586) $ (121,940)
============ ============ ============
See accompanying notes to the financial statements.
F-4
VERTEX ENERGY, L.P.
(certain assets, liabilities and operations related to a significant customer
and certain assets, liabilities and operations of the refining division)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
2007 2006 2005
----------- ----------- -----------
Cash flows from operating activities
Net income $ 2,231,345 $ 498,554 $ 58,713
Adjustments to reconcile net income to cash
provided by operating activities
Changes in assets and liabilities
Accounts receivable 409,849 (906,046) (322,449)
Accounts receivable - related parties (359,068) (300,546) (48,091)
Inventory (1,287,732) (785,608) 117,241
Prepaid expenses (496,485) (140,943) 34,750
Accounts payable 918,181 652,530 234,093
Accounts payable - related parties 665,498 211,012 120,537
Other current liabilities (161,934) 161,934 --
----------- ----------- -----------
Net cash provided (used) by operating activities 1,919,654 (609,113) 194,794
----------- ----------- -----------
Cash flows from financing activities
Net proceeds (payments) from line of credit (1,145,422) 1,145,422 --
Distributions to limited partners (823,645) (504,200) (302,514)
----------- ----------- -----------
Net cash provided (used) by financing activities (1,969,067) 641,222 (302,514)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (49,413) 32,109 (107,720)
Cash and cash equivalents at beginning of year 102,063 69,954 177,674
----------- ----------- -----------
Cash and cash equivalents at end of year $ 52,650 $ 102,063 $ 69,954
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest paid during year $ 65,052 $ 31,291 $ 56,381
=========== =========== ===========
See accompanying notes to the financial statements.
F-5
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex Energy, L.P. (certain assets, liabilities and operations related
to a significant customer and certain assets, liabilities of the refining
division) or "Vertex LP" or "Company" provides a range of services designed to
aggregate, process and recycle industrial and commercial waste streams. Vertex
LP currently provides these services in 13 states, with its primary focus in the
Gulf Coast region. As described in more detail in Note 8 "Subsequent Events," in
May 2008, Vertex LP, Vertex Energy, Inc., Vertex Merger Sub, LLC and Benjamin P.
Cowart, an individual (collectively "the Partnership"), entered into an
agreement and plan of merger with World Waste Technologies, Inc. ("World
Waste"). Pursuant to this agreement, the Partnership agreed to transfer (the
"Transfer") a specifically defined portion of its operations (referred to as the
"Vertex Nevada Business") to Vertex Energy, Inc. ("Vertex Nevada"). Vertex
Nevada was formed to engage in the transactions contemplated by the merger
agreement, and has not engaged in any business activities other than activities
incidental to its formation and the transactions contemplated by the merger
agreement.
These financial statements have been prepared to reflect:
(a) carve-out of a specific Vertex Energy, L.P. customer and its
associated assets, liabilities and operations, and
(b) certain assets, liabilities and operations of Vertex Energy,
L.P.'s refining division
The financial statements are intended to reflect the historical Vertex
LP business operations, and the information presented herein has been carved-out
from the historical accounting records of Vertex Energy, L.P. The results of
operations presented are not necessarily indicative of the operating results of
Vertex Energy, Inc. for any future period.
COMPANY OPERATIONS
Vertex LP's operations are primarily focused on recycle/reuse options
for petroleum products, crudes, used lubricants and distillate petroleum
products. This focus includes the aggregation, processing and refining of these
used petroleum materials into viable commodity products. Vertex LP's two
principal divisions are comprised of Black Oil and Refining and Marketing.
Black Oil
Through its Black Oil division, which has been operational since 2001,
Vertex LP recycles used motor oil by purchasing it from a network of local and
regional collectors with which Vertex LP has existing relationships,
consolidating it for efficient delivery, and selling it to third-party
re-refiners. Historically, substantially all of the feedstock that is gathered
from these collectors has been transported by truck, rail, or barge to a
third-party re-refinery in Marrero, Louisiana. This re-refinery purchases Vertex
LP's feedstock pursuant to a contract with Vertex LP. The re-refinery then
upgrades and sells the product for its own account.
Refining and Marketing
Through its Refining and Marketing division, which has been operational
since 2004, Vertex LP recycles hydrocarbon streams by (1) purchasing and
aggregating these streams from collectors and generators, (2) managing the
delivery of these streams to a third-party facility for processing into
end-products and (3) managing the sale of the end-products. Vertex LP gathers
hydrocarbon streams in the form of petroleum distillates, transmix and other
F-6
chemical products that have become off-specification during the transportation
or refining process. These feedstock streams are purchased from pipeline
operators, refineries, chemical processing facilities and third-party providers,
processed on Vertex LP's behalf by a third-party facility, and then resold by
Vertex LP. The end products are typically three distillate petroleum streams
(gasoline blendstock, fuel oil cutterstock and marine diesel oil), which are
sold to major oil companies or to large petroleum trading and blending
companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments purchased with original maturities of three months or
less to be cash equivalents.
Accounts receivable
Accounts receivable represents amounts due from customers. Accounts
receivable are recorded at invoiced amounts, net of reserves and allowances, and
do not bear interest. The Company uses its best estimate to determine the
required allowance for doubtful accounts based on a variety of factors,
including the length of time receivables are past due, economic trends and
conditions affecting its customer base, significant one-time events and
historical write-off experience. Specific provisions are recorded for individual
receivables when the Company becomes aware of a customer's inability to meet its
financial obligations. The Company reviews the adequacy of the reserves and
allowances quarterly.
Receivable balances greater than 30 days past due are individually
reviewed for collectibility, and if deemed uncollectible, are charged off
against the allowance accounts after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have
any significant off balance sheet credit exposure related to its customers. The
allowance was $0 at December 31, 2007 and 2006.
Inventory
Inventories of products consist of feedstocks and refined petroleum
products and are reported at the lower of cost or market.
Income taxes
The historical operations of the Company were conducted under a
partnership structure and the associated income or loss passed directly through
to the partners. Pro forma income taxes of the Company for the years ended
December 31, 2007, 2006, and 2005 would have been approximately $750,000,
$170,000, and $20,000 if not passed through to the Partners.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Accounting for
Comprehensive Income," requires that enterprises report comprehensive income.
For the years ended December 31, 2007 and 2006, there were no differences
between net income and comprehensive income.
Revenue recognition
Revenue for each of the Company's divisions is recognized when
persuasive evidence of an arrangement exists, goods are delivered, sales price
is determinable, and collection is reasonably assured.
F-7
Fair value of financial instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and debt. The carrying
amount of cash and cash equivalents, accounts receivable, and accounts payable
approximate their fair value due to the short-term nature of such instruments.
The carrying value of debt approximates fair value, since the interest rates are
market based and are adjusted periodically.
Use of estimates
These financial statements were prepared in accordance with accounting
principles generally accepted in the United States. Certain amounts included in
or affecting the financial statements and related disclosures must be estimated
by management, requiring certain assumptions with respect to values or
conditions which cannot be known with certainty at the time the financial
statements are prepared. These estimates and assumptions affect the amounts
reported for assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. Any effects on the
business, financial position or results of operations from revisions to these
estimates are recorded in the period in which the facts that give rise to the
revision become known.
Recently issued accounting pronouncements
SFAS NO. 157
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, or SFAS No. 157. SFAS No. 157 clarifies the principle that fair
value should be based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. Under this
statement, fair value measurements are required to be separately disclosed, by
level, within the fair value hierarchy. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. In February 2008, the FASB issued FSP
157-2, which amends SFAS No. 157 to delay the effective date of SFAS No. 157 for
all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. In February 2008, the FASB also issued FSP 157-1,
that would exclude leasing transactions accounted for under SFAS No. 13,
Accounting for Leases, and its related interpretive accounting pronouncements.
The Company is currently evaluating the impact of SFAS No. 157, but does not
expect its adoption to have a material impact on its financial statements.
F-8
SFAS NO. 158
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans--an amendment of FASB
Statements No. 87, 88, 106 and 132R, or SFAS No. 158. SFAS No. 158 requires that
the funded status of defined benefit postretirement plans be recognized on a
company's balance sheet, and changes in the funded status be reflected in
comprehensive income. For companies without publicly traded equity securities,
SFAS No. 158 is effective for fiscal years ending after June 15, 2007. This
provision of SFAS No. 158 had no impact on us. SFAS No. 158 also requires
companies to measure the funded status of the plan as of the date of its fiscal
year-end, effective for fiscal years ending after December 15, 2008. The Company
is currently evaluating the impact of the remaining provisions of SFAS No. 158,
but does not expect its adoption to have a material impact on its financial
statements.
SFAS NO. 159
In February 2007, the FASB issued Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115, or SFAS No. 159. SFAS No. 159 permits companies to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. SFAS No. 159 is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
The Company is currently evaluating the impact of SFAS No. 159, but does not
expect its adoption to have a material impact on its financial statements.
SFAS NO. 141R
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R requires the acquiring entity in a
business combination to recognize the full fair value of assets acquired and
liabilities assumed in the transaction whether full or partial acquisition,
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed, requires expensing of most transaction
and restructuring costs, and requires the acquirer to disclose all information
needed to evaluate and understand the nature and financial effect of the
business combination. SFAS No. 141R applies to all transactions or other events
in which an entity obtains control of one or more businesses. SFAS No. 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first fiscal year beginning after December 15,
2008. The Company is currently evaluating the impact SFAS No. 141R may have on
its financial statements.
SFAS NO. 160
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements--An Amendment of ARB No. 51, or
SFAS No. 160. SFAS No. 160 requires reporting entities to present noncontrolling
(minority) interests as equity as opposed to a liability or mezzanine equity and
provides guidance on the accounting for transactions between an entity and
noncontrolling interests. SFAS No. 160 is effective the first fiscal year
beginning after December 15, 2008, and interim periods within that fiscal year.
SFAS No. 160 applies prospectively as of the beginning of the fiscal year it is
initially applied, except for the presentation and disclosure requirements which
are applied retrospectively for all periods presented. The Company is currently
evaluating the impact of SFAS No. 160, but does not expect its adoption to have
an impact on its financial statements.
3. REVOLVING CREDIT FACILITY
On June 18, 2006, Regions Bank provided a $3,500,000 revolving line of
credit to Vertex Energy, L.P. The line accrues interest on any outstanding
balance according to a quarterly adjusted rate based on LIBOR plus 2.75%
(currently 7.03%). The line matures on June 30, 2009. Advances under the line
are limited to eighty percent of eligible accounts receivable and fifty percent
of eligible inventory, as defined by the agreement. The line is secured by
accounts receivable and inventory, assignment of life insurance policies, and a
personal guaranty of the managing partner. The total balance outstanding on the
line of credit was approximately $2,150,000 and $3,177,000 at December 31, 2007
and 2006, respectively. The Company's portion of the outstanding balance was $0
and $1,145,422 as of December 31, 2007 and 2006, respectively. The Company will
negotiate its own credit facility in the future.
4. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under an operating lease expiring
in April, 2011. Thereafter, the lease continues on a month-to-month basis. Lease
payments under these agreements totaled $42,908 and $20,190 for the years ended
December 31, 2007 and 2006, respectively.
F-9
The Company also has entered into an agreement to lease storage tanks
at a Cedar Bayou, Texas storage and transfer facility with a related party. The
agreement required a six month term beginning January 1, 2007 at a minimum
monthly fee of $17,700. The agreement is renewable month-to-month upon
expiration of the original term and the Company may terminate the original
agreement with ninety days notice. Rental expense under this operating lease was
approximately $35,000 per month for the year ended December 31, 2007.
Future minimum non-cancelable rental payments required in 2008, 2009,
2010, 2011 and 2012 under these operating leases totaled $33,987, $34,996,
$36,006, $12,114 and $0 respectively. Rental expense under all operating leases
was approximately $463,000, $440,000 and $453,000 for the years ended December
31, 2007, 2006 and 2005, respectively.
Vertex Energy, L.P. is subject to legal claims and proceedings that
arise in the ordinary course of business. Some of these claims or proceedings
against it may have an adverse effect on the financial condition or results of
operations of Vertex LP. The Company's management does not expect that the
results in any of these potential legal proceedings will have an adverse affect
on the Company's financial condition or results of operations. In accordance
with SFAS No. 5, "Accounting for Contingencies," the Company makes a provision
for a liability when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. The Company believes it has
adequate provisions for any such matters. Nevertheless, it is possible that cash
flows or results of operations could be materially affected in any particular
period by the unfavorable resolution of a contingency.
5. RELATED PARTIES
The Company has numerous transactions with the Partnership, including
the lease of the partnership's storage facility, transportation of feedstock to
rerefiners and the Company's storage facility, and delivery from the Company's
rerefinery to end customers. The pricing under these contracts are with certain
wholly-owned subsidiaries of the Partnership and are priced at market. The
financial statements included revenues from related parties of $2,181,559,
$2,917,222 and $6,769,099 and inventory purchases from related parties of
$5,406,602, $2,252,182 and $3,854,256 for the three years ended December 31,
2007, 2006 and 2005, respectively.
6. CONCENTRATIONS AND SIGNIFICANT CUSTOMERS
The Company has concentrated credit risk for cash by maintaining
deposits in one bank. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. From time to time during the years ended
December 31, 2007, 2006 and 2005, the Company's cash balances exceeded the
federally insured limits.
Financial instruments that potentially subject the Company to credit
risk consist primarily of trade receivables. A large publicly-held company with
various independent divisions represented 77% of the Company's gross sales and
98% of outstanding trade receivables for the year ended December 31, 2007, 83%
of gross sales and 64% of outstanding trade receivables for the year ended
December 31, 2006 and 63% of gross sales for the year ended December 31, 2005.
The Company's revenue, profitability and future rate of growth are
substantially dependent on prevailing prices for petroleum-based products.
Historically, the energy markets have been very volatile, and there can be no
assurance that these prices will not be subject to wide fluctuations in the
future. A substantial or extended decline in such prices could have a material
adverse effect on the Company's financial position, results of operations, cash
flows and access to capital and on the quantities of petroleum-based product
inventories that the Company can economically produce.
F-10
7. SEGMENT REPORTING
The Company's segments include the Black Oil and Refining and Marketing
divisions. Segment information for each of the last three years ending December
31, 2007, is as follows:
YEAR ENDED DECEMBER 31, 2007
-------------------------------------------
BLACK OIL REFINING TOTAL
----------- ----------- -----------
Revenues $34,026,749 $ 7,997,750 $42,024,499
Cost of revenues 32,449,300 6,375,291 38,824,591
----------- ----------- -----------
Gross profit 1,577,449 1,622,459 3,199,908
Selling, general and administrative expenses 646,031 322,532 968,563
----------- ----------- -----------
Income from operations 931,418 1,299,927 2,231,345
Interest income, net of interest expense -- -- --
----------- ----------- -----------
Net income 931,418 1,299,927 2,231,345
Total Assets 3,064,117 2,225,944 5,290,061
YEAR ENDED DECEMBER 31, 2006
-------------------------------------------
BLACK OIL REFINING TOTAL
----------- ----------- -----------
Revenues $31,321,714 $ 5,190,904 $36,512,618
----------- ----------- -----------
Cost of revenues 30,346,748 4,755,660 35,102,408
----------- ----------- -----------
Gross profit 974,966 435,244 1,410,210
Selling, general and administrative expenses 473,713 236,502 710,215
----------- ----------- -----------
Income from operations 501,253 198,742 699,995
Interest expense, net of interest income -- (68,767) (68,767)
Other income (expense) -- (132,674) (132,674)
----------- ----------- -----------
Net income (loss) 501,253 (2,699) 498,554
Total Assets 1,922,558 1,683,480 3,606,038
F-11
YEAR ENDED DECEMBER 31, 2005
-------------------------------------------
BLACK OIL REFINING TOTAL
----------- ----------- -----------
Revenues $19,492,146 $ 7,399,574 $26,891,720
Cost of revenues 19,064,358 6,546,034 25,610,392
----------- ----------- -----------
Gross profit 427,788 853,540 1,281,328
Selling, general and administrative expenses 546,375 272,778 819,153
----------- ----------- -----------
Income (loss) from operations (118,587) 580,762 462,175
Interest expense, net of interest income -- (56,381) (56,381)
Other income (expense) -- (347,081) (347,081)
----------- ----------- -----------
Net income (loss) (118,587) 177,300 58,713
Total Assets 1,119,225 321,560 1,440,785
8. SUBSEQUENT EVENTS
In May, 2008, Vertex Energy, L.P., Vertex Energy, Inc., a Nevada
corporation, Vertex Merger Sub, LLC and Benjamin P. Cowart, an individual,
executed an agreement and plan of merger with World Waste Technologies, Inc., a
publicly traded California corporation. Pursuant to the terms of the agreement,
the Partnership will transfer certain business operations to a merger
corporation.
Under terms specified by the merger, the merger corporation will assume
up to $1.6 million of indebtedness and certain other specified liabilities of
the Partnership and the partners and various consultants will hold approximately
44% of the outstanding shares of the merger corporation. In connection with the
merger agreement, Vertex Energy, Inc. will assume the Partnership's operations
in connection with the fulfillment of a certain contract and assume the
operations of the Partnership's refining division. The presented historical
assets of Vertex LP will remain the property of the Partnership following the
merger. Accordingly, no assets of the Partnership will be transferred to the
merger corporation. Although subsidiaries controlled by the Partnership will not
be transferred, the new merger corporation will have the right to acquire these
subsidiaries under certain circumstances specified in the agreement. The
Partnership will receive cash proceeds of $4.4 million as consideration for
completing the merger. The merger corporation will receive $5 million in cash
and assume liabilities of up to $2.4 million from World Waste Technologies, Inc.
On May 16, 2008, the merger corporation granted a total of 4,265,000
stock options to executive officers and consultants. The options have an
exercise price of $0.12 and a term of 10 years from the date of grant.
Generally, 25% of the options vest per year beginning on the first anniversary
of the grant date.
On June 2, 2008, the Board of Directors of the merger corporation
appointed two new members to its board of directors, and granted 200,000 options
to each director. The options have the same terms as the options discussed
above.
F-12
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
JUNE 30, DECEMBER 31,
2008 2007
---------- ----------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 62,978 $ 52,650
Accounts receivable, net 3,537,426 1,641,267
Accounts receivable - related parties 1,321,312 768,993
Inventory 3,958,488 2,181,376
Prepaid expenses 416,350 645,775
---------- ----------
Total current assets 9,296,554 5,290,061
---------- ----------
Total assets $9,296,554 $5,290,061
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable $3,532,438 $2,920,045
Accounts payable - related parties 2,441,231 1,089,902
Due to partnership 1,116,870 --
---------- ----------
Total current liabilities 7,090,539 4,009,947
PARTNERS' CAPITAL
Partners' Capital 2,206,015 1,280,114
---------- ----------
Total Liabilities and Partners' Capital $9,296,554 $5,290,061
========== ==========
See accompanying notes to the financial statements.
F-13
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 17,632,375 $ 8,264,133 $ 32,290,294 $ 16,120,969
Revenues - related parties 171,583 1,020,284 177,238 1,032,770
------------ ------------ ------------ ------------
17,803,958 9,284,417 32,467,532 17,153,739
Cost of revenues 16,176,634 7,990,715 29,882,357 15,281,497
------------ ------------ ------------ ------------
Gross profit 1,627,324 1,293,702 2,585,175 1,872,242
Selling, general and
administrative expenses 469,074 260,958 822,776 465,352
------------ ------------ ------------ ------------
Income from operations 1,158,250 1,032,744 1,762,399 1,406,890
------------ ------------ ------------ ------------
Net income $ 1,158,250 $ 1,032,744 $ 1,762,399 $ 1,406,890
Beginning partners' capital 1,346,765 216,581 1,280,114 (127,586)
Current period distributions (299,000) (21,896) (836,498) (51,875)
------------ ------------ ------------ ------------
Ending partners' capital $ 2,206,015 $ 1,227,429 $ 2,206,015 $ 1,227,429
============ ============ ============ ============
See accompanying notes to the financial statements.
F-14
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
SIX MONTHS ENDED
JUNE 30, JUNE 30,
2008 2007
----------- -----------
(unaudited) (unaudited)
----------- -----------
Cash flows operating activities
Net income $ 1,762,399 $ 1,406,890
Adjustments to reconcile net income to cash
provided by operating activities
Changes in assets and liabilities
Accounts receivable (1,896,159) 175,995
Accounts receivable - related parties (552,319) (437,339)
Inventory (1,777,112) (85,344)
Prepaid expenses 229,425 (267,492)
Accounts payable 612,392 757,733
Accounts payable - related parties 1,351,330 (208,409)
Other current liabilities -- (32,934)
----------- -----------
Net cash provided (used) by operating activities (270,044) 1,309,100
----------- -----------
Cash flows from financing activities
Net proceeds (payments) from line of credit -- (1,145,422)
Net proceeds (payments) from partnership 1,116,870 --
Distributions to limited partners (836,498) (51,875)
----------- -----------
Net cash provided (used) by financing activities 280,372 (1,197,297)
----------- -----------
Net increase (decrease) in cash and cash equivalents 10,328 111,803
Cash and cash equivalents at beginning of the year 52,650 102,063
----------- -----------
Cash and cash equivalents at end of year $ 62,978 $ 213,866
=========== ===========
SUPPLEMENTAL INFORMATION
Interest paid during year $ -- $ 65,052
=========== ===========
See accompanying notes to the financial statements.
F-15
VERTEX ENERGY, L.P.
(CERTAIN ASSETS, LIABILITIES AND OPERATIONS RELATED TO A SIGNIFICANT CUSTOMER
AND CERTAIN ASSETS, LIABILITIES AND OPERATIONS OF THE REFINING DIVISION)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex Energy, L.P. (certain assets, liabilities and operations related
to a significant customer and certain assets, liabilities and operations of the
refining division) or "Vertex LP" or the "Company" provides a range of services
designed to aggregate, process and recycle industrial and commercial waste
streams. Vertex LP currently provides these services in 13 states, with its
primary focus in the Gulf Coast region. As described in more detail in Note 8
"Subsequent Events," in May 2008, Vertex LP, Vertex Energy, Inc., Vertex Merger
Sub, LLC and Benjamin P. Cowart, an individual (collectively the "Partnership"),
entered into an agreement and plan of merger with World Waste Technologies, Inc.
("World Waste"). Pursuant to this agreement, the Partnership agreed to transfer
(the "Transfer") a specifically defined portion of its operations (referred to
as the "Vertex Nevada Business") to Vertex Energy, Inc. ("Vertex Nevada").
Vertex Nevada was formed to engage in the transactions contemplated by the
merger agreement, and has not engaged in any business activities other than
activities incidental to its formation and the transactions contemplated by the
merger agreement.
These financial statements have been prepared to reflect:
(a) carve-out of a specific Vertex Energy, L.P. customer and its
associated assets, liabilities and operations, and
(b) certain assets, liabilities and operations of Vertex Energy, L.P.'s
refining division.
The financial statements are intended to reflect the historical Vertex
LP business operations, and the information presented herein has been carved-out
from the historical accounting records of Vertex Energy, L.P. The results of
operations presented are not necessarily indicative of the operating results of
Vertex Energy, Inc. for any future period.
The accompanying unaudited interim financial statements of Vertex LP
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission ("SEC"), and should be read in conjunction with the audited financial
statements and notes thereto. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the June 30 interim periods
presented have been reflected herein. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements which would substantially duplicate
the disclosure contained in the audited financial statements for fiscal 2007
have been omitted.
COMPANY OPERATIONS
Vertex LP's operations are primarily focused on recycle/reuse options
for petroleum products, crudes, used lubricants and distillate petroleum
products. This focus includes the aggregation, processing and refining of these
used petroleum materials into viable commodity products. Vertex LP's two
principal divisions are comprised of Black Oil and Refining and Marketing.
Black Oil
Through its Black Oil division, which has been operational since 2001,
Vertex LP recycles used motor oil by purchasing it from a network of local and
regional collectors with which Vertex LP has existing relationships,
consolidating it for efficient delivery, and selling it to third-party
re-refiners. Historically, substantially all of the feedstock that is gathered
F-16
from these collectors has been transported by truck, rail, or barge to a
third-party re-refinery in Marrero, Louisiana. This re-refinery purchases Vertex
LP's feedstock pursuant to a contract with Vertex LP. The re-refinery then
upgrades and sells the product for its own account.
Refining and Marketing
Through its Refining and Marketing division, which has been operational
since 2004, Vertex LP recycles hydrocarbon streams by (1) purchasing and
aggregating these streams from collectors and generators, (2) managing the
delivery of these streams to a third-party facility for processing into
end-products and (3) managing the sale of the end-products. Vertex LP gathers
hydrocarbon streams in the form of petroleum distillates, transmix and other
chemical products that have become off-specification during the transportation
or refining process. These feedstock streams are purchased from pipeline
operators, refineries, chemical processing facilities and third-party providers,
processed on Vertex LP's behalf by a third-party facility, and then resold by
Vertex LP. The end products are typically three distillate petroleum streams
(gasoline blendstock, fuel oil cutterstock and marine diesel oil), which are
sold to major oil companies or to large petroleum trading and blending
companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments purchased with original maturities of three months or
less to be cash equivalents.
Accounts receivable
Accounts receivable represents amounts due from customers. Accounts
receivable are recorded at invoiced amounts, net of reserves and allowances, and
do not bear interest. The Company uses its best estimate to determine the
required allowance for doubtful accounts based on a variety of factors,
including the length of time receivables are past due, economic trends and
conditions affecting its customer base, significant one-time events and
historical write-off experience. Specific provisions are recorded for individual
receivables when we become aware of a customer's inability to meet its financial
obligations. The Company reviews the adequacy of our reserves and allowances
quarterly.
Receivable balances greater than 30 days past due are individually
reviewed for collectibility, and if deemed uncollectible, are charged off
against the allowance accounts after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have
any significant off balance sheet credit exposure related to its customers. The
allowance was $0 at June 30, 2008 and December 31, 2007.
Inventory
Inventories of products consist of feedstocks and refined petroleum
products and are reported at the lower of cost or market.
Revenue recognition
Revenue for each of the Company's divisions is recognized when
persuasive evidence of an arrangement exists, goods are delivered, sales price
is determinable, and collection is reasonably assured.
F-17
Fair value of financial instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and debt. The carrying
amount of cash and cash equivalents, accounts receivable, and accounts payable
approximate their fair value due to the short-term nature of such instruments.
The carrying value of debt approximates fair value, since the interest rates are
market based and are adjusted periodically.
Use of estimates
These financial statements were prepared in accordance with accounting
principles generally accepted in the United States. Certain amounts included in
or affecting the financial statements and related disclosures must be estimated
by management, requiring certain assumptions with respect to values or
conditions which cannot be known with certainty at the time the financial
statements are prepared. These estimates and assumptions affect the amounts
reported for assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. Any effects on the
business, financial position or results of operations from revisions to these
estimates are recorded in the period in which the facts that give rise to the
revision become known.
Recently issued accounting pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
3. REVOLVING CREDIT FACILITY
On June 18, 2006, Regions Bank provided a $3,500,000 revolving line of
credit to the Partnership. The line accrues interest on any outstanding balance
according to a quarterly adjusted rate based on LIBOR plus 2.75% (6.06% as of
June 30, 2008). The line matures on June 30, 2009. Advances under the line are
limited to eighty percent of eligible accounts receivable and fifty percent of
eligible inventory, as defined by the agreement. The line is secured by accounts
receivable and inventory, assignment of life insurance policies, and a personal
guaranty of the managing partner. The total balance outstanding on the line of
credit was approximately $3,403,467 and $2,150,000 at June 30, 2008 and December
31, 2007, respectively. The Company's portion of the outstanding balance was $0
as of June 30, 2008 and December 31, 2007. The Company will negotiate its own
credit facility in the future.
4. DUE TO PARTNERSHIP
From time to time, the Company obtains cash advances from the
Partnership to fund current operations. These advances are non-interest bearing
to both the Partnership and the Company. No interest expense has been allocated
to the Company due to the Partnership not incurring or charging interest on the
amounts outstanding. The balance was $1,116,870 and $0 at June 30, 2008 and
December 31, 2007 respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under an operating lease expiring
in April, 2011. Thereafter, the lease continues on a month-to-month basis. Lease
payments under these agreements totaled $37,851 and $15,283 for the six months
ended June 30, 2008 and 2007, respectively.
The Company also has entered into an agreement to lease storage tanks
at a Cedar Bayou, Texas storage and transfer facility with a related party. The
agreement required a six month term beginning January 1, 2007 at a minimum
monthly fee of $17,700. The agreement is renewable month-to-month upon
expiration of the original term and the Company may terminate the original
F-18
agreement with ninety days notice. Rental expense under this operating lease was
approximately $35,000 per month for the six months ended June 30, 2008 and 2007.
Future minimum non-cancelable rental payments required in 2008, 2009,
2010, 2011 and 2012 under these operating leases totaled $33,987, $34,996,
$36,006, $12,114 and $0 respectively. Rental expense under all operating leases
was approximately $248,000 and $225,000 for the six months ending June 30, 2008
and 2007, respectively.
Vertex Energy, L.P. is subject to legal claims and proceedings that
arise in the ordinary course of business. Some of these claims or proceedings
against it may have an adverse effect on the financial condition or results of
operations of Vertex LP. The Company's management does not expect that the
results in any of these potential legal proceedings will have an adverse affect
on the Company's financial condition or results of operations. In accordance
with SFAS No. 5, "Accounting for Contingencies," the Company makes a provision
for a liability when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. The Company believes it has
adequate provisions for any such matters. Nevertheless, it is possible that cash
flows or results of operations could be materially affected in any particular
period by the unfavorable resolution of a contingency.
6. RELATED PARTIES
The Company has numerous transactions with the Partnership, including
the lease of the Partnership's storage facility, transportation of feedstock to
re-refiners and the Company's storage facility, and delivery from the Company's
re-refinery to end customers. The pricing under these contracts are with certain
wholly-owned subsidiaries of the Partnership and are priced at market. The
financial statements included revenues from related parties of $177,238 and
$1,032,770 and inventory purchases from related parties of $4,711,211 and
$2,457,616 for the six months ending June 30, 2008 and 2007, respectively.
7. CONCENTRATIONS AND SIGNIFICANT CUSTOMERS
The Company has concentrated credit risk for cash by maintaining
deposits in one bank. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. From time to time during the six months
ended June 30, 2008 and 2007, the Company's cash balances exceeded the federally
insured limits.
Financial instruments that potentially subject the Company to credit
risk consist primarily of trade receivables. Two large publicly-held companies
with various independent divisions represented 84% of the Company's gross sales
and 96% of outstanding trade receivables for the six months ended June 30, 2008,
and 65% of gross sales for the six months ended June 30, 2007.
The Company's revenue, profitability and future rate of growth are
substantially dependent on prevailing prices for petroleum-based products.
Historically, the energy markets have been very volatile, and there can be no
assurance that these prices will not be subject to wide fluctuations in the
future. A substantial or extended decline in such prices could have a material
adverse effect on the Company's financial position, results of operations, cash
flows and access to capital and on the quantities of petroleum-based product
inventories that the Company can economically produce.
8. SEGMENT REPORTING
The Company's reportable segments include the Black Oil and Refining
and Marketing divisions. Segment information for the six months ending June 30,
2008 and 2007, is as follows:
F-19
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
- --------------------------------------------------------------------------------------------
Black Oil Refining Total
----------- ----------- -----------
Revenues $24,673,881 $ 7,793,651 $32,467,532
Cost of revenues 23,510,233 6,372,124 29,882,357
----------- ----------- -----------
Gross profit 1,163,648 1,421,527 2,585,175
Selling, general and administrative expenses 543,032 279,744 822,776
----------- ----------- -----------
Income from operations 620,616 1,141,783 1,762,399
----------- ----------- -----------
Net income 620,616 1,141,783 1,762,399
Total Assets 3,924,530 5,372,024 9,296,554
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------------------
Black Oil Refining Total
----------- ----------- -----------
Revenues $13,429,651 $ 3,724,088 $17,153,739
Cost of revenues 12,741,527 2,539,970 15,281,497
----------- ----------- -----------
Gross profit 688,124 1,184,118 1,872,242
Selling, general and administrative expenses 307,132 158,220 465,352
----------- ----------- -----------
Income from operations 380,992 1,025,898 1,406,890
----------- ----------- -----------
Net income 380,992 1,025,898 1,406,890
Total Assets 2,877,631 1,454,390 4,332,021
9. SUBSEQUENT EVENTS
In May, 2008, Vertex Energy, L.P., Vertex Energy, Inc., a Nevada
corporation, Vertex Merger Sub, LLC and Benjamin P. Cowart, an individual,
executed an agreement and plan of merger with World Waste Technologies, Inc., a
publicly traded California corporation. Pursuant to the terms of the agreement,
the Partnership will transfer certain business operations to a merger
corporation.
Under terms specified by the merger, the merger corporation will assume
up to $1.6 million of indebtedness and certain other specified liabilities of
the Partnership and the partners and various consultants will hold approximately
44% of the outstanding shares of the merger corporation. In connection with the
merger agreement, Vertex Energy, Inc. will assume the Partnership's operations
in connection with the fulfillment of a certain contract and assume the
operations of the Partnership's refining division. The presented historical
assets of Vertex LP will remain the property of the Partnership following the
merger. Accordingly, no assets of the Partnership will be transferred to the
merger corporation. Although subsidiaries controlled by the Partnership will not
be transferred, the new merger corporation will have the right to acquire these
subsidiaries under certain circumstances specified in the agreement. The
Partnership will receive cash proceeds of $4.4 million as consideration for
completing the merger. The merger corporation will receive $5.0 million in cash
and assume liabilities of up to $2.4 million from World Waste Technologies, Inc.
As of August 20, 2008, the merger had not closed.
F-20
VERTEX ENERGY, INC.
BALANCE SHEET
JUNE 30, 2008
(UNAUDITED)
ASSETS
Total assets $ --
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities $ --
--------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock - blank check, $0.001 par value per share; 50,000,000 shares
authorized; none issued
and outstanding --
Common stock, $0.001 par value per share;
750,000,000 shares authorized; none issued
and outstanding --
Additional paid-in capital 22,422
Accumulate deficit (22,422)
--------
Total stockholders' equity --
--------
Total liabilities and stockholders' equity $ --
========
See accompanying notes to the financial statements.
F-21
VERTEX ENERGY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH JUNE 30, 2008
(UNAUDITED)
INCEPTION
(MAY 14,
2008)
THROUGH
JUNE 30, 2008
--------
Revenue $ --
--------
Expenses
General and administrative 22,422
--------
Total expenses 22,422
--------
Net Loss $(22,422)
========
See accompanying notes to the financial statements.
F-22
VERTEX ENERGY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH JUNE 30, 2008
(UNAUDITED)
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
------------------ ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
------ ------- ------ --------- ------- -------- ---------
BALANCE - INCEPTION (MAY
14, 2008) -- $ -- -- $ -- $ -- $ -- $ --
Stock based compensation -- -- -- -- 22,422 (22,422) --
------ ------- ------ --------- ------- -------- ---------
BALANCE - JUNE 30, 2008 -- $ -- -- $ -- $22,422 $(22,422) $ --
====== ======= ====== ========= ======= ======== =========
See accompanying notes to the financial statements.
F-23
VERTEX ENERGY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH JUNE 30, 2008
(UNAUDITED)
INCEPTION
(MAY 14, 2008)
THROUGH
JUNE 30, 2008
---------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $(22,422)
Adjustment to reconcile net loss to net cash used in operating activities:
Stock based compensation expense 22,422
--------
NET CASH FLOWS USED IN OPERATING ACTIVITIES --
--------
--------
CASH FLOWS USED IN INVESTING ACTIVITIES --
--------
--------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES --
--------
INCREASE IN CASH AND CASH EQUIVALENTS --
CASH AND CASH EQUIVALENTS - beginning of period --
--------
CASH AND CASH EQUIVALENTS - end of period $ --
========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ --
Cash paid for taxes $ --
See accompanying notes to the financial statements.
F-24
VERTEX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex Energy, Inc. (the "Company") was incorporated under the laws of
the State of Nevada in May 2008, and has had no operating and minimal financial
activity to date. The Company was formed for the purpose of receiving the
transfer of certain assets, liabilities and operations related to a significant
customer and certain assets, liabilities and operations of the refining division
of Vertex Energy, L.P.
Vertex Energy, L.P. (the "Partnership" or "Vertex LP") provides a range
of services designed to aggregate, process and recycle industrial and commercial
waste streams. Vertex LP currently provides these services in 13 states, with
its primary focus in the Gulf Coast region of the United States.
In May, 2008, Vertex LP, the Company, Vertex Merger Sub, LLC and
Benjamin P. Cowart, an individual, executed an agreement and plan of merger with
World Waste Technologies, Inc., a publicly traded California corporation. Under
terms specified by the merger, the merger corporation will assume up to $1.6
million of indebtedness and certain other specified liabilities of the
Partnership and the partners and various consultants will hold approximately 44%
of the outstanding shares of the merger corporation. In connection with the
merger agreement, Vertex Energy, Inc. will assume the Partnership's operations
in connection with the fulfillment of a certain contract and assume the
operations of the Partnership's refining division. The assets of Vertex LP will
remain the property of Vertex LP following the merger. Accordingly, no assets of
Vertex LP will be transferred to the merger corporation. Although subsidiaries
controlled by Vertex LP will not be transferred, the new merger corporation will
have the right to acquire these subsidiaries under certain circumstances
specified in the merger agreement. The Partnership will receive cash proceeds of
$4.4 million as consideration for completing the merger. The merger corporation
will also receive $5.0 million in cash and will assume liabilities of up to $2.4
million from World Waste Technologies, Inc.
As the merger has not yet been consummated, no transfer of business
activities has yet occurred and the Company currently has no operations.
2. COMMON STOCK
The total number of authorized shares of the Company's common stock is
750,000,000 shares, $0.001 par value per share.
Each share of the Company's common stock is entitled to equal dividends
and distributions per share with respect to the common stock when, as and if
declared by the Company's board of directors. No holder of any shares of the
Company's common stock has a preemptive right to subscribe for any Company
security, nor are any shares of the Company's common stock subject to redemption
or convertible into other securities. Upon liquidation, dissolution or
winding-up of the Company, and after payment of creditors and preferred
shareholders, if any, the assets of the Company will be divided pro rata on a
share-for-share basis among the holders of the Company's common stock. Each
share of the Company's common stock is entitled to one vote, except with respect
to the election of directors. Shares of the Company's common stock do not
possess any rights in respect of cumulative voting.
No shares of common stock had been issued as of June 30, 2008.
3. PREFERRED STOCK
The total number of authorized shares of the Company's preferred stock
is 50,000,000 blank check shares, $0.001 par value per share. As of June 30,
2008, there were no shares of preferred stock outstanding.
F-25
4. STOCK COMPENSATION
On May 16, 2008, the Company granted options to acquire a total of up
to 4,265,000 shares of its common stock to executive officers, a director, and
consultants. The options have an exercise price of $0.12 and a term of 10 years
from the date of grant. Generally, 25% of the options vest per year beginning on
the first anniversary of the grant date. The fair value of these options is
$241,156 using the Black Scholes valuation model. The Company recorded stock
compensation expense of $20,934 in connection with these grants in the
accompanying statement of operations.
On June 2, 2008, the Board of Directors of Vertex Energy, Inc.
appointed two new members to its board of directors, and granted 200,000 options
to each of the two directors. The options have the same terms as the options
discussed above. The fair value of these options is $22,862 using the Black
Scholes valuation model. The Company recorded stock compensation expense of
$1,488 in connection with these grants in the accompanying statement of
operations.
5. COMMITMENTS AND CONTINGENCIES
The Company may in the future be subject to legal claims and
proceedings that arise in the ordinary course of business. Some of these claims
or proceedings against it may have an adverse effect on the financial condition
or results of operations of the Company. In accordance with SFAS No. 5,
"Accounting for Contingencies," the Company will make a provision for a
liability when it is both probable that a liability has been incurred and the
amount of the loss can be estimated. It is possible that cash flows or results
of operations could be materially affected in any particular period by the
unfavorable resolution of a contingency.
F-26
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
In May 2008, Vertex Energy, L.P. ("VERTEX LP"), Vertex Energy, Inc., a
Nevada corporation ("VERTEX Nevada"), Vertex Merger Sub, LLC ("MERGER SUB"), a
California limited liability company, and Benjamin P. Cowart, as agent for the
shareholders of Vertex Nevada, on the one hand, and World Waste Technologies,
Inc., a publicly traded California corporation ("WORLD WASTE"), on the other
hand, entered into an amended and restated agreement and plan of merger (the
"MERGER AGREEMENT").
Pursuant to the terms of the merger agreement, Vertex LP will transfer
certain business operations to Vertex Nevada, following which World Waste will
merge with and into Merger Sub. As part of the merger, Vertex Nevada will assume
up to $1.6 million of Vertex LP's indebtedness and certain other specified
obligations of Vertex LP, World Waste will make a $4.4 million payment to Vertex
LP, and World Waste will transfer at least $5.0 million of cash to Vertex
Nevada. It is a condition to closing the merger that immediately prior to the
merger, World Waste satisfy in full all of its liabilities, other than up to
$2.4 million of permitted indebtedness, which indebtedness will be assumed by
Vertex Nevada.
Immediately following the merger and assuming that no shareholders
exercise dissenters' rights: (1) the existing partners of Vertex LP will own
approximately 40% of the outstanding shares of Vertex Nevada's capital stock;
(2) approximately 4% of the outstanding shares of Vertex Nevada's capital stock
will be held by advisors and consultants to Vertex LP; (3) the existing holders
of World Waste's common stock will own approximately 20.5% of the outstanding
shares of Vertex Nevada's capital stock; (4) the existing holders of World
Waste's Series A preferred stock will own approximately 14% of the outstanding
shares of Vertex Nevada's capital stock; and (5) the existing holders of World
Waste's Series B preferred stock will own approximately 21.5% of the outstanding
shares of Vertex Nevada's capital stock (in each case, treating as outstanding,
shares that are issuable upon the exercise of warrants to acquire shares of
common stock at a nominal exercise price).
The merger will be accounted for as a reverse acquisition of World
Waste pursuant to which Vertex Nevada is considered to be the acquiring entity.
As described above, in the merger, the shareholders of World Waste will exchange
100% of their shares for approximately 56% of the shares of Vertex Nevada, and
World Waste will merge with and into Merger Sub, a wholly owned subsidiary of
Vertex Nevada. The share exchange will be treated as a recapitalization of
Vertex Nevada. Vertex Nevada will be the continuing entity for financial
reporting purposes. The audited financial statements of Vertex Nevada included
elsewhere in this proxy statement have been prepared as if Vertex Nevada has
always been a reporting company. After the closing of the merger and as a result
of the share exchange, Vertex Nevada will account for the merger as a
recapitalization of its capital stock.
The following unaudited pro forma combined balance sheet has been
derived from the unaudited balance sheet of World Waste, an unaudited balance
sheet reflecting certain assets and liabilities of Vertex LP, and an unaudited
balance sheet of Vertex Energy, Inc., in each case at June 30, 2008, and adjusts
such information to give effect to the merger as if it had occurred on June 30,
2008.
The following unaudited pro forma combined statement of operations has
been derived from the unaudited statement of operations for each of Vertex LP
and Vertex Energy, Inc., in each case giving effect to the merger as though it
had occurred on January 1, 2008. The results of operations for World Waste have
been adjusted to zero.
The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available and, in management's opinion,
provide a reasonable basis for the fair presentation of the estimated effects
attributable directly to the merger. The pro forma combined financial
information is being presented for illustrative purposes only, and this
information should not be relied upon for purposes of making any investment or
other decisions.
F-27
The unaudited pro forma combined financial information may have been
different had the companies actually been combined as of January 1, 2008 or June
30, 2008. All information contained herein should be read in conjunction with
the financial statements and notes thereto of Vertex Nevada included elsewhere
in this proxy statement, and the notes to the unaudited pro forma combined
financial information included herein.
F-28
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2008
CERTAIN ASSETS
AND LIABILITIES OF WORLD WASTE PRO FORMA
VERTEX ENERGY, TECHNOLOGIES, VERTEX ENERGY, ADJUSTMENTS PRO FORMA
LP INC. INC. (NOTE 1) ADJUSTED
--------------- ----------------- ----------- --------------- --------------
ASSETS
Current assets
Cash $ 62,978 $ 3,856,488 $ -- $ 1,080,534 a, b $ 5,000,000
Short term investments -- 4,542,966 -- (4,542,966) a --
Accounts receivable, net 3,537,426 -- -- (3,537,426) b --
Accounts receivable-related
parties 1,321,312 -- -- (1,321,312) b --
Inventory 3,958,488 -- -- (3,958,488) b --
Prepaid expenses 416,350 310,549 -- (726,899) a, b --
Assets held for sale -- 88,977 -- (88,977) a --
--------------- ----------------- ----------- --------------- --------------
Total Current Assets 9,296,554 8,798,980 -- (13,095,534) 5,000,000
--------------- ----------------- ----------- --------------- --------------
Noncurrent assets
Machinery and equipment, net -- 30,535 -- (30,535) c --
Deposits -- 4,719 -- (4,719) c --
--------------- ----------------- ----------- --------------- --------------
Total Non-current Assets -- 35,254 -- (35,254) --
--------------- ----------------- ----------- --------------- --------------
Total
Total assets $ 9,296,554 $ 8,834,234 $ -- (13,130,788) $ 5,000,000
=============== ================= =========== =============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,532,438 $ 394,493 $ -- $ (3,926,931) a, b $ --
Accounts payable-related parties 2,441,231 -- -- (2,441,231) b --
Due to Partnership 1,116,870 -- -- (1,116,870) b --
Other current liabilities -- 526,866 -- (526,866) a --
--------------- ----------------- ----------- --------------- --------------
Total Current Liabilities 7,090,539 921,359 -- (8,011,898) --
Long term debt -- -- -- 4,000,000 d 4,000,000
--------------- ----------------- ----------- --------------- --------------
Total liabilities 7,090,539 921,359 -- (4,011,898) 4,000,000
--------------- ----------------- ----------- --------------- --------------
Convertible redeemable preferred
stock (World Waste) -- 27,885,429 -- (27,885,429) e --
Commitments and contingencies
Common Stock (World Waste) -- 27,595 -- (27,595) e --
Common Stock (Vertex Energy, Inc.) -- -- -- 88,365 e 88,365
Preferred Stock Series A (Vertex
Energy, Inc.) -- -- -- 47,264 e 47,264
Preferred Stock Series B (Vertex
Energy, Inc.) -- -- -- - f --
Additional paid-in capital -- 58,701,540 22,422 (57,837,169) g 886,793
Accumulated deficit -- (78,112,999) (22,422) 78,112,999 g (22,422)
Accumulated comprehensive loss -- (588,690) -- 588,690 g --
Partners' capital 2,206,015 - -- (2,206,015) --
--------------- ----------------- ----------- --------------- --------------
Stockholders' equity 2,206,015 (19,972,554) -- 18,766,539 1,000,000
--------------- ----------------- ----------- --------------- --------------
Total liabilities and stockholders'
equity $ 9,296,554 $ 8,834,234 $ -- $ (13,130,788) $ 5,000,000
=============== ================= =========== =============== ==============
See accompanying notes to unaudited pro forma combined financial statements.
F-29
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008
CERTAIN ASSETS
AND LIABILITIES OF WORLD WASTE PRO FORMA
VERTEX ENERGY, TECHNOLOGIES, VERTEX ENERGY, ADJUSTMENTS PRO FORMA
LP INC. INC. (NOTE 1) ADJUSTED
--------------- ----------------- ----------- --------------- --------------
Revenues $ 32,290,294 $ -- $ -- $ -- $ 32,290,294
Revenues - related parties 177,238 -- -- -- 177,238
--------------- ----------------- ----------- --------------- -------------
Total revenues 32,467,532 -- -- -- 32,467,532
Cost of revenues 29,882,357 -- -- -- 29,882,357
--------------- ----------------- ----------- --------------- -------------
Gross profit 2,585,175 -- -- -- 2,585,175
Research and development expense -- 16,359 -- (16,359) g --
Selling, general, and administrative
expenses 822,776 3,178,745 22,422 (3,178,745) g 845,198
--------------- ----------------- ----------- --------------- -------------
Income (loss) from operations 1,762,399 (3,195,104) (22,422) 3,195,104 1,739,977
--------------- ----------------- ----------- --------------- -------------
Interest income -- 147,871 -- (147,871) g --
Other expense -- 24,940 -- (24,940) g --
--------------- ----------------- ----------- --------------- -------------
Net income (loss) $ 1,762,399 $ (3,022,293) $ (22,422) 3,022,293 $ 1,739,977
=============== ================= =========== =============== =============
Preferred stock dividend and
amortization of beneficial
conversion feature, warrant
discount and offering costs -- (5,090,424) -- 5,090,424 g --
--------------- ----------------- ----------- --------------- --------------
Net income (loss) attributable to
common shareholders $ -- $ (8,112,717) $ -- $ 8,112,717 $ --
=============== ================= =========== =============== ==============
See accompanying notes to unaudited pro forma combined financial statements.
F-30
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS:
Immediately prior to the merger, World Waste will be required to
satisfy all of its liabilities, except for up to $2.4 million of indebtedness
that will be assumed by Vertex Nevada (Vertex Energy, Inc.). It is expected that
immediately prior to the merger, World Waste's assets will consist solely of
cash and certain other assets with no or a de minimis value. As part of the
merger, World Waste will make a $4.4 million cash payment to Vertex LP and
transfer its remaining cash (which must equal at least $5.0 million), to Vertex
Nevada.
Pursuant to the terms of the merger, no assets or liabilities of Vertex
Nevada that are reflected on its historical balance sheet (other than up to $1.6
million of indebtedness) will be transferred to Vertex Nevada. Accordingly, all
such assets and liabilities will remain with Vertex LP and will not be part of
the combined company.
a. To reflect (1) the transfer of $4.4 million of World Waste's cash to
Vertex LP, (2) the satisfaction by World Waste of all of its liabilities (other
than up to $2.4 million of indebtedness) with available cash, (3) the
liquidation of World Waste's short-term investments, and (4) the assumed
proceeds of approximately $564,000 from the sale of assets classified as held
for sale. As of the date of this proxy statement, but subsequent to June 30,
2008, World Waste liquidated its short-term investments for a total of
approximately $4.7 million. Assumes that any remaining cash held by World Waste
will be used by World Waste to satisfy any liabilities that exist as of the
closing of the merger and that accrued subsequent to June 30, 2008. As described
elsewhere in this proxy statement, we can not assure you that World Waste will
have sufficient cash as of the closing to satisfy its obligations under the
merger. The unaudited pro forma balance sheet assumes that World Waste has
sufficient cash to satisfy such liabilities and to meet its obligations under
the merger agreement. In the event there is not sufficient cash, then the terms
of the merger will either be revised by the parties or the merger will not be
consummated.
b. To reflect that pursuant to the merger, all of Vertex Nevada's
assets and liabilities reflected on its historical balance sheet will remain
with Vertex LP.
c. Assumes that these assets have no (or de minimis) value as of the
closing of the merger.
d. To reflect the assumption by Vertex Nevada of $1.6 million of Vertex
LP's indebtedness (which indebtedness is not included in the historical
financial statements of Vertex Nevada because it was incurred in connection with
activities unrelated to the Vertex Nevada Business) and $2.4 million of
indebtedness of World Waste (which is assumed to be incurred by World Waste
immediately prior to the merger). We can not assure you that World Waste will be
able to secure this indebtedness on terms favorable to World Waste, or at all.
e. Immediately prior to the closing of the merger, Vertex Nevada will
have 60,770,000 shares of common stock outstanding. Pursuant to the merger, the
27,596,591 shares of World Waste common stock will convert into 27,596,591
shares of Vertex Nevada common stock; the 4,619,481 shares of World Waste Series
A preferred stock convert into 18,764,331 shares of Vertex Series A preferred
stock; and the 244,615 shares of World Waste Series B preferred stock will
convert into 28,500,093 shares of Vertex Series A preferred stock. Accordingly,
immediately following the merger, approximately 136 million shares of Vertex
Nevada's common stock will be outstanding (treating as outstanding shares of
common stock issuable upon conversion of preferred stock and upon exercise of
warrants with a nominal exercise price).
f. Mr. Cowart is the sole holder of shares of Vertex Nevada's Series B
preferred stock. The shares of Series B preferred stock have no economic rights
but entitle the holder to elect four of the five members of Vertex Nevada's
board of directors.
F-31
g. To eliminate World Waste's accumulated deficit, accumulated
comprehensive loss, additional paid-in-capital and income statement account
balances upon closing of the merger, which will be accounted for as a reverse
acquisition whereby Vertex Nevada is the accounting acquirer.
NOTE 2. TAX MATTERS
At June 30, 2008, World Waste had significant net operating loss
carryforwards. The extent to which Vertex Nevada will be able to utilize these
carryforwards in future periods will be subject to limitations based on a number
of factors, including the number of shares issued within a three-year look-back
period, whether the merger is deemed to be a change in control, whether there is
deemed to be a continuity of World Waste's historical business, and the extent
of Vertex Nevada's subsequent income. Vertex Nevada has not yet determined the
extent to which it may be able to utilize these carryforwards. Accordingly, no
deferred tax asset attributable to World Waste's net operating loss carryforward
has been reflected on the pro forma balance sheet.
F-32
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
WORLD WASTE TECHNOLOGIES, INC.,
A CALIFORNIA CORPORATION,
ON THE ONE HAND,
AND
VERTEX ENERGY, LP,
A TEXAS LIMITED PARTNERSHIP,
VERTEX ENERGY, INC.,
A NEVADA CORPORATION,
VERTEX MERGER SUB, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY,
AND
BEN COWART,
AS AGENT FOR ALL OF THE SHAREHOLDERS OF VERTEX,
ON THE OTHER HAND
MAY 19, 2008
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, is made and
entered into as of May 19, 2008 (this "AGREEMENT"), by and between World Waste
Technologies, Inc., a California corporation ("WWT"), on the one hand, and
Vertex Energy, LP, a Texas limited partnership ("VERTEX LP"), Vertex Energy,
Inc., a Nevada corporation ("VERTEX NEVADA"), Vertex Merger Sub, LLC, a
California limited liability company and wholly owned subsidiary of Vertex
Nevada ("MERGER SUB"), and Ben Cowart, as agent ("AGENT") of all of the
shareholders of Vertex Nevada (the "VERTEX SHAREHOLDERS"), on the other hand.
WWT, Vertex LP, Vertex Nevada, Merger Sub and the Agent are collectively
referred to herein as the "PARTIES". Vertex Nevada, Vertex LP, Merger Sub and
the Agent are sometimes referred to herein as the "VERTEX PARTIES." Capitalized
terms used and not otherwise defined herein have the meanings set forth in
Article 1.
The Parties hereto have previously entered into an Agreement and Plan of
Merger dated as of May 15, 2008 (the "Original Agreement"). The Parties now
desire to amend and restate the Original Agreement in its entirety to reflect
various mutually acceptable modifications to the agreement as originally
executed.
RECITALS
WHEREAS, the respective Boards of Directors of WWT, Vertex Nevada and
Merger Sub, and the partners of Vertex LP (the "PARTNERS"), have deemed it in
the best interests of their respective corporations, shareholders and partners
that (i) Vertex LP transfer the Vertex Business to Vertex Nevada (the
"TRANSFER"), and (ii) immediately following the Transfer, that WWT, Vertex
Nevada and Merger Sub enter into a business combination transaction;
WHEREAS, in furtherance thereof, the Partners have approved the Transfer
and the respective Boards of Directors of WWT, Vertex Nevada and Merger Sub each
have approved this Agreement and the merger of WWT with and into Merger Sub(the
"MERGER"), upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the provisions of the California Corporations
Code (the "CCC");
WHEREAS, in connection with the Merger, the Parties desire to make certain
representations, warranties, covenants and agreements and also to prescribe
various conditions to the Merger, upon the terms and subject to the conditions
contained herein.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby, the Parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINITIONS. The following terms shall, when used in this
Agreement, have the following meanings:
"AFFILIATE" means, with respect to any Person: (i) any Person directly or
indirectly owning, controlling or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of such other Person (other than
passive or institutional investors); (ii) any Person ten percent (10%) or more
of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote, by such other Person; (iii) any Person
directly or indirectly controlling, controlled by or under common control with
such other Person; and (iv) any officer, director or partner of such other
Person. "Control" for the foregoing purposes shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"AGENT" shall have the meaning set forth in the preamble to this
Agreement.
"AGREEMENT" shall have the meaning set forth in the preamble to this
Agreement.
"ALTERNATIVE ACQUISITION" shall have the meaning set forth in Section 5.14
of this Agreement.
"BENEFIT ARRANGEMENT" means any employment, consulting, severance or other
similar contract, plan, arrangement or policy, and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits or for
deferred compensation, profit-sharing bonuses, stock options, stock purchases or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which is not a Welfare Plan, Pension Plan or Multiemployer Plan.
"BUSINESS DAY" means any day other than Saturday, Sunday or a day on which
banking institutions in California or Nevada are required or authorized to be
closed.
"CCC" shall have the meaning set forth in the recitals of this Agreement.
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section 2.3 of
this Agreement.
"CLAIM" shall have the meaning set forth in Section 7.3 of this Agreement.
"CLAIM NOTICE" shall have the meaning set forth in Section 7.3 of this
Agreement.
"CLOSING" shall have the meaning set forth in Section 2.2 of this
Agreement.
"CLOSING DATE" shall have the meaning set forth in Section 2.2 of this
Agreement.
"CMT AGREEMENTS" shall have the meaning set forth in Section 5.23 of this
Agreement
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COLLATERAL DOCUMENTS" mean the Cowart Employment Agreement, the Vertex
Disclosure Schedules, the WWT Disclosure Schedules, all of the Exhibits to this
Agreement, and any other documents, instruments and certificates to be executed
and delivered by the Parties hereunder or thereunder.
A-2
"CONTRACT" means any agreement, contract, note, loan, evidence of
indebtedness, purchase order, letter of credit, indenture, security or pledge
agreement, covenant not to compete, license, instrument, commitment, obligation,
promise or undertaking (whether written or oral and whether express or implied).
"COWART EMPLOYMENT AGREEMENT" shall have the meaning set forth in Section
5.1 of this Agreement.
"COWART GUARANTEES" shall have the meaning set forth in Section 5.2 of
this Agreement.
"DISSENTING SHARES" shall have the meaning set forth in Section 2.14 of
this Agreement.
"EFFECTIVE DATE" shall have the meaning set forth in Section 2.3 of this
Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.3 of this
Agreement.
"EMPLOYEE PLANS" means all Benefit Arrangements, Pension Plans and Welfare
Plans.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any trade or business, whether or not
incorporated, that together with Vertex LP or WWT, as applicable, would be
deemed a single employer for purposes of Section 4001 of ERISA or Sections
414(b), (c), (m), (n) or (o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations there under.
"FAMILY MEMBER" means, with respect to any individual (i) the individual,
(ii) the individual's spouse, (iii) any other natural Person who is related to
the individual or the individual's spouse within the second degree (including
adopted children) and (iv) any other natural Person who resides with such
individual.
"GAAP" means U.S. generally accepted accounting principles consistently
applied, as in effect from time to time.
"INDEMNIFICATION AGREEMENTS" means those certain director and officer
indemnification agreements by and between WWT and its officers and directors.
"INDEPENDENT DIRECTOR" means any individual who does not beneficially own
more than 5% of the outstanding voting shares of Vertex Nevada, is not employed
by, or an officer of, Vertex Nevada or any Cowart Party, is not a director or
manager of any Cowart Party, is not a family member of Ben Cowart, and would
qualify as an "Independent Director" as defined in the rules and regulations of
the New York Stock Exchange.
A-3
"INTELLECTUAL PROPERTY" means all trademarks and trademark rights, trade
names and trade name rights, service marks and service mark rights, service
names and service name rights, patents and patent rights, utility models and
utility model rights, copyrights, mask work rights, brand names, trade dress,
product designs, product packaging, business and product names, logos, slogans,
rights of publicity, trade secrets, inventions (whether patentable or not),
invention disclosures, improvements, processes, formulae, industrial models,
processes, designs, specifications, technology, methodologies, computer software
(including all source code and object code), firmware, development tools, flow
charts, annotations, all Web addresses, sites and domain names, all data bases
and data collections and all rights therein, any other confidential and
proprietary right or information, whether or not subject to statutory
registration, and all related technical information, the information set forth
in manufacturing, engineering and technical drawings, know-how and all pending
applications for and registrations of patents, utility models, trademarks,
service marks and copyrights, and the right to sue for past infringement, if
any, in connection with any of the foregoing.
"LAWS" means any statute, ordinance, law, rule, regulation, code,
injunction, judgment, order, decree, ruling, or other requirement enacted,
adopted or applied by any Regulatory Authority, including judicial decisions
applying common law or interpreting any other Law.
"LEGAL PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Regulatory Authority or arbitrator.
"LIABILITIES" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether known or unknown, accrued, absolute,
contingent, matured, unmatured, liquidated or unliquidated or otherwise.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge, security
interest, security agreement, conditional sale or other title retention
agreement, limitation, option, assessment, restrictive agreement, restriction,
adverse interest, restriction on transfer or exception to or material defect in
title or other ownership interest (including but not limited to restrictive
covenants, leases and licenses).
"LOSSES" means any claim, liability, obligation, loss, damage, assessment,
penalty, judgment, settlement, cost and expense, including costs attributable to
the loss of the use of funds to the date on which a payment is made with respect
to a matter of indemnification under Article 7 hereof, and including reasonable
attorneys' and accountants' fees and disbursements incurred in investigating,
preparing, defending against or prosecuting any claim.
"MAKE-WHOLE WARRANTS" shall have the same meaning set forth in Section
6.1(i) of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" with respect to a
Person means a material adverse effect on (i) the assets, liabilities, condition
(financial or otherwise), properties, business or prospectus of such Person,
(ii) the validity, binding effect or enforceability of this Agreement or any of
the Collateral Documents against such Person or (iii) the ability of such Person
to perform its obligations under this Agreement or any of the Collateral
Documents.
A-4
"MERGER" shall have the meaning set forth in the recitals of this
Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in Section 2.6 of
this Agreement.
"MERGER SUB" shall have the meaning set forth in the preamble to this
Agreement.
"MULTIEMPLOYER PLAN" means any "multiemployer plan" as defined in Section
3(37) of ERISA.
"ORDER" means any writ, judgment, decree, ruling, injunction or similar
order of any Regulatory Authority (in each such case whether preliminary or
final).
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar phrase
means the usual and ordinary course of business of a Party, consistent with its
past custom and practice.
"ORGANIZATIONAL DOCUMENTS" shall mean (a) the articles or certificate of
incorporation, all certificates of determination and designation, and the bylaws
of a corporation; (b) the partnership agreement and any statement of partnership
of a general partnership; (c) the limited partnership agreement and the
certificate or articles of limited partnership of a limited partnership; (d) the
operating agreement, limited liability company agreement and the certificate or
articles of organization or formation of a limited liability company; (e) any
charter or similar document adopted or filed in connection with the creation,
formation or organization of any other Person; and (f) any amendment to any of
the foregoing.
"PARTNERS" shall have the meaning set forth in the recitals of this
Agreement.
"PARTY" or "PARTIES" shall have the meaning set forth in the preamble to
this Agreement.
"PENSION PLAN" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which a Person or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or has maintained, administered, contributed to or was required
to contribute to, or under which such Person or any ERISA Affiliate may incur
any liability.
"PERMIT" means any license, franchise, certificate, declaration, waiver,
exemption, variance, permit, consent, approval, registration, authorization,
qualification or similar right granted by a Regulatory Authority.
"PERSON" means any natural person, individual, firm, corporation,
including a non-profit corporation, partnership, trust, unincorporated
organization, association, limited liability company, labor union, Regulatory
Authority or other entity.
"PROXY STATEMENT" shall have the meaning set forth in Section 5.5 of this
Agreement.
A-5
"QUALIFIED FINANCING" means an equity financing generating gross proceeds
to WWT Sub of at least $500,000, at a pre-money valuation in an amount equal to
no less than the total amount of cash on hand of WWT Sub as of the Closing.
"REGULATORY AUTHORITY" means: any (i) federal, state, local, municipal or
foreign government; (ii) governmental or quasi-governmental authority of any
nature (including without limitation any governmental agency, branch,
department, official, instrumentality or entity and any court or other
tribunal); (iii) multi-national organization or body; or (iv) body exercising or
entitled to exercise any administrative, executive, judicial, legislative,
police, regulation or taxing authority or power of any nature.
"REPRESENTATIVES" shall have the meaning set forth in Section 5.14 of this
Agreement.
"SEC" means the Securities and Exchange Commission or any Regulatory
Authority that succeeds to its functions.
"SEC REPORTS" has the meaning set forth in the preamble to Article 4.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SUBSIDIARY" has the meaning set forth in Section 3.1.
"SURVIVING CORPORATION" shall have the meaning set forth in Section 2.1 of
this Agreement.
"TAX RETURNS" means all federal, state, local, provincial and foreign tax
returns, declarations, reports, claims, schedules and forms for refund or credit
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TAXES" means any U.S. or non U.S. federal, state, provincial, local or
foreign (i) income, corporation gross income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, intangible property, recording, occupancy, sales, use, transfer,
registration, value added minimum, ad valorem or excise tax, estimated or other
tax of any kind whatsoever, including any interest, additions to tax, penalties,
fees, deficiencies, assessments, additions or other charges of any nature with
respect thereto, whether disputed or not; and (ii) any liability for the payment
of any amount of the type described in (i) above.
"TRANSACTIONS" has the meaning set forth in Section 3.2.
"TRANSFER" shall have the meaning set forth in the recitals of this
Agreement.
"TRANSMITTAL LETTER" has the meaning set forth in Section 2.7 of this
Agreement.
A-6
"TREASURY REGULATIONS" means regulations promulgated by the U.S. Treasury
Department under the Code.
"VERTEX LP" has the meaning set forth in the preamble to this Agreement.
"VERTEX NEVADA" has the meaning set forth in the preamble to this
Agreement.
"VERTEX BUSINESS" means each of the following businesses owned by Vertex
LP: (i) the business of aggregating waste oil from third-party collectors and
managing the transportation logistics of delivering the waste oil to a
Chevron-Texaco refining facility in Louisiana; revenue from this business is
generated from payments made by Chevron-Texaco to Vertex LP under an existing
contract and is based on the volume, quality and price of the used oil feedstock
delivered to the Louisiana facility; (ii) the business of aggregating petroleum
waste streams from third-party collectors and managing the transportation
logistics of delivering the waste petroleum products to a Kmtex-owned facility
in Texas; in addition to the petroleum waste stream feedstock, this business
sources a second feedstock stream directly from a major chemical company.
Revenue is generated by selling end products such as pygas, gasoline blendstock
and marine diesel oil made at the Kmtex facility under a contract refining
agreement with Vertex LP utilizing the two streams of feedstock; and (iii) the
business of implementing proprietary re-refining technology owned by Vertex LP.;
the re-refining technology allows this business to take aggregated waste oil
(similar to what is currently delivered to the Chevron-Texaco facility) and
convert it to higher value products such as marine diesel oil and vacuum gas
oil; revenue for this business area will be generated from the sale of the
re-refined marine diesel oil and vacuum gas oil.
For the sake of clarification, the Vertex Business does not include the
businesses conducted by any of the Subsidiaries of Vertex LP.
"VERTEX CAPITAL STOCK" means, collectively, the Vertex Common Stock and
Vertex Preferred Stock.
"VERTEX COMMON STOCK" means shares of Vertex Nevada's common stock, par
value $0.001 per share.
"VERTEX CONTRACT" has the meaning set forth in Section 3.11 of this
Agreement.
"VERTEX FINANCIAL STATEMENTS" means the audited Consolidated Balance
Sheets of Vertex Nevada as of December 31, 2007, 2006 and 2005, and the audited
Consolidated Statements of Operations and Statements of Stockholders' Equity for
the periods then ended, in each case after taking into account the Transfer.
"VERTEX LP" has the meaning set forth in the preamble to this Agreement.
"VERTEX LOCK-UP" has the meaning set forth in Section 5.19 of this
Agreement.
"VERTEX NEVADA" has the meaning set forth in the preamble to this
Agreement.
"VERTEX PARTIES" shall have the meaning set forth in the preamble to this
Agreement.
A-7
"VERTEX PREFERRED STOCK" means, collectively, the Vertex Series A
Preferred Stock and the Vertex Series B Preferred Stock.
"VERTEX SERIES A PREFERRED STOCK" means the newly created Series A
Preferred Stock, par value $0.001 per share, of Vertex Nevada, established and
issued in connection with the transactions contemplated by this Agreement.
"VERTEX SERIES B PREFERRED STOCK" means the Series B Preferred Stock, par
value $0.001 per share, of Vertex Nevada, with the terms and conditions as are
set forth on EXHIBIT A-2 hereto.
"VERTEX SHAREHOLDERS" has the meaning set forth in the preamble to this
Agreement.
"WELFARE PLAN" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA which a Person or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which such
Person or any ERISA Affiliate may incur any Liability.
"WWT" has the meaning set forth in the preamble to this Agreement.
"WWT CAPITAL STOCK" means, collectively, the WWT Common Stock and WWT
Preferred Stock.
"WWT CERTIFICATE(S)" has the meaning set forth in Section 2.7 of this
Agreement.
"WWT COMMON STOCK" means shares of WWT's common stock, par value 0.001 per
share.
"WWT CONTRACT" has the meaning set forth in Section 4.10 of this
Agreement.
"WWT FINANCIAL STATEMENTS" means the audited Consolidated Balance Sheets
of WWT as of December 31, 2007 and 2006, and the audited Consolidated Statements
of Operations and Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 2007.
"WWT OPTIONS" has the meaning set forth in SECTION 2.6(C) of this
Agreement.
"WWT PREFERRED STOCK" means, collectively, the WWT Series A Preferred
Stock and WWT Series B Preferred Stock.
"WWT SERIES A PREFERRED STOCK" means shares of WWT's 8% Series A
Cumulative Redeemable Convertible Participating Preferred Stock, par value 0.001
per share.
"WWT SERIES B PREFERRED STOCK" means shares of WWT's 8% Series B
Cumulative Redeemable Convertible Participating Preferred Stock, par value 0.001
per share.
"WWT MANAGEMENT AGREEMENT" shall have the meaning set forth in Section 5.6
of this Agreement.
"WWT MANAGEMENT" shall have the meaning set forth in Section 5.6 of this
Agreement.
A-8
ARTICLE II
THE MERGER
2.1 MERGER. Upon the terms and conditions set forth in this Agreement,
and in accordance with the provisions of the CCC, at the Effective Time, (i) WWT
shall be merged with and into Merger Sub, (ii) the separate corporate existence
of WWT shall cease, (iii) Merger Sub, as the surviving company in the Merger,
shall continue its existence under the laws of the State of California as a
limited liability company, and (iv) Merger Sub shall succeed to and assume the
rights, obligations, properties, rights, privileges, powers and franchises of
WWT. Merger Sub, as the surviving limited liability company after the Merger, is
sometimes referred to herein as the "SURVIVING CORPORATION."
2.2 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at the offices of
TroyGould Professional Corporation located at 1801 Century Park East, 16th
Floor, Los Angeles, California 90067, or at such other place as the Parties
mutually agree, at 10:00 a.m. local time on the second Business Day after the
day on which the last of the closing conditions set forth in Article 6 below has
been satisfied or waived, or such other date as the Parties mutually agree upon
in writing (the "CLOSING DATE").
2.3 EFFECTIVE TIME. Upon the terms of and subject to the conditions of
this Agreement, as soon as practicable on the Closing Date: (a) the Parties will
cause the Merger to be consummated by filing with the Secretary of State of the
State of California a certificate of merger (the "CERTIFICATE OF MERGER"),
together with any required related certificates, and shall make any other
filings or recordings required under the CCC. The Merger shall become effective
upon such filing, or at such later date and time as is agreed to by the Parties
and set forth in the Certificate of Merger (the date and time of such filing
being the "EFFECTIVE TIME" and the date upon which the Effective Time occurs,
being the "EFFECTIVE DATE"). As soon as practicable on the Closing Date, Vertex
Nevada will deliver the Merger Consideration to the holders of WWT Common Stock
and WWT Preferred Stock in accordance with Section 2.6 hereof.
2.4 EFFECT OF THE MERGER. At the Effective Time, in accordance with the
CCC, the separate existence of WWT will cease and the Surviving Corporation
shall succeed, without further action, to all the property, assets, rights,
privileges, powers and franchises of every kind of the nature and description of
Merger Sub and WWT. All debts, liabilities and duties of Merger Sub and WWT will
become the debts, liabilities and duties of the Surviving Corporation. The
Parties acknowledge that as a condition to the closing of the transactions
contemplated hereby and in accordance with Section 5.6, all Liabilities of WWT
(other than up to $2.4 million of indebtedness) shall, immediately prior to the
Effective Time, be satisfied in full. As of the Effective Time, the Surviving
Corporation will be a single member limited liability company wholly owned by
Vertex Nevada.
2.5 EFFECT OF MERGER ON OWNERSHIP INTERESTS OF MERGER SUB. At the
Effective Time, the ownership interests of Merger Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become ownership interests of the Surviving Corporation.
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2.6 EFFECT OF MERGER ON CAPITAL STOCK OF WWT.
(a) WWT COMMON STOCK. At the Effective Time, each issued and
outstanding share of the WWT Common Stock shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into the
right to receive one share of Vertex Common Stock.
(b) WWT SERIES A PREFERRED STOCK AND WWT SERIES B PREFERRED STOCK.
At the Effective Time, (i) each issued and outstanding share of WWT Series A
Preferred Stock shall by virtue of the Merger and without any action on the part
of the holders thereof, be converted into the right to receive 4.062 shares of
Vertex Series A Preferred Stock; and (ii) each issued and outstanding share of
WWT Series B Preferred Stock shall by virtue of the Merger and without any
action on the part of the holders thereof, be converted into the right to
receive 116.51 shares of Vertex Series A Preferred Stock, in each case subject
to the terms and conditions of this Agreement. The shares of Vertex Common Stock
and Vertex Series A Preferred Stock issuable pursuant to Section 2.6(a) and this
Section 2.6(b) are collectively referred to herein as the "MERGER
CONSIDERATION." The terms of the Vertex Series A Preferred Stock issuable
hereunder shall have substantially the terms and conditions as are set forth on
EXHIBIT A-1 hereto.
(c) OUTSTANDING WWT OPTIONS AND WARRANTS. At the Effective Time,
each outstanding option and warrant to acquire shares of WWT Common Stock (the
"WWT OPTIONS") shall automatically become an option or warrant to acquire an
equivalent number of shares of Vertex Common Stock.
(d) WWT CAPITAL STOCK. As a result of the Merger and without any
action on the part of the holders thereof, at the Effective Time, all shares of
WWT Capital Stock shall be cancelled and retired and shall cease to be
outstanding. Each holder of shares of the WWT Capital Stock shall thereafter
cease to have any rights with respect to such shares, except that the issued and
outstanding shares of WWT Capital Stock immediately prior to the Effective Time,
and the respective holders thereof, shall have the right to receive the Merger
Consideration in accordance with this Section 2.6 upon the surrender of the
certificate or certificates representing such shares.
(e) TREASURY STOCK. Each share of WWT Common Stock held in Vertex
Nevada's treasury at the Effective Time, if any, shall, by virtue of the Merger
and without any action on the part of WWT, cease to be outstanding and shall be
cancelled and retired without payment of any Merger Consideration or any other
consideration therefor.
2.7 DELIVERY OF WWT CERTIFICATES AND EXCHANGE PROCEDURES. At and after
the Effective Time, Vertex Nevada will make available, and each holder of an
issued and outstanding share of WWT Common Stock and WWT Preferred Stock will be
entitled to receive, upon surrender to Vertex Nevada or the Agent of any
certificates evidencing such WWT Capital Stock (the "WWT CERTIFICATES") for
cancellation and a letter of transmittal or assignment separate from certificate
in customary form (the "TRANSMITTAL LETTER"), the portion of the Merger
Consideration into which such shares of WWT Capital Stock have been converted
into pursuant to the Merger, and upon such surrender of each such WWT
Certificate, and delivery by Vertex Nevada of the aggregate Merger Consideration
in exchange therefor, the WWT Common Stock and WWT Preferred Stock evidenced by
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the WWT Certificates so surrendered in accordance herewith shall forthwith be
cancelled. Until surrendered or delivered as contemplated by this Section 2.7,
each WWT Certificate will be deemed at any time after the Effective Time for all
purposes to evidence only the right to receive upon such surrender the
corresponding pro rata portion of the Merger Consideration; PROVIDED, HOWEVER,
that Vertex Nevada shall be under no obligation to deliver the Merger
Consideration, and no holder of an issued and outstanding share of WWT Common
Stock or WWT Preferred Stock shall be obligated to surrender a WWT Certificate,
as contemplated herein, until and unless of the conditions and covenants set
forth in Article 6 hereof shall have been performed, complied with, or otherwise
waived in accordance with the provisions of Article 6.
2.8 STOCK TRANSFER BOOKS. From and after the Effective Time, the stock
transfer books of WWT will be closed, and there will be no further registration
or transfers of WWT Common Stock or WWT Preferred Stock thereafter on the
records of WWT.
2.9 NO FURTHER OWNERSHIP RIGHTS. The Merger Consideration delivered upon
the surrender for exchange of the WWT Certificates in accordance with the terms
hereof will be deemed to have been issued in full satisfaction of all rights
pertaining to the WWT Common Stock and WWT Preferred Stock evidenced by such WWT
Certificates, and there will be no further registration of transfers of such
shares which were outstanding immediately prior to the Effective Time on the
records of the Surviving Corporation. If, after the Effective Time, WWT
Certificates are presented to the Surviving Corporation, they will be cancelled
as contemplated herein.
2.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any WWT
Certificates are lost, stolen or destroyed, Vertex Nevada will issue in exchange
for such lost, stolen or destroyed WWT Certificates, upon the making of an
affidavit of that fact by the holder thereof and the other deliveries required
above, the applicable Merger Consideration; PROVIDED, HOWEVER, that the
Surviving Corporation may, in its sole discretion and as a condition precedent
to the issuance thereof, require the holder of such lost, stolen or destroyed
WWT Certificates to deliver an indemnity or bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against it
with respect to the WWT Certificates alleged to have been lost, stolen or
destroyed.
2.11 CHARTER DOCUMENTS; DIRECTORS AND OFFICERS. Unless otherwise agreed
by Vertex Nevada and WWT prior to the Closing, at and as of the Effective Time,
without any further action on the part of the Parties: (i) the Organizational
Documents of Merger Sub as in effect immediately prior to the Effective Time
will be the Organizational Documents of the Surviving Corporation at and after
the Effective Time until thereafter amended as provided by applicable law and
such Organizational Documents; (ii) the manager of Merger Sub immediately prior
to the Effective Time will be the initial manager of the Surviving Corporation
from and after the Effective Time, until its successor is appointed and
qualified or until its resignation or removal; (iii) the officers of Merger Sub
immediately prior to the Effective Time shall serve in their respective offices
of the Surviving Corporation from and after the Effective Time, until their
successors are elected or appointed and qualified or until their resignation or
removal.
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2.12 NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of Vertex Capital Stock shall be issued upon the surrender of
WWT Certificates. In lieu thereof, each holder of WWT Capital Stock who would
otherwise be entitled to a fraction of a share of Vertex Capital Stock (after
aggregating all shares of WWT Capital Stock that otherwise would be received by
such holder), shall receive one additional share of Vertex Common Stock or
Vertex Preferred Stock, as applicable.
2.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of the Parties will
take all such reasonable lawful action as may be necessary or appropriate in
order to effect the Merger in accordance with this Agreement as promptly as
practicable. If, at any time after the Effective Time, any such further action
is necessary or desirable to carry out the purposes of this Agreement and to
vest the Surviving Corporation with full right, title and possession to all the
property, rights, privileges, power and franchises of WWT and Merger Sub, the
officers, directors and managers of WWT and Merger Sub immediately prior to the
Effective Time are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action.
2.14 WWT DISSENTING SHARES. Shares of WWT Common Stock and WWT Preferred
Stock which are issued and outstanding immediately prior to the Effective Time
and which are held by persons who are entitled to and have properly exercised,
and not withdrawn or waived, appraisal rights with respect thereto in accordance
with the CCC (the "DISSENTING SHARES"), will not be converted into the right to
receive the Merger Consideration, and holders of such shares of WWT Common Stock
and WWT Preferred Stock will be entitled, in lieu thereof, to receive payment of
the appraised value of such shares in accordance with the provisions of the CCC
unless and until such holders fail to perfect or effectively withdraw or lose
their rights to appraisal and payment under the CCC. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or loses such
right, such shares of WWT Common Stock and WWT Preferred Stock will thereupon be
treated as if they had been converted at the Effective Time into the right to
receive the Merger Consideration, without any interest thereon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF VERTEX PARTIES
Each Vertex Party, jointly and severally, represents and warrants to WWT
that the statements contained in this Article 3 are true, complete and correct
as of the date of this Agreement and will be correct and complete as of the
Closing Date (and as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 3, except in
the case of representations and warranties stated to be made as of the date of
this Agreement or as of another date and except for changes contemplated or
permitted by this Agreement); except as the same may be qualified or limited by
the Vertex Disclosure Schedules attached hereto:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Vertex LP, Vertex Nevada and Merger Sub is duly
organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is organized and has the requisite power and authority
to carry on the Vertex Business, which such jurisdictions are set forth on
SCHEDULE 3.1(A) of the Vertex Disclosure Schedules.
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(b) Each of Vertex LP, Vertex Nevada and Merger Sub is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of the Vertex Business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) has not had and would not reasonably be
expected to have a Material Adverse Effect on Vertex Nevada or, with respect to
the Vertex Business, on Vertex LP.
(c) Vertex Nevada has delivered to WWT complete and correct copies
of its Organizational Documents and the same for Merger Sub, in each case as
amended to the date hereof. The Organizational Documents of Vertex Nevada are
attached hereto as EXHIBIT B. All of the outstanding shares of capital stock or
other ownership interests of Vertex Nevada have been validly issued and are
fully paid and nonassessable and are owned of record and beneficially by the
Persons set forth on SCHEDULE 3.1(C)-1 of the Vertex Disclosure Schedules, in
each case free and clear of all Liens, and free of any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests, except for restrictions imposed by applicable securities Laws and
except for restrictions on sale contained in the certificate of incorporation of
Vertex Nevada. Immediately prior to the Closing, the outstanding shares of
capital stock of Vertex Nevada will be owned of record and beneficially by the
Persons set forth on SECTION 3.1(C)-2 of the Vertex Disclosure Schedules.
(d) Vertex Nevada does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity, other than Merger Sub. One hundred percent (100%) of
the ownership interests of Merger Sub is owned by Vertex Nevada.
(e) Vertex Nevada has no Subsidiaries, other than Merger Sub.
Vertex LP has no Subsidiaries, other than as set forth on SCHEDULE 3.1(E) of the
Vertex Disclosure Schedules. As used in this Agreement, the term "Subsidiary",
with respect to any Person, means any corporation or other legal entity of which
such Person controls (either alone or through or together with any other
Subsidiary), directly or indirectly, more than 50% of the capital stock or other
ownership interests the holders of which are generally entitled to vote for the
election of the Board of Directors or other governing body of such corporation
or other legal entity.
3.2 AUTHORIZATION; ENFORCEABILITY. Each Vertex Party has the requisite
power and authority, and has taken all action necessary, to execute, deliver and
perform its or his obligations under this Agreement and any Collateral Documents
to which it or he is or will be a party and each other agreement, document,
instrument or certificate contemplated by this Agreement and/or any Collateral
Documents or to be executed by such Vertex Party in connection with the
consummation of the transactions contemplated by this Agreement (including but
not limited to the Transfer) (the "TRANSACTIONS"), and to consummate the
Transactions. The execution and delivery by each Vertex Party of this Agreement
and any applicable Collateral Documents to which it or he is a party, and the
consummation by such Vertex Party of the Transactions contemplated hereby and
thereby, and the performance by such Vertex Party of its or his respective
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obligations hereunder and thereunder, have been duly and validly authorized by
all necessary corporate or other action on the part of such Vertex Party, and no
other action on the part of such Vertex Party is required to authorize the
execution, delivery and performance of this Agreement and the consummation by
such Vertex Party of the Transactions. This Agreement has been duly and validly
executed and delivered by each Vertex Party and constitutes a legal, valid and
binding obligation of each such Vertex Party enforceable against such Vertex
Party in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
3.3 CAPITALIZATION.
(a) The authorized capital stock of Vertex Nevada as of the date
of this Agreement consists of 750 million shares of Vertex Common Stock, and 50
million shares of Vertex Preferred Stock. Immediately prior to the Effective
Time (but prior to the issuance of the Merger Consideration), there will be (i)
61,770,000 shares of Vertex Common Stock, 100 shares of Vertex Series B
Preferred Stock and 0 shares of Vertex Series A Preferred Stock, issued and
outstanding, all of which shares shall be owned in the amounts and by the
holders set forth on SECTION 3.1(C)-2 of the Vertex Disclosure Schedule; (ii) no
shares of Vertex Common Stock held in the treasury of Vertex; (iii) 6,000,000
shares of Vertex Common Stock reserved for future issuance pursuant to the
exercise of outstanding options; and (iv) a sufficient number of shares of
Vertex Common Stock reserved for future issuance pursuant to the exercise of the
Make-Whole Warrants and the WWT Options. Except as described above, as of the
Effective Time, there will be no shares of voting or non-voting capital stock,
equity interests or other securities of Vertex Nevada authorized, issued,
reserved for issuance or otherwise outstanding.
(b) As of the Effective Time, all outstanding shares of Vertex
Capital Stock will be duly authorized, validly issued, fully paid and
non-assessable, and will not be subject to, or issued in violation of, any
preemptive, subscription or any kind of similar rights. Vertex Nevada has no
outstanding shares of Vertex Capital Stock subject to a right of repurchase that
will survive the Merger.
(c) There are no bonds, debentures, notes or other indebtedness of
either Vertex LP or Vertex Nevada having the right to vote (or convertible into
securities having the right to vote) on any matters on which partners of Vertex
LP or stockholders of Vertex Nevada may vote. Except as set forth on SCHEDULE
3.3(C) of the Vertex Disclosure Schedules, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind (contingent or otherwise) to which any Vertex Party is
a party or bound obligating any such Vertex Party to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of any Vertex Party or obligating any Vertex Party to
issue, grant, extend or enter into any agreement to issue, grant or extend any
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. No Vertex Party is subject to any obligation or requirement to
provide funds for or to make any investment (in the form of a loan or capital
contribution) in any Person.
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(d) All of the issued and outstanding partnership interests of
Vertex LP have been issued in compliance in all material respects with all
applicable federal and state securities Laws. As of the Effective Time, all of
the issued and outstanding shares of Vertex Capital Stock will have been issued
in compliance in all material respects with all applicable federal and state
securities Laws.
(e) Except as set forth on SCHEDULE 3.3(E) of the Vertex
Disclosure Schedules, there are no outstanding contractual obligations of any
Vertex Party to repurchase, redeem or otherwise acquire any shares of capital
stock (or options or warrants to acquire any such shares) or other security or
equity interests of any Vertex Party. Except as set forth on SCHEDULE 3.3(E) of
the Vertex Disclosure Schedules, there are no stock-appreciation rights,
security-based performance units, phantom stock or other security rights or
other agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any Person is or may be entitled to receive any
payment or other value based on the revenues, earnings or financial performance,
stock price performance or other attribute of any Vertex Party or to cause any
Vertex Party to file a registration statement under the Securities Act, or which
otherwise relate to the registration of any securities of any Vertex Party.
(f) Except as set forth on SCHEDULE 3.3(F) of the Vertex
Disclosure Schedules, there are no voting trusts, proxies or other agreements,
commitments or understandings to which any Vertex Party or, to the knowledge of
any Vertex Party , any of the stockholders or partners of any Vertex Party, is a
party or by which any of them is bound with respect to the issuance, holding,
acquisition, voting or disposition of any shares of capital stock or other
security or equity interest of any Vertex Party.
3.4 NON-CONTRAVENTION. Except as set forth on SCHEDULE 3.4 of the Vertex
Disclosure Schedules, the execution, delivery and performance by the Vertex
Parties of this Agreement or any applicable Collateral Document or the
consummation by the Vertex Parties of the Transactions does not, and the
consummation of the Transactions will not, (a) contravene, conflict with, or
result in any violation or breach of any provision of the Organizational
Documents of any of the Vertex Parties, (b) contravene, conflict with, or result
in a violation or breach of any provision of any Law applicable to the Vertex
Business, (c) require any consent or other action by any Person under,
constitute a breach of or default under, or cause or permit the termination,
cancellation, acceleration or other change of any right or obligation or the
loss of any benefit to which any Vertex Party is entitled under any provision of
any agreement or other instrument binding upon any Vertex Party or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the Vertex Business or (d) result in the
creation or imposition of any Lien on any asset of any Vertex Party, which in
the case of clauses (b) or (d) above would have a Material Adverse Effect on
Vertex Nevada or, with respect to the Vertex Business, on Vertex LP.
3.5 CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 3.5 of the
Vertex Disclosure Schedules, no consent, approval, authorization or order of,
registration or filing with, or notice to, any Regulatory Authority or any other
Person is necessary to be obtained, made or given by any of the Vertex Parties
in connection with the execution, delivery and performance by the Vertex Parties
of this Agreement or any applicable Collateral Document or for the consummation
by the Vertex Parties of the Transactions, except to the extent the failure to
obtain any such consent, approval, authorization or order or to make any such
registration or filing would not have a Material Adverse Effect on Vertex Nevada
or, with respect to the Vertex Business, on Vertex LP.
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3.6 BOOKS AND RECORDS. Each of Vertex LP and Vertex Nevada has made and
kept books and records and accounts, which, in reasonable detail, accurately and
fairly reflect the activities of such Person. Neither Vertex LP nor Vertex
Nevada has, in any manner that pertains to, or could affect, the Vertex
Business, engaged in any transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds that have been
and are reflected in the normally maintained books and records of such Person.
3.7 FINANCIAL STATEMENTS. The Vertex Financial Statements to be
delivered to WWT prior to the Closing will be prepared from the books and
records and fairly and accurately present the financial condition and the
results of operations, income, expenses, assets, Liabilities (including all
reserves), changes in shareholders' equity and cash flow of Vertex Nevada as of
the respective dates of, and for the periods referred to in, such Vertex
Financial Statements, in accordance with GAAP applied on a consistent basis
throughout the periods indicated.
3.8 TRANSFER. Upon consummation of the Transfer, the only assets and
Liabilities of Vertex Nevada shall be the assets, Liabilities and Contracts as
set forth on EXHIBIT C hereto. As of the Closing, the assets set forth on
EXHIBIT C will, except as set forth on SCHEDULE 3.8, be owned by Vertex Nevada
free and clear of any Liens and will be sufficient to operate the Vertex
Business in the manner in which it is operating as of the date hereof. As of the
Closing, there will be no Liabilities associated with the Vertex Business that
are not set forth on EXHIBIT C. The assets and Contracts on EXHIBIT C include
all properties, assets, privileges, powers, rights, interests and claims of
every type and description that are owned, leased, held, used or useful in the
Vertex Business in which Vertex LP has any right, title or interest.
3.9 TAXES.
(a) FILING OF TAX RETURNS. Except as set forth on SCHEDULE 3.9(A)
of the Vertex Disclosure Schedules, Vertex LP will duly and timely file (or
caused to be filed) with the appropriate taxing authorities all Tax Returns
required to be filed through the Closing Date. All such Tax Returns filed will,
when filed, be complete and accurate in all respects. Except as set forth on
SCHEDULE 3.9(A) of the Vertex Disclosure Schedules, Vertex LP is not currently
the beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made against Vertex LP or its assets by an authority in a
jurisdiction where Vertex LP does not file Tax Returns such that Vertex LP is or
may be subject to taxation by that jurisdiction.
(b) PAYMENT OF TAXES. Except as set forth on SCHEDULE 3.9(B) of
the Vertex Disclosure Schedules, all Taxes owed and due by Vertex LP (whether or
not shown on any Tax Return) have been paid. The unpaid Taxes of Vertex LP, if
any, (i) will not, as of December 31, 2007, exceed the reserve for Tax Liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) to be set forth on the face of the
Vertex Financial Statements (rather than in any notes thereto), and (ii) will
not exceed that reserve as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of Vertex LP in
filing its Tax Returns. Since December 31, 2007, Vertex LP has not (i) incurred
any Liability for Taxes other than in the Ordinary Course of Business or (ii)
paid Taxes other than Taxes paid on a timely basis and in a manner consistent
with past custom and practice.
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(c) AUDITS, INVESTIGATIONS, DISPUTES OR CLAIMS. Except as set
forth on SCHEDULE 3.9(C) of the Vertex Disclosure Schedules, no deficiencies for
Taxes are claimed, proposed or assessed by any taxing or other governmental
authority against Vertex LP, and there are no pending or, to the knowledge of
Vertex LP, threatened audits, investigations, disputes or claims or other
actions for or relating to any Liability for Taxes with respect to Vertex LP,
and there are no matters under discussion by or on behalf of Vertex LP with any
Regulatory Authority, or known to Vertex LP, with respect to Taxes that are
likely to result in an additional Liability for Taxes with respect to Vertex LP.
Audits of federal, state and local Tax Returns by the relevant taxing
authorities have been completed for the periods set forth on SCHEDULE 3.9(C) of
the Vertex Disclosure Schedules, and, except as set forth thereon, none of
Vertex LP or any predecessor thereof has been notified that any taxing authority
intends to audit a Tax Return for any other period. Vertex LP has not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. No power of attorney granted by
Vertex LP with respect to any Taxes is currently in force.
(d) LIEN. There are no Liens for Taxes (other than for current
Taxes not yet due and payable) on any assets or capital stock of Vertex LP.
(e) TAX ELECTIONS. All material elections with respect to Taxes
affecting Vertex or any of its assets as of the Closing Date are set forth on
SCHEDULE 3.9(E) of the Vertex Disclosure Schedules. Vertex LP has not: (i)
consented at any time under Section 341(f)(1) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any disposition of any of its assets;
(ii) agreed, and is not required, to make any adjustment under Section 481(a) of
the Code by reason of a change in accounting method or otherwise; (iii) made an
election, and is not required, to treat any of its assets as owned by another
Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt
bond financed property or tax-exempt use property within the meaning of Section
168 of the Code; (iv) acquired, and does not own, any assets that directly or
indirectly secure any debt the interest on which is tax exempt under Section
103(a) of the Code; (v) made a consent dividend election under Section 565 of
the Code; or (vi) made any of the foregoing elections and is not required to
apply any of the foregoing rules under any comparable state or local Tax
provision.
(f) PRIOR AFFILIATED GROUPS. Vertex LP is not and has never been a
member of an affiliated group of corporations within the meaning of Section 1504
of the Code. Vertex LP does not have any Liability for the Taxes of any Person
(i) under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law), (ii) as a transferee or successor, (iii) by
Contract, or (iv) otherwise.
(g) TAX SHARING AGREEMENTS. There are no agreements for the
sharing of Tax liabilities or similar arrangements (including indemnity
arrangements) with respect to or involving Vertex LP or any of its assets or the
Vertex Business, and, after the Closing Date, neither Vertex Nevada nor any of
its assets or the Vertex Business shall be bound by any such Tax-sharing
agreements or similar arrangements or have any Liability thereunder for amounts
due in respect of periods prior to the Closing Date.
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(h) PARTNERSHIPS AND SINGLE MEMBER LLCS. Except as set forth on
SCHEDULE 3.9(H) of the Vertex Disclosure Schedules, Vertex LP (i) is not subject
to any joint venture, partnership, or other arrangement or contract which is
treated as a partnership for Tax purposes, (ii) does not own a single member
limited liability company which is treated as a disregarded entity, (iii) is not
a shareholder of a "controlled foreign corporation" as defined in Section 957 of
the Code (or any similar provision of state, local or foreign law) and (iv) is
not a "personal holding company" as defined in Section 542 of the Code (or any
similar provision of state, local or foreign law).
(i) NO WITHHOLDING. Vertex LP has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897 of the Code. Vertex LP has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other third party. The transactions contemplated herein
are not subject to the tax withholding provisions of Section 3406 of the Code,
or of Subchapter A of Chapter 3 of the Code or of any other provision of law.
(j) INTERNATIONAL BOYCOTT. Vertex LP has not participated in and
is not participating in an international boycott within the meaning of Section
999 of the Code.
(k) PERMANENT ESTABLISHMENT. Except as set forth on SCHEDULE
3.9(K) of the Vertex Disclosure Schedules, Vertex LP does not have and has never
had a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States and such foreign
country.
(l) PARACHUTE PAYMENTS. Except as set forth on SCHEDULE 3.9(L) of
the Vertex Disclosure Schedules, Vertex LP is not a party to any existing
Contract, arrangement or plan that has resulted or would result (upon the
Closing or otherwise), separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280(G) of the Code.
(m) TAX SHELTERS. Vertex LP has not participated in and Vertex LP
is not now participating in, any transaction described in Section 6111(c) or (d)
of the Code or Section 6112(b) of the Code or the Treasury Regulations
thereunder, or in any reportable transaction described in such regulations.
3.10 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 3.10 hereto, Vertex LP owns,
or is licensed or otherwise possesses legally enforceable rights to use, all
Intellectual Property that is necessary for the conduct of the Vertex Business
(b) The Vertex Business, including the use of all owned and
licensed Intellectual Property, does not infringe or misappropriate or otherwise
materially violate the Intellectual Property rights of any third party, and no
claim is pending or, to the knowledge of the Vertex Parties, threatened against
Vertex LP alleging any of the foregoing.
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(c) To the knowledge of the Vertex Parties, (i) no third party is
engaging in any activity that infringes or misappropriates the Intellectual
Property owned or licensed by Vertex LP, and (ii) Vertex LP has not granted any
material license or other right to any third party with respect to such
Intellectual Property.
(d) Vertex LP has made available to WWT all material
correspondence and all written opinions in its possession relating to potential
infringement or misappropriation (i) by Vertex LP of any Intellectual Property
rights of any third party or (ii) by any third party of any of the Intellectual
Property rights, owned or licensed, used in the Vertex Business.
(e) Vertex LP has a license to use all software development tools,
library functions, compilers and other third-party software that are used in the
operation of the Vertex Business and are material to the Vertex Business, taken
as a whole.
3.11 CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 3.11(A) hereto sets forth a true and complete list of
all contracts, agreements, leases, commitments or other understandings or
arrangements, written or oral, express or implied, to which Vertex LP is a
party, or affecting the Vertex Business, or by which Vertex LP or any of its
property is bound or affected requiring payments to or from, or incurring of
liabilities by, Vertex LP in excess of $50,000 (the "VERTEX CONTRACTS").
(b) Except as set forth on SCHEDULE 3.11(B) hereto, Vertex LP has
complied with and performed, in all material respects, all of its obligations
required to be performed under and is not in default with respect to any of the
Vertex Contracts, as of the date hereof, nor has any event occurred which has
not been cured which, with or without the giving of notice, lapse of time, or
both, would constitute a default in any respect thereunder. To the knowledge of
the Vertex Parties, no other party has failed to comply with or perform, in all
material respects, any of its obligations required to be performed under or is
in material default with respect to any such Vertex Contracts, as of the date
hereof, nor has any event occurred which, with or without the giving of notice,
lapse of time or both, would constitute a material default in any respect by
such party thereunder.
(c) Except as set forth on SCHEDULE 3.11(C) hereto, to the
knowledge of the Vertex Parties, there exists no facts or circumstances that
would make a material default by any party to any contract or obligation likely
to occur subsequent to the date hereof.
3.12 EMPLOYEE BENEFITS.
(a) SCHEDULE 3.12(A) of the Vertex Disclosure Schedules sets forth
a complete list of all Employee Plans covering employees, directors or
consultants or former employees, directors or consultants in, or related to, the
Vertex Business. Vertex LP has delivered or made available to WWT true and
complete copies of all Employee Plans, including written interpretations thereof
and written descriptions thereof which have been distributed to Vertex LP's
employees and for which Vertex LP has copies, all annuity contracts or other
funding instruments relating thereto, and a complete description of all Employee
Plans which are not in writing.
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(b) Neither Vertex LP nor any ERISA Affiliate sponsors, maintains,
contributes to or has an obligation to contribute to, or has sponsored,
maintained, contributed to or had an obligation to contribute to, any Pension
Plan subject to Title IV of ERISA, or any Multiemployer Plan.
(c) Each Welfare Plan which covers or has covered employees or
former employees of Vertex LP or of its Affiliates in the Vertex Business and
which is a "group health plan," as defined in Section 607(1) of ERISA, has been
operated in compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and Section 4980B of the Code at all times.
(d) There is no Legal Proceeding or Order outstanding, relating to
or seeking benefits under any Employee Plan set forth on SCHEDULE 3.12(A) of the
Vertex Disclosure Schedules, which is pending, threatened or anticipated against
Vertex LP, any ERISA Affiliate or any Employee Plan.
(e) Neither Vertex LP nor any ERISA Affiliate has any liability
for unpaid contributions under Section 515 of ERISA with respect to any Welfare
Plan covering employees, directors or consultants or former employees, directors
or consultants in, or related to, the Vertex Business.
(f) There are no Liens arising under the Code or ERISA with
respect to the operation, termination, restoration or funding of any Employee
Plan set forth on SCHEDULE 3.12(A) of the Vertex Disclosure Schedules, or
arising in connection with any excise tax or penalty tax with respect to such
Employee Plan.
(g) Each Employee Plan set forth on SCHEDULE 3.12(A) of the Vertex
Disclosure Schedules has at all times been maintained in all material respects,
by its terms and in operation, in accordance with all applicable laws,
including, without limitation, ERISA and the Code.
(h) Vertex LP and its ERISA Affiliates have made full and timely
payment of all amounts required to be contributed under the terms of each
Employee Plan and applicable Law or required to be paid as expenses or as Taxes
under applicable Laws, under such Employee Plan, and Vertex LP and its ERISA
Affiliates shall continue to do so through the Closing Date.
(i) Vertex LP has no Employee Plan intended to qualify under
Section 401 of the Code.
(j) Neither the execution and delivery of this Agreement or other
related agreements by the Vertex Parties nor the consummation of the
Transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement).
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(k) Neither Vertex LP nor any ERISA Affiliate has incurred any
liability with respect to any Employee Plan, which may create, or result in any
liability to Vertex Nevada.
3.13 LABOR MATTERS; EMPLOYEES. Except as set forth on SCHEDULE 3.13 of
the Vertex Disclosure Schedules, Vertex LP is not a party to any collective
bargaining or other labor contract. There has not been, there is not presently
pending or existing, and, to the knowledge of any of the Vertex Parties, there
is not threatened (i) any strike, slowdown, picketing, work stoppage or employee
grievance process against Vertex LP or the Vertex Business; (ii) any Legal
Proceeding against or affecting Vertex LP or the Vertex Business relating to the
alleged violation of any Law or Order pertaining to labor relations or
employment matters; or (iii) union organizing campaign or any application for
certification of a collective bargaining agent. No event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by Vertex LP, and no such
action is contemplated by Vertex LP. Vertex LP has complied with all material
Laws relating to employment, equal employment opportunity, nondiscrimination,
harassment, retaliation, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar Taxes, occupational
health and safety, and plant closing. Vertex LP is not liable for the payment of
any compensation, damages, Taxes, fines, penalties or other amounts (including,
without limitation, amounts related to workplace safety and insurance), however
designated, for failure to comply with any of the foregoing Laws.
3.14 LEGAL PROCEEDINGS. There is no material Legal Proceeding or Order
(a) pending or, to the knowledge of any of the Vertex Parties, threatened or
anticipated against or affecting the Vertex Business (or to the knowledge of any
of the Vertex Parties, pending or threatened, against any of the officers,
directors or employees of Vertex LP with respect to their business activities
related to or affecting the Vertex Business); (b) that challenges or that may
have the effect of preventing, making illegal, delaying or otherwise interfering
with any of the Transactions; or (c) related to the Vertex Business. To the
knowledge of the Vertex Parties, there is no reasonable basis for any such Legal
Proceeding or Order. To the knowledge of the Vertex Parties, no officer,
director, partner, agent or employee of Vertex LP is subject to any Order that
prohibits such officer, director, partner, agent or employee from engaging in or
continuing any conduct, activity, or practice relating to the Vertex Business.
The Vertex Business is not subject to any Order of any Regulatory Authority and
Vertex LP is not engaged in any Legal Proceeding relating to the Vertex Business
to recover monies due it or for damages sustained by it. Vertex LP is not and
has not been in default with respect to any Order relating to the Vertex
Business, and there are no unsatisfied judgments against Vertex LP relating to
the Vertex Business. There are no Orders or agreements with, or Liens by, any
Regulatory Authority or quasi-governmental entity relating to any environmental
Law, which regulate, obligate, bind or in any way affect Vertex LP or any
property on which Vertex LP operates the Vertex Business. SCHEDULE 3.14 sets
forth all litigation that the Vertex Parties are subject to, none of which
litigation challenges or may have the effect of preventing, making illegal,
delaying or otherwise interfering with any of the Transactions or is related in
any way to the Vertex Business.
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3.15 COMPLIANCE WITH LAW.
(a) To the knowledge of Vertex LP, the conduct of the Vertex
Business is and at all times has been in compliance with all Laws or Orders
applicable to the conduct and operations of the Vertex Business. Vertex LP has
not received any notice to the effect that, or otherwise been advised of (i) any
actual, alleged, possible or potential violation of, or failure to comply with,
any such Laws or Orders or (ii) any actual, alleged, possible or potential
obligation on the part of Vertex LP to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature with respect to the Vertex
Business. No event has occurred or circumstance exists that (with or without
notice or lapse of time) (i) may constitute or result in a violation by Vertex
LP of, or a failure on the part of Vertex LP, any such Laws or Orders or (ii)
may give rise to any obligation on the part of Vertex LP to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature,
except, in either case separately or the cases together, where such violation or
failure to comply could not reasonably be expected to have a Material Adverse
Effect on, the Vertex Business.
(b) None of Vertex LP, or any of its directors, officers or
Representatives or to the knowledge of Vertex LP, any employee or other Person
affiliated with or acting for or on behalf of Vertex LP, has, directly or
indirectly, (i) made any contribution, bribe, rebate, payoff, influence payment,
kickback or other payment to any Person, private or public, regardless of form,
whether in money, property or services (A) to obtain favorable treatment in
securing business, (B) to pay for favorable treatment for business secured, (C)
to obtain special concessions or for special concessions already obtained, for
or in respect of Vertex or any of its Affiliates or (D) in violation of any Laws
of the United States (including, without limitation, the Foreign Corrupt
Practices Act of 1977, as amended (15 U.S.C. Sections 78dd-1 et seq.)) or any
laws of any other country having jurisdiction; or (ii) established or maintained
any fund or asset that has not been recorded in the books and records of Vertex
LP.
3.16 PERMITS. SCHEDULE 3.16(A) of the Vertex Disclosure Schedules sets
forth a complete list of all Permits held by Vertex LP and used in the conduct
of the Vertex Business, and such Permits collectively constitute all of the
Permits necessary for Vertex LP to lawfully conduct and operate the Vertex
Business, as it is presently conducted and to permit Vertex LP to own and use
its assets in the manner in which they are presently owned and used in
connection with the Vertex Business. All of such Permits will be transferred to
Vertex Nevada on or prior to the Closing, and no third-party consent is required
in connection therewith. Except as set forth on SCHEDULE 3.16(B) of the Vertex
Disclosure Schedules, Vertex LP is and at all times has been in compliance with
all material Permits applicable to it or to the conduct and operations of the
Vertex Business. Vertex LP has not received any notice to the effect that, or
otherwise been advised of (i) any actual, alleged, possible or potential
violation of, or failure to comply with, any such Permits or (ii) any actual,
alleged, possible or potential revocation, withdrawal, suspension, cancellation
or termination of, or any modification to, any Permit set forth on or required
to be set forth on SCHEDULE 3.16(A) of the Vertex Disclosure Schedules. No event
has occurred, and to Vertex LP's knowledge no circumstance exists, that (with or
without notice or lapse of time) (i) may constitute or result directly or
indirectly in a violation by Vertex LP of, or a failure on the part of Vertex LP
to comply with, any such Permits or (ii) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation or termination of, or any
modification to, any Permit set forth on or required to be set forth on SCHEDULE
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3.16(A) of the Vertex Disclosure Schedules. All applications for or renewals of
all Permits have been timely filed and made and no Permit will expire or be
terminated as a result of the consummation of the transactions contemplated by
this Agreement. No present or former shareholder, partner, director, officer or
employee of Vertex LP or any Affiliate thereof, or any other Person, owns or has
any proprietary, financial or other interest (direct or indirect) in any Permit
that Vertex LP owns, possesses or uses.
3.17 ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE 3.17 of
the Vertex Disclosure Schedules, since December 31, 2007, there has not been
any: (a) Material Adverse Effect with respect to the Vertex Business, and no
event has occurred and no circumstance exists that may result in such a Material
Adverse Effect other than Material Adverse Effects resulting from historical
seasonality of the Vertex Business; (b) purchase, redemption, retirement or
other acquisition by Vertex LP of any Vertex partnership interests or other
equity interest of Vertex LP; (c) amendments to the Organizational Documents of
Vertex LP; (d) payment or increase by Vertex LP of any bonuses, salaries or
other compensation (including management or other similar fees) or entry into
any employment, severance or similar Contract with any employee engaged in the
Vertex Business, other than increases in salary to employees made in the
Ordinary Course of Business; (e) adverse change in employee relations which has
or is reasonably likely to have a Material Adverse Effect on Vertex LP as
relates to the Vertex Business; (f) damage to or destruction or loss of any of
the assets or property of Vertex LP relating to the Vertex Business, whether or
not covered by insurance, that could reasonably be expected to constitute a
Material Adverse Effect on Vertex LP as relates to the Vertex Business; (g)
entry into, termination or acceleration of, or receipt of notice of termination
by Vertex LP of (1) any material license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement relating to the
Vertex Business, or (2) any Contract or transaction involving a Liability by or
to Vertex LP (other than the Liabilities relating to the Vertex Business
incurred in the Ordinary Course of Business since December 31, 2007); (h) sale
(other than sales of inventory in the Ordinary Course of Business, if any),
lease or other disposition of any of the assets or property of Vertex LP
relating to the Vertex Business; (i) mortgage, pledge or imposition of any Lien
on any assets or property of Vertex LP relating to the Vertex Business,
including the sale, lease or other disposition of any of its Intellectual
Property relating to the Vertex Business; (j) (1) delay or failure to repay when
due any obligation of Vertex LP, which delay or failure could have a Material
Adverse Effect on Vertex LP as relates to the Vertex Business, or (2) delay or
failure to repay when due any obligation of Vertex LP which delay or failure
could have a Material Adverse Effect on Vertex LP as relates to the Vertex
Business; (k) cancellation or waiver by Vertex LP of any claims or rights with a
value to Vertex LP relating to the Vertex Business in excess of Fifty Thousand
Dollars ($50,000) individually or in the aggregate; (l) failure by Vertex LP to
use reasonable efforts to preserve intact the current business organization of
Vertex LP relating to the Vertex Business, and maintain the relations and
goodwill with its suppliers, customers, landlords, creditors, employees,
licensors, resellers, distributors, agents and others having business
relationships with them relating to the Vertex Business where such failure could
reasonably be expected to have a Material Adverse Effect on Vertex LP as relates
to the Vertex Business; (m) licensing out on an exclusive basis or other than in
the Ordinary Course of Business, disposition or lapsing of any Intellectual
Property or any disclosure to any Person of any trade secret or other
confidential information without appropriate protections in place; (n) change in
the accounting methods, principles or practices used by Vertex LP; (o) capital
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expenditures by Vertex LP relating to the Vertex Business in excess of $20,000
individually or $50,000 in the aggregate; or (p) agreement, whether oral or
written, by Vertex LP with respect to or to do any of the foregoing other than
as expressly provided for herein. Vertex LP is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3.17, "INSOLVENT" means (i) the present fair saleable value of Vertex LP's
assets is less than the amount required to pay Vertex LP's total indebtedness,
contingent or otherwise, (ii) Vertex LP is unable to pay its debts and
Liabilities, subordinated, contingent or otherwise, as such debts and
Liabilities become absolute and matured, (iii) Vertex LP intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) Vertex LP has unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
3.18 INSURANCE. SCHEDULE 3.18 of the Vertex Disclosure Schedules sets
forth a complete and accurate list (showing as to each policy or binder the
carrier, policy or binder the carrier, policy number, coverage limits,
expiration dates, annual premiums and a general description of the type of
coverage provided) of all policies or binders of insurance of any kind or nature
covering the Vertex Business, or any employees, properties or assets of Vertex
LP relating to the Vertex Business, including, without limitation, policies of
life, disability, fire, theft, workers compensation, employee fidelity and other
casualty and liability insurance. All such policies are in full force an effect.
Vertex LP is not in default under any of such policies or binders, and Vertex LP
has not failed to give any notice or to present any claim under any such policy
or binder in a due and timely fashion.
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Vertex LP which has the
effect of prohibiting or materially impairing (a) any current or future business
practice of Vertex LP or (b) any acquisition of any Person or property by Vertex
LP, except in each of clauses (a) and (b) for any such prohibitions or
impairments that would not reasonably be expected to have a Material Adverse
Effect on Vertex LP as relates to the Vertex Business.
3.20 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 3.20 of
the Vertex Disclosure Schedules, none of Vertex LP, any Affiliate thereof,
holders of the ownership interest of Vertex LP or any Affiliate or Family Member
thereof is presently or has, since December 31, 2007, borrowed any moneys from
or has any outstanding debt or other obligations to Vertex LP or is presently a
party to any transaction with Vertex LP relating to the Vertex Business. Except
as set forth on SCHEDULE 3.20 of the Vertex Disclosure Schedules, none of Vertex
LP any Affiliate thereof, or any director, officer, partner or key employee of
any such Persons (a) owns any direct or indirect interest of any kind in (except
for ownership of less than 1% of any public company, provided, that such owner's
role is that solely of a passive investor), or controls or is a director,
officer, employee or partner of, consultant to, lender to or borrower from, or
has the right to participate in the profits of, any Person which is (i) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of Vertex
LP, (ii) engaged in a business related to the Vertex Business or (iii) a
participant in any transaction to which Vertex LP is a party, or (b) is a party
to any Contract with Vertex LP. Except as set forth on SCHEDULE 3.20 of the
Vertex Disclosure Schedules, Vertex LP has no Contract or understanding with any
officer, director or key employee of Vertex LP or any of Vertex LP's partners or
any Affiliate or Family Member thereof with respect to the subject matter of
this Agreement, the consideration payable hereunder or any other matter.
SCHEDULE 3.20 sets forth each transaction that Vertex Nevada and Vertex LP would
be required to disclose for the past three years pursuant to Item 404 of
Regulation S-K of the Securities Act, as if such Person were subject to such
disclosure requirements.
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3.21 BROKERS OR FINDERS. Except as set forth on SCHEDULE 3.21 of the
Vertex Disclosure Schedules, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Vertex LP or its
Affiliates in connection with the transactions contemplated by this Agreement,
and neither Vertex LP nor any of its Affiliates has incurred any obligation to
pay any brokerage or finder's fee or other commission in connection with the
transactions contemplated by this Agreement.
3.22 NO OTHER AGREEMENTS. Except as set forth on SCHEDULE 3.22 of the
Vertex Disclosure Schedules, and other than this Agreement or any agreement
contemplated hereby, neither Vertex LP, nor any of its partners, officers,
directors or Affiliates has any legal obligation, absolute or contingent, to any
other Person to sell, assign or transfer any partnership or other equity
interest in Vertex LP or to effect any merger, consolidation or other
reorganization of Vertex LP or to enter into any agreement with respect thereto.
3.23 DISCLOSURE. No representation or warranty of the Vertex Parties in
this Agreement or in any Collateral Document and no statement in any certificate
furnished or to be furnished by any of the Vertex Parties pursuant to this
Agreement contained, contains or will contain on the date such agreement or
certificate was or is delivered, or on the Closing Date, any untrue statement of
a material fact, or omitted, omits or will omit on such date to state any
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
3.24 REAL PROPERTY; TITLE TO PROPERTY.
(a) Vertex LP does not own any real property or any interest,
other than a leasehold interest, in any real property. SCHEDULE 3.24(A) of the
Vertex Disclosure Schedules lists and describes all real property leased by
Vertex LP and all subleases thereto, in each case that relates to the Vertex
Business. Except for leases and subleases listed on SCHEDULE 3.24(A) of the
Vertex Disclosure Schedules, there are no leases, subleases, licenses, occupancy
agreements, options, rights, concessions or other agreements or arrangements,
written or oral, granting to any Person the right to purchase, use or occupy any
real property used in connection with the Vertex Business or any portion thereof
or interest in any such real property.
(b) Vertex LP has good and marketable title to all of its
properties, interests in properties and assets, real and personal, used in
connection with the Vertex Business or with respect to leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, Liens,
pledges, charges or encumbrances of any kind or character, except (i) Liens for
current Taxes not yet due and payable or which are being contested by Vertex LP
in good faith, (ii) such imperfections of title, liens and easements as do not
and will not materially detract from or interfere with the use of the properties
subject thereto or affected thereby, or otherwise materially impair business
operations involving such properties, and (iii) any Liens set forth on SCHEDULE
3.24 of the Vertex Disclosure Schedules. The properties and equipment of Vertex
LP that are used in the operation of the Vertex Business are in good operating
condition subject to normal wear and tear. All material properties used in the
Vertex Business are set forth on EXHIBIT C hereto.
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3.25 STATUS OF VERTEX NEVADA. Since its inception, Vertex Nevada has
been, and until immediately prior to the Transfer (which will occur immediately
prior to the Effective Time), Vertex Nevada shall remain, a shell company with
no assets, Liabilities, Contracts (other than this Agreement) or operations.
3.26 CONDUCT OF BUSINESS. Prior to the Closing Date, Vertex LP shall
conduct the Vertex Business in the normal course, and shall not sell, pledge, or
assign any assets, without the prior written approval of WWT, except in the
regular course of business. Except as otherwise provided herein, neither Vertex
LP nor Vertex Nevada shall amend its respective Organizational Documents,
declare dividends, redeem or sell stock, partnership or other securities,
acquire or dispose of fixed assets, change employment terms, enter into any
material or long-term contract, guarantee obligations of any third party, settle
or discharge any material balance sheet receivable for less than its stated
amount, pay more on any liability than its stated amount or enter into any other
transaction other than in the regular course of business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WWT
WWT represents and warrants to the Vertex Parties that the statements
contained in this Article 4 are true, complete and correct as of the date of
this Agreement and will be correct and complete as of the Closing Date (and as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article 4, except in the case of representations
and warranties stated to be made as of the date of this Agreement or as of
another date and except for changes contemplated or permitted by this
Agreement); except as the same may be qualified or limited by the WWT Disclosure
Schedules and except as may be disclosed in documents filed by WWT from time to
time with the SEC (the "SEC REPORTS"):
4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) WWT is duly organized, validly existing and in good standing
under the Laws of the jurisdiction in which it is organized and has the
requisite power and authority to carry on its business as now being conducted,
which such jurisdictions are set forth on SCHEDULE 4.1(A) hereto of the WWT
Disclosure Schedules.
(b) WWT is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) has not had and would not
reasonably be expected to have a Material Adverse Effect on WWT.
(c) WWT has delivered or made available to the Vertex Parties
complete and correct copies of its Organizational Documents, in each case as
amended to the date hereof. All of the outstanding shares of capital stock or
other ownership interests of each Subsidiary of WWT have been validly issued and
are fully paid and nonassessable and owned by WWT, free and clear of all Liens,
and free of any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests, except for restrictions imposed
by applicable securities Laws.
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(d) There are no outstanding (i) securities of WWT or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other ownership interests in any Subsidiary of WWT, or (ii) options or other
rights to acquire from WWT or any of its Subsidiaries, or other obligation of
WWT or any of its Subsidiaries to issue, any capital stock or other ownership
interests in, or any securities convertible into or exchangeable for any capital
stock or other ownership interests in, any Subsidiary of WWT.
(e) Except for ownership of less than 1% in any publicly traded
company and the capital stock or other ownership interests of its Subsidiaries,
WWT does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity. No
Subsidiary of WWT owns any shares of WWT Capital Stock.
(f) SCHEDULE 3.1 of the WWT Disclosure Schedules sets forth each
Subsidiary of WWT as of the date of this Agreement.
4.2 AUTHORIZATION; ENFORCEABILITY. WWT has the requisite power and
authority, and has taken all action necessary, to execute, deliver and perform
its obligations under this Agreement and any Collateral Documents to which it is
a party and each other agreement, document, instrument or certificate
contemplated by this Agreement and/or any Collateral Documents or to be executed
by WWT in connection with the consummation of the Transactions, and, subject to
approval of the stockholders of WWT, to consummate the Transactions. The
execution and delivery by WWT of this Agreement and any applicable Collateral
Documents, and the consummation by WWT of the Transactions contemplated hereby,
and the performance by WWT of its obligations hereunder, have been duly and
validly authorized by all necessary corporate or other action on the part of
WWT, subject to adoption of this Agreement by the stockholders of WWT, and no
other action on the part of WWT is required to authorize the execution, delivery
and performance of this Agreement and the consummation by WWT of the
Transactions. This Agreement has been duly and validly executed and delivered by
WWT and constitutes a legal, valid and binding obligation of WWT enforceable
against WWT in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization and other similar
laws affecting creditors' rights generally and the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
4.3 CAPITALIZATION.
(a) The authorized capital stock of WWT as of the date of this
Agreement consists of 100,000,000 shares of WWT Common Stock and 10,000,000
shares of Preferred Stock (of which 9,100,000 shares have been designated as WWT
Series A Preferred Stock and 500,000 shares have been designated as WWT Series B
Preferred Stock). As of the date of this Agreement, (i) there are 27,596,591
shares of WWT Common Stock, 4,619,481 shares of WWT Series A Preferred Stock,
and 244,615 shares of WWT Series B Preferred Stock issued and outstanding; and
(ii) no shares of WWT Common Stock are held in the treasury of WWT. SCHEDULE
4.3(A) of the WWT Disclosure Schedules set forth the options and warrants to
acquire WWT Capital Stock outstanding as of the date hereof. Except as described
above, as of the close of business on the day prior to the date hereof, there
were no shares of voting or non-voting capital stock, equity interests or other
securities of WWT authorized, issued, reserved for issuance or otherwise
outstanding.
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(b) All outstanding shares of WWT Capital Stock are duly
authorized, validly issued, fully paid and non-assessable, and not subject to,
or issued in violation of, any preemptive, subscription or any kind of similar
rights. WWT has no outstanding shares of WWT Capital Stock subject to a right of
repurchase that will survive the Merger.
(c) There are no bonds, debentures, notes or other indebtedness of
WWT having the right to vote (or convertible into securities having the right to
vote) on any matters on which stockholders of WWT may vote. Except as set forth
in the SEC Reports, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
(contingent or otherwise) to which WWT is a party or bound obligating WWT to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of WWT or obligating WWT to
issue, grant, extend or enter into any agreement to issue, grant or extend any
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. Neither WWT nor its Subsidiaries is subject to any obligation or
requirement to provide funds for or to make any investment (in the form of a
loan or capital contribution) in any Person.
(d) All of the issued and outstanding shares of WWT Capital Stock
were issued in compliance in all material respects with all applicable federal
and state securities Laws.
(e) Except as set forth in the SEC Reports, there are no
outstanding contractual obligations of WWT to repurchase, redeem or otherwise
acquire any shares of capital stock (or options or warrants to acquire any such
shares) or other security or equity interests of WWT. Except as set forth in the
SEC Reports, there are no stock-appreciation rights, security-based performance
units, phantom stock or other security rights or other agreements, arrangements
or commitments of any character (contingent or otherwise) pursuant to which any
Person is or may be entitled to receive any payment or other value based on the
revenues, earnings or financial performance, stock price performance or other
attribute of WWT or any of its Subsidiaries or to cause WWT or any of its
Subsidiaries to file a registration statement under the Securities Act, or which
otherwise relate to the registration of any securities of WWT or any of its
Subsidiaries.
(f) Except as set forth in the SEC Reports, there are no voting
trusts, proxies or other agreements, commitments or understandings to which WWT
or any of its Subsidiaries or, to the knowledge of WWT, any of the stockholders
of WWT, is a party or by which any of them is bound with respect to the
issuance, holding, acquisition, voting or disposition of any shares of capital
stock or other security or equity interest of WWT or any of its Subsidiaries.
4.4 NON-CONTRAVENTION. Except as set forth in the SEC Reports and
SCHEDULE 4.4 to the WWT Disclosure Schedules, the execution, delivery and
performance of this Agreement by WWT does not and, subject to obtaining
shareholder adoption of this Agreement, the consummation of the Transactions
will not (a) contravene, conflict with, or result in any violation or breach of
any provision of the Organizational Documents of WWT, (b) contravene, conflict
with, or result in a violation or breach of any provision of any Law applicable
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to WWT, (c) require any consent or other action by any Person under, constitute
a breach of or default under, or cause or permit the termination, cancellation,
acceleration or other change of any right or obligation or the loss of any
benefit to which WWT or any of its Subsidiaries is entitled under any provision
of any agreement or other instrument binding upon WWT or any of its Subsidiaries
or any license, franchise, permit, certificate, approval or other similar
authorization affecting, or relating in any way to, the assets or business of
WWT and its Subsidiaries or (d) result in the creation or imposition of any Lien
on any asset of WWT or any of its Subsidiaries, which in the case of clauses (b)
or (d) above would have a Material Adverse Effect on WWT.
4.5 CONSENTS AND APPROVALS. Except as set forth in the SEC Reports, no
consent, approval, authorization or order of, registration or filing with, or
notice to, any Regulatory Authority or any other Person is necessary to be
obtained, made or given by WWT in connection with the execution, delivery and
performance by WWT of this Agreement or any applicable Collateral Document or
for the consummation by WWT of the Transactions, except to the extent the
failure to obtain any such consent, approval, authorization or order or to make
any such registration or filing would not have a Material Adverse Effect on WWT.
4.6 BOOKS AND RECORDS. WWT has made and kept books and records and
accounts, which, in reasonable detail, accurately and fairly reflect the
activities of WWT pertaining to its business. WWT has not, in any manner that
pertains to, or could affect, its business, engaged in any transaction,
maintained any bank account or used any corporate funds except for transactions,
bank accounts and funds that have been and are reflected in the normally
maintained books and records of WWT.
4.7 FINANCIAL STATEMENTS. Included in the SEC Reports are the WWT
Financial Statements. The WWT Financial Statements have been prepared from the
books and records and fairly and accurately present the financial condition and
the results of operations, income, expenses, assets, Liabilities (including all
reserves), changes in shareholders' equity and cash flow of WWT as of the
respective dates of, and for the periods referred to in, such WWT Financial
Statements, in accordance with GAAP applied on a consistent basis throughout the
periods indicated. WWT maintains a standard system of accounting established and
administered in accordance with GAAP.
4.8 NO UNDISCLOSED LIABILITIES. Except as set forth in the SEC Reports
or on SCHEDULE 4.8 of the WWT Disclosure Schedules, WWT has no Liabilities due
or to become due except (a) Liabilities that are reflected in the WWT Financial
Statements which have not been paid or discharged since the date of the WWT
Financial Statements, (b) Liabilities incurred in the Ordinary Course of
Business since the date of the WWT Financial Statements (none of which relates
to any default under any Contract, breach of warranty, tort, infringement or
violation of any Law or arose out of any Legal Proceeding) and none of which
would have a Material Adverse Effect on WWT, and (c) Liabilities which are
satisfied by WWT prior to the Closing.
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4.9 TAXES.
(a) FILING OF TAX RETURNS. WWT has duly and timely filed (or
caused to be filed) with the appropriate taxing authorities all Tax Returns
required to be filed through the date hereof. All such Tax Returns filed are
complete and accurate in all respects. WWT is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made against WWT or its assets by an authority in a jurisdiction where WWT
does not file Tax Returns such that WWT is or may be subject to taxation by that
jurisdiction.
(b) PAYMENT OF TAXES. All Taxes owed and due by WWT (whether or
not shown on any Tax Return) have been paid. The unpaid Taxes of WWT, if any,
(i) did not, as of the date of WWT Financial Statements, exceed the reserve for
Tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the WWT
Financial Statements (rather than in any notes thereto), and (ii) have not
exceeded that reserve as adjusted for operations and transactions through the
date hereof in accordance with the past custom and practice of WWT in filing its
Tax Returns. Since the WWT Financial Statements Date, WWT has not (i) incurred
any Liability for Taxes other than in the Ordinary Course of Business or (ii)
paid Taxes other than Taxes paid on a timely basis and in a manner consistent
with past custom and practice.
(c) AUDITS, INVESTIGATIONS, DISPUTES OR CLAIMS. No deficiencies
for Taxes are claimed, proposed or assessed by any taxing or other governmental
authority against WWT, and there are no pending or, to the knowledge of WWT,
threatened audits, investigations, disputes or claims or other actions for or
relating to any Liability for Taxes with respect to WWT, and there are no
matters under discussion by or on behalf of WWT with any Regulatory Authority,
or known to WWT, with respect to Taxes that are likely to result in an
additional Liability for Taxes with respect to WWT. Audits of federal, state and
local Tax Returns by the relevant taxing authorities have been completed for the
periods set forth on SCHEDULE 4.9(C) of the WWT Disclosure Schedules, and,
except as set forth thereon, none of WWT, any Subsidiary thereof, or any
predecessor thereof has been notified that any taxing authority intends to audit
a Tax Return for any other period. WWT has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. No power of attorney granted by WWT with respect to
any Taxes is currently in force.
(d) LIEN. There are no Liens for Taxes (other than for current
Taxes not yet due and payable) on any assets or capital stock of WWT.
(e) TAX ELECTIONS. All material elections with respect to Taxes
affecting WWT or any of its respective assets as of the date hereof are set
forth on SCHEDULE 4.9(E) of the WWT Disclosure Schedules. WWT has not: (i)
consented at any time under Section 341(f)(1) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any disposition of any of its assets;
(ii) agreed, and is not required, to make any adjustment under Section 481(a) of
the Code by reason of a change in accounting method or otherwise; (iii) made an
election, and is not required, to treat any of its assets as owned by another
Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt
bond financed property or tax-exempt use property within the meaning of Section
168 of the Code; (iv) acquired, and does not own, any assets that directly or
indirectly secure any debt the interest on which is tax exempt under Section
103(a) of the Code; (v) made a consent dividend election under Section 565 of
the Code; or (vi) made any of the foregoing elections and is not required to
apply any of the foregoing rules under any comparable state or local Tax
provision.
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(f) PRIOR AFFILIATED GROUPS. WWT is not and has never been a
member of an affiliated group of corporations within the meaning of Section 1504
of the Code. WWT does not have any Liability for the Taxes of any Person (i)
under Treasury Regulations Section 1.1502-6 (or any similar provision of state,
local or foreign law), (ii) as a transferee or successor, (iii) by Contract, or
(iv) otherwise.
(g) TAX SHARING AGREEMENTS. There are no agreements for the
sharing of Tax liabilities or similar arrangements (including indemnity
arrangements) with respect to or involving WWT (or any of its Subsidiaries) or
any of its assets or business, and, after the Closing Date, neither WWT nor any
of its assets shall be bound by any such Tax-sharing agreements or similar
arrangements or have any Liability thereunder for amounts due in respect of
periods prior to the Closing Date.
(h) PARTNERSHIPS AND SINGLE MEMBER LLCS. WWT (i) is not subject to
any joint venture, partnership, or other arrangement or contract which is
treated as a partnership for Tax purposes, (ii) does not own a single member
limited liability company which is treated as a disregarded entity, (iii) is not
a shareholder of a "controlled foreign corporation" as defined in Section 957 of
the Code (or any similar provision of state, local or foreign law) and (iv) is
not a "personal holding company" as defined in Section 542 of the Code (or any
similar provision of state, local or foreign law).
(i) NO WITHHOLDING. WWT has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897 of the Code. WWT has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party. The transactions contemplated herein are not
subject to the tax withholding provisions of Section 3406 of the Code, or of any
other provision of law.
(j) INTERNATIONAL BOYCOTT. WWT has not participated in and is not
participating in an international boycott within the meaning of Section 999 of
the Code.
(k) PERMANENT ESTABLISHMENT. WWT does not have and has never had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States and such foreign country.
(l) PARACHUTE PAYMENTS. WWT is not a party to any existing
Contract, arrangement or plan that has resulted or would result (upon the
Closing or otherwise), separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280(G) of the Code.
(m) TAX SHELTERS. Neither WWT nor any Subsidiary has participated
in and WWT is not now participating in, any transaction described in Section
6111(c) or (d) of the Code or Section 6112(b) of the Code or the Treasury
Regulations thereunder, or in any reportable transaction described in such
regulations.
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4.10 CONTRACTS; NO DEFAULTS.
(a) The Exhibit Index to WWT's Annual Report on Form 10-K for the
year ended December 31, 2007 sets forth a true and complete list of all
contracts, agreements, leases, commitments or other understandings or
arrangements, written or oral, express or implied, to which WWT is a party, or
affecting its business or by which WWT or any of its property is bound or
affected requiring payments to or from, or incurring of liabilities by, WWT in
excess of $50,000 (the "WWT CONTRACTS").
(b) Except as set forth in the SEC Reports, WWT has complied with
and performed, in all material respects, all of its obligations required to be
performed under and is not in default with respect to any of the WWT Contracts,
as of the date hereof, nor has any event occurred which has not been cured
which, with or without the giving of notice, lapse of time, or both, would
constitute a default in any respect thereunder. To the knowledge of WWT, no
other party has failed to comply with or perform, in all material respects, any
of its obligations required to be performed under or is in material default with
respect to any such WWT Contracts, as of the date hereof, nor has any event
occurred which, with or without the giving of notice, lapse of time or both,
would constitute a material default in any respect by such party thereunder.
(c) Except as set forth in the SEC Reports, to the knowledge of
WWT, there exists no facts or circumstances that would make a material default
by any party to any contract or obligation likely to occur subsequent to the
date hereof.
4.11 EMPLOYEE BENEFITS.
(a) The SEC Reports include a complete list of all Employee Plans
(i) covering employees, directors or consultants or former employees, directors
or consultants in, or related to, WWT and/or (ii) with respect to which
Surviving Corporation may incur any Liability. WWT has delivered or made
available to Vertex true and complete copies of all Employee Plans, including
written interpretations thereof and written descriptions thereof which have been
distributed to WWT's employees and for which WWT has copies, all annuity
contracts or other funding instruments relating thereto, and a complete
description of all Employee Plans which are not in writing.
(b) Neither WWT nor any ERISA Affiliate sponsors, maintains,
contributes to or has an obligation to contribute to, or has sponsored,
maintained, contributed to or had an obligation to contribute to, any Pension
Plan subject to Title IV of ERISA, or any Multiemployer Plan.
(c) Each Welfare Plan which covers or has covered employees or
former employees of WWT or of its Affiliates in the Business and which is a
"group health plan," as defined in Section 607(1) of ERISA, has been operated in
compliance with provisions of Part 6 of Title I, Subtitle B of ERISA and Section
4980B of the Code at all times.
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(d) There is no Legal Proceeding or Order outstanding, relating to
or seeking benefits under any Employee Plan set forth in the SEC Reports, which
is pending, threatened or anticipated against WWT, any ERISA Affiliate or any
Employee Plan.
(e) Neither WWT nor any ERISA Affiliate has any liability for
unpaid contributions under Section 515 of ERISA with respect to any Welfare Plan
(i) covering employees, directors or consultants or former employees, directors
or consultants in, or related to, WWT and (ii) with respect to which Surviving
Corporation may incur any Liability.
(f) There are no Liens arising under the Code or ERISA with
respect to the operation, termination, restoration or funding of any Employee
Plan set forth in the SEC Reports, or arising in connection with any excise tax
or penalty tax with respect to such Employee Plan.
(g) Each Employee Plan set forth in the SEC Reports has at all
times been maintained in all material respects, by its terms and in operation,
in accordance with all applicable laws, including, without limitation, ERISA and
the Code.
(h) WWT and its ERISA Affiliates have made full and timely payment
of all amounts required to be contributed under the terms of each Employee Plan
and applicable Law or required to be paid as expenses or as Taxes under
applicable Laws, under such Employee Plan, and WWT and its ERISA Affiliates
shall continue to do so through the Closing Date.
(i) WWT has no Employee Plan intended to qualify under Section 401
of the Code.
(j) Except as set forth on SCHEDULE 4.11(J) of the WWT Disclosure
Schedules, neither the execution and delivery of this Agreement or other related
agreements by WWT nor the consummation of the Transactions will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Plan (including, without limitation, the acceleration of the vesting or
exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(k) Neither WWT nor any ERISA Affiliate has incurred any liability
with respect to any Employee Plan, which may create, or result in any liability
to Surviving Corporation.
4.12 LABOR MATTERS; EMPLOYEES. WWT is not a party to any collective
bargaining or other labor contract. There has not been, there is not presently
pending or existing, and, to the knowledge of WWT, there is not threatened (i)
any strike, slowdown, picketing, work stoppage or employee grievance process
against WWT or its business; (ii) any Legal Proceeding against or affecting WWT
or its business relating to the alleged violation of any Law or Order pertaining
to labor relations or employment matters; or (iii) union organizing campaign or
any application for certification of a collective bargaining agent. No event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by WWT,
and no such action is contemplated by WWT. WWT has complied with all material
Laws relating to employment, equal employment opportunity, nondiscrimination,
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harassment, retaliation, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar Taxes, occupational
health and safety, and plant closing. WWT is not liable for the payment of any
compensation, damages, Taxes, fines, penalties or other amounts (including,
without limitation, amounts related to workplace safety and insurance), however
designated, for failure to comply with any of the foregoing Laws.
4.13 LEGAL PROCEEDINGS. There is no Legal Proceeding or Order (a) pending
or, to the knowledge of WWT, threatened or anticipated against or affecting WWT,
its assets or its business (or to the knowledge of WWT, pending or threatened,
against any of the officers, directors or employees of WWT with respect to their
business activities related to or affecting WWT's business); (b) that challenges
or that may have the effect of preventing, making illegal, delaying or otherwise
interfering with any of the Transactions; or (c) related to WWT's business or
WWT's assets to which WWT is otherwise a party. To the knowledge of WWT, there
is no reasonable basis for any such Legal Proceeding or Order. To the knowledge
of WWT, no officer, director, agent or employee of WWT is subject to any Order
that prohibits such officer, director, agent or employee from engaging in or
continuing any conduct, activity, or practice relating to WWT's business. Except
as set forth in the SEC Reports, neither WWT, its assets or its business is
subject to any Order of any Regulatory Authority and WWT is not engaged in any
Legal Proceeding to recover monies due it or for damages sustained by it. WWT is
not and has not been in default with respect to any Order, and there are no
unsatisfied judgments against WWT, its assets or its business. There is not a
reasonable likelihood of an adverse determination of any pending Legal
Proceedings. There are no Orders or agreements with, or Liens by, any Regulatory
Authority or quasi-governmental entity relating to any environmental Law, which
regulate, obligate, bind or in any way affect WWT or any property on which WWT
operates its business.
4.14 COMPLIANCE WITH LAW.
(a) WWT, to its knowledge, and the conduct of WWT's business are
and at all times have been in compliance with all Laws or Orders applicable to
them or to the conduct and operations of WWT's business. WWT has not received
any notice to the effect that, or otherwise been advised of (i) any actual,
alleged, possible or potential violation of, or failure to comply with, any such
Laws or Orders or (ii) any actual, alleged, possible or potential obligation on
the part of WWT to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature. No event has occurred or circumstance exists that
(with or without notice or lapse of time) (i) may constitute or result in a
violation by WWT of, or a failure on the part of WWT, any such Laws or Orders or
(ii) may give rise to any obligation on the part of WWT to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature, except, in
either case separately or the cases together, where such violation or failure to
comply could not reasonably be expected to have a Material Adverse Effect on
WWT.
(b) None of WWT, or any of its directors, officers or
Representatives or to the knowledge of WWT, any employee or other Person
affiliated with or acting for or on behalf of WWT, has, directly or indirectly,
(i) made any contribution, bribe, rebate, payoff, influence payment, kickback or
other payment to any Person, private or public, regardless of form, whether in
money, property or services (A) to obtain favorable treatment in securing
business, (B) to pay for favorable treatment for business secured, (C) to obtain
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special concessions or for special concessions already obtained, for or in
respect of WWT or any of its Affiliates or (D) in violation of any Laws of the
United States (including, without limitation, the Foreign Corrupt Practices Act
of 1977, as amended (15 U.S.C. Sections 78dd-1 et seq.)) or any laws of any
other country having jurisdiction; or (ii) established or maintained any fund or
asset that has not been recorded in the books and records of WWT.
4.15 PERMITS. SCHEDULE 4.15(A) of the WWT Disclosure Schedules sets forth
a complete list of all Permits held by WWT or used in the conduct of its
business, and such Permits collectively constitute all of the Permits necessary
for WWT to lawfully conduct and operate its business, as it is presently
conducted and to permit WWT to own and use its assets in the manner in which
they are presently owned and used. WWT is and at all times has been in
compliance with all material Permits applicable to it or to the conduct and
operations of WWT's business. WWT has not received any notice to the effect
that, or otherwise been advised of (i) any actual, alleged, possible or
potential violation of, or failure to comply with, any such Permits or (ii) any
actual, alleged, possible or potential revocation, withdrawal, suspension,
cancellation or termination of, or any modification to, any Permit set forth on
or required to be set forth on SCHEDULE 4.15(A) of the WWT Disclosure Schedules.
No event has occurred, and to WWT's knowledge no circumstance exists, that (with
or without notice or lapse of time) (i) may constitute or result directly or
indirectly in a violation by WWT of, or a failure on the part of WWT to comply
with, any such Permits or (ii) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation or termination of, or any modification to,
any Permit set forth on or required to be set forth on SCHEDULE 4.15(A) of the
WWT Disclosure Schedules. All applications for or renewals of all Permits have
been timely filed and made and no Permit will expire or be terminated as a
result of the consummation of the transactions contemplated by this Agreement.
No present or former shareholder, director, officer or employee of WWT or any
Affiliate thereof, or any other Person, owns or has any proprietary, financial
or other interest (direct or indirect) in any Permit that WWT owns, possesses or
uses.
4.16 ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC Reports,
since the date of the WWT Financial Statements, there has not been any: (a)
purchase, redemption, retirement or other acquisition by WWT of any WWT Capital
Stock or other equity interest of WWT; (b) amendments to the Organizational
Documents of WWT; (c) payment or increase by WWT of any bonuses, salaries or
other compensation (including management or other similar fees) or entry into
any employment, severance or similar Contract with any employee engaged in WWT's
business and which the Surviving Corporation is required to hire after Closing,
other than increases in salary to employees made in the Ordinary Course of
Business; (d) adverse change in employee relations which has or is reasonably
likely to have a Material Adverse Effect on WWT's business; (e) entry into,
termination or acceleration of, or receipt of notice of termination by WWT of
(1) any material license, distributorship, dealer, sales representative, joint
venture, credit or similar agreement relating to WWT's business, or (2) any
Contract or transaction involving a Liability by or to WWT for which the
Surviving Corporation may be liable after the Closing (other than the
Liabilities set forth in the SEC Reports, Liabilities reflected on the WWT
Financial Statements which have not been paid or discharged since the date of
the WWT Financial Statements, and Liabilities relating to WWT's business
incurred in the Ordinary Course of Business since the date of the WWT Financial
Statements); (f) mortgage, pledge or imposition of any Lien on any assets or
property of WWT relating to WWT's business, including the sale, lease or other
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disposition of any of its Intellectual Property relating to WWT's business; (j)
(1) delay or failure to repay when due any obligation of WWT, which delay or
failure could have a Material Adverse Effect on WWT, other than such items as
have been specifically documented to WWT in writing or (2) delay or failure to
repay when due any obligation of WWT which delay or failure could have a
Material Adverse Effect on WWT, WWT's business or on any assets or property of
WWT relating to WWT's business; (g) cancellation or waiver by WWT of any claims
or rights with a value to WWT relating to its business in excess of Fifty
Thousand Dollars ($50,000) individually or in the aggregate; (h) licensing out
on an exclusive basis or other than in the Ordinary Course of Business,
disposition or lapsing of any Intellectual Property or any disclosure to any
Person of any trade secret or other confidential information without appropriate
protections in place; (n) change in the accounting methods, principles or
practices used by WWT; or (i) agreement, whether oral or written, by WWT with
respect to or to do any of the foregoing other than as expressly provided for
herein.
4.17 INSURANCE. SCHEDULE 4.17 of the WWT Disclosure Schedules sets forth
a complete and accurate list (showing as to each policy or binder the carrier,
policy or binder the carrier, policy number, coverage limits, expiration dates,
annual premiums and a general description of the type of coverage provided) of
all policies or binders of insurance of any kind or nature covering WWT, its
business, or any employees, properties or assets of WWT relating to its
business, including, without limitation, policies of life, disability, fire,
theft, workers compensation, employee fidelity and other casualty and liability
insurance. All such policies are in full force an effect. WWT is not in default
under any of such policies or binders, and WWT has not failed to give any notice
or to present any claim under any such policy or binder in a due and timely
fashion.
4.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in the SEC
Reports, there is no agreement, judgment, injunction, order or decree binding
upon WWT or any of its Subsidiaries which has the effect of prohibiting or
materially impairing (a) any current or future business practice of WWT or any
of its Subsidiaries or (b) any acquisition of any Person or property by WWT or
any of its Subsidiaries, except in each of clauses (a) and (b) for any such
prohibitions or impairments that would not reasonably be expected to have a
Material Adverse Effect on WWT.
4.19 RELATED PARTY TRANSACTIONS. Except as set forth in the SEC Reports,
none of WWT, any Affiliate thereof, holders of the capital stock or other
ownership interest of WWT or any Affiliate or Family Member thereof is presently
or has, since the date of the WWT Financial Statements, borrowed any moneys from
or has any outstanding debt or other obligations to WWT or is presently a party
to any transaction with WWT relating to WWT's business. Except as set forth in
the SEC Reports, none of WWT, any Affiliate thereof, or any director, officer or
key employee of any such Persons (a) owns any direct or indirect interest of any
kind in (except for ownership of less than 1% of any public company, provided,
that such owner's role is that solely of a passive investor), or controls or is
a director, officer, employee or partner of, consultant to, lender to or
borrower from, or has the right to participate in the profits of, any Person
which is (i) a competitor, supplier, customer, landlord, tenant, creditor or
debtor of WWT, (ii) engaged in a business related to WWT's business or (iii) a
participant in any transaction to which WWT is a party, or (b) is a party to any
Contract with WWT. Except as set forth on SCHEDULE 4.19 of the WWT Disclosure
Schedules, WWT has no Contract or understanding with any officer, director or
key employee of WWT or any of WWT's shareholders or any Affiliate or Family
Member thereof with respect to the subject matter of this Agreement, the
consideration payable hereunder or any other matter.
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4.20 BROKERS OR FINDERS. Except as set forth on SCHEDULE 4.20 of the WWT
Disclosure Schedules, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by WWT or its Affiliates
in connection with the transactions contemplated by this Agreement, and neither
WWT, or Affiliates has incurred any obligation to pay any brokerage or finder's
fee or other commission in connection with the transaction contemplated by this
Agreement.
4.21 NO OTHER AGREEMENTS. Except as set forth in the SEC Reports, and
other than this Agreement or any agreement contemplated hereby, neither WWT, nor
any of its stockholders, officers, directors or Affiliates has any legal
obligation, absolute or contingent, to any other Person to sell, assign or
transfer any capital stock of or other equity interest (other than warrants or
options in favor of WWT's officers, directors or employees, if any) in WWT or to
effect any merger, consolidation or other reorganization of WWT or to enter into
any agreement with respect thereto.
4.22 DISCLOSURE. No representation or warranty of WWT in this Agreement
or in any Collateral Document and no statement in any certificate furnished or
to be furnished by WWT pursuant to this Agreement contained, contains or will
contain on the date such agreement or certificate was or is delivered, or on the
Closing Date, any untrue statement of a material fact, or omitted, omits or will
omit on such date to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
4.23 REAL PROPERTY; TITLE TO PROPERTY.
(a) WWT does not own any real property or any interest, other than
a leasehold interest, in any real property. A description of all real property
leased by WWT and its Subsidiaries and all subleases thereto is included in the
SEC Reports. Except for leases and subleases set forth in the SEC Reports, there
are no leases, subleases, licenses, occupancy agreements, options, rights,
concessions or other agreements or arrangements, written or oral, granting to
any Person the right to purchase, use or occupy any real property used in
connection with WWT's business or any portion thereof or interest in any such
real property.
(b) WWT and its Subsidiaries have good and marketable title to all
of its properties, interests in properties and assets, real and personal,
reflected in WWT Financial Statements or acquired after date of the WWT
Financial Statements, or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) Liens for current Taxes not
yet due and payable or which are being contested by WWT in good faith, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties, (iii) Liens securing debt which is reflected on WWT Financial
Statements, and (iv) any Liens described in the SEC Reports.
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4.24 CONDUCT OF BUSINESS. Except as otherwise provided herein, WWT shall
not amend its Organizational Documents, declare dividends, redeem or sell stock
or other securities, enter into any material or long-term contract, guarantee
obligations of any third party, settle or discharge any material balance sheet
receivable for less than its stated amount, pay more on any liability than its
stated amount or enter into any other transaction other than in the regular
course of business.
ARTICLE V
COVENANTS OF THE PARTIES
The Parties hereby agree as follows:
5.1 COWART EMPLOYMENT AGREEMENT. As soon as practicable following the
execution of this Agreement, but in any event prior to the Closing Date, Agent
shall execute and enter into an employment agreement with Vertex Nevada, in
substantially the form attached hereto as EXHIBIT D (the "COWART EMPLOYMENT
AGREEMENT").
5.2 TERMINATION OF COWART GUARANTEES. As soon as practicable following
the execution of this Agreement, the Parties shall use commercially reasonable
efforts to cause the release and termination of all personal guarantees (the
"COWART GUARANTEES") provided by Agent and his Family Members in respect of an
aggregate of $1.6 million of Indebtedness owed by Vertex LP to Regents Bank.
5.3 TRANSFER. The Agent shall cause the Transfer to occur prior to the
Closing.
5.4 FAIRNESS HEARING. As soon as practicable following the execution of
this Agreement, and in order to qualify for an exemption pursuant to Section
3(a)(10) of the Securities Act, the Parties shall work together to prepare an
application for submission to the California Department of Corporations seeking
a fairness hearing regarding the issuance of the Merger Consideration. The
Parties shall cooperate with each other in connection with any hearing so held
pursuant to the application. In the event that the Parties are unable to obtain
the necessary ruling from the California Department of Corporations (or if WWT
believes, based on advice of its counsel, that such approval is not likely to be
obtained without making material changes to the terms of the Merger), the
Parties will work together to prepare and file with the SEC a Registration
Statement of Vertex Nevada on Form S-4 (which shall be filed jointly with the
Proxy Statement referred to below) to register the issuance of the Merger
Consideration.
5.5 PROXY STATEMENT. As soon as practicable following the execution of
this Agreement, the Parties shall work together to prepare and file with the SEC
a proxy statement in respect of the Merger and the transactions contemplated
hereby (the "PROXY STATEMENT"), which Proxy Statement shall be used in respect
of soliciting approval of the Merger and this Agreement by WWT's shareholders.
Without limiting the generality of the foregoing, Vertex LP shall work
diligently to prepare those sections of the Proxy Statement that relate to the
Vertex Business.
5.6 WWT OPERATIONS. As of the Effective Time, all of WWT's assets,
Intellectual Property and Contracts shall be vested in the Surviving
Corporation. Immediately following the Effective Time, a total of $5.0 million
in cash shall be distributed by the Surviving Corporation to Vertex Nevada. As
of the Closing, management of the Surviving Corporation shall own options to
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acquire up to a total of 30% of the ownership interests of the Surviving
Corporation. In addition, effective as of the Closing, Vertex Nevada shall enter
into a management agreement with such members of management of the Surviving
Corporation as shall be designated by WWT prior to the Closing (the "WWT
MANAGEMENT"), pursuant to which Vertex Nevada will in good faith endeavor to
execute an agreed-upon business plan (the "WWT MANAGEMENT AGREEMENT"). The WWT
Management Agreement will provide that, in the event that the Surviving
Corporation is unable to consummate a Qualified Financing within 180 days of the
Closing Date, any cash on hand at the Surviving Corporation (less an amount
necessary to satisfy any of the Surviving Corporation's Liabilities) shall be
distributed to Vertex Nevada.
5.7 REPORTING COMPANY AND SEC COMPLIANCE. The Parties hereto acknowledge
that as of the Effective Time, the Vertex Common Stock shall be deemed to be
registered under Section 12(g) of the Exchange Act pursuant to the provisions of
Rule 12g-3 thereunder. The Vertex Parties hereby covenant that Vertex Nevada
shall thereafter take all action, and do all things, necessary to maintain
compliance with any and all rules and regulations of the Exchange Act applicable
to a Person subject to the reporting requirements thereunder, and to maintain
the trading of the Vertex Common Stock on the OTC Bulletin Board or on any
nationally recognized securities exchange.
5.8 DUE DILIGENCE. Each Party shall provide to the other and their
respective Representatives such financial, operating and other documents, data
and information relating to such Party, and their respective businesses,
properties, assets and liabilities, as each Party, or its representatives may
reasonably request. In addition, each Party hereby agrees to take all action
necessary to enable their respective Representatives to review, inspect and
audit each Party's business, properties, assets and liabilities in connection
with such Party's due diligence investigation of the other Parties, and discuss
them with such Party's Representatives. Notwithstanding any investigation that
any Party may conduct of the other Parties, or their respective businesses,
properties, assets and liabilities, each Party may fully rely on the other
Party's warranties, covenants and indemnities set forth in this Agreement.
5.9 CONSENTS AND APPROVALS. As soon as practicable after execution of
this Agreement, the Parties shall use commercially reasonable efforts to obtain
any necessary consents, approvals, authorizations or orders of, make any
registrations or filings with or give any notices to, any Regulatory Authority
or Person as is required to be obtained, made or given by any Party to
consummate the transactions contemplated by this Agreement and the Collateral
Documents.
5.10 NOTIFICATION OF ADVERSE CHANGE AND CERTAIN MATTERS. Each Party shall
promptly notify the other Parties of any material adverse change in the
condition (financial or otherwise) of such Party. Each Party shall promptly
notify the other Parties of any fact, event, circumstance or action known to it
that is reasonably likely to cause such Party to be unable to perform any of its
covenants contained herein or any condition precedent in Article 6 not to be
satisfied, or that, if known on the date of this Agreement, would have been
required to be disclosed to another Party pursuant to this Agreement or the
existence or occurrence of which would cause any of such Party's representations
or warranties under this Agreement not to be correct and/or complete. Each Party
shall give prompt written notice to the other Parties of any adverse development
causing a breach of any of the representations and warranties in Articles 3 and
4 as of the date made.
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5.11 MEETING OF THE SHAREHOLDERS. Promptly after the date hereof, and
subject to SEC review of the Proxy Statement, WWT will take all action necessary
in accordance with its Organizational Documents to convene a meeting of its
shareholders, or seek the written consent of its shareholders to consider the
adoption and approval of this Agreement and approval of the Merger to be held as
promptly as practicable (including, without limitation, approval by each class
of WWT Capital Stock issued and outstanding as of the date hereof). WWT will use
its commercially reasonable efforts to solicit from its shareholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger.
5.12 DISCLOSURE SCHEDULES. Each Party shall, from time to time prior to
Closing, supplement its Disclosure Schedules attached hereto with additional
information that, if existing or known to it on the date of delivery to the
other Party, would have been required to be included therein. For purposes of
determining the satisfaction of any of the conditions to the obligations of any
Party in Article 6 hereof, the Disclosure Schedules of such Party shall be
deemed to include only (a) the information contained therein on the date of this
Agreement and (b) information added to such Party's Disclosure Schedule by
written supplements delivered prior to Closing by such Party that (i) are
accepted in writing by the receiving Party, or (ii) reflect actions taken or
events occurring after the date hereof prior to Closing.
5.13 STATE STATUTES. The Parties and their respective Boards of Directors
shall, if any state takeover statute or similar law is or becomes applicable to
the Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby.
5.14 NO SOLICITATION. Until the earlier of the Closing or the date of
termination of this Agreement pursuant to the provisions of Article 8 hereof, no
Vertex Party nor any of their respective officers, directors, agents, investment
bankers or other representatives of any of them (collectively, the
"REPRESENTATIVES") will, directly or indirectly, (i) solicit, engage in
discussions or negotiate with any Person (regardless of who initiates such
discussions or negotiations), or take any other action intended or designed to
facilitate the efforts of any Person, other than the parties hereto, relating to
the possible acquisition of Vertex LP (whether by way of purchase of partnership
interest, capital stock, purchase of assets or otherwise) or any significant
portion of its interests, capital stock or assets by any Person other than the
parties hereto (an "ALTERNATIVE Acquisition"), (ii) provide information with
respect to Vertex LP or any Person relating to a possible Alternative
Acquisition by any Person, (iii) enter into an agreement with any Person
providing for a possible Alternative Acquisition, or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible Alternative
Acquisition by any Person. Each Vertex Party shall cause its Representatives to
immediately cease and cause to be terminated all existing discussions or
negotiations with any Person heretofore conducted with respect to any possible
Alternative Acquisition.
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5.15 CONDUCT OF BUSINESS. The Vertex Parties agree that during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to the provisions of Article 8 hereof or
the Closing, Vertex LP shall (unless otherwise required by this Agreement or WWT
has given its prior written consent to the Vertex Parties) carry on its business
in the ordinary course consistent with past practice, pay its Taxes and other
obligations consistent with its past practices, pay or perform other obligations
when due consistent with its past practices, subject to any good faith disputes
over such Taxes and other obligations and, to the extent consistent with such
business, use reasonable efforts and institute all policies to preserve intact
its present business organization, keep available the services of its present
officers and key employees, preserve its relationships with customers,
suppliers, distributors, licensors, licensees, independent contractors and other
Persons having business dealings with it, all with the express purpose and
intent of preserving unimpaired its goodwill and ongoing businesses at the
Closing.
5.16 CONFIDENTIALITY. WWT and the Vertex Parties acknowledge and agree
that the terms and conditions described in this Agreement, including its
existence, as well as the non-public information and data furnished to them or
their respective Representatives from the first introduction of the Parties and
throughout the negotiation and drafting of this Agreement is confidential and
will not be disclosed to any third party, or used for any purpose not
specifically contemplated herein, without prior written consent of the other
Party, unless otherwise required by Law (including as required by the rules and
regulations of the SEC) or unless it ceases to be confidential through no breach
of the receiving party.
5.17 INSIDER LOCK-UPS. Prior to the Closing, WWT shall use commercially
reasonable efforts to cause its officers, directors, and certain founders to
agree to enter into a lock-up agreement on the same terms as the Vertex Lock-Up.
5.18 VERTEX FINANCIAL STATEMENTS. Promptly following execution of this
Agreement, the Vertex Parties shall prepare the Vertex Financial Statements and
shall retain a PCAOB-certified auditing firm to audit the Vertex Financial
Statements. The foregoing audit shall include an audit of the operations of the
Vertex Business as a separate division of Vertex LP as of and for the three
years ended December 31, 2007.
5.19 LOCK-UP. Each shareholder of Vertex Nevada immediately prior to the
Closing will enter into an agreement with Vertex Nevada pursuant to which each
such shareholder agrees that it will not sell or otherwise transfer any of its
shares of Vertex Common Stock during the 12-month period following the Closing
and that, prior to the three-year anniversary of the Closing, it will not, in
any given three-month period, sell more than that number of shares of Vertex
Common Stock as equals 5% of the total number of shares of Vertex Common Stock
then beneficially owned by such shareholder (in each case except for transfers
to recipients that agree to comply with the foregoing restrictions) (a "VERTEX
LOCK-UP").
5.20 INSURANCE. Prior to the Closing, Vertex Nevada shall procure
insurance policies in such amounts and covering such matters as are customary
with respect to the Vertex Business.
5.21 FOREIGN QUALIFICATIONS. Prior to the Closing, Vertex Nevada shall be
qualified as a foreign corporation to do business in Texas.
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5.22 INDEMNIFICATION AGREEMENTS. At the Closing, Vertex Nevada shall
assume all of WWT's obligations under the Indemnification Agreements.
5.23 CMT AGREEMENTS. The Parties shall negotiate, in good faith, a ground
sub-lease, a purchase and sale agreement and such other necessary documentation
(collectively, the "CMT AGREEMENTS"), which agreements shall include the terms
and conditions set forth on EXHIBIT E.
5.24 RELATED PARTY TRANSACTION COMMITTEE. Promptly following the Closing,
the Agent shall cause the Board of Directors of Vertex Nevada to create a
committee of its Board to be known as the "Related Party Transaction Committee".
A majority of the members of this committee shall be Independent Directors,
which shall include at least two Independent Directors. The Agent shall not
serve on this Committee. This committee shall be charged with the review and
pre-approval of any and all related party transactions, including between Vertex
Nevada and Vertex LP, Ben Cowart, or any other company or individual which may
be affiliated with Ben Cowart.
5.25 RIGHT OF FIRST REFUSAL AND RELATED RIGHTS. Effective as of the
Closing, Vertex Nevada shall have: (a) a right of first refusal to match any
third party offer to purchase any Cowart Party (as defined below) on the terms
and conditions set forth in such offer (the "RIGHT OF FIRST REFUSAL"); and (b)
the option (the "OPTION"), which can be exercised in Vertex Nevada's sole
discretion, exercisable after the expiration of eighteen (18) months following
the Closing (the "OPTION DATE"), to purchase all or any part thereof of the
outstanding stock of any Cowart Party (as defined below) owned by Vertex LP or
VTX, Inc., at a price based on an independent third-party evaluation and
appraisal of the fair market value of such Cowart Party. The Option shall be
exercisable at any time following the Option Date in the sole discretion of the
majority vote of the Related Party Transaction Committee. For the purposes of
this paragraph, a "COWART PARTY" shall be defined as one or more of the
following: Cross Road Carriers, Vertex Recovery (or its subsidiaries), Cedar
Marine Terminals, LP, Vertex Residual Management Group, LP, Vertex Green, LP,
VTX, Inc. or any other entity which is majority owned or controlled by Ben
Cowart. The Right of First Refusal and the Option shall only be exercisable by
Vertex Nevada during such time as Ben Cowart is employed by Vertex Nevada as the
President and Chief Executive Officer of Vertex Nevada pursuant to the terms of
an Employment Agreement substantially similar to the Employment Agreement Mr.
Cowart will enter into with Vertex Nevada at Closing. Nothing in this paragraph
shall prevent Vertex Nevada from purchasing any or all of the interests in any
Cowart Party prior to the Option Date on terms mutually agreeable to Vertex
Nevada and such Cowart Party, provided however that any such transaction
includes a fairness opinion passing as to the fairness of the transaction to
Vertex Nevada.
5.26 LICENSE. At the Closing, Vertex LP will grant to Vertex Nevada a
perpetual, royalty-free, transferable, irrevocable license to the name "Vertex."
5.27 VERTEX NEVADA DIRECTORS. Promptly following the date hereof, the
Agent shall notify WWT of the four individuals who will serve on the Board of
Directors of Vertex Nevada as of the Closing as the appointees of the holder of
the Vertex Series B Preferred Stock, and will provide WWT with background
information regarding each such individual. The Agent covenants that at least
one of these individuals will be an Independent Director.
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5.28 VERTEX OPTION GRANTS. After the date hereof, and whether prior to or
after the Closing, Vertex Nevada shall not issue any compensatory options unless
such options have an exercise price at or above the fair market value of the
Vertex Common Stock as of the date of grant, and such issuances are approved by
the Related Party Transactions Committee. The Parties further agree and
acknowledge that, in the event that any such options are issued by Vertex Nevada
prior to the Closing, the determination of the fair market value of the Vertex
Common Stock shall be made by Vertex Nevada in consultation with WWT and the
issuer of the WWT fairness opinion (as described in Section 6.2(g)) and shall
not be inconsistent with any valuation of Vertex Nevada utilized by the issuer
of such opinion.
ARTICLE VI
CLOSING CONDITIONS
6.1 CONDITIONS TO VERTEX PARTIES' OBLIGATION TO CLOSE. The obligations
of the Vertex Parties to consummate the transactions provided for hereby are
subject to the satisfaction, before or on the Closing Date, of each of the
conditions set forth below in this Section 6.1, any of which may be waived by
the Vertex Parties:
(a) ACCURACY OF REPRESENTATIONS. All representations and
warranties of WWT contained in this Agreement, the Collateral Documents and any
certificate delivered by WWT at or prior to Closing shall be, if specifically
qualified by materiality, true in all respects and, if not so qualified, shall
be true in all material respects, in each case on and as of the Closing Date
with the same effect as if made on and as of the Closing Date, except for
representations and warranties expressly stated to be made as of the date of
this Agreement or as of another date other than the Closing Date and except for
changes contemplated or permitted by this Agreement. WWT shall have delivered to
the Vertex Parties a certificate dated the Closing Date to the foregoing effect.
(b) COVENANTS. WWT shall, in all material respects, have performed
and complied with each of the covenants, obligations and agreements contained in
this Agreement and the Collateral Documents that are to be performed or complied
with by it at or prior to Closing. WWT shall have delivered to the Vertex
Parties a certificate dated the Closing Date to the foregoing effect.
(c) CONSENTS AND APPROVALS. All consents, approvals, permits,
authorizations and orders required to be obtained from, and all registrations,
filings and notices required to be made with or given to any Regulatory
Authority or Person as provided herein, if any, shall have been so obtained or
filed with such Regulatory Authority or Person.
(d) SHAREHOLDER APPROVAL. All WWT shareholder approval, as
required under any applicable Law, shall have been obtained to approve the
transactions contemplated hereunder including the approval of the Merger, this
Agreement and the transactions contemplated hereby.
(e) ISSUANCE EXEMPTION. Either (i) the issuance of the Merger
Consideration shall be exempt from registration pursuant to Section 3(a)(10) of
the Securities Act, or (ii) a Registration Statement on Form S-4 registering the
issuance of the Merger Consideration shall have been filed and declared
effective by the SEC.
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(f) CASH. WWT shall have cash and cash equivalents totaling at
least $5.0 million.
(g) TERMINATION OF COWART GUARANTEES. The Cowart Guarantees shall
have been terminated.
(h) NO LIABILITIES. WWT shall have no Liabilities other than up to
$2.4 million of indebtedness.
(i) DISTRIBUTION OF CASH AND WARRANTS. WWT shall have delivered
(i) $4.4 million in cash and (ii) the Make-Whole Warrants, in each case to the
Agent on behalf of the Vertex Shareholders. The Make-Whole Warrants are
described on EXHIBIT F to this Agreement. The Parties acknowledge that the
Make-Whole Warrants are being issued to the Vertex Shareholders so that
immediately following the Merger, the Vertex Shareholders hold 40% of all
outstanding options and warrants of Vertex Nevada (exclusive of warrants to
purchase 933,920 shares with a nominal exercise price and exclusive of the
6,000,000 options reserved by Vertex Nevada for issuance to employees, directors
and consultants). Accordingly, the Parties agree that in the event that between
the date hereof and the Closing, any WWT Options expire or are cancelled without
being exercised, the number of Make-Whole Warrants shall be reduced to take such
expiration or cancellation into effect.
(j) NO LEGAL PROCEEDINGS. No injunction, action, suit or
proceeding shall be pending or threatened by or before any Regulatory Authority
and no Law shall have been enacted, promulgated or issued or deemed applicable
to any of the transactions contemplated by this Agreement or the Collateral
Documents, which would: (i) prevent consummation of any of the transactions
contemplated by this Agreement or the Collateral Documents; (ii) cause any of
the transactions contemplated by this Agreement or the Collateral Documents to
be rescinded following consummation; or (iii) have a Material Adverse Effect on
a Party, the Merger, this Agreement or the transactions contemplated hereby.
(k) RESIGNATION LETTERS. WWT shall have delivered to the Vertex
Parties letters of resignation from WWT's current officers and directors.
6.2 CONDITIONS TO WWT'S OBLIGATION TO CLOSE. The obligations of WWT to
consummate the transactions provided for hereby are subject to the satisfaction,
before or on the Closing Date, of each of the conditions set forth below in this
Section 6.2, any of which may be waived by WWT:
(a) ACCURACY OF REPRESENTATIONS. All representations and
warranties of each of the Vertex Parties contained in this Agreement, the
Collateral Documents and any certificate delivered by the Vertex Parties at or
prior to Closing shall be, if specifically qualified by materiality, true in all
respects and, if not so qualified, shall be true in all material respects, in
each case on and as of the Closing Date with the same effect as if made on and
as of the Closing Date, except for representations and warranties expressly
stated to be made as of the date of this Agreement or as of another date other
than the Closing Date and except for changes contemplated or permitted by this
Agreement. The Vertex Parties shall have delivered to WWT a certificate dated
the Closing Date to the foregoing effect.
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(b) COVENANTS. The Vertex Parties shall, in all material respects,
have performed and complied with each of the covenants, obligations and
agreements contained in this Agreement and the Collateral Documents that are to
be performed or complied with by any of them at or prior to Closing. The Vertex
Parties shall have delivered to WWT a certificate dated the Closing Date to the
foregoing effect.
(c) CONSENTS AND APPROVALS. All consents, approvals, permits,
authorizations and orders required to be obtained from, and all registrations,
filings and notices required to be made with or given to any Regulatory
Authority or Person as provided herein, if any, shall have been so obtained or
filed with such Regulatory Authority or Person.
(d) SHAREHOLDER APPROVAL. All shareholder approval, as required
under any applicable Law, shall have been obtained to approve the transactions
contemplated hereunder including the approval of the Merger, this Agreement and
the transactions contemplated hereby.
(e) ISSUANCE EXEMPTION. Either (i) the issuance of the Merger
Consideration shall be exempt from registration pursuant to Section 3(a)(10) of
the Securities Act, or (ii) a Registration Statement on Form S-4 registering the
issuance of the Merger Consideration shall have been filed and declared
effective by the SEC.
(f) VERTEX FINANCIAL STATEMENTS. The Vertex Parties shall have
delivered, or caused to be delivered, to WWT the Vertex Financial Statements
with an unqualified report thereon by an independent accounting firm acceptable
to WWT.
(g) FAIRNESS OPINION. WWT shall have received a fairness opinion
in form and substance satisfactory to it passing on the fairness of the
transactions contemplated herein to each class of the shareholders of WWT from a
financial perspective.
(h) DUE DILIGENCE. WWT shall be satisfied with the results of its
due diligence investigation of Vertex.
(i) NO MATERIAL ADVERSE CHANGE. Since the date hereof, there shall
have been no material adverse change in the Vertex Business.
(j) NO LEGAL PROCEEDINGS. No injunction, action, suit or
proceeding shall be pending or threatened by or before any Regulatory Authority
and no Law shall have been enacted, promulgated or issued or deemed applicable
to any of the transactions contemplated by this Agreement or the Collateral
Documents, which would: (i) prevent consummation of any of the transactions
contemplated by this Agreement or the Collateral Documents; (ii) cause any of
the transactions contemplated by this Agreement or the Collateral Documents to
be rescinded following consummation; or (iii) have a Material Adverse Effect on
a Party, the Merger, this Agreement or the transactions contemplated hereby.
(k) WWT MANAGEMENT AGREEMENT. Vertex Nevada and the WWT Management
shall have entered into the WWT Management Agreement.
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(l) VERTEX LOCKUP. Each shareholder of Vertex Nevada immediately
prior to the Closing shall have entered into a Vertex Lock-Up.
(m) TRANSFER. The Transfer shall have occurred.
(n) INDEMNIFICATION AGREEMENTS. Vertex Nevada shall have assumed
all of WWT's obligations under the Indemnification Agreements.
(o) CMT AGREEMENTS. The CMT Agreements shall have been executed by
all of the parties thereto.
(p) PROPRIETARY INVENTIONS AGREEMENTS. The Vertex Parties shall
have delivered to WWT propriety inventions agreements with each of the employees
and consultants of Vertex LP.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY WWT. WWT shall indemnify, defend and hold
harmless the Vertex Parties, and each of their respective shareholders, members,
partners, directors, officers, managers, employees, agents, attorneys and
representatives, from and against any and all Losses which may be incurred or
suffered by any such party and which may arise out of or result from any breach
of any material representation, warranty, covenant or agreement of WWT contained
in this Agreement.
7.2 INDEMNIFICATION BY THE VERTEX PARTIES. The Vertex Parties shall,
jointly and severally, indemnify, defend and hold harmless WWT and its
shareholders, members, partners, directors, officers, managers, employees,
agents, attorneys and representatives from and against any and all Losses which
may be incurred or suffered by any such party hereto and which may arise out of
or result from any breach of any material representation, warranty, covenant or
agreement of any of the Vertex Parties contained in this Agreement.
7.3 INDEMNIFICATION PROCEDURES.
(a) In the event that any Legal Proceeding shall be instituted or
any claim or demand shall be asserted (individually and collectively, a "CLAIM")
by any Person in respect of which payment may be sought under this Article 7,
the indemnified party shall reasonably and promptly cause written notice (a
"CLAIM NOTICE") of the assertion of any Claim of which it has knowledge which is
covered by this indemnity to be delivered to the indemnifying party; PROVIDED,
HOWEVER, that the failure of the indemnified party to give the Claim Notice
shall not release, waive or otherwise affect the indemnifying party's
obligations with respect thereto, except to the extent that the indemnifying
party can demonstrate actual loss and material prejudice as a result of such
failure. If the indemnifying party shall notify the indemnified party in writing
within five (5) Business Days (or sooner, if the nature of the Claim so
requires) that the indemnifying party shall be obligated under the terms of its
indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects at its own cost, risk and
expense, (i) to take control of the defense and investigation of such lawsuit or
action, (ii) to employ and engage attorneys of its own choice, but, in any
A-46
event, reasonably acceptable to the indemnified party, to handle and defend the
same unless the named parties to such action or proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and the indemnified party has been advised in writing by counsel that there may
be one or more material legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party,
in which event the indemnified party shall be entitled, at the indemnifying
party's cost, risk and expense, to a single firm of separate counsel (plus any
necessary local counsel), all at reasonable cost, of its own choosing,
reasonably acceptable to the indemnifying party and (iii) to compromise or
settle such lawsuit or action, which compromise or settlement shall be made only
with the prior written consent of the indemnified party, such consent not to be
unreasonably withheld or delayed.
(b) If the indemnifying party elects not to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder, fails to notify the indemnified party of its
election as provided in this Article 7 or contests its obligation to indemnify
the indemnified party for such Losses under this Agreement, the indemnified
party may defend against, negotiate, settle or otherwise deal with such Claim.
If the indemnified party defends any Claim, then the indemnifying party shall
reimburse the indemnified party for the Losses incurred in defending such Claim
upon submission of periodic bills. If the indemnifying party shall assume the
defense of any Claim, the indemnified party may participate, at its own expense,
in the defense of such Claim; PROVIDED, HOWEVER, that such indemnified party
shall be entitled to participate in any such defense with separate counsel at
the expense of the indemnifying party if (i) so requested by the indemnifying
party to participate or (ii) in the reasonable opinion of counsel to the
indemnified party, a material conflict or potential material conflict exists
between the indemnified party and the indemnifying party that would make such
separate representation required; and PROVIDED, FURTHER, that the indemnifying
party shall not be required to pay for more than one such counsel for all
indemnified parties in connection with any Claim. If the indemnifying party
shall assume the defense of any Claim, the indemnifying party shall obtain the
prior written consent of the indemnified party before entering into any
settlement of such Claim or ceasing to defend such Claim if, pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
shall be imposed against the indemnified party or if such settlement or
cessation does not expressly and unconditionally release the indemnified party
from all Liabilities or obligations with respect to such Claim, with prejudice.
The Parties hereto agree to cooperate fully with each other in connection with
the defense, negotiation or settlement of any Claim.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, at any time prior to the Effective Time.
(a) By mutual written agreement of the Parties;
(b) By either of the Vertex Parties or WWT if the Closing does not
occur on or before December 31, 2008;
A-47
(c) By either of Vertex LP or WWT if the shareholders of WWT fail
to approve the Merger, this Agreement and the transactions contemplated hereby;
(d) By either of the Vertex Parties or WWT if any court of
competent jurisdiction or other competent Regulatory Authority shall have issued
an order making illegal or otherwise permanently restricting, preventing or
otherwise prohibiting the Merger and such order shall have become final; or
(e) By either of the Vertex Parties or WWT upon written notice to
the other Party in the event of a breach of any provision or covenant of this
Agreement, or any representation or warranty made by such Party hereunder
becomes inaccurate; PROVIDED, HOWEVER, that such breach or inaccuracy would
cause the related closing condition, if any, not be satisfied in accordance with
Article 6 hereof; PROVIDED, FURTHER, that prior to any termination by the
non-breaching party, such Party shall provide written notice to the breaching
Party specifically identifying the breach or inaccurate representation, and the
breaching Party does not cure or correct such breach or inaccuracy within 30
days following receipt of the written notice.
8.2 EFFECT OF TERMINATION. If this Agreement is validly terminated by
either the Vertex Parties or WWT pursuant to Section 8.1, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of the Parties hereto, except that nothing contained herein shall
relieve any party hereto from liability for willful breach of its
representations, warranties, covenants or agreements contained in this
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 PARTIES OBLIGATED AND BENEFITED. This Agreement shall be binding
upon the Parties and their respective successors by operation of law and shall
inure solely to the benefit of the Parties and their respective successors by
operation of law, and no other Person shall be entitled to any of the benefits
conferred by this Agreement. Without the prior written consent of the other
Party, no Party may assign this Agreement or the Collateral Documents or any of
its rights or interests or delegate any of its duties under this Agreement or
the Collateral Documents.
9.2 PUBLICITY. Vertex LP and WWT each shall consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to the Merger and the other transactions contemplated by this
Agreement and prior to making any filings with any third party and/or any
Regulatory Authorities (including any national securities inter dealer quotation
service) with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of any national
securities inter dealer quotation service.
9.3 NOTICES. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one or the other means specified in
this Section as promptly as practicable thereafter). Notices shall be addressed
as follows:
A-48
If to WWT:
World Waste Technologies, Inc.
10600 North De Anza Boulevard, Suite 250
Cupertino, California 95014
Attention: John Pimentel
Facsimile No: (650) 873-0550
With a copy to:
TroyGould PC
1801 Century Park East, Suite 1600
Los Angeles, California 90067-4746
Attention: Lawrence P. Schnapp, Esq.
Facsimile No: (310) 789-1255
If to Vertex LP, Vertex Nevada, Merger Sub and/or the Agent to:
Vertex Companies
1331 Gemini, Suite 103
Houston, Texas 77058
Attention: Ben Cowart
Facsimile No.: (281) 486-0217
With a copy to:
The Loev Law Firm, PC
6300 West Loop South, Suite 280
Bellaire, Texas 77401
Attention: David M. Loev
Facsimile No.: (713) 524-4122
Any Party may change the address to which notices are required to be sent
by giving notice of such change in the manner provided in this Section.
9.4 ATTORNEYS' FEES. In the event of any action or suit based upon or
arising out of any alleged breach by any Party of any representation, warranty,
covenant or agreement contained in this Agreement or the Collateral Documents,
the prevailing Party shall be entitled to recover reasonable attorneys' fees and
other costs of such action or suit from the other Party.
9.5 HEADINGS. The Article and Section headings of this Agreement are for
convenience only and shall not constitute a part of this Agreement or in any way
affect the meaning or interpretation thereof.
A-49
9.6 CHOICE OF LAW. This Agreement and the rights of the Parties under it
shall be governed by and construed in all respects in accordance with the laws
of the State of Texas without giving effect to any choice of law provision or
rule (whether of the State of Texas or any other jurisdiction that would cause
the application of the laws of any jurisdiction other than the State of Texas).
Notwithstanding the foregoing, the internal laws of the State of California
shall apply with respect to the Merger.
9.7 JURISDICTION AND SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement, may be brought against any of the Parties solely and exclusively in
the courts of the State of Texas (with respect to any actions brought by any of
the WWT Parties) and in the courts of the State of California (with respect to
any actions brought by any of the Vertex Parties), and each of the Parties
consents to the sole and exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any Party anywhere in the world.
9.8 RIGHTS CUMULATIVE. All rights and remedies of each of the Parties
under this Agreement shall be cumulative, and the exercise of one or more rights
or remedies shall not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
9.9 FURTHER ACTIONS. The Parties shall execute and deliver to each
other, from time to time at or after Closing, for no additional consideration
and at no additional cost to the requesting party, such further assignments,
certificates, instruments, records, or other documents, assurances or things as
may be reasonably necessary to give full effect to this Agreement and to allow
each party fully to enjoy and exercise the rights accorded and acquired by it
under this Agreement.
9.10 TIME OF THE ESSENCE. Time is of the essence under this Agreement. If
the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act shall be extended to the next succeeding Business Day.
9.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.12 ENTIRE AGREEMENT. This Agreement (including the Exhibits, the Vertex
Disclosure Schedules, the WWT Disclosure Schedules and any other documents,
instruments and certificates referred to herein, which are incorporated in and
constitute a part of this Agreement) contains the entire agreement of the
Parties.
9.13 SURVIVAL OF REPRESENTATIONS AND COVENANTS. Notwithstanding any right
of WWT to fully investigate the affairs of Vertex LP and notwithstanding any
knowledge of facts determined or determinable by WWT pursuant to such
investigation or right of investigation, WWT shall have the right to rely fully
upon the representations, warranties, covenants and agreements of the Vertex
Parties contained in this Agreement. Each representation, warranty, covenant and
agreement of the Vertex Parties contained herein shall survive the execution and
delivery of this Agreement and the Closing and shall thereafter terminate and
expire on the first anniversary of the Closing Date unless, prior to such date,
WWT has delivered to Agent a written notice of a claim with respect to such
representation, warranty, covenant or agreement.
A-50
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the day and year first above written.
Dated: May 19, 2008 World Waste Technologies, Inc.,
a California Corporation
By: /s/ John Pimentel
---------------------------------
Name: John Pimentel
Title: CEO
Dated: May 19, 2008 Vertex Merger Sub, LLC,
a California Limited Liability
Company
By: /s/ Ben Cowart
---------------------------------
Name: Ben Cowart
Title: CEO
Dated: May 19, 2008 Vertex Energy, Inc.,
a Nevada corporation
By: /s/ Ben Cowart
---------------------------------
Name: Ben Cowart
Title: CEO
Dated: May 19, 2008 /s/ Ben Cowart
------------------------------------
Ben Cowart, individually
A-51
Dated: May 19, 2008 Vertex Energy LP,
a Texas limited partnership
By: /s/ Ben Cowart
---------------------------------
Name: Ben Cowart
Title: CEO
A-52
WWT DISCLOSURE SCHEDULES
SCHEDULE 4.1(A) - JURISDICTION
California
SCHEDULE 3.1 - SUBSIDIARIES
World Waste of America, Inc.
World Waste of Anaheim, Inc.
World Waste of California, Inc.
World Waste Operations, Inc.
SCHEDULE 4.3(A) WWT OPTIONS
See attached
SCHEDULE 4.4 NON-CONTRAVENTION
Approval of each class of WWT Capital Stock is required to approve the
Transactions
SCHEDULE 4.8 - UNDISCLOSED LIABILITIES
Fee payable to Livingston Partners LLC
SCHEDULE 4.9(C) - TAX AUDITS
None
SCHEDULE 4.11(J) - ACCELERATION OF RIGHTS
Consummation of this transaction will accelerate the vesting of options to
acquire WWT Common Stock held by certain individuals.
SCHEDULE 4.15(A) - PERMITS
None
SCHEDULE 4.17 - INSURANCE
Attached
SCHEDULE 4.18- RELATED PARTY TRANSACTIONS
As disclosed in the SEC Reports, CMCP has certain relationships with WWT.
SCHEDULE 4.20 - BROKERS OR FINDERS
Livingston Capital LLC
A-53
Appendix B
ROSS MILLER
Secretary of State
206 North Carson Street
Carson City, Nevada 89701-4299
(775) 684-5708
Website: secretaryof state.biz
- -------------------------------
ARTICLES OF INCORPORATION
(PURSUANT TO NRS 78)
- -------------------------------
- --------------------------------------------------------------------------------
1. Name of Corporation
VERTEX ENERGY, INC.
- --------------------------------------------------------------------------------
2. Resident Agent Name and Street Address:
Incorp Services, Inc.
375 N. Stephanie St. - Suite 141
Henderson, Nevada 89014-8909
- --------------------------------------------------------------------------------
3. Shares:
Number of shares with par value: 800,000,000
Par value per share: $0.001
Number of shares without par value:
- --------------------------------------------------------------------------------
4. Names & Addresses of the Board of Directors/Trustees:
1. Ben Cowart
1331 Gemini Suite 103
Houston, Texas 77058
- --------------------------------------------------------------------------------
5. Purpose:
The purpose of this Corporation shall be:
- --------------------------------------------------------------------------------
6. Name, Address and Signature of Incorporator:
Chris Carlson /s/ Chris Carlson
1331 Gemini Suite 103 -------------------
Houston, Texas 77058
- --------------------------------------------------------------------------------
7. Certificate of Acceptance of Appointment of Resident Agent:
I hereby accept appointment as Resident Agent for the above named
corporation.
----------------------------------------- ----------------
Authorized Signature of R.A. or On Behalf Date
of R. A. Company
B-1
ROSS MILLER
Secretary of State
206 North Carson Street
Carson City, Nevada 89701-4299
(775) 684-5708
Website: secretaryof state.biz
- -------------------------------
RESIDENT AGENT ACCEPTANCE
- -------------------------------
IN THE MATTER OF Vertex Energy, Inc.
---------------------------------------------------------------
(Name of business entity)
I, InCorp Services, Inc.
- --------------------------------------------------------------------------------
(Name of resident agent)
hereby state that on May 14, 2008, I accepted the appointment as resident agent
for the above named business entity. The street address of the resident agent in
this state is as follows:
375 N. Stephanie St. - Suite 1411
Henderson, NEVADA 89014-8909
/s/ signature 5/14/08
- ---------------------------------------- ------------------------
Authorized Signature of R.A. or On Behalf
of R.A. Company
B-2
ARTICLES OF INCORPORATION
OF
VERTEX ENERGY, INC.
ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is:
Vertex Energy, Inc.
ARTICLE II.
The resident agent and registered office of the Corporation within the
State of Nevada is Incorp Services, Inc., 375 N. Stephanie St - Suite 141,
Henderson, Nevada, 89014-8909.
ARTICLE III.
The nature of the business of the Corporation and the objects or the
purposes to be transacted, promoted, or carried on by it are as follows:
To engage in any lawful activity for which Corporations may be
incorporated under the Nevada General Corporation Law.
ARTICLE IV.
The total number of shares of stock that the Corporation shall have
authority to issue is 800,000,000, consisting of 750,000,000 shares of common
stock, par value $0.001 per share ("Common Stock"), and 50,000,000 shares of
"blank check" preferred stock par value $0.001 per share ("Preferred Stock").
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more series, each of which shall have such distinctive
designation or title as shall be determined by the Board of Directors of the
Corporation ("Board of Directors") prior to the issuance of any shares thereof.
Preferred Stock shall have such voting powers, full or limited, or no voting
powers, and such preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution or resolutions providing for the issue of
such class or series of Preferred Stock as may be adopted from time to time by
the Board of Directors prior to the issuance of any shares thereof. The number
1 / 4
Articles of Incorporation
Vertex Energy, Inc.
B-3
of authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the voting power of all the then outstanding shares
of the capital stock of the corporation entitled to vote generally in the
election of the directors (the "Voting Stock"), voting together as a single
class, without a separate vote of the holders of the Preferred Stock, or any
series thereof, unless a vote of any such holders is required pursuant to any
Preferred Stock Designation.
ARTICLE V.
The governing Board of the Corporation shall be styled as a "Board of
Directors," and any member of said Board shall be styled as a "director."
The number of members constituting the first Board of Directors of the
Corporation is one (1); and the name and the post office address of said member
is as follows:
NAME ADDRESS
Ben Cowart 1331 Gemini Suite 103
Houston, Texas 77058
The number of directors of the Corporation may be increased or
decreased in the manner provided in the Bylaws of the Corporation; provided,
that the number of directors shall never be less than one. In the interim
between elections of directors by stockholders entitled to vote, all vacancies,
including vacancies caused by an increase in the number of directors and
including vacancies resulting from the removal of directors by the stockholders
entitled to vote which are not filled by said stockholders, may be filled by the
remaining directors, though less than a quorum.
ARTICLE VI.
No fully paid shares of any class of stock of the Corporation shall be
subject to any further call or assessment in any manner or for any cause. The
good faith determination of the Board of Directors of the Corporation shall be
final as to the value received in consideration of the issuance of fully paid
shares.
2 / 4
Articles of Incorporation
Vertex Energy, Inc.
B-4
ARTICLE VII.
The name and the post office address of the incorporator signing these
Articles of Incorporation is as follows:
NAME ADDRESS
Chris Carlson 1331 Gemini Suite 103
Houston, Texas 77058
ARTICLE VIII.
The Corporation shall have perpetual existence.
ARTICLE IX.
The holders of a majority of the outstanding shares of stock which have
voting power shall constitute a quorum at a meeting of stockholders for the
transaction of any business unless the action to be taken at the meeting shall
require a greater proportion.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to fix the amount to be
reserved as working capital over and above its paid-in capital stock, and to
authorize and cause to be executed, mortgages and liens upon the real and
personal property of the Corporation.
ARTICLE X.
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the Nevada General Corporation
Law, as the same may be amended and supplemented.
ARTICLE XI.
The Corporation shall, to the fullest extent permitted by the Nevada
General Corporation Law, as the same may be amended and supplemented, indemnify
any an all persons whom it shall have power to indemnify under said Law from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said Law, and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
3 / 4
Articles of Incorporation
Vertex Energy, Inc.
B-5
ARTICLE XII.
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XIII.
Shareholders of the Corporation shall not have cumulative voting rights
nor preemptive rights.
Signed this 13th day of May, 2008
VERTEX ENERGY, INC.
By: /s/ Chris Carlson
----------------------------
Chris Carlson
Incorporator
4 / 4
Articles of Incorporation
Vertex Energy, Inc.
B-6
CERTIFICATE OF AMENDMENT
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporation
-----------------------------
1. Name of corporation:
Vertex Energy, Inc.
2. The articles have been amended as follows:
The Articles shall be amended to add the following Article XIV:
"Article XIV:
The Corporation, pursuant to Nevada Revised Statues ("NRS") 78.434, elects not
to be governed by NRS 78.411 to 78.444, inclusive."
3. The undersigned declare that they constitute AT LEAST TWO-THIRDS of the
following:
(check only one box) [_] incorporators [X] board of directors
4. Effective date of filing: ___________________________________________________
(must not be later than 90 days after the certificate is filed)
5. The undersigned affirmatively declare that to the date of this certificate,
no stock of the corporation has been issued.
6. Signatures:
/s/ Benjamin P. Cowart /s/ Ingram Lee
- ----------------------------------- --------------------------------
Authorized Signature Authorized Signature
/s/ Dan Borgen /s/ David Phillips
- ----------------------------------- --------------------------------
Authorized Signature Authorized Signature
B-7
APPENDIX C
BYLAWS
OF
VERTEX ENERGY, INC.
A NEVADA CORPORATION
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. Unless the context clearly requires otherwise, in these Bylaws:
(a) "BOARD" means the board of directors of the Company.
(b) "BYLAWS" means these bylaws as adopted by the Board and
includes amendments subsequently adopted by the Board or by
the Stockholders.
(c) "ARTICLES OF INCORPORATION" means the Articles of
Incorporation of Vertex Energy, Inc., as filed with the
Secretary of State of the State of Nevada and includes all
amendments thereto and restatements thereof subsequently
filed.
(d) "COMPANY" means Vertex Energy, Inc., a Nevada corporation.
(e) "SECTION" refers to sections of these Bylaws.
(f) "STOCKHOLDER" means stockholders of record of the Company.
1.2 OFFICES. The title of an office refers to the person or persons who at any
given time perform the duties of that particular office for the Company.
ARTICLE 2.
OFFICES
2.1 PRINCIPAL OFFICE. The Company may locate its principal office within or
without the state of incorporation as the Board may determine.
2.2 REGISTERED OFFICE. The registered office of the Company required by law to
be maintained in the state of incorporation may be, but need not be, the same as
the principal place of business of the Company. The Board may change the address
of the registered office from time to time.
2.3 OTHER OFFICES. The Company may have offices at such other places, either
within or without the state of incorporation, as the Board may designate or as
the business of the Company may require from time to time.
1 / 19
BYLAWS OF
VERTEX ENERGY, INC.
C-1
ARTICLE 3.
MEETINGS OF STOCKHOLDERS
3.1 ANNUAL MEETINGS. The Stockholders of the Company shall hold their annual
meetings for the purpose of electing directors and for the transaction of such
other proper business as may come before such meetings at such time, date and
place as the Board shall determine by resolution.
3.2 SPECIAL MEETINGS. The Board, the Chairman of the Board, the President or a
committee of the Board duly designated and whose powers and authority include
the power to call meetings may call special meetings of the Stockholders of the
Company at any time for any purpose or purposes. Special meetings of the
Stockholders of the Company may also be called by the holders of at least 30% of
all shares entitled to vote at the proposed special meeting.
3.3 PLACE OF MEETINGS. The Stockholders shall hold all meetings at such places,
within or without the State of Nevada, as the Board or a committee of the Board
shall specify in the notice or waiver of notice for such meetings.
3.4 NOTICE OF MEETINGS. Except as otherwise required by law, the Board or a
committee of the Board shall give notice of each meeting of Stockholders,
whether annual or special, not less than 10 nor more than 50 days before the
date of the meeting. The Board or a committee of the Board shall deliver a
notice to each Stockholder entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to him personally, or by depositing such
notice in the United States mail, in a postage prepaid envelope, directed to him
at his address as it appears on the records of the Company, or by transmitting a
notice thereof to him at such address by telegraph, telecopy, cable or wireless.
If mailed, notice is given on the date deposited in the United States mail,
postage prepaid, directed to the Stockholder at his address as it appears on the
records of the Company. An affidavit of the Secretary or an Assistant Secretary
or of the Transfer Agent of the Company that he has given notice shall
constitute, in the absence of fraud, prima facie evidence of the facts stated
therein.
Every notice of a meeting of the Stockholders shall state the place,
date and hour of the meeting and, in the case of a special meeting, also shall
state the purpose or purposes of the meeting. Furthermore, if the Company will
maintain the list at a place other than where the meeting will take place, every
notice of a meeting of the Stockholders shall specify where the Company will
maintain the list of Stockholders entitled to vote at the meeting.
3.5 STOCKHOLDER NOTICE. Subject to the Articles of Incorporation, the
Stockholders who intend to nominate persons to the Board of Directors or propose
any other action at an annual meeting of Stockholders must timely notify the
Secretary of the Company of such intent. To be timely, a Stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 50 days nor more than 90 days prior to the date of
2 / 19
BYLAWS OF
VERTEX ENERGY, INC.
C-2
such meeting; provided, however, that in the event that less than 75 days'
notice of the date of the meeting is given or made to Stockholders, notice by
the Stockholder to be timely must be received not later than the close of
business on the 15th day following the date on which such notice of the date of
the annual meeting was mailed. Such notice must be in writing and must include a
(i) a brief description of the business desired to the brought before the annual
meeting and the reasons for conducting such business at the meeting; (ii) the
name and record address of the Stockholder proposing such business; (iii) the
class, series and number of shares of capital stock of the Company which are
beneficially owned by the Stockholder; and (iv) any material interest of the
Stockholder in such business. The Board of Directors reserves the right to
refuse to submit any such proposal to stockholders at an annual meeting if, in
its judgment, the information provided in the notice is inaccurate or
incomplete.
3.6 WAIVER OF NOTICE. Whenever these Bylaws require written notice, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall constitute the equivalent of notice. Attendance
of a person at any meeting shall constitute a waiver of notice of such meeting,
except when the person attends the meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. No written waiver of notice need
specify either the business to be transacted at, or the purpose or purposes of
any regular or special meeting of the Stockholders, directors or members of a
committee of the Board.
3.7 ADJOURNMENT OF MEETING. When the Stockholders adjourn a meeting to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Stockholders may transact any business which they may
have transacted at the original meeting. If the adjournment is for more than 30
days or, if after the adjournment, the Board or a committee of the Board fixes a
new record date for the adjourned meeting, the Board or a committee of the Board
shall give notice of the adjourned meeting to each Stockholder of record
entitled to vote at the meeting.
3.8 QUORUM. Except as otherwise required by law, the holders of a majority of
all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes at any meeting of
the Stockholders. In the absence of a quorum at any meeting or any adjournment
thereof, the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, or, in the absence therefrom of all the
Stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting to another place, date or time.
If the chairman of the meeting gives notice of any adjourned special
meeting of Stockholders to all Stockholders entitled to vote thereat, stating
that the minimum percentage of stockholders for a quorum as provided by Nevada
law shall constitute a quorum, then, except as otherwise required by law, that
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percentage at such adjourned meeting shall constitute a quorum and a majority of
the votes cast at such meeting shall determine all matters.
3.9 ORGANIZATION. Such person as the Board may have designated or, in the
absence of such a person, the highest ranking officer of the Company who is
present shall call to order any meeting of the Stockholders, determine the
presence of a quorum, and act as chairman of the meeting. In the absence of the
Secretary or an Assistant Secretary of the Company, the chairman shall appoint
someone to act as the secretary of the meeting.
3.10 CONDUCT OF BUSINESS. The chairman of any meeting of Stockholders shall
determine the order of business and the procedure at the meeting, including such
regulations of the manner of voting and the conduct of discussion as he deems in
order.
3.11 LIST OF STOCKHOLDERS. At least 10 days before every meeting of
Stockholders, the Secretary shall prepare a list of the Stockholders entitled to
vote at the meeting or any adjournment thereof, arranged in alphabetical order,
showing the address of each Stockholder and the number of shares registered in
the name of each Stockholder. The Company shall make the list available for
examination by any Stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting will take place or at the
place designated in the notice of the meeting.
The Secretary shall produce and keep the list at the time and place of
the meeting during the entire duration of the meeting, and any Stockholder who
is present may inspect the list at the meeting. The list shall constitute
presumptive proof of the identity of the Stockholders entitled to vote at the
meeting and the number of shares each Stockholder holds.
A determination of Stockholders entitled to vote at any meeting of
Stockholders pursuant to this Section shall apply to any adjournment thereof.
3.12 FIXING OF RECORD DATE. For the purpose of determining Stockholders entitled
to notice of or to vote at any meeting of Stockholders or any adjournment
thereof, or Stockholders entitled to receive payment of any dividend, or in
order to make a determination of Stockholders for any other proper purpose, the
Board or a committee of the Board may fix in advance a date as the record date
for any such determination of Stockholders. However, the Board shall not fix
such date, in any case, more than 60 days nor less than 10 days prior to the
date of the particular action.
If the Board or a committee of the Board does not fix a record date for
the determination of Stockholders entitled to notice of or to vote at a meeting
of Stockholders, the record date shall be at the close of business on the day
next preceding the day on which notice is given or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
or the date on which the Board adopts the resolution declaring a dividend.
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3.13 VOTING OF SHARES. Each Stockholder shall have one vote for every share of
stock having voting rights registered in his name on the record date for the
meeting. The Company shall not have the right to vote treasury stock of the
Company, nor shall another corporation have the right to vote its stock of the
Company if the Company holds, directly or indirectly, a majority of the shares
entitled to vote in the election of directors of such other corporation. Persons
holding stock of the Company in a fiduciary capacity shall have the right to
vote such stock. Persons who have pledged their stock of the Company shall have
the right to vote such stock unless in the transfer on the books of the Company
the pledgor expressly empowered the pledgee to vote such stock. In that event,
only the pledgee, or his proxy, may represent such stock and vote thereon.
A plurality of the votes of the shares present in person or represented
by proxy at the meeting and entitled to vote shall determine all elections and,
except when the law or Articles of Incorporation require otherwise, the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote shall determine all other matters.
Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
The Stockholders may vote by voice vote on all matters. Upon demand by
a Stockholder entitled to vote, or his proxy, the Stockholders shall vote by
ballot. In that event, each ballot shall state the name of the Stockholder or
proxy voting, the number of shares voted and such other information as the
Company may require under the procedure established for the meeting.
3.14 INSPECTORS. At any meeting in which the Stockholders vote by ballot, the
chairman may appoint one or more inspectors. Each inspector shall take and sign
an oath to execute the duties of inspector at such meeting faithfully, with
strict impartiality, and according to the best of his ability. The inspectors
shall ascertain the number of shares outstanding and the voting power of each;
determine the shares represented at a meeting and the validity of proxies and
ballots; count all votes and ballots; determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors; and certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
certification required herein shall take the form of a subscribed, written
report prepared by the inspectors and delivered to the Secretary of the Company.
An inspector need not be a Stockholder of the Company, and any officer of the
Company may be an inspector on any question other than a vote for or against a
proposal in which he has a material interest.
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3.15 PROXIES. A Stockholder may exercise any voting rights in person or by his
proxy appointed by an instrument in writing, which he or his authorized
attorney-in-fact has subscribed and which the proxy has delivered to the
Secretary of the meeting pursuant to the manner prescribed by law.
A proxy is not valid after the expiration of 13 months after the date
of its execution, unless the person executing it specifies thereon the length of
time for which it is to continue in force (which length may exceed 12 months) or
limits its use to a particular meeting. Each proxy is irrevocable if it
expressly states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power.
The attendance at any meeting of a Stockholder who previously has given
a proxy shall not have the effect of revoking the same unless he notifies the
Secretary in writing prior to the voting of the proxy.
3.16 ACTION BY CONSENT. Any action required to be taken at any annual or special
meeting of stockholders of the Company or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Company by
delivery to its registered office, its principal place of business, or an
officer or agent of the Company having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to the Company's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within 50 days of the
earliest dated consent delivered in the manner required by this section to the
Company, written consents signed by a sufficient number of holders to take
action are delivered to the Company by delivery to its registered office, its
principal place of business or an officer or agent of the Company having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Company's registered office shall be by hand or by
certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
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ARTICLE 4.
BOARD OF DIRECTORS
4.1 GENERAL POWERS. The Board shall manage the property, business and affairs of
the Company.
4.2 NUMBER. The number of directors who shall constitute the Board shall equal
not less than 1 nor more than 10, as the Board or majority stockholders may
determine by resolution from time to time.
4.3 ELECTION OF DIRECTORS AND TERM OF OFFICE. The Stockholders of the Company
shall elect the directors at the annual or adjourned annual meeting (except as
otherwise provided herein for the filling of vacancies). Each director shall
hold office until his death, resignation, retirement, removal, or
disqualification, or until his successor shall have been elected and qualified.
4.4 RESIGNATIONS. Any director of the Company may resign at any time by giving
written notice to the Board or to the Secretary of the Company. Any resignation
shall take effect upon receipt or at the time specified in the notice. Unless
the notice specifies otherwise, the effectiveness of the resignation shall not
depend upon its acceptance.
4.5 REMOVAL. Stockholders holding 2/3 of the outstanding shares entitled to vote
at an election of directors may remove any director or the entire Board of
Directors at any time, with or without cause.
4.6 VACANCIES. Any vacancy on the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause may
be filled by a majority of the remaining directors, a sole remaining director,
or the majority stockholders. Any director elected to fill a vacancy shall hold
office until his death, resignation, retirement, removal, or disqualification,
or until his successor shall have been elected and qualified.
4.7 CHAIRMAN OF THE BOARD. At the initial and annual meeting of the Board, the
directors may elect from their number a Chairman of the Board of Directors. The
Chairman shall preside at all meetings of the Board and shall perform such other
duties as the Board may direct. The Board also may elect a Vice Chairman and
other officers of the Board, with such powers and duties as the Board may
designate from time to time.
4.8 COMPENSATION. The Board may compensate directors for their services and may
provide for the payment of all expenses the directors incur by attending
meetings of the Board or otherwise.
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ARTICLE 5.
MEETINGS OF DIRECTORS
5.1 REGULAR MEETINGS. The Board may hold regular meetings at such places, dates
and times as the Board shall establish by resolution. If any day fixed for a
meeting falls on a legal holiday, the Board shall hold the meeting at the same
place and time on the next succeeding business day. The Board need not give
notice of regular meetings.
5.2 PLACE OF MEETINGS. The Board may hold any of its meetings in or out of the
State of Nevada, at such places as the Board may designate, at such places as
the notice or waiver of notice of any such meeting may designate, or at such
places as the persons calling the meeting may designate.
5.3 MEETINGS BY TELECOMMUNICATIONS. The Board or any committee of the Board may
hold meetings by means of conference telephone or similar telecommunications
equipment that enable all persons participating in the meeting to hear each
other. Such participation shall constitute presence in person at such meeting.
5.4 SPECIAL MEETINGS. The Chairman of the Board, the President, or one-half of
the directors then in office may call a special meeting of the Board. The person
or persons authorized to call special meetings of the Board may fix any place,
either in or out of the State of Nevada as the place for the meeting.
5.5 NOTICE OF SPECIAL MEETINGS. The person or persons calling a special meeting
of the Board shall give written notice to each director of the time, place, date
and purpose of the meeting of not less than three business days if by mail and
not less than 24 hours if by telegraph or in person before the date of the
meeting. If mailed, notice is given on the date deposited in the United States
mail, postage prepaid, to such director. A director may waive notice of any
special meeting, and any meeting shall constitute a legal meeting without notice
if all the directors are present or if those not present sign either before or
after the meeting a written waiver of notice, a consent to such meeting, or an
approval of the minutes of the meeting. A notice or waiver of notice need not
specify the purposes of the meeting or the business which the Board will
transact at the meeting.
5.6 WAIVER BY PRESENCE. Except when expressly for the purpose of objecting to
the legality of a meeting, a director's presence at a meeting shall constitute a
waiver of notice of such meeting.
5.7 QUORUM. A majority of the directors then in office shall constitute a quorum
for all purposes at any meeting of the Board. In the absence of a quorum, a
majority of directors present at any meeting may adjourn the meeting to another
place, date or time without further notice. No proxies shall be given by
directors to any person for purposes of voting or establishing a quorum at a
directors' meetings.
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5.8 CONDUCT OF BUSINESS. The Board shall transact business in such order and
manner as the Board may determine. Except as the law requires otherwise, the
Board shall determine all matters by the vote of a majority of the directors
present at a meeting at which a quorum is present. The directors shall act as a
Board, and the individual directors shall have no power as such.
5.9 ACTION BY CONSENT. The Board or a committee of the Board may take any
required or permitted action without a meeting if all members of the Board or
committee consent thereto in writing and file such consent with the minutes of
the proceedings of the Board or committee.
ARTICLE 6.
COMMITTEES
6.1 COMMITTEES OF THE BOARD. The Board may designate, by a vote of a majority of
the directors then in office, committees of the Board. The committees shall
serve at the pleasure of the Board and shall possess such lawfully delegable
powers and duties as the Board may confer.
6.2 SELECTION OF COMMITTEE MEMBERS. The Board shall elect by a vote of a
majority of the directors then in office a director or directors to serve as the
member or members of a committee. By the same vote, the Board may designate
other directors as alternate members who may replace any absent or disqualified
member at any meeting of a committee. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may appoint by unanimous
vote another member of the Board to act at the meeting in the place of the
absent or disqualified member.
6.3 CONDUCT OF BUSINESS. Each committee may determine the procedural rules for
meeting and conducting its business and shall act in accordance therewith,
except as the law or these Bylaws require otherwise. Each committee shall make
adequate provision for notice of all meetings to members. A majority of the
members of the committee shall constitute a quorum, unless the committee
consists of one or two members. In that event, one member shall constitute a
quorum. A majority vote of the members present shall determine all matters. A
committee may take action without a meeting if all the members of the committee
consent in writing and file the consent or consents with the minutes of the
proceedings of the committee.
6.4 AUTHORITY. Any committee, to the extent the Board provides, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Company, and may authorize the affixation of the
Company's seal to all instruments which may require or permit it. However, no
committee shall have any power or authority with regard to amending the Articles
of Incorporation, adopting an agreement of merger or consolidation, recommending
to the Stockholders the sale, lease or exchange of all or substantially all of
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the Company's property and assets, recommending to the Stockholders a
dissolution of the Company or a revocation of a dissolution of the Company, or
amending these Bylaws of the Company. Unless a resolution of the Board expressly
provides, no committee shall have the power or authority to declare a dividend,
to authorize the issuance of stock, or to adopt a certificate of ownership and
merger.
6.5 MINUTES. Each committee shall keep regular minutes of its proceedings and
report the same to the Board when required.
ARTICLE 7.
OFFICERS
7.1 OFFICERS OF THE COMPANY. The officers of the Company shall consist of a
President, a Secretary, a Treasurer and such Vice Presidents, Assistant
Secretaries, Assistant Treasurers, and other officers as the Board may designate
and elect from time to time. The same person may hold at the same time any two
or more offices.
7.2 ELECTION AND TERM. The Board shall elect the officers of the Company. Each
officer shall hold office until his death, resignation, retirement, removal or
disqualification, or until his successor shall have been elected and qualified.
7.3 COMPENSATION OF OFFICERS. The Board shall fix the compensation of all
officers of the Company. No officer shall serve the Company in any other
capacity and receive compensation, unless the Board authorizes the additional
compensation.
7.4 REMOVAL OF OFFICERS AND AGENTS. The Board may remove any officer or agent it
has elected or appointed at any time, with or without cause.
7.5 RESIGNATION OF OFFICERS AND AGENTS. Any officer or agent the Board has
elected or appointed may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President, or the Secretary of the
Company. Any such resignation shall take effect at the date of the receipt of
such notice or at any later time specified. Unless otherwise specified in the
notice, the Board need not accept the resignation to make it effective.
7.6 BOND. The Board may require by resolution any officer, agent, or employee of
the Company to give bond to the Company, with sufficient sureties conditioned on
the faithful performance of the duties of his respective office or agency. The
Board also may require by resolution any officer, agent or employee to comply
with such other conditions as the Board may require from time to time.
7.7 PRESIDENT. The President shall be the chief operating officer of the Company
and, subject to the Board's control, shall supervise and direct all of the
business and affairs of the Company. When present, he shall sign (with or
without the Secretary, an Assistant Secretary, or any other officer or agent of
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the Company which the Board has authorized) deeds, mortgages, bonds, contracts
or other instruments which the Board has authorized an officer or agent of the
Company to execute. However, the President shall not sign any instrument which
the law, these Bylaws, or the Board expressly require some other officer or
agent of the Company to sign and execute. In general, the President shall
perform all duties incident to the office of President and such other duties as
the Board may prescribe from time to time.
7.8 VICE PRESIDENTS. In the absence of the President or in the event of his
death, inability or refusal to act, the Vice Presidents in the order of their
length of service as Vice Presidents, unless the Board determines otherwise,
shall perform the duties of the President. When acting as the President, a Vice
President shall have all the powers and restrictions of the Presidency. A Vice
President shall perform such other duties as the President or the Board may
assign to him from time to time.
7.9 SECRETARY. The Secretary shall (a) keep the minutes of the meetings of the
Stockholders and of the Board in one or more books for that purpose, (b) give
all notices which these Bylaws or the law requires, (c) serve as custodian of
the records and seal of the Company, (d) affix the seal of the corporation to
all documents which the Board has authorized execution on behalf of the Company
under seal, (e) maintain a register of the address of each Stockholder of the
Company, (f) sign, with the President, a Vice President, or any other officer or
agent of the Company which the Board has authorized, certificates for shares of
the Company, (g) have charge of the stock transfer books of the Company, and (h)
perform all duties which the President or the Board may assign to him from time
to time.
7.10 ASSISTANT SECRETARIES. In the absence of the Secretary or in the event of
his death, inability or refusal to act, the Assistant Secretaries in the order
of their length of service as Assistant Secretary, unless the Board determines
otherwise, shall perform the duties of the Secretary. When acting as the
Secretary, an Assistant Secretary shall have the powers and restrictions of the
Secretary. An Assistant Secretary shall perform such other duties as the
President, Secretary or Board may assign from time to time.
7.11 TREASURER. The Treasurer shall (a) have responsibility for all funds and
securities of the Company, (b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, (c) deposit all moneys in
the name of the Company in depositories which the Board selects, and (d) perform
all of the duties which the President or the Board may assign to him from time
to time.
7.12 ASSISTANT TREASURERS. In the absence of the Treasurer or in the event of
his death, inability or refusal to act, the Assistant Treasurers in the order of
their length of service as Assistant Treasurer, unless the Board determines
otherwise, shall perform the duties of the Treasurer. When acting as the
Treasurer, an Assistant Treasurer shall have the powers and restrictions of the
Treasurer. An Assistant Treasurer shall perform such other duties as the
Treasurer, the President, or the Board may assign to him from time to time.
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7.13 DELEGATION OF AUTHORITY. Notwithstanding any provision of these Bylaws to
the contrary, the Board may delegate the powers or duties of any officer to any
other officer or agent.
7.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless the Board
directs otherwise, the President shall have the power to vote and otherwise act
on behalf of the Company, in person or by proxy, at any meeting of stockholders
of or with respect to any action of stockholders of any other corporation in
which the Company holds securities. Furthermore, unless the Board directs
otherwise, the President shall exercise any and all rights and powers which the
Company possesses by reason of its ownership of securities in another
corporation.
7.15 VACANCIES. The Board may fill any vacancy in any office because of death,
resignation, removal, disqualification or any other cause in the manner which
these Bylaws prescribe for the regular appointment to such office.
ARTICLE 8.
CONTRACTS, LOANS, DRAFTS,
DEPOSITS AND ACCOUNTS
8.1 CONTRACTS. The Board may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name and
on behalf of the Company. The Board may make such authorization general or
special.
8.2 LOANS. Unless the Board has authorized such action, no officer or agent of
the Company shall contract for a loan on behalf of the Company or issue any
evidence of indebtedness in the Company's name.
8.3 DRAFTS. The President, any Vice President, the Treasurer, any Assistant
Treasurer, and such other persons as the Board shall determine shall issue all
checks, drafts and other orders for the payment of money, notes and other
evidences of indebtedness issued in the name of or payable by the Company.
8.4 DEPOSITS. The Treasurer shall deposit all funds of the Company not otherwise
employed in such banks, trust companies, or other depositories as the Board may
select or as any officer, assistant, agent or attorney of the Company to whom
the Board has delegated such power may select. For the purpose of deposit and
collection for the account of the Company, the President or the Treasurer (or
any other officer, assistant, agent or attorney of the Company whom the Board
has authorized) may endorse, assign and deliver checks, drafts and other orders
for the payment of money payable to the order of the Company.
8.5 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may authorize the opening and
keeping of general and special bank accounts with such banks, trust companies,
or other depositories as the Board may select or as any officer, assistant,
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agent or attorney of the Company to whom the Board has delegated such power may
select. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.
ARTICLE 9.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
9.1 CERTIFICATES FOR SHARES. Every owner of stock of the Company shall have the
right to receive a certificate or certificates, certifying to the number and
class of shares of the stock of the Company which he owns. The Board shall
determine the form of the certificates for the shares of stock of the Company.
The Secretary, transfer agent, or registrar of the Company shall number the
certificates representing shares of the stock of the Company in the order in
which the Company issues them. The President or any Vice President and the
Secretary or any Assistant Secretary shall sign the certificates in the name of
the Company. Any or all certificates may contain facsimile signatures. In case
any officer, transfer agent, or registrar who has signed a certificate, or whose
facsimile signature appears on a certificate, ceases to serve as such officer,
transfer agent, or registrar before the Company issues the certificate, the
Company may issue the certificate with the same effect as though the person who
signed such certificate, or whose facsimile signature appears on the
certificate, was such officer, transfer agent, or registrar at the date of
issue. The Secretary, transfer agent, or registrar of the Company shall keep a
record in the stock transfer books of the Company of the names of the persons,
firms or corporations owning the stock represented by the certificates, the
number and class of shares represented by the certificates and the dates thereof
and, in the case of cancellation, the dates of cancellation. The Secretary,
transfer agent, or registrar of the Company shall cancel every certificate
surrendered to the Company for exchange or transfer. Except in the case of a
lost, destroyed, stolen or mutilated certificate, the Secretary, transfer agent,
or registrar of the Company shall not issue a new certificate in exchange for an
existing certificate until he has canceled the existing certificate.
9.2 TRANSFER OF SHARES. A holder of record of shares of the Company's stock, or
his attorney-in-fact authorized by power of attorney duly executed and filed
with the Secretary, transfer agent or registrar of the Company, may transfer his
shares only on the stock transfer books of the Company. Such person shall
furnish to the Secretary, transfer agent, or registrar of the Company proper
evidence of his authority to make the transfer and shall properly endorse and
surrender for cancellation his existing certificate or certificates for such
shares. Whenever a holder of record of shares of the Company's stock makes a
transfer of shares for collateral security, the Secretary, transfer agent, or
registrar of the Company shall state such fact in the entry of transfer if the
transferor and the transferee request.
9.3 LOST CERTIFICATES. The Board may direct the Secretary, transfer agent, or
registrar of the Company to issue a new certificate to any holder of record of
shares of the Company's stock claiming that he has lost such certificate, or
that someone has stolen, destroyed or mutilated such certificate, upon the
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receipt of an affidavit from such holder to such fact. When authorizing the
issue of a new certificate, the Board, in its discretion may require as a
condition precedent to the issuance that the owner of such certificate give the
Company a bond of indemnity in such form and amount as the Board may direct.
9.4 REGULATIONS. The Board may make such rules and regulations, not inconsistent
with these Bylaws, as it deems expedient concerning the issue, transfer and
registration of certificates for shares of the stock of the corporation. The
Board may appoint or authorize any officer or officers to appoint one or more
transfer agents, or one or more registrars, and may require all certificates for
stock to bear the signature or signatures of any of them.
9.5 HOLDER OF RECORD. The Company may treat as absolute owners of shares the
person in whose name the shares stand of record as if that person had full
competency, capacity and authority to exercise all rights of ownership, despite
any knowledge or notice to the contrary or any description indicating a
representative, pledge or other fiduciary relation, or any reference to any
other instrument or to the rights of any other person appearing upon its record
or upon the share certificate. However, the Company may treat any person
furnishing proof of his appointment as a fiduciary as if he were the holder of
record of the shares.
9.6 TREASURY SHARES. Treasury shares of the Company shall consist of shares
which the Company has issued and thereafter acquired but not canceled. Treasury
shares shall not carry voting or dividend rights.
ARTICLE 10.
INDEMNIFICATION
10.1 DEFINITIONS. In this Article:
(a) "INDEMNITEE" means (i) any present or former Director, advisory
director or officer of the Company, (ii) any person who while serving
in any of the capacities referred to in clause (i) hereof served at the
Company's request as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, and (iii) any person
nominated or designated by (or pursuant to authority granted by) the
Board of Directors or any committee thereof to serve in any of the
capacities referred to in clauses (i) or (ii) hereof.
(b) "OFFICIAL CAPACITY" means (i) when used with respect to a Director,
the office of Director of the Company, and (ii) when used with respect
to a person other than a Director, the elective or appointive office of
the Company held by such person or the employment or agency
relationship undertaken by such person on behalf of the Company, but in
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each case does not include service for any other foreign or domestic
corporation or any partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise.
(c) "PROCEEDING" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or
proceeding, and any inquiry or investigation that could lead to such an
action, suit or proceeding.
10.2 INDEMNIFICATION. The Company shall indemnify every Indemnitee against all
judgments, penalties (including excise and similar taxes), fines, amounts paid
in settlement and reasonable expenses actually incurred by the Indemnitee in
connection with any Proceeding in which he was, is or is threatened to be named
defendant or respondent, or in which he was or is a witness without being named
a defendant or respondent, by reason, in whole or in part, of his serving or
having served, or having been nominated or designated to serve, in any of the
capacities referred to in Section 10.1, if it is determined in accordance with
Section 10.4 that the Indemnitee (a) conducted himself in good faith, (b)
reasonably believed, in the case of conduct in his Official Capacity, that his
conduct was in the Company's best interests and, in all other cases, that his
conduct was at least not opposed to the Company's best interests, and (c) in the
case of any criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful; provided, however, that in the event that an Indemnitee is
found liable to the Company or is found liable on the basis that personal
benefit was improperly received by the Indemnitee the indemnification (i) is
limited to reasonable expenses actually incurred by the Indemnitee in connection
with the Proceeding and (ii) shall not be made in respect of any Proceeding in
which the Indemnitee shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company. Except as provided in
the immediately preceding proviso to the first sentence of this Section 10.2, no
indemnification shall be made under this Section 10.2 in respect of any
Proceeding in which such Indemnitee shall have been (a) found liable on the
basis that personal benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the Indemnitee's Official Capacity, or
(b) found liable to the Company. The termination of any Proceeding by judgment,
order, settlement or conviction, or on a plea of nolo contendere or its
equivalent, is not of itself determinative that the Indemnitee did not meet the
requirements set forth in clauses (a), (b) or (c) in the first sentence of this
Section 10.2. An Indemnitee shall be deemed to have been found liable in respect
of any claim, issue or matter only after the Indemnitee shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom. Reasonable expenses shall, include, without limitation, all court
costs and all fees and disbursements of attorneys for the Indemnitee. The
indemnification provided herein shall be applicable whether or not negligence or
gross negligence of the Indemnitee is alleged or proven.
10.3 SUCCESSFUL DEFENSE. Without limitation of Section 10.2 and in addition to
the indemnification provided for in Section 10.2, the Company shall indemnify
every Indemnitee against reasonable expenses incurred by such person in
connection with any Proceeding in which he is a witness or a named defendant or
respondent because he served in any of the capacities referred to in Section
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10.1, if such person has been wholly successful, on the merits or otherwise, in
defense of the Proceeding.
10.4 DETERMINATIONS. Any indemnification under Section 10.2 (unless ordered by a
court of competent jurisdiction) shall be made by the Company only upon a
determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of Directors who, at the time of such vote, are not named
defendants or respondents in the Proceeding; (b) if such a quorum cannot be
obtained, then by a majority vote of a committee of the Board of Directors, duly
designated to act in the matter by a majority vote of all Directors (in which
designated Directors who are named defendants or respondents in the Proceeding
may participate), such committee to consist solely of two (2) or more Directors
who, at the time of the committee vote, are not named defendants or respondents
in the Proceeding; (c) by special legal counsel selected by the Board of
Directors or a committee thereof by vote as set forth in clauses (a) or (b) of
this Section 10.4 or, if the requisite quorum of all of the Directors cannot be
obtained therefor and such committee cannot be established, by a majority vote
of all of the Directors (in which Directors who are named defendants or
respondents in the Proceeding may participate); or (d) by the shareholders in a
vote that excludes the shares held by Directors that are named defendants or
respondents in the Proceeding. Determination as to reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination that indemnification is
permissible is made by special legal counsel, determination as to reasonableness
of expenses must be made in the manner specified in clause (c) of the preceding
sentence for the selection of special legal counsel. In the event a
determination is made under this Section 10.4 that the Indemnitee has met the
applicable standard of conduct as to some matters but not as to others, amounts
to be indemnified may be reasonably prorated.
10.5 ADVANCEMENT OF EXPENSES. Reasonable expenses (including court costs and
attorneys' fees) incurred by an Indemnitee who was or is a witness or was, is or
is threatened to be made a named defendant or respondent in a Proceeding shall
be paid by the Company at reasonable intervals in advance of the final
disposition of such Proceeding, and without making any of the determinations
specified in Section 10.4, after receipt by the Company of (a) a written
affirmation by such Indemnitee of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Company under this
Article and (b) a written undertaking by or on behalf of such Indemnitee to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in this Article. Such written undertaking shall be an unlimited
obligation of the Indemnitee but need not be secured and it may be accepted
without reference to financial ability to make repayment. Notwithstanding any
other provision of this Article, the Company may pay or reimburse expenses
incurred by an Indemnitee in connection with his appearance as a witness or
other participation in a Proceeding at a time when he is not named a defendant
or respondent in the Proceeding.
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10.6 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the Company shall be
deemed to have requested an Indemnitee to serve an employee benefit plan
whenever the performance by him of his duties to the Company also imposes duties
on or otherwise involves services by him to the plan or participants or
beneficiaries of the plan. Excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall be deemed fines.
Action taken or omitted by an Indemnitee with respect to an employee benefit
plan in the performance of his duties for a purpose reasonably believed by him
to be in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Company.
10.7 OTHER INDEMNIFICATION AND INSURANCE. The indemnification provided by this
Article shall (a) not be deemed exclusive of, or to preclude, any other rights
to which those seeking indemnification may at any time be entitled under the
Company's Articles of Incorporation, any law, agreement or vote of shareholders
or disinterested Directors, or otherwise, or under any policy or policies of
insurance purchased and maintained by the Company on behalf of any Indemnitee,
both as to action in his Official Capacity and as to action in any other
capacity, (b) continue as to a person who has ceased to be in the capacity by
reason of which he was an Indemnitee with respect to matters arising during the
period he was in such capacity, (c) inure to the benefit of the heirs, executors
and administrators of such a person and (d) not be required if and to the extent
that the person otherwise entitled to payment of such amounts hereunder has
actually received payment therefor under any insurance policy, contract or
otherwise.
10.8 NOTICE. Any indemnification of or advance of expenses to an Indemnitee in
accordance with this Article shall be reported in writing to the shareholders of
the Company with or before the notice or waiver of notice of the next
shareholders' meeting or with or before the next submission to shareholders of a
consent to action without a meeting and, in any case, within the 12-month period
immediately following the date of the indemnification or advance.
10.9 CONSTRUCTION. The indemnification provided by this Article shall be subject
to all valid and applicable laws, including, without limitation, the Nevada
General Corporation Law, and, in the event this Article or any of the provisions
hereof or the indemnification contemplated hereby are found to be inconsistent
with or contrary to any such valid laws, the latter shall be deemed to control
and this Article shall be regarded as modified accordingly, and, as so modified,
to continue in full force and effect.
10.10 CONTINUING OFFER, RELIANCE, ETC. The provisions of this Article (a) are
for the benefit of, and may be enforced by, each Indemnitee of the Company, the
same as if set forth in their entirety in a written instrument duly executed and
delivered by the Company and such Indemnitee and (b) constitute a continuing
offer to all present and future Indemnitees. The Company, by its adoption of
these Bylaws, (a) acknowledges and agrees that each Indemnitee of the Company
has relied upon and will continue to rely upon the provisions of this Article in
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C-17
becoming, and serving in any of the capacities referred to in Section 10.1 of
this Article, (b) waives reliance upon, and all notices of acceptance of, such
provisions by such Indemnitees and (c) acknowledges and agrees that no present
or future Indemnitee shall be prejudiced in his right to enforce the provisions
of this Article in accordance with its terms by any act or failure to act on the
part of the Company.
10.11 EFFECT OF AMENDMENT. No amendment, modification or repeal of this Article
or any provision hereof shall in any manner terminate, reduce or impair the
right of any past, present or future Indemnitees to be indemnified by the
Company, nor the obligation of the Company to indemnify any such Indemnitees,
under and in accordance with the provisions of the Article as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
10
ARTICLE 11.
TAKEOVER OFFERS
In the event the Company receives a takeover offer, the Board of
Directors shall consider all relevant factors in evaluating such offer,
including, but not limited to, the terms of the offer, and the potential
economic and social impact of such offer on the Company's stockholders,
employees, customers, creditors and community in which it operates.
ARTICLE 12.
NOTICES
12.1 GENERAL. Whenever these Bylaws require notice to any Stockholder, director,
officer or agent, such notice does not mean personal notice. A person may give
effective notice under these Bylaws in every case by depositing a writing in a
post office or letter box in a postpaid, sealed wrapper, or by dispatching a
prepaid telegram addressed to such Stockholder, director, officer or agent at
his address on the books of the Company. Unless these Bylaws expressly provide
to the contrary, the time when the person sends notice shall constitute the time
of the giving of notice.
12.2 WAIVER OF NOTICE. Whenever the law or these Bylaws require notice, the
person entitled to said notice may waive such notice in writing, either before
or after the time stated therein.
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C-18
ARTICLE 13.
MISCELLANEOUS
13.1 FACSIMILE SIGNATURES. In addition to the use of facsimile signatures which
these Bylaws specifically authorize, the Company may use such facsimile
signatures of any officer or officers, agents or agent, of the Company as the
Board or a committee of the Board may authorize.
13.2 CORPORATE SEAL. The Board may provide for a suitable seal containing the
name of the Company, of which the Secretary shall be in charge. The Treasurer,
any Assistant Secretary, or any Assistant Treasurer may keep and use the seal or
duplicates of the seal if and when the Board or a committee of the Board so
directs.
13.3 FISCAL YEAR. The Board shall have the authority to fix and change the
fiscal year of the Company.
ARTICLE 14.
AMENDMENTS
14.1 Subject to the provisions of the Articles of Incorporation, the
Stockholders or the Board may amend or repeal these Bylaws at any meeting.
The undersigned hereby certifies that the foregoing constitutes a true
and correct copy of the Bylaws of the Company as adopted by the Directors on the
16th day of May 2008.
Executed as of this 16th day of May 2008.
/s/ Ben Cowart
------------------------
Ben Cowart
Director
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APPENDIX D
ROSS MILLER
Secretary of State
206 North Carson Street
Carson City, Nevada 89701-4299
(775) 684-5708
Website: secretaryof state.biz
- ---------------------------------
CERTIFICATE OF DESIGNATION
(PURSUANT TO NRS 78.1955)
- ---------------------------------
Certificate of Designation
--------------------------
For Nevada Profit Corporations
------------------------------
(Pursuant to NRS 78.1955)
-------------------------
1. Name of corporation
VERTEX ENERGY, INC.
2. By resolution of the board of directors pursuant to a provision in the
articles of incorporation, this certificate establishes the following regarding
the voting powers, designations, preferences, limitations, restrictions and
relative rights of the following class or series of stock.
CERTIFICATE OF DESIGNATIONS
OF
VERTEX ENERGY, INC.
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ITS
SERIES A PREFERRED STOCK
(AS SET FORTH ON THE ATTACHED)
3. Effective date of filing (optional):
4. Officer Signature (REQUIRED):
D-1
CERTIFICATE OF DESIGNATION OF
RIGHTS, PREFERENCES AND PRIVILEGES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
VERTEX ENERGY, INC.
a Nevada Corporation
1. DESIGNATION AND AMOUNT. There shall be created from the 50,000,000
shares of Preferred Stock, par value $0.001 per share, of the Corporation
authorized to be issued pursuant to the Articles of Incorporation, a series of
Preferred Stock, designated as the "SERIES A CONVERTIBLE PREFERRED STOCK" (the
"SERIES A PREFERRED STOCK"), and the number of shares of such series shall be
47,250,000. Such number of shares may be decreased by resolution of the Board of
Directors; PROVIDED, HOWEVER, that no such decrease shall reduce the number of
authorized shares of the Series A Preferred Stock to a number less than the
number of shares of the Series A Preferred Stock then issued and outstanding,
plus the number of shares reserved for issuance upon the declaration and payment
of dividends thereon, if any, plus the number of shares reserved for issuance
upon the exercise of outstanding options, rights or warrants, if any, to
purchase shares of Series A Preferred Stock, or upon the conversion of any
outstanding securities issued by the Corporation that are convertible into
shares of Series A Preferred Stock.
2. DEFINITIONS. As used herein, in addition to those terms otherwise
defined herein, the following terms shall have the following meanings:
2.1 "ACQUISITION" shall mean any consolidation or merger of
the Corporation with or into any other corporation or other entity or person, or
any other binding share exchange or corporate reorganization, in which the
shareholders of the Corporation immediately prior to such consolidation, merger,
binding share exchange or reorganization, own less than fifty percent (50%) of
the Corporation's voting power immediately after such consolidation, merger,
binding share exchange or reorganization, or any transaction or series of
related transactions in which in excess of fifty percent (50%) of the
Corporation's voting power is transferred.
2.2 "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
2.3 "COMMON STOCK" shall mean the common stock of the
Corporation, par value $.001 per share, or any other class of stock resulting
from successive changes or reclassifications of such common stock consisting
solely of changes in par value, or as a result of a subdivision, combination, or
merger, consolidation or similar transaction in which the Corporation is a
constituent corporation.
2.4 "FILING DATE" shall mean the date that this Certificate
is filed with the Secretary of State of the State of Nevada.
2.5 "HOLDER" shall mean a holder of record of an
outstanding share or shares of Series A Preferred Stock.
D-2
2.6 "ISSUE DATE" shall mean the original date of issuance
of shares of the Series A Preferred Stock.
2.7 "JUNIOR STOCK" shall mean the Common Stock and each other
class of capital stock or series of Preferred Stock of the Corporation
established after the Issue Date, the terms of which do not expressly provide
that such class or series ranks senior to or on parity with the Series A
Preferred Stock upon the liquidation, winding-up or dissolution of the
Corporation.
2.8 "LIQUIDATION PREFERENCE" shall mean, with respect to each
share of the Series A Preferred Stock, $0.149, subject to equitable adjustment
from time to time pursuant to Section 7.4.
2.9 "MARKET PRICE" of the Common Stock on any day shall be
deemed to be the closing price of the Common Stock on such day as officially
reported by the principal securities exchange in which the shares of Common
Stock are listed or admitted to trading or by the Nasdaq Stock Market, or if the
Common Stock is not listed or admitted to trading on any securities exchange,
including the Nasdaq Stock Market, the last sale price, or if there is no last
sale price, the closing bid price, as furnished by the National Association of
Securities Dealers, Inc. (such as through the OTC Bulletin Board) or a similar
organization if Nasdaq is no longer reporting such information. If the Market
Price cannot be determined pursuant to the sentence above, the Market Price
shall be determined in good faith (using customary valuation methods) by the
Board of Directors based on the information best available to it.
2.10 "PERSON" shall mean any individual, corporation, general
partnership, limited partnership, limited liability partnership, joint venture,
association, joint-stock corporation, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
3. LIQUIDATION RIGHTS.
3.1 In the event of any liquidation, winding-up or dissolution
of the Corporation, whether voluntary or involuntary, each Holder shall be
entitled to receive and to be paid out of the assets of the Corporation
available for distribution to its shareholders an amount equal to the
Liquidation Preference for each outstanding share of the Series A Preferred
Stock held by such Holder to the date fixed for distribution, in preference to
the holders of, and before any payment or distribution is made on (or any
setting apart for any payment or distribution), any Junior Stock. In the event
the funds or assets legally available for distribution to the Holders are
insufficient to pay in full the Liquidation Preference as described above, then
all funds or assets available for distribution to the holders of capital stock
shall be paid to the Holders pro rata based on the full Liquidation Preference
to which they are entitled. After payment has been made to the Holders of the
full Liquidation Preference to which such Holders shall be entitled, the
remaining net assets of the Corporation available for distribution, if any,
shall be distributed pro rata among the holders of Junior Stock.
3.2 In addition to any voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation, the following events shall be
considered a liquidation, winding-up or dissolution for the purpose of this
Section 3:
D-3
(i) the sale, conveyance, exchange or transfer (for
cash, shares of stock, other securities or other consideration) of all or
substantially all the assets or business of the Corporation; or
(ii) any consolidation or merger of the Corporation
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the shareholders of the Corporation
immediately prior to such consolidation, merger or reorganization, own fifty
percent (50%) or less of the Corporation's voting power immediately after such
consolidation, merger or reorganization.
4. VOTING RIGHTS.
4.1 Except as otherwise provided herein or as required by
Nevada law, the Series A Preferred Stock shall be voted equally with the shares
of the Common Stock of the Corporation, and not as a separate class, at any
annual or special meeting of shareholders of the Corporation, and may act by
written consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series A Preferred Stock shall be
entitled to that number of votes as equals the number of shares of Common Stock
into which such holder's aggregate shares of Series A Preferred Stock are
convertible (pursuant to Section 6 hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
4.2 The Board of Directors shall consist of five (5) seats. So
long as at least fifty percent (50%) of the shares of Series A Preferred Stock
issued on the Issue Date remain outstanding (as adjusted for any stock
dividends, if any, combinations, splits, recapitalizations, and the like with
respect to such shares), then the Holders of the Series A Preferred Stock,
voting as a separate class, shall be entitled to elect one (1) of the five (5)
directors of the Corporation (the "SERIES A DIRECTOR"). The Holders of the
Series A Preferred Stock shall have the right to elect or re-elect this one
director at each meeting, or pursuant to each written consent, of the
Corporation's shareholders for the election of directors.
4.3 Any director who shall have been elected by the holders of
Series A Preferred Stock pursuant to Section 4.2 hereof, may be removed during
such director's term of office, either with or without cause, by and only by, an
affirmative vote of the Holders of at least 66-2/3% of the then outstanding
shares of Series A Preferred Stock, given either at a special meeting of such
shareholders duly called for that purpose or pursuant to a written consent of
such shareholders, and any vacancy thereby created may be filled by such Holders
of Series A Preferred Stock represented at the meeting or pursuant to the
written consent of such shareholders. Upon any other vacancy (i.e., other than a
vacancy caused by removal) in the office of a director elected by Holders of
Series A Preferred Stock pursuant to Section 4.2 hereof, the Holders of at least
66-2/3% of the then outstanding shares of Series A Preferred Stock may, by
affirmative vote, elect a successor to hold office for the unexpired term of the
director whose place shall be vacant.
5. DIVIDENDS. Holders of outstanding shares of Series A Preferred Stock
shall be entitled to receive dividends, when, as, and if declared by the Board
of Directors. No dividends or other distributions shall be made with respect to
D-4
any shares of Junior Stock during any fiscal year of the Corporation until
dividends in the same amount per share on the Series A Preferred Stock shall
have been declared and paid or set apart during that fiscal year.
6.CONVERSION.
6.1 Each Holder shall have the right, at such Holder's option,
exercisable at any time commencing on the one-year anniversary of the Issue Date
and from time to time thereafter, to convert, subject to the terms and
provisions of this Section 6, any or all of such Holder's shares of Series A
Preferred Stock into shares of Common Stock at a conversion rate equal to one
share of Common Stock for each one share of Series A Preferred Stock being
converted, PROVIDED, that (i) a holder of Series A Preferred Stock may, at any
time following the one-year anniversary of the Issue Date and subject to the
limitations set forth in subsection (ii) below, convert only up to that number
of shares of Series A Preferred Stock, if any, so that, upon conversion, the
aggregate beneficial ownership of the Corporation's Common Stock (calculated
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
such Holder and all persons affiliated with such Holder is not more than 4.99%
of the Corporation's Common Stock then outstanding and (ii) prior to the
three-year anniversary of the Issue Date, a Holder of Series A Preferred Stock
may not, in any given three-month period, convert more than that number of
shares of Series A Preferred Stock as equals 5% of the total number of shares of
Series A Preferred then beneficially owned by such Holder. To exercise such
right, a Holder must deliver to the Corporation at its principal offices during
usual business hours of the Corporation: (i) a written notice that such Holder
elects to convert the number of shares of the Series A Preferred Stock specified
in such notice and (ii) the certificate(s) evidencing the shares of Series A
Preferred Stock to be converted, properly endorsed or assigned for transfer.
Thereupon, the Corporation shall promptly issue and deliver to such Holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled. The conversion shall be deemed to occur at the close of
business on the day the notice of conversion and certificate(s) are received by
the Corporation.
6.2 Each share of Series A Preferred Stock shall be converted
into shares of Common Stock automatically and without further action by the
Corporation or any Holder, upon the first to occur of any of the following: (i)
the affirmative vote or written consent of the Holders of a majority of the
then-outstanding Series A Preferred Stock; (ii) the closing Market Price of the
Common Stock averages at least $1.50 per share over a period of 20 consecutive
trading days and the daily trading volume over the same 20-day period averages
at least 75,000 shares; (iii) the closing of the sale of the Corporation's
Common Stock in a public offering underwritten by an investment bank reasonably
acceptable to the holders of a majority of the then-outstanding shares of Series
A Preferred Stock, registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with a per share price to the public of at least $1.00 per
share and for a total gross offering amount of at least $10.0 million, other
than a registration relating solely to a transaction under Rule 145 under the
Securities Act (or any successor thereto) or to an employee benefit plan of the
Corporation; or (iv) the closing of an Acquisition resulting in proceeds to the
holders of the Series A Preferred Stock of at least $1.00 per outstanding share
of Series A Preferred Stock. The Corporation shall give notice to the Holders of
the automatic conversion of the Series A Preferred Stock pursuant to this
Section 6.4, whereupon each Holder shall be obligated to surrender to the
Corporation the certificate(s) evidencing its shares of Series A Preferred
Stock, properly endorsed or assigned for transfer.
D-5
6.3 On the date of any conversion, all rights of any Holder
with respect to the shares of the Series A Preferred Stock so converted,
including the rights, if any, to receive distributions of the Corporation's
assets (including, but not limited to, the Liquidation Preference) or notices
from the Corporation, will terminate, except only for the rights of any such
Holder to receive certificates (if applicable) for the number of whole shares of
Common Stock into which such shares of the Series A Preferred Stock have been
converted and cash in lieu of any fractional share as provided in Section 6.6.
6.4 If the Corporation shall at any time or from time to time
after the Filing Date effect a subdivision of the outstanding Common Stock
without a corresponding subdivision of the Series A Preferred Stock, or combine
the outstanding shares of Common Stock into a smaller number of shares without a
corresponding combination of the Series A Preferred Stock, the conversion ratio
shall be proportionately adjusted. Any adjustment under this SECTION 6.4 shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
6.5 The Corporation shall reserve out of the authorized but
unissued shares of its Common Stock, sufficient shares of its Common Stock to
provide for the conversion of shares of Series A Preferred Stock, from time to
time as such shares of Series A Preferred Stock are presented for conversion.
The Corporation shall take all action necessary so that all shares of Common
Stock that may be issued upon conversion of shares of Series A Preferred Stock
will upon issue be validly issued, fully paid and nonassessable, and free from
all liens and charges in respect of the issuance or delivery thereof.
6.6 No fractional shares or securities representing fractional
shares of Common Stock shall be issued upon any conversion of any shares of the
Series A Preferred Stock. If more than one share of the Series A Preferred Stock
held by the same Holder shall be subject to conversion at one time, the number
of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the conversion of all of such shares of the Series A
Preferred Stock. If the conversion of any share or shares of the Series A
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the Market Price of the Common Stock on the conversion date shall
be paid to such Holder in cash by the Corporation..
7. MISCELLANEOUS
7.1 If any Series A Preferred Stock certificate shall be
mutilated, lost, stolen or destroyed, the Corporation shall, subject to the
Bylaws of the Corporation, upon the request and at the expense of the Holder,
issue, in exchange and in substitution for and upon cancellation of the
mutilated Series A Preferred Stock certificate, or in lieu of and substitution
for the Series A Preferred Stock certificate lost, stolen or destroyed, a new
Series A Preferred Stock certificate of like tenor and representing an
equivalent amount of shares of the Series A Preferred Stock, but only upon
receipt of evidence of such loss, theft or destruction of such Series A
Preferred Stock certificate and indemnity, if requested, satisfactory to the
Corporation. The Corporation shall not be required to issue any physical
certificates representing shares of the Series A Preferred Stock on or after any
conversion date with respect to such shares of the Series A Preferred Stock. In
place of the delivery of a replacement certificate following any such conversion
D-6
date, upon delivery of the evidence and indemnity described above, the
Corporation will deliver the shares of Common Stock.
7.2 With respect to any notice to a Holder required to be
provided hereunder, such notice shall be mailed to the registered address of
such Holder, and neither failure to mail such notice, nor any defect therein or
in the mailing thereof, to any particular Holder shall affect the sufficiency of
the notice or the validity of the proceedings referred to in such notice with
respect to the other Holders or affect the legality or validity of any
redemption, conversion, distribution, rights, warrant, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation,
winding-up or other action, or the vote upon any action with respect to which
the Holders are entitled to vote. All notice periods referred to herein shall
commence on the date of the mailing of the applicable notice. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the Holder receives the notice.
7.3 Subject to Section 6.6 hereof, the shares of the Series A
Preferred Stock shall be issuable, convertible and redeemable only in whole
shares and cash shall be paid in lieu of fractional shares.
7.4 The Liquidation Preference and the dollar amounts and
share numbers set forth herein shall be subject to adjustment, as appropriate,
whenever there shall occur a stock split, stock dividend, combination,
reclassification or other similar event involving shares of the Series A
Preferred Stock. Such adjustments shall be made in such manner and at such time
as the Board of Directors in good faith determines to be equitable in the
circumstances, any such determination to be evidenced in a resolution duly
adopted by the Board of Directors. Upon any such equitable adjustment, the
Corporation shall promptly deliver to each Holder a notice describing in
reasonable detail the event requiring the adjustment and the method of
calculation thereof and specifying the increased or decreased Liquidation
Preference following such adjustment.
7.5 Shares of the Series A Preferred Stock converted into
Common Stock shall be retired and canceled and shall have the status of
authorized but unissued shares of Preferred Stock of the Corporation
undesignated as to series and may with any and all other authorized but unissued
shares of Preferred Stock of the Corporation be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the Corporation.
7.6 In case, at any time while any of the shares of the Series
A Preferred Stock are outstanding:
7.6.1 The Corporation shall declare a dividend (or
any other distribution) on any Junior Stock; or
7.6.2 The Corporation shall authorize the issuance to
all holders of its shares of any Junior Stock of rights or warrants to subscribe
for or purchase shares of Common Stock or of any other subscription rights or
warrants; or
D-7
7.6.3 There is any reclassification of the Common
Stock, any consolidation, merger or binding share exchange to which the
Corporation is a party or the sale or transfer of all or substantially all of
the assets of the Corporation; or
7.6.4 There is the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be mailed to Holders at least 30 days before
the date hereinafter specified, a notice stating (i) the date on which a record
is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of shares of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, and/or (ii) the date on
which any such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of shares of Common Stock of record
shall be entitled to exchange their shares for the applicable consideration,
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
7.7 The headings of the various sections and subsections of
this Certificate of Designation are for convenience of reference only and shall
not affect the interpretation of any of the provisions of this Certificate of
Designation.
7.8 Whenever possible, each provision of this Certificate of
Designation shall be interpreted in a manner as to be effective and valid under
applicable law and public policy. If any provision set forth herein is held to
be invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions of this Certificate of Designation. No provision herein
set forth shall be deemed dependent upon any other provision unless so expressed
herein. If a court of competent jurisdiction should determine that a provision
of this Certificate of Designation would be valid or enforceable if a period of
time were extended or shortened, then such court may make such change as shall
be necessary to render the provision in question effective and valid under
applicable law.
7.9 The Corporation will provide to the holders of the Series
A Preferred Stock all communications sent by the Corporation to the holders of
the Common Stock.
7.10 Except as may otherwise be required by law, the shares of
the Series A Preferred Stock shall not have any powers, designations,
preferences or other special rights, other than those specifically set forth in
this Certificate of Designation.
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APPENDIX E
ROSS MILLER
Secretary of State
206 North Carson Street
Carson City, Nevada 89701-4299
(775) 684-5708
Website: secretaryof state.biz
- ---------------------------------
CERTIFICATE OF DESIGNATION
(PURSUANT TO NRS 78.1955)
- ---------------------------------
Certificate of Designation
--------------------------
For Nevada Profit Corporations
------------------------------
(Pursuant to NRS 78.1955)
-------------------------
1. Name of corporation
VERTEX ENERGY, INC.
2. By resolution of the board of directors pursuant to a provision in the
articles of incorporation, this certificate establishes the following regarding
the voting powers, designations, preferences, limitations, restrictions and
relative rights of the following class or series of stock.
CERTIFICATE OF DESIGNATIONS
OF
VERTEX ENERGY, INC.
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ITS
SERIES B PREFERRED STOCK
(AS SET FORTH ON THE ATTACHED)
3. Effective date of filing (optional):
4. Officer Signature (REQUIRED):
E-1
CERTIFICATE OF DESIGNATIONS
OF
VERTEX ENERGY, INC.
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ITS
SERIES B PREFERRED STOCK
Pursuant to Section 78.1955 of the Nevada General Corporation Law,
Vertex Energy, Inc., a corporation organized and existing under the Nevada
General Corporation Law (the "Company"),
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the
Board of Directors by the Certificate of Incorporation, as amended, of the
Company, and pursuant to Section 78.1955 of the Nevada General Corporation Law,
the Board of Directors, by unanimous written consent of all members of the Board
of Directors on ____________, 2008, duly adopted a resolution providing for the
issuance of a series of one hundred shares of Series B Preferred Stock, which
resolution is and reads as follows:
RESOLVED, that pursuant to the authority expressly granted to and
invested in the Board of Directors of Vertex Energy, Inc. (the
"Company") by the provisions of the Certificate of Incorporation of the
Company, as amended, a series of the preferred stock, par value $.001
per share, of the Company be, and it hereby is, established; and
FURTHER RESOLVED, that the series of preferred stock of the Company be,
and it hereby is, given the distinctive designation of "Series B
Preferred Stock"; and
FURTHER RESOLVED, that the Series B Preferred Stock shall consist of
one hundred shares; and
FURTHER RESOLVED, that the Series B Preferred Stock shall have the
powers and preferences, and the relative, participating, optional and
other rights, and the qualifications, limitations, and restrictions
thereon set forth below:
Page 1 of 3
Vertex Energy, Inc.
Certificate of Designations of Series B Preferred Stock
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SECTION 1. DESIGNATION OF SERIES; RANK. The shares of such series shall
be designated as the "Series B Preferred Stock" (the "Series B Preferred Stock")
and the number of shares initially constituting such series shall be up to one
hundred shares.
SECTION 2. DIVIDENDS. The holders of Series B Preferred Stock shall not
be entitled to receive dividends paid on the Common Stock.
SECTION 3. LIQUIDATION PREFERENCE. The holders of Series B Preferred
Stock shall not be entitled to any liquidation preference.
SECTION 4. VOTING.
4.1 VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by Nevada law,
the Series B Preferred Stock shall have no voting rights.
(b) The Board of Directors of the Company shall consist of five (5)
seats. So long as any shares of Series B Preferred Stock remain
outstanding, the holders of the Series B Preferred Stock, voting as a
separate class, shall be entitled to elect four (4) of the five (5)
directors of the Company (the "Series B Directors"). The holders of the
Series B Preferred Stock shall have the right to elect or re-elect
these directors at each meeting, or pursuant to each written consent,
of the Company's shareholders for the election of directors.
(c) Any director who shall have been elected by the holders of Series B
Preferred Stock pursuant to Section 4.1(b) hereof, may be removed
during such director's term of office, either with or without cause, by
and only by, an affirmative vote of the holders of at least 66-2/3% of
the then outstanding shares of Series B Preferred Stock, given either
at a special meeting of such shareholders duly called for that purpose
or pursuant to a written consent of such shareholders, and any vacancy
thereby created may be filled by such holders of Series B Preferred
Stock represented at the meeting or pursuant to the written consent of
such shareholders. Upon any other vacancy (i.e., other than a vacancy
caused by removal) in the office of a director elected by holders of
Series B Preferred Stock pursuant to Section 4.1(b) hereof, the holders
of at least a majority of the then outstanding shares of Series B
Preferred Stock may, by affirmative vote, elect a successor to hold
office for the unexpired term of the director whose place shall be
vacant.
4.2 AMENDMENTS TO ARTICLES AND BYLAWS. So long as any shares
of Series B Preferred Stock are outstanding, the Company shall not,
without the affirmative vote of the holders of at least 66-2/3% of all
outstanding shares of Series B Preferred Stock, voting separately as a
class (i) amend, alter or repeal any provision of the certificate of
incorporation or the bylaws of the Company so as to adversely affect
the designations, preferences, limitations and relative rights of the
Series B Preferred Stock or (ii) effect any reclassification of the
Series B Preferred Stock.
Page 2 of 3
Vertex Energy, Inc.
Certificate of Designations of Series B Preferred Stock
E-3
4.3 AMENDMENT OF RIGHTS OF SERIES B PREFERRED STOCK. The
Company shall not, without the affirmative vote of the holders of at
least 66-2/3% of all outstanding shares of Series B Preferred Stock,
amend, alter or repeal any provision of this Statement of Designations,
PROVIDED, HOWEVER, that the Company may, by any means authorized by law
and without any vote of the holders of shares of Series B Preferred
Stock, make technical, corrective, administrative or similar changes in
this Statement of Designations that do not, individually or in the
aggregate, adversely affect the rights or preferences of the holders of
shares of Series B Preferred Stock.
SECTION 5. CONVERSION RIGHTS. The shares of Series B Preferred Stock
shall have no conversion rights.
SECTION 6. REDEMPTION OBLIGATION. The Company shall be obligated to
redeem all of the outstanding shares of Series B Preferred Stock at par value
($0.001 per outstanding Series B Preferred Stock share) upon the first to occur
of the following events: (a) Ben Cowart is no longer employed by the Company as
its Chief Executive Officer or President; or (b) the Executive Employment
Agreement dated as of ________, 2008 between the Company and Ben Cowart has
expired or been terminated by Mr. Cowart or the Company; or (c) the shares of
Series B Preferred Stock are owned of record or beneficially by any holder other
than Ben Cowart; or (iv) the Company's shares of Common Stock have been approved
to be listed on Nasdaq or other national securities exchange; or (v)
________________, 2013. In the event the Company does not so redeem the shares
of Series B Preferred Stock when obligated to do so, the provisions of Sections
4.1 (b) and (c) and Sections 4.2 and 4.3 shall automatically terminate.
SECTION 7. NOTICES. Any notice required hereby to be given to the
holders of shares of Series B Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Company.
IN WITNESS WHEREOF, the Company has caused this statement to be duly
executed by its Chief Executive Officer this ___ day of ___________ 2008.
VERTEX ENERGY, INC.
--------------------------
Ben Cowart
Chief Executive Officer
Page 3 of 4
Vertex Energy, Inc.
Certificate of Designations of Series B Preferred Stock
E-4
APPENDIX F
OPINION OF LIVINGSTONE PARTNERS LLC
OPINION LETTER
August 6, 2008
Special Committee of the Board of Directors of World Waste Technologies, Inc.
10600 North DeAnza Blvd #250
Cupertino, CA 95014
Special Committee of the Board of Directors:
Vertex Energy, LP, a Texas limited partnership ("Vertex LP"), Vertex Energy,
Inc., a Nevada corporation ("Vertex Nevada"), Vertex Merger Sub, Inc., a
California corporation and wholly-owned subsidiary of Vertex Nevada ("Merger
Sub"), and Ben Cowart, as agent ("Agent") for all of the shareholders of Vertex
Nevada (the "Vertex Shareholders"), collectively referred to herein ("Vertex",
"Seller", "Company" or "Target"), is entering into a Merger (the "Merger") with
World Waste Technologies, Inc., a California corporation ("WWT" or the "Buyer").
WWT, Vertex LP, Vertex Nevada, Merger Sub and the Agent are collectively
referred to herein as the "Parties". The principal terms and conditions of the
Merger are set forth in more detail in the Agreement and Plan of Merger between
the Seller and Buyer dated May 15, 2008 (the "Agreement").
Livingstone Partners ("Livingstone") LLC has been requested by the Special
Committee of the Board of Directors of WWT ("Special Committee") to render our
opinion with respect to fairness, from a financial point of view, as of the date
hereof, to the shareholders of WWT, of the consideration to be paid by WWT in
the Merger. We have not been requested to opine as to, and our opinion does not
in any manner address, WWT's underlying business decision to enter into the
Merger or constitute a recommendation of the Merger independently or relative to
an alternative transaction. We are not opining and do not express any opinion in
any manner as to i) the solvency or financial condition of Vertex, ii) any tax
consequences that may result from the consummation of the Merger, iii) the
prices at which shares of WWT common stock will trade at any time, or iv) the
fairness of the amount or the nature of any compensation to any officers,
directors or employees of any parties to the Merger, or any class of such
persons, relative to the consideration paid in the Merger or otherwise.
In arriving at our opinion, Livingstone has:
1. Reviewed the Agreement and principal terms of the Merger;
2. Reviewed Vertex's audited financial statements for the fiscal
years December 31, 2005 through December 31, 2007;
3. Reviewed WWT's SEC filings, audited financial statements and
other financial information received from WWT;
4. Conducted interviews with members of WWT's management team and
their consultants, to discuss the remaining assets,
operations, financial prospects and residual value of WWT;
5. Reviewed unaudited historical, estimated and projected
financial and operating information with respect to the
business, operations and prospects of Vertex furnished by the
Seller;
6. Conducted interviews and facility tours with Vertex's senior
management team to understand in detail, Vertex's business,
operations, financial condition, and future business
prospects;
7. Compared the results of operations of Vertex with those of
certain public companies which Livingstone deemed to be
reasonably comparable to Vertex;
8. Reviewed the financial terms, to the extent publicly
available, of certain comparable
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August 6, 2008
Page 2
transactions which Livingstone deemed reasonably comparable to
the Merger;
9. Reviewed independent third party diligence reports and
supplemental analyses;
10. Reviewed Vertex's contracts with Chevron/Omega and KMTEX;
11. Reviewed Vertex's revolving line of credit promissory note;
12. Reviewed Purchase and Sale Agreement and Sublease Agreement
between Cedar Marine Terminals, L.P., a Texas limited
partnership ("CMT"), and Vertex Nevada;
13. Reviewed Vertex list of assets and liabilities;
14. Reviewed Vertex related party transactions;
15. Reviewed Vertex Energy, Inc. Executive Employment Agreement
with Benjamin P. Cowart;
16. Reviewed Certificate of Designation of Rights, Preferences and
Privileges of the Series A Convertible Preferred Stock of
Vertex Energy, Inc.;
17. Reviewed Certificate of Vertex Energy, Inc., Establishing the
Designations, Preferences, Limitations and Relative Rights of
its Series B Preferred Stock;
18. Reviewed such other documents, leases, agreements, and permits
included in the Closing Documents; and 19. Conducted such
other analyses and examinations, and such other financial,
economic, and market criteria as Livingstone deemed necessary
to develop its opinion.
In arriving at our opinion, Livingstone has assumed and relied upon the accuracy
and completeness of the historical audited and unaudited financial statements
and other financial and operating information that Vertex furnished to us,
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of management of Vertex
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the actual financial
information of Vertex for the fiscal year ended December 31, 2007 and the
projected financial information of Vertex for the fiscal years ending December
31, 2008 through 2013, Livingstone assumed that such estimates and projections
have been reasonably prepared on a basis reflecting the best currently available
information and judgments of the management of Vertex as to the present and
future financial performance of Vertex. Our opinion necessarily is based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.
In rendering this opinion we have also assumed that: (i) the Merger will be
consummated on the principal terms described in the Agreement and Plan of Merger
without additional material terms or conditions and that the conditions to the
consummation of the Merger, including all necessary consents and approvals, will
be satisfied without material expense; (ii) all representations, warranties and
covenants to be made by the parties in a definitive agreement and plan of merger
will be true, accurate and complete at closing; (iii) all assets and liabilities
(contingent or otherwise, known or unknown) of the Target are as set forth in
its consolidated financial statements; and (iv) the final form of the documents
relating to the Merger will be substantively similar in all respects to the
drafts thereof reviewed by us.
Our opinion is rendered as of the date hereof and we expressly disclaim any
undertaking or obligation to advise any person of any change in fact or matter
affecting our opinion of which we become aware after the date hereof. Our
opinion is rendered to, and it is understood that this letter is for the
exclusive use of the Special Committee of the Board of Directors of WWT and may
not be used for any other purpose without our prior written consent. Our opinion
is not intended to be relied upon or confer any rights or remedies upon any
employee, creditor, stockholder or other equity holder of WWT or any other
party. Our opinion may not be reproduced, disseminated, quoted, summarized or
referred to at any time, in any manner or for any purpose, nor may any public
reference to Livingstone or any of its affiliates be made by WWT or any of its
affiliates, without the prior written consent of Livingstone except to the
extent such disclosure or reference is requested or required by applicable law,
regulation, supervisory authority or any other legislative, judicial or
governmental process. Our opinion has been approved by a fairness
F-2
August 6, 2008
Page 3
committee of Livingstone Partners. Our opinion is not intended to be and does
not constitute a recommendation to any stockholder of WWT as to how such
stockholder should vote with respect to the Merger.
Livingstone will receive a fee in connection with the preparation, delivery and
acceptance of this opinion by the Special Committee of the Board of Directors of
WWT. In addition, WWT has agreed to pay Livingstone a fee which is contingent
upon the consummation of the Merger. WWT has also agreed to reimburse our
expenses and indemnify us for certain liabilities that may arise out of our
engagement. A copy of the engagement letter is included as Exhibit A.
Livingstone Partners and its affiliates are engaged in investment banking and
financial advisory services, securities trading, hedging, financing, brokerage
activities and other financial and non-financial activities and services for
various persons and entities. In the ordinary course of these activities and
services, Livingstone Partners and its affiliates may actively trade securities
of Buyer or Seller for our own account or the account of our customers, and,
accordingly, may at any time hold a long or short position in such securities.
We may also, in the future, provide investment banking and financial advisory
services to Buyer, Seller or entities that are affiliated with Buyer or Seller,
for which we would expect to receive compensation.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that the consideration to be paid in the transaction is fair, from a
financial point of view, to each class of WWT's shareholders (Series A
Preferred, Series B Preferred and Common).
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that the consideration to be paid in the transaction is fair, from a
financial point of view, in each case as compared to the consideration to be
received by that class of shareholders under a liquidation analysis.
Best,
/s/ Stephen Miles
Livingstone Partners
F-3
APPENDIX G
FORM OF SHAREHOLDER VOTING AGREEMENT
SHAREHOLDER VOTING AGREEMENT
SHAREHOLDER VOTING AGREEMENT, dated as of March __, 2008 (this
"AGREEMENT"), by and among World Waste Technologies, Inc., California
corporation ("Company"), and each of the shareholders of Company listed on
SCHEDULE 1 attached hereto (each, a "PRINCIPAL SHAREHOLDER," and collectively,
the "PRINCIPAL SHAREHOLDERS").
WHEREAS, on or around the date hereof, Company has entered into an Asset
Purchase Agreement (the "PURCHASE AGREEMENT") with Clean Earth Solutions, Inc.
("CES") pursuant to which, among things, Company has agreed to sell certain
assets to CES (the "SALE");
WHEREAS, as of the date hereof, each Principal Shareholder owns (of record
and beneficially) such number of shares ("SHARES") of the Common Stock ("COMMON
STOCK"), $0.001 par value, of Company as set forth opposite such Principal
Shareholder's name on SCHEDULE 1 hereto (such Shares, together with any other
Shares the voting power over which is acquired by such Principal Shareholder
during the period from and including the date hereof through and including the
date on which this Agreement is terminated in accordance with its terms, are
collectively referred to herein as the "SUBJECT SHARES" with respect to such
Principal Shareholder);
WHEREAS, each Principal Shareholder is affiliated with CES and accordingly
has an interest in the closing of the Sale; and
WHEREAS, as a condition to its willingness to proceed with the Sale and to
consummate the transactions contemplated thereby, Company has required that each
Principal Shareholder execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. REPRESENTATIONS OF EACH PRINCIPAL SHAREHOLDER.
(a) Each Principal Shareholder hereby represents and warrants to
Company as follows:
(i) Such Principal Shareholder is the record and beneficial
owner (for purposes of this Agreement, such term shall have the meaning set
forth in Rule 13d-3 under the Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), and the rules and regulations promulgated thereunder, but without regard
to any conditions (including the passage of time) to the acquisition of such
shares) of, and has good and valid and marketable title to, the Shares set forth
opposite such Principal Shareholder's name on SCHEDULE 1.
(ii) As of the date hereof, such Principal Shareholder is not
the record or beneficial owner of any shares of Common Stock or other voting
securities or instruments of the Company, other than the Shares set forth
opposite such Principal Shareholder's name on SCHEDULE 1.
G-1
(iii) Such Principal Shareholder has all requisite power and
authority necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(iv) This Agreement has been duly executed and delivered by
such Principal Shareholder and this Agreement constitutes a valid and binding
agreement of such Principal Shareholder, enforceable against such Principal
Shareholder in accordance with its terms.
(v) Other than as required or permitted by this Agreement, the
Shares set forth opposite such Principal Shareholder's name on SCHEDULE 1 are
now and shall at all times during the term of this Agreement be owned of record
by such Principal Shareholder, free and clear of all pledges, liens, proxies,
claims, charges, security interests, preemptive rights, voting trusts, voting
agreements, options, rights of first offer or refusal and any other encumbrances
or arrangements whatsoever with respect to the ownership, transfer or voting of
the Shares in any such case that would, individually or in the aggregate,
reasonably be expected to materially impair the ability of such Principal
Shareholder to perform his, her or its obligations under this Agreement or
prevent or delay the consummation of any of the transactions contemplated by
this Agreement, and there are no outstanding options, warrants or rights to
purchase or acquire, or agreements or arrangements relating to the voting of,
any of the Shares set forth opposite such Principal Shareholder's name on
SCHEDULE 1, other than this Agreement.
(vi) The execution and delivery of this Agreement by such
Principal Shareholder and the performance by such Principal Shareholder of its
obligations hereunder will not (including with notice or lapse of time or both):
(1) require any consent, approval, order,
authorization or permit of, or registration or filing with or notification to,
any governmental entity or other party, except for the filing with the SEC of
any Schedules 13D or 13G or amendments to Schedules 13D or 13G and filings under
Section 16 of the Exchange Act, as may be required in connection with this
Agreement and the transactions contemplated hereby;
(2) result in any violation or the breach of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration or any payments under, or result in a loss of a
benefit or in the creation or imposition of a lien under, any of the terms,
conditions or provisions of any note, lease, mortgage, indenture, license,
agreement or other instrument or obligation to which such Principal Shareholder
is a party or by which such Principal Shareholder or any of his, her or its
assets is bound that would, individually or in the aggregate, reasonably be
expected to materially impair the ability of such Principal Shareholder to
perform his, her or its obligations under this Agreement or prevent or delay the
consummation of any of the transactions contemplated by this Agreement; or
(3) violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to such
Principal Shareholder in such a manner as would, individually or in the
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aggregate, reasonably be expected to materially impair the ability of such
Principal Shareholder to perform his, her or its obligations under this
Agreement or prevent or delay the consummation of any of the transactions
contemplated by this Agreement.
(vii) Such Principal Shareholder understands and acknowledges
that it is likely that Company will seek to effectuate a Fundamental Change, and
that he, she or it is nonetheless willing to enter into this Agreement. For
purposes of this Agreement, a "FUNDAMENTAL CHANGE" means the occurrence of a
transaction or series of related transactions that has been approved by the
Company's Board of Directors and that results in (i) the sale, lease or other
disposition of all or substantially all of Company's assets, (ii) the
liquidation or dissolution of the Company, (iii) the merger or consolidation of
the Company with or into a third party, (iv) a reclassification of the Company's
capital, including but not limited to changes to the conversion rates and other
terms of Company's preferred stock, (vi) a change in control of Company, (vii) a
change in Company's jurisdiction of incorporation, (vii) an amendment to
Company's articles of incorporation, including any certificate of designation
included therein, or (viii) the initiation of bankruptcy proceedings by Company.
(viii) Such Principal Shareholder hereby waives, and agrees
not to assert or perfect, any dissenters' rights or any similar rights in
connection with any Fundamental Change that it may have by virtue of ownership
of the Shares set forth opposite such Principal Shareholder's name on SCHEDULE
1.
(ix) No consent of such Principal Shareholder is necessary
under any "community property" or other laws in order for such Principal
Shareholder to enter into and perform his, her or its obligations under this
Agreement (or, if any such consent is required, such Principal Shareholder's
spouse has countersigned this Agreement).
(b) Except where expressly stated to be given as of the date hereof
only, the representations and warranties contained in this Agreement shall be
made as of the date hereof and as of each date from the date hereof through and
including the date of termination of this Agreement.
2. AGREEMENT TO VOTE SHARES.
(a) In accordance with applicable law, during the period commencing on
the date hereof and continuing until the termination of this Agreement in
accordance with its terms, each Principal Shareholder agrees to: (i) appear (in
person or by proxy) at any annual or special meeting of the shareholders of the
Company for the purpose of obtaining a quorum; and (ii) vote (or, if requested,
execute proxies ), or execute a written consent or consents if shareholders of
Company are requested to vote their shares through the execution of an action by
written consent in lieu of any such annual or special meeting of shareholders of
Company, in either case with respect to all of the Subject Shares held by such
Principal Shareholder: (a) in favor of approval of the principal terms and
consummation of all aspects of any Fundamental Change, including all related
documentation contemplated thereunder, at every meeting (or in connection with
any action by written consent) of the shareholders of Company at which such
matters are considered and at every adjournment or postponement thereof; (b)
against (1) any action, proposal, transaction or agreement which would
G-3
reasonably be expected to result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Principal Shareholder under
this Agreement and (2) any action, proposal, transaction or agreement that would
reasonably be expected to compete with or would reasonably be expected to
interfere with, delay, discourage, adversely affect or inhibit the timely
consummation of a Fundamental Change. Notwithstanding the foregoing, each
Principal Shareholder shall remain free to vote (or execute consents or proxies
with respect to) his, her or its Subject Shares with respect to any matter not
covered by this Section 2 in any manner he deems appropriate, provided that such
vote (or execution of consents or proxies with respect thereto) would not
reasonably be expected to interfere with, delay, discourage, adversely affect or
inhibit the timely consummation of a Fundamental Change. Notwithstanding any
reference in this paragraph to actions by written consent, no Principal
Shareholder shall have any obligation to execute any written consent in lieu of
a meeting with respect thereto for the purpose of approving the principal terms
of any Fundamental Change unless Company shall have requested that such approval
and adoption be effected through the execution of any such written consent, in
which case such Principal Shareholder shall execute such consent.
(b) Each Principal Shareholder hereby constitutes and appoints John
Pimentel (the "AGENT"), with full power of substitution, as his, her or its
proxy with respect to the matters set forth herein, and hereby authorizes the
Agent to represent and to vote, if and only if such Principal Shareholder
attempts to vote (whether by proxy, in person or by written consent), or to fail
to vote, in a manner which is inconsistent with the terms of this Agreement, in
the manner set forth in this Agreement. The proxy and power of attorney granted
pursuant to the immediately preceding sentence is given in consideration of the
agreements and covenants of Company and the parties hereto in connection with
the transactions contemplated by the Purchase Agreement and this Agreement and,
as such, is coupled with an interest and shall be irrevocable unless and until
this Agreement terminates in accordance with its terms. Each Principal
Shareholder hereby revokes any and all previous proxies and powers of attorney
with respect to the Subject Shares and shall not hereafter, unless and until
this Agreement terminates pursuant to its terms, purport to grant any other
proxy or power of attorney with respect to any of the Subject Shares, deposit
any of the Subject Shares into a voting trust or enter into any agreement (other
than this Agreement), arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of any of the Subject Shares, in each case, with respect to any of the
matters set forth herein. Each Principal Shareholder shall promptly cause a copy
of this Agreement to be deposited with Company at its principal place of
business. Each Principal Shareholder shall take such further action or execute
such other instruments as may be necessary to effectuate the intent of this
Agreement. The power of attorney granted by each Principal Shareholder herein is
a durable power of attorney and shall survive the dissolution, bankruptcy, death
or incapacity of such Principal Shareholder.
3. REPRESENTATIONS OF COMPANY. Company hereby represents and warrants to
each Principal Shareholder that:
(a) Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action and no other corporate proceedings on the part
of Company are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Company and is a valid and binding agreement of
Company enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (regardless of whether such enforcement is considered in a proceeding
at law or in equity).
(c) The execution, delivery and performance by Company of this
Agreement and the consummation by Company of the transactions contemplated
hereby do not and shall not (including with notice or lapse of time or both):
(i) contravene or conflict with the articles of incorporation
or the bylaws of Company;
(ii) result in any violation or the breach of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration or any payments under, or result in a loss of a benefit or in the
creation or imposition of a lien under, any of the terms, conditions or
provisions of any note, lease, mortgage, indenture, license, agreement or other
instrument or obligation to which Company is a party or by which Company or any
of its assets may be bound; violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Company
in such a manner as would, individually or in the aggregate, reasonably be
expected to materially impair the ability of Company to perform its obligations
under this Agreement or prevent or delay the consummation of any of the
transactions contemplated by this Agreement; or require any consent, approval,
order, authorization or permit of, or registration or filing with or
notification to, any governmental entity or other party.
4. TRANSFER AND ENCUMBRANCE.
(a) Subject to the terms of this Agreement, for a period beginning on
the date hereof and continuing until the termination of this Agreement in
accordance with its terms, each Principal Shareholder agrees not to, directly or
indirectly, transfer, sell, offer, hypothecate, assign, pledge or otherwise
dispose of or encumber ("TRANSFER"), or enter into any contract, option or other
agreement with respect to, or consent to, a Transfer of, any of the Subject
Shares or such Principal Shareholder's voting or economic interest therein.
Subject to the terms of this Agreement, during the term of this Agreement, each
Principal Shareholder agrees not to (i) grant any proxies, options or rights of
first offer or refusal with respect to any of the Subject Shares, (ii) permit
any such Subject Shares to become subject to any new pledges, liens, preemptive
rights, security interests, claims, charges or other encumbrances or
arrangements, or (iii) enter into any voting agreement, voting trust or other
voting arrangement with respect to any of the Subject Shares. Notwithstanding
the foregoing, each Principal Shareholder may take any action described in the
previous two sentences, so long as the other party (a "TRANSFEREE") to such
Transfer or other arrangement described in the second sentence of this Section 4
executes this Agreement (or a joinder hereto in a form reasonably satisfactory
to Company) and agrees to be bound by its terms; provided, however, that
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notwithstanding such Transfer or arrangement, such Principal Shareholder shall
continue to be liable for any breach by such transferee of its agreements and
covenants under this Agreement. Nothing in this Agreement shall be deemed to
amend in any respect the terms and conditions set forth in Section 7 of the
Registration Rights Agreement among Company, Principal Shareholders and the
other parties thereto, which provisions are intended to remain in full force and
effect in accordance with their terms, including following the occurrence of a
Fundamental Change.
(b) Each Principal Shareholder agrees (i) to the entry of stop transfer
instructions with Company's transfer agent and registrar against the transfer of
his, her or its Shares except in compliance with the foregoing restrictions and
(ii) promptly following the date hereof, to deliver the certificates
representing his, her or its Shares to the Company, whereby the Company shall
imprint a legend on the back of such certificates reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT
(A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER) AND BY
ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON HOLDING SUCH
INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY
ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
5. ADDITIONAL COVENANT OF EACH PRINCIPAL SHAREHOLDER. Each Principal
Shareholder shall notify Company of any development occurring after the date of
this Agreement that causes, or that would reasonably be expected to cause, any
breach of any of the representations and warranties set forth in SECTION 1
hereof.
6. COVENANTS OF EACH PRINCIPAL SHAREHOLDER AND COMPANY.
(a) Each of Company and each Principal Shareholder shall use
his, her or its respective reasonable best efforts to make all filings with, and
to obtain consents of, all third parties and governmental entities necessary for
the consummation of the transactions contemplated by this Agreement.
(b) Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by them or on
their behalf in connection with the transactions contemplated hereunder,
including fees and expenses of their own financial consultants, investment
bankers, accountants and counsel.
7. SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damages to the other parties if a party
hereto fails to comply with any of the obligations imposed by this Agreement,
that every such obligation is material and that, in the event of any such
failure, the other parties will not have an adequate remedy at law or in
damages. Accordingly, each party hereto agrees that injunctive relief or any
other equitable remedy, in addition to remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that the other party has an adequate remedy at law or in
damages. Each party hereto agrees that he, she or it will not seek, and agrees
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to waive any requirement for, the securing or posting of a bond in connection
with any other party's seeking or obtaining such equitable relief.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the parties hereto and their respective
successors, assigns, heirs and devises, as applicable; nothing in this
Agreement, express or implied, is intended to confer upon any other person or
entity any rights or remedies of any nature whatsoever under or by reason of
this Agreement. This Agreement shall not be assignable without the written
consent of the other party hereto, except that Company may assign, in its sole
discretion, all or any of its rights, interests and obligations hereunder to any
of its Affiliates. For purposes of this Agreement, an "AFFILIATE" means, with
respect to any person or entity, any person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the person or entity specified.
9. TERMINATION. This Agreement will terminate automatically, without any
action on the part of any party hereto, on the latter of (a) the effective time
of a Fundamental Change, or (b) the 24-month anniversary of the date hereof.
Notwithstanding the foregoing, this Agreement may be terminated at any time with
respect to one or any of the Principal Shareholders, upon notice by Company to
each such Principal Shareholder.
10. ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
11. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California applicable to
contracts executed and fully performed within the State of California, without
regard to the conflicts of laws provisions thereof.
12. JURISDICTION; WAIVER OF VENUE. Each of the parties hereto irrevocably
and unconditionally (i) agrees that any legal suit, action or proceeding brought
by any party hereto arising out of or based upon this Agreement or the
transactions contemplated hereby may be brought in the Courts of the State of
California or the United States District Court for the Northern District of
California (each, a "DESIGNATED COURT"), (ii) waives, to the fullest extent it
may effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such proceeding brought in any Designated Court, and any
claim that any such action or proceeding brought in any Designated Court has
been brought in an inconvenient forum, and (iii) submits to the non-exclusive
jurisdiction of each Designated Court in any suit, action or proceeding. Each of
the parties agrees that a judgment in any suit, action or proceeding brought in
a Designated Court shall be conclusive and binding upon it and may be enforced
in any other courts to whose jurisdiction it is or may be subject, by suit upon
such judgment.
13. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt by the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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(i) If to Company, to:
World Waste Technologies, Inc.
10600 North De Anza Boulevard, Suite 250
Cupertino, CA 95014
Attention: John Pimentel
Facsimile:
with a copy (which shall not constitute notice) to:
TroyGould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
Attention: Lawrence Schnapp
Facsimile: (310) 201-4746
(ii) if to a Principal Shareholder, to the address set forth
opposite such shareholders' name on SCHEDULE 1:
14. SEVERABILITY. This Agreement shall be deemed severable; the invalidity
or unenforceability of any term or provision of this Agreement shall not affect
the validity or enforceability of the balance of this Agreement or of any other
term hereof, which shall remain in full force and effect. If any of the
provisions hereof are determined to be invalid or unenforceable, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible.
15. WAIVER. The parties hereto may, to the extent permitted by applicable
law, subject to Section 16 hereof, (a) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (b) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
16. MODIFICATION. No supplement, modification or amendment of this
Agreement that affects any Principal Shareholder will be binding unless made in
a written instrument that specifically refers to this Agreement and that is
signed by Company and the Principal Shareholder of Shareholders affected
thereby.
17. NOT A VOTING TRUST. This Agreement is not a voting trust governed by
Section 706(b) of the California Corporations Code and should not be interpreted
as such.
18. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when such counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign the same
counterpart.
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19. HEADINGS. All Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
WORLD WASTE TECHNOLOGIES, INC.
By:
--------------------------
Name: John Pimentel
Title:
PRINCIPAL SHAREHOLDER:
-------------------------------------
[SHAREHOLDER NAME]
------------------------------------
SPOUSAL CONSENT
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SCHEDULE 1
PRINCIPAL SHAREHOLDER NUMBER OF SHARES
---------------------------- -------------------------
[Name and Address]
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APPENDIX H
CALIFORNIA GENERAL CORPORATION LAW
SECTIONS 1300-1313 - DISSENTERS' RIGHTS
SS. 1300. RIGHT TO REQUIRE PURCHASE - "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the National Market System of the NASDAQ Stock Market,
and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SS. 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, that corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of that approval, accompanied
by a copy of Sections 1300, 1302, 1303, and 1304 and this section, a statement
of the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
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if the shareholder desires to exercise the shareholder's right under those
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase shares shall make written demand upon the
corporation for the purchase of those shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (A) or (B) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of that such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at that price.
SS. 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SS. 1303. AGREED PRICE - TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SS. 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
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(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SS. 1305. APPRAISERS' REPORT - PAYMENT - COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SS. 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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SS. 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SS. 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SS. 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SS. 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SS. 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SS. 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
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(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
SS. 1313. CONVERSION DEEMED TO CONSTITUTE REORGANIZATION FOR PURPOSES OF
CHAPTER.
A conversion pursuant to Chapter 11.5 (commencing with Section 1150) shall
be deemed to constitute a reorganization for purposes of applying the provisions
of this chapter, in accordance with and to the extent provided in Section 1159.
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WORLD WASTE TECHNOLOGIES, INC.
10600 North De Anza Boulevard, Suite 250,
Cupertino, California
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _____________, 2008
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, having received notice of the Special Meeting of
Shareholders of World Waste Technologies, Inc. (the "Company") to be held at
__:00 A.M. local time on _______, _______, 2008, hereby designates and appoints
John Pimentel and Matthew Lieb, and each of them, as attorney and proxy for the
undersigned, with full power of substitution, to vote all shares of common stock
and preferred stock of World Waste Technologies, Inc. that the undersigned is
entitled to vote at such meeting or at any adjournment thereof, with all the
powers the undersigned would possess if personally present, such proxies being
directed to vote as specified below and in their discretion on any other
business that may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR BOTH PROPOSALS.
PROPOSAL I. To approve the Amended and Restated Agreement and Plan of
Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL II. To approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the merger
agreement.
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned reserves the right to revoke this Proxy at any time prior
to the Proxy being voted at the Meeting. The Proxy may be revoked by delivering
a signed revocation to World Waste Technologies, Inc. at any time prior to the
Meeting, by submitting a later-dated Proxy, or by attending the Meeting in
person and casting a ballot. The undersigned hereby revokes any proxy previously
given to vote such shares at the Meeting.
_____________________________________
Signature
Date:________________________________
_____________________________________
Signature
Date:________________________________
NOTE: Please sign exactly as name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee,
guardian or corporate officer, please
give full title as such.