UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
Amendment
No. 1
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report: June 26, 2009
Date of
Earliest Event Reported: April 16, 2009
VERTEX
ENERGY, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
000-53619
|
94-3439569
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer
Identification
No.)
|
1331
Gemini Street
Houston, Texas
77058
(Address
of principal executive offices)(Zip Code)
Registrant's
telephone number, including area code:
(866) 660-8156
World
Waste Technologies, Inc.,
20400
Stevens Creek Blvd., 7th Floor
Cupertino, California
95014
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[__]
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
[__]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
[__]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
[__]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
As
previously reported on a Current Report on Form 8-K filed on May 20, 2008 with
the Securities and Exchange Commission (the "
SEC
"), on May 19,
2008, World Waste Technologies, Inc., a California corporation ("
World Waste
"),
entered into an Amended and Restated Agreement and Plan of Merger (the "
Merger Agreement
")
with Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), 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, as agent for the shareholders of Vertex Nevada (the
"
Agent
"). On
March 31, 2009, World Waste, Vertex LP, Vertex Nevada, Merger Subsidiary and the
Agent executed and delivered Amendment No. 5 (the "
Amendment
") to the
Merger Agreement. The following is a summary of the material terms of the
Amendment and is qualified by the full text of the Amendment, which is
incorporated herein by reference.
Pursuant
to the Amendment, the Merger Agreement has been amended in the following
material respects:
|
·
|
The
sections of the Merger Agreement that require World Waste to have a
minimum of $2.4 million of cash on hand as of the closing have been
amended to provide that this amount shall be reduced to $2.2
million.
|
|
·
|
Section
8.1(b) of the Merger Agreement has been amended to provide that either
World Waste, on the one hand, or Vertex LP, Vertex Nevada and Merger
Subsidiary, on the other hand, may terminate the Merger Agreement if the
Merger has not closed on or before April 1, 2009. Previously, Section
8.1(b) had provided that either side could exercise its termination right
if the Merger has not closed on or before March 31,
2009.
|
|
·
|
The
condition to the closing of the merger that at closing World Waste have no
liabilities has been amended to provide that World Waste may have up to
$50,000 of liabilities as of the
closing.
|
|
·
|
All
references in the Merger Agreement to Vertex Nevada's Series B preferred
stock have been eliminated.
|
|
·
|
The
requirement that Vertex Nevada enter into a Sublease Agreement and
Purchase and Sale Agreement with Vertex LP has been
removed.
|
ITEM
2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF
ASSETS
Pursuant
to the Merger Agreement, on April 16, 2009, World Waste merged with and into
Merger Subsidiary, with Merger Subsidiary continuing as the surviving
corporation and a wholly owed subsidiary of Vertex Nevada (the "
Merger
"). In
connection with the Merger, (i) each outstanding share of World Waste common
stock was cancelled and exchanged for 0.10 shares of Vertex Nevada common stock;
(ii) each outstanding share of World Waste Series A preferred stock was
cancelled and exchanged for 0.4062 shares of Vertex Nevada Series A preferred
stock; and (iii) each outstanding share of World Waste Series B preferred stock
was cancelled and exchanged for 11.651 shares of Vertex Nevada Series A
preferred stock.
The
foregoing description of the Merger Agreement and the Merger is not complete and
is qualified in its entirety by reference to the Merger Agreement and the
amendments thereto which were previously filed with the SEC as exhibits to World
Waste's Current Reports on Form 8-K.
ITEM
3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS
As
described above under Item 2.01, as a result of the Merger, all of World Waste's
shares of capital stock were automatically cancelled and exchanged for shares of
the capital stock of Vertex Nevada.
|
CHANGES
IN REGISTRANT’S CERTIFYING
ACCOUNTANT.
|
On June
24, 2009, Stonefield Josephson, Inc. ("
Stonefield
") was notified that the
client auditor relationship between World Waste Technologies, Inc. (the "
World Waste
”) and
Stonefield was terminated as World Waste was merged into Vertex Merger Sub,
LLC, in connection with the Merger and Vertex Nevada became the successor entity
to World Waste. LBB & Associates Ltd., LLP, of Houston, Texas
("
LBB
"), which
served as Vertex Nevada’s independent auditor prior to the date of the Merger
assumed Stonefield’s duties as principal independent public accountant of the
successor entity to the Merger, Vertex Nevada, for the fiscal year ended
December 31, 2008.
Stonefield's
report on the financial statements of World Waste for the fiscal years ended
December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles except for concerns about World Waste's ability to
continue as a going concern.
In
connection with the audit of World Waste's fiscal years ended December 31, 2008
and December 31, 2007, and in the subsequent interim period through June 24,
2009 (the date the relationship with Stonefield ceased) there were no
disagreements between Stonefield and World Waste on a matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Stonefield
would have caused Stonefield to make reference to the subject matter of the
disagreement in connection with its report on World Waste 's financial
statements.
There
have been no reportable events as provided in Item 304(a)(1)(iv) of Regulation
S-K during World Waste 's fiscal years ended December 31, 2008 and December 31,
2007 and in the subsequent interim period through June 24, 2009 (the date the
relationship with Stonefield ceased).
World
Waste authorized Stonefield to respond fully to any inquiries of LBB relating to
their engagement as Vertex Nevada's independent accountant. Vertex Nevada has
requested that Stonefield review the disclosure and Stonefield has been given an
opportunity to furnish Vertex Nevada with a letter addressed to the Commission
containing any new information, clarification of Vertex Nevada 's expression of
its views, or the respect in which it does not agree with the statements made by
Vertex Nevada herein.
Such
letter is filed as an exhibit to this Report.
Vertex
Nevada has not previously consulted with LBB regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction; (ii) the type of audit opinion that might be rendered on World
Waste's financial statements; or (iii) a reportable event (as provided in Item
304(a)(1)(iv) of Regulation S-K) during World Waste's fiscal years ended
December 31, 2008 and December 31, 2007, and any later interim period, including
the interim period up to and including the date the relationship with Stonefield
ceased. LBB has reviewed the disclosure required by Item 304(a) before it was
filed with the Commission and has been provided an opportunity to furnish Vertex
Nevada with a letter addressed to the Commission containing any new information,
clarification of Vertex Nevada's expression of its views, or the respects in
which it does not agree with the statements made by Vertex Nevada in response to
Item 304 (a). LBB did not furnish a letter to the
Commission.
ITEM
5.01 CHANGES IN CONTROL OF REGISTRANT
As a
result of the Merger, World Waste became a wholly owned subsidiary of Vertex
Nevada and the Agent became the holder of approximately 36.5% of Vertex Nevada's
outstanding voting securities. The Agent has entered into a voting agreement
with the holders of approximately 21.9% of Vertex Nevada's outstanding voting
securities pursuant to which such holders have agreed to vote their shares in
favor of the Agent's four nominees to Vertex Nevada's Board of Directors (as
described in greater detail below). Accordingly, the Agent has the right to
elect four of Vertex Nevada's five directors. Vertex Nevada has determined not
to issue 575,000 shares of common stock which were originally anticipated to be
issued to consultants of Vertex Nevada, and as such, the total number of shares
of common stock immediately following the Merger is 8,261,659
shares.
ITEM
5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN
OFFICERS.
Pursuant
to the Merger Agreement, effective as of the closing of the Merger on April 16,
2009, all of the members of World Waste's Board of Directors and all of World
Waste's executive officers resigned and the officers and directors of Vertex
Nevada continued as officers and directors of Vertex Nevada. John Pimentel,
formerly an officer and director of World Waste, has become a non-executive
officer and director of Vertex Nevada, and Matthew Lieb, formerly an officer of
World Waste, has become an officer of Vertex Nevada. Mr. Pimentel’s employment
as a non-executive officer of Vertex Nevada was subsequently terminated on June
22, 2009. The officers and Directors of Vertex Nevada are as
follows:
DIRECTORS:
Benjamin
P. Cowart
John
Pimentel
Dan
Borgen
David L.
Phillips
Ingram
Lee
OFFICERS:
Benjamin
P. Cowart - Chief Executive Officer and President
Matthew
Lieb - Chief Operating Officer
Ingram
Lee - Treasurer
Chris
Carlson - Secretary
OFFICER
AND DIRECTOR BIOS:
BENJAMIN P. COWART - DIRECTOR, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
(Age 40): 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.
JOHN PIMENTEL - DIRECTOR
(Age
43): Mr. Pimentel was appointed to the Board of Directors of Vertex Nevada in
connection with the closing of the Merger, and is the Vertex Series A preferred
stock appointee to the Board. Mr. Pimentel served as the Executive Vice
President of Corporate Development of Vertex Nevada from the closing of the
Merger until June 22, 2009. Mr. Pimentel served as the Chief Executive Officer
of World Waste from the fourth quarter of 2005 and as a member of the World
Waste board of directors since early 2004 until the effective date of the
Merger.. 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).
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 has also worked for Bain &
Company in its Private Equity Group, as well as that 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.
DAN BORGEN - DIRECTOR
(Age
48): 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.
DAVID L. PHILLIPS - DIRECTOR
(Age 52): 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, 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 in the former 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 is on 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.
INGRAM LEE - DIRECTOR AND
TREASURER
(Age 49): 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.
CHRIS CARLSON - SECRETARY
(Age
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.
MATTHEW LIEB - CHIEF OPERATING
OFFICER
(Age 37): Mr. Lieb has served as the Chief Operating Officer of
Vertex Nevada since the closing of the Merger. Mr. Lieb previously served as
World Waste's Chief Operating Officer from May 2007 until the effective date of
the Merger. Since 1999, Mr. Lieb has served as Chairman of the Board and Chief
Executive Officer of Kingsley Management LLC, a company he founded. From January
2007 to May 15, 2007, Mr. Lieb provided World Waste with consulting services at
a fee of $3,500 per month plus an expense reimbursement. Mr. Lieb holds a BS in
Finance from Georgetown University and an MBA from Harvard Business
School.
Significant
Employees:
Greg
Wallace - Operations
Mr. Wallace
provides Vertex Nevada with over 17 years of experience 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 serves as the Manager of Supply of Vertex
Nevada. Mr. Strickland joined Vertex LP in late 2007 where he
currently serves as the Manager of Supply. 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 No. 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 No. 6-fuel oil in the southeast.
Related
Party Transaction Committee
Vertex
Nevada has formed a Related Party Transaction Committee (the “
Related Party Transaction
Committee
”). The Related Party Transaction Committee is chaired by Mr.
Phillips and includes Mr. Borgen. The Related Party Transaction Committee is
required to 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 is 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. The Related Party Transaction Committee
will also periodically review Vertex Nevada’s related party transactions and
verify that such transactions are at arms length and fair to Vertex Nevada and
such affiliate entities.
Other
Committees
Vertex
Nevada has also appointed a Compensation Committee, chaired by Mr. Borgen and
including Mr. Phillips, and an Audit Committee, chaired by Mr. Phillips and
including Mr. Borgen.
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 were issued an
option to acquire up to 20,000 shares of Vertex Nevada’s common stock at an
exercise price of $1.20 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 entered into an employment agreement
with Benjamin P. Cowart pursuant to which Mr. Cowart will 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), as described in greater detail above.
Vertex
Nevada entered into an executive employment agreement with Mr. Pimentel
pursuant to which, Mr. Pimentel served as Vertex Nevada’s Senior Vice
President of Corporate Development, which employment agreement was terminated by
the Company on June 22, 2009, and with Matthew Lieb (World Waste’s Chief
Operating Officer), pursuant to which, Mr. Lieb serves as Vertex Nevada’s
Chief Operating Officer, as described above.
Employment
Agreements
Vertex
Nevada entered into an employment agreement with Benjamin P. Cowart effective as
of the closing date of the Merger, pursuant to which Mr. Cowart agreed to
serve as Vertex Nevada’s Chief Executive Officer effective for a term of five
years.
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 and for a
period of six months thereafter, 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.
Although
Mr. Cowart will be prohibited from competing with Vertex Nevada while he is
employed with Vertex Nevada, he will only be prohibited from competing for six
months after his employment with Vertex Nevada ends. Additionally, none of
Mr. Cowart’s affiliated companies, including Vertex LP, will be prohibited
from competing with Vertex Nevada following the closing of the merger.
Accordingly, Mr. Cowart or these entities could be in a position to use industry
experience gained while working with Vertex Nevada to compete with Vertex
Nevada.
With an
effective date of April 16, 2009, Vertex Nevada entered into employment
agreements with John Pimentel and Matthew Lieb. Pursuant to the terms
of their employment agreements, Mr. Pimentel was to serve as the Executive Vice
President of Corporate Development of Vertex Nevada and Mr. Lieb was to serve as
the Chief Operating Officer of Vertex Nevada, for a term of two and four years,
respectively, renewable for additional one year periods
thereafter. Pursuant to the employment agreements, so long as they
are employed by Vertex Nevada and for 12 months following the termination of
their employment, the executives are prohibited from competing with Vertex
Nevada. Pursuant to the employment agreements, Mr. Pimentel was to
receive a salary of $156,000 per year, while Mr. Lieb was to receive a salary of
$150,000 per year.
Mr.
Pimentel’s employment and his employment agreement were terminated by Vertex
Nevada effective June 22, 2009, provided that Mr. Pimentel continues to serve on
the Board of Directors of Vertex Nevada. As a result of the terms of
Mr. Pimentel’s employment agreement, he is to receive three months of
compensation from Vertex Nevada following his termination date.
If Mr.
Lieb’s employment agreement is terminated without cause by the Company or for
good reason by such executive, he is to receive severance pay equal to three
months of his salary during the first 12 months of the term of the agreement and
six months following the initial 12 month term. If his employment is
terminated for any other reason, he is to receive any compensation earned by him
as of the termination date.
Mr.
Pimentel and Mr. Lieb were also granted options in connection with the entry
into their employment agreements. Mr. Pimentel was granted an
aggregate of 200,000 options, of which 100,000 vested immediately and 100,000
are to vest quarterly, at the rate of 12,500 per quarter over the eight fiscal
quarters following the first fiscal quarter after the effective grant date of
the options, subject to acceleration and forfeiture as provided in the option
agreement. Mr. Lieb was granted an aggregate of 200,000 options, of
which 25,000 vested immediately and 175,000 are to vest quarterly, at the rate
of 10,937 per quarter, over the sixteen fiscal quarters following the first
fiscal quarter after the effective grant date of the options, subject to
acceleration and forfeiture as provided in the option agreement. The
exercise price of the option grants was set by the Board of Directors, based on
the closing bid price of Vertex Nevada’s common stock on May 9, 2009, at $0.50
per share, which includes the effects of the December 2008 1:10 reverse stock
split of Vertex Nevada’s common stock, which has been retroactively reflected
herein.
As a
result of the termination of Mr. Pimentel’s employment, all of his options
vested immediately and became subject to the termination provisions of such
options as described above.
Other
Employment Agreements
It is
anticipated that Vertex Nevada will enter into employment agreements or similar
compensation arrangements with Chris Carlson (Secretary), Greg Wallace
(Operations) and John Strickland (Manager of Supply), the terms of which have
not been finalized to date.
ITEM
5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
On April
1, 2009, Vertex Nevada filed an Amended and Restated Certificate of Designation
of Rights, Preferences and Privileges of its Series A Convertible Preferred
Stock (the "
Amended
Certificate
"). The Amended Certificate became effective as of April 1,
2009. The Amended Certificate added the following provisions, which serve to
clarify the process pursuant to which a Series A Director is
nominated:
"In the
event any Series A Director elected by the holders of Series A Preferred Stock
pursuant to Section 4.2 hereof is removed, resigns, fails to stand for
re-election or otherwise ceases to serve as a Director of the Company (each a
"
Notification
Event
"), the Company shall provide each Holder notice of such
Notification Event within ten (10) business days of the occurrence of such
Notification Event (the "
Series A Notice
").
Each holder shall have a period of thirty (30) days from the date of the
Company's mailing of such Series A Notice (the "
Series A Notice
Period
") to provide the Company written notice of such Holder's nominee
to fill the vacancy of the former Series A Director (each a "
Series A Nominee
").
After the expiration of the Series A Notice Period, the Secretary of the Company
shall total the Series A Nominee votes cast by the Holders, and the three (3)
Series A Nominee's receiving the highest total percentage vote for nomination of
the outstanding Series A Preferred Stock, shall appear on any ballot delivered
by the Company for the vote of the Series A Preferred Stock Holders of such
replacement Series A Director (a "
Replacement Director
Vote
"). The Replacement Director Vote shall be held as soon as
practicable after the end of the Series A Notice Period."
The
foregoing description of the Amended Certificate is not complete and is
qualified in its entirety by reference to the Amended Certificate which is
incorporated herein by reference.
Additionally,
effective April 15, 2009, Vertex Nevada withdrew its Certificate of Designation
of Rights, Preferences and Privileges of its Series B Convertible Preferred
Stock (the "
Amended B
Certificate
") and as such Vertex Nevada no longer has any Series B
Convertible Preferred Stock designated.
ITEM
8.01 OTHER EVENTS
World
Waste's common stock has been registered as a class pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "
Act
"). As a result of
the Merger, Vertex Nevada has become the successor registrant under Section
12(g) pursuant to SEC Rule 12g-3. World Waste has filed a Form 15 with the SEC
pursuant to Rule 12g-4 and deregistered its common stock.
DESCRIPTION
OF THE BUSINESS AND OPERATIONS OF VERTEX NEVADA
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We
caution you that this report contains forward-looking statements regarding,
among other things, financial, business, and operational matters.
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,” “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 report. 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.
General
Vertex
Nevada provides a range of services designed to aggregate, process, and recycle
industrial and commercial waste streams. Vertex Nevada 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.
Please
see the “
Glossary of
Selected Terms
” attached hereto as Exhibit 99.6, for a list of
abbreviations and definitions used throughout this report.
Reliance
on Contracts and Relationships; Low Capital Intensive Business
Vertex
Nevada currently has no significant assets and instead contracts on a fee-paid
basis for the use of all assets it deems to be necessary to conduct its
operations, from either independent third-parties or related-parties. These
assets are made available to Vertex Nevada at market rates which are
periodically reviewed by the Related Party Transaction Committee. Vertex
Nevada’s management has chosen to contract for the use of assets rather than
purchase or build and own them in order to provide flexibility in the Company’s
capital equipment requirements in the event there is a need for more or less
capacity due to rapid growth or contraction in the future. Vertex Nevada expects
that it will continue to rely on contracts for access to assets going forward,
to avoid the initial capital expenditures that would be required to build its
own facilities. Management believes that contracting for, instead of buying or
building, capital infrastructure is a prudent business decision because in
addition to allowing Vertex Nevada to avoid large initial capital outlays and
ongoing depreciation charges and maintenance expenditures related to such
capital outlays, it also enables Vertex Nevada to grow more quickly because it
needs only to raise the working capital necessary to accommodate expected future
growth rather than having to raise both working capital and investment
capital.
Contracting
for assets is expected to grant Vertex Nevada’s Refining and Marketing division
access to KMTEX, a high-quality, large-capacity, full-service, third-party owned
refining facility located in Port Arthur, Texas. It is anticipated that Vertex
Nevada will use this refinery on an as-needed and part-time basis through a
tolling arrangement where it pays a volume-based fee to KMTEX for each gallon
processed through its facility. This is expected to enable Vertex Nevada to
schedule and plan processing “
campaigns
”
periodically as incoming inventory dictates demand. Each campaign has different
timing and operating conditions for the run and management believes that the
KMTEX facility possesses the appropriate storage infrastructure, monitoring
systems, and transloading facilities to accommodate Vertex Nevada’s large, but
irregular volumes. It is anticipated that Vertex Nevada will continue to pay
this tolling fee to KMTEX for the use of its refinery, and in so doing gain
access to a facility which would otherwise require a substantial capital
investment.
Vertex
Nevada contracts for space and services from the Cedar Marine Terminal through a
market-rate, related-party transaction. In this arrangement Vertex Nevada pays a
fee to Cedar Marine Terminal for offloading services, storage capacity, simple
de-watering processes, and transfer operations to fill third-party owned barges.
Contracting for this terminal capacity is less capital intensive for Vertex
Nevada than trying to build and maintain this equipment and providing these
services internally. Vertex Nevada believes that this contracting for assets
strategy maximizes the efficient use of its capital.
The
divisions of Vertex Nevada have been using this capital efficient strategy for
several years, as reported in Vertex Nevada’s historical financial results. The
Refining and Marketing division has contracted for the use of and expects to
continue to contract for the use of operating assets from KMTEX; and the Black
Oil division has contracted for the use of and expects to continue to contract
for the use of terminal assets from Cedar Marine Terminal L.P. and trucking
assets from CrossRoad Carriers, L.P. (both Cedar Marine Terminal and CrossRoad
Carriers are majority owned by Benjamin P. Cowart, the Chief Executive Officer
and Chairman of Vertex Nevada). Please see “
Certain Relationships and
Related Party Transactions
” for further information on the terms of these
transactions.
In the
event Vertex Nevada is no longer able to contract with any of these related or
third-party entities for access to these assets and related services at
fair-market prices, or at all, then Vertex Nevada would seek to contract with
other parties to provide refining, trucking, and terminaling assets or services
as needed to operate and grow its business. We cannot assure you that such
assets and services could be acquired on a timely basis, at fair-market prices,
or at all. Given the relative availability of refining, trucking, and
terminaling infrastructure and services in the Gulf Coast region of the United
States, however, Vertex Nevada believes it would be able to replace its
contracted assets and services with third-party providers, if necessary.
Nonetheless, based on an assessment of the market options readily available,
Vertex Nevada believes that its current relationships and contracts with
existing third-parties and related parties are the most beneficial ones
currently available to it.
In
January 2009, Vertex LP entered into a Feedstock Supply Agreement and an
Additional Consideration Agreement with a third party, the rights to which
agreement were transferred to Vertex Nevada in connection with the Merger. These
agreements contemplate the construction, by the third party, of a re-refinery
plant, which Vertex Nevada has agreed to supply. Effectiveness of these
agreements is contingent on the third party obtaining financing to complete the
construction of the plant, which is required to occur by April 15,
2010.
In the
future Vertex Nevada may revisit its contract-based, capital-efficient asset
strategy and may determine if it is in its best interest to buy or build, own
and maintain the assets and infrastructure necessary to operate its current
business or to accommodate growth plans.
Vertex
was previously in the process of negotiating a new agreement in connection with
its recovered oil supply agreement with Omega Refining, LLC (“
Omega
”), while still
operating under the terms of our prior contract, which expired on September 30,
2008. On or about May 4, 2009, Vertex Nevada concluded that Omega had
no intention to continue operations pursuant to the terms of the previously
expired agreement. Vertex is currently operating under a “
spot market
”
relationship with Omega and a few other buyers of black oil for its supply of
recovered oil and has been since May 2009. The Company plans to
continue providing monthly “
spot contracts
” for
the purchase of recovered oil on a moving forward basis. This new
structure is a change from our prior relationships which held us to a “
performance margin
”,
to relationships in which we are able to participate in the market spreads that
can be gained based on how we buy and sell our
products. However, instead of maintaining consistent revenues
from our relationship with Omega, as we did under the terms of the prior
agreement, any revenues we generate from a new “
spot market
”
relationship will be subject to Omega and other buyer’s actual monthly need for
recovered oil and the market rates and spreads associated with such recovered
oil.
Prior to
the termination by Omega of our original working relationship, described above,
substantially all of our Black Oil revenues were generated through our
relationship with Omega. As a result, our revenues and results of
operations could be adversely affected as a result of the termination of our
previous working arrangement with Omega, and our subsequent entry into a “
spot market
”
relationship with Omega. The Company is also actively working to
establish arrangements with other potential customers of its products such as
blenders and burners of Black Oil.
Additionally,
as a result of the loss of its contractual relationship with Omega (as described
above), Vertex Nevada has had significantly less demand for its previously
contracted supply of feedstock and has previously re-negotiated its agreement
with a large volume supplier of feedstock to decrease the volume and price of
the feedstock which they had previously been supplying to Vertex
Nevada. If Vertex Nevada does not honor the terms of the agreement as
re-negotiated moving forward, it could become subject to litigation regarding
its non-compliance with such agreement, which could in turn have an adverse
effect on its operations and/or the value of its securities.
Vertex
Nevada’s current operations are undertaken pursuant to two feedstock sale
agreements and two feedstock purchase agreements, not including its relationship
with Omega (described above) and KMTEX. One of the feedstock sale
agreements was entered into in March 2009, for an initial term of 18 months,
terminable by the buyer after the expiration of six months, subject to the terms
of the agreement. The agreement is also terminable by either party
with thirty days notice of a material breach that is not cured. The
sale agreement requires that we provide between 8,000 and 22,000 barrels per
calendar month of a used oil product (“
Recovery Oil
”) during
the term of the agreement; provides that the buyer shall have the right of first
refusal to purchase additional Recovery Oil from us, which is procured within
300 miles of their current location; and provides that the buyer pay us a price
per barrel equal to our direct costs, plus certain commissions based on the
quality and quantity of the Recovery Oil we supply.
The
second feedstock sale agreement requires us to provide between 800 and 2,500
barrels of Recovery Oil per day to a separate buyer pursuant to a 24 month
contract entered into in April 2009, and provides that the buyer pay us a price
per gallon based on a premium to the market price of certain average weekly oil
prices listed on the “
Platts Oilgram Price
Report
”. Vertex Nevada has not yet begun supplying feedstock under the
agreement, which calls for commencement of deliveries on or before July 30,
2009. Vertex Nevada anticipates supplying Recovery Oil pursuant to
the terms of the agreement provided that its Vertex Thermo-Chemical re-refining
process is operational at that time. Commissioning and restarting the
Vertex Thermo-Chemical process will require additional investment in engineering
and equipment related to the process and while Vertex Nevada intends to meet the
timelines and specifications defined in the agreement, no assurance can be
provided that it will be able to do so.
Vertex Nevada is also a party to two
feedstock purchase agreements with separate third parties, pursuant to which
such third parties have agreed to supply us with feedstock. The first
agreement entered into in July 2008, and amended from time to time, currently
provides for us to purchase up to 100,000 gallons of feedstock form the seller
per month for the months of May, June, July, August and September 2009, and up
to 250,000 gallons of feedstock per month during the months from October 2009 to
April 2010, with the agreement expiring at the end of April 2010. The
second supply agreement, for the purchase of Pygas, is in effect until April 30,
2010, continuing thereafter unless terminated 90 days prior to the renewal date
by either party, and provides for us to purchase all Pygas which the seller
produces in the normal course of business. The purchase price per
gallon for each agreement is based on a discount to the market price of certain
average weekly oil prices listed on the “
Platts Oilgram Price
Report
”.
The following summarizes the third
party contracts and relationships relating to Vertex Nevada, as well as the
risks if such contracts or relationships are terminated:
|
Third
Party
|
|
KMTEX
Refining Facility
|
Used
Oil Supply Contracts
|
|
|
|
Services
Performed:
|
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 toll-based arrangement, and then
resold by Vertex Nevada.
|
Vertex
Nevada purchases used oil (or “
black
oil
”) from over 50 suppliers. These suppliers include small
collectors who operate small fleets to collect used oil from garages and
lube shops and larger collectors and aggregators who collect larger
volumes and consider Vertex Nevada to be one of their potential off-take
partners for a portion of their collected volumes. Much of this business
is done at prices indexed to the spot market for No. 6
oil.
|
Ownership:
|
The
refinery facility is owned by an independent third-party.
|
Vertex
Recovery is one of the suppliers of used oil to Vertex Nevada. Vertex
Recovery is 92.5% owned by Vertex LP, whose general partner is VTX (which
is controlled by Benjamin Cowart). Approximately 15% of Vertex
Nevada’s incoming oil has historically been supplied by Vertex
Recovery, and the remaining 85% is gathered through various used oil
supply contracts with third-party vendors and spot market
purchases.
|
|
|
|
Existing
Terms:
|
Although
the contract pursuant to which this arrangement is carried out expired in
November 2008, but has since continued on a month-to-month basis,
management is in the process of negotiating a new contract under similar
terms. Vertex Nevada leases or rents tank space at the KMTEX for raw
materials and finished goods storage. The contract also includes a tolling
arrangement on the per pound or per gallon throughput wherein Vertex
Nevada buys time on one of the KMTEX refining towers for processing the
Vertex Nevada-owned materials. The contract included certain minimum
volumes and was cancellable by either party on 90 days written
notice.
|
Used
oil supply contracts with third party vendors tend to have one-year term
based on an index to No. 6 oil
prices.
|
Anticipated
Consequences
if
Relationship
Terminated:
|
Vertex
Nevada would either need to find another contract refinery to provide
similar services, or Vertex Nevada would need to cease operating its
Refining division. In the Southeastern U.S. there are many contract
refinery operations and Vertex Nevada management believes other
contract-based refining capacity in the region could be identified and
secured.
|
Vertex
Nevada would need to find new suppliers of used oil streams at pricing
consistent with its historical performance. If Vertex Nevada is unable to
find such suppliers under such terms, then Vertex Nevada’s revenues and
earnings would be negatively
impacted.
|
The
following summarizes the related-party contracts and relationships we expect
will continue following the Merger, as well as the risks if such contracts or
relationships are terminated:
|
|
Related
Party
|
|
|
CrossRoad
Carriers
(“
CRC
”)
|
|
Vertex
Recovery
And
Subsidiaries
(“
VR
”)
|
|
Vertex
Residual
Management
Group,
LP
(“
VRM
”)
|
|
Cedar
Marine
Terminal
(“
CMT
”)
|
|
|
|
|
|
|
|
|
|
Services
Performed
:
|
|
CRC
is a transportation company engaged in the transporting of petroleum
fuels, bio fuels and chemicals.
|
|
VR
is a generator solutions company for the proper recycling and management
of petroleum products. VR receives petroleum products from various third
parties and generally works as a broker for petroleum products. VR is a
“
third party supplier
” – a company
that collects 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 is only a purchaser of Feedstock, through VR
and/or through an alternative third party supplier.
|
|
VRM
is an environmental consulting services company. VRM provides
environmental compliance, residual management and regulatory oversight
services (including permitting) to Vertex Nevada.
|
|
CMT
is a marine terminal that is engaged in the storage and terminaling of
petroleum fuels. CMT is contracted to store products for Vertex Nevada as
well as for third parties.
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.
|
Ownership:
|
|
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.
|
|
92.5%
owned by Vertex LP, whose general partner is VTX.
|
|
69%
owned by Vertex LP and controlled by Mr. Cowart through his ownership
of VTX.
|
|
99%
owned by Vertex LP and controlled by Mr. Cowart through his ownership
of VTX
|
|
|
|
|
|
|
|
|
|
Existing
Terms:
|
|
CRC
provides transport services for Vertex Nevada as well as for various third
parties.
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 the feedstock that comes into Vertex Nevada is
transported by CRC, and 85-90% of Vertex Nevada’s trucking needs are
fulfilled by CRC.
In
connection with the Merger, Vertex LP and Vertex Nevada entered into a
Services Agreement pursuant to which CRC agreed to continue to perform
services for Vertex Nevada at market rates.
|
|
VR
sells products to Vertex Nevada and/or acts as a broker in connection with
sales. VR’s established business practice is for Vertex Nevada to have the
first option to accept or not to accept any feedstock streams which VR
becomes aware of at the current market price.
No
written agreements or understandings currently exist between VR and Vertex
Nevada other than the Services Agreement, described
below.
Approximately
25-35% of Vertex Nevada’s total feedstock comes from VR.
|
|
VRM
provides compliance services to Vertex Nevada pursuant to the terms of a
Services Agreement, described below.
|
|
Vertex
Nevada entered into an addendum to CMT’s lease agreement with the
Terminal.
CMT
provides terminaling services to Vertex Nevada pursuant to a Services
Agreement and Operating and Licensing Agreement.
Pursuant
to the Operating and Licensing Agreement (described greater detail below),
Vertex Nevada has the right to license the thermal/chemical extraction
technology from CMT at a price equal to the documented net 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, however, because the license will be non-exclusive,
CMT may license the technology to other parties and/or sell the technology
outright. CMT currently provides terminaling services to Vertex Nevada’s
competitors and may increase the volume of such services in the
future.
Additionally,
Vertex Nevada shares in water treatment operations from CMT, which are
supplied at cost plus 10%.
|
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 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 thermo-chemical upgrading technology
that will process used motor oil and convert it to higher value products such as
marine cutterstock and vacuum-gas blendstock.
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. The
collectors obtain motor oil from motor oil change service stations, automotive
repair shops, manufacturing facilities, petroleum refineries and petrochemical
manufacturing operations, as well as from used motor oil brokers. 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, purchased Vertex Nevada’s feedstock pursuant to an arrangement
with Vertex Nevada. The re-refinery then upgrades and sells the product for its
own account. A 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 in September 2001 and had remained
in effect for the majority of the following eight years, pursuant to a series of
renewals. The contract expired effective September 30, 2008. On or about
May 4, 2009, Vertex Nevada concluded that Omega had no intention to continue
operations pursuant to the terms of the previously expired
agreement. Vertex is currently operating under a “
spot market
”
relationship with Omega and a few other buyers of black oil for its supply of
recovered oil and has been since May 2009. The Company plans to
continue providing monthly “
spot contracts
” for
the purchase of recovered oil on a moving forward basis. This new
structure is a change from our prior relationships which held us to a “
performance margin
”,
to relationships in which we are able to participate in the market spreads that
can be gained based on how we buy and sell our
products. However, instead of maintaining consistent revenues
from our relationship with Omega, as we did under the terms of the prior
agreement, any revenues we generate from a new “
spot market
”
relationship will be subject to Omega and other buyer’s actual monthly need for
recovered oil and the market rates and spreads associated with such recovered
oil.
Vertex
Nevada will continue to seek other potential customers, including (1) other
re-refineries, (2) Gulfcoast No. 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 No. 6 oil, No. 2 oil and natural
gas. Sales to this re-refinery have historically made up at least 40% of Vertex
Nevada’s revenues.
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
Group,
” 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 and relationship.
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 and determining conditions for
re-processing into higher value refined 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, and then resold by Vertex Nevada. The end
products are typically three distillate petroleum streams (gasoline blendstock,
fuel oil cutter-stock and pygas), 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. Revenue includes revenue
from all operations of the Refining and Marketing division.
Vertex
Nevada’s revenues 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. During times of rising markets, the
Refining and Marketing division tends to experience increased gross
margins. Conversely, during times of sharp market declines the
Refining and Marketing division is susceptible to large decreases in its gross
margin.
Proposed
Re-Refining Group
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 thermal-chemical extraction technology designed to process
used motor oil and convert it to higher value products such as vacuum gas oil,
marine cutterstock, 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. As described in greater detail
under “
Certain
Relationships and Related Party Transactions
”, Vertex Nevada has the
right to license this technology from CMT by paying CMT its total development
costs to date (approximately $1.4 million) and use the pre-existing plant on a
cost-plus-10% basis, and has 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 report. 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 products designed to
bring a higher value. These technologies may be available through internal
development, acquisitions or licensing arrangements.
Biomass
Renewable Energy Subsidiary
World
Waste’s business development opportunities related to the development, design,
construction and operation of facilities designed to convert municipal solid
waste and other waste streams into useable commodities and products are held in
Vertex Nevada’s wholly-owned subsidiary, Vertex Merger Sub, LLC, following the
Merger. Moving forward, 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.
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. The used
motor oil collection market is highly fragmented with more than an estimated 700
used oil collectors nationwide. 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 29 million
gallons of used motor oil in 2007, which accounted for approximately 3% of the
entire recycled volume and approximately 18% 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. The market size of the refining business in the Gulf Coast
Region of the US (Vertex Nevada’s primary market) is estimated at
2.0 million barrels per year.
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.
Vertex Nevada believes that price and service are the main competitive factors
in the used motor oil collection industry. Vertex Nevada believes that its
ability to accept large volumes of oil year round gives it an advantage over
many of its competitors. Vertex Nevada also believes that its storage capacity
and ability to process the streams of products that it receives and its ability
to transport the end product through barge, rail and truck gives it an advantage
over many of its competitors in the refining industry.
Although
Mr. Cowart and other employees of Vertex Nevada are prohibited from
competing with Vertex Nevada while they are employed with Vertex Nevada and for
six months thereafter, none of such individuals will be prohibited from
competing with Vertex Nevada after such six month period ends. Additionally,
none of Mr. Cowart’s affiliated companies, including Vertex LP, are
prohibited from competing with Vertex Nevada. Accordingly, any of these
individuals or entities could be in a position to use industry experience gained
while working with Vertex Nevada to compete with Vertex Nevada. Such competition
could increase Vertex Nevada’s costs to obtain feedstocks, and increase its
costs for contracting use of operating assets and services such as third party
refining capacity, trucking services or terminal access. Furthermore, such
competition could distract or confuse customers, reduce the value of Vertex
Nevada’s intellectual property and trade secrets, or result in a reduction in
the prices Vertex Nevada is able to obtain for its finished products. Any of the
foregoing could reduce Vertex Nevada’s future revenues, earnings or growth
prospects.
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 has
historically aggregated, transported, and sold these feedstocks to one primary
customer, which represented a significant portion of Vertex Nevada’s
revenues. As a result of the termination of this agreement with Omega
(as described above) in fiscal 2009 and our entry into a “
spot market
”
relationship with Omega, our results of operations could be adversely
affected. The Company is actively working to establish arrangements
with other potential customers of its products such as blenders and burners of
Black Oil, as described above.
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 hydrocarbon recovery business is seasonal to the extent that it is
dependent on streams from seasonal industries. For example, asphalt plants burn
recycled 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 has historically not been as strong.
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 distressed hydrocarbon 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 No. 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
As a
result 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 are held in a wholly owned subsidiary of Vertex Nevada.
Moving forward, 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.
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, including but not limited to the
Vertex Thermo-Chemical upgrading process, and (3) increasing market share
through greenfield development or through acquisitions.
|
·
|
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.
|
|
·
|
Vertex
Nevada hopes to improve margins by applying new technologies, including
but not limited to the Vertex Thermo-Chemical upgrading process, 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
cutterstock, 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.
|
|
·
|
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
Vertex
Nevada has 11 full-time employees. Vertex Nevada believes that its relations
with its employees are satisfactory.
Legal
Proceedings
Although
Vertex LP is a party to several legal proceedings and certain pending litigation
matters in connection with its operations; Vertex Nevada does not believe that
any of those proceedings will have a material adverse effect its operations
moving forward. Additionally, pursuant to the terms of the merger agreement,
Vertex LP has agreed to indemnify and hold Vertex Nevada harmless against any
liability in connection with such legal proceedings.
Properties
Vertex
Nevada sub-leases office space from Vertex LP at its current principal executive
office located at 1331 Gemini St., Houston, Texas 77058. The office rent is
approximately $3,710 per month for 1,350 square feet, and the facility lease
expires in April 2011. Additionally, Vertex Nevada leases approximately
30,000 barrels in storage capacity for its Black Oil division at Cedar Marine
Terminal, Texas. The monthly lease expense is $22,500 and the lease expires in
August 2009.
SUMMARY
SELECTED HISTORICAL FINANCIAL DATA OF
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its Black Oil division, and
certain assets, liabilities and operations of the Refining and Marketing
division)
The
following summary statement of operations data for the fiscal years ended
December 31, 2008 and, 2007 and summary balance sheet data as of
December 31, 2008 and 2007 have been derived from Vertex LP’s audited
financial statements. The statement of operations data for the three
months ended March 31, 2009 and 2008 and the balance sheet data at March 31,
2009, have been derived from Vertex LP’s unaudited interim financial
statements.
You
should read this selected summary 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 herein. All references throughout this filing to
Vertex Nevada’s financial statements relate to 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, which were transferred from Vertex LP to Vertex Nevada in
connection with the Merger.
|
|
Audited
For
the year ended
December
31,
|
|
|
(Unaudited)
For
the three months ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Selected
Summary
Statement
of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
65,213
|
|
|
$
|
42,025
|
|
|
$
|
7,857
|
|
|
$
|
14,663
|
|
Cost
of
revenue
|
|
|
63,333
|
|
|
|
38,825
|
|
|
|
7,839
|
|
|
|
13,705
|
|
Gross
profit
|
|
|
1,880
|
|
|
|
3,200
|
|
|
|
18
|
|
|
|
958
|
|
Selling,
general, and administrative expenses
|
|
|
2,157
|
|
|
|
969
|
|
|
|
598
|
|
|
|
354
|
|
Income
(loss) from
operations
|
|
|
(277
|
)
|
|
|
2,231
|
|
|
|
(580
|
)
|
|
|
604
|
|
Net
income
(loss)
|
|
|
(277
|
)
|
|
|
2,231
|
|
|
|
(580
|
)
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
(Unaudited)
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Selected
Summary Balance Sheet data:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
4,572
|
|
|
$
|
5,290
|
|
|
$
|
3,405
|
|
Total
liabilities
|
|
|
4,513
|
|
|
|
4,010
|
|
|
|
3,977
|
|
Partners’
capital (deficit)
|
|
|
59
|
|
|
|
1,280
|
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS – VERTEX NEVADA
Forward-Looking
Information
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and
related notes beginning on page F-1 of this filing. You are also
urged to review the cautionary statement regarding forward-looking statements on
page 9 and the section entitled “
Risk Factors
”
beginning on page 32 of this filing for a description of important factors that
could cause actual results to differ from expected results.
Overview
The
divisions transferred to Vertex Nevada in the Merger (the “
Vertex Nevada
Business
”) were previously 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 were transferred to Vertex Nevada immediately upon effectiveness of
the Merger, which was effective on April 16, 2009. Vertex LP provided
these services in 13 states, with its primary focus in the Gulf Coast Region of
the United States. Not all of Vertex LP’s business lines were
transferred to Vertex Nevada. See “
Certain Relationships and
Related Party Transactions.
”
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 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 thermo-chemical
upgrading technology that will process used motor oil and convert it to higher
value products such as cutterstock and vacuum-gas blendstock.
The
following discussion retroactively reflects the transfer of the Vertex Nevada
Business to Vertex Nevada and assumes that Vertex Nevada (and the Vertex Nevada
Business) has, for the periods presented, operated as a stand-alone
entity.
Commercial
Operations without Long-term Assets
No
significant assets were transferred to Vertex Nevada in connection with the
Merger because the Vertex Nevada Business currently contracts on a fee-paid
basis for the use of all assets it deems to be necessary to conduct its
operations, from either independent third-parties or
related-parties. These assets are made available to Vertex Nevada at
market rates. Management of Vertex Nevada has chosen to contract for
the use of assets rather than purchase or build and own them in order to provide
flexibility in its capital equipment requirements in the event there is a need
for more or less capacity due to rapid growth or contraction in the
future. Vertex Nevada expects that it will continue to rely on
contracts for access to assets going forward, to avoid the initial capital
expenditures that would be required to build its own facilities. Management
believes that contracting for, instead of buying or building, capital
infrastructure is a prudent business decision because in addition to allowing
Vertex Nevada to avoid significant initial capital outlays and ongoing
depreciation charges and maintenance expenditures related to such capital
outlays, it also enables Vertex Nevada to grow more quickly, because Vertex
Nevada needs only to raise the working capital necessary to accommodate expected
future growth rather than having to raise both working capital and investment
capital.
Vertex
Nevada’s management believes that contracting for assets will allow its Refining
business unit to access a high-quality, large-capacity, full-service,
third-party owned refining facility named KMTEX located in Port Arthur,
Texas. Vertex Nevada expects to use this refinery on an as-needed and
part-time basis through a tolling arrangement where it pays a volume-based fee
to KMTEX for each gallon processed through its facility. This enables
Vertex Nevada to schedule and plan processing "
campaigns
"
periodically as incoming inventory dictates demand. Each campaign has
different timing and operating conditions for the run and the KMTEX facility
possesses the appropriate storage infrastructure, monitoring systems, and
transloading facilities to accommodate Vertex Nevada’s large, but irregular
volumes. Vertex Nevada will continue to pay this tolling fee to KMTEX
for the use of their refinery, and in so doing gains access to a facility, which
would otherwise require a substantial capital investment if Vertex Nevada were
to build the facility itself.
Vertex
Nevada contracts for space and services from the Cedar Marine Terminal through a
market-rate, related-party transaction. In this arrangement Vertex
Nevada pays a fee to Cedar Marine Terminal for offloading services, storage
capacity, simple de-watering processes, and transfer operations to fill
third-party owned barges. Again, contracting for this terminal
capacity is less capital intensive for Vertex Nevada than trying to build and
maintain this equipment and providing these services internally. In
both of these examples, Vertex Nevada believes that the strategy of contracting
for assets maximizes the efficient use of its available capital.
In the
future, Vertex Nevada may revisit its contract-based, capital-efficient asset
strategy and may determine it is in the best interest of the shareholders and
Vertex Nevada to buy or build, own and maintain the assets and infrastructure
necessary to operate its current business or to accommodate growth
plans.
The
divisions of Vertex Nevada, when operating under Vertex LP, used this capital
efficient strategy for several years, and this same basis is reflected in the
performance reported in Vertex Nevada’s historical
financials. Essentially, the Refining and Marketing division has
contracted for the use of and will continue to contract for the use of operating
assets from KMTEX; and the Black Oil division has contracted for the use of and
will continue to contract for the use of terminal assets from Cedar Marine
Terminal L.P. and trucking assets from Cross Road Carriers, L.P. (both Cedar
Marine Terminal and Cross Road Carriers are majority owned by Benjamin P.
Cowart, the Chairman and CEO of Vertex Nevada, please see the Certain
Relationships and Related Party Transactions section of this filing for further
information on the terms of these transactions).
In the
event Vertex Nevada is not able to maintain contracts with these entities for
access to these assets and related services at fair-market prices, or at all,
then Vertex Nevada would seek to contract with other third-party entities to
provide refining, trucking, and terminaling assets or services as needed to
operate and grow the business of Vertex Nevada. The management of
Vertex Nevada can provide no specific assurances that such assets and services
could be acquired at fair-market prices, or at all, however, given the relative
availability of refining, trucking, and terminaling infrastructure and services
in the Gulf Coast region of the United States, Vertex Nevada believes it is
reasonable to assert that it could replace its contracted assets and services
with other third-party providers, if necessary. Nonetheless, based on
an assessment of the market options readily available, Vertex Nevada believes
that its current relationships and contracts with existing third-party and
related party providers are the most beneficial ones that can be arranged for
the shareholders of Vertex Nevada at this time.
Cost of
revenues for Vertex Nevada’s Black Oil division are comprised primarily of
feedstock purchases from its network of providers. Other cost of revenues
include transportation costs incurred by third parties, purchasing and receiving
costs, analytical, commissions, surveying and storage costs. These
costs are all included in cost of revenue. Feedstock, surveying, and
brokerage fees were based on the actual costs incurred and offsite storage
(warehousing), service and transportation costs were allocated based on the
volume attributable to the Omega relationship divided by the total volume
sold.
Vertex
Nevada’s Refining and Marketing division incurs cost of revenues relating to the
purchase of feedstock, purchasing and receiving costs, and inspection and
processing of the feedstock into gasoline blendstock and marine cutterstock by a
third party. Cost of revenues also include brokers fees, inspection and
transportation costs. All of the cost of revenues of the Refining and Marketing
division are included in cost of revenues.
Vertex
Nevada’s cost of revenues 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.
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. Various general and
administrative expenses such as communication, insurance, wages and salaries,
rent, telephone and utilities were allocated from the Black Oil division for the
servicing of the Omega relationship based on the carved-out operations share of
the total expenses by head count.
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.
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 selling, general and
administrative expense. The entire amount of the hedging contracts are
attributable to the carve-out.
Interest
Expense
Vertex
Nevada’s interest expense represents allocable interest incurred by Vertex LP
from its line of credit on behalf of Vertex Nevada. The initial
draw-down of the related party note was made in 2006, and the note was fully
repaid in 2007. The line of credit was used to finance operating
expenses. The amount of the line of credit was allocated to the carved-out
operations based on the carved-out operations’ share of the
advances.
Allocation
of Expenses
Moving
forward after the effective date of the Merger on April 16, 2009, Vertex Nevada
records the direct expenses that it incurs with respect to the expenditures
outlined below. The historical financial statements include an
allocation of indirect overhead to Vertex Nevada from Vertex LP, and between the
divisions of Vertex Nevada, which 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. Direct overhead is allocated as follows:
|
·
|
Profit
sharing, medical insurance and other expenses are allocated based on the
number of employees performing services for the Black Oil division and the
Refining and Marketing division. There was no profit sharing plan expense
funded in 2007 or 2008. The number of employees performing services for
the Black Oil division were 7 and 7 for the years ended December 31, 2008
and 2007 at an average salary of $63,987 and $63,987, respectively.
The number of employees performing services in the Refining and Marketing
division were 2 and 1 for the years ended December 31, 2008 and 2007,
respectively, at an average salary of $75,500 and $100,000,
respectively. The payroll expenses associated with employees of
the divisions were allocated to the carve-out entity based on the
approximate time each employee devoted to the operations of the carved-out
entity;
|
|
·
|
Insurance
expense is allocated to the carved-out entity based on the coverage to the
divisions;
|
|
·
|
Interest
expense was allocated primarily based on calculations of the carve-out’s
share of advances on Vertex Energy LP’s line of
credit;
|
|
·
|
Hedging
activities were allocated to the carve-out based on the positions aimed at
offsetting fair value fluctuations of its share of
inventories;
|
|
·
|
Legal
activities were allocated to the divisions based on direct cost for
services; and
|
|
·
|
There
were no research and development expenses associated with the carved-out
operations.
|
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 fiscal year ended December 31, 2008 compared to the fiscal
year ended December 31, 2007
Set forth
below are the results of operations for the year ended December 31, 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 parentheses while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with parentheses in the “
$ Change
” and “
% Change
”
columns.
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Revenues
|
|
$
|
65,213,294
|
|
|
$
|
42,024,499
|
|
|
$
|
23,188,795
|
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
63,333,141
|
|
|
|
38,824,591
|
|
|
|
24,508,550
|
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,880,153
|
|
|
|
3,199,908
|
|
|
|
(1,319,755
|
)
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
2,157,265
|
|
|
|
968,563
|
|
|
|
1,188,702
|
|
|
|
123
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(277,112
|
)
|
|
|
2,231,345
|
|
|
|
(2,508,457
|
)
|
|
|
(112
|
)%
|
Net
income (loss)
|
|
$
|
(277,112
|
)
|
|
$
|
2,231,345
|
|
|
$
|
(2,508,457
|
)
|
|
|
(112
|
)%
|
Vertex
Nevada’s segments’ gross profit during these periods was as
follows:
Black
Oil Segment
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Total
revenue
|
|
$
|
45,149,632
|
|
|
$
|
34,026,749
|
|
|
$
|
11,122,883
|
|
|
|
33
|
%
|
Total
cost of revenue
|
|
|
43,275,370
|
|
|
|
32,449,300
|
|
|
|
10,826,070
|
|
|
|
33
|
%
|
Gross
profit
|
|
$
|
1,874,262
|
|
|
$
|
1,577,449
|
|
|
$
|
296,813
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
and Marketing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
20,063,662
|
|
|
$
|
7,997,750
|
|
|
$
|
12,065,912
|
|
|
|
151
|
%
|
Total
cost of revenue
|
|
|
20,057,771
|
|
|
|
6,375,291
|
|
|
|
13,682,480
|
|
|
|
215
|
%
|
Gross
profit
|
|
$
|
5,891
|
|
|
$
|
1,622,459
|
|
|
$
|
(1,616,568
|
)
|
|
|
(100
|
)%
|
Total
revenues increased 55% for the year ended December 31, 2008 compared to the year
ended December 31, 2007, due to revenue growth in both the Refining and
Marketing and Black Oil divisions. The Black Oil division revenue
growth of 33% was driven primarily by increased commodity
prices. Although Vertex Nevada’s volumes with respect to the Black
Oil division decreased slightly from 725,000 bbls (barrels) in 2007 to 667,220
bbls in 2008, this production decrease was more than offset by a 36% increase in
average commodity pricing between 2008 and 2007. Vertex Nevada’s
revenues and cost of revenues are significantly impacted by fluctuations in
commodity prices; increases in commodity prices typically result in increased
revenue and cost of revenues. Vertex Nevada’s gross profit is to a
large extent a function of commodity prices and the discount to such prices
Vertex Nevada is able to obtain in purchasing its feedstock, as well as how
efficiently management conducts operations.
Gross
Margins were substantially impacted for fiscal 2008 by the upward trend in
commodity prices that continued during the first 9 months of the year and
decreased drastically during the 4
th
quarter. Because the products sold by the Refining and Marketing
division are commodities, profitability is driven by the ability to efficiently
acquire and aggregate feedstock. In addition, Vertex Nevada seeks to
reduce its commodity price risk (during the 4-6 week cycle) by maintaining a
policy of purchasing feedstocks at discounts sufficient to provide adequate
protection against market volatility. Other costs of revenues not correlated to
commodity pricing, such as transportation, analytical costs and processing
costs, were consistent between periods.
Total
cost of revenues increased 63% between fiscal 2008 and fiscal 2007, largely due
to the increase in commodity prices. In 2008, the purchase of
feedstock accounted for 93% of cost of revenues for the Black Oil
division. The purchase of feedstock for the Refining and
Marketing division accounted for 74% of gross revenues. In 2007, the
purchase of feedstock accounted for 98% of cost of revenues for the Black Oil
division. The purchase of feedstock for the Refining and Marketing
division accounted for 76% of gross revenues. In 2008, other items
included in cost of revenues for the Refining and Marketing division included
transportation, analytical costs, and inspection and processing of the feedstock
into gasoline blendstock and marine diesel oil by a third
party. These costs accounted for 26% of total cost of
revenues. In 2007, these same costs accounted for 24% of cost of
revenues.
Prevailing
prices of certain commodity products significantly impact our revenues and cash
flows. Prices were extremely volatile in 2008. The following table
sets forth the high and low spot prices during 2008 for key benchmarks of Vertex
Nevada.
Benchmark
|
High
|
Date
|
Low
|
Date
|
No.
2 Waterborne (dollars per gallon)
|
$
|
4.06
|
July
3
|
$
|
1.16
|
December
24
|
Unleaded
87 Waterborne (dollars per gallon)
|
$
|
4.75
|
September
11
|
$
|
0.78
|
December
24
|
Residual
Fuel No. 6 3% (dollars per barrel)
|
$
|
115.35
|
July
14
|
$
|
24.65
|
December
24
|
NYMEX
Crude oil (dollars per barrel)
|
$
|
145.29
|
July
3
|
$
|
33.87
|
December
24
|
Reported
in Platt’s US Marketscan (Gulf Coast)
|
|
|
|
|
|
|
During
the first three quarters of fiscal 2008, commodity prices were significantly
higher than in 2007. Crude oil prices, along with other
petroleum-based commodity products climbed through the first half of 2008, based
upon expected strong global demand, the declining dollar, and concerns about
overall supply. However, during the fourth quarter of 2008,
petroleum-based commodity pricing decreased significantly as the U.S. dollar
began to recover and demand decreased.
Trends
and uncertainties within the commodity markets relating to petroleum products
are expected to continue to have an impact on Vertex Nevada’s
business. With the trend from January 2008 through September of 2008
of escalating crude oil, gasoline, heating oil and diesel prices, Vertex Nevada
experienced higher than normal revenues, gross profit and net income during this
period. However, we experienced a sharp decline in these commodity
prices during the latter part of September 2008 through December 2008 and into
2009. We have seen moderate increases in each of the benchmark
commodities through May of 2009; however such values have come nowhere near
their highs in 2008. We expect to see continued volatility until the
global economy, and more specifically the U.S. economy,
stabilizes. Whenever a sharp decline occurs like this, Vertex Nevada
anticipates a corresponding decrease in its revenues and gross profits, as well
as potentially sharp declines in its net income over the short
term. As such, the overall results of operations for 2008 are not as
strong as originally anticipated due to events that occurred during the 4th
quarter of 2008, including lower oil prices and demand, events surrounding
Hurricane Ike, which severely impacted Vertex Nevada’s ability to sell its
inventory timely causing further losses due to the timing of when these
inventories were purchased and the physical and market delays that were
experienced.
Refining
margins are a function of the difference between what Vertex Nevada is able to
pay for raw materials and the market prices for the range of products
it produces. The various petroleum products it produces are typically
a function of Crude Oil indices and are quoted on multiple exchanges such as the
New York Mercantile Exchange (“
NYMEX
”). These
prices are determined by a global market and can be influenced by many factors,
including but not limited to supply/demand, weather, politics, and
global/regional inventory levels. As such, Vertex Nevada can not
provide any assurances regarding results of operations for any future periods,
as numerous factors outside of its control affect the prices paid for raw
materials and the prices (for the most part keyed to the NYMEX) that can be
charged for such products. Additionally, for the near term, results
of operations will be subject to further uncertainty, as the global markets and
exchanges, including the NYMEX, have recently experienced extreme volatility due
to a tightening of the credit markets and an overall malaise in the financial
investment market in general.
The three
principal end-products of Vertex Nevada’s Refining and Marketing division are
gasoline blendstock, Pygas, and marine cutterstock. During 2008 (as
described above), Vertex Nevada produced 20,260 bbls of gasoline blendstock, as
compared to 16,562 bbls in 2007. Vertex Nevada increased its
production of Pygas in 2008, producing 76,895 bbls in 2008 compared to 55,639
bbls in 2007. Vertex Nevada also doubled its production of marine
cutterstock, by producing 65,130 bbls in 2008, as compared to 31,517 bbls in
2007. These production increases and commodity price increases
resulted in the favorable revenues in 2008 as compared to 2007. The
Black Oil division increased its gross margin from $1.6 million or 4.64% for the
year ended December 31, 2007 to $1.9 million or 4.15% for the year ended
December 31, 2008.
Selling,
general, and administrative expenses increased 123% in 2008 compared to 2007,
primarily due to expenditures incurred in connection with the merger with World
Waste Technologies, in addition Vertex Nevada’s hiring of new employees and
executives and other administrative costs to support its growing organizations
related to the anticipated merger.
Vertex
Nevada had a net loss of $277,112 for the year ended December 31, 2008, compared
to net income of $2,231,345 for the year ended December 31, 2007, a decrease in
net income of $2,508,457 or 112% from the prior period, which decrease in net
income was mainly due to the 63% increase in cost of revenues and the 123%
increase in selling, general and administrative expenses offset by the 55%
increase in revenues for the year ended December 31, 2008, compared to the year
ended December 31, 2007.
Results
of operations for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008
Set forth
below are the results of operations for the three months ended March 31, 2009,
as compared to the same period in 2008; in the comparative tables below,
increases in revenue/income or decreases in expense (favorable variances) are
shown without parentheses while decreases in revenue/income or increases in
expense (unfavorable variances) are shown with parentheses in the “
$ Change
” and “
% Change
”
columns.
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Revenues
|
|
$
|
7,857,134
|
|
|
$
|
14,663,574
|
|
|
$
|
(6,806,440
|
)
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
7,838,642
|
|
|
|
13,705,723
|
|
|
|
(5,867,081
|
)
|
|
|
(43
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
18,492
|
|
|
|
957,851
|
|
|
|
(939,359
|
)
|
|
|
(98
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
597,999
|
|
|
|
353,702
|
|
|
|
244,297
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(579,507
|
)
|
|
|
604,149
|
|
|
|
(1,183,656
|
)
|
|
|
(196
|
)%
|
Net
income (loss)
|
|
$
|
(579,507
|
)
|
|
$
|
604,149
|
|
|
$
|
(1,183,656
|
)
|
|
|
(196
|
)%
|
Vertex
Nevada’s segments’ gross profit during these periods was as
follows:
Black
Oil Segment
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Total
revenue
|
|
$
|
5,872,774
|
|
|
$
|
11,533,256
|
|
|
$
|
(5,660,482
|
)
|
|
|
(49
|
)%
|
Total
cost of revenue
|
|
|
5,628,299
|
|
|
|
11,032,896
|
|
|
$
|
(5,404,597
|
)
|
|
|
(49
|
)%
|
Gross
profit (loss)
|
|
$
|
244,475
|
|
|
$
|
500,360
|
|
|
$
|
(255,885
|
)
|
|
|
(51
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
1,984,360
|
|
|
$
|
3,130,318
|
|
|
$
|
(1,145,958
|
)
|
|
|
(37
|
)%
|
Total
cost of revenue
|
|
|
2,210,343
|
|
|
|
2,672,827
|
|
|
|
(462,484
|
)
|
|
|
(17
|
)%
|
Gross
profit (loss)
|
|
$
|
(225,983
|
)
|
|
$
|
457,491
|
|
|
$
|
(683,474
|
)
|
|
|
(149
|
)%
|
Revenues
decreased 46% during the first quarter of 2009 as compared to 2008, primarily
due to decreases in commodity pricing. Total volumes of Vertex
Nevada’s Black Oil division decreased from 176,410 bbls to 158,471 bbls, and
average prices decreased, resulting in a $5.6 million decrease in revenue during
the period ended March 31, 2009 as compared to the same period in
2008. Vertex Nevada’s Refining and Marketing division, also
experienced significant increases in production (from 11,818 bbls to 13,261
bbls) for its marine cutterstock product for the period ended March 31, 2009,
compared to the same period in 2008. Vertex Nevada’s
Pygas product experienced significantly increased volumes (from 9,694 bbls to
51,198 bbls) during the period ended March 31, 2009, compared to the same period
in 2008. Although volumes increased as compared to the same period in
2008, such increases could not offset the aforementioned decreases in commodity
prices, which led to the negative impacts on gross profit associated with the
Refining and Marketing division. Vertex Nevada’s revenues
and cost of revenues are significantly impacted by fluctuations in commodity
prices; increases in commodity prices typically result in increased revenue and
cost of revenues. Vertex Nevada’s gross profit is to a large extent a
function of commodity prices and the discount to such prices Vertex Nevada is
able to obtain in purchasing its feedstock, as well as how efficient management
conducts operations.
Selling,
general and administrative expenses increased 69% during the three months ended
March 31, 2009 compared to the same period in 2008. This was
primarily due to the additional accounting, legal and administrative costs
required for the Merger with World Waste Technologies, Inc., as described
above.
Vertex
Nevada had a net loss of $579,507 for the three months ended March 31, 2009,
compared to net income of $604,149 for the three months ended March 31, 2008, a
decrease in net income of $1,183,656 or 196% from the prior period, which
decrease in net income was mainly due to the 46% decrease in revenues and the
69% increase in selling, general and administrative expenses offset by the 43%
decrease in cost of revenues for the three months ended March 31, 2009, compared
to the three months ended March 31, 2008.
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
Nevada’s initial working capital came from the $2.2 million of cash transferred
to it by World Waste in connection with the Merger. Pursuant to the
terms of the Merger, Vertex Nevada also agreed to pay $1.6 million to
Vertex LP to pay down its outstanding indebtedness.
Vertex
Nevada had total assets of $3,405,003 as of March 31, 2009, which consisted of
total current assets of $3,394,554, consisting of cash and cash equivalents of
$22,753, accounts receivable, net of $583,513, accounts receivable – related
parties of $1,795,996, representing allocations of various SG&A items,
amount due from partnership of $140,000, inventory of $651,933, prepaid expenses
of $200,359, and fixed assets of $10,449.
Vertex
Nevada had total liabilities, representing solely current liabilities of
$3,977,148 as of March 31, 2009, which included accounts payable of $2,497,171
and accounts payable – related parties of $1,479,977.
Vertex
Nevada had negative working capital of $582,594 as of March 31,
2009.
The
latter half of 2008 was characterized by turmoil in the financial markets which
caused a liquidity crisis throughout the global economy. Several large
financial institutions failed, and stock prices across many industries have
fallen dramatically. These conditions have resulted in a decreased
willingness on the part of lenders to enter into any new agreements or extend
loans. The banks and other businesses with which we transact our business
have also been affected by market developments and conditions, which could
affect their ability to enter into transactions with us and further impact the
way we conduct business.
Our
future operating cash flows will vary based on a number of factors, many of
which are beyond our control, including commodity prices, the cost of recovered
oil, and the ability to turn our inventory. Other factors that have
affected and are expected to continue to affect earnings and cash flow are
transportation, processing, and storage costs. Over the long term, our
operating cash flows will also be impacted by our ability to tightly manage our
administrative and operating costs.
In June
2009, Vertex Nevada secured a line of credit in the amount of up to $3.5 million
(which amount shall in no event be more than 80% of certain accounts held by
Vertex Nevada and 50% of the total amount of Vertex Nevada’s inventory, as
otherwise described in the Letter Agreement), in connection with its entry into
a Letter Loan Agreement (the “
Letter Agreement
”)
and a Revolving Line of Credit (the “
Line of Credit
”) with
Regions Bank (“
Regions
”) which is
expected to be used for feedstock purchases and general corporate
purposes. The Line of Credit bears interest at the LIBOR rate plus 4%
per annum, subject to a minimum of 5% per annum, adjusted monthly, and which is
due on May 25, 2010. The Letter Agreement also provided for a $1.6
million loan, which Vertex Nevada has not borrowed against to date (the “
Letter Loan
”) and a
$500,000 equipment guidance line, which Vertex Nevada has not utilized to
date. The Letter Loan would be due on May 25, 2010, and accrue
interest at the rate of the greater of 5% or the LIBOR rate plus 1.5% per annum,
adjusted monthly. The Line of Credit (and the Letter Loan and
equipment guidance line, should Vertex Nevada choose to draw on such loans) are
secured by a Security Agreement, which gives Regions a security interest in
substantially all of Vertex Nevada’s assets. The Line of Credit also
provided that Vertex Nevada would pay Regions an aggregate of $17,500 in
borrowing fees, and would pay Regions a fee equal to the unused amount of the
Line of Credit multiplied by 0.35%, accruing daily and payable at the end of
each calendar quarter. The Line of Credit also requires that Vertex
Nevada meet and comply with certain liabilities to assets ratios and lending
ratios described in greater detail in the Line of Credit, as well as certain
other affirmative and negative covenants, the breach of which trigger a default
of the Line of Credit.
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 cash from ongoing operations and its working capital
facility will be sufficient to satisfy its existing cash requirements, not
including the $1.6 million which is required to be paid to Vertex LP
in connection with the Asset Transfer Agreement, of which $800,000 has been paid
to date, and the remaining $1.25 million ($1.4 million minus the approximately
$150,000 previously paid) which it will be required to pay to CMT in connection
with the R&D Costs associated with the licensing of OP#2 (as described in
greater detail below). In order to implement its growth strategy,
however, Vertex Nevada may need to secure additional borrowings.
Cash Flow Activities
— The
following table summarizes Vertex Nevada’s cash flow activities for the periods
indicated:
Cash
flow for the three months ended March 31, 2009 compared to the three months
ended March 31, 2008
Cash
provided by Operating activities was $56,528 for the three months ended
March 31, 2009 as compared to $508,527 during the corresponding period in
2008. The primary reason for this decrease was the increase in the
purchase of inventory and an increase in selling, general and administrative
expenses. These increases in inventory and expenses resulted in a net loss for
the three months ended March 31, 2009. The net loss in 2009 was
largely due to the impact of receipts, decreased commodity pricing, as well as
decreased volume for the three months ended March 31, 2009, compared to the
comparable period in 2008.
Financing
activities used $51,391 during the three months ended March 31, 2009 as a
result of distributions paid to limited partners of Vertex LP. For
the first three months of 2009, financing activities decreased compared to the
2008 period primarily due to fewer distributions paid out to the limited
partners. The net effect was an increase of $5,137 in
cash.
Contractual
and Other Obligations
Vertex
Nevada has 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 Pygas
blendstock.
Vertex
Nevada has several purchase agreements that require purchases of minimum
quantities of Vertex Nevada’s products. The agreements generally have
one year terms, after which they become month-to-month
agreements. Minimum purchases under these contracts are approximately
$10,213,000 and $8,124,000, for 2009 and 2010, respectively.
Off-Balance
Sheet Arrangements
Except as
noted in the table above under "
Contractual and Other
Obligations
", as of March 31, 2009, 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.)
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 cutterstock, and Pygas 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.
Stock
Based Compensation
The
Company accounts for share-based expense and activity in accordance with FAS
No. 123(R), “
Share-Based Payment,
”
(“
FAS123(R)
”)
which establishes accounting for equity instruments exchanged for services.
Under the provisions of FAS123(R), share-based compensation costs are measured
at the grant date, based on the calculated fair value of the award, and are
recognized as an expense over the employee’s requisite service period, generally
the vesting period of the equity grant.
Share-based
payments to non-employees are measured at the grant date, based on the
calculated fair value of the award, and are recognized as an expense over the
service period, generally the vesting period of the equity grant. The Company
estimates the fair value of stock options using the Black-Scholes valuation
model. Key input assumptions used to estimate the fair value of stock options
include the exercise price of the award, expected option term, expected
volatility of the stock over the option’s expected term, risk-free interest rate
over the option’s expected term, and the expected annual dividend yield. The
Company believes that the valuation technique and approach utilized to develop
the underlying assumptions are appropriate in calculating the fair values of the
stock options granted.
Basic
and Diluted Loss per Share
Basic and
diluted loss per share has been calculated based on the weighted average number
of shares of common stock outstanding during the period.
Income
Taxes
The
Company has adopted SFAS No. 109 “
Accounting for Income
Taxes
” as of its inception. Pursuant to SFAS No. 109 the Company is
required to compute tax asset benefits for net operating losses carried forward.
The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. The Company records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be
realized.
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.
Quantitative
and Qualitative Disclosure About Market Risk
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.
Benjamin
P. Cowart, the Chief Executive Officer and Chairman controls Vertex
Nevada.
Benjamin
P. Cowart, Vertex Nevada’s Chairman and Chief Executive Officer, beneficially
owns a total of approximately 36.4% of the total outstanding shares of Vertex
Nevada’s capital stock, and holds the right to vote an additional 21.9% of
Vertex Nevada’s capital stock pursuant to voting agreements entered into with
various shareholders of Vertex Nevada, which voting agreements provide him the
right to elect four (4) of Vertex Nevada’s five (5) directors (with the fifth
director being appointed by the shareholders of Vertex Nevada’s Series A
Preferred Stock). The voting agreements remain in effect until April 16,
2012. As such, subject to the resale terms and conditions of the
voting agreements and the Lock-up Agreements (described below) which certain of
Vertex Nevada’s shareholders were required to sign, until April 12, 2012,
Mr. Cowart will have the right, to appoint four (4) of Vertex Nevada’s five
(5) directors, and therefore 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.
Vertex
Nevada owes a significant amount of money to Vertex LP and CMT and on behalf of
Vertex LP in connection with certain transactions affected pursuant to and in
connection with the Merger.
Pursuant
to an Operating Agreement (described below) entered into between Vertex Nevada
and CMT in connection with the Merger, Vertex Nevada has the right to a
non-revocable, non-transferable, royalty-free, perpetual (except as provided in
the agreement) license to use the technology associated with the operations of
OP#2 in any market in the world (the “
License
”), provided
that Vertex Nevada pays CMT the documented net development costs of OP#2,
estimated to be $1.4 million (the “
R&D
Costs
”). While Vertex Nevada and CMT are currently discussing
the timing of the required R&D Costs, only a total of approximately $150,000
has been paid towards such R&D Costs to date. Additionally,
pursuant to the Asset Transfer Agreement (described below) and the terms of the
Merger, Vertex Nevada is required to pay $1.6 million to Vertex LP, of which
$800,000 has been paid to date. As such, Vertex Nevada will need
approximately $2.2 million to pay the required R&D Costs and the $800,000 in
remaining payments to Vertex LP, which funds Vertex Nevada does not currently
have.
Moving
forward, Vertex Nevada will need to raise additional funding to pay the expenses
described above, and as such will need to seek additional debt or equity
financing. If debt financing is available and obtained, our interest expense may
increase and we may be subject to the risk of default, depending on the terms of
such financing. If equity financing is available and obtained it may result in
our shareholders experiencing significant dilution. If such financing is
unavailable we may be unable to obtain rights to the License, which will
significantly reduce our future growth projections and could cause the value of
our securities to decline in value.
Vertex
Nevada has no long-term assets and needs to rely on its contracts and
relationships with Vertex LP and its affiliates and certain third parties, which
could affect Vertex Nevada’s ability to operate its business.
Vertex
Nevada does not currently have any long-term assets, but instead its business is
comprised of the rights to various contracts and arrangements. As such, moving
forward, Vertex Nevada will need to rely on its relationships and agreements
with Vertex LP and its affiliates, including with the following:
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CrossRoad
Carriers, for the transportation of Vertex Nevada’s feedstock and refined
and re-refined petroleum products;
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Cedar
Marine Terminal LP, which will sublease terminal space to Vertex Nevada,
and from which Vertex Nevada may purchase certain re-refining assets;
and
|
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Vertex
Residual Management Group LP, which will perform environmental compliance
and regulatory oversight for Vertex
Nevada.
|
Although
Vertex Nevada will have a right of first refusal to purchase the entities
(including the assets of such entities (as described below)), there can be no
assurance that Vertex Nevada will exercise such right.
In the
event that any of the above-described relationships are terminated, Vertex
Nevada may be forced to spend significant resources to identify and secure
alternative sources to provide these services. There can be no assurance that
Vertex Nevada will be able to locate such alternative sources on terms
acceptable to it, or at all. As a result, Vertex Nevada may be unable to
continue its operations in its current form, may be required to expend
significant resources identifying alternative sources of services, and/or may be
forced to expend significant resources to purchase and/or manufacture long-term
assets, the construction of which assets may take a significant amount of time
and capital to complete.
Holders
of shares of common stock will not have the right to vote for
directors.
Due to
Mr. Cowart’s beneficial ownership of 36.4% of Vertex Nevada’s common stock and
voting agreements which are in place, which allow him to vote an additional
21.9% of Vertex Nevada’s common stock for 4 of the 5 Directors of Vertex Nevada,
at least one of whom must be “
independent
” as
defined by the New York Stock Exchange, Mr. Cowart will have the right to
appoint 4 of our 5 Directors for three years. The holders of Vertex Nevada’s
Series A preferred stock are entitled to elect the remaining Vertex Nevada
director. Accordingly, so long as the voting agreements remain in effect and the
shares of Vertex Nevada Series A Preferred Stock remain outstanding, the
minority holders of shares of Vertex Nevada common stock will not have the right
to vote for the election of directors.
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 Nevada, including, but not limited to Vertex LP. 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,
including, but not limited to Vertex LP, through VTX, Inc. (collectively, the
“
Vertex
Entities
”), that have entered into transactions with, supplied feedstock
for, and performed various business services for Vertex Nevada. These
transactions and relationships include the following:
·
Cross
Road Carriers transports Vertex Nevada’s feedstock and refined and re-refined
petroleum products;
·
Vertex
Nevada subleases 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 other agreements described herein; and
·
Vertex
Residual Management Group LP performs 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 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 valuation 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 is 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.
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.
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.
Vertex
Nevada has 50,000,000 shares of preferred stock authorized which includes
approximately 4.7 million shares of Series A preferred stock issued
and outstanding. The Vertex Nevada Series A preferred stock has a
liquidation preference of $1.49 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 common shareholders.
Additionally, because 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 future preferred stock, if any,
will have.
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 are 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:
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actual
or anticipated variations in Vertex Nevada’s operating
results;
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developments
with respect to patents or proprietary
rights;
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announcements
of technological innovations by Vertex Nevada or its
competitors;
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announcements
of new products or new contracts by Vertex Nevada or its
competitors;
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changes
in financial estimates by securities analysts and whether Vertex Nevada’s
earnings meet or exceed such
estimates;
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conditions
and trends in the industries in which Vertex Nevada
operates;
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changing
environmental standards;
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new
accounting standards;
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general
economic, political and market conditions and other factors;
and
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the
occurrence of any of the other risks described in this
report.
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RISKS
RELATING TO VERTEX NEVADA’S BUSINESS
Vertex
Nevada’s contracts may not be renewed and its existing relationships may not
continue.
Vertex
Nevada’s contracts and relationships in the black oil business include feedstock
purchasing agreements with local waste oil collectors, an off-take arrangement
with two re-refineries, along with a few key relationships in the bunkering,
blending and No. 6 oil industry. 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
expired on September 30, 2008, and we ceased operating under the agreement
in May 2009. Similarly, Vertex Nevada had operated only one contract in
connection with its refining operations, which contract expired on
November 1, 2008 and has since continued on a month-to-month
basis. We do not anticipate either of the two contracts to be
extended or renewed at this time. Because Vertex Nevada’s operations are
extremely dependent on the black oil relationship with the major re-refinery and
the third-party refining contract, the expiration of the two contracts may have
a material adverse effect on Vertex Nevada’s operations and results of
operations. Additionally, 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 providing incentives for other waste oil collectors,
which could cause Vertex Nevada’s expenses to increase and/or cause it to
curtail or abandon its business plans.
Additionally,
as a result of the loss of its contractual relationship with Omega (as described
above), Vertex Nevada has had significantly less demand for its previously
contracted supply of feedstock and has previously re-negotiated its agreement
with a large volume supplier of feedstock to decrease the volume and price of
the feedstock which it had previously been supplying to Vertex
Nevada. If Vertex Nevada does not honor the terms of the agreement as
re-negotiated moving forward, it could become subject to litigation regarding
its non-compliance with such agreement, which could in turn have an adverse
effect on its operations and/or the value of its securities.
Vertex
Nevada operates 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 Vertex Nevada operates are highly competitive. Vertex Nevada
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.
For
example, Vertex Nevada has previously experienced difficulty in obtaining
feedstock from its suppliers who, because of the sharp downturn in the price of
oil (used and otherwise) have seen their margins decrease substantially, which
in some cases has made it uneconomical for such suppliers to purchase feedstock
from their suppliers and/or sell to Vertex Nevada at the rates set forth in
their contracts. Any similar decline in the price of oil and/or the economy in
general could create a decrease in the supply of feedstock, prevent Vertex
Nevada from maintaining its required levels of output and/or force Vertex Nevada
to seek out additional suppliers of feedstock, who may charge more than its
current suppliers, and therefore adversely affect its results of
operations.
Vertex
Nevada 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.
Vertex
Nevada is subject to extensive federal, state, provincial and local laws and
regulations relating to the protection of the environment which, among other
things:
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regulate
the collection, transportation, handling, processing and disposal of
hazardous and non-hazardous wastes;
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impose
liability on persons involved in generating, handling, processing,
transporting or disposing hazardous
materials;
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impose
joint and several liability for remediation and clean-up of environmental
contamination; and
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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.
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The
breadth and complexity of all of these laws and regulations affecting Vertex
Nevada 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 acquired its assets and/or before it
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
Nevada is 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 its potential exposure to liabilities.
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 and which provide services to Vertex Nevada
would impact its business and operating results.
A
significant portion of the Vertex Nevada‘s 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.
In
addition to its customers, the suppliers of Vertex Nevada’s feedstock may also
be affected by downturns in the economy and adverse changes in the price of
feedstock. For example, Vertex Nevada has recently experienced difficulty
obtaining feedstock from its suppliers who, because of the sharp downturn in the
price of oil (used and otherwise) have seen their margins decrease
substantially, which in some cases have made it uneconomical for such suppliers
to purchase feedstock from their suppliers and/or sell to Vertex Nevada at the
rates set forth in their contracts. Any similar decline in the price of oil
and/or the economy in general could create a decrease in the supply of
feedstock, prevent Vertex Nevada from maintaining its required levels of output
and/or force Vertex Nevada to seek additional suppliers of feedstock, who may
charge more than its current suppliers, and therefore adversely affect its
results of operations.
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.
Recently,
as a result of a number of factors including Hurricane Ike, which caused damage
to Vertex Nevada’s infrastructure and prevented Vertex Nevada from selling its
product for a significant period of time, and the simultaneous sharp decline in
the price of oil, Vertex Nevada was unable to sell off its inventory. As a
result, during the fourth quarter of 2008 and the first quarter of 2009 Vertex
Nevada was storing a substantial amount of inventory which it had purchased
while the price of oil was relatively high and which was later valued at
significantly less than what it was originally purchased for. Vertex Nevada was
forced to sell the inventory at a material loss. There can be no
assurance that similar problems will not affect Vertex Nevada moving forward. If
such issues were to affect Vertex Nevada, its inventory, ability to meet its
ongoing delivery requirements and results of operations could be adversely
affected.
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:
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the
failure to successfully integrate the acquired businesses or facilities or
new technology into Vertex Nevada’s
operations;
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·
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the
inability to maintain key pre-acquisition business
relationships;
|
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·
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loss
of key personnel of the acquired business or
facility;
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·
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exposure
to unanticipated liabilities; and
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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 and
Chairman, Benjamin P. Cowart.
Vertex
Nevada’s success depends heavily upon the personal efforts and abilities of
Benjamin P. Cowart, its Chief Executive Officer and Chairman, who is employed by
Vertex Nevada under a five-year employment contract.
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.
Strategic
relationships on which Vertex Nevada relies 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 depends on developing
and maintaining close working relationships with industry participants. Vertex
Nevada’s success in this area also depends 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. For example, recent damage to the Cedar Marine Terminal as
a result of Hurricane Ike (which caused the terminal to temporarily be out of
operation), resulted in increased costs associated with the shipping of
feedstock through third party contractors, thereby raising the overall cost of
the feedstock and lowering Vertex Nevada’s margins. Additional hurricanes or
natural disasters in the future could cause similar damage to Vertex Nevada’s
infrastructure, prevent Vertex Nevada from generating revenues while such
infrastructure is undergoing repair (if repairable) and/or cause Vertex Nevada’s
margins and therefore its results of operations to be adversely
affected.
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
feedstock, 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.
Potential
competition from Vertex Nevada’s existing employees and affiliated entities
could negatively impact Vertex Nevada’s profitability.
Although
Mr. Cowart and other employees of Vertex Nevada will be prohibited from
competing with Vertex Nevada while they are employed with Vertex Nevada and for
six months thereafter, none of such individuals will be prohibited from
competing with Vertex Nevada after such six month period ends. Additionally,
none of Mr. Cowart’s affiliated companies, including Vertex LP, are
prohibited from competing with Vertex Nevada. Accordingly, any of these
individuals or entities could be in a position to use industry experience gained
while working with Vertex Nevada to compete with Vertex Nevada. Such competition
could increase Vertex Nevada’s costs to obtain feedstock, and increase its costs
for contracting use of operating assets and services such as third party
refining capacity, trucking services or terminal access. Furthermore, such
competition could distract or confuse customers, reduce the value of Vertex
Nevada’s intellectual property and trade secrets, or result in a reduction in
the prices Vertex Nevada is able to obtain for its finished products. Any of the
foregoing could reduce Vertex Nevada’s future revenues, earnings or growth
prospects.
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 in the
marketplace.
Vertex
Nevada will rely on new technology to conduct its business, including the
proposed Thermo-Chemical Process, 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. Additionally, Vertex Nevada
initially plans to rely on the License from CMT (assuming funds can be raised to
pay for the rights to the License) in connection with a Thermo-Chemical
re-refining process (the “Process”). The Process is currently
unproven and may never work in a profitable manner, if at
all. Additionally, the costs moving forward of enhancing and updating
its technology 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, including but not limited to the failure of the Process,
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
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 Vertex Nevada’s 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.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The
following information describes various related parties and affiliates of Vertex
Nevada. VTX, Inc, which is wholly owned by Mr. Cowart, the Chief Executive
Office and Chairman of Vertex Nevada, is the general partner of all of the
entities described below.
CrossRoad
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 and Vertex Nevada
as well as for various third parties. The total costs and terms associated with
the transportation fees that CRC charges Vertex Nevada are substantially similar
to the terms granted to CRC’s other clients (including Vertex LP), which Vertex
Nevada believes approximate current market rates.
Approximately
60% of feedstock that comes into Vertex Nevada is transported by CRC, and 85-90%
of Vertex Nevada’s trucking needs are fulfilled by CRC.
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
petroleum products from various third parties and generally works as a broker
for petroleum products. VR sells products to Vertex LP and/or acts as a broker
in connection with sales. Approximately 25-35% (including H&H and H&H
Baytown (described below)) of Vertex Nevada’s total feedstock come from
VR.
VR’s
established business practice is for Vertex Nevada 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 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 is only a purchaser of Feedstock
through VR and/or through alternative third party suppliers.
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 Nevada and third parties. Historically,
approximately 10% of Vertex Nevada’s feedstock has come from H&H, and
approximately 40% of H&H’s feedstock has been sold to Vertex
Nevada.
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% of Vertex LP’s feedstock has come from
H&H Baytown, and approximately 65% of H&H-Baytown’s feedstock has been
sold to Vertex LP.
Cedar
Marine Terminal (“
CMT
”)
CMT is a
marine terminal 99% owned by Vertex LP that is engaged in the storage and
terminaling of petroleum fuels. CMT is contracted to store products for Vertex
Nevada and Vertex LP, as well as third parties. CMT’s general partner is
VTX.
Approximately
40% of Vertex Nevada’s feedstock is terminaled and stored at CMT. Approximately
40% of the feedstock that is terminaled at CMT belongs to Vertex Nevada, with an
additional approximately 20% owned by companies affiliated with Vertex LP. 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. Vertex Nevada has the right pursuant to the
Operating and Licensing Agreement described below, to license from CMT, the
thermal/chemical extraction technology at a price equal to the documented
development costs of such technology plus 10%. 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.
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 Nevada, Vertex LP and other affiliated
companies, as well as third parties.
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. Vertex
Nevada is responsible for its pro-rata share of the monthly fee payable to VRM
pursuant to the pre-existing arrangement between VRM and Vertex LP, which has
continued following the Merger.
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Vertex
Nevada has also entered into a lease with Vertex LP, pursuant to which Vertex
Nevada agreed to sublease office space, office equipment and support services
from Vertex LP at the rate of approximately $3,710 per month.
Affiliated
Employees
Certain
employees of Vertex Nevada spend a portion of their time working on behalf of
companies that are affiliates of Mr. Cowart. These employees are not
compensated by Vertex Nevada for any time dedicated to those
companies.
Services
Agreement
In
connection with the Merger, Vertex LP and Vertex Nevada entered into a Services
Agreement (the “
Services
Agreement
”). Pursuant to the Services Agreement, Vertex LP
(through its various affiliates) agreed to perform services for Vertex Nevada,
billed at the lesser of (a) the rates Vertex LP charges to non-affiliates, and
(b) rates less than the amount Vertex LP charges to non-affiliates as mutually
agreed between the parties, including the following:
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Transportation
services through CrossRoad Carriers for the transportation of Vertex
Nevada's feedstock and refined and re-refined petroleum
products;
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Environmental
compliance and regulatory oversight services to be performed by Vertex
Residual Management Group LP., and
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Terminaling
services through Cedar Marine Terminals for the storage and loading out of
feedstock by barge, unless such services are covered under a separate
agreement entered into between the
Parties.
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The
Services Agreement has a term of five (5) years, but can be terminated at any
time with the mutual consent of both parties, with thirty days prior written
notice in the event any provision of the agreement is breached, by the
non-breaching party, or at any time with five (5) days written notice if Mr.
Cowart is no longer employed by Vertex Nevada.
Operating
and Licensing Agreement
Additionally,
in connection with the Merger and effective as of the effective date of the
Merger, Cedar Marine Terminals, L.P. (“
CMT
”) and Vertex
Nevada entered into an Operating and Licensing Agreement (the “
Operating
Agreement
”). Pursuant to the Operating Agreement, CMT agreed
to provide services to Vertex Nevada in connection with the operation of the
Terminal run by CMT, and the operations of and use of certain proprietary
technology relating to the re-refining of certain oil feedstock referred to as
its “
Thermal/chemical
extraction technology
” (“
OP#2
”), in connection
with a Terminaling Agreement by and between CMT and Vertex
LP. Additionally, Vertex Nevada has the right, following the payment
of the R&D Costs (as defined below) to use the first 33,000 monthly barrels
of the capacity of OP#2 pursuant to the terms of the Operating Agreement, with
CMT being provided the right to use the next 20,000 barrels of capacity and any
additional capacity allocated pro rata (based on the percentages above), subject
to separate mutually agreeable allocations.
The
Operating Agreement has a term expiring on February 28, 2017, and can be
terminated (a) by the mutual consent of both parties, (b) with thirty days prior
written notice, if any term of the agreement is breached, by the non-breaching
party, or (c) at any time after the R&D Costs (as defined below) are paid
and Mr. Cowart’s employment has been terminated by Vertex Nevada.
In
consideration for the services to be rendered pursuant to the Operating
Agreement, Vertex Nevada agreed to pay CMT its actual costs and expenses
associated with providing such services, plus 10%, subject to a maximum price
per gallon of $0.40, subject to OP#2 meeting certain minimum volume requirements
as provided in the agreement.
Pursuant
to the Operating Agreement, Vertex Nevada also has the right to a non-revocable,
non-transferable, royalty-free, perpetual (except as provided in the agreement)
license to use the technology associated with the operations of OP#2 in any
market in the world (the “
License
”), provided
that Vertex Nevada pays CMT the documented net development costs of OP#2, up to
a maximum of $1.4 million (the “
R&D
Costs
”).
The
License expires automatically in the event Vertex Nevada (i) becomes insolvent
or takes any action which constitutes its admission of inability to pay its
debts as they mature; (ii) makes an assignment for the benefit of creditors,
files a petition in bankruptcy, petitions or applies to any tribunal for the
appointment of a custodian, receiver or a trustee for it or a substantial
portion of its assets; (iii) commences any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation or
statute of any jurisdiction, whether now or hereafter in effect; (iv) has filed
against it any such petition or application in which an order for relief is
entered or which remains undismissed for a period of ninety (90) days or more;
(v) indicates its consent to, approval of or acquiescence in any such petition,
application, proceeding or order for relief or the appointment of a custodian,
receiver or trustee for it or a substantial portion of its assets; or (vi)
suffers any such custodianship, receivership or trusteeship to continue
un-discharged for a period of ninety (90) days or more; or dissolves or winds up
its assets.
Right
of First Refusal Agreement
Effective
as of the date of the Merger, Vertex Nevada has the right, pursuant to a Right
of First Refusal Agreement (the “
Right of First Refusal
Agreement
”), to (a) match any third party offer to purchase Vertex LP, or
any of its subsidiaries or assets (the “
Property
”) within
thirty (30) days of the date such offer is received by Vertex Nevada, and (b)
following the expiration of eighteen (18) months following the effective date of
the Merger, to purchase any of the Property at a price to be determined by an
independent third-party evaluation expert mutually agreed upon by the
parties. The Right of First Refusal Agreement, and the rights
provided for therein remain in effect as long as Mr. Cowart is employed by
Vertex Nevada.
BENEFICIAL
OWNERSHIP OF SECURITIES
BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of Vertex Nevada’s common stock as of June 23, 2009 by (i) each person
who is known by Vertex Nevada to own beneficially more than five percent
(5%) of Vertex Nevada’s outstanding common stock; (ii) each of Vertex Nevada’s
directors; (iii) each of Vertex Nevada’s executive officers; and (iv) all of
Vertex Nevada’s current executive officers and directors as a group. As of June
23, 2009, approximately 8,261,659 shares of Vertex Nevada common stock were
issued and outstanding and approximately 4,726,443 shares of Series A Preferred
Stock (which each vote one voting share on shareholder matters) were issued and
outstanding for approximately 12,988,102 voting shares.
Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting and/or investing power with respect to securities. Vertex Nevada 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.
Shareholder
Name
|
|
Number
of Shares Beneficially Owned
|
|
Percent
(1)
|
|
|
|
|
|
|
|
|
|
|
Benjamin
P. Cowart
Chief
Executive Officer and Chairman
|
|
8,252,161
|
(a)
|
60.4%
|
|
|
|
|
|
John
Pimentel
Director
|
|
458,279
|
(b)
|
2.8%
|
|
|
|
|
|
Ingram
Lee
Treasurer
and Director
|
|
213,331
|
(c)
|
1.6%
|
|
|
|
|
|
Dan
Borgen
Director
|
|
5,000
|
(d)
|
*
|
|
|
|
|
|
David
Phillips
Director
|
|
5,000
|
(e)
|
*
|
|
|
|
|
|
Christopher
Carlson
Secretary
|
|
369,522
|
(f)
|
2.8%
|
|
|
|
|
|
Matthew
Lieb - Chief Operating Officer
|
|
140,000
|
(g)
|
1.1%
|
|
|
|
|
|
Trellus
Management Company, LLC
(h)
|
|
1,981,625
|
(i)
|
15.1%
|
350
Madison Avenue, 8th Floor
New
York, New York 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Officers and Directors
(7
Persons)
|
|
8,768,365
|
|
61.9%
|
*
Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
|
|
(1)
Based on 8,261,659 shares of Vertex Nevada common stock issued and
outstanding and 4,726,443 shares of Series A Preferred Stock issued and
outstanding (which each vote one voting share on shareholder matters)
totaling 12,988,102 voting shares. Additionally, 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 23, 2009, 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 officers or Directors listed in the table above is 1331 Gemini Street,
Houston, Texas 77058.
|
|
(a)
Includes 55,311 shares held by VTX, Inc., which Mr. Cowart serves as
President of and is deemed to beneficially own ("
VTX
"). Also
includes warrants to purchase an aggregate of 7,789 shares of the
Company's common stock held by VTX, at various exercise prices from $1.55
to $37.00 per share, and with various expiration dates from between April
28, 2010 and February 26, 2018, granted to VTX, as a Partner of Vertex LP,
for consideration in connection with the Merger (as described above)(the
"
Make-Whole
Warrants
"). Also includes Make-Whole Warrants to
purchase an aggregate of 658,690 shares of our common stock held
personally by Mr. Cowart.
|
|
|
|
|
|
(b)
Includes 35,000 shares held by Mr. Pimentel's wife, 3,030 shares of the
Company's Series A Preferred Stock, warrants to acquire 250 shares of our
common stock at an exercise price of $27.50 per share, and options to
acquire 200,000 shares of common stock at an exercise price of $0.50 per
share.
|
|
|
|
|
|
(c)
Includes 182,622 shares owned by PTI, Inc., which are beneficially owned
by Mr. Lee ("
PTI
"). Also
includes Make-Whole Warrants to purchase 25,709 shares of our common stock
owned by PTI, and options to purchase 5,000 shares of the Company's common
stock at an exercise price of $1.20 per share. Does not include
options to purchase 15,000 shares of the Company's common stock at an
exercise price of $1.20 per share, which options have not vested to Mr.
Lee to date.
|
|
|
|
|
|
(d)
Includes options to purchase 5,000 shares of the Company's common stock at
an exercise price of $1.20 per share. Does not include options
to purchase 15,000 shares of the Company's common stock at an exercise
price of $1.20 per share, which options have not vested to Mr. Borgen to
date.
|
|
|
|
|
|
(e)
Includes options to purchase 5,000 shares of the Company's common stock at
an exercise price of $1.20 per share. Does not include options
to purchase 15,000 shares of the Company's common stock at an exercise
price of $1.20 per share, which options have not vested to Mr. Phillips to
date.
|
|
|
|
|
|
(f)
Includes Make-Whole Warrants to purchase 41,278 shares of our common stock
and options to purchase 35,000 shares of the Company's common stock at an
exercise price of $1.20 per share. Does not include options to
purchase 105,000 shares of the Company's common stock at an exercise price
of $1.20 per share, which options have not vested to Mr. Carlson to
date.
|
|
|
|
|
|
(g)
Includes options to purchase 40,000 shares of our common stock at an
exercise price of $14.20 per share and options to purchase 35,938 shares
of our common stock at an exercise price of $0.50 per share. Does
not include options to purchase 164,062 shares of our common stock which
options have not vested to Mr. Lieb to date.
|
|
|
|
|
|
(h)
Represents shares and warrants beneficially owned by Trellus Offshore Fund
Limited, Trellus Partners, II and Trellus Partners, LP, which are
beneficially owned by Trellus Management Company, LLC.
|
|
|
|
|
|
(i)
Includes 1,841,625 shares of Series A Preferred Stock of the Company and
warrants to purchase 100,000 shares of the Company's common stock at an
exercise price of $27.50 and warrants to purchase 40,000 shares of the
Company's common stock at an exercise price of $0.10 per
share.
|
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 “blank check” 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 5,000,000.
Vertex
Nevada Series A Preferred
Holders
of 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 on 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 $1.49 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:
|
·
|
The
affirmative vote or written consent of the holders of a majority of the
then-outstanding shares of Vertex Nevada Series A
Preferred;
|
|
·
|
If
the closing market price of Vertex Nevada common stock averages at least
$15.00 per share over a period of 20 consecutive trading days and the
daily trading volume averages at least 7,500 shares over such
period;
|
|
·
|
If
Vertex Nevada consummates an underwritten public offering of its
securities at a price per share not less than $10.00 and for a total gross
offering amount of at least $10 million;
or
|
|
·
|
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
$10.00.
|
|
·
|
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:
|
|
·
|
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
|
|
·
|
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.
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.
Lock-Up
Agreement
The
Vertex Nevada shares issued to certain insiders, founders and early owners of
World Waste are subject to a contractual lock-up voluntarily entered into by
such holders in connection with the Merger (the “
Lock-up
Agreements
”). The Lock-up Agreements provide that that until
three years following the effective date of the Merger (the “
Lock-Up Period
”),
such shareholders cannot sell, assign, pledge or otherwise transfer any shares
of Vertex Nevada common stock such holders beneficially own, without Vertex
Nevada’s prior written consent. Notwithstanding the foregoing, the
Lock-up Agreements provide that the holders may transfer (i) all or any portion
of the shares subject to the Lock-up Agreements commencing on the date that the
closing price of Vertex Nevada’s common stock has averaged at least $15.00 per
share over a period of 20 consecutive trading days and the daily trading volume
over the same 20-day period has averaged at least 7,500 shares; (ii) all or any
portion of the shares as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth in the Lock-up
Agreement, (iii) all or any portion of the shares to any trust for the direct or
indirect benefit of the holder or the immediate family of the holder, provided
that the trustee of the trust agrees to be bound by the restrictions set forth
in the Lock-up Agreement, and provided further that any such transfer shall not
involve a disposition for value, and (iv) in any given three-month period
commencing on the one-year anniversary of the effective date of the Merger, up
to that number of shares equal to 5% of the total number of shares then
beneficially owned by such holder.
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:
|
·
|
acts
or omissions which involve intentional misconduct, fraud or a knowing
violation of law; or
|
|
·
|
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:
|
·
|
claim,
issue or matter for which the person has been found liable to the
corporation; or
|
|
·
|
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.
Options
and Warrants
Vertex
Nevada assumed warrants to purchase approximately 94,084 shares of its common
stock, each at a nominal exercise price and warrants to purchase an aggregate of
542,916 shares of common stock with exercise prices ranging from between $10.00
and $27.50 per share and options to purchase 618,800 shares of common stock with
exercise prices ranging from between $1.55 to $37.00 per share in connection
with the Merger. Vertex Nevada also granted warrants to purchase an
aggregate of 774,478 shares of Vertex Nevada’s common stock to the partners of
Vertex LP, which warrants had various exercise prices ranging from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018, and which warrants represented 40% of the total
outstanding warrants and options of World Waste (not taking into account the
warrants with a nominal exercise price, as described above) on the effective
date of the Merger.
Vertex
Nevada has also granted an aggregate of 866,500 options, all of which are held
by Vertex Nevada’s employees, directors, and consultants.
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 do 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 do apply to Vertex Nevada.
Recent Sales of Unregistered
Securities
In
connection with the closing of the Merger, Vertex Nevada issued an aggregate of
5,502,000 shares of its restricted common stock to the partners of Vertex LP,
which included the issuance of 4,679,488 shares of common stock to Benjamin P.
Cowart, the Company’s Chief Executive Officer and Chairman; 55,311 shares of
common stock to an entity which Mr. Cowart controls; 182,622 shares of common
stock to an entity which our Director, Ingram Lee controls; and 293,244 shares
of common stock to our Secretary, Chris Carlson.
Additionally
in connection with the closing of the Merger, Vertex Nevada granted warrants to
purchase an aggregate of 774,478 shares of the Company's common stock to the
partners of Vertex LP, which warrants had various exercise prices from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018.
With an
effective date of April 16, 2009, Vertex Nevada entered into employment
agreements with John Pimentel and Matthew Lieb. Mr. Pimentel and Mr.
Lieb were granted options in connection with the entry into their employment
agreements. Mr. Pimentel was granted an aggregate of 200,000 options,
of which 100,000 vested immediately and 100,000 are to vest quarterly, at the
rate of 12,500 per quarter over the eight fiscal quarters following the first
fiscal quarter after the effective grant date of the options, subject to
acceleration and forfeiture as provided in the option agreement. Mr.
Lieb was granted an aggregate of 200,000 options, of which 25,000 vested
immediately and 175,000 are to vest quarterly, at the rate of 10,937 per
quarter, over the sixteen fiscal quarters following the first fiscal quarter
after the effective grant date of the options, subject to acceleration and
forfeiture as provided in the option agreement. The exercise price of
the option grants was set by the Board of Directors, based on the closing bid
price of Vertex Nevada’s common stock on May 9, 2009, at $0.50 per share, which
includes the effects of the December 2008 1:10 reverse stock split of Vertex
Nevada’s common stock, which has been retroactively reflected herein. In
connection with the termination of Mr. Pimentel’s employment as Vice President
of Corporate Development on June 22, 2009, as described above, all of Mr.
Pimentel’s options vested immediately to Mr. Pimentel.
Vertex
Nevada claims an exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, for the above issuances and grants, since
the issuances and grants did not involve a public offering, the recipients took
the securities for investment and not resale and Vertex Nevada took appropriate
measures to restrict transfer.
ITEM
9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial statements of business acquired.
Filed as Exhibits 99.1, 99.2, 99.3 and
99.4, herewith.
(b) Pro
forma financial information
Filed as Exhibit 99.5,
herewith.
(d)
Exhibits
EXHIBIT NO.
|
DESCRIPTION
|
|
|
2.1(1)
|
Amendment
No. 5, dated as of March 31, 2009, to Amended and Restated Agreement and
Plan of Merger by and among World Waste Technologies, Inc., Vertex
Holdings, L.P. (formerly Vertex Energy, L.P.), Vertex Energy, Inc., Vertex
Merger Sub, LLC and Benjamin P. Cowart.
|
|
|
3.1*
|
Articles
of Incorporation (and amendments thereto) of Vertex Energy,
Inc.
|
|
|
3.2(1)
|
Amended
and Restated Certificate of Designation of Rights, Preferences and
Privileges of Vertex Nevada, Inc.'s Series A Convertible Preferred
Stock.
|
|
|
3.3*
|
Withdrawal
of Designation of the Company’s Series B Preferred
Stock
|
|
|
3.4*
|
Bylaws
of Vertex Energy, Inc.
|
|
|
4.1*
|
Vertex
Energy, Inc., 2008 Stock Incentive Plan
|
|
|
10.1*
|
Asset
Transfer Agreement
|
|
|
10.2*
|
Services
Agreement
|
|
|
10.3*
|
Right
of First Refusal Agreement
|
|
|
10.4*
|
Operating
and Licensing Agreement
|
|
|
10.5*
|
Employment
Agreement with Benjamin P. Cowart
|
|
|
10.6*
|
Employment
Agreement with John Pimentel
|
|
|
10.7*
|
Employment
Agreement with Matthew Lieb
|
|
|
10.8*
|
Letter
Loan Agreement with Regions Bank
|
|
|
10.9*
|
Line
of Credit with Regions Bank
|
|
|
10.10*
|
Security
Agreement with Regions Bank
|
|
|
14.1*
|
Code
of Ethics
|
|
|
16.
1
*
|
Letter
from Stonefield Josephson, Inc.
|
|
|
99.1*
|
Audited
Financial Statements of Vertex Holdings, L.P. formerly Vertex Energy, L.P.
(certain assets, liabilities and operations related to its black oil
division and certain assets, liabilities and operations of the refining
and marketing division) for the years ended December 31, 2008 and
2007
|
|
|
99.2*
|
Unaudited
Financial Statements of Vertex Holdings, L.P. formerly Vertex Energy, L.P.
(certain assets, liabilities and operations related to its black oil
division and certain assets, liabilities and operations of the refining
and marketing division) for the three months ended March 31, 2009 and
2008
|
|
|
99.3*
|
Audited
Financial Statements of Vertex Energy, Inc. as of December 31,
2008
|
|
|
99.4*
|
Unaudited
Interim Financial Statements of Vertex Energy, Inc. for the three months
ended March 31, 2009 and 2008
|
|
|
99.5*
|
Pro
Forma Financial Statements of Vertex Energy, Inc.
|
|
|
99.6*
|
Glossary
of Selected Terms
|
* Filed
herewith.
(1) Filed
as an exhibit to the registrant’s Report on Form 8-K, filed with the Commission
on April 8, 2009, and incorporated herein by reference.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Report to be signed on its behalf by the undersigned, hereunto
duly authorized.
|
VERTEX
ENERGY, INC.
|
|
|
Date:
June 26, 2009
|
By: /s/ Benjamin P.
Cowart
|
|
Benjamin
P. Cowart
|
|
Chief
Executive Officer
|
Exhibit 3.1
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., 3155 East Patrick Lane – Suite 1, Las Vegas,
Nevada, 89120-3481.
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 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.
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.
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
|
Exhibit 3.3
Exhibit 3.4
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.
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 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 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.
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.
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.
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.
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.
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 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 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.
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, 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 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
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Definitions
. In
this Article:
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2.1.1
(a)
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"
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.
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(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 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
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.
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
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.
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.
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.
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Executed
as of this 16th day of May 2008.
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/s/
Benjamin P. Cowart
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Benjamin
P. Cowart
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Director
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EXHIBIT
4.1
VERTEX
ENERGY, INC.
2008
STOCK INCENTIVE PLAN
ARTICLE I
-- PREAMBLE
1.1 This 2008 Stock
Incentive Plan of Vertex Energy, Inc. (the "Company") is intended to secure for
the Company and its Affiliates the benefits arising from ownership of the
Company's Common Stock by the Employees, Officers, Directors and Consultants of
the Company and its Affiliates, all of whom are and will be responsible for the
Company's future growth. The Plan is designed to help attract and
retain for the Company and its Affiliates personnel of superior ability for
positions of exceptional responsibility, to reward Employees, Officers,
Directors and Consultants for their services and to motivate such individuals
through added incentives to further contribute to the success of the Company and
its Affiliates. With respect to persons subject to Section 16 of the Act,
transactions under this Plan are intended to satisfy the requirements of Rule
16b-3 of the Act.
1.2 Awards under the Plan
may be made to an Eligible Person in the form of (i) Incentive Stock Options (to
Eligible Employees only); (ii) Nonqualified Stock Options; (iii) Restricted
Stock; (iv) Stock Awards; (v) Performance Shares; or (vi) any combination of the
foregoing.
1.3 The Company’s board of
directors adopted the Plan on May 16, 2008. The Plan shall be
effective May 16, 2008 (the "Effective Date"), subject to approval by the
shareholders of the Company to the extent necessary to satisfy the requirements
of the Code, the Act, or other applicable federal or state
law. Unless sooner terminated as provided elsewhere in this Plan,
this Plan shall terminate upon the close of business on the day next preceding
the tenth (10th) anniversary of the Effective Date. Award Agreements
outstanding on such date shall continue to have force and effect in accordance
with the provisions thereof.
1.4 The Plan shall be
governed by, and construed in accordance with, the laws of the State of Texas
(except its choice-of-law provisions).
1.5 Capitalized terms shall have the
meaning provided in Article II unless otherwise provided in this Plan or any
related Award Agreement.
ARTICLE
II -- DEFINITIONS
DEFINITIONS. Except where
the context otherwise indicates, the following definitions apply:
2.1 "Act" means the
Securities Exchange Act of 1934, as now in effect or as hereafter
amended.
2.2 "Affiliate" means any
parent corporation or subsidiary corporation of the Company, whether now or
hereinafter existing, as those terms are defined in Sections 424(e) and (f),
respectively, of the Code.
2.3 "Award" means an award
granted to a Participant in accordance with the provisions of the Plan,
including, but not limited to, Stock Options, Restricted Stock, Stock Awards,
Performance Shares, or any combination of the foregoing.
2.4 "Award Agreement" means
the separate written agreement evidencing each Award granted to a Participant
under the Plan.
2.5 "Board of Directors" or
"Board" means the Board of Directors of the Company, as constituted from time to
time.
2.7 "Change of Control"
means (i) the adoption of a plan of merger or consolidation of the Company with
any other corporation or association as a result of which the holders of the
voting capital stock of the Company as a group would receive less than 50% of
the voting capital stock of the surviving or resulting corporation; (ii) the
approval by the Board of Directors of an agreement providing for the sale or
transfer (other than as security for obligations of the Company) of
substantially all the assets of the Company; or (iii) in the absence of a prior
expression of approval by the Board of Directors, the acquisition of more than
20% of the Company's voting capital stock by any person within the meaning of
Rule 13d-3 under the Act (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company).
2.8 "Code" means the
Internal Revenue Code of 1986, as amended, and the regulations and
interpretations promulgated thereunder.
2.9 "Committee" means a
committee of two or more members of the Board appointed by the Board in
accordance with Section 3.2 of the Plan.
2.10 "Common Stock" means
the Company’s common stock.
2.11 "Company" means Vertex
Energy, Inc., a Nevada corporation.
2.12. "Consultant" means any
person, including an advisor engaged by the Company or an Affiliate to render
bona fide consulting or advisory services to the Company or an Affiliate, other
than as an Employee, Director or Non-Employee Director.
2.13 "Director" means a
member of the Board of Directors of the Company.
2.14 "Disability" means the
permanent and total disability of a person within the meaning of Section
22(e)(3) of the Code.
2.15 "Effective Date" shall
be the date set forth in Section 1.3 of the Plan.
2.16 "Eligible Employee"
means an Eligible Person who is an Employee of the Company or any
Affiliate.
2.17 "Eligible Person" means
any Employee, Officer, Director, Non-Employee Director or Consultant of the
Company or any Affiliate, except for instances where services are in connection
with the offer or sale of securities in a capital-raising transaction, or they
directly or indirectly promote or maintain a market for the Company’s
securities, subject to any other limitations as may be provided by the Code, the
Act, or the Board. In making such determinations, the Board may take
into account the nature of the services rendered by such person, his or her
present and potential contribution to the Company’s success, and such other
factors as the Board in its discretion shall deem relevant.
2.19 “Employee” means an
individual who is a common-law employee of the Company or an Affiliate including
employment as an Officer. Mere service as a Director or payment of a
director's fee by the Company or an Affiliate shall not be sufficient to
constitute "employment" by the Company or an Affiliate.
2.20 "ERISA" means the
Employee Retirement Income Security Act of 1974, as now in effect or as
hereafter amended.
2.21 "Fair Market Value"
means:
(a) for
purposes of an Incentive Stock Option, if there is a market for the Company’s
stock, on a stock exchange or in an over-the-counter market, or otherwise, the
Fair Market Value shall be the mean between the highest and lowest quoted
selling prices on the valuation date of the Incentive Stock Option, or if there
were no sales of the Company’s Common Stock on the valuation date, the Fair
Market Value shall be the weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the valuation
date. If a valuation pursuant to this paragraph is not available, the
appropriate method described in Section 20.2031-2 of the Treasury Regulations
adopted under the Code shall be used for the Fair Market Value, and
(b) for
all other purposes, the mean between the highest and lowest quoted selling
prices of the Common Stock (if actual sales price information on such trading
day is not available, the mean between the bona fide bid and asked prices on
such trading day shall be used) on the trading day immediately prior to the date
on which a determination is being made pursuant to this Section 2.21 (the “Mean
Selling Price”), as reported by the National Association of Securities Dealers
Automated Quotation System (“NASDAQ”), or if the Common Stock is not traded on
NASDAQ, the Mean Selling Price in the over-the-counter market; provided,
however, that if the Common Stock is listed on a stock exchange, the Fair Market
Value shall be the Mean Selling Price on such exchange; and, provided further,
that if the Common Stock is not quoted or listed by any organization, the fair
value of the Common Stock, as determined by the Board, whose determination shall
be conclusive, shall be used. In no event shall the Fair Market Value
of any share of Common Stock be less than its par value.
2.22 "Grant Date" means, as
to any Award, the latest of:
(a) the date on which the Board
authorizes the grant of the Award; or
(b) the date the Participant receiving
the Award becomes an Employee or a Director of the Company or its Affiliate, to
the extent employment status is a condition of the grant or a requirement of the
Code or the Act; or
(c) such
other date (later than the dates described in (a) and (b) above) as the Board
may designate and as set forth in the Participant's Award
Agreement.
2.23 "Immediate Family"
means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law and shall include adoptive
relationships.
2.24 "Incentive Stock
Option" means a Stock Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and is granted under Article IV of
the Plan and designated as an Incentive Stock Option in a Participant's Award
Agreement.
2.25 "Non-Employee Director"
shall have the meaning set forth in Rule 16b-3 under the Act.
2.26 "Nonqualified Stock
Option" means a Stock Option not intended to qualify as an Incentive Stock
Option and is not so designated in the Participant's Award
Agreement.
2.27 “Officer” means a
person who is an officer of the Company within the meaning of Section 16 of the
Act.
2.28 "Option Period" means
the period during which a Stock Option may be exercised from time to time, as
established by the Board and set forth in the Award Agreement for each
Participant who is granted a Stock Option.
2.29 "Option Price" means
the purchase price for a share of Common Stock subject to purchase pursuant to a
Stock Option, as established by the Board and set forth in the Award Agreement
for each Participant who is granted a Stock Option.
2.30 “Outside Director”
means a Director who either (i) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the
Code.
2.31 "Participant" means an
Eligible Person to whom an Award has been granted and who has entered into an
Award Agreement evidencing the Award or, if applicable, such other person who
holds an outstanding Award.
2.32 "Performance
Objectives" shall have the meaning set forth in Article IX of the
Plan.
2.33 "Performance Period"
shall have the meaning set forth in Article IX of the Plan.
2.34 "Performance Share"
means an Award under Article IX of the Plan of a unit valued by reference to the
Common Stock, the payout of which is subject to achievement of such Performance
Objectives, measured during one or more Performance Periods, as the Board, in
its sole discretion, shall establish at the time of such Award and set forth in
a Participant's Award Agreement.
2.35 "Plan" means this
Vertex Energy, Inc. 2008 Stock Incentive Plan, as it may be amended from time to
time.
2.36 “Reporting Person”
means a person required to file reports under Section 16(a) of the
Act.
2.37 "Restricted Stock"
means an Award under Article VII of the Plan of shares of Common Stock that are
at the time of the Award subject to restrictions or limitations as to the
Participant's ability to sell, transfer, pledge or assign such shares, which
restrictions or limitations may lapse separately or in combination at such time
or times, in installments or otherwise, as the Board, in its sole discretion,
shall determine at the time of such Award and set forth in a Participant's Award
Agreement.
2.38 "Restriction Period"
means the period commencing on the Grant Date with respect to such shares of
Restricted Stock and ending on such date as the Board, in its sole discretion,
shall establish and set forth in a Participant's Award Agreement.
2.39 "Retirement" means
retirement as determined under procedures established by the Board or in any
Award, as set forth in a Participant's Award Agreement.
2.40 “Rule 16b-3” means Rule
16b-3 promulgated under the Act or any successor to Rule 16b-3, as in effect
from time to time. Those provisions of the Plan which make express
reference to Rule 16b-3, or which are required in order for certain option
transactions to qualify for exemption under Rule 16b-3, shall apply only to a
Reporting Person.
2.41 "Stock Award" means an
Award of shares of Common Stock under Article VIII of the Plan.
2.42 "Stock Option" means an
Award under Article IV or Article V of the Plan of an option to purchase Common
Stock. A Stock Option may be either an Incentive Stock Option or a Nonqualified
Stock Option.
2.43 "Ten Percent
Stockholder" means an individual who owns (or is deemed to own pursuant to
Section 424(d) of the Code), at the time of grant, stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any of its Affiliates.
2.44 "Termination of
Service" means (i) in the case of an Eligible Employee, the discontinuance of
employment of such Participant with the Company or its Subsidiaries for any
reason other than a transfer to another member of the group consisting of the
Company and its Affiliates and (ii) in the case of a Director who is not an
Employee of the Company or any Affiliate, the date such Participant ceases to
serve as a Director. The determination of whether a Participant has discontinued
service shall be made by the Board in its sole discretion. In determining
whether a Termination of Service has occurred, the Board may provide that
service as a Consultant or service with a business enterprise in which the
Company has a significant ownership interest shall be treated as employment with
the Company.
ARTICLE
III – ADMINISTRATION
3.1 The Plan shall be
administered by the Board of Directors of the Company. The Board
shall have the exclusive right to interpret and construe the Plan, to select the
Eligible Persons who shall receive an Award, and to act in all matters
pertaining to the grant of an Award and the determination and interpretation of
the provisions of the related Award Agreement, including, without limitation,
the determination of the number of shares subject to Stock Options and the
Option Period(s) and Option Price(s) thereof, the number of shares of Restricted
Stock or shares subject to Stock Awards or Performance Shares subject to an
Award, the vesting periods (if any) and the form, terms, conditions and duration
of each Award, and any amendment thereof consistent with the provisions of the
Plan. The Board may adopt, establish, amend and rescind such rules,
regulations and procedures as it may deem appropriate for the proper
administration of the Plan, make all other determinations which are, in the
Board’s judgment, necessary or desirable for the proper administration of the
Plan, amend the Plan or a Stock Award as provided in Article XI, and terminate
or suspend the Plan as provided in Article XI. All acts,
determinations and decisions of the Board made or taken pursuant to the Plan or
with respect to any questions arising in connection with the administration and
interpretation of the Plan or any Award Agreement, including the severability of
any and all of the provisions thereof, shall be conclusive, final and binding
upon all persons.
3.2 The
Board may, to the full extent permitted by and consistent with applicable law
and the Company’s Bylaws, and subject to Subparagraph 3.2(b) hereinbelow,
delegate any or all of its powers with respect to the administration of the Plan
to a Committee consisting of not fewer than two members of the Board each of
whom shall qualify (at the time of appointment to the Committee and during all
periods of service on the Committee) in all respects as a Non-Employee Director
and as an Outside Director.
(a) If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references in
the Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not consistent with the provisions of the
Plan, as may be adopted from time to time by the Board.
(b) The
Board may abolish the Committee at any time and reassume all powers and
authority previously delegated to the Committee.
(c) In
addition to, and not in limitation of, the right of any Committee so designated
by the Board to administer this Plan to grant Awards to Eligible Persons under
this Plan, the full Board of Directors may from time to time grant Awards to
Eligible Persons pursuant to the terms and conditions of this Plan, subject to
the requirements of the Code, Rule 16b-3 under the Act or any other applicable
law, rule or regulation. In connection with any such grants, the Board of
Directors shall have all of the power and authority of the Committee to
determine the Eligible Persons to whom such Awards shall be granted and the
other terms and conditions of such Awards.
3.3 Without limiting the
provisions of this Article III, and subject to the provisions of Article X, the
Board is authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants and to the Company, with
respect to an outstanding Award in the event of a Change of Control as described
in Article X or other similar event. Such action may include, but shall not be
limited to, establishing, amending or waiving the form, terms, conditions and
duration of an Award and the related Award Agreement, so as to provide for
earlier, later, extended or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and amounts of payment, an
accelerated release of restrictions or other modifications. The Board may take
such actions pursuant to this Section 3.3 by adopting rules and regulations of
general applicability to all Participants or to certain categories of
Participants, by including, amending or waiving terms and conditions in an Award
and the related Award Agreement, or by taking action with respect to individual
Participants from time to time.
3.4 Subject to the
provisions of Section 3.9, the maximum aggregate number of shares of Common
Stock which may be issued pursuant to Awards under the Plan shall be Six Million
(6,000,000) shares. Such shares of Common Stock shall be made available from
authorized and unissued shares of the Company.
(a) For all purposes under the Plan,
each Performance Share awarded shall be counted as one share of Common Stock
subject to an Award.
(b) If, for any reason, any shares of
Common Stock (including shares of Common Stock subject to Performance Shares)
that have been awarded or are subject to issuance or purchase pursuant to Awards
outstanding under the Plan are not delivered or purchased, or are reacquired by
the Company, for any reason, including but not limited to a forfeiture of
Restricted Stock or failure to earn Performance Shares or the termination,
expiration or cancellation of a Stock Option, or any other termination of an
Award without payment being made in the form of shares of Common Stock (whether
or not Restricted Stock), such shares of Common Stock shall not be charged
against the aggregate number of shares of Common Stock available for Award under
the Plan and shall again be available for Awards under the Plan. In no event,
however, may Common Stock that is surrendered or withheld to pay the exercise
price of a Stock Option or to satisfy tax withholding requirements be available
for future grants under the Plan.
(c) The foregoing subsections (a) and
(b) of this Section 3.4 shall be subject to any limitations provided by the Code
or by Rule 16b-3 under the Act or by any other applicable law, rule or
regulation.
3.5 Each Award granted under
the Plan shall be evidenced by a written Award Agreement, which shall be subject
to and shall incorporate (by reference or otherwise) the applicable terms and
conditions of the Plan and shall include any other terms and conditions (not
inconsistent with the Plan) required by the Board.
3.6 The Company shall not be
required to issue or deliver any certificates for shares of Common Stock under
the Plan prior to:
(a) any required approval of the Plan
by the shareholders of the Company; and
(b) the completion of any registration
or qualification of such shares of Common Stock under any federal or state law,
or any ruling or regulation of any governmental body that the Company shall, in
its sole discretion, determine to be necessary or advisable.
3.7 The Board may require
any Participant acquiring shares of Common Stock pursuant to any Award under the
Plan to represent to and agree with the Company in writing that such person is
acquiring the shares of Common Stock for investment purposes and without a view
to resale or distribution thereof. Shares of Common Stock issued and
delivered under the Plan shall also be subject to such stop-transfer orders and
other restrictions as the Board may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed and any applicable federal
or state laws, and the Board may cause a legend or legends to be placed on the
certificate or certificates representing any such shares to make appropriate
reference to any such restrictions. In making such determination, the Board may
rely upon an opinion of counsel for the Company.
3.8 Except as otherwise
expressly provided in the Plan or in an Award Agreement with respect to an
Award, no Participant shall have any right as a shareholder of the Company with
respect to any shares of Common Stock subject to such Participant's Award except
to the extent that, and until, one or more certificates representing such shares
of Common Stock shall have been delivered to the Participant. No shares shall be
required to be issued, and no certificates shall be required to be delivered,
under the Plan unless and until all of the terms and conditions applicable to
such Award shall have, in the sole discretion of the Board, been satisfied in
full and any restrictions shall have lapsed in full, and unless and until all of
the requirements of law and of all regulatory bodies having jurisdiction over
the offer and sale, or issuance and delivery, of the shares shall have been
fully complied with.
3.9 The total amount of
shares with respect to which Awards may be granted under the Plan and rights of
outstanding Awards (both as to the number of shares subject to the outstanding
Awards and the Option Price(s) or other purchase price(s) of such shares, as
applicable) shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of Common Stock of the Company resulting from
payment of a stock dividend on the Common Stock, a stock split or subdivision or
combination of shares of the Common Stock, or a reorganization or
reclassification of the Common Stock, or any other change in the structure of
shares of the Common Stock. The foregoing adjustments and the manner of
application of the foregoing provisions shall be determined by the Board in its
sole discretion. Any such adjustment may provide for the elimination of any
fractional shares which might otherwise become subject to an Award. All
adjustments made as the result of the foregoing in respect of each Incentive
Stock Option shall be made so that such Incentive Stock Option shall continue to
be an Incentive Stock Option, as defined in Section 422 of the
Code.
3.10 No director or person
acting pursuant to authority delegated by the Board shall be liable for any
action or determination under the Plan made in good faith. The
members of the Board shall be entitled to indemnification by the Company in the
manner and to the extent set forth in the Company's Articles of Incorporation,
as amended, Bylaws or as otherwise provided from time to time regarding
indemnification of Directors.
3.11 The Board shall be
authorized to make adjustments in any performance based criteria or in the other
terms and conditions of outstanding Awards in recognition of unusual or
nonrecurring events affecting the Company (or any Affiliate, if applicable) or
its financial statements or changes in applicable laws, regulations or
accounting principles. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award Agreement in the manner and
to the extent it shall deem necessary or desirable to reflect any such
adjustment. In the event the Company (or any Affiliate, if applicable) shall
assume outstanding employee benefit awards or the right or obligation to make
future such awards in connection with the acquisition of another corporation or
business entity, the Board may, in its sole discretion, make such adjustments in
the terms of outstanding Awards under the Plan as it shall deem
appropriate.
3.12 Subject to the express
provisions of the Plan, the Board shall have full power and authority to
determine whether, to what extent and under what circumstances any outstanding
Award shall be terminated, canceled, forfeited or suspended. Notwithstanding the
foregoing or any other provision of the Plan or an Award Agreement, all Awards
to any Participant that are subject to any restriction or have not been earned
or exercised in full by the Participant shall be terminated and canceled if the
Participant is terminated for cause, as determined by the Board in its sole
discretion.
ARTICLE
IV -- INCENTIVE STOCK OPTIONS
4.1 The Board, in its sole
discretion, may from time to time on or after the Effective Date grant Incentive
Stock Options to Eligible Employees, subject to the provisions of this Article
IV and Articles III and VI and subject to the following conditions:
(a) Incentive Stock Options shall be
granted only to Eligible Employees, each of whom may be granted one or more of
such Incentive Stock Options at such time or times determined by the
Board.
(b) The Option Price per share of
Common Stock for an Incentive Stock Option shall be set in the Award Agreement,
but shall not be less than (i) one hundred percent (100%) of the Fair Market
Value of the Common Stock at the Grant Date, or (ii) in the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, one hundred ten percent
(110%) of the Fair Market Value of the Common Stock at the Grant
Date.
(c) An Incentive Stock Option may be
exercised in full or in part from time to time within ten (10) years from the
Grant Date, or such shorter period as may be specified by the Board as the
Option Period and set forth in the Award Agreement; provided, however, that, in
the case of an Incentive Stock Option granted to a Ten Percent Stockholder, such
period shall not exceed five (5) years from the Grant Date; and further,
provided that, in any event, the Incentive Stock Option shall lapse and cease to
be exercisable upon a Termination of Service or within such period following a
Termination of Service as shall have been determined by the Board and set forth
in the related Award Agreement; and provided, further, that such period shall
not exceed the period of time ending on the date three (3) months following a
Termination of Service, unless employment shall have terminated:
(i) as a result of Disability, in
which event such period shall not exceed the period of time ending on the date
twelve (12) months following a Termination of Service; or
(ii) as a result of death, or if death
shall have occurred following a Termination of Service (other than as a result
of Disability) and during the period that the Incentive Stock Option was still
exercisable, in which event such period may not exceed the period of time ending
on the earlier of the date twelve (12) months after the date of
death;
and
provided, further, that such period following a Termination of Service or death
shall in no event extend beyond the original Option Period of the Incentive
Stock Option.
(d) The aggregate Fair Market Value of
the shares of Common Stock with respect to which any Incentive Stock Options
(whether under this Plan or any other plan established by the Company) are first
exercisable during any calendar year by any Eligible Employee shall not exceed
one hundred thousand dollars ($100,000), determined based on the Fair Market
Value(s) of such shares as of their respective Grant Dates; provided, however,
that to the extent permitted under Section 422 of the Code, if the aggregate
Fair Market Values of the shares of Common Stock with respect to which Stock
Options intended to be Incentive Stock Options are first exercisable by any
Eligible Employee during any calendar year (whether such Stock Options are
granted under this Plan or any other plan established by the Company) exceed one
hundred thousand dollars ($100,000), the Stock Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonqualified Stock Options.
(e) No Incentive Stock Options may be
granted more than ten (10) years from the Effective Date.
(f) The Award Agreement for each
Incentive Stock Option shall provide that the Participant shall notify the
Company if such Participant sells or otherwise transfers any shares of Common
Stock acquired upon exercise of the Incentive Stock Option within two (2) years
of the Grant Date of such Incentive Stock Option or within one (1) year of the
date such shares were acquired upon the exercise of such Incentive Stock
Option.
4.2 Subject to the
limitations of Section 3.4, the maximum aggregate number of shares of Common
Stock subject to Incentive Stock Option Awards shall be the maximum aggregate
number of shares available for Awards under the Plan.
4.3 The Board may provide
for any other terms and conditions which it determines should be imposed for an
Incentive Stock Option to qualify under Section 422 of the Code, as well as any
other terms and conditions not inconsistent with this Article IV or Articles III
or VI, as determined in its sole discretion and set forth in the Award Agreement
for such Incentive Stock Option.
4.4 Each provision of this
Article IV and of each Incentive Stock Option granted hereunder shall be
construed in accordance with the provisions of Section 422 of the Code, and any
provision hereof that cannot be so construed shall be disregarded.
ARTICLE V
-- NONQUALIFIED STOCK OPTIONS
5.1 The Board, in its sole
discretion, may from time to time on or after the Effective Date grant
Nonqualified Stock Options to Eligible Persons, subject to the provisions of
this Article V and Articles III and VI and subject to the following
conditions:
(a) Nonqualified Stock Options may be
granted to any Eligible Person, each of whom may be granted one or more of such
Nonqualified Stock Options, at such time or times determined by the
Board.
(b) The Option Price per share of
Common Stock for a Nonqualified Stock Option shall be set in the Award Agreement
and may be less than one hundred percent (100%) of the Fair Market Value of the
Common Stock at the Grant Date; provided, however, that the exercise price of
each Nonqualified Stock Option granted under the Plan shall in no event be less
than the par value per share of the Company’s Common Stock.
(c) A Nonqualified Stock Option may be
exercised in full or in part from time to time within the Option Period
specified by the Board and set forth in the Award Agreement; provided, however,
that, in any event, the Nonqualified Stock Option shall lapse and cease to be
exercisable upon a Termination of Service or within such period following a
Termination of Service as shall have been determined by the Board and set forth
in the related Award Agreement.
5.2 The Board may provide
for any other terms and conditions for a Nonqualified Stock Option not
inconsistent with this Article V or Articles III or VI, as determined in its
sole discretion and set forth in the Award Agreement for such Nonqualified Stock
Option.
ARTICLE
VI -- INCIDENTS OF STOCK OPTIONS
6.1 Each Stock Option shall
be granted subject to such terms and conditions, if any, not inconsistent with
this Plan, as shall be determined by the Board and set forth in the related
Award Agreement, including any provisions as to continued employment as
consideration for the grant or exercise of such Stock Option and any provisions
which may be advisable to comply with applicable laws, regulations or rulings of
any governmental authority.
6.2 Except as hereinafter
described, a Stock Option shall not be transferable by the Participant other
than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the Participant only by the Participant or
the Participant's guardian or legal representative. In the event of
the death of a Participant, any unexercised Stock Options may be exercised to
the extent otherwise provided herein or in such Participant's Award Agreement by
the executor or personal representative of such Participant's estate or by any
person who acquired the right to exercise such Stock Options by bequest under
the Participant's will or by inheritance. The Board, in its sole discretion, may
at any time permit a Participant to transfer a Nonqualified Stock Option for no
consideration to or for the benefit of one or more members of the Participant's
Immediate Family (including, without limitation, to a trust for the benefit of
the Participant and/or one or more members of such Participant's Immediate
Family or a corporation, partnership or limited liability company established
and controlled by the Participant and/or one or more members of such
Participant's Immediate Family), subject to such limits as the Board may
establish. The transferee of such Nonqualified Stock Option shall remain subject
to all terms and conditions applicable to such Nonqualified Stock Option prior
to such transfer. The foregoing right to transfer the Nonqualified Stock Option,
if granted by the Board shall apply to the right to consent to amendments to the
Award Agreement.
6.3 Shares of Common Stock
purchased upon exercise of a Stock Option shall be paid for in such amounts, at
such times and upon such terms as shall be determined by the Board, subject to
limitations set forth in the Stock Option Award Agreement. The Board may, in its
sole discretion, permit the exercise of a Stock Option by payment in cash or by
tendering shares of Common Stock (either by actual delivery of such shares or by
attestation), or any combination thereof, as determined by the Board. In the
sole discretion of the Board, payment in shares of Common Stock also may be made
with shares received upon the exercise or partial exercise of the Stock Option,
whether or not involving a series of exercises or partial exercises and whether
or not share certificates for such shares surrendered have been delivered to the
Participant. The Board also may, in its sole discretion, permit the payment of
the exercise price of a Stock Option by the voluntary surrender of all or a
portion of the Stock Option. Shares of Common Stock previously held by the
Participant and surrendered in payment of the Option Price of a Stock Option
shall be valued for such purpose at the Fair Market Value thereof on the date
the Stock Option is exercised.
6.4 The holder of a Stock
Option shall have no rights as a shareholder with respect to any shares covered
by the Stock Option (including, without limitation, any voting rights, the right
to inspect or receive the Company’s balance sheets or financial statements or
any rights to receive dividends or non-cash distributions with respect to such
shares) until such time as the holder has exercised the Stock Option and then
only with respect to the number of shares which are the subject of the
exercise. No adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is
issued.
6.5 The Board may permit the
voluntary surrender of all or a portion of any Stock Option granted under the
Plan to be conditioned upon the granting to the Participant of a new Stock
Option for the same or a different number of shares of Common Stock as the Stock
Option surrendered, or may require such voluntary surrender as a condition
precedent to a grant of a new Stock Option to such Participant. Subject to the
provisions of the Plan, such new Stock Option shall be exercisable at such
Option Price, during such Option Period and on such other terms and conditions
as are specified by the Board at the time the new Stock Option is granted. Upon
surrender, the Stock Options surrendered shall be canceled and the shares of
Common Stock previously subject to them shall be available for the grant of
other Stock Options.
6.6 The Board may at any
time offer to purchase a Participant's outstanding Stock Option for a payment
equal to the value of such Stock Option payable in cash, shares of Common Stock
or Restricted Stock or other property upon surrender of the Participant's Stock
Option, based on such terms and conditions as the Board shall establish and
communicate to the Participant at the time that such offer is made.
6.7 The
Board shall have the discretion, exercisable either at the time the Award is
granted or at the time the Participant discontinues employment, to establish as
a provision applicable to the exercise of one or more Stock Options that, during
a limited period of exercisability following a Termination of Service, the Stock
Option may be exercised not only with respect to the number of shares of Common
Stock for which it is exercisable at the time of the Termination of Service but
also with respect to one or more subsequent installments for which the Stock
Option would have become exercisable had the Termination of Service not
occurred.
ARTICLE
VII -- RESTRICTED STOCK
7.1 The Board, in its sole
discretion, may from time to time on or after the Effective Date award shares of
Restricted Stock to Eligible Persons as a reward for past service and an
incentive for the performance of future services that will contribute materially
to the successful operation of the Company an its Affiliates, subject to the
terms and conditions set forth in this Article VII.
7.2 The Board shall
determine the terms and conditions of any Award of Restricted Stock, which shall
be set forth in the related Award Agreement, including without
limitation:
(a) the purchase price, if any, to be
paid for such Restricted Stock, which may be zero, subject to such minimum
consideration as may be required by applicable law;
(b) the duration of the Restriction
Period or Restriction Periods with respect to such Restricted Stock and whether
any events may accelerate or delay the end of such Restriction
Period(s);
(c) the circumstances upon which the
restrictions or limitations shall lapse, and whether such restrictions or
limitations shall lapse as to all shares of Restricted Stock at the end of the
Restriction Period or as to a portion of the shares of Restricted Stock in
installments during the Restriction Period by means of one or more vesting
schedules;
(d) whether such Restricted Stock is
subject to repurchase by the Company or to a right of first refusal at a
predetermined price or if the Restricted Stock may be forfeited entirely under
certain conditions;
(e) whether any performance goals may
apply to a Restriction Period to shorten or lengthen such period;
and
(f) whether dividends and other
distributions with respect to such Restricted Stock are to be paid currently to
the Participant or withheld by the Company for the account of the
Participant.
7.3 Awards of Restricted
Stock must be accepted within a period of thirty (30) days after the Grant Date
(or such shorter or longer period as the Board may specify at such time) by
executing an Award Agreement with respect to such Restricted Stock and tendering
the purchase price, if any. A prospective recipient of an Award of Restricted
Stock shall not have any rights with respect to such Award, unless such
recipient has executed an Award Agreement with respect to such Restricted Stock,
has delivered a fully executed copy thereof to the Board and has otherwise
complied with the applicable terms and conditions of such Award.
7.4 In the sole discretion
of the Board and as set forth in the Award Agreement for an Award of Restricted
Stock, all shares of Restricted Stock held by a Participant and still subject to
restrictions shall be forfeited by the Participant upon the Participant's
Termination of Service and shall be reacquired, canceled and retired by the
Company. Notwithstanding the foregoing, unless otherwise provided in an Award
Agreement with respect to an Award of Restricted Stock, in the event of the
death, Disability or Retirement of a Participant during the Restriction Period,
or in other cases of special circumstances (including hardship or other special
circumstances of a Participant whose employment is involuntarily terminated),
the Board may elect to waive in whole or in part any remaining restrictions with
respect to all or any part of such Participant's Restricted Stock, if it finds
that a waiver would be appropriate.
7.5 Except as otherwise
provided in this Article VII, no shares of Restricted Stock received by a
Participant shall be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Restriction Period.
7.6 Upon an Award of
Restricted Stock to a Participant, a certificate or certificates representing
the shares of such Restricted Stock will be issued to and registered in the name
of the Participant. Unless otherwise determined by the Board, such certificate
or certificates will be held in custody by the Company until (i) the Restriction
Period expires and the restrictions or limitations lapse, in which case one or
more certificates representing such shares of Restricted Stock that do not bear
a restrictive legend (other than any legend as required under applicable federal
or state securities laws) shall be delivered to the Participant, or (ii) a prior
forfeiture by the Participant of the shares of Restricted Stock subject to such
Restriction Period, in which case the Company shall cause such certificate or
certificates to be canceled and the shares represented thereby to be retired,
all as set forth in the Participant's Award Agreement. It shall be a
condition of an Award of Restricted Stock that the Participant deliver to the
Company a stock power endorsed in blank relating to the shares of Restricted
Stock to be held in custody by the Company.
7.7 Except as provided in
this Article VII or in the related Award Agreement, a Participant receiving an
Award of shares of Restricted Stock Award shall have, with respect to such
shares, all rights of a shareholder of the Company, including the right to vote
the shares and the right to receive any distributions, unless and until such
shares are otherwise forfeited by such Participant; provided, however, the Board
may require that any cash dividends with respect to such shares of Restricted
Stock be automatically reinvested in additional shares of Restricted Stock
subject to the same restrictions as the underlying Award, or may require that
cash dividends and other distributions on Restricted Stock be withheld by the
Company or its Affiliates for the account of the Participant. The Board shall
determine whether interest shall be paid on amounts withheld, the rate of any
such interest, and the other terms applicable to such withheld
amounts.
ARTICLE
VIII -- STOCK AWARDS
8.1 The Board, in its sole
discretion, may from time to time on or after the Effective Date grant Stock
Awards to Eligible Persons in payment of compensation that has been earned or as
compensation to be earned, including without limitation compensation awarded or
earned concurrently with or prior to the grant of the Stock Award, subject to
the terms and conditions set forth in this Article VIII.
8.2 For the purposes of this
Plan, in determining the value of a Stock Award, all shares of Common Stock
subject to such Stock Award shall be set in the Award Agreement and may be less
than one hundred percent (100%) of the Fair Market Value of the Common Stock at
the Grant Date.
8.3 Unless otherwise
determined by the Board and set forth in the related Award Agreement, shares of
Common Stock subject to a Stock Award will be issued, and one or more
certificates representing such shares will be delivered, to the Participant as
soon as practicable following the Grant Date of such Stock Award. Upon the
issuance of such shares and the delivery of one or more certificates
representing such shares to the Participant, such Participant shall be and
become a shareholder of the Company fully entitled to receive dividends, to vote
and to exercise all other rights of a shareholder of the Company.
Notwithstanding any other provision of this Plan, unless the Board expressly
provides otherwise with respect to a Stock Award, as set forth in the related
Award Agreement, no Stock Award shall be deemed to be an outstanding Award for
purposes of the Plan.
ARTICLE
IX -- PERFORMANCE SHARES
9.1 The Board, in its sole
discretion, may from time to time on or after the Effective Date award
Performance Shares to Eligible Persons as an incentive for the performance of
future services that will contribute materially to the successful operation of
the Company and its Affiliates, subject to the terms and conditions set forth in
this Article IX.
9.2 The Board shall
determine the terms and conditions of any Award of Performance Shares, which
shall be set forth in the related Award Agreement, including without
limitation:
(a) the purchase price, if any, to be
paid for such Performance Shares, which may be zero, subject to such minimum
consideration as may be required by applicable law;
(b) the performance period (the
"Performance Period") and/or performance objectives (the "Performance
Objectives") applicable to such Awards;
(c) the number of Performance Shares
that shall be paid to the Participant if the applicable Performance Objectives
are exceeded or met in whole or in part; and
(d) the form of settlement of a
Performance Share.
9.3 At any date, each
Performance Share shall have a value equal to the Fair Market Value of a share
of Common Stock.
9.4 Performance Periods may
overlap, and Participants may participate simultaneously with respect to
Performance Shares for which different Performance Periods are
prescribed.
9.5 Performance Objectives
may vary from Participant to Participant and between Awards and shall be based
upon such performance criteria or combination of factors as the Board may deem
appropriate, including, but not limited to, minimum earnings per share or return
on equity. If during the course of a Performance Period there shall occur
significant events which the Board expects to have a substantial effect on the
applicable Performance Objectives during such period, the Board may revise such
Performance Objectives.
9.6 In the sole discretion
of the Board and as set forth in the Award Agreement for an Award of Performance
Shares, all Performance Shares held by a Participant and not earned shall be
forfeited by the Participant upon the Participant's Termination of Service.
Notwithstanding the foregoing, unless otherwise provided in an Award Agreement
with respect to an Award of Performance Shares, in the event of the death,
Disability or Retirement of a Participant during the applicable Performance
Period, or in other cases of special circumstances (including hardship or other
special circumstances of a Participant whose employment is involuntarily
terminated), the Board may determine to make a payment in settlement of such
Performance Shares at the end of the Performance Period, based upon the extent
to which the Performance Objectives were satisfied at the end of such period and
pro rated for the portion of the Performance Period during which the Participant
was employed by the Company or an Affiliate; provided, however, that the Board
may provide for an earlier payment in settlement of such Performance Shares in
such amount and under such terms and conditions as the Board deems appropriate
or desirable.
9.7 The settlement of a
Performance Share shall be made in cash, whole shares of Common Stock or a
combination thereof and shall be made as soon as practicable after the end of
the applicable Performance Period. Notwithstanding the foregoing, the
Board in its sole discretion may allow a Participant to defer payment in
settlement of Performance Shares on terms and conditions approved by the Board
and set forth in the related Award Agreement entered into in advance of the time
of receipt or constructive receipt of payment by the Participant.
9.8 Performance Shares shall
not be transferable by the Participant. The Board shall have the authority to
place additional restrictions on the Performance Shares including, but not
limited to, restrictions on transfer of any shares of Common Stock that are
delivered to a Participant in settlement of any Performance
Shares.
ARTICLE X
-- CHANGES OF CONTROL OR OTHER FUNDAMENTAL CHANGES
10.1 Upon the occurrence of
a Change of Control and unless otherwise provided in the Award Agreement with
respect to a particular Award:
(a) all outstanding Stock Options shall
become immediately exercisable in full, subject to any appropriate adjustments
in the number of shares subject to the Stock Option and the Option Price, and
shall remain exercisable for the remaining Option Period, regardless of any
provision in the related Award Agreement limiting the exercisability of such
Stock Option or any portion thereof for any length of time;
(b) all outstanding Performance Shares
with respect to which the applicable Performance Period has not been completed
shall be paid out as soon as practicable as follows:
(i) all Performance Objectives
applicable to the Award of Performance Shares shall be deemed to have been
satisfied to the extent necessary to earn one hundred percent (100%) of the
Performance Shares covered by the Award;
(ii) the applicable Performance Period
shall be deemed to have been completed upon occurrence of the Change of
Control;
(iii) the payment to the Participant
in settlement of the Performance Shares shall be the amount determined by the
Board, in its sole discretion, or in the manner stated in the Award Agreement,
as multiplied by a fraction, the numerator of which is the number of full
calendar months of the applicable Performance Period that have elapsed prior to
occurrence of the Change of Control, and the denominator of which is the total
number of months in the original Performance Period; and
(iv) upon the making of any such
payment, the Award Agreement as to which it relates shall be deemed terminated
and of no further force and effect.
(c) all outstanding shares of
Restricted Stock with respect to which the restrictions have not lapsed shall be
deemed vested, and all such restrictions shall be deemed lapsed and the
Restriction Period ended.
10.2 Anything contained
herein to the contrary notwithstanding, upon the dissolution or liquidation of
the Company, each Award granted under the Plan and then outstanding shall
terminate; provided, however, that following the adoption of a plan of
dissolution or liquidation, and in any event prior to the effective date of such
dissolution or liquidation, each such outstanding Award granted hereunder shall
be exercisable in full and all restrictions shall lapse, to the extent set forth
in Section 10.1(a), (b) and (c) above.
10.3 After the merger of one
or more corporations into the Company or any Affiliate, any merger of the
Company into another corporation, any consolidation of the Company or any
Affiliate of the Company and one or more corporations, or any other corporate
reorganization of any form involving the Company as a party thereto and
involving any exchange, conversion, adjustment or other modification of the
outstanding shares of the Common Stock, each Participant shall, at no additional
cost, be entitled, upon any exercise of such Participant's Stock Option, to
receive, in lieu of the number of shares as to which such Stock Option shall
then be so exercised, the number and class of shares of stock or other
securities or such other property to which such Participant would have been
entitled to pursuant to the terms of the agreement of merger or consolidation or
reorganization, if at the time of such merger or consolidation or
reorganization, such Participant had been a holder of record of a number of
shares of Common Stock equal to the number of shares as to which such Stock
Option shall then be so exercised. Comparable rights shall accrue to each
Participant in the event of successive mergers, consolidations or
reorganizations of the character described above. The Board may, in its sole
discretion, provide for similar adjustments upon the occurrence of such events
with regard to other outstanding Awards under this Plan. The foregoing
adjustments and the manner of application of the foregoing provisions shall be
determined by the Board in its sole discretion. Any such adjustment may provide
for the elimination of any fractional shares which might otherwise become
subject to an Award. All adjustments made as the result of the foregoing in
respect of each Incentive Stock Option shall be made so that such Incentive
Stock Option shall continue to be an Incentive Stock Option, as defined in
Section 422 of the Code.
ARTICLE
XI -- AMENDMENT AND TERMINATION
11.1 Subject to the
provisions of Section 11.2, the Board of Directors at any time and from time to
time may amend or terminate the Plan as may be necessary or desirable to
implement or discontinue the Plan or any provision hereof. To the
extent required by the Act or the Code, however, no amendment, without approval
by the Company's shareholders, shall:
(a) materially alter the group of
persons eligible to participate in the Plan;
(b) except as provided in Section 3.4,
change the maximum aggregate number of shares of Common Stock that are available
for Awards under the Plan;
(c) alter the class of individuals
eligible to receive an Incentive Stock Option or increase the limit on Incentive
Stock Options set forth in Section 4.1(d) or the value of shares of Common Stock
for which an Eligible Employee may be granted an Incentive Stock
Option.
11.2 No amendment to or
discontinuance of the Plan or any provision hereof by the Board of Directors or
the shareholders of the Company shall, without the written consent of the
Participant, adversely affect (in the sole discretion of the Board) any Award
theretofore granted to such Participant under this Plan; provided, however, that
the Board retains the right and power to:
(a) annul any Award if the Participant
is terminated for cause as determined by the Board; and
(b) convert any outstanding Incentive
Stock Option to a Nonqualified Stock Option.
11.3 If a Change of Control
has occurred, no amendment or termination shall impair the rights of any person
with respect to an outstanding Award as provided in Article X.
ARTICLE
XII -- MISCELLANEOUS PROVISIONS
12.1 Nothing in the Plan or
any Award granted hereunder shall confer upon any Participant any right to
continue in the employ of the Company or its Affiliates or to serve as a
Director or shall interfere in any way with the right of the Company or its
Affiliates or the shareholders of the Company, as applicable, to terminate the
employment of a Participant or to release or remove a Director at any
time. Unless specifically provided otherwise, no Award granted under
the Plan shall be deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other arrangement of the Company or
its Affiliates for the benefit of their respective employees unless the Company
shall determine otherwise. No Participant shall have any claim to an
Award until it is actually granted under the Plan and an Award Agreement has
been executed and delivered to the Company. To the extent that any
person acquires a right to receive payments from the Company under the Plan,
such right shall, except as otherwise provided by the Board, be no greater than
the right of an unsecured general creditor of the Company. All payments to be
made hereunder shall be paid from the general funds of the Company, and no
special or separate fund shall be established and no segregation of assets shall
be made to assure payment of such amounts, except as provided in Article VII
with respect to Restricted Stock and except as otherwise provided by the
Board.
12.2 The Plan and the grant
of Awards shall be subject to all applicable federal and state laws, rules, and
regulations and to such approvals by any government or regulatory agency as may
be required. Any provision herein relating to compliance with Rule 16b-3 under
the Act shall not be applicable with respect to participation in the Plan by
Participants who are not subject to Section 16 of the Act.
12.3 The terms of the Plan
shall be binding upon the Company, its successors and assigns.
12.4 Neither a Stock Option
nor any other type of equity-based compensation provided for hereunder shall be
transferable except as provided for in Section 6.2. In addition to the transfer
restrictions otherwise contained herein, additional transfer restrictions shall
apply to the extent required by federal or state securities laws. If
any Participant makes such a transfer in violation hereof, any obligation
hereunder of the Company to such Participant shall terminate
immediately.
12.5 This Plan and all
actions taken hereunder shall be governed by the laws of the State of
Texas.
12.6 Each Participant
exercising an Award hereunder agrees to give the Board prompt written notice of
any election made by such Participant under Section 83(b) of the Code, or any
similar provision thereof.
12.7 If any provision of
this Plan or an Award Agreement is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Award
Agreement under any law deemed applicable by the Board, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Board,
materially altering the intent of the Plan or the Award Agreement, it shall be
stricken, and the remainder of the Plan or the Award Agreement shall remain in
full force and effect.
12.8 The grant of an Award
pursuant to this Plan shall not affect in any way the right or power of the
Company or any of its Affiliates to make adjustments, reclassification,
reorganizations, or changes of its capital or business structure, or to merge or
consolidate, or to dissolve, liquidate or sell, or to transfer all or part of
its business or assets.
12.9 The Plan is not subject
to the provisions of ERISA or qualified under Section 401(a) of the
Code.
12.10 If a Participant is
required to pay to the Company an amount with respect to income and employment
tax withholding obligations in connection with (i) the exercise of a
Nonqualified Stock Option, (ii) certain dispositions of Common Stock acquired
upon the exercise of an Incentive Stock Option, or (iii) the receipt of Common
Stock pursuant to any other Award, then the issuance of Common Stock to such
Participant shall not be made (or the transfer of shares by such Participant
shall not be required to be effected, as applicable) unless such withholding tax
or other withholding liabilities shall have been satisfied in a manner
acceptable to the Company. To the extent provided by the terms of an
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock
under an Award by any of the following means (in addition to the Company's right
to withhold from any compensation paid to the Participant by the Company) or by
a combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Common Stock from the shares of Common Stock
otherwise issuable to the Participant as a result of the exercise or acquisition
of Common Stock under the Award, provided, however, that no shares of Common
Stock are withheld with a value exceeding the minimum amount of tax required to
be withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock.
EXHIBIT
10.1
ASSET
TRANSFER AGREEMENT
This Asset Transfer Agreement (this
“
Agreement
”)
entered into on March __, 2009, to be effective as of the Effective Date (as
defined below) is by and between Vertex Holdings, L.P., formerly Vertex Energy,
L.P., a Texas limited partnership (“
Vertex LP
”), all of
the partners of Vertex LP as set forth on the signature page hereof,
representing 100% of the total ownership interests of Vertex LP (the “
Vertex LP Partners
”)
and Vertex Energy, Inc., a Nevada corporation (“
Vertex Nevada
”), each
sometimes referred to herein as a “
Party
,” and
collectively referred to herein as the “
Parties
.”
W
I
T
N
E
S
S
E
T
H
:
WHEREAS
, on or about May 19,
2008, an Amended and Restated Agreement and Plan of Merger (as amended from time
to time, the “
Plan of
Merger
”, a copy of which is attached hereto as
Exhibit A
) was
entered into by and between World Waste Technologies, Inc., a California
corporation (“
WWT
”), on the one
hand, and Vertex LP, Vertex Nevada, Vertex Merger Sub, LLC, a California limited
liability company and wholly owned subsidiary of Vertex Nevada (“
Merger Sub
”), and
Benjamin P. Cowart, as agent (“
Agent
”) of all of the
shareholders of Vertex Nevada (the “
Vertex
Shareholders
”), on the other hand;
WHEREAS
, in connection with
and pursuant to terms and conditions of the Plan of Merger, and in furtherance
of the merger of WWT with and into Merger Sub, Vertex LP is obligated to
transfer certain assets, contracts, rights and privileges (collectively, the
“
Rights
,” as
set forth in
Exhibit
B
, attached hereto) to Vertex Nevada;
WHEREAS
, the Rights include
all privileges, powers, rights, interests and claims of every type and
description that are owned, leased, held, used or useful in the Vertex Business
(as defined in the Plan of Merger) in which Vertex LP has any right, title or
interest; and
WHEREAS
, Vertex LP desires to
transfer the Rights to Vertex Nevada, and Vertex Nevada desires to accept
transfer of the Rights from Vertex LP.
NOW, THEREFORE
, in
consideration for the promises and pledges contained below, and other good and
valuable consideration, including the terms and conditions contained in the Plan
of Merger, the sufficiency of which is hereby acknowledged and confessed, which
consideration the Parties acknowledge receipt of, and the premises and the
mutual covenants, agreements, and considerations herein contained, the Parties
hereto agree as follows:
1.
Rights
Transfer.
|
1.1
|
Vertex
LP hereby transfers, grants, conveys and assigns to Vertex Nevada all of
its right, title and interest in and to the Rights, free from any charges,
liens and other encumbrances, except as described in the Plan of Merger or
schedules or exhibits thereto (the “
Transfer
”).
|
|
1.2
|
Vertex
Nevada hereby accepts the Transfer and agrees to take possession of the
Rights and to assume certain of the liabilities of Vertex LP, as set forth
on
Exhibit
C
, attached hereto (the “
Liabilities
”);
|
|
1.3
|
Vertex
Nevada agrees to issue restricted shares of Vertex Nevada’s common stock
(the “
Common
Stock
”) and warrants to purchase shares of Vertex Nevada’s common
stock (the “
Securities
”) to
the Vertex LP Partners and to certain consultants of Vertex LP, in the
names and amounts set forth on
Exhibit D
,
attached hereto; and
|
|
1.4
|
Vertex
LP agrees to enter into the Operating and Licensing Agreement with Vertex
Nevada, attached hereto as
Exhibit
E
.
|
2.
|
Representations of the
Vertex LP Partners.
|
|
2.1
|
Each
Vertex LP Partner represents, acknowledges and warrants the following to
Vertex Nevada, and agrees that such representations, acknowledgements and
warranties shall be automatically reconfirmed by each Vertex LP Partner on
the Effective Date:
|
|
2.1.1
|
Each
Vertex LP Partner recognizes that the Securities have not been registered
under the Securities Act of 1933, as amended (the “
Act
”), nor
under the securities laws of any state and, therefore, cannot be resold
unless the resale of the Securities are registered under the Act or unless
an exemption from registration is
available;
|
|
2.1.2
|
Each
Vertex LP Partner is acquiring the Securities for his, her or its own
account for long-term investment and not with a view toward resale,
fractionalization or division, or distribution thereof, and he, she or it
does not presently have any reason to anticipate any change in its
circumstances, financial or otherwise, or particular occasion or event
which would necessitate or require the sale or distribution of the
Securities. No one other than such Vertex LP Partner will have
any beneficial interest in said securities. Each Vertex LP
Partner agrees to set forth the terms of his, her or its ownership, record
address and tax id number on the Type of Ownership Form, attached hereto
as
Exhibit
F
;
|
|
2.1.3
|
Each
Vertex LP Partner acknowledges that he, she or it has had a reasonable
opportunity to review the disclosures regarding the Plan of Merger and
Vertex Nevada as set forth in WWT’s Definitive Proxy Statement on Form 14A
(the “Proxy Statement”, as filed with the Securities and Exchange
Commission’s EDGAR website), including the audited and unaudited financial
statements of Vertex Nevada, the risk factors, description of business
information, results of operations and other descriptions disclosed in
such Proxy Statement (the “
Disclosures
”);
|
|
2.1.4
|
Each
Vertex LP Partner confirms that he, she or it has had an opportunity to
ask Vertex Nevada any questions he, she or it has regarding the
Disclosures and any such questions have been satisfied by Vertex
Nevada;
|
|
2.1.5
|
Each
Vertex LP Partner has such knowledge and experience in financial and
business matters that such is capable of evaluating the merits and risks
of an investment in the Securities and of making an informed investment
decision, and does not require a Purchaser Representative in evaluating
the merits and risks of an investment in the
Securities;
|
|
2.1.6
|
Each
Vertex LP Partner recognizes that an investment in Vertex Nevada is a
speculative venture and that the total consideration tendered to purchase
the Securities is placed at the risk of the business and may be completely
lost. The purchase of Securities as an investment involves
special risks;
|
|
2.1.7
|
Each
Vertex LP Partner realizes that the Securities cannot readily be sold as
they will be restricted securities and therefore the Securities must not
be purchased unless such Vertex LP Partner has liquid assets sufficient to
assure that such purchase will cause no undue financial difficulties such
that Vertex LP Partner can provide for his, her or its current needs and
possible personal contingencies;
|
|
2.1.8
|
Each
Vertex LP Partner confirms and represents that he, she or it is able (i)
to bear the economic risk of his, her or its investment, (ii) to hold the
Securities for an indefinite period of time, and (iii) to afford a
complete loss of his, her or its
investment;
|
|
2.1.9
|
Each
Vertex LP Partner has provided correct and complete information regarding
the above disclosures to Vertex Nevada as of the date hereof, and if there
should be any material change in such information prior to the Effective
Date, such Vertex LP Partner will immediately provide Vertex Nevada with
such updated information; and
|
|
|
|
|
2.1.10
|
Each
Vertex LP Partner has carefully considered and has, to the extent he, she
or it believes such discussion necessary, discussed with his, her or its
professional, legal, tax and financial advisors, the suitability of an
investment in the Securities for his, her, or its particular tax and
financial situation and his, her or its advisers, if such advisors were
deemed necessary, have determined that the Securities are a suitable
investment for him, her or
it.
|
|
2.2
|
Each
Vertex LP Partner hereby agrees that the Securities and any certificate
evidencing such Securities shall be stamped or otherwise imprinted with a
conspicuous legend in substantially the following
form:
|
"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL
HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE
CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH
ACTS."
|
2.3
|
Concurrently
with his, her or its entry into this Agreement, each Vertex LP Partner has
executed a Lock-Up Agreement in the form of
Exhibit G
,
attached hereto (the “
Lock-up
”), and
such Vertex LP Partner agrees to be bound by the terms and conditions of
such Lock-Up.
|
|
2.4
|
Each
Vertex LP Partner hereby agrees that in addition to the legend described
in Section 2.2 above, the Securities and any certificate evidencing such
Securities shall be stamped or otherwise imprinted with a conspicuous
legend in substantially the following
form:
|
“THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THAT CERTAIN
LOCK-UP AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER(S) NAMED THEREIN,
DATED AS OF MARCH
__
,
2009. A COPY OF THE LOCK-UP AGREEMENT MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY.”
|
2.5
|
By
signing this Agreement below, each Vertex LP Partner consents to,
approves, ratifies and confirms the terms and conditions of the Plan of
Merger and the transactions contemplated therein, including, but not
limited to the terms and conditions of this
Agreement.
|
3.
|
Representations and
Warranties of Vertex LP.
|
|
3.1
|
Vertex
LP hereby represents, covenants and warrants as of the date hereof and as
of the Effective Date, as follows:
|
|
3.1.1
|
Vertex
LP is duly organized, validly existing and in good standing under the laws
of the state of Texas and has the corporate power and authority to own,
lease and operate its properties and assets and to carry on its business
as now conducted and as it is proposed to be conducted. Vertex
LP is in good standing under the laws of each jurisdiction in which the
conduct of its business or the ownership of its properties or assets
requires such qualification or
authorization.
|
|
3.1.2
|
Vertex
LP has, and Vertex Nevada will receive on the Effective Date, good and
marketable title to the Rights, free and clear of any and all liens or
encumbrances, other than the Liabilities, which Vertex Nevada will assume
in connection with the Transfer.
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|
3.1.3
|
No
person or entity holds any rights to any of the Rights, other than Vertex
LP, and Vertex LP has not assigned or pledged any of the Rights or any
rights in connection therewith to any person or
entity.
|
|
3.1.4
|
Vertex
LP has all requisite corporate power and authority to execute and deliver
this Agreement and to perform fully its obligations
hereunder.
|
4.
Representations
and Warranties of Vertex Nevada.
|
4.1
|
Vertex
Nevada hereby represents, covenants and warrants as of the date hereof and
as of the Effective Date, as
follows:
|
|
4.1.1
|
Vertex
Nevada is duly organized, validly existing and in good standing under the
laws of the state of Nevada and has the corporate power and authority to
own, lease and operate its properties and assets and to carry on its
business as now conducted and as it is proposed to be
conducted. Vertex Nevada is in good standing under the laws of
each jurisdiction in which the conduct of its business or the ownership of
its properties or assets requires such qualification or
authorization.
|
|
4.1.2
|
All
of the outstanding shares of capital stock of Vertex Nevada have been duly
authorized, and are validly issued, fully paid and non-assessable and once
issued as described herein, all of the Securities will be validly issued,
fully paid and non-assessable.
|
|
4.1.3
|
Vertex
Nevada has all requisite corporate power and authority to execute and
deliver this Agreement and to perform fully its obligations
hereunder.
|
5.
|
Purchase of
Inventory.
|
|
5.1
|
The
Parties agree that Vertex Nevada shall purchase all inventory and
feedstock owned and controlled by Vertex LP as of the Effective Date
(collectively “
Inventory
”) at
the prices as set forth on the attached
Exhibit
H
.
|
|
6.1
|
The
“
Effective
Date
” of this Agreement shall be the date that the Merger described
in the Plan of Merger closes and becomes
effective.
|
|
7.1
|
Authority.
Each
Party has all requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and
thereby.
|
|
7.2
|
Further
Assurances.
All Parties agree that, from time to time,
whether before, at or after the Effective Date, each of them will take
such other action and to execute, acknowledge and deliver such contracts
or other documents (a) as may be reasonably requested and necessary or
appropriate to carry out the purposes and intent of this Agreement; or (b)
to effect the Plan of Merger or the issuance of the Securities as
described herein.
|
|
7.3
|
Consideration.
Each
Party represents that he, she or it has received valid consideration as a
result of the terms and conditions of this Agreement, from another Party
which has executed this Agreement
below.
|
|
7.4
|
Third Party
Beneficiaries
. The Parties agree that the shareholders
of WWT are third party beneficiaries to this Agreement and the terms and
conditions herein.
|
|
7.5
|
Binding
Effect.
This Agreement shall be binding on and inure to
the benefit of the Parties and their respective heirs, successors,
assigns, directors, officers, agents, employees and personal
representatives.
|
|
7.6
|
Interpretation.
The
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of
Texas.
|
|
7.7
|
Section Headings
.
Section headings are for convenience only and shall not define or limit
the provisions of this
Agreement.
|
|
7.8
|
Faxed
Signatures.
For purposes of this Agreement a faxed
signature shall constitute an original
signature.
|
|
7.9
|
Execution.
This
Agreement may be executed in several counterparts, each of which shall be
deemed an original, and such counterparts taken together shall constitute
but one and the same Agreement. A photocopy of this Agreement
shall be effective as an original for all
purposes.
|
[Remainder
of page left intentionally blank. Signature page follows.]
IN WITNESS WHEREOF
, intending
to be legally bound, the Parties hereto have executed this Agreement as of the
date first written above, to be effective as of the Effective Date.
|
Vertex Energy, L.P.
|
|
|
|
By:
/s/ Benjamin P.
Cowart
|
|
Name:
Benjamin P. Cowart
|
|
Its:
_____________________________
|
|
|
|
Vertex Energy, Inc.
|
|
|
|
|
|
/s/
Benjamin P. Cowart
|
|
Benjamin
P. Cowart
|
|
Chief
Executive Officer
|
[Signatures
of Vertex LP Partners follow on next page.]
Vertex LP
Partners
VTX,
Inc.
/s/
Benjamin P. Cowart
Benjamin
P. Cowart
President
PTI,
Inc.
By:
/s/ Ingram Lee
Its:
President
Printed
Name:
Ingram Lee
Brossette Brokering and
Chartering, Inc.
By:
/s/ Victor P.
Brossette
Its:
President
Printed
Name:
Victor P.
Brossette
/s/
Benjamin P. Cowart
Benjamin
P. Cowart
/s/
Chris Carlson
Chris
Carlson
/s/
Greg Wallace
Greg
Wallace
/s/
Albert D'Antoni
Albert
D’Antoni
Exhibit
A
Plan
of Merger
Exhibit
B
Rights
Capitalized
terms below, not otherwise defined in the Agreement to which this Exhibit B is
attached shall have the meaning set forth in the Plan of Merger.
1. The
assets, rights, and privileges, described below of Vertex LP held for use by
Vertex LP in connection with that portion of the Vertex Business described in
sub-clause (i) of the definition thereof appearing in the Merger Agreement,
including but not limited to:
-all of
Vertex LP’s rights and interests under or in connection with that certain
Chevron Recovery Oil Purchase Contract dated as of April 1, 2004 between Vertex
Energy, LP and Fuel and Marine Marketing, LLC (as assigned to Vertex
Nevada);
-all
customer lists;
-all
customer contracts and relationships;
-all
short and long term supply contracts;
-all
methods of doing business;
-all
trade secrets;
-all
vendor contracts and relationships;
-all
price lists;
-all
other Intellectual Property (excluding the Demetalization Technology
(OP#2));
-all cell
phones;
-all
memberships and subscriptions;
-all
Marketing and Collateral;
-all
inventory on hand of consumable supplies & chemicals (separate from the
Inventory, as defined in Section 5.1); and
-all
blueprints, drawings, analysis, and technical data associated with Alchemy
Process (OP #1).
Notwithstanding
the foregoing, the assets shall not include the software known as “Desert
Micro”, used by Vertex LP, provided that Vertex LP shall grant Vertex Nevada
with the perpetual, royalty-free right to utilize such
software.
2.
“Alchemy Process”, including all Intellectual property related
thereto. Notwithstanding the foregoing, the assets shall not include
any of the assets or rights which are subject to the Purchase and Sale Agreement
by Vertex Nevada and CMT; the Sublease Agreement by Vertex Nevada and CMT; or
the office space Lease Agreement to be entered into by Vertex Nevada and CMT,
whether or not such agreements are executed by the parties;
3. All of
Vertex LP’s rights and interests under or in connection with that certain KMTEX
Contract dated as of July 1, 2007 between Vertex Refining and KMTEX (as assigned
to Vertex Nevada);
4. All of
Vertex LP’s rights and interest under or in connection with that certain
Terminaling Agreement dated as of November 1, 2008, between Vertex LP and Cedar
Marine Terminal, L.P.
5. Vertex
Computers:
Compaq Presario x6000 – Service Tag
CNF5311L9G;
Dell Latitude D430 – Service Tag
3378MF1;
Dell Latitude D620 – Service Tag
2QKVLC1;
Dell Latitude D630 – Service Tag
F560GD1;
Dell Latitude D630 – Service Tag
6D9QYD1;
Dell Inspiron MXC061 – Service Tag
82JX0C1; and
Dell OptiPlex 330 – Service Tag
983FDF1;
6. A
non-transferable, royalty-free, perpetual license to the use of the “Vertex”
Trademark Registration Number: 2,852,433; and
7. All
books and records related to the Vertex Business (but not any corporate records
of Vertex LP).
Exhibit
C
Liabilities
Vertex
Nevada’s pro rata portion of the July 25, 1997, Lease Agreement by and between
Vertex LP and TRW Trading, Inc., a Texas Corporation (“TRW” and the agreement,
as amended from time to time, the “Lease Agreement”), as provided in the
Sublease Agreement between Vertex Nevada and Vertex LP, in the event that Vertex
Nevada executes the Sublease Agreement between the parties.
Vertex
Nevada’s pro rata portion of the office space lease at 1331 Gemini from KBS
Capital as evidenced by a Lease Agreement to be entered into between the
parties.
Vertex
Nevada agrees to use commercially reasonable efforts to obtain a bank facility
of $1.6 million from Regions Bank and/or another lending institution (the
“Loan”) and to pay such Loan proceeds to Vertex LP (and/or allow Vertex LP the
use of such Loan proceeds) for repayment of $1.6 million of outstanding
liabilities of Vertex LP.
Exhibit
D
Securities
Vertex
LP Partner Name
|
Common
Stock Shares Issuable
|
|
VTX,
INC.
|
|
55,311
|
|
PTI,
INC.
|
|
182,622
|
|
BROSSETTE
BROKERING AND CHARTERING, INC.
|
|
182,622
|
|
BENJAMIN
P. COWART
|
|
4,679,488
|
|
CHRIS
CARLSON
|
|
293,244
|
|
GREG
WALLACE
|
|
103,943
|
|
ALBERT
D'ANTONI
|
|
4,770
|
|
Consultant
Shares*
|
|
575,000
|
|
TOTALS
|
|
6,077,000
|
|
*All
Consultants will be required to execute a representation letter in the form of
Exhibit D-1, attached hereto, and the Lock-Up Agreement in the form of Exhibit
G, attached hereto, prior to the issuance of their shares. Vertex
Nevada reserves the right to a) hold the Consultant Shares in escrow; and/or b)
to not issue the Consultant Shares, until such time, if ever, as Vertex Nevada
has entered into a definitive agreement with Liviakis Financial Communications,
Inc. or its assigns. In the event no definitive understanding can be
reached between Vertex Nevada and Liviakis Financial Communications, Inc.,
Vertex Nevada reserves the right to issue the 575,000 (or a portion thereof)
Consultant Shares to a third party investor relations firm and/or consulting
firm engaged by Vertex Nevada.
Warrants (to be evidenced by
individual Warrant Agreements):
Exercise
Price
|
|
Expiration
Date
|
|
Total
shares
|
|
|
VTX
|
|
|
PTI
|
|
|
BB&C
|
|
|
Cowart
|
|
|
Carlson
|
|
|
Wallace
|
|
|
D'Antoni
|
|
$
|
15.00
|
|
2011
|
|
|
16,667
|
|
|
|
168
|
|
|
|
553
|
|
|
|
553
|
|
|
|
14,176
|
|
|
|
888
|
|
|
|
315
|
|
|
|
14
|
|
$
|
27.00
|
|
2014
|
|
|
6,667
|
|
|
|
67
|
|
|
|
221
|
|
|
|
221
|
|
|
|
5,671
|
|
|
|
355
|
|
|
|
126
|
|
|
|
6
|
|
$
|
27.00
|
|
2015
|
|
|
26,667
|
|
|
|
268
|
|
|
|
885
|
|
|
|
885
|
|
|
|
22,681
|
|
|
|
1,421
|
|
|
|
504
|
|
|
|
23
|
|
$
|
27.00
|
|
2015
|
|
|
3,334
|
|
|
|
34
|
|
|
|
111
|
|
|
|
111
|
|
|
|
2,834
|
|
|
|
178
|
|
|
|
63
|
|
|
|
3
|
|
$
|
37.00
|
|
2014
|
|
|
467
|
|
|
|
5
|
|
|
|
16
|
|
|
|
16
|
|
|
|
396
|
|
|
|
25
|
|
|
|
9
|
|
|
|
-
|
|
$
|
22.50
|
|
2015
|
|
|
22,667
|
|
|
|
228
|
|
|
|
752
|
|
|
|
752
|
|
|
|
19,279
|
|
|
|
1,208
|
|
|
|
428
|
|
|
|
20
|
|
$
|
27.00
|
|
2015
|
|
|
19,333
|
|
|
|
194
|
|
|
|
642
|
|
|
|
642
|
|
|
|
16,443
|
|
|
|
1,030
|
|
|
|
365
|
|
|
|
17
|
|
$
|
27.00
|
|
2016
|
|
|
3,333
|
|
|
|
34
|
|
|
|
111
|
|
|
|
111
|
|
|
|
2,833
|
|
|
|
178
|
|
|
|
63
|
|
|
|
3
|
|
$
|
20.50
|
|
2016
|
|
|
3,333
|
|
|
|
34
|
|
|
|
111
|
|
|
|
111
|
|
|
|
2,833
|
|
|
|
178
|
|
|
|
63
|
|
|
|
3
|
|
$
|
15.50
|
|
2017
|
|
|
13,333
|
|
|
|
134
|
|
|
|
443
|
|
|
|
443
|
|
|
|
11,338
|
|
|
|
711
|
|
|
|
252
|
|
|
|
12
|
|
$
|
11.10
|
|
2017
|
|
|
8,333
|
|
|
|
84
|
|
|
|
277
|
|
|
|
277
|
|
|
|
7,087
|
|
|
|
444
|
|
|
|
157
|
|
|
|
7
|
|
$
|
11.10
|
|
2017
|
|
|
3,333
|
|
|
|
34
|
|
|
|
111
|
|
|
|
111
|
|
|
|
2,833
|
|
|
|
178
|
|
|
|
63
|
|
|
|
3
|
|
$
|
14.20
|
|
2017
|
|
|
188,400
|
|
|
|
1,894
|
|
|
|
6,253
|
|
|
|
6,253
|
|
|
|
160,237
|
|
|
|
10,041
|
|
|
|
3,559
|
|
|
|
163
|
|
$
|
1.55
|
|
2018
|
|
|
96,667
|
|
|
|
972
|
|
|
|
3,209
|
|
|
|
3,209
|
|
|
|
82,215
|
|
|
|
5,152
|
|
|
|
1,826
|
|
|
|
84
|
|
$
|
10.00
|
|
2011
|
|
|
833
|
|
|
|
8
|
|
|
|
28
|
|
|
|
28
|
|
|
|
708
|
|
|
|
44
|
|
|
|
16
|
|
|
|
1
|
|
$
|
12.50
|
|
2011
|
|
|
5,333
|
|
|
|
54
|
|
|
|
177
|
|
|
|
177
|
|
|
|
4,535
|
|
|
|
284
|
|
|
|
101
|
|
|
|
5
|
|
$
|
15.00
|
|
2011
|
|
|
10,746
|
|
|
|
108
|
|
|
|
357
|
|
|
|
357
|
|
|
|
9,139
|
|
|
|
573
|
|
|
|
203
|
|
|
|
9
|
|
$
|
25.00
|
|
2012
|
|
|
10,275
|
|
|
|
103
|
|
|
|
341
|
|
|
|
341
|
|
|
|
8,739
|
|
|
|
548
|
|
|
|
194
|
|
|
|
9
|
|
$
|
25.00
|
|
2012
|
|
|
1,102
|
|
|
|
11
|
|
|
|
37
|
|
|
|
37
|
|
|
|
936
|
|
|
|
59
|
|
|
|
21
|
|
|
|
1
|
|
$
|
25.00
|
|
2010
|
|
|
10,707
|
|
|
|
108
|
|
|
|
355
|
|
|
|
355
|
|
|
|
9,107
|
|
|
|
571
|
|
|
|
202
|
|
|
|
9
|
|
$
|
27.50
|
|
2010
|
|
|
67,927
|
|
|
|
683
|
|
|
|
2,255
|
|
|
|
2,255
|
|
|
|
57,772
|
|
|
|
3,620
|
|
|
|
1,283
|
|
|
|
59
|
|
$
|
27.50
|
|
2011
|
|
|
89,817
|
|
|
|
903
|
|
|
|
2,981
|
|
|
|
2,981
|
|
|
|
76,390
|
|
|
|
4,787
|
|
|
|
1,697
|
|
|
|
78
|
|
$
|
27.50
|
|
2011
|
|
|
165,204
|
|
|
|
1,661
|
|
|
|
5,483
|
|
|
|
5,483
|
|
|
|
140,508
|
|
|
|
8,805
|
|
|
|
3,121
|
|
|
|
143
|
|
Exhibit
D-1
CERTIFICATION
By
signing below, the undersigned represents, warrants and agrees to the following
representations, acknowledgements and confirms that such representations,
acknowledgements and warranties shall be automatically reconfirmed by the
undersigned on the Effective Date that he, she or it:
|
1.
|
The
undersigned recognizes that the shares of common stock which the
undersigned is to receive in connection with consulting services rendered
to Vertex Energy, Inc., a Nevada corporation (“
Vertex Nevada
”
and the “
Securities
”)
have not been registered under the Securities Act of 1933, as amended (the
“
Act
”),
nor under the securities laws of any state and, therefore, cannot be
resold unless the resale of the Securities are registered under the Act or
unless an exemption from registration is
available;
|
|
2.
|
The
undersigned is acquiring the Securities for his, her or its own account
for long-term investment and not with a view toward resale,
fractionalization or division, or distribution thereof, and he, she or it
does not presently have any reason to anticipate any change in its
circumstances, financial or otherwise, or particular occasion or event
which would necessitate or require the sale or distribution of the
Securities. No one other than the undersigned will have any
beneficial interest in said securities. The undersigned agrees
to set forth the terms of his, her or its ownership, record address and
tax id number on the Type of Ownership Form, attached to the Asset
Transfer Agreement, as
Exhibit
E
;
|
|
3.
|
The
undersigned acknowledges that he, she or it has had a reasonable
opportunity to review the disclosures regarding the Plan of Merger and
Vertex Nevada as set forth in WWT’s Definitive Proxy Statement on Form 14A
(the “Proxy Statement”, as filed with the Securities and Exchange
Commission’s EDGAR website), including the audited and unaudited financial
statements of Vertex Nevada, the risk factors, description of business
information, results of operations and other descriptions disclosed in
such Proxy Statement (the “
Disclosures
”);
|
|
4.
|
The
undersigned confirms that he, she or it has had an opportunity to ask
Vertex Nevada any questions he, she or it has regarding the Disclosures
and any such questions have been satisfied by Vertex
Nevada;
|
|
5.
|
The
undersigned has such knowledge and experience in financial and business
matters that such is capable of evaluating the merits and risks of an
investment in the Securities and of making an informed investment
decision, and does not require a Purchaser Representative in evaluating
the merits and risks of an investment in the
Securities;
|
|
6.
|
The
undersigned recognizes that an investment in Vertex Nevada is a
speculative venture and that the total consideration tendered to purchase
the Securities is placed at the risk of the business and may be completely
lost. The purchase of Securities as an investment involves
special risks;
|
|
7.
|
The
undersigned realizes that the Securities cannot readily be sold as they
will be restricted securities and therefore the Securities must not be
purchased unless the undersigned has liquid assets sufficient to assure
that such purchase will cause no undue financial difficulties such that
the undersigned can provide for his, her or its current needs and possible
personal contingencies;
|
|
8.
|
The
undersigned confirms and represents that he, she or it is able (i) to bear
the economic risk of his, her or its investment, (ii) to hold the
Securities for an indefinite period of time, and (iii) to afford a
complete loss of his, her or its
investment;
|
|
9.
|
The
undersigned has provided correct and complete information regarding the
above disclosures to Vertex Nevada as of the date hereof, and if there
should be any material change in such information prior to the effective
date of the Merger (the “
Effective
Date
”), the undersigned will immediately provide Vertex Nevada with
such updated information;
|
|
10.
|
The
undersigned has carefully considered and has, to the extent he, she or it
believes such discussion necessary, discussed with his, her or its
professional, legal, tax and financial advisors, the suitability of an
investment in the Securities for his, her, or its particular tax and
financial situation and his, her or its advisers, if such advisors were
deemed necessary, have determined that the Securities are a suitable
investment for him, her or
it;
|
|
11.
|
The
undersigned hereby agrees that the Securities and any certificate
evidencing such Securities shall be stamped or otherwise imprinted with a
conspicuous legend in substantially the following
form:
|
"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL
HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE
CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH
ACTS."
|
12.
|
Concurrently
with his, her or its entry into this Agreement, the undersigned has
executed a Lock-Up Agreement in the form of
Exhibit F
,
attached to the Asset Transfer Agreement (the “
Lock-up
”), and
the undersigned agrees to be bound by the terms and conditions of such
Lock-Up;
|
|
13.
|
The
undersigned hereby agrees that in addition to the legend described above,
the Securities and any certificate evidencing such Securities shall be
stamped or otherwise imprinted with a conspicuous legend in substantially
the following form:
|
“THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THAT CERTAIN
LOCK-UP AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER(S) NAMED THEREIN,
DATED AS OF MARCH
__
,
2009. A COPY OF THE LOCK-UP AGREEMENT MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY.”
|
14.
|
By
signing this Agreement below, each of the undersigned consents to,
approves, ratifies and confirms the terms and conditions of the Plan of
Merger and the Asset Transfer Agreement, which this Exhibit D-1 is
attached thereto, and the transactions contemplated therein;
and
|
|
15.
|
The
undersigned further confirms and acknowledges that the undersigned is an
“accredited investor” as such term is defined in Rule 501 of the
Act.
|
IN WITNESS WHEREOF
, intending
to be legally bound, the undersigned has executed this Certification as of the
date first written above, to be automatically reconfirmed as of the Effective
Date.
By:_____________________
Printed
Name:_____________________
If on
Behalf of Entity, Entity Name:______________________
Position
of signatory with Entity:______________________
Date:______________________
Exhibit
E
Operating
and Licensing Agreement
Exhibit
F
TYPE
OF OWNERSHIP FORM
(CHECK
ONE):
_____
|
INDIVIDUAL
OWNERSHIP (one signature required)
|
_____
|
TRUST
(please include name of trust, name of trustee, and date trust was formed
and copy of the Trust Agreement or other
authorization)
|
_____
|
PARTNERSHIP
(please include a copy of the Partnership Agreement authorizing
signature)
|
|
CORPORATION
(please include a certified corporate resolution authorizing
signature)
|
__________________________________________________________________________
Please
print here the exact name (registration)
desired
to appear in the records of Vertex Energy, Inc.
__________________________________________________________________________
Please
print here the exact address
desired
to appear in the records of Vertex Energy, Inc.
__________________________________________________________________________
Please
provide shareholder’s Social Security or Taxpayer Identification
Number
Exhibit
G
LOCK-UP
AGREEMENT
March __,
2009
Ladies
and Gentlemen:
The
undersigned is the owner of _____________shares of common stock of Vertex
Energy, Inc., a Nevada corporation (“
Vertex Nevada
”), and
options or warrants that are exercisable for up to ____________shares of Vertex
Nevada common stock (collectively, the shares of common stock and the shares of
common stock issuable upon exercise of the options or warrants, the “
Vertex Common
Stock
”). World Waste Technologies, Inc., a California
corporation (“
WWT
”), Vertex
Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas limited partnership
(“
Vertex LP
”),
and Vertex Merger Sub, LLC., a California limited liability company and wholly
owned subsidiary of Vertex Nevada (“
Merger Subsidiary
”)
and Benjamin P. Cowart, as agent of all of the shareholders of Vertex Nevada,
are parties to an Amended and Restated Agreement and Plan of Merger, dated as of
May 19, 2008 (as amended from time to time, the “
Merger Agreement
”),
effective upon the date of the merger of Merger Subsidiary with WWT in
accordance with the terms and conditions of the Merger Agreement (the “
Closing
Date
”).
In order
to induce Vertex LP, WWT and Merger Subsidiary to complete the transactions that
are described in the Merger Agreement, the undersigned hereby agrees that,
during the period beginning on the Closing Date and ending on the three-year
anniversary of the Closing Date (the “
Lock-Up Period
”), the
undersigned will not sell, assign, pledge or otherwise transfer any shares of
Vertex Common Stock that the undersigned beneficially owns, including (i) all
shares of Vertex Common Stock issued pursuant to the Merger Agreement and
issuable upon exercise of options and warrants assumed by Vertex Nevada pursuant
to the merger, (ii) all shares of Vertex Common Stock that the undersigned may
receive as a stock dividend or other distribution on shares of Vertex Common
Stock, and (iii) all other securities of Vertex Nevada that the undersigned may
receive in a recapitalization or similar transaction (the “
Lock-up Shares
”), and
the undersigned agrees not to take any of the preceding actions, without Vertex
Nevada’s prior written consent. In addition, the undersigned agrees
that, during the Lock-Up Period, the undersigned will not engage in (i) any
short sale of the Lock-up Shares, (ii) any hedging transaction regarding the
Lock-up Shares, or (ii) any grant of a put or call option regarding the Lock-up
Shares.
Notwithstanding
the foregoing, the undersigned may transfer (i) all or any portion of the
Lock-Up Shares commencing on the date that the closing Market Price of the
Vertex Common Stock (as defined below) has averaged at least $15.00 per share
over a period of 20 consecutive trading days and the daily trading volume over
the same 20-day period has averaged at least 7,500 shares; (ii) all or any
portion of the Lock-Up Shares as a
bona fide
gift or gifts,
provided that the donee or donees thereof agree to be bound by the restrictions
set forth herein, (iii) all or any portion of the Lock-up Shares to any trust
for the direct or indirect benefit of the undersigned or the immediate family of
the undersigned, provided that the trustee of the trust agrees to be bound by
the restrictions set forth herein, and provided further that any such transfer
shall not involve a disposition for value, and (iv) in any given three-month
period commencing on the one-year anniversary of the Closing Date, up to that
number of Lock-Up Shares equal to 5% of the total number of shares of Vertex
Common Stock then beneficially owned by the undersigned. For purposes
hereof, “immediate family” shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin.
The term
“closing Market Price of the Vertex Common Stock” on any day shall be deemed to
be the closing price of the Vertex Common Stock on such day as officially
reported by the principal securities exchange in which the shares of Vertex
Common Stock are listed or admitted to trading or by the Nasdaq Stock Market, or
if the Vertex 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 closing Market Price of the Vertex Common Stock cannot be
determined pursuant to the sentence above, such price shall be determined in
good faith (using customary valuation methods) by the Vertex Board of Directors
based on the information best available to it.
The
undersigned consents to the entry of stop transfer instructions with Vertex’s
transfer agent and registrar against the transfer of shares of Vertex Common
Stock except in compliance with the preceding provisions of this letter
agreement. The undersigned also consents to the placement of the
following legend on any and all stock certificates that evidence the shares of
Vertex Common Stock that are the subject of this letter agreement:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THAT CERTAIN
LOCK-UP AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER(S) NAMED THEREIN,
DATED AS OF MARCH
__
,
2009. A COPY OF THE LOCK-UP AGREEMENT MAY BE INSPECTED AT
THE PRINCIPAL OFFICE OF THE COMPANY.”
Nothing
in this Agreement shall affect any other contractual lock-up agreement to which
the undersigned may currently be a party. This letter agreement is
irrevocable and is binding upon the personal representative, heirs and assigns
of the undersigned. The letter agreement automatically will terminate
upon abandonment of the transactions described in the Merger
Agreement.
|
Very
truly yours,
|
|
__________________________________
Name
of Shareholder
|
|
__________________________________
Authorized
Signature
|
|
__________________________________
Title
(if the shareholder is not an individual)
|
ACCEPTED:
VERTEX
ENERGY, INC.
By: __________________________________
Name:
____________________________
Title: ____________________________
|
|
Exhibit
H
Inventory
Pricing
Title to
all finished product inventory (“Product Inventory”) held by Vertex LP on the
Effective Date shall be transferred to Vertex Nevada on the Effective
Date. Vertex Nevada shall thereafter sell such Product Inventory on
behalf of Vertex LP and remit the net proceeds from the sale of any Product
Inventory to Vertex LP within five (5) days of its receipt of such sales
proceeds. The sale of the Product Inventory by Vertex Nevada shall be
treated for accounting purposes on a first in, first out (FIFO) method, with the
Product Inventory representing the “first in” product to be sold by Vertex
Nevada.
All
feedstock held by Vertex LP (“Feedstock”) on the Effective Date shall be
purchased by Vertex Nevada at the market price of the Feedstock as of the
Effective Date, and as set forth below.
|
|
|
|
Vertex
Energy
|
Product
|
#
of Barrels
|
Price
Per Gallon On the Open Market on 3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vertex
Refining
|
Product
|
#
of Barrels
|
Price
Per Gallon On the Open Market on 3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT 10.2
SERVICES AGREEMENT
This Services Agreement dated
March __, 2009, and effective as of the Effective Date as defined
below (this “
Agreement
”), is by
and between Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas
limited partnership (“
Vertex LP
”) and
Vertex Energy, Inc., a Nevada corporation (“
Vertex Nevada
”), each
referred to as a “
Party
” and
collectively as the “
Parties
” to this
Agreement as such terms are used herein.
W I T N E S S E T
H:
WHEREAS
, on or about May 19,
2008, Vertex Nevada, Vertex LP, Vertex Merger Sub, LLC, a California limited
liability company, World Waste Technologies, Inc., a California corporation
(“
WWT
”), and
Benjamin P. Cowart, an individual (“
Cowart
”), entered
into an Amended and Restated Agreement and Plan of Merger (as amended from time
to time, the “
Merger
Agreement
”);
WHEREAS
, in connection with
and pursuant to the terms of the Merger Agreement, Vertex LP has agreed to
transfer certain of its operations to WWT, which will be merged with and into
Vertex Nevada (the “
Merger
”), including:
(a) Vertex LP'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 (b) Vertex LP'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
(the “
Vertex Nevada
Business
”);
WHEREAS
, Vertex LP (and its
affiliates and subsidiaries) anticipates providing certain services ancillary to
and necessary for the operations of the Vertex Nevada Business to Vertex Nevada
following the Merger (the “
Services
” as further
defined below); and
WHEREAS
, Vertex LP and Vertex
Nevada desire to enter into this Agreement to set forth the Services to be
provided and agree that such Services will be provided on the terms and
conditions set forth below, following the closing of the Merger (the “
Closing
” or the
“
Effective
Date
”);
NOW, THEREFORE
, in
consideration of the premises and the mutual covenants, agreements, and
considerations herein contained, and ten dollars ($10) and other good and
valuable consideration, which Vertex LP acknowledges receipt of, the Parties
hereto agree as follows:
|
1.1.
|
Effective
as of the Closing, Vertex LP, and its affiliates and subsidiaries
(hereafter throughout this Agreement, references to Vertex LP, include
Vertex LP’s affiliates and subsidiaries) agree to provide certain Services
to Vertex Nevada in connection with the Vertex Nevada
Business. Those “
Services
”
include any services then provided to any third parties or related
entities by Vertex LP, which are reasonably requested by Vertex Nevada,
which shall initially include, but not be limited to the
following:
|
|
1.1.1.
|
Transportation
services through Cross Road Carriers for the transportation of Vertex
Nevada's feedstock and refined and re-refined petroleum
products;
|
|
1.1.2.
|
Environmental
compliance and regulatory oversight services to be performed by Vertex
Residual Management Group LP., and
|
|
1.1.3.
|
Terminalling
services through Cedar Marine Terminals for the storage and loading out of
feedstock by barge, unless such services are covered under a separate
agreement entered into between the
Parties.
|
|
1.2.
|
The
Parties agree that the Services, and any other services requested to be
performed by Vertex LP on behalf of Vertex Nevada will be billed at the
lesser of (a) Vertex LP’s then normal and customary rates as provided to
similar non-affiliated third-parties, or in the absence of any such
pre-existing rates, the rates that Vertex LP would in good faith charge to
non-affiliated third parties for such Services (the “
Third Party
Rates
”); and (b) rates less than the Third Party Rates, as may be
negotiated between the Parties from time to time. The actual
rates billed to Vertex Nevada shall be defined as the “
Service Rates
”.
In no event shall the Service Rates exceed the rates that would be charged
for similar services by non-affiliated
parties.
|
|
1.3.
|
Vertex
LP agrees to use its best efforts to provide the Services for a period of
not less than five (5) years from the Closing Date (the “
Term
”),
provided however that (a) in the event Vertex LP ceases to provide any of
the Services to any third parties or related entities and/or ceases to
provide such Services whatsoever, for any reason, or (b) in the event
Vertex Nevada exercises its Option (as such term is defined in the Merger
Agreement) to purchase any such entity or business line of Vertex LP
providing such Services, the requirement to provide such Services (only as
they relate to discontinued Services or purchased Services) pursuant to
this Agreement shall be terminated.
|
|
1.4.
|
Vertex
LP agrees to bill Vertex Nevada for such Services as Vertex LP customarily
bills third parties and/or as otherwise mutually agreed to between the
Parties.
|
|
1.5.
|
The
Services will be provided pursuant to separately executed agreements or
work orders between Vertex Nevada and the applicable service
provider.
|
|
1.6.
|
The
Parties agree that any Services performed by Vertex LP may be removed from
the definition of Services above by the mutual consent of both Parties
hereto at any time.
|
|
2.1.
|
The
Parties agree that this Agreement may be terminated during the Term of
this Agreement:
|
|
2.1.1.
|
By
the mutual consent of both Parties at any
time;
|
|
2.1.2.
|
In
the event any term of this Agreement is breached, this Agreement may be
terminated by the non-breaching party upon thirty (30) days prior written
notice to the breaching party of such breach and provided that such breach
is not reasonably cured during such thirty (30) day period;
or
|
|
2.1.3.
|
At
any time at the option of either Party upon five (5) days prior notice in
the event that Cowart is no longer employed by Vertex
Nevada.
|
|
2.2.
|
The
Parties further agree that if not terminated as provided above, this
Agreement shall automatically renew upon the expiration of the Term of
this Agreement for successive one (1) year terms (each an “
Extended Term
”)
unless either Party has provided written notice to the other Party of its
intent not to renew this Agreement at least thirty (30) days prior to the
end of the Term or any Extended Term of this
Agreement.
|
|
2.3.
|
Notwithstanding
any provision herein to the contrary, the Parties agree that Vertex Nevada
shall not agree to terminate or amend this Agreement without having first
obtained the written consent of the Related Party Transaction Committee of
Vertex Nevada’s Board of Directors.
|
3.
Notices
.
|
3.1.
|
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:
|
If to
Vertex LP:
Vertex
Holdings, L.P.
Attn:
Benjamin P. Cowart
1331
Gemini Suite 103
Houston,
Texas 77058
With a
copy to:
____________________________
____________________________
____________________________
____________________________
____________________________
If to
Vertex Nevada:
Vertex
Nevada, Inc.
Attn: Benjamin
P. Cowart
1331
Gemini Suite 103
Houston,
Texas 77058
With a
copy to:
The Loev
Law Firm, PC
Attn:
David M. Loev, Esq.
6300 West
Loop South,
Suite
280
Bellaire,
Texas 77401
And a copy to:
Vertex
Nevada, Inc.
Attn: Related
Party Transaction Committee
1331
Gemini Suite 103
Houston,
Texas 77058
|
3.2.
|
Any
Party may change the address to which notices are required to be sent by
giving written notice of such change in the manner provided in this
Section.
|
|
4.1.
|
Assignment
. Neither
Party may assign this Agreement without the other Parties’ prior written
consent. All of the terms, provisions and conditions of this Agreement
shall be binding upon and shall inure to the benefit of and be enforceable
by the Parties hereto and their respective successors and permitted
assigns.
|
|
4.2.
|
Applicable
Law
. This Agreement shall be construed in accordance
with and governed by the laws of the State of Texas, excluding any
provision of this Agreement which would require the use of the laws of any
other jurisdiction.
|
|
4.3.
|
Entire Agreement,
Amendments and Waivers
. This Agreement constitutes the
entire agreement of the Parties hereto and expressly supersedes all prior
and contemporaneous understandings and commitments, whether written or
oral, with respect to the subject matter hereof. No variations,
modifications, changes or extensions of this Agreement or any other terms
hereof shall be binding upon any Party hereto unless set forth in a
document duly executed by such Party or an authorized agent or such
Party.
|
|
4.4.
|
Waiver.
No
failure on the part of any Party to enforce any provisions of this
Agreement will act as a waiver of the right to enforce that
provision.
|
|
4.5.
|
Section
Headings.
Section headings are for convenience only and shall not
define or limit the provisions of this
Agreement.
|
|
4.6.
|
Effect of Facsimile
and Photocopied Signatures.
This Agreement may be executed in
several counterparts, each of which is an original. It shall
not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other
counterparts. A copy of this Agreement signed by one Party and
faxed to another Party shall be deemed to have been executed and delivered
by the signing Party as though an original. A photocopy of this
Agreement shall be effective as an original for all
purposes.
|
IN WITNESS WHEREOF
, the
Parties hereto have executed this Agreement as of the day and year first written
above to be effective as of the Effective Date, as defined above.
Dated: March
__, 2009
|
Vertex
Energy, Inc.,
a
Nevada corporation
By:
/s/ Benjamin P.
Cowart
Name:
Benjamin P. Cowart
Title:
President
|
Dated: March
__, 2009
|
Vertex
Holdings, L.P.
(formerly
Vertex Energy, L.P.),
a
Texas limited partnership
By
VTX, Inc., a Texas corporation,
its
General Partner
By:
/s/ Benjamin P.
Cowart
Name:
Benjamin P. Cowart
Title:
President
|
EXHIBIT
10.3
RIGHT
OF FIRST REFUSAL AGREEMENT
This Right of First Refusal and Related
Rights Agreement (this “
Agreement
”)
entered into on March __, 2009 to be effective as of the Effective Date (as
defined below), is by and between Vertex Holdings, L.P. (formerly Vertex Energy,
L.P.), a Texas limited partnership (“
Vertex
LP
”), VTX, Inc. (“
VTX
”),
Benjamin P. Cowart, an individual (“
Cowart
”),
and Vertex Energy, Inc., a Nevada corporation (“
Vertex
Nevada
”), each sometimes referred to herein as a “
Party
,”
and collectively referred to herein as the “
Parties
.”
W
I
T
N
E
S
S
E
T
H
:
WHEREAS
, on or about May 19,
2008, World Waste Technologies, Inc., a California corporation (“
WWT
”),
Vertex LP, Cowart, Vertex Nevada and Vertex Merger Sub, LLC, a California
limited liability company, entered into an Amended and Restated Agreement and
Plan of Merger (as amended and extended from time to time, the “
Merger
Agreement
”), which Merger Agreement is incorporated herein by
reference;
WHEREAS
, pursuant to Section
5.25 of the Merger Agreement, Vertex Nevada was granted a “
Right of First Refusal and
Related Rights
;” and
WHEREAS
, the Parties desire to
memorialize the terms and conditions of the Right of First Refusal and Related
Rights contained in Section 5.25 of the Merger Agreement.
NOW, THEREFORE
, in
consideration for the promises and pledges contained below and other good and
valuable consideration, which consideration the Parties acknowledge receipt of,
and the premises and the mutual covenants, agreements, and considerations herein
contained, the Parties hereto agree as follows:
1.
Right of First
Refusal.
|
1.1
|
In
consideration of the agreements and covenants set forth herein above and
below and set forth in the Merger Agreement, the sufficiency of which is
hereby acknowledged and confessed, the Parties agree that Vertex Nevada is
granted a right of first refusal to match any third party offer to
purchase the securities of any Cowart Party (as defined below) owned by
Vertex LP or VTX, and/or any assets of any Cowart Party on the terms and
conditions set forth in such third party offer (the “
Right
of First Refusal
”), only in the event that such Cowart Party
desires to accept such third party offer. A “
Cowart
Party
” shall be defined throughout this Agreement 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, or any other entity which is majority owned or controlled by
Cowart or Vertex LP. Such Right of First Refusal shall have the
following terms, rights and
conditions:
|
|
1.1.1
|
Notice of
Offer.
Within Forty-Eight (48) hours of the receipt of a
third party offer to purchase all or any substantial part of the
securities of any Cowart Party owned by Vertex LP or VTX, or any of the
assets of any Cowart Party (an “
Offer
”),
Vertex LP shall (a) deliver to Vertex Nevada a written notice (the “
Notice
”)
stating: (i) the name of each proposed purchaser or other transferee
(“
Proposed
Transferee
”); (ii) the name of the Cowart Party entity(ies) or
assets that the Proposed Transferee has offered to purchase (the “
Subject
Entities
”); (iii) the bona fide cash price or other consideration
for which the Proposed Transferee has offered to purchase the Subject
Entities and the timing and terms of the payment of any such consideration
(the “
Offered
Price
”); and (iv) the material terms and conditions of the proposed
purchase (the “
Offer
Terms
”); (b) shall deliver a copy of any correspondence,
agreements, term sheets or letter of intents received in connection with
the proposed offer to purchase; and (c) shall deliver a copy of any such
correspondence, agreements, term sheets or letter of intents to Vertex
Nevada’s Related Party Transaction
Committee.
|
|
1.1.2
|
Exercise of Right of First
Refusal.
At any time within thirty (30) days after
receipt of the Notice and written notice from Vertex LP or such Cowart
Party of its desire to accept the Offer, Vertex Nevada may, by giving
written notice to Vertex LP, elect to purchase the Subject Entities
proposed to be sold to the Proposed Transferees, at the Purchase Price and
on the terms and conditions described below (the “
Vertex
Notice
”).
|
|
1.1.3
|
Purchase
Price.
The purchase price (“
Purchase
Price
”) for the Subject Entities purchased by Vertex Nevada shall
be the Offered Price, and the terms and conditions of the transfer shall
be identical in all material respects to the Offer Terms (the “
Terms
”). If
the Offered Price includes consideration other than cash, the cash
equivalent value of the non-cash consideration shall be determined by the
Parties in good faith, and the Purchase Price shall be payable by Vertex
Nevada (a) solely in cash; or (b) in cash and securities of Vertex Nevada,
as agreed by the mutual consent of Vertex LP and Vertex
Nevada. If such consideration is unable to be determined by the
Parties in good faith, the value of the non-cash consideration provided
for in the Terms shall be determined by the valuation of an agreed upon
third party valuation specialist in its sole determination, with any costs
of such valuation being paid by Vertex Nevada. Payment of the
Purchase Price shall be made by Vertex Nevada after delivery of the
written notice by Vertex Nevada as set forth in Section 1.1.2 and after
adequate due diligence by Vertex Nevada, which payment date shall not
exceed sixty (60) days from the date the Vertex Notice is provided by
Vertex Nevada to Vertex LP.
|
|
1.1.4
|
Right to Sell Subject
Entities.
If any of the Subject Entities proposed in the
Notice to be sold to a given Proposed Transferee are not purchased by
Vertex Nevada, then such may be sold or otherwise transferred to such
Proposed Transferees at the Offered Price in connection with and pursuant
to the Offer Terms, provided that such sale or other transfer is
consummated within sixty (60) days after the date of the
Notice. If the Subject Entities described in the Notice are not
sold or transferred to the Proposed Transferee within such Sixty (60) day
period, a new Notice shall be given to Vertex Nevada, and Vertex Nevada
shall again be offered the Right of First Refusal as provided above,
before any Subject Entities may be sold or otherwise transferred to any
third party.
|
|
2.1
|
In
consideration of the agreements and covenants set forth herein above and
below and set forth in the Merger Agreement, the sufficiency of which is
hereby acknowledged and confessed, the Parties agree that Vertex Nevada is
granted an option (the “
Option
”),
which can be exercised in Vertex Nevada’s sole discretion, to purchase all
or any part thereof of the outstanding stock or other ownership interests
of any Cowart Party owned by Vertex LP or VTX, under the following terms
and conditions:
|
|
2.1.1
|
Option Date and Exercise of
Option.
The Option shall be exercisable after the
expiration of eighteen (18) months following the closing date of the
Merger Agreement (the “
Closing
”
and the “
Option
Date
”). 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 (as defined in Section 5.24 of the
Merger Agreement). If the Related Party Transaction Committee
elects to exercise the Option, it shall give written notice (the “
Option
Notice
”) to Vertex LP and/or VTX, disclosing its election, and
describing such outstanding stock or other ownership interests of such
Cowart Parties that it desires to purchase (the “
Subject
Stock
”).
|
|
2.1.2
|
Option
Price.
The purchase price for the Subject Stock
purchased by Vertex Nevada shall be determined by an independent
third-party evaluation and appraisal (the “
Appraisal
”)
of the fair market value of such Subject Stock based on the value of the
Cowart Party(ies) and/or other relevant factors deemed necessary (the
“
Option
Price
”). Such Appraisal shall be performed by an
unaffiliated independent appraiser (the “
Appraiser
”),
which Appraiser shall be mutually agreed upon by Vertex Nevada and Vertex
LP (and/or VTX in the event the Option as exercised relates to the
ownership of interests held by VTX). Nothing in this Section
2.1.2 shall prohibit any party from obtaining any additional appraisals at
their own cost and expense, which additional appraisals shall have no
effect on the Appraisal or the Option Price. Payment of the
Option Price shall be made by Vertex Nevada in cash within thirty (30)
days after delivery of the Option Notice as set forth in Section 2.1.1
(or, if the Appraisal has not yet been determined, within five (5)
business days of the date such Appraisal is determined), or as otherwise
agreed by the mutual agreement of each
Party.
|
|
2.1.3
|
Non-Shop
Provision.
No Cowart Party shall be able to offer for
sale the Subject Stock to any party after receiving an Option Notice,
unless the proposed purchase of the Subject Stock pursuant to any Option
Notice is not consummated within one hundred and twenty (120) days of the
date such Option Notice is
received.
|
|
2.1.4
|
Purchase Outside of
Options.
Nothing in this Section 2 of the Agreement
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 an analysis by the Related Party Transaction
Committee, which may include a fairness opinion opining as to the fairness
of the transaction to Vertex
Nevada.
|
3.
|
Benjamin P. Cowart
Right to Terminate Right of First Refusal and
Option.
|
|
3.1
|
Notwithstanding
the foregoing terms and conditions in Section 1 and Section 2 of this
Agreement, each Party to this Agreement warrants, understands,
acknowledges and agrees that the Right of First Refusal and the Option
shall remain in effect only so long as Benjamin P. Cowart is employed by
Vertex Nevada as the 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 of the Merger Agreement, which has an initial five (5) year term
(the “
Employment
Agreement
”), or any subsequent Employment Agreement or
understanding substantially similar to the Employment
Agreement. As such, if Mr. Cowart’s employment with Vertex
Nevada should terminate for any reason (including Mr. Cowart’s resignation
from Vertex Nevada), this Agreement, including the Option and the Right of
First Refusal shall immediately terminate upon the termination of Mr.
Cowart’s employment. If Vertex Nevada should be in the process
of purchasing any Subject Entities and/or any Subject Stock at the time
that Mr. Cowart’s employment with Vertex Nevada terminates, such
transaction(s) shall not be validly effected unless the termination of Mr.
Cowart’s employment occurs after such time as full payment from Vertex
Nevada for the purchase of any Subject Stock pursuant to the Option is
received and/or full payment from Vertex Nevada for the purchase of any
Subject Entity pursuant to the Right of First Refusal is received, unless
otherwise agreed by Mr. Cowart.
|
4.
|
Effectiveness and
Term.
|
4.1
This
Agreement shall be effective as of the Closing (the “
Effective
Date
”).
|
4.2
|
Subject
to Section 3, above, this Agreement shall remain in full force and effect
as long as Mr. Cowart is employed by Vertex Nevada as Chief Executive
Officer.
|
|
5.1
|
Capacity and
Authorization.
The Parties to this Agreement further
represent that they have read it in full before its execution and that
they fully understand the meaning, operation and effect of its
terms. Each individual signing this Agreement warrants and
represents that he, she, or it has the full authority and is duly
authorized and empowered to execute this Agreement on behalf of the Party
for which it signs.
|
|
5.2
|
Consideration.
Each
Party represents that it has received valid consideration as a result of
the terms and conditions of this Agreement, from another Party which has
executed this Agreement below.
|
|
5.3
|
Section Headings
.
Section headings are for convenience only and shall not define or limit
the provisions of this Agreement.
|
|
5.4
|
Waiver
. No failure on
the part of any Party to enforce any provisions of this Agreement will act
as a waiver of the right to enforce that
provision.
|
|
5.5
|
No Presumption from
Drafting
. This Agreement has been negotiated at arm's-length
between persons knowledgeable in the matters set forth within this
Agreement. Accordingly, given that all Parties have had the opportunity to
draft, review and/or edit the language of this Agreement, no presumption
for or against any Party arising out of drafting all or any part of this
Agreement will be applied in any action relating to, connected with or
involving this Agreement. In particular, any rule of law, legal decisions,
or common law principles of similar effect that would require
interpretation of any ambiguities in this Agreement against the Party that
has drafted it is of no application and is hereby expressly waived. The
provisions of this Agreement shall be interpreted in a reasonable manner
to effect the intentions of the
Parties.
|
|
5.6
|
Voluntary Execution of
Agreement
. Each Party to this Agreement represents and acknowledges
that it has freely and voluntarily executed this Agreement after
independent investigation and without fraud, duress, or undue influence,
with the full understanding of the legal and binding effect of this
Agreement.
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|
5.7
|
Binding
Effect.
This Agreement shall be binding on and inure to
the benefit of the Parties and their respective heirs, successors,
assigns, directors, officers, agents, employees and personal
representatives.
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|
5.8
|
Modification.
No
modification or amendment of this Agreement shall be effective unless such
modification or amendment shall be in writing and signed by all Parties
hereto. Notwithstanding any provision herein to the contrary,
the Parties agree that Vertex Nevada shall not agree to terminate or amend
this Agreement without having first obtained the written consent of the
Related Party Transaction Committee of Vertex Nevada’s Board of
Directors.
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|
5.9
|
Entire
Agreement.
This Agreement constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties in
connection with the subject matter
hereof.
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|
5.10
|
Interpretation.
The
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Texas. Whenever used
herein, the singular number shall include the plural, the plural shall
include the singular and the use of any gender shall be applicable to all
genders. If any provision of this Agreement shall be adjudged
invalid or unenforceable pursuant to its terms, such provision shall
remain in effect and be enforced as strictly as possible to allow such
provision to be valid and
enforceable.
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|
5.11
|
Faxed
Signatures.
For purposes of this Agreement a faxed
signature shall constitute an original
signature.
|
|
5.12
|
Execution.
This
Agreement may be executed in several counterparts, each of which shall be
deemed an original, and such counterparts taken together shall constitute
but one and the same Agreement. A photocopy of this Agreement
shall be effective as an original for all
purposes.
|
[Remainder
of page left intentionally blank. Signature page follows.]
IN WITNESS WHEREOF
, intending
to be legally bound, the Parties hereto have executed this Agreement as of the
dates written below to be effective as of the Effective Date.
Dated:
March __, 2009
|
VTX,
Inc.,
a
Texas Corporation
By:
/s/
Benjamin P. Cowart
Name:
Benjamin P. Cowart
Title:
President
|
Dated:
March __, 2009
|
Vertex
Energy, Inc.,
a
Nevada corporation
By:
/s/
Benjamin P.
Cowart
Name:
Benjamin P. Cowart
Title:
President
|
Dated:
March __, 2009
|
/s/
Benjamin P. Cowart
Benjamin
P. Cowart, individually
|
Dated:
March __, 2009
|
Vertex
Holdings, L.P.
(formerly
Vertex Energy, L.P.),
a
Texas limited partnership
By
VTX, Inc., a Texas corporation,
its
General Partner
By:
/s/
Benjamin P. Cowart
Name:
Benjamin P. Cowart
Title:
President
|
EXHIBIT
10.4
OPERATING
AND LICENSING AGREEMENT
This
Operating and Licensing Agreement (referred to as the “Agreement” or “Contract”)
is made and entered into this ____ day of March, 2009, to be effective as of the
Effective Date, as set forth below, by and between Cedar Marine Terminals, L.P.
(hereinafter referred to as “CMT”) and Vertex Energy, Inc., (hereinafter
referred to as “Vertex Nevada”). Collectively, both contracting
entities are referred to as “Parties” to the Contract. All references
to Sections are references to sections in this Agreement unless otherwise
provided herein.
I.
GENERAL TERMS, FACILITIES
AND PURPOSE
1. CMT
has agreed to provide to Vertex Nevada, the right to use of certain land as
otherwise described in and subleased pursuant to the Sublease Agreement between
the Parties attached hereto as
Exhibit A
(the
“Sublease Agreement”).
2. CMT
has also agreed to sell Vertex Nevada certain assets as set forth in the
Purchase and Sale Agreement between the Parties attached hereto as
Exhibit B
(the
“Assets” and the “Purchase Agreement”).
3. The
contractual obligations between the Parties pursuant to this Agreement will be
performed at CMT’s leased Terminal Storage and Process Facilities at the Cedar
Marine Terminal Facilities, 200 Atlantic Pipe Line Road, Baytown, Chamber
County, Texas, 77520; located at the entrance of Cedar Bayou (hereinafter
referred to as the “Terminal”).
4. CMT
has also agreed to allow Vertex Nevada to license the rights to and use of
certain proprietary technology relating to the re-refining of certain oil
feedstocks referred to as its “Thermal/chemical extraction technology” also
known as “OP#2”, described in greater detail in the “
Cedar Marine Terminal –
Project OP II Study
,” dated February 23, 2009.
5. The
Parties desire to enter into this Agreement to set forth the terms and
conditions pursuant to which CMT will serve as the operator of Vertex Nevada’s
operations at the Terminal and in connection with the Assets and OP#2 located at
the Terminal (the “CMT OP#2”).
II.
SERVICES
1. CMT
shall provide services to Vertex Nevada pursuant to the terms of this Agreement
in connection with the operation of the Terminal, the Assets and CMT OP#2 and
the loading and unloading of trucks at the Terminal, as may be reasonably
requested by Vertex Nevada from time to time (the “Services”) which can be found
in the “Terminaling Agreement,” dated November 1, 2008, by and between CMT and
Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), as amended from time to
time.
2. All
Services rendered under this Agreement shall be furnished in accordance with all
ordinances, resolutions, statutes, rules and regulations of any federal, state
or local governmental agency of competent jurisdiction.
3. CMT
shall obtain at its sole cost and expense such licenses, permits and approvals
as may be required by law for the performance of this Agreement. CMT shall also
have the sole obligation to pay for any fees, assessments and taxes, plus
applicable penalties and interest, which may be imposed by law and arise from or
are necessary for CMT’s performance of this Agreement.
4. CMT
shall adopt reasonable methods during the life of the Agreement to furnish
continuous protection to the Assets and other materials and components thereof
in its care, custody, control or possession to prevent losses or
damages.
5. The
Parties agree that services and the costs of such services separate from the
Services shall be mutually agreed to between the Parties prior to CMT rendering
any such services.
6. The
feedstock that Vertex Nevada provides to CMT OP#2 shall be Used Oil and Fuel Oil
Cutterstock, and shall comply with the standards set forth in Title 40, Section
279.11 of the Code of Federal Regulations (“CFR”)(as well as Title 30, Chapter
324 of the Texas Administrative Code (“TAC”)) as used oil burned for energy
recovery, and any fuel produced from used oil by processing, blending, or other
treatment shown not to exceed any of the allowable levels of the constituents
and properties as specified (defined herein as “Conforming
Feedstock”).
7. The
Conforming Feedstock will not be a mixture of used oil and hazardous waste that
would be regulated as a hazardous waste set forth in 40 CFR 279.10 (in
concurrence with 30 TAC Chapter 325).
8. All
Conforming Feedstock will also be required to fall into a viscosity range of
greater than 60,000 cps @ 70
o
F;
liquids with vapor pressures which exceed the limitations imposed by any
federal, state or local statute, permit, or regulation will not exceed 280
o
F;
capable of passing through a Number 3 Sieve (0.223 inches); water content not to
exceed 7% of total volume of feedstock, and a specific gravity of no lower than
20 Degrees API.
9. Any
material received not within the specified guidelines will remain the property
of Vertex Nevada and all cost and/or expenses will be the sole responsibility of
Vertex Nevada.
10. Any
materials received from Vertex Nevada which are not Conforming Feedstock shall
be referred to herein as “Non-Conforming Feedstock”.
III.
USE OF CMT OP#2 at the
Baytown, Texas Facility
1. Vertex
Nevada shall be provided the first right to use 33,000 barrels of capacity
(62.3% of estimated production capacity), of the total capacity of the Baytown,
Texas CMT OP#2 Facility per month during the Term of this Agreement (the
“Reserved Capacity”).
2. CMT
shall be provided the right to use the next 20,000 barrels of capacity (37.7% of
estimated production capacity) of the Baytown, Texas CMT OP#2
Facility after the Reserved Capacity has been met by Vertex
Nevada.
3. The
disposition of any capacity in excess of 53,000 barrels at the Baytown, Texas
CMT OP#2 Facility shall be allocated pro rata based on the percentages described
in (1) and (2) above. Once the CMT OP#2 process is up and running at
the Baytown, Texas Facility for at least 30 days (the “Operation Date”), and
continuing throughout CMT OP#2’s operations at the Baytown, Texas Facility,
Vertex Nevada and CMT will analyze the allocation of production capacities and
may mutually agree to different production allocations than as provided above,
provided that any such changes must be approved by the Related Party
Transactions Committee of the Vertex Nevada Board of Directors (the
“RPTC”).
4. CMT
shall be provided the reasonable right to use the CMT OP#2 at the Baytown, Texas
Facility at any time that Vertex Nevada is not using OP#2, and/or not using the
full daily capacity of the CMT OP#2 at the Baytown, Texas Facility,
notwithstanding the fact that the Reserved Capacity has not yet been met by
Vertex Nevada.
5. Vertex
Nevada shall be provided the reasonable right to use the CMT OP#2 at the
Baytown, Texas Facility at any time that CMT is not using/or not using the full
daily capacity of the CMT OP#2 at the Baytown, Texas Facility, notwithstanding
the fact that the Reserved Capacity has been met by Vertex Nevada.
6.
Vertex Nevada shall have a right of first refusal to deploy OP#2 in locations
outside the current OP#2 Facility at Baytown, Texas.
IV.
COORDINATION OF
SERVICES
1. Control
and operation of the Terminal, the Assets and OP#2 shall rest exclusively with
CMT. CMT may suspend operations at the Terminal if CMT reasonably
believes that any person, equipment or the environment is at risk of injury or
damage.
2. The
following representative of CMT is hereby designated as being the representative
of CMT authorized to act on its behalf with respect to the work specified herein
and make all decisions in connection therewith: John Hamman. The foregoing
representative may be changed by CMT only upon prior written notice to Vertex
Nevada.
3. The
“Contract Officer” shall be such person as may be designated by Vertex Nevada.
It shall be CMT’s responsibility to assure that the Contract Officer is kept
informed of the progress of the performance of the services and CMT shall refer
any decisions which must be made by Vertex Nevada to the Contract Officer.
Initially, Vertex Nevada designates its Contract Officer for day-to-day
operational matters to be Greg Wallace.
4. The
experience, knowledge, capability and reputation of CMT, its officers, agents,
employees and subcontractors were a substantial inducement for Vertex Nevada to
enter into this Agreement. Therefore, neither this Agreement nor any interest
herein may be assigned or transferred, voluntarily or by operation of law,
without the prior written approval of Vertex Nevada. Unless specifically stated
to the contrary in any written consent to any assignment, no assignment will
release or discharge CMT from any duty or responsibility under this Agreement.
Notwithstanding the foregoing, Vertex Nevada understands that CMT shall use
certain subcontractor suppliers for service and materials in the performance of
this Agreement. In such instances, CMT shall be as fully responsible to Vertex
Nevada for the acts and omissions of its subcontractor(s) as it is for the acts
and omissions of persons it directly employs. Nothing contained in this
Agreement shall create any contractual relationship between any subcontractor
and Vertex Nevada.
5. CMT
shall perform all services required herein as an independent contractor of
Vertex Nevada and shall remain at all times as to Vertex Nevada, a wholly
independent contractor with only such obligations as are consistent with that
role. CMT shall not at any time or in any manner represent that it or any of its
officers, agents, subcontractors or employees are agents or employees of Vertex
Nevada.
6. Neither
party shall be liable for evaporation, shrinkage, line loss, clingage,
discoloration, contamination, damage to, or destruction of, any product or
property, or for any delay or non-performance, when any of the foregoing is
caused in whole or in part by any cause not within the control of said party,
whether now or hereafter existing, including without limitation, any act of God
or of a public enemy, acts of terrorism, tropical storms and hurricanes,
non-availability of machinery, embargos, congestions or interventions, or
failure or delay of manufacturers or suppliers to deliver same, except that
Vertex Nevada shall be responsible to pay all charges arising from the
Agreement. CMT shall in no event be liable for loss of, or damage to,
any product or property of Vertex Nevada except when caused by CMT’s failure to
use reasonable care in the safekeeping and handling of any product or property
of Vertex Nevada. Notwithstanding the foregoing, the failure by
either party to perform any of its obligations under this Agreement shall be
deemed not to have been caused by circumstances reasonably outside its control
and therefore not an event of Force Majeure, if such failure results from
breakdown, or failure of, or accident to, storage tanks, facility pipelines,
dock or docks, machinery and equipment, or other property, or the partial, or
entire extraordinary failure thereof, or the necessity to make repairs, or
alterations thereto, which result from (i) normal wear and tear which would be
reasonably anticipated by a prudent operator, or in circumstances where a
reasonably prudent operator would have standby equipment, or spare parts, or
(ii) the lack of the proper operation, maintenance, quality control, design,
engineering and/or procurement of such storage tanks, facility pipelines, dock
or docks, machinery and equipment, or other property. If a Force
Majeure condition persists for a period of thirty (30) consecutive days, then
either party may terminate the Agreement on five (5) days prior written notice
to the other.
7. If
either party is unable to perform under this Agreement as a result of Force
Majeure, the party will provide the other party with written notice of such
inability to perform as soon as practicable after the occurrence of the event
causing such inability and describing in reasonable detail the nature of the
event constituting Force Majeure.
8. The
Parties covenant and agree that from and after the Effective Date of this
Agreement, each party will carry and maintain, at its sole cost and expense, the
insurance set forth in paragraphs (i), (ii), (iii), and (iv).
(i) Commercial
General Liability insurance coverage including personal injury, bodily injury,
property damage, operations hazard and contractual liability, such insurance to
insure both the insured and the other party, as an additional insured, and to
afford protection to the limit of not less than $2,000,000.00, combined single
limit, in respect to injury or death to any number of persons and all property
damage arising out of any one (1) occurrence.
(ii) Property
Insurance on an all risk, full replacement cost basis (including coverage
against fire, wind, tornado, malicious mischief and flood) covering the
Premises, all improvements on the Premises and all fixtures, and equipment. Such
policy will be written in the names of the insured, the other party and any
other parties reasonably designated by the other party from time to time, as
their respective interests may appear.
(iii) Employer’s
Liability Insurance. Employer’s liability insurance, including
co-employee coverage, in an amount not less than $1,000,000.00.
(iv) Additional
Insurance. Any other form of insurance or any increase, change or endorsement to
the insurance required herein as any mortgagee of CMT may request or as CMT may
request, provided additional coverage required at the request of CMT shall be
limited to such forms and changes as customarily required for industrial
properties in Chambers County, Texas.
V.
TERM
1. This
Agreement shall be effective as of the closing of the Amended and Restated
Agreement and Plan of Merger entered into on or around about May 19, 2008 (as
amended and extended from time to time, the “Merger Agreement”), by and between
World Waste Technologies, Inc., a California corporation (“WWT”), Vertex Energy,
L.P., a Texas limited partnership, Benjamin P. Cowart, Vertex Nevada and Vertex
Merger Sub, LLC, a California limited liability company (the “Effective Date”).
The term of this Agreement shall follow the term of the Sublease Agreement
between the Parties, and it shall expire on February 28, 2017 at 5:00 P.M.
C.S.T. time (the “Term”).
2. The
Parties agree that this Agreement may be terminated during the Term of this
Agreement:
(i) By
the mutual consent of both Parties at any time;
(ii) In
the event any term of this agreement is breached, this Agreement may be
terminated by the non-breaching party upon thirty (30) days prior written notice
to the breaching party of such breach and provided that such breach is not
reasonably cured during such thirty (30) day period; or
(iii) At
any time at the option of either party upon five (5) days prior notice in the
event that Vertex Nevada has paid the R&D Costs (as defined below) to CMT
and Benjamin P. Cowart’s employment has been terminated by Vertex Nevada, that
Benjamin P. Cowart would have the right to terminate Vertex Nevada’s use of CMT
OP#2 at CMT.
VI.
CONSIDERATION
FOR SERVICES
1. As
consideration for agreeing to perform the Services hereunder, Vertex Nevada
shall pay CMT all of its costs and expenses associated with CMT OP#2 (the
“Expenses”), plus the payment to CMT of a fee equal to 10% of the
Expenses (the “Fees”). It is understood by both parties
that the per gallon cost associated with this Section VI(b) shall not exceed
$0.40 per gallon (except as provided in Article VI(5), below) without written
approval by Vertex Nevada (the “Maximum Price Per Gallon”).
2. The
Fees shall be paid monthly in arrears within ten (10) business days from the
date such Fees are billed by CMT.
3. In
the event the Fees are not paid as provided above, CMT shall have no obligation
to render the Services.
4. The
Fees shall be reviewed and approved by Vertex Nevada’s Related Party Transaction
Committee on a quarterly basis and/or as needed.
5. In
the event Vertex Nevada’s Conforming Feedstock throughput of CMT OP#2 is less
than 25,000 barrels per month, the Maximum Price Per Gallon shall not
apply.
6. Vertex
Nevada and CMT will analyze the Fees and Maximum Price Per Gallon and may
mutually agree to different Fees and/or a different Maximum Price Per Gallon
than as provided above, provided that any such changes must be approved by the
RPTC.
VII.
LICENSING OF
OP#
2
1. Subject
to the terms and conditions of this Agreement, Vertex Nevada is hereby granted a
non-revocable, non-transferable, royalty-free, perpetual (except as otherwise
provided below) license (the “License”) to use the technology associated with
the operations of CMT OP#2 (the “Technology”) in any market in the World,
including the right to duplicate CMT OP#2 and/or use the Technology in any
future processes built by Vertex Nevada anywhere in the World; provided however,
that the requirements of Article VII(2) are complied with as described
below.
2. Vertex
Nevada agrees to pay CMT the documented R&D Costs of up to a maximum of $1.4
million dollars as of the Effective Date, which both parties agree is an
obligation due to Vertex Nevada at the Effective Date. Vertex Nevada
agrees to use its best efforts to remit the R&D Costs as soon as possible in
a commercially reasonable manner. Vertex Nevada and Vertex LP
will designate an individual to negotiate the terms of payments, with the RPTC
approving such terms before they are finalized.
3. “R&D
Costs” shall mean the first $1.4 million of CMT’s documented net development
costs relating to the Technology, including, but not limited to CMT OP#2, which
shall be reasonably approved by the Related Party Transaction
Committee. The Related Party Transaction Committee shall have the
right, but not the obligation to audit such R&D Costs.
4. The
License shall expire automatically in the event Vertex Nevada:
(a) Shall
(i) become insolvent or take any action which constitutes its admission of
inability to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors, file a petition in bankruptcy, petition or apply to any
tribunal for the appointment of a custodian, receiver or a trustee for it or a
substantial portion of its assets; (iii) commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation or statute of any jurisdiction, whether now or hereafter in effect;
(iv) have filed against it any such petition or application in which an order
for relief is entered or which remains undismissed for a period of ninety (90)
days or more; (v) indicate its consent to, approval of or acquiescence in any
such petition, application, proceeding or order for relief or the appointment of
a custodian, receiver or trustee for it or a substantial portion of its assets;
or (vi) suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of ninety (90) days or more; or
(b) Shall
dissolve or wind-up its operations.
5. The
License granted by this Section VII and the terms and conditions of the License,
including the expiration of the License, shall survive the Term of this
Agreement.
VIII.
MODIFICATION
1. This
Agreement shall not be modified, amended, or changed, except by written
instrument executed by the duly authorized officers, or representatives, of the
Parties hereto. If any law, rule, or regulation, is adopted, or
rescinded, CMT and Vertex Nevada agree to comply with such law, rule, or
regulation.
IX.
INDEMNIFICATION
1. CMT’s
Indemnification. CMT agrees to and does hereby indemnify, hold
harmless and defend Vertex Nevada, and each of its respective shareholders,
members, partners, directors, officers, managers, employees, agents, attorneys
and representatives (each a “Related Person” and collectively the “Related
Persons”), from any and all judgments, orders, decrees, claims, costs or
expenses arising out of the performance or breach by CMT of its obligations
under this Agreement, including on account of but not limited to the
following:
|
(i)
|
damage
to property of CMT, Vertex Nevada or third
parties;
|
|
(ii)
|
personal
injury, including death;
|
|
(iii)
|
any
violation by CMT or its Related Persons of any government, departmental,
or local law, order or regulation;
and
|
|
(iv)
|
any
environmental condition occurring during the term of this Agreement to the
extent caused by CMT or its Related
Persons;
|
provided,
however, that this indemnification provision shall not apply to the extent that
any such damage to property, personal injury, including death, any violation of
any such law, order or regulation or environmental condition results from the
gross negligence or willful misconduct of Vertex Nevada, its agents or
employees.
2. Vertex
Nevada’s Indemnification. Vertex Nevada agrees to and does hereby
indemnify, hold harmless and defend CMT and its Related Persons, from any and
all judgments, orders, decrees, claims, costs or expenses arising out of the
performance or breach by Vertex Nevada of its obligations under this Agreement,
including on account of but not limited to the following:
|
(i)
|
the
transmittal Non-Conforming Feedstock or the operation of CMT OP#2 with
Non-Conforming Feedstock;
|
|
(ii)
|
damage
to property of CMT, Vertex Nevada or third
parties;
|
|
(iii)
|
personal
injury, including death;
|
|
(iv)
|
any
violation by Vertex Nevada or its Related Persons of any government,
departmental, or local law, order or regulation;
and
|
|
(v)
|
any
environmental condition occurring during the term of this agreement to the
extent caused by Vertex Nevada or its Related
Persons;
|
provided,
however, that this indemnification provision shall not apply to the extent that
any such damage to property, personal injury, including death, any violation of
any such law, order or regulation or environmental condition resulting from the
gross negligence or willful misconduct of CMT, its agents or
employees.
X.
FORCE
MAJEURE
CMT shall
not be obligated to perform Services pursuant to this Agreement and Vertex
Nevada shall not be required to pay any Fees to CMT to the extent that any one
or more of the following events prevent, restrict or delay the operation of CMT
OP#2 in the customary manner, whether the event affects CMT or Vertex Nevada
directly or affects Vertex Nevada indirectly by affecting Vertex Nevada's
suppliers:
|
(a)
|
Compliance,
voluntary or involuntary, with a direction or request of any government or
person purporting to act with governmental authority, including without
limitation acquiescence in and voluntary agreement to a change in the
present relationships with any government resulting from the Initiative of
such government or a person purporting to act for such
government;
|
|
(b)
|
Total
or partial expropriation, nationalization, confiscation, requisitioning or
abrogation or breach of a government contract or
concession;
|
|
(c)
|
Closing
or restriction on the use of a port, pipeline or
railroad;
|
|
(d)
|
Maritime
peril, storm, earthquake, flood;
|
|
(e)
|
Accident,
fire, explosion;
|
|
(f)
|
Hostilities
or war (declared or undeclared), embargo, blockade, riot, civil unrest,
sabotage, revolution, insurrection;
|
|
(g)
|
Strike
or other labor difficulty (whomsoever’s employees are involved), even
though the strike or other labor difficulty could be settled by acceding
to the demands of a labor group;
|
|
(h)
|
Loss
or shortage of producing, delivery or transportation facilities,
equipment, labor or material caused by circumstances beyond the reasonable
control of the Party affected; or
|
|
(i)
|
Any
event reasonably beyond the control of the Party affected, whether or not
similar to those listed above.
|
As used
in this Section, “in the customary manner" means in accordance with the general
practices of the petroleum industry; and “government” shall include without
limitation any company controlled by a government.
XI.
NOTICES
1. Any
notice required or permitted hereunder by one party, to the other, shall be in
writing and the same shall be given, and shall be deemed to be served, and
given, if delivered in person to the address set for hereinafter for the party
to whom the notice is given, or if placed in the United States mail, postage
prepaid, registered or certified mail, address to the party at the address
hereinafter specified.
The
address for Vertex Nevada shall be:
|
|
|
Vertex
Nevada
Attn:
1331
Gemini Suite 103
Houston,
Texas 77058
|
The
address for CMT shall be:
|
|
|
Cedar
Marine Terminal, L.P.
Attn:
200
Atlantic Pipe Line Rd.
Baytown,
Texas 77520
|
XII.
MISCELLANEOUS
1. If
any section of provision of this Agreement shall be determined to be invalid by
applicable law, then, for the period that it is invalid, it shall be deemed to
be deleted from this Agreement; however, all remaining portions of this
Agreement shall remain in full force and effect.
2. The
failure of a party hereunder to assert a right, or enforce an obligation of the
other party, shall not be deemed a waiver of that right, or obligation, in the
event that right, or obligation, becomes effective, or is asserted
thereinafter.
3. This
Agreement shall be deemed to have been entered into the State of Texas, and the
laws of the State of Texas (without giving effect to any principles of conflicts
of law) shall be applicable in the construction of the terms, and provisions
hereof, and in determining the rights and obligations of the Parties
hereunder.
4. The
Agreement constitutes the entire agreement of the Parties regarding the matters
contemplated herein, or related thereto, and supersedes all prior and
contemporaneous agreements, and understandings of the Parties in connection
therewith. No covenant, representations, or conditions, which is not
expressed in the Agreement shall affect, or be effective to interpret, change,
or restrict, the express provisions of this Agreement.
5. No
failure on the part of any Party to enforce any provisions of this Agreement
will act as a waiver of the right to enforce that provision.
6. Section
headings are for convenience only and shall not define or limit the provisions
of this Agreement.
7. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
such counterparts have been signed by each party and signature pages from such
counterparts have been delivered. This Agreement may be executed by
facsimile transmission or by e-mail transmission in PDF format. A
photocopy of PDF of this Agreement shall be effective as an original for all
purposes.
[Remainder
of page left intentionally blank. Signature page follows.]
EXECUTED
and effective this
______day of March 2009.
|
“CMT”
Cedar
Marine Terminals, L.P.
a
Texas limited liability partnership
By VTX, INC. It's
General Partner
By:
/s/
Benjamin P. Cowart
Its: President
Printed
Name:
|
|
“Vertex
Nevada”
Vertex Energy, Inc.
a
Nevada corporation
/s/
Benjamin P. Cowart
Benjamin
P. Cowart
Chief
Executive Officer
|
EXHIBIT
10.5
VERTEX
ENERGY, INC.
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS
EXECUTIVE EMPLOYMENT AGREEMENT (this “
Agreemen
t”) is
entered into this __ day of December 2008, to be effective as of the Effective
Date as defined below between Vertex Energy, Inc., a Nevada corporation (the
“
Company
”), and
Benjamin P. Cowart (“
Executive
”) (each of
Company and Executive is referred to herein as a “
Party
,” and
collectively referred to herein as the “
Parties
”).
W
I T N E S S E T H:
WHEREAS
, the Company desires
to obtain the services of Executive, and Executive desires to be employed by the
Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE
, in
consideration of the premises, the agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as of the Effective Date as follows:
ARTICLE
I.
EMPLOYMENT;
TERM; DUTIES
1.1.
Employment
. Pursuant
to the terms and conditions hereinafter set forth, the Company hereby employs
Executive, and Executive hereby accepts such employment, as the Chief Executive
Officer (“
CEO
”)
of the Company for a period of five (5) years beginning on the Effective
Date.
1.2.
Duties and
Responsibilities
. Executive, as CEO, shall perform such
administrative, managerial and executive duties for the Company (i) as are
prescribed by applicable job specifications for the chief executive officer of a
public company the size and nature of the Company, (ii) as may be prescribed by
the Bylaws of the Company, (iii) as are customarily vested in and
incidental to such position, and (iv) as may be assigned to him from time
to time by the Board of Directors of the Company (the “
Board
”).
1.3.
Non-Competition
. Executive
agrees to devote substantially all of Executive’s business time, energy and
efforts to the business of the Company (except as specifically provided for in
Section 1.4 below), and will use Executive’s best efforts and abilities
faithfully and diligently to promote the business interests of the
Company. For so long as Executive is employed hereunder, and for a
period of six months thereafter (the “
Non-Compete Period
”),
Executive shall not, directly or indirectly, either as an employee, employer,
consultant, agent, investor, principal, partner, stockholder (except as the
holder of less than 1% of the issued and outstanding stock of a publicly held
corporation), corporate officer or director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of the Company, as such
business of the Company is now or hereafter conducted.
1.4.
Other
Activities
. Subject to the foregoing prohibition and provided
such services or investments do not violate any applicable law, regulation or
order, or interfere in any way with the faithful and diligent performance by
Executive of the services to the Company otherwise required or contemplated by
this Agreement, the Company expressly acknowledges that Executive
may:
1.4.1
make
and manage personal business investments of Executive’s choice without
consulting the Board;
1.4.2
serve
in any capacity with any non-profit civic, educational or charitable
organization; and
1.4.3
spend
up to a total of twenty (20) hours per month in fulfilling his duties as
officer, director and/or manager of any of the private companies with whom
Executive is currently affiliated, namely Vertex Energy, LP, VTX, Inc., Cross
Road Carriers, Vertex Recovery, H&H Oil, Arrow, Cedar Marine Terminal,
Vertex Residual Management, B&S Cowart, FLP, Vertex Green, LP and Vertex
Processing, pursuant to
Exhibit
A
.
1.4.4
a
“
Related Party
Transaction Committee
,” composed of at least two (2) Independent
Directors (as defined below) of the Company shall be appointed. Such
Related Party Transaction Committee shall be available to Executive to review
any potential conflicts of interest between Executive, the Company and any other
company or individual which may be affiliated with Executive.
1.5.
Board of
Directors
. Prior to the effectiveness of this Agreement, the
Board has appointed Executive as a member of the Board, to serve until the next
election of directors by the Company’s shareholders. Thereafter, provided that
Executive is still employed hereunder, the Board shall nominate Executive to be
elected to serve on the Board at each meeting of the Company’s shareholders held
during the term of this Agreement to elect directors, consistent with the
provisions of the Bylaws and Articles of Incorporation of the Company, as
amended and in effect from time to time.
1.6.
Covenants of
Executive
.
1.6.1
Best
Efforts
. Executive shall devote his best efforts to the
business and affairs of the Company. Executive shall perform his
duties, responsibilities and functions to the Company hereunder to the best of
his abilities in a diligent, trustworthy, professional and efficient manner and
shall comply, in all material respects, with all rules and regulations of the
Company (and special instructions of the Board, if any) and all other rules,
regulations, guides, handbooks, procedures and policies applicable to the
Company and its business in connection with his duties hereunder, including all
United States federal and state securities laws applicable to the
Company.
1.6.2
Records
. Executive
shall use his best efforts and skills to truthfully, accurately, and promptly
prepare, maintain, and preserve all records and reports that the Company may,
from time to time, request or require, fully account for all money, records,
equipment, materials, or other property belonging to the Company of which he may
have custody, and promptly pay and deliver the same whenever he may be directed
to do so by the Board.
1.6.3
Compliance
. Executive
shall use his best efforts to maintain the Company’s compliance with all rules
and regulations of the Securities and Exchange Commission (“
SEC
”), and reporting
requirements for publicly traded companies, including, without limitation,
overseeing and filing with the SEC all periodic reports the Company is required
to file under the Exchange Act of 1934 (as amended, the “
Exchange
Act
”). Executive shall at all times comply, and cause the
Company to comply, with the then-current good corporate governance standards and
practices as prescribed by the SEC, any exchange on which the Company’s capital
stock or other securities may be traded and any other applicable governmental
entity, agency or organization. Without limiting the generality of
the foregoing, Executive shall submit for pre-approval to the Audit Committee of
the Board any proposed related-party transactions.
1.7.
Effective
Date
. The “
Effective Date
” of
this Agreement shall be the closing date of the Amended and Restated
Agreement and Plan of Merger by and Between World Waste Technologies, Inc.,
Vertex Energy, L.P., Vertex Energy, Inc., Benjamin P. Cowart and Vertex Merger
Sub, LLC, dated on or around May 19, 2008, as amended from time to
time.
ARTICLE
II.
COMPENSATION
AND OTHER BENEFITS
2.1.
Base
Salary
. So long as this Agreement remains in effect, for all
services rendered by Executive hereunder and all covenants and conditions
undertaken by the Parties pursuant to this Agreement, the Company shall pay, and
Executive shall accept, as compensation, an annual base salary (“
Base Salary
”) of
$190,000. The Base Salary shall be payable in regular installments in
accordance with the normal payroll practices of the Company, in effect from time
to time, but in any event no less frequently than on a monthly basis. For so
long as Executive is employed hereunder, beginning on the first anniversary of
the Effective Date, and on each anniversary thereafter, the Base Salary shall be
increased as determined by the Compensation Committee of the Board (the “
Compensation
Committee
”), in its sole and absolute discretion.
2.2.
Bonus
Compensation
. For each year this Agreement is in effect,
Executive will be eligible to earn a bonus in the sole discretion of the
Compensation Committee.
2.3.
Business
Expenses
. So long as this Agreement is in effect, the Company
shall reimburse Executive for all reasonable, out-of-pocket business expenses
incurred in the performance of his duties hereunder consistent with the
Company’s policies and procedures, in effect from time to time, with respect to
travel, entertainment and other business expenses customarily reimbursed to
senior executives of the Company in connection with the performance of their
duties on behalf of the Company.
2.4.
Vacation
. Executive
will be entitled to 20 days of paid time-off (“
PTO
”) per year. PTO
days shall accrue beginning on the 1st of January for each year during the term
of this Agreement. Unused PTO days shall expire on December 31 of each year and
shall not roll over into the next year. Other than the use of PTO days for
illness or personal emergencies, PTO days must be pre-approved by the
Company.
2.5.
Other
Benefits
. Executive shall be entitled to participate in the
Company’s employee stock option plan, life, health, accident, disability
insurance plans, pension plans and retirement plans, in effect from time to time
(including, without limitation, any incentive program or discretionary bonus
program of the Company which may be implemented in the future by the Board), to
the extent and on such terms and conditions as the Company customarily makes
such plans available to its senior executives.
2.6.
Withholding
. The
Company may deduct from any compensation payable to Executive (including
payments made pursuant to this Section 2 or in connection with the
termination of employment pursuant to Article III of this Agreement) amounts
sufficient to cover Executive’s share of applicable federal, state and/or local
income tax withholding, social security payments, state disability and other
insurance premiums and payments.
ARTICLE
III.
TERMINATION
OF EMPLOYMENT
3.1.
Termination of
Employment
. Executive’s employment pursuant to this Agreement
shall terminate on the earliest to occur of the following:
3.1.1
upon
the death of Executive;
3.1.2
upon
the delivery to Executive of written notice of termination by the Company if
Executive shall suffer a physical or mental disability which renders Executive,
in the reasonable judgment of the Compensation Committee, unable to perform his
duties and obligations under this Agreement for either 90 consecutive days or
180 days in any 12-month period;
3.1.3
on
the five-year anniversary of the date hereof;
3.1.4
upon
delivery to the Company of written notice of termination by Executive for any
reason other than for Good Reason;
3.1.5
upon
delivery to Executive of written notice of termination by the Company for
Cause;
3.1.6
upon
delivery of written notice of termination from Executive to the Company for Good
Reason,
provided
,
however
, prior to any
such termination by Executive pursuant to this Section 3.1.6, Executive shall
have advised the Company in writing within fifteen (15) days of the occurrence
of any circumstances that would constitute Good Reason, and the Company has not
cured such circumstances within 15 days following receipt of Executive’s written
notice, with the exception of only five (5) days written notice in the event the
Company reduces Executive’s salary without Executive’s consent or fails to pay
Executive any compensation due him; or
3.1.7
upon
delivery to Executive of written notice of termination by the Company without
Cause.
3.2.
Certain Definitions
.
For purposes of this Agreement, the following terms shall have the following
meanings:
3.2.1
“
Cause
” shall mean, in
the context of a basis for termination by the Company of Executive’s employment
with the Company, that:
(i)
Executive materially breaches any obligation, duty, covenant or agreement under
this Agreement, which breach is not cured or corrected within thirty
(30) days of written notice thereof from the Company (except for breaches
of Article IV of this Agreement, which cannot be cured and for which the Company
need not give any opportunity to cure); or
(ii)
Executive commits any act of misappropriation of funds or embezzlement;
or
(iii)
Executive commits any act of fraud; or
(iv)
Executive is indicted of, or pleads guilty or
nolo contendere
with respect
to, theft, fraud, a crime involving moral turpitude, or a felony under federal
or applicable state law.
3.2.2
“
Good Reason
”
shall mean, in the context of a basis for termination by Executive of his
employment with the Company (a) without Executive’s consent, his position or
duties are modified by the Company to such an extent that his duties are no
longer consistent with the position of CEO of the Company, (b) there has been a
material breach by the Company of a material term of this Agreement which
continues uncured following thirty (30) days after such breach, or (c)
Executive’s compensation as set forth hereunder is reduced without Executive’s
consent, or the Company fails to pay to Executive any compensation due to him
hereunder upon five (5) days written notice from Executive informing the Company
of such failure.
3.3.
“
Termination Date
”
shall mean the date on which Executive’s employment with the Company hereunder
is terminated
3.4.
Effect of
Termination
. In the event that Executive’s employment
hereunder is terminated in accordance with the provisions of this Agreement,
Executive shall be entitled to the following:
3.4.1
If
Executive’s employment is terminated pursuant to Sections 3.1.1 (death), 3.1.2
(disability), 3.1.3 (five-year anniversary) or 3.1.5 (by the Company for Cause),
Executive shall be entitled to salary accrued through the Termination Date and
no other benefits other than as required under the terms of employee benefit
plans in which Executive was participating as of Termination Date.
3.4.2
If
Executive’s employment is terminated pursuant to Section 3.1.4 (without Cause by
the Executive), by Executive pursuant to Section 3.1.6 (Good Reason), or
pursuant to Section 3.1.7 (without Cause by the Company), Executive shall be
entitled to continue to receive the salary at the rate in effect upon the
Termination Date of employment for six (6) months following the Termination
Date, payable in accordance with the Company’s normal payroll practices and
policies, as if Executive’s employment had not terminated. Executive
shall be entitled to no other post-employment benefits except for benefits
payable under applicable benefit plans in which Executive is entitled to
participate pursuant to Section 2.5 hereof through the Termination Date, subject
to and in accordance with the terms of such plans.
3.4.3
As
a condition to Executive’s right to receive any benefits pursuant to Section
3.4.2 of this Agreement, (A) Executive must execute and deliver to the Company a
written release in form and substance satisfactory to the Company, of any and
all claims against the Company and all directors and officers of the Company
with respect to all matters arising out of Executive’s employment hereunder, or
the termination thereof (other than claims for entitlements under the terms of
this Agreement or plans or programs of the Company in which Executive has
accrued a benefit); and (B) Executive must not breach any of his covenants and
agreements under Section 1.3 and Article IV of this Agreement, which continue
following the Termination Date.
3.4.4
In
the event of termination of Executive’s employment pursuant to Section 3.1.5 (by
the Company for Cause), and subject to applicable law and regulations, the
Company shall be entitled to offset against any payments due Executive the loss
and damage, if any, which shall have been suffered by the Company as a result of
the acts or omissions of Executive giving rise to termination. The
foregoing shall not be construed to limit any cause of action, claim or other
rights, which the Company may have against Executive in connection with such
acts or omissions.
3.4.5
Upon
termination of Executive’s employment hereunder, or on demand by the Company
during the term of this Agreement, Executive will immediately deliver to the
Company, and will not keep in his possession, recreate or deliver to anyone
else, any and all Company property, as well as all devices and equipment
belonging to the Company (including computers, handheld electronic devices,
telephone equipment, and other electronic devices), Company credit cards,
records, data, notes, notebooks, reports, files, proposals, lists,
correspondence, specifications, drawings blueprints, sketches, materials,
photographs, charts, all documents and property, and reproductions of any of the
aforementioned items that were developed by Executive pursuant to his employment
with the Company, obtained by Executive in connection with his employment with
the Company, or otherwise belonging to the Company, its successors or assigns,
including, without limitation, those records maintained pursuant to this
Agreement.
3.4.6
Executive
also agrees to keep the Company advised of his home and business address for a
period of three (3) years after termination of Executive’s employment hereunder,
so that the Company can contact Executive regarding his continuing obligations
provided by this Agreement. In the event that Executive’s employment
hereunder is terminated, Executive agrees to grant consent to notification by
the Company to Executive’s new employer about his obligations under this
Agreement.
3.5.
Consulting
. During
the period that Executive is receiving payments pursuant to
subsection 3.4.2 above, Executive shall be available, subject to his other
reasonable commitments or obligations made or incurred in mitigation of the
termination of his employment, by telephone, email or fax, as a consultant to
the Company, without further compensation, to consult with its officers and
directors regarding projects and/or tasks as defined by the Board.
ARTICLE
IV.
INVENTIONS;
CONFIDENTIAL/TRADE SECRET INFORMATION AND RESTRICTIVE COVENANTS
4.1.
Inventions
. All
processes, technologies and inventions relating to the business of the Company
(collectively, “
Inventions
”),
including new contributions, improvements, ideas, discoveries, trademarks and
trade names, conceived, developed, invented, made or found by Executive, alone
or with others, during his employment by the Company, whether or not patentable
and whether or not conceived, developed, invented, made or found on the
Company’s time or with the use of the Company’s facilities or materials, shall
be the property of the Company and shall be promptly and fully disclosed by
Executive to the Company. Executive shall perform all necessary acts
(including, without limitation, executing and delivering any confirmatory
assignments, documents or instruments requested by the Company) to assign or
otherwise to vest title to any such Inventions in the Company and to enable the
Company, at its sole expense, to secure and maintain domestic and/or foreign
patents or any other rights for such Inventions.
4.2.
Confidential/Trade Secret
Information/Non-Disclosure
.
4.2.1
Confidential/Trade Secret
Information Defined
. During the course of Executive’s
employment, Executive will have access to various Confidential/Trade Secret
Information of the Company and information developed for the
Company. For purposes of this Agreement, the term “
Confidential/Trade Secret
Information
” is information that is not generally known to the public
and, as a result, is of economic benefit to the Company in the conduct of its
business, and the business of the Company’s subsidiaries. Executive
and the Company agree that the term “
Confidential/Trade Secret
Information
” includes but is not limited to all information developed or
obtained by the Company, including its affiliates, and predecessors, and
comprising the following items, whether or not such items have been reduced to
tangible form (e.g., physical writing, computer hard drive, disk, tape,
etc.): all methods, techniques, processes, ideas, research and
development, product designs, engineering designs, plans, models, production
plans, business plans, add-on features, trade names, service marks, slogans,
forms, pricing structures, menus, business forms, marketing programs and plans,
layouts and designs, financial structures, operational methods and tactics, cost
information, the identity of and/or contractual arrangements with suppliers
and/or vendors, accounting procedures, and any document, record or other
information of the Company relating to the above. Confidential/Trade
Secret Information includes not only information directly belonging to the
Company which existed before the date of this Agreement, but also information
developed by Executive for the Company, including its subsidiaries, affiliates
and predecessors, during the term of Executive’s employment with the
Company. Confidential/Trade Secret Information does not include any
information which (a) was in the lawful and unrestricted possession of Executive
prior to its disclosure to Executive by the Company, its subsidiaries,
affiliates or predecessors, (b) is or becomes generally available to the public
by lawful acts other than those of Executive after receiving it, or (c) has been
received lawfully and in good faith by Executive from a third party who is not
and has never been an executive of the Company, its subsidiaries, affiliates or
predecessors, and who did not derive it from the Company, its subsidiaries,
affiliates or predecessors.
4.2.2
Restriction on Use of
Confidential/Trade Secret Information
. Executive agrees that
his/her use of Confidential/Trade Secret Information is subject to the following
restrictions for an indefinite period of time so long as the Confidential/Trade
Secret Information has not become generally known to the public:
(i)
Non-Disclosure
. Executive
agrees that he will not publish or disclose, or allow to be published or
disclosed, Confidential/Trade Secret Information to any person without the prior
written authorization of the Company unless pursuant to or in connection with
Executive’s job duties to the Company under this Agreement; and
(ii)
Non-Removal/Surrender
. Executive
agrees that he will not remove any Confidential/Trade Secret Information from
the offices of the Company or the premises of any facility in which the Company
is performing services, except pursuant to his duties under this
Agreement. Executive further agrees that he shall surrender to the
Company all documents and materials in his possession or control which contain
Confidential/Trade Secret Information and which are the property of the Company
upon the termination of his employment with the Company, and that he shall not
thereafter retain any copies of any such materials.
4.2.3
Prohibition Against Unfair
Competition/ Non-Solicitation of Customers
. Executive agrees
that at no time after his employment with the Company will he engage in
competition with the Company while making any use of the Confidential/Trade
Secret Information, or otherwise exploit or make use of the Confidential/Trade
Secret Information. Executive agrees that during the six-month period following
the Termination Date, he will not directly or indirectly accept or solicit, in
any capacity, the business of any customer of the Company with whom Executive
worked or otherwise had access to the Confidential/Trade Secret Information
pertaining to the Company’s business with such customer during the last year of
Executive’s employment with the Company, or solicit, directly or indirectly, or
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or otherwise interfere with such
business relationships.
4.3.
Non-Solicitation of
Employees
. Employee agrees that during the six-month period
following the Termination Date, he shall not, directly or indirectly, solicit or
otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit, directly or indirectly, any of the Company’s employees for
employment.
4.4.
Non-Solicitation During
Employment
. During his employment with the Company, Executive
shall not: (a) interfere with the Company’s business relationship with its
customers or suppliers, (b) solicit, directly or indirectly, or otherwise
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or (c) solicit, directly or indirectly,
or otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit any of the Company’s employees for employment.
4.5.
Conflict of
Interest
. During Executive’s employment with the Company,
Executive must not engage in any work, paid or unpaid, that creates an actual
conflict of interest with the Company.
4.6.
Breach of
Provisions
. If Executive materially breaches any of the
provisions of this Article IV, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, to restrain any such breach or
threatened breach and to enforce the provisions of this Article IV.
4.7.
Reasonable
Restrictions
. The Parties acknowledge that the foregoing
restrictions, as well as the duration and the territorial scope thereof as set
forth in this Article IV, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business
4.8.
Specific
Performance
. Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Sections 1.3, 4.2, 4.3 or 4.4 hereof would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be
available.
ARTICLE
V.
ARBITRATION
5.1.
Scope
. To
the fullest extent permitted by law, Executive and the Company agree to the
binding arbitration of any and all controversies, claims or disputes between
them arising out of or in any way related to this Agreement, the employment
relationship between the Company and Executive and any disputes upon termination
of employment, including but not limited to breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, family and medical leave, compensation or benefits claims,
constitutional claims; and any claims for violation of any local, state or
federal law, statute, regulation or ordinance or common law. For the
purpose of this agreement to arbitrate, references to “Company” include all
subsidiaries or related entities and their respective executives, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this agreement to arbitrate shall apply to them to the
extent Executive’s claims arise out of or relate to their actions on behalf of
the Company.
5.2.
Arbitration
Procedure
. To commence any such arbitration proceeding, the
party commencing the arbitration must provide the other party with written
notice of any and all claims forming the basis of such right in sufficient
detail to inform the other party of the substance of such claims. In
no event shall this notice for arbitration be made after the date when
institution of legal or equitable proceedings based on such claims would be
barred by the applicable statute of limitations. The arbitration will
be conducted in Houston, Texas, by a single neutral arbitrator and in accordance
with the then-current rules for resolution of employment disputes of the
American Arbitration Association (“
AAA
”). The
Arbitrator is to be selected by the mutual agreement of the
Parties. If the Parties cannot agree, the Superior Court will select
the arbitrator. The parties are entitled to representation by an
attorney or other representative of their choosing. The arbitrator
shall have the power to enter any award that could be entered by a judge of the
trial court of the State of Texas, and only such power, and shall follow the
law. The award shall be binding and the Parties agree to abide by and
perform any award rendered by the arbitrator. The arbitrator shall
issue the award in writing and therein state the essential findings and
conclusions on which the award is based. Judgment on the award may be
entered in any court having jurisdiction thereof. The losing Party in
the arbitration hearing shall bear the costs of the arbitration filing and
hearing fees and the cost of the arbitrator.
ARTICLE
VI.
MISCELLANEOUS
6.1.
Binding Effect;
Assignment
. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective legal representatives, heirs,
successors and assigns. Executive may not assign any of his rights or
obligations under this Agreement. The Company may assign its rights
and obligations under this Agreement to any successor entity.
6.2.
Notices
. Any
notice provided for herein shall be in writing and shall be deemed to have been
given or made (a) when personally delivered or (b) when sent by telecopier and
confirmed within 48 hours by letter mailed or delivered to the party to be
notified at its or his address set forth herein; or three (3) days after being
sent by registered or certified mail, return receipt requested (or by equivalent
currier with delivery documentation such as FEDEX or UPS) to the address of the
other party set forth or to such other address as may be specified by notice
given in accordance with this section 6.2:
If to the Company
:
|
Vertex
Energy, Inc.
1331
Gemini , Suite 103
Houston,
Texas 77058
Telephone:
___________
Facsimile:
___________
Attention:
_____________
|
If to the Executive:
|
Benjamin
P. Cowart
XXXX XXXX XXX
XXXXX
XXXXXXX
, XXXXX
XXXXX
Telephone:
___________
Facsimile:
___________
Attention:
_____________
|
6.3.
Severability
. If
any provision of this Agreement, or portion thereof, shall be held invalid or
unenforceable by a court of competent jurisdiction, such invalidity or
unenforceability shall attach only to such provision or portion thereof, and
shall not in any manner affect or render invalid or unenforceable any other
provision of this Agreement or portion thereof, and this Agreement shall be
carried out as if any such invalid or unenforceable provision or portion thereof
were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4.
Waiver
. No
waiver by a Party of a breach or default hereunder by the other party shall be
considered valid, unless expressed in a writing signed by such first party, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or any other nature.
6.5.
Entire
Agreement
. This Agreement sets forth the entire agreement
between the Parties with respect to the subject matter hereof, and supersedes
any and all prior agreements between the Company and Executive, whether written
or oral, relating to any or all matters covered by and contained or otherwise
dealt with in this Agreement. This Agreement does not constitute a
commitment of the Company with regard to Executive’s employment, express or
implied, other than to the extent expressly provided for herein.
6.6.
Amendment
. No
modification, change or amendment of this Agreement or any of its provisions
shall be valid, unless in a writing signed by the Parties and approved by the
Compensation Committee.
6.7.
Authority
. The
Parties each represent and warrant that it/he has the power, authority and right
to enter into this Agreement and to carry out and perform the terms, covenants
and conditions hereof.
6.8.
Attorneys’
Fees
. If either party hereto commences an arbitration or other
action against the other party to enforce any of the terms hereof or because of
the breach by such other party of any of the terms hereof, the prevailing party
shall be entitled, in addition to any other relief granted, to all actual
out-of-pocket costs and expenses incurred by such prevailing party in connection
with such action, including, without limitation, all reasonable attorneys’ fees,
and a right to such costs and expenses shall be deemed to have accrued upon the
commencement of such action and shall be enforceable whether or not such action
is prosecuted to judgment.
6.9.
Captions
. The
captions, headings and titles of the sections of this Agreement are inserted
merely for convenience and ease of reference and shall not affect or modify the
meaning of any of the terms, covenants or conditions of this
Agreement.
6.10.
Governing
Law
. This Agreement, and all of the rights and obligations of
the Parties in connection with the employment relationship established hereby,
shall be governed by and construed in accordance with the substantive laws of
the State of Texas without giving effect to principles relating to conflicts of
law.
6.11.
Survival
. The
termination of Executive’s employment with the Company pursuant to the
provisions of this Agreement shall not affect Executive’s obligations to the
Company hereunder which by the nature thereof are intended to survive any such
termination, including, without limitation, Executive’s obligations under
Article IV of this Agreement.
[Signature
page follows]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
“COMPANY”
|
VERTEX
ENERGY, INC.,
a
Nevada corporation
By:
/s/
Chris Carlson
Name:
Chris Carlson
Title: Secretary
|
“EXECUTIVE”
|
Benjamin
P. Cowart
|
EXHIBIT
A
It is
acknowledged and agreed that the following actions, business transactions,
agreements and undertakings may be undertaken by Executive:
|
·
|
Executive
can serve as an officer, director or manager of any of the private
companies with whom he is currently affiliated, including Vertex Energy,
LP, VTX, Inc., Cross Road Carriers, Vertex Recovery, H&H Oil, Arrow,
Cedar Marine Terminal, Vertex Residual Management, B&S Cowart, FLP,
Vertex Green, LP or Vertex Processing (collectively, the “
Affiliated
Companies
”);
|
|
·
|
Executive
may own an interest in or shares or membership units in any of the
Affiliated Companies. Executive may earn a fee for providing
services to the Affiliated
Companies;
|
|
·
|
Through
the Affiliated Companies, the Executive can operate in the collection
generator business; buy, collect and transport and process used oil, crude
oil, refined products, chemicals and oily water; and collect, recycle and
process petroleum waste materials, such as, but not limited to, oily
water, sludges, tank bottoms, and mixed hydrocarbon
materials;
|
|
·
|
Vertex
Recovery or its subsidiaries may sell feedstock to the Company on a fair
market basis and receive a commission or fee based on such sales, as
determined by a yet to be drafted agreement between Vertex Recovery and
the Company;
|
|
·
|
Executive
may market and source feedstock to the best markets through any of the
Affiliated Companies;
|
|
·
|
Cedar
Marine Terminal may license (pursuant to a royalty free, perpetual, and
non-exclusive license) the rights to Demetalization Technology on terms
agreeable to the Company and Cedar Marine Terminal. Cedar
Marine Terminal may also charge the Company for terminalling and storage
costs for the Company’s products. Finally, Cedar Marine
Terminal will enter into an agreement with the Company whereby the Company
leases the land which its operations take place on, on terms to be
mutually agreed to between the
parties;
|
|
·
|
Cross
Road Carriers may transport the Company’s products from time to time, on
substantially similar terms as Cross Road Carriers charges its other
clients;
|
|
·
|
Any
Affiliated Party may sell products, equipment or materials to the Company
on terms mutually agreeable between the Company and such Affiliated
Party;
|
|
·
|
Vertex
Residual Management may contract with the Company or with Vertex LP on
behalf of the Company to provide the Company environmental compliance,
regulation and oversight services on terms mutually agreeable between the
parties;
|
|
·
|
Vertex
Green may focus on the development of renewable energy such as Biodiesel,
which entity shall be outside of the Company;
and
|
|
·
|
Any
other actions, business transactions, agreements and undertakings which
the Executive has received approval of a majority of the independent
members of the Board of Directors to enter into and/or
undertake.
|
EXHIBIT
10.6
VERTEX
ENERGY, INC.
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS
EXECUTIVE EMPLOYMENT AGREEMENT (this “
Agreemen
t”) is made
this 28th day of January, 2009 (the “
Execution Date
”), to
be effective as of the Effective Date as defined below, between Vertex Energy,
Inc., a Nevada corporation (the “
Company
”), and John
Pimentel (“
Executive
”) (each of
Company and Executive is referred to herein as a “
Party
,” and
collectively referred to herein as the “
Parties
”).
W
I T N E S S E T H:
WHEREAS
, the Company desires
to obtain the services of Executive, and Executive desires to be employed by the
Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE
, in
consideration of the premises, the agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as of the Effective Date as follows:
ARTICLE
I.
EMPLOYMENT;
TERM; DUTIES
1.1.
Employment
. Pursuant
to the terms and conditions hereinafter set forth, the Company hereby employs
Executive, and Executive hereby accepts such employment, as the Executive Vice
President of Corporate Development of the Company for a period of two (2) years
beginning on the Effective Date (the “
Initial Term
”);
provided that this Agreement shall automatically extend for additional one (1)
year periods after the Initial Term (each an “
Automatic Renewal
Term
”) in the event that neither party provides the other written notice
of their intent not to automatically extend such Agreement at least sixty (60)
days prior to such Automatic Renewal Date. It is understood by the Company and
Executive that Executive shall
perform duties from his home or at an
office in Northern California.
1.2.
Duties and
Responsibilities
. Executive, as Executive Vice President of
Corporate Development, shall perform such administrative, managerial and
executive duties for the Company (i) as are prescribed by applicable job
specifications for an executive officer of a public company the size and nature
of the Company specifically including but not limited to those enumerated in
Exhibit A
attached, (ii) as may be prescribed by the Bylaws of the Company, (iii) as
are customarily vested in and incidental to such position, and (iv) as may
be assigned to him from time to time by the Board of Directors of the Company
(the “
Board
”).
1.3.
Non-Competition
. For
$10 and other good and valuable consideration which Executive acknowledges
receiving, Executive agrees to devote substantially all of Executive’s business
time, energy and efforts to the business of the Company (except as specifically
provided for in Section 1.4 below), and will use Executive’s best efforts and
abilities faithfully and diligently to promote the business interests of the
Company. For so long as Executive is employed hereunder, and for a
period of twelve months following the last payment received by Executive from
the Company thereafter (the “
Non-Compete Period
”),
Executive shall not, directly or indirectly, either as an employee, employer,
consultant, agent, investor, principal, partner, stockholder (except as the
holder of less than 1% of the issued and outstanding stock of a publicly held
corporation), corporate officer or director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of the Company, as such
business of the Company is now or hereafter conducted.
1.4.
Other
Activities
. Subject to the foregoing prohibition and provided
such services or investments do not violate any applicable law, regulation or
order, or interfere in any way with the faithful and diligent performance by
Executive of the services to the Company otherwise required or contemplated by
this Agreement, the Company expressly acknowledges that Executive
may:
1.4.1
make
and manage personal business investments of Executive’s choice without
consulting the Board;
1.4.2
serve
in any capacity with any non-profit civic, educational or charitable
organization; and
1.4.3
allocate
time during Company work hours in fulfilling his duties as necessary to
responsibly benefit other non-competing business endeavors, advisory roles,
board service, employment contracts or other functions which Executive may
undertake (and Executive may utilize the Company’s phone, computer and similar
office services in pursuing the foregoing). Should Executive have any
question as to the appropriateness of some outside commitment he is free to seek
guidance, and if necessary approval, from the Chairman and CEO, or the Related
Party Transaction Committee for any clarification or modification to this
Section.
1.5.
Board of
Directors
. Concurrently with the effectiveness of this
Agreement, the Board has appointed Executive as a member of the Board, to serve
until the next election of directors by the Company’s shareholders. Thereafter,
the Board shall nominate Executive to be elected to serve on the Board at each
meeting of the Company’s shareholders held during the term of this Agreement to
elect directors, consistent with the provisions of the Bylaws and Articles of
Incorporation of the Company, as amended and in effect from time to
time.
1.6.
Covenants of
Executive
.
1.6.1
Best
Efforts
. Subject to Section 1.4, Executive shall devote his
best efforts to the business and affairs of the Company. Executive
shall perform his duties, responsibilities and functions to the Company
hereunder to the best of his abilities in a diligent, trustworthy, professional
and efficient manner and shall comply, in all material respects, with all rules
and regulations of the Company (and special instructions of the Board, if any)
and all other rules, regulations, guides, handbooks, procedures and policies
applicable to the Company and its business in connection with his duties
hereunder, including all United States federal and state securities laws
applicable to the Company.
1.6.2
Records
. Executive
shall use his best efforts and skills to truthfully, accurately, and promptly
prepare, maintain, and preserve all records and reports that the Company may,
from time to time, request or require, fully account for all money, records,
equipment, materials, or other property belonging to the Company of which he may
have custody, and promptly pay and deliver the same whenever he may be directed
to do so by the Board.
1.6.3
Compliance
. Executive
shall use his best efforts to cause the Company to remain in compliance with all
rules and regulations of the Securities and Exchange Commission (“
SEC
”), and reporting
requirements for publicly traded companies, including, without limitation,
assist in the filing with the SEC of all periodic reports the Company is
required to file under the Exchange Act of 1934 (as amended, the “
Exchange
Act
”). Executive shall at all times comply, and endeavor to
cause the Company to comply, with the then-current good corporate governance
standards and practices as prescribed by the SEC, any exchange on which the
Company’s capital stock or other securities may be traded and any other
applicable governmental entity, agency or
organization. Notwithstanding the foregoing or any other provision
herein to the contrary, the Company agrees and acknowledges that the Executive
is not personally responsible for any filings made with the SEC or any other
governmental agency, and that such filings are the ultimate responsibility of
the Company’s CEO and CFO, who will be responsible for signing any
certifications relating thereto required by the Sarbanes-Oxley Act.
1.6.4
Related Party Transactions
Committee
. Promptly following the date hereof, Executive
agrees to assist in the formation of a “Related Party Transaction Committee” of
the Board composed of at least two (2) Independent Directors (as defined below)
of the Company. Such Related Party Transaction Committee shall be
charged with reviewing and approving all of the Company’s related party
transactions or other transactions that might involve a conflict of
interest. Executive agrees that he shall not enter into any related
party transactions without obtaining the pre-approval of at least a majority of
the members of this Committee. For the purposes of this Agreement, an
“Independent Director” means any director of the Company who does not
beneficially own more than 5% of the outstanding voting shares of Company, is
not employed by, or an officer or director of, the Company or any company with
whom Executive is affiliated.
1.7.
Effective
Date
. The “
Effective Date
” of
this Agreement shall be the closing date of the transactions contemplated by
that certain Amended and Restated Agreement and Plan of Merger by and between
World Waste Technologies, Inc., Vertex Energy, L.P., Vertex Energy, Inc.,
Benjamin P. Cowart and Vertex Merger Sub, LLC, dated on or around May 19, 2008,
as amended from time to time.
ARTICLE
II.
COMPENSATION
AND OTHER BENEFITS
2.1.
Base
Salary
. So long as this Agreement remains in effect, for all
services rendered by Executive hereunder and all covenants and conditions
undertaken by the Parties pursuant to this Agreement, the Company shall pay, and
Executive shall accept, as compensation, an annual base salary (“
Base Salary
”) of
$156,000. The Base Salary shall be payable in regular installments in
accordance with the normal payroll practices of the Company, in effect from time
to time, but in any event no less frequently than on a monthly basis. For so
long as Executive is employed hereunder, beginning on the first anniversary of
the Effective Date, and on each anniversary thereafter, the Base Salary shall be
increased as determined by the Compensation Committee of the Board (the “
Compensation
Committee
”), in its sole and absolute discretion.
2.2.
Options
. As
of the Execution Date of this Agreement, Executive has been granted options to
acquire up to two hundred thousand (200,000) shares of the Company’s common
stock (the “Options”) pursuant to two (2) stock option agreements attached
hereto as
Exhibit
B1
and
Exhibit
B2
. The specific terms of these Options
shall include: (i) the vesting of 100,000 of the Options upon the
Effective Date and the remaining 100,000 options vesting in eight (8) equal
increments at each of the eight (8) quarterly financial closes subsequent to the
Effective Date of this Agreement, assuming that Executive is employed by the
Company as an officer or Director on such date(s); (ii) full acceleration of all
granted and unvested Options in the event the Company is sold or has any other
change of control event, or in the event Executive is terminated by the Company
for any reason other than for Cause as defined in Section 3.2.1
herein.
2.3.
Bonus
Compensation
. For each year this Agreement is in effect,
Executive will be eligible to earn a bonus in the sole discretion of the
Compensation Committee.
2.4.
Business
Expenses
. So long as this Agreement is in effect, the Company
shall reimburse Executive for all reasonable, out-of-pocket business expenses
incurred in the performance of his duties hereunder consistent with the
Company’s policies and procedures, in effect from time to time, with respect to
travel, entertainment, communications, technology/equipment and other business
expenses customarily reimbursed to senior executives of the Company in
connection with the performance of their duties on behalf of the
Company.
2.5.
Vacation
. Executive
will be entitled to 15 days of paid time-off (PTO) per year. PTO days shall
accrue beginning on the 1st of January for each year during the term of this
Agreement. Unused PTO days shall expire on December 31 of each year and shall
not roll over into the next year. Other than the use of PTO days for illness or
personal emergencies, PTO days must be pre-approved by the Company.
2.6.
Other
Benefits
. Executive shall be entitled to participate in the
Company’s employee stock option plan, life, health, accident, disability
insurance plans, pension plans and retirement plans, in effect from time to time
(including, without limitation, any incentive program or discretionary bonus
program of the Company which may be implemented in the future by the Board), to
the extent and on such terms and conditions as the Company customarily makes
such plans available to its senior executives.
2.7.
Withholding
. The
Company may deduct from any compensation payable to Executive (including
payments made pursuant to this Section 2 or in connection with the
termination of employment pursuant to Article III of this Agreement) amounts
sufficient to cover Executive’s share of applicable federal, state and/or local
income tax withholding, social security payments, state disability and other
insurance premiums and payments.
ARTICLE
III.
TERMINATION
OF EMPLOYMENT
3.1.
Termination of
Employment
. Executive’s employment pursuant to this Agreement
shall terminate on the earliest to occur of the following:
3.1.1
upon
the death of Executive;
3.1.2
upon
the delivery to Executive of written notice of termination by the Company if
Executive shall suffer a physical or mental disability which renders Executive,
in the reasonable judgment of the Compensation Committee, unable to perform his
duties and obligations under this Agreement for either 90 consecutive days or
180 days in any 12-month period;
3.1.3
upon
the expiration of the Initial Term, unless a notice of termination pursuant to
Section 1.1 is not given by either party, in which case upon the expiration of
the first Automatic Renewal Term that such a notice of termination is given with
respect to either party (if any);
3.1.4
upon
delivery to the Company of written notice of termination by Executive for any
reason other than for Good Reason;
3.1.5
upon
delivery to Executive of written notice of termination by the Company for
Cause;
3.1.6
upon
delivery of written notice of termination from Executive to the Company for Good
Reason,
provided
,
however
, prior to any
such termination by Executive pursuant to this Section 3.1.6, Executive shall
have advised the Company in writing within fifteen (15) days of the occurrence
of any circumstances that would constitute Good Reason, and the Company has not
cured such circumstances within 15 days following receipt of Executive’s written
notice, with the exception of only five (5) days written notice in the event the
Company reduces Executive’s salary without Executive’s Consent, or fails to pay
Executive any compensation due him; or
3.1.7
upon delivery to Executive of written notice of termination by the Company
without Cause.
3.2.
Certain Definitions
.
For purposes of this Agreement, the following terms shall have the following
meanings:
3.2.1
“
Cause
” shall mean, in
the context of a basis for termination by the Company of Executive’s employment
with the Company, that:
(i)
Executive
materially breaches any obligation, duty, covenant or agreement under this
Agreement, which breach is not cured or corrected within thirty (30) days
of written notice thereof from the Company (except for breaches of Article IV of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(ii)
Executive
commits any material act of misappropriation of funds or embezzlement;
or
(iii)
Executive
commits any material act of fraud; or
(iv)
Executive is convicted of, or pleads guilty or
nolo contendere
with respect
to, theft, fraud, a crime involving moral turpitude, or a felony under federal
or applicable state law.
3.2.2
“
Good Reason
” shall
mean, in the context of a basis for termination by Executive of his employment
with the Company (a) without Executive’s consent, his position or duties are
modified by the Company to such an extent that his duties are no longer
consistent with the position of Executive Vice President of Corporate
Development of the Company, (b) there has been a material breach by
the Company of a material term of this Agreement or Executive believes that the
Company is violating any law which would have a material adverse effect on the
Company’s operations and such violation continues uncured following thirty (30)
days after written notice of such violation or breach by the Company, (c)
Executive’s compensation as set forth hereunder is reduced without Executive’s
consent, (d) Executive is forced by the Company to permanently move
more than thirty (30) miles from his current location, or (e) the Company fails
to pay to Executive any compensation due to him hereunder upon five (5) days
written notice from Executive informing the Company of such
failure.
3.3.
“
Termination Date
”
shall mean the date on which Executive’s employment with the Company hereunder
is terminated
3.4.
Effect of
Termination
. In the event that Executive’s employment
hereunder is terminated in accordance with the provisions of this Agreement,
Executive shall be entitled to the following:
3.4.1
If
Executive’s employment is terminated pursuant to Sections 3.1.1 (death), 3.1.2
(disability), 3.1.3 (two-year anniversary without mutual extension), 3.1.5 (by
the Company for Cause), or 3.1.4 (without Cause by the Executive), Executive
shall be entitled to salary accrued through the Termination Date, including but
not limited to any Options which have vested as of the Termination
Date, and no other benefits other than as required under the terms of
employee benefit plans in which Executive was participating as of Termination
Date.
3.4.2
If
Executive’s employment is terminated pursuant to Section 3.1.7 (without Cause by
the Company) or by Executive pursuant to Section 3.1.6 (Good Reason), Executive
shall be entitled to salary accrued through the Termination Date and to continue
to receive salary at the rate in effect upon the Termination Date of employment
for (a) three months after the Termination Date if this Agreement is terminated
during the first twelve (12) months of the Initial Term, or (b) six months after
the Termination Date if this Agreement is terminated following the expiration of
the first twelve (12) months of the Initial Term; payable in accordance with the
Company’s normal payroll practices and policies, as if Executive’s employment
had not terminated. Any unvested Options held by Executive shall
immediately vest as of the Termination Date of this
Agreement. Executive shall be entitled to no other post-employment
benefits except for benefits payable under applicable benefit plans in which
Executive is entitled to participate pursuant to Section 2.5 hereof through the
Termination Date, subject to and in accordance with the terms of such
plans.
3.4.3
As
a condition to Executive’s right to receive any benefits pursuant to Section 3.4
of this Agreement, (A) Executive must execute and deliver to the Company a
written release in customary form and substance reasonably satisfactory to the
Company, of any and all claims against the Company and all directors and
officers of the Company with respect to all matters arising out of Executive’s
employment hereunder, or the termination thereof (other than claims for
entitlements under the terms of this Agreement or plans or programs of the
Company in which Executive has accrued a benefit); and (B) Executive must not
breach any of his covenants and agreements under Section 1.3 and Article IV of
this Agreement, which continue following the Termination Date.
3.4.4
Upon
termination of Executive’s employment hereunder, or on demand by the Company
during the term of this Agreement, Executive will promptly deliver to the
Company, and will not keep in his possession, recreate or deliver to anyone
else, any and all Company property, as well as all devices and equipment
belonging to the Company (including computers, handheld electronic devices,
telephone equipment, and other electronic devices), Company credit cards,
records, data, notes, notebooks, reports, files, proposals, lists,
correspondence, specifications, drawings blueprints, sketches, materials,
photographs, charts, all documents and property, and reproductions of any of the
aforementioned items that were developed by Executive pursuant to his employment
with the Company, obtained by Executive in connection with his employment with
the Company, or otherwise belonging to the Company, its successors or assigns,
including, without limitation, those records maintained pursuant to this
Agreement.
3.4.5
Executive
also agrees to keep the Company advised of his home and business address for a
period of twelve (12) months after termination of Executive’s employment
hereunder, so that the Company can contact Executive regarding his continuing
obligations provided by this Agreement. In the event that Executive’s
employment hereunder is terminated, Executive agrees to grant consent to
notification by the Company to Executive’s new employer about his obligations
under this Agreement.
3.5.
Consulting
. During
the period that Executive is receiving payments pursuant to
subsection 3.4.2 above, Executive shall be available, subject to his other
reasonable commitments or obligations made or incurred in mitigation of the
termination of his employment, by telephone, email or fax, as a consultant to
the Company, without further compensation, to consult with its officers and
directors regarding projects and/or tasks as defined by the Board.
3.6.
No Duty to
Mitigate
. Executive shall not be required to seek other
employment or take other action in order to mitigate his damages or to be
entitled to any of the payments, benefits, expenses, and stock options
above. The Company shall not be entitled to set off against any such
payments, benefits, expenses, and stock options due or any other amounts of
money payable to Executive any amounts he earns in other employment or
engagement after the termination of his employment with the Company or any
amounts that he might or could have earned in other employment or engagement had
he sought such other employment or engagement.
ARTICLE
IV.
INVENTIONS;
CONFIDENTIAL/TRADE SECRET INFORMATION AND RESTRICTIVE COVENANTS
4.1.
Inventions
. All
processes, technologies and inventions relating to the business of the Company
(collectively, “
Inventions
”),
including new contributions, improvements, ideas, discoveries, trademarks and
trade names, conceived, developed, invented, made or found by Executive, alone
or with others, during his employment by the Company, whether or not patentable
and whether or not conceived, developed, invented, made or found on the
Company’s time or with the use of the Company’s facilities or materials, shall
be the property of the Company and shall be promptly and fully disclosed by
Executive to the Company. Executive shall perform all necessary acts
(including, without limitation, executing and delivering any confirmatory
assignments, documents or instruments requested by the Company) to assign or
otherwise to vest title to any such Inventions in the Company and to enable the
Company, at its sole expense, to secure and maintain domestic and/or foreign
patents or any other rights for such Inventions.
4.2.
Confidential/Trade Secret
Information/Non-Disclosure
.
4.2.1
Confidential/Trade Secret
Information Defined
. During the course of Executive’s
employment, Executive will have access to various Confidential/Trade Secret
Information of the Company and information developed for the
Company. For purposes of this Agreement, the term “
Confidential/Trade Secret
Information
” is information that is not generally known to the public
and, as a result, is of economic benefit to the Company in the conduct of its
business, and the business of the Company’s subsidiaries. Executive
and the Company agree that the term “
Confidential/Trade Secret
Information
” includes but is not limited to all information developed or
obtained by the Company, including its affiliates, and predecessors, and
comprising the following items, whether or not such items have been reduced to
tangible form (e.g., physical writing, computer hard drive, e-mail, disk, tape,
etc.): all methods, techniques, processes, ideas, research and
development, product designs, engineering designs, plans, models, production
plans, business plans, add-on features, trade names, service marks, slogans,
forms, pricing structures, menus, business forms, marketing programs and plans,
layouts and designs, financial structures, operational methods and tactics, cost
information, the identity of and/or contractual arrangements with suppliers
and/or vendors, accounting procedures, and any document, record or other
information of the Company relating to the above. Confidential/Trade
Secret Information includes not only information directly belonging to the
Company which existed before the date of this Agreement, but also information
developed by Executive for the Company, including its subsidiaries, affiliates
and predecessors, during the term of Executive’s employment with the
Company. Confidential/Trade Secret Information does not include any
information which (a) was in the lawful and unrestricted possession of Executive
prior to its disclosure to Executive by the Company, its subsidiaries,
affiliates or predecessors, (b) is or becomes generally available to the public
by lawful acts other than those of Executive after receiving it, or (c) has been
received lawfully and in good faith by Executive from a third party who is not
and has never been an executive of the Company, its subsidiaries, affiliates or
predecessors, and who did not derive it from the Company, its subsidiaries,
affiliates or predecessors.
4.2.2
Restriction on Use of
Confidential/Trade Secret Information
. Executive agrees that
his/her use of Confidential/Trade Secret Information is subject to the following
restrictions for an indefinite period of time so long as the Confidential/Trade
Secret Information has not become generally known to the public:
(i)
Non-Disclosure
. Executive
agrees that he will not publish or disclose, or allow to be published or
disclosed, Confidential/Trade Secret Information to any person without the prior
written authorization of the Company unless pursuant to or in connection with
Executive’s job duties to the Company under this Agreement; and
(ii)
Non-Removal/Surrender
. Executive
agrees that he will not remove any Confidential/Trade Secret Information from
the offices of the Company or the premises of any facility in which the Company
is performing services, except pursuant to his duties under this
Agreement. Executive further agrees that he shall surrender to the
Company all documents and materials in his possession or control which contain
Confidential/Trade Secret Information and which are the property of the Company
upon the termination of his employment with the Company, and that he shall not
thereafter retain any copies of any such materials.
4.2.3
Prohibition Against Unfair
Competition/ Non-Solicitation of Customers
. Executive agrees
that at no time after his employment with the Company will he engage in
competition with the Company while making any use of the Confidential/Trade
Secret Information, or otherwise exploit or make use of the Confidential/Trade
Secret Information. Executive agrees that during the six-month period following
the Termination Date, he will not directly or indirectly accept or solicit, in
any capacity, the business of any customer of the Company with whom Executive
worked or otherwise had access to the Confidential/Trade Secret Information
pertaining to the Company’s business with such customer during the last year of
Executive’s employment with the Company, or solicit, directly or indirectly, or
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or otherwise interfere with such
business relationships.
4.3.
Non-Solicitation of
Employees
. Employee agrees that during the twelve-month period
following the Termination Date, he shall not, directly or indirectly, solicit or
otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit, directly or indirectly, any of the Company’s employees for
employment.
4.4.
Non-Solicitation During
Employment
. During his employment with the Company, Executive
shall not: (a) interfere with the Company’s business relationship with its
customers or suppliers, (b) solicit, directly or indirectly, or otherwise
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or (c) solicit, directly or indirectly,
or otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit any of the Company’s employees for employment.
4.5.
Conflict of
Interest
. During Executive’s employment with the Company,
Executive must not knowingly engage in any work, paid or unpaid, that creates an
actual conflict of interest with the Company. If the Company or the
Executive have any question as to the actual or apparent potential for a
conflict of interest, either shall raise the issue formally to the other, and if
appropriate and necessary the issue shall be put to the Related Party
Transaction Committee for consideration and disposal.
4.6.
Breach of
Provisions
. If Executive materially breaches any of the
provisions of this Article IV, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, to restrain any such breach or
threatened breach and to enforce the provisions of this Article IV.
4.7.
Reasonable
Restrictions
. The Parties acknowledge that the foregoing
restrictions, as well as the duration and the territorial scope thereof as set
forth in this Article IV, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business
4.8.
Specific
Performance
. Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Sections 1.3, 4.2, 4.3 or 4.4 hereof would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be
available.
ARTICLE
V.
ARBITRATION
5.1.
Scope
. To
the fullest extent permitted by law, Executive and the Company agree to the
binding arbitration of any and all controversies, claims or disputes between
them arising out of or in any way related to this Agreement, the employment
relationship between the Company and Executive and any disputes upon termination
of employment, including but not limited to breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, family and medical leave, compensation or benefits claims,
constitutional claims; and any claims for violation of any local, state or
federal law, statute, regulation or ordinance or common law. For the
purpose of this agreement to arbitrate, references to “Company” include all
subsidiaries or related entities and their respective executives, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this agreement to arbitrate shall apply to them to the
extent Executive’s claims arise out of or relate to their actions on behalf of
the Company.
5.2.
Arbitration
Procedure
. To commence any such arbitration proceeding, the
party commencing the arbitration must provide the other party with written
notice of any and all claims forming the basis of such right in sufficient
detail to inform the other party of the substance of such claims. In
no event shall this notice for arbitration be made after the date when
institution of legal or equitable proceedings based on such claims would be
barred by the applicable statute of limitations. The arbitration will
be conducted in a neutral location, by a single neutral arbitrator and in
accordance with the then-current rules for resolution of employment disputes of
the American Arbitration Association (“
AAA
”). The
Arbitrator and location are to be selected by the mutual agreement of the
Parties. If the Parties cannot agree, the Superior Court will select
the arbitrator. The parties are entitled to representation by an
attorney or other representative of their choosing. The arbitrator
shall have the power to enter any award that could be entered by a judge of the
trial court of the presiding State, and only such power, and shall follow the
law. The award shall be binding and the Parties agree to abide by and
perform any award rendered by the arbitrator. The arbitrator shall
issue the award in writing and therein state the essential findings and
conclusions on which the award is based. Judgment on the award may be
entered in any court having jurisdiction thereof. Each Party in the
arbitration hearing shall bear its own costs of the arbitration filing and
hearing fees and the losing Party shall bear the cost of the
arbitrator.
ARTICLE
VI.
MISCELLANEOUS
6.1.
Binding Effect;
Assignment
. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective legal representatives, heirs,
successors and assigns. Executive may not assign any of his rights or
obligations under this Agreement. The Company may assign its rights
and obligations under this Agreement to any successor entity with the written
agreement of the Executive.
6.2.
Notices
. Any
notice provided for herein shall be in writing and shall be deemed to have been
given or made (a) when personally delivered or (b) when sent by telecopier and
confirmed within 48 hours by letter mailed or delivered to the party to be
notified at its or his address set forth herein; or three (3) days after being
sent by registered or certified mail, return receipt requested (or by equivalent
currier with delivery documentation such as FEDEX or UPS) to the address of the
other party set forth or to such other address as may be specified by notice
given in accordance with this section 6.2:
If to the Company
:
|
Vertex
Energy, Inc.
1331
Gemini , Suite 103
Houston,
Texas 77058
Telephone:
866-660-8156
Facsimile:
281-754-4185
Attention:
Benjamin P. Cowart
|
If to the Executive:
|
John
Pimentel
XXX XXXX XXXX
XXXXX
XXXXX
XXXX, XXXXXXXXXX XXXXX
Telephone:
XXX XXX XXXX
Facsimile:
XXX XXX XXXX
Attention:
John Pimentel
|
6.3.
Severability
. If
any provision of this Agreement, or portion thereof, shall be held invalid or
unenforceable by a court of competent jurisdiction, such invalidity or
unenforceability shall attach only to such provision or portion thereof, and
shall not in any manner affect or render invalid or unenforceable any other
provision of this Agreement or portion thereof, and this Agreement shall be
carried out as if any such invalid or unenforceable provision or portion thereof
were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4.
Waiver
. No
waiver by a Party of a breach or default hereunder by the other party shall be
considered valid, unless expressed in a writing signed by such first party, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or any other nature.
6.5.
Entire
Agreement
. This Agreement, including the Exhibits hereto, sets
forth the entire agreement between the Parties with respect to the subject
matter hereof, and supersedes any and all prior agreements between the Company
and Executive, whether written or oral, relating to any or all matters covered
by and contained or otherwise dealt with in this Agreement.
6.6.
Amendment
. No
modification, change or amendment of this Agreement or any of its provisions
shall be valid, unless in writing signed by the Parties and approved by the
Compensation Committee.
6.7.
Authority
. The
Parties each represent and warrant that it/he has the power, authority and right
to enter into this Agreement and to carry out and perform the terms, covenants
and conditions hereof.
6.8.
Attorneys’
Fees
. If either party hereto commences an arbitration or other
action against the other party to enforce any of the terms hereof or because of
the breach by such other party of any of the terms hereof, the prevailing party
shall be entitled, in addition to any other relief granted, to all actual
out-of-pocket costs and expenses incurred by such prevailing party in connection
with such action, including, without limitation, all reasonable attorneys’ fees,
and a right to such costs and expenses shall be deemed to have accrued upon the
commencement of such action and shall be enforceable whether or not such action
is prosecuted to judgment.
6.9.
Captions
. The
captions, headings and titles of the sections of this Agreement are inserted
merely for convenience and ease of reference and shall not affect or modify the
meaning of any of the terms, covenants or conditions of this
Agreement.
6.10.
Governing
Law
. This Agreement, and all of the rights and obligations of
the Parties in connection with the employment relationship established hereby,
shall be governed by and construed in accordance with the substantive laws of
the State of Texas without giving effect to principles relating to conflicts of
law.
6.11.
Survival
. The
termination of Executive’s employment with the Company pursuant to the
provisions of this Agreement shall not affect Executive’s obligations to the
Company hereunder which by the nature thereof are intended to survive any such
termination, including, without limitation, Executive’s obligations under
Section 1.3 and Article IV of this Agreement.
6.12.
Termination of this
Agreement.
Either Party may terminate this Agreement in the
event that the Effective Date has not occurred by June 30, 2009.
[Signature
page follows]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
“COMPANY”
|
VERTEX
ENERGY, INC.,
a
Nevada corporation
By:
/s/
Benjamin P. Cowart
Name:
Benjamin P. Cowart
Title:
President
|
“EXECUTIVE”
|
John
Pimentel
|
EXHIBIT
A
|
1.
|
Executive
shall report to the Chairman and CEO.
|
|
|
|
|
2.
|
Executive
shall serve on Board of Directors as Vice-Chairman.
|
|
|
|
|
a.
|
Prepare
Board schedules, agendas, minutes, and serve as Chairman in his
absence.
|
|
|
|
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b.
|
Serve
on Board committees and sub-committees as deemed appropriate by the
Board.
|
|
|
|
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3.
|
Executive
shall undertake the following duties and/or develop the following
strategies for the Company:
|
|
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|
|
a.
|
Vertex
corporate Growth Strategy
|
|
|
|
|
i.
|
Lead
efforts to develop and refine corporate Growth
Strategy.
|
|
|
|
|
ii.
|
Work
with CEO and management team to develop, record and communicate Vertex
Growth Strategy.
|
|
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|
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i.
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Determine
the amount and timing of external debt and equity financing necessary to
execute on corporate growth plan, and produce a Financing Plan to execute
on such goals.
|
|
|
|
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ii.
|
Manage
the relationships necessary to execute the Financing Plan at the best
possible terms to Vertex.
|
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iii.
|
Work
with management team to develop necessary supporting materials to
accomplish the Financing Plan.
|
|
|
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i.
|
Develop
strategy to acquire used oil volume, and to pursue adjacent investment
opportunities, through acquisitions and mergers.
|
|
|
|
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ii.
|
Work
with management team to identify, screen and acquire
targets.
|
|
|
|
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iii.
|
Lead
efforts to structure and finance acquisitions.
|
|
|
|
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d.
|
Investor
Relations and Public Relations
|
|
|
|
|
i.
|
Develop
IR/PR plan, and associated budget, to communicate the Vertex Growth
Plan.
|
|
|
|
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ii.
|
Manage
relationships with vendors and services providers used in such
communications.
|
|
|
|
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iii.
|
Develop
strategy for listing on NASDAQ or other stock exchange.
|
|
|
|
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e.
|
Project
Development Subsidiary
|
|
|
|
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i.
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Lead
efforts to maximize the value of the assets in the project development
subsidiary.
|
|
|
|
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ii.
|
Evaluate
other project development opportunities as needed and make recommendations
to the CEO on the efficacy of such
opportunities.
|
EXHIBIT
B
EXHIBIT
10.7
VERTEX
ENERGY, INC.
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS
EXECUTIVE EMPLOYMENT AGREEMENT (this “
Agreemen
t”) is made
this 28th day of January, 2009 (the “
Execution Date
”), to
be effective as of the Effective Date as defined below, between Vertex Energy,
Inc., a Nevada corporation (the “
Company
”), and
Matthew Lieb (“
Executive
”) (each of
Company and Executive is referred to herein as a “
Party
,” and
collectively referred to herein as the “
Parties
”).
W
I T N E S S E T H:
WHEREAS
, the Company desires
to obtain the services of Executive, and Executive desires to be employed by the
Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE
, in
consideration of the premises, the agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as of the Effective Date as follows:
ARTICLE
I.
EMPLOYMENT;
TERM; DUTIES
1.1.
Employment
. Pursuant
to the terms and conditions hereinafter set forth, the Company hereby employs
Executive, and Executive hereby accepts such employment, as the Chief Operating
Officer of the Company for a period of four (4) years beginning on the Effective
Date (the “
Initial
Term
”); provided that this Agreement shall automatically extend for
additional one (1) year periods after the Initial Term (each an “
Automatic Renewal
Term
”) in the event that neither party provides the other written notice
of their intent not to automatically extend such Agreement at least sixty (60)
days prior to such Automatic Renewal Date. It is understood by the Company and
Executive that Executive shall perform duties from his home or at an office in
California.
1.2.
Duties and
Responsibilities
. Executive, as Chief Operating Officer, shall
perform such administrative, managerial and executive duties for the Company (i)
as are prescribed by applicable job specifications for an executive officer of a
public company the size and nature of the Company specifically including but not
limited to those enumerated in
Exhibit A
attached,
(ii) as may be prescribed by the Bylaws of the Company, (iii) as are
customarily vested in and incidental to such position, and (iv) as may be
assigned to him from time to time by the Board of Directors of the Company (the
“
Board
”).
1.3.
Non-Competition
. For
$10 and other good and valuable consideration which Executive acknowledges
receiving, Executive agrees to devote substantially all of Executive’s business
time, energy and efforts to the business of the Company (except as specifically
provided for in Section 1.4 below), and will use Executive’s best efforts and
abilities faithfully and diligently to promote the business interests of the
Company. For so long as Executive is employed hereunder, and for a
period of twelve months following the last payment received by Executive from
the Company thereafter (the “
Non-Compete Period
”),
Executive shall not, directly or indirectly, either as an employee, employer,
consultant, agent, investor, principal, partner, stockholder (except as the
holder of less than 1% of the issued and outstanding stock of a publicly held
corporation), corporate officer or director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of the Company, as such
business of the Company is now or hereafter conducted.
1.4.
Other
Activities
. Subject to the foregoing prohibition and provided
such services or investments do not violate any applicable law, regulation or
order, or interfere in any way with the faithful and diligent performance by
Executive of the services to the Company otherwise required or contemplated by
this Agreement, the Company expressly acknowledges that Executive
may:
1.4.1
make
and manage personal business investments of Executive’s choice without
consulting the Board;
1.4.2
serve
in any capacity with any non-profit civic, educational or charitable
organization; and
1.4.3
allocate
time during Company work hours in fulfilling his duties as necessary to
responsibly benefit other non-competing business endeavors, advisory roles,
board service, employment contracts or other functions which Executive may
undertake (and Executive may utilize the Company’s phone, computer and similar
office services in pursuing the foregoing). Should Executive have any
question as to the appropriateness of some outside commitment he is free to seek
guidance, and if necessary approval, from the Chairman and CEO, or the Related
Party Transaction Committee for any clarification or modification to this
Section.
1.5.
Covenants of
Executive
.
1.5.1
Best
Efforts
. Subject to Section 1.4, Executive shall devote his
best efforts to the business and affairs of the Company. Executive
shall perform his duties, responsibilities and functions to the Company
hereunder to the best of his abilities in a diligent, trustworthy, professional
and efficient manner and shall comply, in all material respects, with all rules
and regulations of the Company (and special instructions of the Board, if any)
and all other rules, regulations, guides, handbooks, procedures and policies
applicable to the Company and its business in connection with his duties
hereunder, including all United States federal and state securities laws
applicable to the Company.
1.5.2
Records
. Executive
shall use his best efforts and skills to truthfully, accurately, and promptly
prepare, maintain, and preserve all records and reports that the Company may,
from time to time, request or require, fully account for all money, records,
equipment, materials, or other property belonging to the Company of which he may
have custody, and promptly pay and deliver the same whenever he may be directed
to do so by the Board.
1.5.3
Compliance
. Executive
shall use his best efforts to cause the Company to remain in compliance with all
rules and regulations of the Securities and Exchange Commission (“
SEC
”), and reporting
requirements for publicly traded companies, including, without limitation,
assist in the filing with the SEC of all periodic reports the Company is
required to file under the Exchange Act of 1934 (as amended, the “
Exchange
Act
”). Executive shall at all times comply, and endeavor to
cause the Company to comply, with the then-current good corporate governance
standards and practices as prescribed by the SEC, any exchange on which the
Company’s capital stock or other securities may be traded and any other
applicable governmental entity, agency or
organization. Notwithstanding the foregoing or any other provision
herein to the contrary, the Company agrees and acknowledges that the Executive
is not personally responsible for any filings made with the SEC or any other
governmental agency, and that such filings are the ultimate responsibility of
the Company’s CEO and CFO, who will be responsible for signing any
certifications relating thereto required by the Sarbanes-Oxley Act.
1.5.4
Related Party Transactions
Committee
. Promptly following the date hereof, Executive
agrees to assist in the formation of a “Related Party Transaction Committee” of
the Board composed of at least two (2) Independent Directors (as defined below)
of the Company. Such Related Party Transaction Committee shall be
charged with reviewing and approving all of the Company’s related party
transactions or other transactions that might involve a conflict of
interest. Executive agrees that he shall not enter into any related
party transactions without obtaining the pre-approval of at least a majority of
the members of this Committee. For the purposes of this Agreement, an
“Independent Director” means any director of the Company who does not
beneficially own more than 5% of the outstanding voting shares of Company, is
not employed by, or an officer or director of, the Company or any company with
whom Executive is affiliated.
1.6.
Effective
Date
. The “
Effective Date
” of
this Agreement shall be the closing date of the transactions contemplated by
that certain Amended and Restated Agreement and Plan of Merger by and between
World Waste Technologies, Inc., Vertex Energy, L.P., Vertex Energy, Inc.,
Benjamin P. Cowart and Vertex Merger Sub, LLC, dated on or around May 19, 2008,
as amended from time to time.
ARTICLE
II.
COMPENSATION
AND OTHER BENEFITS
2.1.
Base
Salary
. So long as this Agreement remains in effect, for all
services rendered by Executive hereunder and all covenants and conditions
undertaken by the Parties pursuant to this Agreement, the Company shall pay, and
Executive shall accept, as compensation, an annual base salary (“
Base Salary
”) of
$150,000. The Base Salary shall be payable in regular installments in
accordance with the normal payroll practices of the Company, in effect from time
to time, but in any event no less frequently than on a monthly basis. For so
long as Executive is employed hereunder, beginning on the first anniversary of
the Effective Date, and on each anniversary thereafter, the Base Salary shall be
increased as determined by the Compensation Committee of the Board (the “
Compensation
Committee
”), in its sole and absolute discretion.
2.2.
Options
. As
of the Execution Date of this Agreement, Executive has been granted options to
acquire up to two hundred thousand (200,000) shares of the Company’s common
stock (the “Options”) pursuant to two (2) stock option agreements attached
hereto as
Exhibit
B1
and
Exhibit
B2
. The specific terms of these Options
shall include: (i) the vesting of 25,000 of the Options upon the
Effective Date and the remaining 175,000 options vesting in sixteen (16) equal
increments at each of the sixteen (16) quarterly financial closes subsequent to
the Effective Date of this Agreement, assuming that Executive is employed by the
Company as an officer or Director on such date(s); (ii) full acceleration of all
granted and unvested Options in the event the Company is sold or has any other
change of control event, or in the event Executive is terminated by the Company
for any reason other than for Cause as defined in Section 3.2.1
herein.
2.3.
Bonus
Compensation
. For each year this Agreement is in effect,
Executive will be eligible to earn a bonus in the sole discretion of the
Compensation Committee.
2.4.
Business
Expenses
. So long as this Agreement is in effect, the Company
shall reimburse Executive for all reasonable, out-of-pocket business expenses
incurred in the performance of his duties hereunder consistent with the
Company’s policies and procedures, in effect from time to time, with respect to
travel, entertainment, communications, technology/equipment and other business
expenses customarily reimbursed to senior executives of the Company in
connection with the performance of their duties on behalf of the
Company.
2.5.
Vacation
. Executive
will be entitled to 15 days of paid time-off (PTO) per year. PTO days shall
accrue beginning on the 1st of January for each year during the term of this
Agreement. Unused PTO days shall expire on December 31 of each year and shall
not roll over into the next year. Other than the use of PTO days for illness or
personal emergencies, PTO days must be pre-approved by the Company.
2.6.
Other
Benefits
. Executive shall be entitled to participate in the
Company’s employee stock option plan, life, health, accident, disability
insurance plans, pension plans and retirement plans, in effect from time to time
(including, without limitation, any incentive program or discretionary bonus
program of the Company which may be implemented in the future by the Board), to
the extent and on such terms and conditions as the Company customarily makes
such plans available to its senior executives.
2.7.
Withholding
. The
Company may deduct from any compensation payable to Executive (including
payments made pursuant to this Section 2 or in connection with the
termination of employment pursuant to Article III of this Agreement) amounts
sufficient to cover Executive’s share of applicable federal, state and/or local
income tax withholding, social security payments, state disability and other
insurance premiums and payments.
ARTICLE
III.
TERMINATION
OF EMPLOYMENT
3.1.
Termination of
Employment
. Executive’s employment pursuant to this Agreement
shall terminate on the earliest to occur of the following:
3.1.1
upon
the death of Executive;
3.1.2
upon
the delivery to Executive of written notice of termination by the Company if
Executive shall suffer a physical or mental disability which renders Executive,
in the reasonable judgment of the Compensation Committee, unable to perform his
duties and obligations under this Agreement for either 90 consecutive days or
180 days in any 12-month period;
3.1.3
upon
the expiration of the Initial Term, unless a notice of termination pursuant to
Section 1.1 is not given by either party, in which case upon the expiration of
the first Automatic Renewal Term that such a notice of termination is given with
respect to either party (if any);
3.1.4
upon
delivery to the Company of written notice of termination by Executive for any
reason other than for Good Reason;
3.1.5
upon
delivery to Executive of written notice of termination by the Company for
Cause;
3.1.6
upon
delivery of written notice of termination from Executive to the Company for Good
Reason,
provided
,
however
, prior to any
such termination by Executive pursuant to this Section 3.1.6, Executive shall
have advised the Company in writing within fifteen (15) days of the occurrence
of any circumstances that would constitute Good Reason, and the Company has not
cured such circumstances within 15 days following receipt of Executive’s written
notice, with the exception of only five (5) days written notice in the event the
Company reduces Executive’s salary without Executive’s Consent, or fails to pay
Executive any compensation due him; or
3.1.7
upon
delivery to Executive of written notice of termination by the Company without
Cause.
3.2.
Certain Definitions
.
For purposes of this Agreement, the following terms shall have the following
meanings:
3.2.1
“
Cause
” shall mean, in
the context of a basis for termination by the Company of Executive’s employment
with the Company, that:
(i)
Executive
materially breaches any obligation, duty, covenant or agreement under this
Agreement, which breach is not cured or corrected within thirty (30) days
of written notice thereof from the Company (except for breaches of Article IV of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(ii)
Executive
commits any material act of misappropriation of funds or embezzlement;
or
(iii)
Executive
commits any material act of fraud; or
(iv)
Executive
is convicted of, or pleads guilty or
nolo contendere
with respect
to, theft, fraud, a crime involving moral turpitude, or a felony under federal
or applicable state law.
3.2.2
“
Good Reason
” shall
mean, in the context of a basis for termination by Executive of his employment
with the Company (a) without Executive’s consent, his position or duties are
modified by the Company to such an extent that his duties are no longer
consistent with the position of Chief Operating Officer of the Company, (b)
there has been a material breach by the Company of a material term of
this Agreement or Executive believes that the Company is violating any law which
would have a material adverse effect on the Company’s operations and such
violation continues uncured following thirty (30) days after written notice of
such violation or breach by the Company, (c) Executive’s compensation as set
forth hereunder is reduced without Executive’s consent, (d) Executive
is forced by the Company to permanently move more than thirty (30) miles from
his current location, or (e) the Company fails to pay to Executive any
compensation due to him hereunder upon five (5) days written notice from
Executive informing the Company of such failure.
3.3.
“
Termination Date
”
shall mean the date on which Executive’s employment with the Company hereunder
is terminated
3.4.
Effect of
Termination
. In the event that Executive’s employment
hereunder is terminated in accordance with the provisions of this Agreement,
Executive shall be entitled to the following:
3.4.1
If
Executive’s employment is terminated pursuant to Sections 3.1.1 (death), 3.1.2
(disability), 3.1.3 (two-year anniversary without mutual extension), 3.1.5 (by
the Company for Cause), or 3.1.4 (without Cause by the Executive), Executive
shall be entitled to salary accrued through the Termination Date, including but
not limited to any Options which have vested as of the Termination
Date, and no other benefits other than as required under the terms of
employee benefit plans in which Executive was participating as of Termination
Date.
3.4.2
If
Executive’s employment is terminated pursuant to Section 3.1.7 (without Cause by
the Company) or by Executive pursuant to Section 3.1.6 (Good Reason), Executive
shall be entitled to salary accrued through the Termination Date and to continue
to receive salary at the rate in effect upon the Termination Date of employment
for (a) three months after the Termination Date if this Agreement is terminated
during the first twelve (12) months of the Initial Term, or (b) six months after
the Termination Date if this Agreement is terminated following the expiration of
the first twelve (12) months of the Initial Term; payable in accordance with the
Company’s normal payroll practices and policies, as if Executive’s employment
had not terminated. Any unvested Options held by Executive shall
immediately vest as of the Termination Date of this
Agreement. Executive shall be entitled to no other post-employment
benefits except for benefits payable under applicable benefit plans in which
Executive is entitled to participate pursuant to Section 2.5 hereof through the
Termination Date, subject to and in accordance with the terms of such
plans.
3.4.3
As
a condition to Executive’s right to receive any benefits pursuant to Section 3.4
of this Agreement, (A) Executive must execute and deliver to the Company a
written release in customary form and substance reasonably satisfactory to the
Company, of any and all claims against the Company and all directors and
officers of the Company with respect to all matters arising out of Executive’s
employment hereunder, or the termination thereof (other than claims for
entitlements under the terms of this Agreement or plans or programs of the
Company in which Executive has accrued a benefit); and (B) Executive must not
breach any of his covenants and agreements under Section 1.3 and Article IV of
this Agreement, which continue following the Termination Date.
3.4.4
Upon
termination of Executive’s employment hereunder, or on demand by the Company
during the term of this Agreement, Executive will promptly deliver to the
Company, and will not keep in his possession, recreate or deliver to anyone
else, any and all Company property, as well as all devices and equipment
belonging to the Company (including computers, handheld electronic devices,
telephone equipment, and other electronic devices), Company credit cards,
records, data, notes, notebooks, reports, files, proposals, lists,
correspondence, specifications, drawings blueprints, sketches, materials,
photographs, charts, all documents and property, and reproductions of any of the
aforementioned items that were developed by Executive pursuant to his employment
with the Company, obtained by Executive in connection with his employment with
the Company, or otherwise belonging to the Company, its successors or assigns,
including, without limitation, those records maintained pursuant to this
Agreement.
3.4.5
Executive
also agrees to keep the Company advised of his home and business address for a
period of twelve (12) months after termination of Executive’s employment
hereunder, so that the Company can contact Executive regarding his continuing
obligations provided by this Agreement. In the event that Executive’s
employment hereunder is terminated, Executive agrees to grant consent to
notification by the Company to Executive’s new employer about his obligations
under this Agreement.
3.5.
Consulting
. During
the period that Executive is receiving payments pursuant to
subsection 3.4.2 above, Executive shall be available, subject to his other
reasonable commitments or obligations made or incurred in mitigation of the
termination of his employment, by telephone, email or fax, as a consultant to
the Company, without further compensation, to consult with its officers and
directors regarding projects and/or tasks as defined by the Board.
3.6.
No Duty to
Mitigate
. Executive shall not be required to seek other
employment or take other action in order to mitigate his damages or to be
entitled to any of the payments, benefits, expenses, and stock options
above. The Company shall not be entitled to set off against any such
payments, benefits, expenses, and stock options due or any other amounts of
money payable to Executive any amounts he earns in other employment or
engagement after the termination of his employment with the Company or any
amounts that he might or could have earned in other employment or engagement had
he sought such other employment or engagement.
ARTICLE
IV.
INVENTIONS;
CONFIDENTIAL/TRADE SECRET INFORMATION AND RESTRICTIVE COVENANTS
4.1.
Inventions
. All
processes, technologies and inventions relating to the business of the Company
(collectively, “
Inventions
”),
including new contributions, improvements, ideas, discoveries, trademarks and
trade names, conceived, developed, invented, made or found by Executive, alone
or with others, during his employment by the Company, whether or not patentable
and whether or not conceived, developed, invented, made or found on the
Company’s time or with the use of the Company’s facilities or materials, shall
be the property of the Company and shall be promptly and fully disclosed by
Executive to the Company. Executive shall perform all necessary acts
(including, without limitation, executing and delivering any confirmatory
assignments, documents or instruments requested by the Company) to assign or
otherwise to vest title to any such Inventions in the Company and to enable the
Company, at its sole expense, to secure and maintain domestic and/or foreign
patents or any other rights for such Inventions.
4.2.
Confidential/Trade Secret
Information/Non-Disclosure
.
4.2.1
Confidential/Trade Secret
Information Defined
. During the course of Executive’s
employment, Executive will have access to various Confidential/Trade Secret
Information of the Company and information developed for the
Company. For purposes of this Agreement, the term “
Confidential/Trade Secret
Information
” is information that is not generally known to the public
and, as a result, is of economic benefit to the Company in the conduct of its
business, and the business of the Company’s subsidiaries. Executive
and the Company agree that the term “
Confidential/Trade Secret
Information
” includes but is not limited to all information developed or
obtained by the Company, including its affiliates, and predecessors, and
comprising the following items, whether or not such items have been reduced to
tangible form (e.g., physical writing, computer hard drive, e-mail, disk, tape,
etc.): all methods, techniques, processes, ideas, research and
development, product designs, engineering designs, plans, models, production
plans, business plans, add-on features, trade names, service marks, slogans,
forms, pricing structures, menus, business forms, marketing programs and plans,
layouts and designs, financial structures, operational methods and tactics, cost
information, the identity of and/or contractual arrangements with suppliers
and/or vendors, accounting procedures, and any document, record or other
information of the Company relating to the above. Confidential/Trade
Secret Information includes not only information directly belonging to the
Company which existed before the date of this Agreement, but also information
developed by Executive for the Company, including its subsidiaries, affiliates
and predecessors, during the term of Executive’s employment with the
Company. Confidential/Trade Secret Information does not include any
information which (a) was in the lawful and unrestricted possession of Executive
prior to its disclosure to Executive by the Company, its subsidiaries,
affiliates or predecessors, (b) is or becomes generally available to the public
by lawful acts other than those of Executive after receiving it, or (c) has been
received lawfully and in good faith by Executive from a third party who is not
and has never been an executive of the Company, its subsidiaries, affiliates or
predecessors, and who did not derive it from the Company, its subsidiaries,
affiliates or predecessors.
4.2.2
Restriction on Use of
Confidential/Trade Secret Information
. Executive agrees that
his/her use of Confidential/Trade Secret Information is subject to the following
restrictions for an indefinite period of time so long as the Confidential/Trade
Secret Information has not become generally known to the public:
(i)
Non-Disclosure
. Executive
agrees that he will not publish or disclose, or allow to be published or
disclosed, Confidential/Trade Secret Information to any person without the prior
written authorization of the Company unless pursuant to or in connection with
Executive’s job duties to the Company under this Agreement; and
(ii)
Non-Removal/Surrender
. Executive
agrees that he will not remove any Confidential/Trade Secret Information from
the offices of the Company or the premises of any facility in which the Company
is performing services, except pursuant to his duties under this
Agreement. Executive further agrees that he shall surrender to the
Company all documents and materials in his possession or control which contain
Confidential/Trade Secret Information and which are the property of the Company
upon the termination of his employment with the Company, and that he shall not
thereafter retain any copies of any such materials.
4.2.3
Prohibition Against Unfair
Competition/ Non-Solicitation of Customers
. Executive agrees
that at no time after his employment with the Company will he engage in
competition with the Company while making any use of the Confidential/Trade
Secret Information, or otherwise exploit or make use of the Confidential/Trade
Secret Information. Executive agrees that during the six-month period following
the Termination Date, he will not directly or indirectly accept or solicit, in
any capacity, the business of any customer of the Company with whom Executive
worked or otherwise had access to the Confidential/Trade Secret Information
pertaining to the Company’s business with such customer during the last year of
Executive’s employment with the Company, or solicit, directly or indirectly, or
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or otherwise interfere with such
business relationships.
4.3.
Non-Solicitation of
Employees
. Employee agrees that during the twelve-month period
following the Termination Date, he shall not, directly or indirectly, solicit or
otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit, directly or indirectly, any of the Company’s employees for
employment.
4.4.
Non-Solicitation During
Employment
. During his employment with the Company, Executive
shall not: (a) interfere with the Company’s business relationship with its
customers or suppliers, (b) solicit, directly or indirectly, or otherwise
encourage any of the Company’s customers or suppliers to terminate their
business relationship with the Company, or (c) solicit, directly or indirectly,
or otherwise encourage any employees of the Company to leave the employ of the
Company, or solicit any of the Company’s employees for employment.
4.5.
Conflict of
Interest
. During Executive’s employment with the Company,
Executive must not knowingly engage in any work, paid or unpaid, that creates an
actual conflict of interest with the Company. If the Company or the
Executive have any question as to the actual or apparent potential for a
conflict of interest, either shall raise the issue formally to the other, and if
appropriate and necessary the issue shall be put to the Related Party
Transaction Committee for consideration and disposal.
4.6.
Breach of
Provisions
. If Executive materially breaches any of the
provisions of this Article IV, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, to restrain any such breach or
threatened breach and to enforce the provisions of this Article IV.
4.7.
Reasonable
Restrictions
. The Parties acknowledge that the foregoing
restrictions, as well as the duration and the territorial scope thereof as set
forth in this Article IV, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business
4.8.
Specific
Performance
. Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Sections 1.3, 4.2, 4.3 or 4.4 hereof would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be
available.
ARTICLE
V.
ARBITRATION
5.1.
Scope
. To
the fullest extent permitted by law, Executive and the Company agree to the
binding arbitration of any and all controversies, claims or disputes between
them arising out of or in any way related to this Agreement, the employment
relationship between the Company and Executive and any disputes upon termination
of employment, including but not limited to breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, family and medical leave, compensation or benefits claims,
constitutional claims; and any claims for violation of any local, state or
federal law, statute, regulation or ordinance or common law. For the
purpose of this agreement to arbitrate, references to “Company” include all
subsidiaries or related entities and their respective executives, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this agreement to arbitrate shall apply to them to the
extent Executive’s claims arise out of or relate to their actions on behalf of
the Company.
5.2.
Arbitration
Procedure
. To commence any such arbitration proceeding, the
party commencing the arbitration must provide the other party with written
notice of any and all claims forming the basis of such right in sufficient
detail to inform the other party of the substance of such claims. In
no event shall this notice for arbitration be made after the date when
institution of legal or equitable proceedings based on such claims would be
barred by the applicable statute of limitations. The arbitration will
be conducted in a neutral location, by a single neutral arbitrator and in
accordance with the then-current rules for resolution of employment disputes of
the American Arbitration Association (“
AAA
”). The
Arbitrator and location are to be selected by the mutual agreement of the
Parties. If the Parties cannot agree, the Superior Court will select
the arbitrator. The parties are entitled to representation by an
attorney or other representative of their choosing. The arbitrator
shall have the power to enter any award that could be entered by a judge of the
trial court of the presiding State, and only such power, and shall follow the
law. The award shall be binding and the Parties agree to abide by and
perform any award rendered by the arbitrator. The arbitrator shall
issue the award in writing and therein state the essential findings and
conclusions on which the award is based. Judgment on the award may be
entered in any court having jurisdiction thereof. Each Party in the
arbitration hearing shall bear its own costs of the arbitration filing and
hearing fees and the losing Party shall bear the cost of the
arbitrator.
ARTICLE
VI.
MISCELLANEOUS
6.1.
Binding Effect;
Assignment
. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective legal representatives, heirs,
successors and assigns. Executive may not assign any of his rights or
obligations under this Agreement. The Company may assign its rights
and obligations under this Agreement to any successor entity with the written
agreement of the Executive.
6.2.
Notices
. Any
notice provided for herein shall be in writing and shall be deemed to have been
given or made (a) when personally delivered or (b) when sent by telecopier and
confirmed within 48 hours by letter mailed or delivered to the party to be
notified at its or his address set forth herein; or three (3) days after being
sent by registered or certified mail, return receipt requested (or by equivalent
currier with delivery documentation such as FEDEX or UPS) to the address of the
other party set forth or to such other address as may be specified by notice
given in accordance with this section 6.2:
If to the Company
:
|
Vertex
Energy, Inc.
1331
Gemini , Suite 103
Houston,
Texas 77058
Telephone:
866-660-8156
Facsimile:
281-754-4185
Attention:
Benjamin P. Cowart
|
If to the Executive:
|
Matthew
Lieb
XXX XXXXXXXXXX XXX
XX
XXXXX
XXXXXX, XXXXXXXXXX XXXXX
Telephone:
XXX XXX XXXX
Facsimile:
XXX XXX XXXX
Attention:
Matthew Lieb
|
6.3.
Severability
. If
any provision of this Agreement, or portion thereof, shall be held invalid or
unenforceable by a court of competent jurisdiction, such invalidity or
unenforceability shall attach only to such provision or portion thereof, and
shall not in any manner affect or render invalid or unenforceable any other
provision of this Agreement or portion thereof, and this Agreement shall be
carried out as if any such invalid or unenforceable provision or portion thereof
were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4.
Waiver
. No
waiver by a Party of a breach or default hereunder by the other party shall be
considered valid, unless expressed in a writing signed by such first party, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or any other nature.
6.5.
Entire
Agreement
. This Agreement, including the Exhibits hereto, sets
forth the entire agreement between the Parties with respect to the subject
matter hereof, and supersedes any and all prior agreements between the Company
and Executive, whether written or oral, relating to any or all matters covered
by and contained or otherwise dealt with in this Agreement.
6.6.
Amendment
. No
modification, change or amendment of this Agreement or any of its provisions
shall be valid, unless in writing signed by the Parties and approved by the
Compensation Committee.
6.7.
Authority
. The
Parties each represent and warrant that it/he has the power, authority and right
to enter into this Agreement and to carry out and perform the terms, covenants
and conditions hereof.
6.8.
Attorneys’
Fees
. If either party hereto commences an arbitration or other
action against the other party to enforce any of the terms hereof or because of
the breach by such other party of any of the terms hereof, the prevailing party
shall be entitled, in addition to any other relief granted, to all actual
out-of-pocket costs and expenses incurred by such prevailing party in connection
with such action, including, without limitation, all reasonable attorneys’ fees,
and a right to such costs and expenses shall be deemed to have accrued upon the
commencement of such action and shall be enforceable whether or not such action
is prosecuted to judgment.
6.9.
Captions
. The
captions, headings and titles of the sections of this Agreement are inserted
merely for convenience and ease of reference and shall not affect or modify the
meaning of any of the terms, covenants or conditions of this
Agreement.
6.10.
Governing
Law
. This Agreement, and all of the rights and obligations of
the Parties in connection with the employment relationship established hereby,
shall be governed by and construed in accordance with the substantive laws of
the State of Texas without giving effect to principles relating to conflicts of
law.
6.11.
Survival
. The
termination of Executive’s employment with the Company pursuant to the
provisions of this Agreement shall not affect Executive’s obligations to the
Company hereunder which by the nature thereof are intended to survive any such
termination, including, without limitation, Executive’s obligations under
Section 1.3 and Article IV of this Agreement.
6.12.
Termination of this
Agreement.
Either Party may terminate this Agreement in the
event that the Effective Date has not occurred by June 30, 2009.
[Signature
page follows]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
“COMPANY”
|
VERTEX
ENERGY, INC.,
a
Nevada corporation
By:
/s/
Benjamin P. Cowart
Name:
Benjamin P. Cowart
Title:
President
|
“EXECUTIVE”
|
Matthew
Lieb
|
EXHIBIT
A
|
1.
|
Executive
shall report to the Chairman and CEO and work closely with the management
team.
|
|
2.
|
Executive
shall serve as Chief Operating
Officer.
|
|
3.
|
Will
develop Company structure, organization, personnel, systems consistent to
accommodate the Company’s expected rapid
growth.
|
|
a.
|
Responsible
for the effective operational management of the Company including full
responsibility for the Company’s profit and loss
statement.
|
|
b.
|
Will
establish appropriate operating metrics and reporting systems for managers
and divisions which enable top management to understand the performance
and trends in each business unit.
|
|
c.
|
Will
develop a “dashboard reporting system” which compiles and monitors weekly
or daily operating performance into a simple to consume numerical and
graphic format.
|
|
5.
|
Strategy
and Acquisitions
|
|
a.
|
Shall
work closely with management team to develop and implement corporate
growth strategy.
|
|
b.
|
Will
document and communicate Vertex strategy for external and internal
audiences.
|
|
c.
|
Shall
work closely with the acquisition team and will lead all general screening
and due diligence efforts on potential acquisitions. Also will
assist in the proper structuring and financing of acquisition
transactions. Will lead certain acquisition efforts and will
develop a system for rapidly screening and performing diligence on
potential acquisitions.
|
|
d.
|
Will
lead all post-merger integration efforts to incorporate acquisitions into
Vertex systems as quickly and seamlessly as
possible.
|
|
a.
|
Responsible
for the hiring, staffing, training and management of the financial
accounting and financial planning units of the
Company.
|
|
b.
|
Will
organize the financial operations of the Company to ensure the accurate
and zero-defect public reporting process for compliance with all aspects
of Sarbanes-Oxley Act and Section 404
compliance.
|
|
c.
|
Will
manage the financial planning and analysis unit to develop budgets and
cash requirements to execute the Vertex Growth
Plan.
|
|
7.
|
Vertex
Thermo-Chemical Process and Project Development
|
|
|
|
|
a.
|
Will
gain detailed understanding of the Vertex Thermo-Chemical process(es) and
lead the efforts to commercialize the technology and developing a
repeatable process for multi-site
rollout.
|
|
b.
|
Will
produce a plan to maximize the effectiveness and rapid delivery of the T-C
process expansion in Baytown, Texas. This includes, but is not
limited to:
|
|
i.
|
Proper
process engineering and
specifications.
|
|
ii.
|
Technical
steps and applied research to improve the throughput and finished goods
quality.
|
|
iii.
|
Providing
robust protection of Vertex’s intellectual
property.
|
|
iv.
|
A
rough strategy for the market-by-market rollout of the Vertex T-C
process(es) for rapid nationwide deployment. This will be
integrated with the Acquisition Plan to maximize Vertex effectiveness and
speed to market.
|
|
c.
|
Responsible
for managing the diligence activities on any project development
opportunities that the Company
considers.
|
EXHIBIT
B
Exhibit 10.8
LETTER
LOAN AGREEMENT
May, 26
2009
VERTEX
ENERGY, INC.
1331
Gemini, Suite 103
Houston,
TX 77058
Attn:
Benjamin P. Cowart
Pursuant
to our prior discussions, this Letter Loan Agreement will serve to set forth the
terms of the financing agreement by and between VERTEX ENERGY, INC., a Nevada
corporation ("Borrower") and REGIONS BANK, an Alabama state bank corporation
(the "Lender"):
1.
Loans.
Subject to the
terms and conditions set forth in this Letter Loan Agreement (this "Loan
Agreement") and the other agreements, instruments, and documents executed and
delivered in connection herewith and pursuant hereto (collectively, together
with this Loan Agreement, referred to hereinafter as the "Loan Documents").
Lender and Borrower hereby agree as follows:
(a)
Borrowing Base Loan.
Lender agrees to lend to Borrower, and Borrower agrees to borrow from Lender,
from time to time, an amount (the "Borrowing Base") up to (i) 80% of the net
amount of Eligible Accounts (as defined below),
plus
(ii) 50% of the
net amount of Eligible Inventory (as defined below) up to a maximum of
$1,750,000.00;
provided, however,
the total of such loan (the
"Borrowing Base
Loan")
shall not to exceed in the aggregate at any one time
$3,500,000.00. In the event that, at any time, the aggregate amount of
indebtedness outstanding shall exceed the Borrowing Base, Borrower agrees to
immediately repay to Lender the amount necessary to cause the outstanding
balance of the Borrowing Base Loan to be no more than the Borrowing Base.
Advances of the Borrowing Base Loan shall be utilized by Borrower solely for
working capital. Provided that Borrower shall comply with the covenants
contained in this Loan Agreement and the other Loan Documents, the Borrowing
Base Loan shall be extended to Borrower until three hundred sixty-four (364)
days after the date of this Loan Agreement (the
"Borrowing Base Termination
Date"),
at which time all sums advanced hereunder shall be due and
payable in full. Within the limits of this paragraph, Borrower may borrow, repay
and re-borrow hereunder in accordance with the terms of this Loan Agreement.
Borrower shall give Lender not less than 2 Business Days' prior notice of each
requested advance specifying (i) the aggregate amount of such requested advance,
and (ii) the requested date of such advance.
As used
in this Loan Agreement, the term
"Eligible Accounts"
shall mean an amount equal to the aggregate net invoice or ledger amount owing
on all trade accounts receivable for goods sold or leased or services rendered
in the ordinary course of business, upon which Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever and in which Lender has a perfected, first priority lien, after
deducting (without duplication): (a) each such account that is unpaid 90 days or
more after the original invoice date thereof, (b) the amount of all returns,
discounts, allowances, rebates, credits and adjustments to such accounts, (c)
that portion of any account which constitutes a pre-billing or a
"billed
and hold," or a credit memo balance, service charge, or finance charge, together
with the amount of all contra accounts, setoffs, claims, defenses or
counterclaims asserted by or available to the account debtors, (d) all accounts
with respect to which goods are placed on consignment or subject to a guaranteed
sale or other terms by reason of which payment by the account debtor may be
conditional, (e) that portion of any account which represents interim or
progress billings, all accounts with respect to which a payment and/or
performance bond has been furnished, and that portion of any accounts billed for
or representing retainage, if any, until all prerequisites to the immediate
payment of such accounts have been satisfied, (f) all accounts owing by account
debtors for which there has been instituted a proceeding in bankruptcy or
reorganization under the United States Bankruptcy Code or other law, whether
state or federal, now or hereafter existing for relief of debtors, (g) all
accounts owing by affiliates, subsidiaries, or employees, (h) all accounts in
which the account debtor is any state or municipal government, a Native American
sovereign nation, the United States government, or any department, agency, or
instrumentality of the United States, except to the extent an acknowledgment of
assignment to Lender of such account in compliance with the Federal Assignment
of Claims Act and other applicable laws has been received by Lender, (i) all
accounts due by any account debtor whose principal place of business is located
outside the United States of America and its territories, unless covered by
credit insurance or a letter of credit acceptable to Lender, (j) all accounts
subject to any provisions prohibiting assignment or requiring notice of or
consent to such assignment, (k) unless otherwise agreed by Lender, that portion
of all account balances owing by any single account debtor which exceeds 35% of
the aggregate of all accounts owing by all account debtors, and (1) any other
accounts deemed unacceptable by Lender in its sole and absolute discretion;
provided, however, if more than 10% of the then balance owing by any single
account debtor does not qualify as an Eligible Account under the foregoing
provisions, then the aggregate amount of all accounts owing by such account
debtor shall be excluded from Eligible Accounts.
As used
in this Loan Agreement, the term
"Eligible Inventory"
shall mean the aggregate value of all inventory of raw materials and finished
goods (excluding work-in- process and packaging materials, supplies and any
advertising costs capitalized into inventory) then owned by, and in the
possession or under the control of, Borrower and held for sale or disposition in
the ordinary course of business, in which Lender has a perfected, first priority
lien valued at the lower of cost or market value. Eligible Inventory shall not
include (a) inventory which is damaged, defective, obsolete, or otherwise
unsaleable in the ordinary course of Borrower's business, (b) inventory which
has been returned or rejected, (c) inventory that has been shipped or delivered
to a customer on consignment, on a sale or return basis or on the basis of any
similar understanding, (d) inventory with respect to which a claim exists
disputing Borrower's title to or right to possession of such inventory, (e)
inventory that is not in good condition or does not comply with applicable laws,
rules, or regulations or the standards imposed by any governmental authority
with respect to its manufacture, use or sale, and (f) inventory that Lender, in
its sole discretion, has determined to be unmarketable.
(b)
$1.600.000.00
Loan.
Lender agrees to lend to Borrower and Borrower agrees to borrow
from Lender, a single advance loan in an amount up to $1,600,000.00 (the
"$1.600.000.00
Loan"). The $1,600,000.00 Loan proceeds will be funded on the date hereof
and used by Borrower to pay off the indebtedness evidenced by Regions Bank notes
01-4330000759-9001 and 01-4330001028-9001, the obligation to repay which has
been assumed by Borrower. Any amounts unadvanced under the $1,600,000.00 Loan on
the date hereof for such purpose shall not be available for subsequent advances.
Borrower may not repay and subsequently reborrow any portion of the
$1,600,000.00 Loan. The $1,600,000.00 Loan shall be due and payable on the day
that is three hundred sixty-four (364) days after the date of this Loan
Agreement (the
"$1.600.000.00 Loan Maturity
Date").
(c)
$500.000.00 Equipment
Guidance Line.
Upon the request of Borrower pursuant to this clause (c),
Lender agrees to consider making loans to and/or entering into leases with
Borrower for the purchase by Borrower, or purchase by Lender and simultaneous
lease to Borrower, of equipment to be utilized by Borrower in the ordinary
course of its business (the
"$500.000.00 Equipment
Guidance Line").
At no time may the sum of the aggregate
original principal amount of all loans under the $500,000.00 Equipment Guidance
Line and the aggregate purchase price to Lender of all leases entered into under
the $500,000.00 Equipment Guidance Line exceed $500,000.00.
(d)
Letter(s) of
Credit.
Provided that no Default (as defined below) or
Event of Default (as defined below) has occurred and is then existing, at the
written request of Borrower, delivered at least seven (7) Business Days before
the requested issuance date, Lender shall issue irrevocable commercial or
standby letter(s) of credit (the "Letter(s) of Credit"), for the account of
Borrower, subject to the following conditions:
(i) The
aggregate face amount of all outstanding Letters of Credit (including the amount
of the requested Letter of Credit), plus the outstanding balance of the
Borrowing Base Loan, shall not exceed the lesser of (a) the Borrowing Base, or
(b) the principal amount of the Borrowing Base Loan.
(ii)
Borrower shall pay an annual administrative fee for the issuance of each Letter
of Credit equal to the greater of $1,000.00, or 2.75% of the amount of the
Letter of Credit per annum (based upon the number of days the Letter of Credit
is to be outstanding) to compensate Lender for its ongoing obligations with
respect to the requested Letter of Credit.
(iii) The
expiration date of the requested Letter of Credit shall not exceed the Borrowing
Base Termination Date.
(iv)
Borrower shall have executed and delivered to Lender a letter of credit
application and all other documents required by Lender in connection with the
issuance of the Letter of Credit, each of which shall be in form and substance
satisfactory to Lender in its sole discretion.
Without
limiting any of the foregoing, if, in any case, Borrower does not provide Lender
with funds in the amount and on the date necessary to settle Lender's obligation
under any draft drawn under any Letter of Credit, Lender shall make, and
Borrower shall accept, an advance by Lender to Borrower and/or Borrower under
the Borrowing Base Loan and this Loan Agreement as of the day and time such
drafts are paid by Lender and in the amount of the drafts so paid. In case of
any conflict between the terms of any letter of credit application with respect
to any Letter of Credit and the terms hereof, the terms of this Loan Agreement
shall control, except to the extent the letter of credit application states that
certain specified provisions thereof control, in which case those specified
provisions of the letter of credit application shall control.
The
Borrowing Base Loan, $1,600,000.00 Loan and any loans, advances or leases
outstanding pursuant to the $500,000.00 Equipment Guidance Line are sometimes
referred to hereinafter collectively as the "Loans". The Loans shall be
evidenced by one or more promissory notes (herein collectively called, together
with any renewals, extensions and increases thereof, the "Notes") and, in the
case of leases under the $500,000.00 Equipment Guidance Line, leases between
Lender and Borrower, all in form and substance acceptable to Lender. Accrued and
unpaid interest on advances under the Borrowing Base
Loan and
the $1,600,000.00 Loan shall be due and payable on the day that is one (1) month
after the date of this Loan Agreement, and on the same day of each succeeding
month. All outstanding principal of and accrued and unpaid interest on the
Borrowing Base Loan shall be due and payable on the Borrowing Base Termination
Date. All outstanding principal of and accrued and unpaid interest on the
$1,600,000.00 Loan shall be due and payable on the $1,600,000.00 Loan Maturity
Date. All payments under loans and/or leases entered into under the $500,000.00
Equipment Guidance Line shall be due at the times set forth in the documents
entered into in connection with such loan or lease.
(a)
Borrowing Base
Loan.
The Borrowing Base Loan shall bear interest
at the greater of (i) five percent (5.00%) per annum or (ii) the Adjusted LIBO
Rate plus four percent (4.00%) per annum.
(b)
$1.600.000.00 Loan.
The $ 1,600,000.00 Loan shall bear interest at the greater of (i) five percent
(5.00%) per annum or (ii) the Adjusted LIBO Rate plus one and one-half percent
(1.50%) per annum.
(c)
$500.000.00 Equipment
Guidance Line.
All loans outstanding pursuant to the
$500,000.00 Equipment Guidance Line shall bear interest at the rate or rates
provided in the documentation evidencing such loans.
(d)
Default
Rate.
Notwithstanding the foregoing, to the extent
permitted under applicable law, upon the occurrence of an Event of Default, and
after maturity, the Loans shall bear interest, after as well as before judgment,
at a rate per annum equal to five percent (5.00%) plus the rate otherwise
applicable to such Loans as provided in the preceding paragraphs of this
Section.
(e)
Computation of
Interest.
All interest hereunder shall be computed on the basis of a year
of 360 days, and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The
applicable Adjusted LIBO Rate shall be determined by Lender and such
determination shall be conclusive absent manifest error.
(f)
Alternate Rate of
Interest.
If Lender determines (which determination
shall be conclusive absent manifest error) that (a) adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate, or (b) the Adjusted
LIBO Rate will not adequately and fairly reflect the cost to Lender of making or
maintaining the applicable Loans, then Lender shall determine a suitable
alternative for the Adjusted LIBO Rate and shall give notice thereof to Borrower
by telephone or telecopy as promptly as practicable thereafter, which
alternative shall remain in effect until Lender notifies Borrower that the
circumstances giving rise to such notice no longer exist.
(g)
Increased Costs of Making or
Maintaining LIBOR Loans.
If any Change in Law shall (i) impose, modify or
deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, Lender
(except any such reserve requirement reflected in the Adjusted LIBO Rate), or
(ii) impose on Lender or the London interbank market any other condition
affecting this Loan Agreement or the Loans, and the result of any of the
foregoing shall be to increase the cost to Lender of making or maintaining any
Loan (or of maintaining its obligation to make any such Loan) or to reduce the
amount of any sum received or receivable by Lender hereunder (whether of
principal, interest or otherwise), then
Borrower
will pay to Lender such additional amount or amounts as will compensate Lender
for such additional costs incurred or reduction suffered.
(h)
Capital Adequacy.
If
Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on Lender's capital or on
the capital of Lender's holding company, if any, as a consequence of this Loan
Agreement or the Loans made by Lender to a level below that which Lender or
Lender's holding company could have achieved but for such Change in Law (taking
into consideration Lender's policies and the policies of Lender's holding
company with respect to capital adequacy), then from time to time Borrower will
pay to Lender such additional amount or amounts as will compensate Lender or
Lender's holding company for any such reduction suffered.
(i)
Certificate of Amounts
Due.
A certificate of Lender setting forth the amount or amounts
necessary to compensate Lender or its holding company, as the case may be, as
specified in paragraph (g) or (h) of this Section shall be delivered to Borrower
and shall be conclusive absent manifest error. Borrower shall pay Lender the
amount shown as due on any such certificate within 10 days after receipt
thereof.
(j)
Delay in Demand For
Compensation.
Failure or delay on the part of Lender to demand
compensation pursuant to this Section shall not constitute a waiver of Lender's
right to demand such compensation.
(k)
No Deduction For
Taxes.
Any and all payments by or on account of any obligation of
Borrower hereunder shall be made free and clear of and without deduction for any
taxes; provided that if Borrower shall be required to deduct any taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this paragraph) Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrower shall make
such deductions and (iii) Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable
law.
(1)
Borrower Indemnity.
Borrower shall indemnify Lender, within 10 days after written demand therefor,
for the full amount of any taxes paid by Lender on or with respect to any
payment by or on account of any obligation of Borrower hereunder (including
taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability delivered to Borrower by Lender shall be
conclusive absent manifest error.
(m) As
used in this Loan Agreement the following terms shall have the following
meanings:
(i)
"Adjusted LIBO Rate"
means (1) from the date of this Loan Agreement through May 31, 2009, 0.35375%
per annum and (2) for each month, commencing June, 2009, an interest rate per
annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the
LIBO Rate for the first day of such month multiplied by (b) the Statutory
Reserve Rate.
(ii)
"Business Day"
means a day on which the office of Lender at which payments under this Loan
Agreement are to be made is open for business.
(iii)
"Change in Law"
means (a) the adoption of any law, rule or regulation after the date of this
Loan Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Loan Agreement or (c) compliance by Lender with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Loan
Agreement.
(iv)
"Governmental
Authority"
means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and
any agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to
government.
(v) "LIBO
Rate" means, for any day, the rate for deposits in U.S. dollars for a one month
period which appears on Telerate Page 3750 as of 11:00 a.m., London, England
time on the day (the "Pricing Date") that is two LIBOR Business Days preceding
such day, as such rate is published on the Business Day next following the
Pricing Date in the Money Market Section of the Wall Street Journal. If such
rate cannot be so determined for any reason, Lender will request the principal
London office of at least two banks to provide a quotation of its rate for
deposits in U.S. dollars for a one moth period commencing two LIBOR Business
Days after the date of such request and the LIBO Rate will be the arithmetic
mean of such quotations.
(vi)
"LIBOR Business
Day"
means a day on which the office of Lender at which payments under
this Loan Agreement are to be made is open for business and on which dealings in
U.S. dollar deposits are carried out in the London interbank
market.
(vii)
"Statutory Reserve
Rate"
means a fraction (expressed as a decimal), the numerator of which
is the number one and the denominator of which is the number one minus the
aggregate of the maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal established by the
Board of Governors of the Federal Reserve System of the United States of America
to which Lender is subject for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board of Governors). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Loans shall be deemed to constitute eurocurrency funding and to be subject to
such reserve requirements without benefit of or credit for proration, exemptions
or offsets that may be available from time to time to Lender under such
Regulation D or any comparable regulation. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
3.
Collateral.
As
collateral and security for the Loans, and any and all other indebtedness or
obligations from time to time owing by Borrower to Lender, Borrower shall grant,
or cause the owner thereof to grant, to Lender, its successors and assigns, a
lien and security interest (which shall be a first and prior lien and security
interest therein), in and to the following described property, together with any
and all products and proceeds thereof (collectively, the
"Collateral"):
(a)
Personal Property.
All of Borrower's present and future accounts, inventory, equipment, fixtures,
chattel paper, documents, instruments, investment property, general intangibles
and other personal property.
(b)
Certificates of
Deposit.
One or more certificates of deposit, aggregating at least
$1,600,000.00 in face value, issued by Bank to Borrower.
4.
Commitment Fee: Unused
Fee.
(a) On
the date hereof, Borrower shall pay to Lender commitment fees of $ 17,500.00 in
connection with the Borrowing Base Loan and $4,000.00 in connection with the
$1,600,000.00 Loan. The commitment fees are in addition to all
principal, interest, attorney's fees, and other amounts which may become due
from Borrower to Lender on or in connection with the Loans. Commitment fees with
respect to loans and leases under the $500,000.00 Equipment Guidance Line, and
payment terms thereof, shall be determined at the time the documents evidencing
such loan or lease are executed.
(b) Borrower
shall pay to Lender an unused fee equal to the product of (i) the daily average
amount of the Unused Revolver Commitment times (ii) a per annum percentage equal
to 0.35%. Such unused fee shall accrue from and including the date of this Loan
Agreement to and including the Borrowing Base Termination
Date. Unused fees shall be determined quarterly in arrears and shall
be payable on the last day of each calendar quarter and on the Borrowing Base
Termination Date, provided that should the Borrowing Base Loan be terminated at
any time prior to the Borrowing Base Termination Date for any reason, the entire
accrued and unpaid unused fee shall be paid on the date of such
termination. As used herein, the term
"Unused Revolver
Commitment"
means, at
any date, an amount equal to $3,500,000.00 less the outstanding principal amount
of the Borrowing Base Loan on such date.
5.
Collateral
Documents.
Prior to or contemporaneously with the
closing of the Loans, Borrower shall deliver, or cause to be delivered, to
Lender, in addition to the Notes, the following agreements, documents and
instruments (sometimes collectively referred to hereinafter as the
"Collateral
Documents"):
(a) Security
Agreement in the form required by Lender.
(b) Lockbox
Agreement in the form required by Lender.
(c) Subordination
Agreements executed by such persons, and in such form, as required by
Lender.
(d) Such
UCC-1 financing statements as may be required by Lender.
(e) A
Notice of Final Agreement.
(f)
Resolutions of Borrower, in the form required by Lender authorizing Borrower to
enter into the transactions contemplated under this Loan Agreement and the other
Loan Documents.
(g) Such
other agreements, instruments, documents, and certificates as may be requested
by Lender to evidence the Loans and to grant and perfect a lien and security
interest in the Collateral.
6.
Representations and
Warranties.
Borrower hereby represents and warrants, and
upon each request for an advance under the Loans (if any), further represents
and warrants, as follows:
(a)
Corporate Existence.
Borrower is a Nevada corporation, duly organized, validly existing, and is in
good standing under the laws of the state of its formation and is duly qualified
and in good standing under the laws of the State of Texas and all other states
where it is doing business, and has all requisite power and authority to execute
and deliver this Loan Agreement and the other Loan Documents.
(b)
Authorization.
The execution, delivery, and performance of
this Loan Agreement and all of the other Loan Documents have
been duly authorized by all necessary action of Borrower, and constitute legal,
valid and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights and except
to the extent specific remedies may generally be limited by equitable
principles.
(c)
Authority.
The
execution, delivery and performance of this Loan Agreement and the other Loan
Documents, and the consummation of the transactions contemplated hereby and
thereby, do not conflict with, result in a violation of, or constitute a default
under (i) any provision of Borrower's governing agreements or instruments, or
(ii) any law, governmental regulation, court decree, or order applicable to
Borrower, or require the consent, approval or authorization of any third
party.
(d)
Financial
Condition.
Each financial statement supplied by or
on behalf of Borrower to Lender was prepared in accordance with generally
accepted accounting principles, consistently applied, in effect on the date such
statements were prepared and truly discloses and fairly presents the financial
condition as of the date of each such statement, and there has been no material
adverse change in such financial condition or results of operations subsequent
to the date of the most recent financial statement supplied to
Lender.
(e)
Litigation.
There
are no actions, suits or proceedings pending or, to the knowledge of Borrower,
threatened against or affecting Borrower or the properties of Borrower, before
any court or governmental department, commission or board, which, if determined
adversely to Borrower, (i) would subject Borrower to any liability not fully
covered by insurance, or (ii) would have a material adverse effect on the
financial condition, properties, or operations of Borrower, or its ability to
perform its obligations under this Loan Agreement.
(f)
Tax
Returns.
Borrower has filed all federal, state and local
tax reports and returns, if any, required by any law or regulation to be filed
by it and has either duly paid all taxes, duties and charges, if any, indicated
due on the basis of such returns and reports, except those being contested in
good faith by appropriate proceeding, or made adequate provision for the payment
thereof, and the assessment of any material amount of additional taxes in excess
of those paid and reported is not reasonably expected.
(g)
No Material
Changes.
There is no fact known that has not been
disclosed to Lender in writing which may result in any material adverse change
in Borrower's business, properties or operations. No certificate or statement
herewith or heretofore delivered to Lender in connection herewith, or in
connection with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material fact necessary to
keep the statements contained therein from being misleading. Borrower is not in
default and no event or circumstance has occurred which, except for the passage
of time or the giving of notice, or both, would constitute a default under any
loan or credit agreement, mortgage, deed of trust, security agreement or other
agreement or instrument. Since the date of the last financial
statements delivered to Lender, neither the business nor the assets or
properties of Borrower have been
materially
and adversely affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition, or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof or by
acts of God.
(h)
Ownership of Assets.
Borrower owns all of the assets reflected on its most recent balance sheet free
and clear of all liens, security interests or other encumbrances, except as
previously disclosed in writing to Lender.
(i)
Governmental
Authority.
Borrower, (i) is not in violation of any law, judgment,
decree, order, ordinance, or governmental rule or regulation, or (ii) has not
failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any assets or properties or the
conduct of business.
(j)
Principal Office.
The
principal office of Borrower, as well as the place at which Borrower keeps its
books and records, is the address to which this Loan Agreement is
addressed.
7.
Representation in Request
for Advance.
Each request for an advance hereunder shall
constitute, a representation and warranty by Borrower that, as of the date of
such request, (a) all of the representations and warranties of Borrower
contained in this Loan Agreement and the other Loan Documents are true and
correct, and (b) no Default or Event of Default has occurred and is continuing,
or would result from the requested advance. All representations and
warranties made by Borrower in this Loan Agreement shall survive delivery of the
Loan Documents and the making of the Loans.
8.
Conditions Precedent to the
Loans.
Any obligation of Lender to make the Loans shall be subject to the
complete and continuing satisfaction, on or before the date hereof, of the
following conditions precedent:
(a)
Loan
Documents.
Borrower and any other person or entity
required to do so shall have executed and delivered to Lender the Loan Documents
to which they are a party and any and all other documents reasonably required or
requested by Lender to give effect to the transactions contemplated by this Loan
Agreement, all in form and substance satisfactory to Lender and its
counsel.
(b)
Legal Opinion.
If
requested, Lender shall have received the favorable opinion, in form and
substance satisfactory to it, of counsel to Borrower, with respect to (i) the
matters set forth in paragraphs 6(a), (b), (c) and (e) hereof, (ii) to the
effect that the Loans are not usurious, and (iii) such other matters as Lender
or its counsel may reasonably request.
(c)
Additional
Agreements.
Lender shall have received such other
agreements, instruments, documents and certificates incidental and appropriate
to the transaction provided for herein as Lender or its counsel may reasonably
request.
9.
Conditions Precedent to
Future Advances.
Lender's obligation to make any advance
under this Loan Agreement and the other Loan Documents shall be, in addition to
the conditions precedent set forth in Section 8 hereof, subject to the
additional conditions precedent that, as of the date of such advance and after
giving effect thereto, (a) all representations and warranties made to Lender by
Borrower in this Loan Agreement and the other Loan Documents shall be true and
correct, as of and as if made on such date; (b) no material adverse change in
Borrower's financial condition since the effective date of the most recent
financial statements furnished to Lender by Borrower shall have occurred and be
continuing; and (c) Lender has received a Request for Advance from Borrower,
such request for an
advance
on the Borrowing Base Loan to be in the form of Exhibit "A", or such other form
acceptable to Lender.
10.
Affirmative
Covenants.
Until the Loans and all other obligations and liabilities of
Borrower under this Loan Agreement and the other Loan Documents are fully paid
and satisfied, Borrower agrees and covenants that it will, unless Lender shall
otherwise consent in writing:
(a)
Accounts and
Records.
Maintain its books and records in
accordance with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine, audit and make and take away
copies or reproductions of Borrower's books and records, at all reasonable
times.
(b)
Payments of
Obligations.
Pay and discharge when due all of its indebtedness and
obligations, including without limitation, all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits; provided, however,
Borrower will not be required to pay and discharge any such assessment, tax
charge, levy, lien or claim as long as (i) the legality of the same shall be
contested in good faith by appropriate judicial, administrative or other legal
proceedings, and (ii) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien or
claim in accordance with generally accepted accounting principles, consistently
applied.
(c)
Compliance with Laws.
Conduct its business in an orderly and efficient manner consistent with good
business practices, and perform and comply with all statutes, rules, regulations
and/or ordinances imposed by any governmental unit upon Borrower and its
businesses and operations.
(d)
Insurance.
Maintain
insurance, including but not limited to, fire insurance, comprehensive property
damage, public liability, worker's compensation, business interruption, and
other insurance necessary or required by Lender. On the date hereof, and at
other times upon request of Lender, Borrower will furnish or cause to be
furnished to Lender from time to time a Certificate of Insurance describing the
insurance coverages maintained by Borrower, in form and substance satisfactory
to Lender, and if requested will furnish Lender with copies of the applicable
policies.
(e)
Right of
Inspection.
Permit such persons as Lender may designate
to visit its properties and installations and examine, audit and make and take
away copies of its books and records, as Lender may reasonably desire, including
field audits to be conducted at Borrower's expense as Lender deems
necessary.
(f)
Cure of Defect.
Promptly cure any defects in the execution and delivery of any of the other Loan
Documents and all other instruments executed in connection with this
transaction.
(g)
Additional
Documentation.
Execute and deliver, or cause to be
executed and delivered, any and all other agreements, instruments or documents
which Lender may reasonably request in order to give effect to the transactions
contemplated under this Loan Agreement and the other Loan
Documents.
(h)
Legal Existence.
Do
or cause to be done all things necessary to preserve and keep in full force and
effect each Borrower's existence in good standing.
(i)
Maintenance of
Assets.
Maintain all of its material assets, both real and personal, used
in the conduct of its business, in good condition, repair and working order, and
supplied with all necessary equipment, and cause to be made all necessary
repairs, renewals, replacements and improvements thereof and thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
(j)
Notice of Matters.
Promptly inform Lender of (i) any and all material or adverse changes in its
financial condition, (ii) all claims which could materially affect its financial
condition, (iii) after the commencement thereof, notify Lender of all actions,
suits, and proceedings before any court or any governmental department,
commission, or board, and (iv) of the creation, occurrence, or assumption of any
actual or contingent liabilities not permitted under this Loan
Agreement.
(k)
Primary Depository
Relationship: Lockbox.
Borrower shall establish and maintain its primary
operating account(s) with Lender. Borrower agrees to deposit all proceeds of the
Collateral into a Lockbox Account maintained with Lender. In furtherance and not
in limitation of the foregoing, Borrower shall (a) execute a Lockbox Agreement
with Lender, (b) notify, or cause to be notified, all obligors of any Collateral
to forward all remittances to the Lockbox Account in accordance with such
Lockbox Agreement and (c) pay all costs of such Lockbox Account, including set
up and administration thereof.
(1)
Subordination
Agreements.
All indebtedness of Borrower to any affiliate of Borrower (or
any person related to any affiliate of Borrower) shall be subordinated to the
Loans and all other indebtedness of Borrower to Lender in a manner satisfactory
to Lender. Any indebtedness of Borrower so subordinated is referred to herein as
"Subordinated
Debt".
(m)
Methods of Payment.
All payments due on the Loans shall be made pursuant to an automatic debit
process linked to Borrower's accounts with Lender.
11.
Financial Covenants.
Until the Loans and all obligations and liabilities of Borrower under this Loan
Agreement and the other Loan Documents are fully paid and satisfied, Borrower,
and Guarantor to the extent that the stated action or information specifically
relates to the Guarantor, agrees and covenants that it will maintain the
following financial covenants unless Lender shall otherwise consent in
writing:
(a)
Minimum Tangible Net
Worth.
Borrower shall maintain, as of the end of each month, a
Tangible Net Worth of at least $1,500,000.00, increasing by 50% of Borrower's
net income for each fiscal year, commencing with respect to fiscal year
2009.
(b)
Liabilities/Tangible Net
Worth Ratio.
Borrower will maintain, as of the end of each
month, a ratio of (i) total liabilities (excluding any Subordinated Debt) to
(ii) Tangible Net Worth of not greater than 4.0 to 1.0.
(c)
Debt Service Coverage
Ratio.
Borrower will maintain, as of the end of each
month, commencing the end of the month in which the first anniversary of this
Loan Agreement occurs, a ratio of (a) EBITDA for the preceding twelve (12)
months to (b) CMLTD plus interest expense for the preceding twelve (12) months
of not less than 1.5 to 1.0.
(d)
Funded Bank Debt
Ratio.
Borrower will maintain, as of the end of each month, a ratio of
(a) Funded Bank Debt as of the last day of such month to (b) EBITDA for the
preceding twelve (12) months (annualized for the first twelve (12) months for
which this ratio is tested) of not greater than 3.5 to 1.0.
(e)
Minimum
Liquidity.
Borrower shall maintain, as of the end of
each month, unencumbered liquid assets (as reasonably determined by Lender) of
at least $1,500,000.00.
As used
herein, (a) the term "CMLTD" means that portion of Borrower's long term debt and
capital leases maturing or scheduled to be paid in the prior period, (b) the
term
"Tangible Net
Worth"
means the total assets bearing on the asset side of a balance
sheet of Borrower, in accordance with GAAP, less the sum of (i) total debt and
(ii) the sum of the aggregate amount owing from any officers, stockholders or
other affiliates of Borrower and (iii) the aggregate amount of any intangible
assets of Borrower, including goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand names, (c) the term
"EBITDA" means net income before tax, interest expense (net of capitalized
interest expense), depreciation expense, and amortization expense and (d) the
term
"Funded Bank
Debt"
means all indebtedness of Borrower to Lender or any other bank,
savings bank, investment bank, insurance company, equity fund, hedge fund or
other financial institution, including without limitation the Loans. Unless
otherwise specified, all accounting and financial terms and covenants set forth
above are to be determined according to generally accepted accounting
principles, consistently applied ("GAAP").
12.
Negative
Covenants.
Until the Loans and all other obligations and liabilities of
Borrower under this Loan Agreement and the other Loan Documents are fully paid
and satisfied, Borrower will not, without the prior written consent of
Lender:
(a)
Nature of Business: Change
of Management or Operation.
Make any material change in
the nature of its business as carried on as of the date hereof, including, but
not limited to, any material change in the management or operation of its
business.
(b)
Liquidations: Mergers:
Consolidations.
Liquidate, merge, or consolidate with or into any other
entity.
(c)
Acquisition of Stock or
Other Assets.
Purchase or otherwise acquire all or
substantially all the assets of, or any capital stock or other equity interest
in, any other entity.
(d)
Sale of
Assets.
Sell, transfer or otherwise dispose of any
of its assets or properties, other than in the ordinary course of
business.
(e)
Liens.
Create,
incur, assume or permit to exist any lien or encumbrance on any of its assets or
properties, including the Collateral, whether voluntary or
involuntary.
(f)
Transfer of
Ownership.
Permit the sale or other transfer of
any ownership interest in Borrower.
(g)
Indebtedness.
Borrower
shall not create, incur, or assume any indebtedness for borrowed money or issue
or assume any other note, debenture, bond or other evidences of indebtedness,
including any capital lease obligations, other than (i) borrowings from Lender,
or (ii) other indebtedness or obligations outstanding which do not at any time
exceed $500,000.00 in the aggregate.
(h)
Loans.
Borrower
shall not make any loan to any person or entity, including any of its directors,
officers, employees, stockholders, or any investments or ventures associated
therewith, or guarantee any indebtedness or obligation of any other person or
entity.
(i)
Capital
Expenditures.
Borrower will not make capital expenditures (other than
through the $500,000.00 Equipment Guidance Line) in excess of $350,000.00 during
any fiscal year, unless such expenditures has an immediate accretive impact
effect to Borrower. The Borrowing Base Loan shall not be used for capital
expenditures.
(j)
Distributions.
Borrower shall not make or pay any dividends or other distributions to its
shareholders.
(k)
Government
Regulation.
Borrower shall not (a) be or become subject at any time to
any law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Lender from making any advance or extension of credit to Borrower or from
otherwise conducting business with Borrower, or (b) fail to provide documentary
and other evidence of Borrower's identity as may be requested by Lender at any
time to enable Lender to verify Borrower's identity or to comply with any
applicable law or regulation, including, without limitation, Section 326 of the
USA Patriot Act of 2001, 31 U.S.C. Section 5318.
13.
Reporting
Requirements.
Until the Loans and all other obligations and liabilities
of Borrower under this Loan Agreement and the other Loan Documents are fully
paid and satisfied, Borrower will, unless Lender shall otherwise consent in
writing, furnish to Lender:
(a)
Defaults and Events of
Default.
As soon as possible and in any event within five (5) days after
the occurrence of each Default or Event of Default, the statement of Borrower
setting forth the details of such Default or Event of Default and the action
which Borrower proposes to take with respect thereto.
(b)
Borrower's Monthly
Reports.
As soon as available and in any event within thirty (30) days
after the end of each month, (1) consolidated and consolidating financial
statements of Borrower as of the end of such month, which financial statements
shall contain a balance sheet and income statement, certified as true and
correct in all material respects by the President or Chief Financial Officer of
Borrower, (2) a current aging analysis of Borrower's accounts receivable and
accounts payable and list of Borrower's inventory by location and type (to
include the following: raw materials, work in progress, and finished goods), (3)
a Borrowing Base Certificate in the form attached as Exhibit "B" and (4) a
Compliance Certificate in the form attached as Exhibit
"C".
(c)
Borrower's Annual
Reports.
As soon as available and in any event within ninety (90) days
after the end of each fiscal year of Borrower, consolidated and consolidating
financial statements of Borrower as of the end of such year, which financial
statements shall contain a balance sheet and income statement, certified by
independent public accountants satisfactory to Lender, with such certification
to be free of exceptions and qualifications not acceptable to
Lender.
(d)
SEC
Filings.
Promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and other materials
filed with the Securities and Exchange Commission, or any Governmental Authority
succeeding to any or all functions of said
(a)
Securities
and Exchange Commission, or with any national securities exchange, or
distributed by Borrower to its shareholders generally, as the case may
be.
(e)
Tax Returns.
As soon
as available and in any event within 60 days of the filing thereof, a copy of
all tax returns filed by Borrower with the Internal Revenue Service and in the
event of an extension, verification of the extension
filing.
(f)
Right to Additional Information.
Furnish Lender with such additional
information and statements, lists of assets and liabilities, tax returns, and
other reports with respect to its financial condition and business operations as
Lender may request from time to time.
(g)
Governmental
Action.
Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or any governmental department,
commission, or board affecting Borrower or any of its
properties.
(h)
Evidence of Payment of
Obligations.
Upon demand of Lender, evidence of payment
of all assessments, taxes, charges, levies, liens, and claims against its
properties.
All
references to a preceding period shall mean the period ending as of the end of
the month, quarter or fiscal year for which the applicable report is delivered.
All references to a period immediately following shall mean the period beginning
on the first day of the month, quarter or fiscal year following the end of the
period for which the applicable report is delivered. All financial reports
furnished to Lender pursuant to this Loan Agreement shall be prepared in such
form and such detail as shall be satisfactory to Lender and shall be prepared on
the same basis as those prepared in prior years, and duly certified by the
President or Chief Financial Officer of Borrower as being true and correct in
all material aspects.
14.
Events of Default.
Each of the following shall constitute an
"Event of Default"
under this Loan Agreement, and the occurrence of any of the following which
would, with the giving of notice, the passage of time, or both, constitute an
Event of Default, shall constitute a "Default" under this
Agreement:
(a) Any
default in the payment when due of any part of the principal of, or interest on,
the Notes or any other indebtedness or obligation from time to time owing by
Borrower to Lender, and the same is not cured within ten (10) days following
delivery of written notice thereof from Lender to
Borrower.
(b) The
failure of Borrower to maintain the insurance coverage as required by this Loan
Agreement or the Loan Documents, and the same is not cured within ten (10) days
following delivery of written notice thereof from Lender to
Borrower.
(c) Any
default, breach or failure in the performance of any term, condition, warranty,
agreement, or covenant of this Loan Agreement or any of the other Loan
Documents, and the same is not cured within thirty (30) days following delivery
of written notice thereof from Lender to Borrower; provided, however, if the
same may not be cured within such thirty (30) day period, and Borrower is taking
all reasonable actions in regard to curing same, Borrower shall be allowed a
reasonable time not to exceed an additional thirty (30) days to perform or take
such actions required to cure the same, and Borrower shall keep Lender advised
of the status of all actions being taken by Borrower.
(d) Any
representation or warranty set forth in this Loan Agreement or in any of the
other Loan Documents is false or untrue in any material respect when
made.
(e) Any
event which results in or permits the acceleration of the maturity of any
indebtedness of Borrower to others under any agreement or
undertaking.
(f) Borrower
suspends the transaction of its business for any period of
time.
(g) If
Borrower or any Obligated Party (as defined below): (i) becomes insolvent, or
makes a transfer in fraud of creditors, or makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts as they become
due; (ii) generally is not paying its debts as such debts become due; (iii) has
a receiver, trustee, or custodian appointed for, or take possession of, all or
substantially all of the assets of such party, either in a proceeding brought by
such party or in a proceeding brought against such party and such appointment is
not discharged or such possession is not terminated within sixty (60) days after
the effective date thereof or such party consents to or acquiesces in such
appointment or possession; (iv) files a petition for relief under the United
States Bankruptcy Code or any other present or future federal or state
insolvency, bankruptcy, or similar laws (all of the foregoing hereinafter
collectively called
"Applicable Bankruptcy
Law")
or an involuntary petition for relief is filed against such party
under any Applicable Bankruptcy Law and such involuntary petition is not
dismissed within sixty (60) days after the filing thereof, or an order for
relief naming such party is entered under any. Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization, or other relief of
debtors now or hereafter existing is requested or consented to by such party;
(v) fails to have discharged within a period of 30 days any attachment,
sequestration, or similar writ levied upon any property of such party; or (vi)
fails to pay within 30 days any final money judgment against such
party. The term
"Obligated Party"
as
used herein, shall mean any party other than Borrower who secures, guaranties,
and/or is otherwise obligated to all or any portion of the indebtedness
evidenced by the Notes.
(h) If
Borrower or any Obligated Party is an entity, the liquidation, dissolution,
merger, or consolidation of any such entity or, if Borrower or any Obligated
Party is an individual, the death or legal incapacity of any such
individual.
(i) Any
material adverse change in the financial condition or results of operation of
Borrower since the effective date of any financial statement previously
furnished to Lender by Borrower has occurred and is
continuing.
Notwithstanding
anything in this Loan Agreement, the Notes or any of the other Loan Documents to
the contrary, upon the occurrence of an Event of Default, Lender may take any of
the actions provided in Section 15 below and concurrently and automatically with
the occurrence of a Default or Event of Default, further advances on the Loans
shall cease until such Default or Event of Default is cured.
15.
Remedies.
Upon the
occurrence of any one or more of the foregoing Events of Default, the entire
unpaid balance of principal of the Notes, together with all accrued but unpaid
interest thereon, and all other indebtedness then owing by Borrower to Lender,
shall, at the option of Lender, become immediately due and payable without
further presentation, demand for payment, notice of intent to accelerate, notice
of acceleration or dishonor, protest or notice of protest of any kind, all of
which are expressly waived by Borrower.
16.
Rights Cumulative.
All rights of Lender under the terms of this Loan Agreement shall be cumulative
of, and in addition to, the rights of Lender under any and all other agreements
between
Borrower
and Lender (including, but not limited to, the other Loan Documents), and not in
substitution or diminution of any rights now or hereafter held by Lender under
the terms of any other agreement.
17.
Waiver and
Agreement.
Neither the failure nor any delay on the part
of Lender to exercise any right, power or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. No waiver of any provision in this Loan Agreement or
in any of the other Loan Documents and no departure by Borrower therefrom shall
be effective unless the same shall be in writing and signed by Lender, and then
shall be effective only in the specific instance and for the purpose for which
given and to the extent specified in such writing. No
modification or amendment to this Loan Agreement or to any of the other Loan
Documents shall be valid or effective unless the same is signed by the party
against whom it is sought to be enforced.
18.
Maximum Interest
Rate.
Regardless of any provision contained in this Loan Agreement, any
of the other Loan Documents, or any other document or instrument executed
pursuant hereto or thereto, Lender shall never be entitled to receive, collect,
charge or apply, as interest on the Loans contemplated hereunder, any amount in
excess of the highest lawful rate, and, in the event Lender ever receives,
collects, charges or applies as interest, any such excess, such amount which
would be excessive interest shall be deemed a partial prepayment of principal
and treated hereunder as such; and, if the principal debt of the Loans is paid
in full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the highest lawful rate, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the Loans so that the interest rate
is uniform throughout the entire term of the Loans; provided, that if the Loans
are paid and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence thereof
exceeds the highest lawful rate, Lender shall refund to Borrower or credit
against the principal debt of the Loans the amount of such excess and, in such
event, Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving, or receiving interest in excess of
the highest lawful rate.
19.
Notices.
Except as
otherwise provided herein, all notices, demands, requests, and other
communications required or permitted hereunder shall be given in writing and
sent by (i) personal delivery, or (ii) expedited delivery service with proof of
delivery, or (iii) United States mail, postage prepaid, registered or certified
mail, return receipt requested, or (iv) facsimile (provided that such facsimile
is confirmed by expedited delivery service or by United States mail in the
manner previously described), addressed to the addressee at such party's address
contained in the Loan Documents, or to such other address as either party shall
have designated by written notice, sent in accordance with this paragraph at
least thirty (30) days prior to the date of the giving of such
notice. Any such notice or communication shall be deemed to
have been given and received either at the time of personal delivery, or in the
case of mail, as of three (3) days after deposit in an official depository of
the United States mail, or in the case of delivery service or facsimile, upon
receipt. To the extent actual receipt is required, rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was received shall be deemed to be receipt of the notice,
demand, request or other communication sent.
20.
Construction.
This
Loan Agreement and the other Loan Documents have been executed and delivered in
the State of Texas, shall be governed by and construed in accordance with the
laws of the State of Texas, and shall be performable by the parties hereto in
Houston, Harris County, Texas.
21.
Arbitration.
All
disputes, claims and controversies between Borrower and Lender, whether
individual, joint, or class in nature, arising from the Loans, any document
executed in connection therewith or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of the
American Arbitration Association, upon request of either Borrower or Lender. No
act to take or dispose of any collateral securing the Loans shall constitute a
waiver of this agreement to arbitrate or be prohibited by this agreement to
arbitrate. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; invoking a power of sale
under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning
the lawfulness or reasonableness of any act, or exercise of any right concerning
any collateral securing the Loans, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing the Loans,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction; provided, however, that nothing contained herein shall be deemed
to be a waiver by Lender of the protections afforded to it under 12 USC Section
91, Texas Finance Code Section 59.007, or any other protection provided banks by
the laws of Texas or the United States. The statutes of limitations, estoppel,
waiver, laches, and similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act
shall apply to the construction, interpretation, and enforcement of this
agreement to arbitrate. If the Federal Arbitration Act is
inapplicable to any such claim or controversy for any reason, such arbitration
shall be conducted pursuant to the Texas General Arbitration Act and in
accordance with this agreement to arbitrate and Commercial Arbitration Rules of
the American Arbitration Association.
22.
Choice of Forum; Consent to
Service of Process and Jurisdiction.
Subject to
the provisions of Section 21 hereof, any suit, action or proceeding against
Borrower with respect to this Loan Agreement, the Notes or any judgment entered
by any court in respect thereof, may be brought in the courts of the State of
Texas, County of Harris, or in the United States courts located in the State of
Texas as Lender in its sole discretion may elect and Borrower hereby submits to
the non-exclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of an suit,
action or proceeding arising out of or relating to this Loan Agreement or the
Note brought in the courts located in the State of Texas, County of Harris, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient
forum.
23.
Invalid
Provisions.
If any provision of this Loan Agreement or
any of the other Loan Documents is held to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable and the
remaining provisions of this Loan Agreement or any of the other Loan Documents
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its
severance. Furthermore, in lieu of each such illegal,
invalid or unenforceable provision, there shall be added as part of such Loan
Documents a provision mutually agreeable to Borrower and Lender as similar in
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable. In the event Borrower and Lender are unable to
agree upon a provision to be added to the Loan Documents within a period of ten
(10) Business Days after a provision of the Loan Documents is held to be
illegal, invalid or unenforceable, then a provision acceptable to Lender as
similar in terms to the illegal, invalid and unenforceable provision as is
reasonably possible and be legal, valid and enforceable shall be added
automatically to such Loan Documents. In either case, the effective
date of the added provision shall be the date upon which the prior provision was
held to be illegal, invalid or unenforceable.
24.
Expenses.
Borrower
shall pay all costs and expenses (including, without limitation, the reasonable
attorneys' fees of Lender's legal counsel) in connection with (i) the
preparation of this Loan Agreement and the other Loan Documents, and any and all
extensions, renewals, amendments, supplements, extensions or modifications
thereof, (ii) any action required in the course of administration of the Loans,
and (iii) any action in the enforcement of Lender's rights upon the occurrence
of a Default or Event of Default.
25.
Binding Effect.
This
Loan Agreement shall be binding upon and inure to the benefit of Borrower,
Lender and their respective heirs, successors, assigns and legal
representatives; provided however, that Borrower may not, without the prior
written consent of Lender, assign any rights, powers, duties or obligations
thereunder.
26.
Assignments and
Participations by Lender.
Lender may, at any time, without the consent of
Borrower, (a) assign to one or more assignees all or a portion of its rights and
obligations under this Loan Agreement (including all or a portion of its
commitment to make the Borrowing Base Loan and/or the advances thereunder then
owing to it) and (b) sell participations to any person in all or a portion of
Lender's rights and obligations under this Loan Agreement (including all or a
portion of its commitment to make the Borrowing Base Loan and/or the advances
thereunder then owing to it). From and after the effective date of any
assignment, the assignee shall be a party to this Loan Agreement and, to the
extent of the interest assigned to such assignee, shall have the rights and
obligations of Lender under this Agreement and Lender shall, to the extent of
the interest assigned by it to such assignee, be released from its obligations
under this Loan Agreement (and, in the case of an assignment covering all of
Lender's rights and obligations under this Agreement, Lender shall cease to be a
party hereto) but shall continue to be entitled to the benefits of all
indemnities, releases and waivers made by Borrower under this Agreement and the
other Loan Documents.
27.
Offset.
Borrower
hereby grants to Lender, upon the occurrence of a Default or Event of Default,
the right of offset, to secure repayment of the Notes, upon any and all moneys,
securities or other property of Borrower and the proceeds therefrom, now or
hereafter held or received by or in transit to Lender or any of its agents, from
or for the account of Borrower whether for safe keeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general or special) and credits of Borrower, and any and all claims of Borrower
against Lender at any time existing.
28.
Headings.
Section
headings are for convenience of reference only and shall in no way affect the
interpretation of this Loan Agreement.
29.
Survival.
All
representations and warranties made by Borrower in this Loan Agreement shall
survive delivery of the Notes and the making of the Loans.
30.
No Third Party
Beneficiary.
The parties do not intend the
benefits of this Loan Agreement to inure to any third party, nor shall this Loan
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or
claims accruing to any such
persons against Borrower. Notwithstanding anything contained herein
or in the Notes, or in any other Loan Documents, or any conduct or course of
conduct by any or all of the parties hereto, before or after signing this Loan
Agreement or any of the other Loan Documents, neither this Loan Agreement nor
any other Loan Documents shall be construed as creating any right, claim or
cause of action against Lender, or any of its officers, directors, agents or
employees, in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, nor to any other person
or entity other than Borrower.
31.
Counterparts.
This
Loan Agreement may be separately executed in any number of counterparts, each of
which shall be an original, but all of which, taken together, shall be deemed to
constitute one and the same agreement.
32.
Waiver of Special
Damages.
BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT BORROWER MAY HAVE TO CLAIM OR RECOVER FROM LENDER IN ANY LEGAL
ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL
DAMAGES.
33.
Jury Waiver.
BORROWER AND LENDER HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO
THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENTS. THIS PROVISION
IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR
IN THE OTHER LOAN DOCUMENTS.
34.
USA Patriot Act
Notification.
The following notification is
provided to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31
U.S.C. Section 5318:
IMPORTANT
INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government
fight the funding of terrorism and money laundering activities, Federal law
requires all financial institutions to obtain, verify, and record information
that identifies each person or entity that opens an account, including any
deposit account, treasury management account, loan, other extension of credit,
or other financial services product. What this means for Borrower: When Borrower
opens an account, if Borrower is an individual, Lender will ask for Borrower's
name, taxpayer identification number, residential address, date of birth, and
other information that will allow Lender to identify Borrower, and, if Borrower
is not an individual, Lender will ask for Borrower's name, taxpayer
identification number, business address, and other information that will allow
Lender to identify Borrower. Lender may also ask, if Borrower is an individual,
to see Borrower's driver's license or other identifying documents, and, if
Borrower is not an individual, to see Borrower's legal organizational documents
or other identifying documents.
35.
Entire Agreement.
THIS LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
If the
foregoing correctly sets forth our mutual agreement, please so acknowledge by
signing and returning the additional copy of this Loan Agreement enclosed
herewith.
Address:
|
REGIONS
BANK
|
5005
Woodway, Suite 110
|
|
Houston,
Texas 77056
|
By
|
|
Name:
|
|
Title:
|
ACCEPTED
this 26th day of May, 2009.
By:
/s/ Benjamin P.
Cowart
Benjamin
P. Cowart, President
Exhibit
"A" - Form
of Request for Advance
Exhibit
"B" - Form
of Borrowing Base Certificate
Exhibit
"C" -
Form of Certificate of Compliance
EXHIBIT
"A" REQUEST FOR ADVANCE
In
accordance with the Letter Loan Agreement ("Loan Agreement") dated May,
2009,
between REGIONS BANK ("Lender") and VERTEX ENERGY, INC., a Nevada corporation
("Borrower").
I, of
Borrower, hereby request on behalf of Borrower an advance on
the
Borrowing
Base Loan in the amount of
$ ,
and certify and warrant that the following
schedule
accurately states the Borrowing Base as of the date hereof:
1.
Total Accounts Receivable as
of
(A)
|
Accounts
90 days past due
|
$
|
(B)
|
Affiliate/Subsidiary
Accounts
|
$
|
(C)
|
Financially
Distressed
|
$
|
(D)
|
Foreign
(No L/C)
|
$
|
(E)
|
Governmental
|
$
|
(F)
|
Concentrations
|
$
|
(G)
|
Other
Ineligible Accounts
|
$
|
3. Eligible
Accounts
Receivable
(A) Conditionally
Shipped to
Customer
(C) Other
Ineligible
Inventory
8. 50%
of Line 7, not to exceed Line 4
9. Total
of Lines 4 and 8
10. Loan
Balance this report
11.
Outstanding Letters of
Credit
12. Total
of Lines 10 and
11
13.
Excess of line 9 over line
12
EXHIBIT "A"
I further
certify and warrant that (i) as of the date of this Request, all of the
representations and warranties of Borrower contained in the Loan Agreement are
true and correct, (ii) all conditions precedent to this Request have been
satisfied, (iii) there has been no material adverse change in the financial
condition of Borrower from that shown by the last financial statements furnished
to Lender, (iv) no Default or Event of Default under the Loan Agreement is
existing on the date of this Request, (v) the foregoing report is true and
correct as of the date hereof, and (vi) the items mentioned herein constitute
Collateral in accordance with the terms of the Loan Agreement. The foregoing
defined terms have the meaning given to them in the Loan Agreement.
|
VERTEX
ENERGY, INC.
|
|
By:
|
|
Benjamin
P. Cowart,
President
|
EXHIBIT
"B" BORROWING BASE CERTIFICATE
In
accordance with the Letter Loan Agreement ("Loan Agreement") dated May,
2009,
between REGIONS BANK ("Lender") and VERTEX ENERGY, INC., a Nevada corporation
("Borrower").
I, of Borrower,
hereby certify and warrant that the following
schedule
accurately states the Borrowing Base as of the date hereof.
1. Total
Accounts Receivable as
of
(A)
|
Accounts
90 days past due
|
$
|
(B)
|
Affiliate/Subsidiary
Accounts
|
$
|
(C)
|
Financially
Distressed
|
$
|
(D)
|
Foreign
(No L/C)
|
$
|
(E)
|
Governmental
|
$
|
(F)
|
Concentrations
|
$
|
(G)
|
Other
Ineligible Accounts
|
$
|
3. Eligible
Accounts
Receivable
(A) Conditionally
Shipped to
Customer
(C) Other
Ineligible
Inventory
8. 50% of
Line 7, not to exceed Line
4
9. Total
of Lines 4 and
8
I further
certify and warrant that (i) as of the date of this Certificate, all of the
representations and warranties of Borrower contained in the Loan Agreement are
true and correct, (ii) there has been no material adverse change in the
financial condition of Borrower from that shown by the last financial statements
furnished to Lender, (iii) no Default or Event of Default under the Loan
Agreement is existing on the date of this Certificate, (iv) the foregoing report
is true and correct as of the date hereof, and (v) the items mentioned herein
constitute Collateral in accordance with the terms of the Loan Agreement. The
foregoing defined terms have the meaning given to them in the Loan
Agreement.
|
VERTEX
ENERGY, INC.
|
|
|
|
By:
|
|
Benjamin
P. Cowart,
President
|
EXHIBIT
"C" CERTIFICATE OF COMPLIANCE
In
accordance with the Letter Loan Agreement ("Loan Agreement") dated May,
2009,
between REGIONS BANK ("Lender") and VERTEX ENERGY, INC., a Nevada corporation
("Borrower"). I,of Borrower, hereby certify and warrant that:
1.
|
Borrower
is in full compliance with all of its obligations under the Loan Agreement
as of the date hereof.
|
2. Borrower's
financial condition for the
fiscal ending is
as
follows:
FINANCIAL COVENANT
|
REQUIRED RATIO
OR AMOUNT
|
ACTUAL RATIO OR AMOUNT
|
Minimum
Tangible Net Worth
|
At
least $1,500,000.00 and increasing
by
|
$
|
|
50%
of net income
|
|
Liabilities/Tangible
Net Worth
|
Not
greater than 4.0 to 1.0
|
to
1.0
|
Debt
Service Coverage Ratio
|
Not
less than 1.5 to 1.0
|
to
1.0
|
Funded
Bank Debt Ratio
|
Not
greater than 3.5 to 1.0
|
to
1.0
|
Minimum
Liquidity
|
Not
less than $ 1,500,000.00
|
$
|
The
foregoing defined terms have the meaning given to them in the Loan
Agreement.
|
VERTEX
ENERGY, INC.
|
|
|
|
By:
|
|
Benjamin
P. Cowart,
President
|
Exhibit 10.9
REVOLVING LINE OF CREDIT PROMISSORY
NOTE
$3,500,000.00
|
May
26, 2009
|
FOR VALUE
RECEIVED, the undersigned, VERTEX ENERGY, INC., a Nevada corporation (the
"Maker", whether one or more, and if more than one, jointly and severally)
promises to pay to the order of REGIONS BANK (the "Payee", together with any and
all subsequent owners and holders of this Note), at its offices at 5005 Woodway,
Suite 110, Houston, Texas 77056, or such other place as Payee shall designate in
writing to Maker, which at the time of payment is legal tender of the United
States of America for payment of public and private debts, the principal sum of
$3,500,000.00, or so much thereof as may be advanced and outstanding hereunder,
together with interest thereon from and after date hereof until maturity at a
rate per annum which shall from day to day be equal to the lesser of (a) a
fluctuating rate per annum (the "Contract Rate") set forth in the hereinafter
defined Loan Agreement, or (b) the Maximum Rate (as hereinafter defined);
provided, however, if at any time the Contract Rate shall exceed the Maximum
Rate, thereby causing the interest rate on the principal of the Note to be
limited to the Maximum Rate, then notwithstanding any subsequent change in
either the Index Rate or the Maximum Rate that would otherwise reduce the
Contract Rate to less than the Maximum Rate, the rate of interest on the
principal of this Note shall remain equal to the Maximum Rate until the total
amount of interest accrued on the principal of this Note equals the amount of
interest which would have accrued on the principal of this Note if the Contract
Rate had at all times been in effect.
It is
expressly understood, notwithstanding any provision herein to the contrary, that
this Note is a revolving line of credit note established pursuant to the terms
of a Letter Loan Agreement (the "Loan Agreement") of even date herewith, by and
between Maker and Payee. Subsequent and periodic advances in various increments
will be made to Maker pursuant to the Loan Agreement up to, but in no event to
exceed, the maximum of the face value hereof. The unpaid principal balance of
this Note at any time shall be the total amounts loaned or advanced hereunder by
Payee, less the amount of payments or prepayments of principal made hereon by or
for the account of Maker. It is contemplated that by reason of prepayments
hereon, there may be times when no indebtedness is owing hereunder; provided,
notwithstanding such occurrence, this Note shall remain valid and shall be in
full force and effect as to the advances made pursuant to and under the terms of
this Note subsequent to such occurrence. Each advance and each payment on
account of principal or interest shall be reflected by a notation made by Payee
in its records kept in the ordinary course of its business with regard to this
Note. The aggregate unpaid amount of advances reflected by the notations in such
records shall be deemed rebuttable presumptive evidence of the principal amount
owing under this Note, which amount Maker unconditionally promises to pay to the
order of Payee under the terms hereof. In the event that the unpaid principal
amount hereof at any time, for any reason, exceeds the maximum amount specified
in the Loan Agreement, Maker covenants and agrees to pay the excess principal
amount immediately upon demand and such excess principal amount shall in all
respects be deemed to be included among the advances made pursuant to the terms
of this Note and shall bear interest at the rate specified
above.
Interest
only, accruing and to accrue on this Note, shall be due and payable as provided
in the Loan Agreement until three hundred sixty-four (364) days after the date
hereof, when the entire amount, principal and interest then remaining unpaid,
shall be due and payable.
If a
payment is 10 or more days late, Maker will pay a delinquency charge in an
amount equal to the greater of (i) 5.0% of the amount of the delinquent payment
up to the maximum amount of $1,500.00, or (ii) $25.00. All payments due under
this Note shall be made by Maker without offset or other reduction. Upon an
Event of Default (as defined in the Loan Agreement) and the expiration of any
notice
and/or
cure period provided in the Loan Agreement, including failure to pay upon final
maturity, and acceleration of the principal balance of this Note, Payee, at its
option, may also, if permitted under Applicable Law (as defined below), do one
or both of the following: (a) increase the Contract Rate to the Maximum Rate (as
defined below), and (b) add any unpaid accrued interest to principal and such
sum will bear interest therefrom until paid at the rate provided in this Note
(including any increased Contract Rate).
If any
payment of principal or interest on this Note shall become due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall be included in the computing of interest in
connection with such payment. Any check, draft, money order or other instrument
given in payment of all or any portion of this Note may be accepted by Payee and
handled in collection in the customary manner, but the same shall not constitute
payment or diminish any rights of Payee except to the extent that actual cash
proceeds of such instrument are unconditionally received by
Payee.
Unless
otherwise agreed in writing, or otherwise required by Applicable Law, interest
on this Note will be calculated on the unpaid principal balance to the date each
installment is paid and each installment payment will be applied first to unpaid
accrued interest, then to principal, and any remaining amount to any unpaid
collection costs, delinquency charges and other charges; provided, however, upon
delinquency or other Event of Default, Payee reserves the right to apply
installment payments among principal, interest, delinquency charges, collection
costs and other charges, at its discretion.
Maker
shall have the privilege to prepay at any time, and from time to time, all or
any part of the principal amount of this Note, without notice, penalty or fee.
Except as expressly provided herein to the contrary, all prepayments on this
Note shall be applied in the following order of priority: (i) the payment or
reimbursement of any expenses, costs, or obligations (other than the outstanding
principal balance hereof and interest hereon) for which either Maker shall be
obligated or Payee shall be entitled pursuant to the provisions of this Note or
the other Security Instruments (as defined below), (ii) the payment of accrued
but unpaid interest hereon, and (iii) the payment of all or any portion of the
principal balance hereof then outstanding hereunder, in the inverse order of
maturity.
Maker
agrees that upon the occurrence of an Event of Default, the holder of this Note
may, at its option, without further notice or demand except as provided in the
Loan Agreement, (i) declare the outstanding principal balance of and accrued but
unpaid interest on this Note at once due and payable, (ii) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing payment
hereof, (iv) pursue any and all other rights, remedies, and recourses available
to the holder hereof, including but not limited to any such rights, remedies, or
recourses under any of the Security Instruments, or other loan documents, at law
or in equity, or (v) pursue any combination of the foregoing.
All
makers, endorsers, sureties and guarantors hereof, as well as all other parties
to become liable on this Note, hereby severally: (i) except as specifically
provided in the Loan Agreement, waive notice of default, demand, notice of
intent of demand, presentment for payment, notice of non-payment, protest,
notice of protest, grace, notice of intent to accelerate maturity, notice of
acceleration of maturity, filing of suit, diligence in collection or enforcing
any of the security for this Note; (ii) agree that they are and shall be
jointly, severally, directly and primarily liable for the repayment of all sums
due and owing under this Note; (iii) consent to any and all renewals, extensions
and modification in the time of payment and to any other indulgence with respect
to this Note; (iv) agree that Payee shall not be required first to institute
suit or exhaust its remedies against Maker or others liable or to become liable
on this Note, or to enforce its rights against them or any security for this
Note; (v) agree to any substitution, subordination, exchange or release of any
security for this Note, or the release of any party primarily or secondarily
liable on this Note; and (vi) acknowledge that Payee has no duty of good faith
to Maker and that no fiduciary, trust or other special relationship exists
between Maker and Payee. Maker acknowledges and agrees that it may
be
required to pay this Note in full without assistance from any other party, or
any collateral or security for this Note. Payee shall not be required to
mitigate damages, file suit, or take any action to foreclose, proceed against,
or exhaust any collateral or security in order to enforce the payment of this
Note.
Upon the
occurrence of an Event of Default, and if any action is taken by Payee to
enforce the terms and provisions of this Note, including, but not limited to,
this Note is placed in the hands of an attorney for collection, or suit is
brought on same, or the same is collected through any Probate, Bankruptcy Court,
or any judicial proceeding whatsoever, then Maker agrees and promises to pay
Payee's reasonable expenses and costs, including, but not limited to, attorney's
fees.
It is
expressly provided and stipulated that notwithstanding any provision of this
Note or any other instrument evidencing or securing the loan evidenced hereby,
in no event shall the aggregate of all interest paid by Maker to Payee under
this Note ever exceed the Maximum Rate on the principal balance of this Note
from time to time advanced and remaining unpaid. In this connection, it is
expressly stipulated and agreed that it is the intent of Payee and Maker in the
execution and delivery of this Note to contract in strict compliance with
Applicable Law as defined below. In furtherance thereof, none of the terms of
this Note or any other instrument evidencing or securing the loan evidenced
hereby, shall ever be construed to create a contract to pay for the use,
forbearance or detention of money, at a rate in excess of the Maximum Rate
permitted to be charged of Maker under Applicable Law. Maker or any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall never be liable for interest in excess of the Maximum Rate, and the
provision of this paragraph and the immediately succeeding paragraph shall
govern over all other provisions of this Note and any instruments evidencing or
securing the loan evidenced hereby, should such provisions be in apparent
conflict herewith.
Specifically
and without limiting the generality of the foregoing paragraph, it is expressly
provided that:
|
(i)
In the event of prepayment of the principal of this Note (if permitted
hereunder) or the payment of the principal of this Note prior to the
stated maturity date hereof resulting from acceleration of maturity of
this Note, if the aggregate amounts of interest accruing hereon prior to
such payment plus the amount of any interest accruing after maturity and
plus any other amounts paid or accrued in connection with the loan
evidenced hereby which by Applicable Law are deemed interest on the loan
evidenced by this Note and which aggregate amount paid or accrued (if
calculated in accordance with the provisions of this Note other than this
paragraph) would exceed the Maximum Rate, then in such event the amount of
such excess shall be credited, as of the date paid, toward the payment of
principal of this Note so as to reduce the amount of the final payment of
principal due on this Note;
|
|
(ii)
If under any circumstance the aggregate amounts paid on the loan evidenced
by this Note prior to and incident to the final payment hereof include
amounts which by Applicable Law are deemed interest and which would exceed
the Maximum Rate, Maker stipulates that such payment and collection will
have been and will be deemed to have been the result of a mathematical
error on the part of both Maker and Payee, and any excess shall be
credited on the Note by Payee. If this Note shall have been paid in full,
Payee shall promptly refund the amount of such excess (to the extent only
of the excess of such interest payments above the Maximum Rate) upon the
discovery of such error or notice thereof;
and
|
|
(iii)
All amounts paid or agreed to be paid in connection with the indebtedness
evidenced by this Note which would under Applicable Law be deemed interest
shall, to the extent
provided
by Applicable Law, be amortized, prorated, allocated and spread throughout
the full term of this
Note.
|
As
security for this Note and all indebtedness which may at any time be owing by
any Maker under this Note to Payee, each Maker hereby grants Payee a right of
setoff on any property of any Maker in its possession, including, without
limitation, that which it may hold for collection or safekeeping, and on any
money or accounts on deposit with Payee, and Payee may retain and apply the
property, money, securities or accounts to the payment of this Note or such
other indebtedness with or without notice to any Maker. This right of Payee is
in addition to any other right of setoff which Payee may have under Applicable
Law.
As used
herein, the term
"Applicable Law"
means that law in effect from time to time and applicable to this Note,
including the laws of the State of Texas and laws of the United States of
America.
As used
herein, the term
"Maximum Rate"
means
the maximum lawful nonusurious rate of interest (if any) which under Applicable
Law Payee is permitted to charge Maker on this Note from time to time. It is
intended that Chapter 303 of the Texas Finance Code shall be included in the
laws of the State of Texas in determining Applicable Law; and for the purpose of
applying such provisions to this Note, the interest ceiling applicable to this
Note shall be the "weekly ceiling" from time to time in effect. If Applicable
Law does not provide for a maximum non-usurious rate of interest, the Maximum
Rate shall be 24% per annum.
Except as
otherwise provided herein, all notices, demands, requests, and other
communications required or permitted hereunder shall be given in writing as
provided in the Loan Agreement.
This Note
is secured by all security agreements, guaranty agreements, loan agreements,
collateral assignments, mortgages, deeds of trust and any other lien instruments
executed by Maker, or any other party as pledger, surety, or guarantor for
Maker, in favor of Payee, including those executed simultaneously herewith,
those previously executed and those hereafter executed (the
"Security
Instruments"), including, but not limited to, the
following:
|
(i) Security
Agreement of even date herewith, executed by Maker for the benefit of
Payee,
(ii)
Lockbox
Agreement of even date herewith, executed by Maker and
Payee.
|
|
(iii) Subordination
Agreement of even date herewith, executed by Maker and Benjamin P. Cowart,
for the benefit of
Payee.
|
Where
appropriate, any pertinent noun, verb or pronoun shall be construed and
interpreted to include both the proper number and gender. This Note shall not be
renewed, extended, or modified except by a written instrument evidencing the
same.
Address:
|
VERTEX
ENERGY, INC.
|
|
|
1331
Gemini, Suite 103
|
By:
/s/ Benjamin P.
Cowart
|
Houston,
TX 77058
|
Name:
Benjamin P. Cowart
|
|
Title:
CEO
|
Exhibit 10.10
SECURITY
AGREEMENT
This
Security Agreement is executed as of May 26, 2009, by Debtor in favor of Secured
Party.
As used
in this Security Agreement, the following underlined terms shall have the
respective meanings as indicated, unless the context otherwise
requires:
Debtor
:
|
VERTEX
ENERGY, INC., a Nevada corporation
|
|
|
Debtor's Mailing Address:
|
1331
Gemini, Suite 103, Houston, TX 77058
|
|
|
Secured Party:
|
REGIONS
BANK
|
|
|
Secured Party's Mailing
Address:
|
5005
Woodway, Suite 110, Houston, Texas
77056
|
Date:
|
Of
even date herewith
|
|
|
Amounts:
|
$3,500,000.00
|
|
$1,600,000.00
|
|
|
Borrower:
|
VERTEX
ENERGY, INC., a Nevada corporation
|
|
|
Payee:
|
REGIONS
BANK
|
|
|
Final Maturity Date:
|
As
specified in the Notes
|
|
|
Location of Collateral:
|
1331
Gemini, Gemini Building, Houston, Harris County, Texas
77058
|
ARTICLE I
SECURITY
INTEREST
1.1
Collateral.
For value
received, Debtor hereby grants to Secured Party a security interest in and
agrees and acknowledges that Secured Party has and shall continue to have a
security interest in the following described property:
A.
Accounts.
All of
Debtor's accounts (as such term is defined in the Chapter 9 of the Texas
Business and Commerce Code (the "Code") now owned or existing, as well as any
and all that may hereafter arise or be acquired by Debtor, and all the proceeds
and products thereof, including without limitation, all notes, drafts,
acceptances, instruments and chattel paper arising therefrom, and all returned
or repossessed goods arising from or relating to any such accounts, or other
proceeds of any sale or other disposition of inventory or other property of
Debtor.
B.
Inventory.
All of
Debtor's inventory (as such term is defined in Chapter 9 of the Code), including
all goods, merchandise, raw materials, goods in process, finished goods and
other tangible personal property, wheresoever located, now owned or hereafter
acquired and held for sale or lease or furnished or to be furnished under
contracts for service or used or consumed in Debtor's business and all additions
and accessions thereto and contracts with respect thereto and all documents of
title evidencing or representing any part thereof, and all products and proceeds
thereof.
C.
Fixtures.
All
of Debtor's fixtures (as such term is defined in Chapter 9 of the Code) and
appurtenances thereto, and such other goods, chattels, equipment, and personal
property affixed or in any manner attached to the real estate and/or
building(s), including all
additions, accessions thereto, replacements thereof, and
articles in substitution therefor, howsoever attached or
affixed, located at the Collateral Location stated above.
D.
Equipment.
All
of Debtor's equipment (as such term is defined in Chapter 9 of the Code) of
every nature and description whatsoever, now owned or hereafter acquired by
Debtor, all appurtenances and additions thereto and substitutions therefor,
wheresoever located, together with all tools, parts, and accessories used in
connection therewith.
E.
General Intangibles.
All of Debtor's general intangibles (as such term is defined in Chapter 9 of the
Code) and other personal property now owned or hereafter acquired by Debtor
including, without limitation, the following: all goodwill, trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos, other source and business identifying
marks, patents and copyrights, all registrations and applications for
registration for any of the foregoing, all renewals, extensions and
continuations in part of the above, any written agreement granting any right to
use any of the foregoing, the right to sue for past, present and future
infringements of the foregoing, all other intellectual property rights of any
kind, and all computer software, computer programs, licenses, printouts and
other computer materials.
F.
Investment
Property.
All of Debtor's investment property (as
such term is defined in Chapter 9 of Code), and all proceeds
thereof.
G.
Certificates of
Deposit.
Each Certificate of Deposit issued by
Lender to Borrower and described on Exhibit "A" hereto, together with any
certificate of deposit issued in
renewal,
exchange or substitution therefor (the "Certificates of Deposit"), and all
proceeds of any of the foregoing.
The term
"Collateral" as used in this Security Agreement shall mean and include, and the
security interest, pledge, and/or assignment as applicable granted herein, shall
cover, all of the foregoing property, as well as (i) all of Debtor's corporate
and other business books, reports, memoranda, customer lists, credit files, data
compilations, and computer software, in any form, including, without limitation,
whether on tape, disk, card, strip, cartridge, or any other form, pertaining to
any and all of the foregoing property, and (ii) any accessions, additions and
attachments thereto and the proceeds and products thereof, including without
limitation, all cash, general intangibles, accounts, inventory, equipment,
fixtures, farm products, notes, drafts, acceptances, securities, instruments,
chattel paper, insurance proceeds payable because of loss or damage, or other
property, benefits or rights arising therefrom, and in and to all returned or
repossessed goods arising from or relating to any of the property described
herein or other proceeds of any sale or other disposition of such
property.
1.2
Limited License.
Without limiting the security interest granted hereby, Debtor hereby grants to
Secured Party a limited license in Debtor's assignable trade names, trademarks,
and service marks, together with Debtor's goodwill associated with such
tradenames, trademarks, and service marks, for purposes of allowing Secured
Party to use the same in connection with any foreclosure sale or any other
disposition pursuant to the Code or this Security Agreement.
ARTICLE
II
OBLIGATIONS
SECURED
2.1
Obligations.
The
security interest granted hereby is to secure full, prompt and complete payment
as and when the same becomes due and payable on the following (collectively, the
"Obligations"):
A. The
Notes, together with all modifications, renewals,
rearrangements and extensions thereof;
B. All
obligations of Debtor to Secured Party pursuant to loans or leases entered into
under the $500,000.00 Equipment Guidance Line (as such term is defined in that
certain Letter Loan Agreement of even date herewith between Debtor and Secured
Party (the "Loan Agreement"));
C. All
other obligations of Debtor to Secured Party under or described in the Loan
Agreement or any of the other Loan Documents defined therein;
D. All
funds hereafter advanced by Secured Party to or for the benefit of Debtor, as
contemplated by any covenant or provision herein contained;
and
E. All
other indebtedness, of whatever kind or character, presently owing or which may
hereafter become owing by Debtor and/or Borrower to Secured Party, whether such
indebtedness is secured or unsecured, direct or indirect, fixed or contingent,
primary or secondary, joint or several or both, and whether evidenced by
promissory note, open account, overdraft, endorsement, security agreement,
guaranty, or otherwise, including, but not limited to, any and all of the
Borrower's obligations under or in connection with existing or future Swap
Agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) with
Lender or any of its affiliates.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF DEBTOR
3.1
Ownership.
Except for
the security interest granted hereby, Debtor warrants that Debtor is the owner
of the Collateral free of any adverse claim, security interest or encumbrance.
Debtor agrees to defend the Collateral against all claims and demands of all
persons at any time claiming the same or interest therein.
3.2
No Other Liens:
Authority.
There is no lien, security interest or other
encumbrance on the Collateral at the time of the execution of this Security
Agreement, except as previously disclosed in writing to Secured
Party. Debtor owns the Collateral and has the full right and
authority to transfer the full legal interest therein to Secured
Party.
3.3
Debtor's Principal Place of
Business.
Debtor's principal place of business and executive offices are
located at Debtor's Mailing Address.
3.4
All Information
Correct.
All information contained herein and the statements
furnished to Secured Party by a party by or on behalf of Debtor in connection
with Obligations secured by this Security Agreement are complete and
accurate.
ARTICLE
IV
AFFIRMATIVE
COVENANTS AND AGREEMENTS OF DEBTOR
4.1
Operation and Condition of
Collateral.
Debtor agrees to maintain and use the Collateral solely in
the conduct of its own business, in a careful and proper manner, and in
conformity with all applicable permits and licenses. Debtor shall maintain,
service and repair the Collateral so as to keep it in good operating condition.
Debtor shall replace within a reasonable time all pads that may be worn out,
lost, destroyed or otherwise rendered unfit for use, with the appropriate
replacement parts.
4.2
Filing.
Debtor
authorizes Secured Party to file, in jurisdictions where this authorization will
be given effect, a Financing Statement covering the Collateral. Debtor will pay
the cost of filing the same or in filing or recording this Security Agreement in
all public offices wherever filing or recording is deemed by Secured Party to be
necessary or desirable, it being further stipulated in this regard that Secured
Party may also, at any time or times, file any counterpart of this Security
Agreement signed by Debtor as a financing statement if Secured Party shall elect
to do so.
4.3
Alienation.
Except as
otherwise provided in this Agreement, Debtor will not sell or offer to sell or
otherwise transfer or encumber the Collateral or any interest therein without
the written consent of Secured Party.
4.4
No Removal.
Except as
otherwise provided in this Agreement, Debtor shall not remove the Collateral
from the Collateral Location(s) stated above, without Secured Party's prior
written consent.
4.5
Inspection.
Debtor
shall at all reasonable times allow Secured Party by or through any of its
officers, agents, attorneys or accountants, to examine the Collateral, wherever
located, and to examine and make extracts from Debtor's books and
records.
4.6
Insurance.
Debtor
shall have and maintain insurance at all times with respect to all tangible
Collateral insuring against risk of fire (including so-called Extended
Coverage), theft and other
risk as
Secured Party may require, containing such terms, in such form and amounts and
written by such companies as may be satisfactory to Secured Party, all such
insurance to contain loss payable clauses in favor of Secured Party as its
interest may appear. All policies of insurance shall provide for 10 days written
minimum cancellation notice to Secured Party and at the request of Secured Party
shall be delivered to and held by it. Secured Party is hereby authorized to act
as attorney for Debtor in obtaining, adjusting, settling, and canceling such
insurance and endorsing any drafts or instruments. In the event of a loss
covered by the policies of insurance, provided Debtor is not in default under
the terms of this Security Agreement, the proceeds of the insurance policies
will be applied first to the reimbursement of all costs and expenses incurred by
Secured Party and Debtor in connection with such casualty and the balance, to
the replacement or restoration of the Collateral. Debtor specifically authorizes
Secured Party to disclose information from the policies of insurance to
prospective insurers regarding the Collateral.
4.7
Other Liens.
Debtor
will keep the Collateral free from any and all adverse liens, security interests
and encumbrances.
4.8
Landlord's
Waiver.
Debtor shall furnish to Secured Party, if
requested, a landlord's waiver of all liens with respect to any Collateral
covered by this Security Agreement that is or may be located upon leased
premises, such landlord waiver is to be in such form and upon such terms as are
acceptable to Secured Party.
4.9
Expenses.
Debtor will
pay to Secured Party, on demand, all expenses and expenditures, including
reasonable attorney's fees and legal expenses, incurred or paid by Secured Party
in exercising or protecting its interest, rights and remedies under this
Security Agreement. Debtor agrees to pay interest on such amounts at the maximum
non-usurious rate of interest permitted by Applicable Law (as defined
below).
4.10
Payment of Taxes and
Fees.
Debtor shall promptly pay when due (unless they are being contested
in good faith) all taxes, assessments, costs, expenses and fees necessary to
preserve, protect, maintain, and collect the Collateral; defend the Collateral
against all claims and demands of all persons at any time claiming an interest
therein adverse to Secured Party; and in the event of a failure to do so, Debtor
agrees that Secured Party may make expenditures for any and all such purposes,
and the amount so expended together with interest thereon at the highest rate
allowed by law shall constitute one of Debtor's Obligations to Secured Party
secured by this Security Agreement.
ARTICLE V
ADDITIONAL PROVISIONS
REGARDING ACCOUNTS
5.1
Additional
Warranties.
As of the time any Account becomes subject
to the security interest (or pledge or assignment as applicable) granted hereby,
Debtor shall be deemed further to have warranted as to each and all of such
Accounts as follows: (i) each Account and all papers and documents relating
thereto are genuine and in all respects what they purport to be; (ii) each
Account is valid and subsisting and arises out of a bona fide sale of goods sold
and delivered to, or out of and for services theretofore actually rendered by
Debtor to, the Account debtor named in the Account; (iii) the amount of the
Account represented as owing is the correct amount actually and unconditionally
owing except for normal cash discounts and is not subject to any setoffs,
credits, defenses, deductions or countercharges; and (iv) Debtor is the owner
thereof free and clear of any charges, liens, security interests, adverse claims
and encumbrances of any and every nature whatsoever.
5.2
Collection of
Accounts.
Secured Party shall have the right in its own
name or in the name of Debtor, whether before or after default, to require
Debtor forthwith to transmit all proceeds of
collection
on all Accounts to Secured Party, to notify any and all Account debtors to make
payments of the Accounts directly to Secured Party, to demand, collect, receive,
receipt for, sue for, compound and give acquittal for, any and all amounts due
or to become due on the Accounts and to endorse the name of Debtor on all
commercial paper given in payment or part payment thereof, and in Secured
Party's discretion to file any claim or take any other action or proceeding that
Secured Party may deem necessary or appropriate to protect and preserve and
realize upon the Accounts and related Collateral. Unless and until Secured Party
elects to collect Accounts, and the privilege of Debtor to collect Accounts is
revoked by Secured Party in writing, Debtor shall continue to collect Accounts,
for same to Secured Party and shall not commingle the proceeds of collection of
Accounts with any funds of Debtor. In order to assure collection of Accounts in
which Secured Party has a security interest (or pledge or assignment of as
applicable) hereunder, Secured Party may notify the post office authorities to
change the address for delivery of mail addressed to Debtor to such address as
Secured Party may designate, and to open and dispose of such mail and receive
the collections of Accounts included herewith. Secured Party shall have no duty
or obligation whatsoever to collect any Account, or to take any other action to
preserve or protect the Collateral; however, should Secured Party elect to
collect any Account or take possession of any Collateral, Debtor releases
Secured Party from any claim or claims for loss or damage arising from any act
or omission therewith.
5.3
Identification and
Assignment of Accounts.
Upon Secured Party's
request, whether before or after default, Debtor shall take such action and
execute and deliver such documents as Secured Party may reasonably request in
order to identify, confirm, mark, segregate and assign Accounts and to evidence
Secured Party's interest in same. Without limitation of the
foregoing, Debtor, upon request, agrees to assign Accounts to Secured Party,
identify and mark Accounts as being subject to the security interest (or pledge
or assignment as applicable) granted hereby, mark Debtor's books and records to
reflect such assignments, and forthwith to transmit to Secured Party in the form
as received by Debtor any and all proceeds of collection of such
Accounts.
5.4
Account Reports.
If
requested by Secured Party, Debtor will deliver to Secured Party, a written
report in form and content satisfactory to Secured Party, showing a listing and
aging of Accounts and such other information as Secured Party may request from
time to time. Debtor shall immediately notify Secured Party of the
assertion by any Account debtor of any setoff, defense or claim regarding an
Account or any other matter adversely affecting an Account.
5.5
Segregation of Returned
Goods.
Returned or repossessed goods arising from or relating to any
Accounts included within the Collateral shall, if requested by Secured Party, be
held separate and apart from any other property. Debtor shall as often as
requested by Secured Party, but not less often than weekly even though no
special request has been made, report to Secured Party the appropriate
identifying information with respect to any such returned or repossessed goods
relating to Accounts included in assignments or identifications made pursuant
hereto.
ARTICLE
VI
ADDITIONAL
PROVISIONS REGARDING INVENTORY
6.1
Inventory
Reports.
If requested by Secured Party, Debtor will deliver to Secured
Party, a written report in a form and content satisfactory to Secured Party,
with respect to the preceding month or other applicable period, showing
.Debtor's opening Inventory acquired, Inventory sold, Inventory returned,
Inventory used in Debtor's business, closing Inventory, any other Inventory not
within the preceding categories, and such other information as Secured Party may
request from time to time. Debtor shall immediately notify Secured Party of any
matter adversely affecting the Inventory, including, without
limitation,
any event causing loss or depreciation in the value of the Inventory and the
amount of such possible loss or depreciation.
6.2
Location of
Inventory.
Debtor will promptly notify Secured Party in
writing of any addition to, change in or discontinuance of its place(s) of
business as shown in this Security Agreement, the places at which Inventory is
located as shown herein, the location of its chief executive office and the
location of the office where it keeps its records as set forth herein. All
Collateral will be located at the Collateral Location(s), as modified by any
written notice given pursuant hereto.
6.3
Use of
Inventory.
Unless and until the privilege of Debtor to
use Inventory in the ordinary course of Debtor's business is revoked by Secured
Party in the event of default, Debtor may use the Inventory in any manner not
inconsistent with this Security Agreement, may sell that part of the Collateral
consisting of Inventory provided that all such sales are in the ordinary course
of business, and may use and consume any raw materials or supplies that are
necessary in order to carry on Debtor's business. A sale
in the ordinary course of business does not include a transfer in partial or
total satisfaction of a debt.
6.4
Accounts as
Proceeds.
All Accounts that are proceeds of the Inventory
included within the Collateral shall be subject to all of the terms and
provisions hereof pertaining to Accounts.
6.5
Protection of
Inventory.
Debtor shall take all action necessary to protect and preserve
the Inventory.
ARTICLE
VII
EVENTS OF DEFAULT
AND REMEDIES
7.1
Event of
Default.
Debtor shall be in default under this Security
Agreement upon the happening of an Event of Default under and as defined in the
Loan Agreement.
7.2
Remedies and Rights.
Upon the occurrence of any Event of Default, Secured Party may take any one or
more of the following actions:
A. Any
or all of the Obligations shall become immediately due and payable without
presentment, demand, notice of intention to accelerate, notice of acceleration,
notice of non payment, protest, notice of dishonor, or any other notice
whatsoever to Debtor, all of which are hereby expressly waived by Debtor, or any
other person obligated thereon, and Secured Party shall have and may exercise,
with reference to the Collateral and Obligations, any and all of the rights and
remedies of a secured party under the Code, and as otherwise granted herein or
under any other Applicable Law or under any other agreement executed by Debtor
(all of which rights and remedies shall be cumulative).
B. With
regard to that portion of the Collateral consisting of cash or cash equivalent
items (i.e., checks or other items convertible at face) Secured Party may
immediately apply them against the Obligations, and for this purpose, Debtor
agrees that such items will be considered identical in character to cash
proceeds.
C. Secured
Party will have the right immediately and without further action by it to
set-off against the Obligations the Certificates of Deposit and all other money
owed by Secured Party in any capacity to Debtor, including any such sums owed
under property that is included in the Collateral, such as certificates of
deposit or demand, savings or passbook accounts, whether
or not
due, and Secured Party will be deemed to have exercised such right of set off
and to have made a charge against any such money at the time of any acceleration
upon default even though such charge is made or entered on Secured Party's books
subsequent thereto.
D. As
regards to that portion of the Collateral other than cash or cash equivalent
items, unless such portion is perishable or threatens to decline speedily in
value or is of the type customarily sold in a recognized market, Secured Party
shall have, without limitation, the right and power to sell, at public or
private sale or sales, or otherwise dispose of or utilize the Collateral and any
part or parts thereof in any manner authorized or permitted under this Security
Agreement or under the Code and to apply the proceeds thereof toward payment of
any costs, expenses, and legal expenses thereby incurred by Secured Party and
toward payment of the Obligations, in such order or manner as Secured Party may
elect. To the extent permitted by law, Debtor expressly waives any notice of
sale or other disposition of the Collateral and any other rights or remedies of
Debtor or formalities prescribed by law relative to sale or disposition of the
Collateral or exercise of any other right or remedy of Secured Party existing
after default hereunder; and, to the extent any such notice is required and
cannot be waived, Debtor agrees that if such notice is given as provided below
at least ten (10) days before the time of the sale or disposition, such notice
shall be deemed reasonable and shall fully satisfy any requirement for giving of
notice. Specifically, Debtor agrees that Secured Party shall have the
right to sell the Collateral at public or private sale to the highest bidder for
cash and Secured Party shall transfer to the Purchaser at such sale the
Collateral, together with all liens, rights, titles, equities and interests in
and to the Collateral and their recitals in such transfer shall be prima facie
evidence of the truth of the matters therein stated and all prerequisites to
such sale required hereunder and under the laws of this state shall be presumed
to have been performed. Secured Party shall have the right to purchase at any
public sale or sales, being the highest bidder therefor, for credit against the
Obligations. In the event the Collateral is sold at a public
sale pursuant to the provisions hereof, Debtor expressly agrees that the sale
will be conclusively deemed to have been conducted in a "commercially reasonable
manner", as that term is used in the Code. All of the collections or
proceeds from the sale or disposition of the Collateral will be applied by
Secured Party, first to the payment of the expenses of said sale or disposition,
including reasonable attorney's fees, if any, and then to the due payment of the
principal, interest and attorney's fees due and unpaid upon the Obligations,
rendering the balance, if any, and surplus, if any, to the person or persons
legally entitled thereto under the Code, but if there be any deficiency, Debtor
shall remain liable therefor.
E. Secured
Party may, at its option, demand, sue for, collect or make any compromise or
settlement Secured Party deems desirable with reference to the Collateral.
Secured Party shall not be obligated to take any steps necessary to preserve any
rights in the Collateral against prior parties all which shall be the
responsibility of Debtor.
ARTICLE
VIII
MISCELLANEOUS
8.1
Waiver.
No
delay or omission on the part of Secured Party in exercising any rights ereunder
shall operate as a waiver of any such right or any other right. A
waiver on any one or more ccasions shall not be construed as a bar to or waiver
of any right or remedy on any future occasion.
8.2
Applicable
Law.
The law of the State of Texas and the United States (the
"Applicable
aw") shall apply to this Security Agreement and its construction and
interpretation shall be enforceable
in the
county of the Location of Collateral. As used herein, the term "Code" shall
include any amendment to the Code that becomes effective after the date of
execution hereof.
8.3
Interest Rate.
It is
the intention of the parties hereto to comply with the Applicable Law.
Accordingly, it is agreed that notwithstanding any provisions to the contrary in
the Notes, any instrument evidencing the Obligations, or in any of the documents
or instruments securing payment of the Obligations or otherwise relating
thereto, in no event shall the Notes or such documents require the payment or
permit the collection of interest in excess of the maximum amount permitted by
such Applicable Law. If any such excess of interest is contracted for, charged
or received, under the Notes or any instrument evidencing the Obligations, under
this Security Agreement or under the terms of any of the other documents
securing payment of the Obligations or otherwise relating thereto, or if the
maturity of any of the Obligations is accelerated in whole or in part, or if all
or part of the principal or interest of the Obligations shall be prepaid, so
that under any of such circumstances, the amount of interest contracted for,
charged or received, under the Notes or any instruments evidencing the
Obligations, under this Security Agreement or under any of the instrument
securing payment of the Obligations or otherwise relating thereto, on the amount
of principal actually outstanding from time to time under the Notes and other
instruments evidencing the Obligations shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Debtor nor
any other person or entity now or hereafter liable for the payment of the Notes
or any instrument evidencing the Obligations, shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum amount
of interest permitted by applicable usury laws; (c) any such excess that may
have been collected shall be either applied as a credit against the then unpaid
principal amount of the Notes or refunded to Debtor, at Secured Party's option
and (d) the effective rate of interest shall be automatically reduced to the
maximum non- usurious rate allowed under Applicable Law as now or hereafter
construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under the Notes, or any instrument
evidencing the Obligations, under this Security Agreement or under such other
documents that are made for the purpose of determining whether such rate exceeds
the maximum non-usurious applicable rate, shall be made, to the extent
permitted, by amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the loans evidenced by the Notes or
the instruments evidencing the Obligations, all interest at any time contracted
for, charged or received from Debtor or otherwise by the holder or holders
hereof in connection with such loans or Obligations.
8.4
Binding
Effect.
All rights of Secured Party hereunder
shall inure to the benefit of Secured Party's successors and assigns; and all
Obligations of Debtor shall bind Debtor's heirs, executors, administrators,
successors and/or assigns. If this Security Agreement is
executed by more than one Debtor, the Obligations of each party constituting
Debtor, shall be joint and several.
8.5
Cumulative Rights.
The rights and remedies of Secured Party hereunder are cumulative, and the
exercise of any one or more of the remedies provided herein shall not be
construed as a waiver of any of the other remedies of Secured
Party.
8.6
Notice.
Except
as otherwise provided herein, all notices, demands, requests, and other
communications required or permitted hereunder shall be given in writing and
sent by (a) personal delivery, or (b) expedited delivery service with proof of
delivery, or (c) United States mail, postage prepaid, registered or certified
mail, return receipt requested, or (d) facsimile (provided that such facsimile
is confirmed by expedited delivery service or by United States mail in the
manner previously described), addressed to the addressee at such party's address
set forth herein, or to such other address as such party may specify by written
notice, sent in accordance with this paragraph at least 30 days prior to the
date of the giving of such notice. Any such notice or communication shall be
deemed to have been given and received either at the time of personal delivery,
or in the case of mail, as of 3 days following
deposit
in an official depository of the United States mail, or in the case of either
delivery service, or facsimile, upon receipt. To the extent actual receipt is
required, rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was received shall be deemed to be
receipt of the notice, demand, request or other communication
sent.
8.7
Termination.
The
security interest hereby granted and all the terms and provisions hereof shall
be deemed a continuing security agreement and shall continue in full force and
effect, and all the terms and provisions hereof shall remain effective until the
repayment of all Obligations secured hereby and the specific release hereof by
Secured Party.
8.8
Prior
Agreements.
This Security Agreement and the security interest
herein granted are in addition to, and not in substitution, novation or
discharge of, any and all prior or contemporaneous security agreements and
security interests in favor of Secured Party or assigned to Secured Party by
others. All rights, powers and remedies of Secured Party in all such security
agreements are cumulative, but in the event of actual conflict in terms and
conditions, the terms and conditions of the latest security agreement shall
govern and control.
8.9
Invalidity.
Any
provision found to be invalid under Applicable Law shall be invalid only with
respect to the offending provision.
IN
WITNESS WHEREOF, the undersigned have/has duly executed this Security Agreement
as of the date(s) of the acknowledgments) set forth below, to be effective for
all purposes, however, as of the date first above written.
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DEBTOR:
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VERTEX
ENERGY, INC.
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By:
/s/ Benjamin P.
Cowart
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Benjamin
P. Cowart,
President
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EXHIBIT
"A"
Certificates of
Deposit
EXHIBIT
14.1
CODE
OF ETHICS
FOR
VERTEX
ENERGY, INC.
This Code
of Ethics (the “Code”) is adopted by Vertex Energy, Inc. (the “Company”) for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002.
1.
APPLICABILITY OF THE CODE
The Code
applies to the Company’s Chief Executive Officer, Chief Financial Officer and
Principal Accounting Officer and such other finance, accounting, tax or internal
audit personnel as the Chief Executive Officer or Chief Financial Officer may
from time to time designate (the “Covered Persons”) for the purpose of
promoting:
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Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
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·
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Full,
fair, accurate, timely and understandable disclosure in reports and
documents that the Company files with, or submits to, the Securities and
Exchange Commission (the “SEC”) and in other public communications made by
the Company;
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Compliance
with applicable laws and governmental rules and
regulations;
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The
prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code;
and
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·
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Accountability
for adherence to the Code.
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Each Covered Person should adhere to a
high standard of business ethics and should be sensitive to situations that may
give rise to actual as well as apparent conflicts of interest.
2. HONEST
AND ETHICAL CONDUCT
The personal interest of a Covered
Person should not be placed improperly before the interests of the
Company. A “conflict of interest” occurs when a Covered Person’s
private interest interferes with the interests of, or the Covered Person’s
service to, the Company. For example, a conflict of interest would
arise if a Covered Person, or a member of the Covered Person’s family, receives
improper personal benefits as a result of the Covered Person’s position with the
Company.
In
performing his or her duties, each of the Covered Persons will act in accordance
with high standards of honest and ethical conduct including taking appropriate
actions to permit and facilitate the ethical handling and resolution of actual
or apparent conflicts of interest between personal and professional
relationships.
In
addition, each of the Covered Persons will promote high standards of honest and
ethical conduct among employees who have responsibilities in the areas of
accounting, audit, tax, and financial reporting and other employees throughout
the Company.
Each
Covered Person must:
|
·
|
Not
use his or her personal influence or personal relationships for his or her
own personal benefit to the detriment of the
Company;
|
|
·
|
Not
cause the Company to take action, or fail to take action, for the
individual personal benefit of the Covered Person rather than the benefit
of the Company; and
|
|
·
|
Report
at least annually his or her affiliations or other relationships that
could potentially present a conflict of interest with the
Company.
|
3.
FULL, FAIR, ACCURATE, TIMELY, AND UNDERSTANDABLE DISCLOSURE
In
performing his or her duties, each of the Covered Persons will endeavor to
promote, and will take appropriate action within his or her areas of
responsibility to cause the Company to provide, full, fair, accurate, timely,
and understandable disclosure in reports and documents that the Company files
with or submits to the SEC and in other public communications made by the
Company. Each Covered Person may, to the extent appropriate within
the Covered Person’s area of responsibility and to the extent deemed necessary
in the sole discretion of the Covered Person, consult with other officers and
employees of the Company with the goal of promoting such
disclosure.
In
performing his or her duties, each of the Covered Persons will, within his or
her areas of responsibility, engage in, and seek to promote, full, fair and
accurate disclosure of financial and other information to, and open and honest
discussions with, the Company’s outside auditors.
Each
Covered Person must:
|
·
|
Become
familiar with the disclosure requirements generally applicable to the
Company; and
|
|
·
|
Not
knowingly misrepresent, or cause others to misrepresent, facts about the
Company to others, whether within or outside of the Company, including to
the Company’s auditors, and to governmental regulators and self-regulatory
organizations.
|
4.
|
COMPLIANCE
WITH APPLICABLE GOVERNMENTAL LAWS, RULES, AND
REGULATIONS
|
In
performing his or her duties, each of the Covered Persons will endeavor to
comply, and take appropriate action within his or her areas of responsibility to
cause the Company to comply with applicable governmental laws, rules, and
regulations and applicable rules and regulations of self-regulatory
organizations.
Each of
the Covered Persons will promptly provide the Company’s general counsel or the
Company’s Board of Directors with information concerning conduct the Covered
Person reasonably believes to constitute a material violation by the Company, or
its directors or officers, of the securities laws, rules or regulations or other
laws, rules, or regulations applicable to the Company.
5. REPORTING
VIOLATIONS OF THE CODE
Each
Covered Person will promptly report any violation of this Code to the Company’s
general counsel or to the Company’s Board of Directors. Failure to do
so is itself a violation of the Code.
6. ACCOUNTABILITY
FOR ADHERENCE TO THE CODE
The
Company’s Board of Directors will assess compliance with this Code and take
immediate and appropriate action on any violations of this Code. If
the Board of Directors delegates the duty to assess compliance with this Code to
a committee of the Board of Directors, such committee will report violations of
this Code to the Board of Directors, and, based upon the relevant facts and
circumstances, recommend to the Board of Directors appropriate
action. A violation of this Code may result in disciplinary action
including termination of employment.
Each
Covered Person must:
|
·
|
Affirm
in writing to the Board of Directors that the Covered Person has received,
read and understands the Code;
|
|
·
|
Annually
thereafter affirm to the Board of Directors that the Covered Person has
complied with the requirements of the Code;
and
|
|
·
|
Not
retaliate against any other Covered Person or any employee of the Company
or its affiliated persons for reports of potential violations of the Code
that are made in good faith.
|
7.
CONFIDENTIALITY
Covered
Persons must maintain the confidentiality of confidential information entrusted
to them by the Company or its suppliers or customers, except when disclosure is
authorized by the Company or required by laws, regulations or legal
proceedings. As described herein, “confidential information” includes, but
is not limited to, non-public information that might be of use to competitors of
the Company, or harmful to the Company or its customers if disclosed, or
information material to a decision to invest in the Company’s stock that has not
been publicly disclosed. Whenever feasible, employees, officers and
directors should consult with the Company if they believe they have a legal
obligation to disclose confidential information.
8.
FAIR
DEALING
All
Covered Persons should endeavor to deal fairly with the Company's customers,
suppliers, competitors, officers and employees. No one should take unfair
advantage of anyone through manipulation, concealment, abuse of privileged
information, misrepresentation of material facts or any other unfair dealing
practice. Stealing proprietary information, misusing trade secret
information that was obtained without the owner's consent, or inducing such
disclosures by past or present employees of other companies is
prohibited.
9. PROTECTION
AND PROPER USE OF COMPANY ASSETS
All
Covered Persons should protect the Company's assets and ensure their efficient
use. Theft, carelessness, and waste have a direct impact on the Company's
profitability. All Company assets should be used for legitimate business
purposes.
10. REPORTING
ANY ILLEGAL OR UNETHICAL BEHAVIOR
Any
Covered Person who believes that a violation of this Code or any other illegal
or unethical conduct by any employee, officer or director has occurred or may
occur should promptly report such conduct to a supervisor, the Board of
Directors, or the Chief Executive Officer of the Company. Such reports may
be made confidentially or anonymously. Confidentiality will be protected,
subject to applicable law, regulation or legal proceedings.
12.
NO
RETALIATION
The
Company will not permit retaliation of any kind by or on behalf of the Company
or any of its employees, officers or directors against anyone who makes a good
faith report or complaint that a violation of this Code or other illegal or
unethical conduct has occurred.
12. ENFORCEMENT
Any
violators of this Code will be subject to disciplinary action determined by the
Board of Directors. The Company intends such disciplinary action to
reflect the Company’s belief that all employees, officers and directors should
be held accountable to the standards of conduct set forth herein.
Accordingly, such disciplinary action may include, without limitation, censure
by the Board, demotion, re-assignment, suspension or termination, depending on
the nature and the severity of the violation.
13.
PUBLIC COMPANY REPORTING
As
a public company, it is of critical importance that the Company's filings with
the Securities and Exchange Commission be accurate and timely. Depending
on their respective positions with the Company, employees, officers or directors
may be called upon to provide information necessary to assure that the Company's
public reports are complete, fair and understandable. The Company expects
employees, officers and directors to take this responsibility very seriously and
to provide prompt and accurate answers to inquiries related to the Company's
public disclosure requirements.
14. WAIVER
AND AMENDMENT OF THE CODE
The
Company’s Board of Directors will have the authority to approve a waiver from
any provision of this Code. The Company will publicly disclose
information concerning any waiver or an implicit waiver of this Code as required
by applicable law. A waiver means the approval of a material
departure from a provision of this Code. The Company will publicly
disclose any substantive amendment of this Code as required by applicable
law.
ACKNOWLEDGMENT
I have
received a copy of the Code of Ethics (the “Code”) of Vertex Energy, Inc. (the
“Company”). I have read and understand the Code. I will
comply with the policies and procedures set forth in the Code. I
understand and agree that my failure to comply in all respects with the Code
including a failure on my part to promptly report any violation of the Code to
the Company’s general counsel or to the Company’s Board of Directors is a
legitimate basis for termination for cause of my employment with the Company and
any of its subsidiaries to which my employment now relates or may in the future
relate.
Listed
below are my affiliations or other relationships that could potentially present
a conflict of interest with the Company:
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
|
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
____________________________
|
|
|
Date:
|
Signed:______________________________
|
|
|
|
|
|
Name:_______________________________
|
|
(Please
Print)
|
Please
return to:
Name:____________________________
Vertex
Energy, Inc.
1331
Gemini Street, Suite 103
Houston,
Texas 77058
Exhibit
16.1
June 25,
2009
Securities
and Exchange Commission
100 F.
Street, N.E.
Washington,
DC 20549
Gentlemen:
We have
read the statements made by Vertex Energy, Inc., the successor entity of a
merger with World Waste Technologies, Inc. (“Vertex”) pursuant to Item 4.01
of Form 8-K/A, as part of the Form 8-K/A to be filed by the Company on or about
June 26, 2009 (copy attached.) We agree with the statements concerning our
Firm contained herein under Item 4.01 of such Form 8-K/A. We have no
basis to agree or disagree with Vertex’s other comments in the Form
8-K/A.
Very
Truly Yours,
/s/
Stonefield Josephson, Inc.
Stonefield
Josephson, Inc.
Exhibit 99.1
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its
black
oil division and certain assets, liabilities and operations
of
the refining and marketing division)
FINANCIAL
STATEMENTS
December
31, 2008 and 2007
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its
black
oil division and certain assets, liabilities and
operations
of the refining and marketing division)
CONTENTS
|
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Financial
Statements
|
|
|
|
Balance
sheets
|
F-3
|
|
|
Statements
of operations and changes in partners’ capital
|
F-4
|
|
|
Statements
of cash flows
|
F-5
|
|
|
Notes
to financial statements
|
F-6
- F-15
|
Report of Independent
Registered Public Accounting Firm
To the
Partners of
Vertex
Holdings, L.P.
Houston,
TX
We have
audited the accompanying balance sheets of Vertex Holdings, L.P., formerly
Vertex Energy, L.P. (certain assets, liabilities and operations related to its
black oil division and certain assets, liabilities and operations of the
refining and marketing division) (the “Company”) as of December 31, 2008 and
2007, and the related statements of operations and changes in partners’ capital,
and cash flows for each of the years then ended. 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 Holdings, L.P., formerly
Vertex Energy, L.P. (certain assets, liabilities and operations related to its
black oil division and certain assets, liabilities and operations of the
refining and marketing division) as of December 31, 2008 and 2007, and the
results of its operations and its cash flows for each of the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
LBB &
Associates Ltd., LLP
Houston,
Texas
June 15,
2009
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
BALANCE
SHEETS
|
DECEMBER
31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
17,616
|
|
|
$
|
52,650
|
|
Accounts
receivable, net
|
|
|
817,232
|
|
|
|
1,641,267
|
|
Accounts
receivable – related parties
|
|
|
1,817,228
|
|
|
|
768,993
|
|
Due
from partnership
|
|
|
405,219
|
|
|
|
-
|
|
Inventory
|
|
|
1,232,904
|
|
|
|
2,181,376
|
|
Prepaid
expenses
|
|
|
270,522
|
|
|
|
645,775
|
|
Total
current assets
|
|
|
4,560,721
|
|
|
|
5,290,061
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
11,022
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,571,743
|
|
|
$
|
5,290,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,836,340
|
|
|
$
|
2,920,045
|
|
Accounts
payable – related parties
|
|
|
2,676,650
|
|
|
|
1,089,902
|
|
Total
current liabilities
|
|
|
4,512,990
|
|
|
|
4,009,947
|
|
|
|
|
|
|
|
|
|
|
PARTNERS’
CAPITAL
|
|
|
|
|
|
|
|
|
Partners’
Capital
|
|
|
58,753
|
|
|
|
1,280,114
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND PARTNERS’ CAPITAL
|
|
$
|
4,571,743
|
|
|
$
|
5,290,061
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements.
|
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
STATEMENTS
OF OPERATIONS AND CHANGES IN PARTNERS’ CAPITAL
|
YEARS
ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
62,170,275
|
|
|
$
|
39,842,940
|
|
Revenues
– related parties
|
|
|
3,043,019
|
|
|
|
2,181,559
|
|
|
|
|
65,213,294
|
|
|
|
42,024,499
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
63,333,141
|
|
|
|
38,824,591
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,880,153
|
|
|
|
3,199,908
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
administrative
expenses
|
|
|
2,157,265
|
|
|
|
968,563
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(277,112
|
)
|
|
|
2,231,345
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(277,112
|
)
|
|
|
2,231,345
|
|
Beginning
partners’ capital
|
|
|
1,280,114
|
|
|
|
(127,586
|
)
|
Current
period distributions
|
|
|
(944,249
|
)
|
|
|
(823,645
|
)
|
Ending
partners’ capital
|
|
$
|
58,753
|
|
|
$
|
1,280,114
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements.
|
VERTEX HOLDINGS, L.P., FORMERLY
VERTEX
ENERGY,
L.P.
(certain
assets, liabilities and operations related to a significant
customer
and
certain assets, liabilities and operations of the refining and marketing
division)
STATEMENTS
OF CASH FLOW
|
YEARS
ENDED DECEMBER 31, 2008 AND 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows operating activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(277,112
|
)
|
|
$
|
2,231,345
|
|
Adjustments
to reconcile net income (loss) to cash
|
|
|
|
|
|
|
|
|
Provided
by operating activities
|
|
|
|
|
|
|
|
|
Inventory
impairment
|
|
|
852,678
|
|
|
|
-
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
824,034
|
|
|
|
409,849
|
|
Accounts
receivable – related parties
|
|
|
(1,048,235
|
)
|
|
|
(359,068
|
)
|
Due
from partnership
|
|
|
(405,219
|
)
|
|
|
-
|
|
Inventory
|
|
|
95,794
|
|
|
|
(1,287,732
|
)
|
Prepaid
expenses
|
|
|
375,256
|
|
|
|
(496,485
|
)
|
Accounts
payable
|
|
|
(1,083,707
|
)
|
|
|
918,181
|
|
Accounts
payable – related parties
|
|
|
1,586,748
|
|
|
|
665,498
|
|
Other
current liabilities
|
|
|
-
|
|
|
|
(161,934
|
)
|
Net
cash provided by operating activities
|
|
|
920,237
|
|
|
|
1,919,654
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(11,022
|
)
|
|
|
-
|
|
Net
cash used by investing activities
|
|
|
(11,022
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Net
proceeds from (payments to) line of credit
|
|
|
-
|
|
|
|
(1,145,422
|
)
|
Distributions
to limited partners
|
|
|
(944,249
|
)
|
|
|
(823,645
|
)
|
Net
cash used by financing activities
|
|
|
(944,249
|
)
|
|
|
(1,969,067
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(35,034
|
)
|
|
|
(49,413
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the year
|
|
|
52,650
|
|
|
|
102,063
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
17,616
|
|
|
$
|
52,650
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid for interest
during
year
|
|
$
|
-
|
|
|
$
|
65,052
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements.
|
VERTEX HOLDINGS, L.P., FORMERLY
VERTEX
ENERGY,
L.P.
(certain
assets, liabilities and operations related to a significant
customer
and
certain assets, liabilities and operations of the refining and marketing
division)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex
Holdings, L.P., formerly Vertex Energy, L.P. (certain assets, liabilities and
operations related to its black oil division and certain assets, liabilities and
operations of the refining and marketing division)(“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 9 “Merger Agreement,” in May 2008, Vertex
Holdings, L.P., 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.
On March
6, 2009, a majority of the World Waste’s stockholders voted to merge with a
wholly-owned subsidiary of Vertex Nevada. The accompanying
consolidated financial statements and footnote disclosures do not reflect the
financial impact of the merger, which closed on April 16, 2009. See
Note 10.
These
financial statements have been prepared to reflect:
(a) the
carve-out of certain assets, liabilities and operations of Vertex LP’s black oil
division, and
(b) the
carve-out of certain assets, liabilities and operations of Vertex LP’s refining
and marketing division.
The
financial statements have been “carved-out” from the consolidated financial
statements of Vertex LP using the historical results of operations and
historical basis of the assets and liabilities of Vertex LP. The
financial statements of Vertex LP give effect to accounting and allocation
policies established by Vertex LP management for the purposes of these carve-out
financial statements and are in accordance with the guidelines provided by Staff
Accounting Bulletin No. 103, Update of Codification of Staff Accounting
Bulletins (“SAB 103”), section 1B, which effectively superseded Staff Accounting
Bulletin 55 (“SAB 55”), Allocation of Expenses and Related Disclosures in
Financial Statements of Subsidiaries, Divisions, and Lesser Business Components
of Another Entity. The carve-out financial statements have been
prepared on a basis that management believes to be reasonable to reflect the
financial position, results of operations and cash flows of Vertex LP’s
operations, including portions of Vertex LP’s corporate costs and administrative
shared services. The results of operations, financial position and
cash flows from operations, investing and financing activities of the Vertex
Nevada Business may be materially different if it is operated as a stand-alone
entity.
Although
the statement of operations line item does not disclose related party cost of
revenue, Vertex Nevada did, in fact, incur related party cost of revenues for
the periods presented. Related party cost of revenues consisted of
various cost items such as terminal storage costs, transportation costs, product
inventory costs, and analytical costs. None of these costs, however,
were related to the revenue set forth under revenues-related
parties. A detailed description of related party cost of revenues is
instead disclosed in Note 6.
NOTE
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
(CONTINUED)
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 month-to-month relationship 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.
There are
no assets being transferred to Vertex Nevada because the Vertex Nevada Business
currently contracts on a fee-paid basis for the use of all assets it deems to be
necessary to conduct its operations, from either independent third-parties or
related parties. These assets are made available to Vertex LP at
market rates, and it is expected that these contracted assets will remain
available to Vertex Nevada under the same, or substantially
similar,
terms going forward. Management of the Vertex Nevada Business has
chosen to contract for the use of assets rather than purchase or build and own
them in order to provide flexibility in its capital equipment requirements in
the event there is a need for more or less capacity due to rapid growth or
contraction in the future. Vertex Nevada expects that it will continue to rely
on contracts for access to assets going forward, to avoid the initial capital
expenditures that would be required to build its own
facilities. Management believes that contracting for, instead of
buying or building, capital infrastructure is a prudent business decision
because in addition to allowing Vertex Nevada to avoid large initial capital
outlays and ongoing depreciation charges and maintenance expenditures related to
such capital outlays, it also enables Vertex Nevada to grow more quickly because
it needs only to raise the working capital necessary to accommodate expected
future growth rather than having to raise both working capital and investment
capital.
NOTE
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 its reserves and allowances
quarterly.
Receivable
balances greater than 30 days past due are individually reviewed for
collectability 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, 2008 and 2007.
Inventory
Inventories
of products consist of feedstocks and refined petroleum products and are
reported at the lower of cost or market. The Company recorded inventory
impairments of $852,678 and $0 during the years ended December 31, 2008 and
2007, respectively, and included the amounts in cost of revenues.
Fixed
Assets
Fixed
assets are stated at historical costs. Depreciation of fixed assets
placed in operations is provided using the straight-line method over the
estimated useful lives of the assets. The policy of the Company is to
charge amounts for maintenance and repairs to expenses, and to capitalize
expenditures for major replacements and betterments.
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. Revenue is recognized as inventory is shipped
to customers.
Leases
The
Company recognizes lease expense on a straight-line basis over the minimum lease
terms which expire at various dates through 2011. These leases are
for office and storage tank facilities and are classified as operating
leases. For leases that contain predetermined, fixed escalations of
the minimum rentals, the Company recognizes the rent expense on a straight-line
basis and records the difference between the rent expense and the rental amount
payable in liabilities.
Leasehold
improvements made at the inception of the lease are amortized over the shorter
of the asset life or the initial lease term as described
above. Leasehold improvements made during the lease term are also
amortized over the shorter of the asset life or the remaining lease
term.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
NOTE
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% (3.50% as of
December 31, 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 $2,989,021 and $2,150,000 at December 31, 2008 and 2007,
respectively. The Company’s portion of the outstanding balance was $0
as of December 31, 2008 and 2007, respectively. The Company will
negotiate its own credit facility in the future.
NOTE
4. DUE FROM PARTNERSHIP
From time
to time, the Company provides cash advances to the Partnership to fund current
operations. These advances are non-interest bearing to the Partnership. The
balance was $405,219 and $0 at December 31, 2008 and 2007,
respectively.
NOTE
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 $71,647
and $42,908 for the year ended December 31, 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 was renewed for a twelve month term
beginning November 1, 2008. The Company may terminate the agreement with ninety
days notice. The new minimum monthly warehousing rate is $15,000 per
month. Rental expense under this operating lease was approximately
$35,000 per month for the periods ended December 31, 2008 and 2007,
respectively.
Future
minimum non-cancelable rental payments required in 2009, 2010, 2011 and 2012
under these operating leases totaled $34,996, $36,006, $12,114 and $0,
respectively. Rental expense under all operating leases was
approximately $493,000 and $463,000 for the year ended December 31, 2008 and
2007, respectively.
Vertex LP
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.
The
Company has several purchase agreements that require purchases of minimum
quantities of the Company’s products. The agreements generally have
one year terms, after which they become month-to-month
agreements. Minimum purchases under these contracts are approximately
$10,213,000 and $8,124,000, for 2009 and 2010, respectively.
NOTE
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, and are
reviewed periodically from time to time by the related party transaction
committee. The financial statements included revenues from related
parties of $3,043,019 and $2,181,559 and inventory purchases from related
parties of $11,585,420 and $5,406,602 for the year ended December 31, 2008 and
2007, respectively.
The
Company relies on various related parties for significant portions of its
purchases and sales of its products, as disclosed above. The total
balance owed to these parties was $2,676,650 and $1,089,902 as of December 31,
2008 and 2007, respectively. The Company was owed a total of
$1,817,228 and $768,993 as of December 31, 2008 and 2007,
respectively.
NOTE
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 $250,000. From time to time during the years ended
December 31, 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. Three large publicly-held companies
with various independent divisions represented 40%, 16%, and 13% of the
Company’s gross sales and 92%, 1%, and 1% of outstanding trade receivables for
the year ended December 31, 2008 and two such companies represented 77% and 11%
of gross sales and 98% and 0% of outstanding trade receivables for the year
ended December 31, 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 that the Company can
economically produce.
NOTE
8. SEGMENT REPORTING
The
Company’s reportable segments include the Black Oil and Refining and Marketing
divisions. Segment information for the years ended December 31, 2008
and 2007, is as follows:
|
|
YEAR
ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Oil
|
|
|
Refining
|
|
|
Total
|
|
Revenues
|
|
$
|
45,149,632
|
|
|
$
|
20,063,662
|
|
|
$
|
65,213,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
43,275,370
|
|
|
|
20,057,771
|
|
|
|
63,333,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,874,262
|
|
|
|
5,891
|
|
|
|
1,880,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,438,896
|
|
|
|
718,369
|
|
|
|
2,157,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
435,366
|
|
|
|
(712,478
|
)
|
|
|
(277,112
|
)
|
Net
income (loss)
|
|
$
|
435,366
|
|
|
$
|
(712,478
|
)
|
|
$
|
(277,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,683,420
|
|
|
$
|
1,888,323
|
|
|
$
|
4,571,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Net
income
|
|
$
|
931,418
|
|
|
$
|
1,299,927
|
|
|
$
|
2,231,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,064,117
|
|
|
$
|
2,225,944
|
|
|
$
|
5,290,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
9. MERGER AGREEMENT
In May,
2008, Vertex Energy, L.P., Vertex Energy, Inc., a Nevada Corporation (“Vertex
Nevada”), Vertex Merger Sub, LLC, and Benjamin P. Cowart, an individual,
executed an agreement and plan of merger (“the 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. The
merger closed on April 16, 2009. See Note 10.
NOTE
10. SUBSEQUENT EVENTS
Vertex LP
entered into an agreement with a third party effective January 21, 2009 to
provide feedstock to a used oil re-refinery plant in the Denver, Colorado
area. This plant will recycle used motor oil and other
hydrocarbons. The agreement will commence upon completion of the
construction and testing phases of the plant and commencement of operations
resulting in the sale of vacuum gas oil from the plant. The agreement
will continue in effect until the completion of seven contract years. The
agreement is to renew for a three year period making a total of ten contract
years. A contract year will be the twelve consecutive calendar months
commencing with January of each calendar year during the term of the agreement,
except during the first year of commercial operations, which is expected to be
only a portion of a contract year. The Company is under contract to supply
approximately 55,000 barrels of feedstock per month. The agreement
may be terminated at any time by the mutual agreement of the parties.
Processing, in connection with the contract, is anticipated to begin on or
around January 2011. This agreement was assigned to the Company on
March 3, 2009.
On
February 2, 2009, World Waste loaned the Partnership $1 million. The
note is due at the earliest of: the consummation of the close of the merger with
the Company, April 30, 2009, or 60 days following the termination of the
merger. The proceeds were used by the Partnership for working capital
purposes. The note was secured by the assets of Vertex LP and was
junior to existing bank debt. The note was extinguished in connection
with the closing of the merger transaction and was used to offset consideration
paid to partners of Vertex LP at closing.
Vertex LP
entered into an agreement with a third party effective March 18, 2009 to provide
used oil feedstock for a period of eighteen months commencing on the effective
date of the agreement. The agreement may be terminated after six months if the
Company is not able to satisfy the need with respect to quality or quantity
which is 8,000 barrels of recovered oil per calendar month. It is anticipated
that this agreement will be assigned to the Company in the near
future.
At a
special meeting of World Waste’s stockholders held on March 6, 2009, the holders
of a majority of the outstanding shares of each of World Waste’s common stock,
Series A preferred stock and Series B preferred stock, adopted the Merger
Agreement among World Waste, Vertex LP, Vertex Nevada, Vertex Merger Sub, LLC, a
California limited liability company and wholly-owned subsidiary of Vertex
Nevada, and Benjamin P. Cowart, as agent for the stockholders of Vertex
Nevada. The merger closed on April 16, 2009.
In
connection with the merger agreement, Vertex Nevada assumed the Partnership’s
operations in connection with the fulfillment of a certain relationship with a
major customer and assumed the operations of the Partnership’s refining and
marketing division. The presented historical assets of Vertex LP will remain the
property of the Partnership following the merger. Accordingly, no
assets of the Partnership were transferred to the merger
corporation. Although subsidiaries controlled by the Partnership were
not transferred, the new merger corporation will have the right to acquire these
subsidiaries under certain circumstances specified in the merger
agreement. Certain Partners of Vertex LP received cash proceeds of
$4.4 million as part of the merger.
NOTE
10. SUBSEQUENT EVENTS (CONTINUED)
Upon
consummation of the merger, World Waste merged into Vertex Merger Sub, LLC, a
wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada succeeded to World
Waste’s reporting obligations under the Securities Exchange Act of 1934, as
amended.
As a
result of the merger, each outstanding share of World Waste’s common stock was
exchanged for 0.10 share of common stock, par value $0.001 per share, of Vertex
Nevada, each share of the World Waste’s Series A preferred stock
outstanding was exchanged for 0.4062 shares of Vertex Nevada Series A preferred
stock, par value $0.001 per share, and each outstanding share of World Waste’s
Series B preferred stock was exchanged for 11.651 shares of Vertex Nevada's
Series A preferred stock. Each option and warrant to acquire a share
of World Waste’s common stock is to be exchanged for options and warrants to
acquire common stock of Vertex Nevada at the same conversion rate as the common
stock (the “Merger”) As a result of the foregoing, the total
number of shares of Vertex Nevada common stock outstanding immediately
following the Merger, once issued, was 8,261,659 shares, and there were
4,726,442 shares of Vertex Nevada Series A preferred stock
outstanding.
Vertex
Nevada assumed warrants to purchase approximately 94,084 shares of its common
stock, each at a nominal exercise price and warrants to purchase an aggregate of
542,916 shares of common stock with exercise prices ranging from between $10.00
and $27.50 per share and options to purchase 618,800 shares of common stock with
exercise prices ranging from between $1.55 to $37.00 per share in connection
with the Merger. Vertex Nevada also granted warrants to purchase an
aggregate of 774,478 shares of Vertex Nevada’s common stock to the partners of
Vertex LP, which warrants had various exercise prices ranging from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018, and which warrants represented 40% of the total
outstanding warrants and options of World Waste (not taking into account the
warrants with a nominal exercise price, as described above) on the effective
date of the Merger.
As a
result of the Merger, the counterparties to the Merger transaction became the
holders of approximately 42% of Vertex Nevada’s outstanding voting
securities. Benjamin P. Cowart, who owns 39% of Vertex Nevada’s
outstanding shares, entered into voting agreements with other shareholders
whereby he controlled approximately 58% of the Vertex Nevada voting common stock
as to the vote of four of Vertex Nevada’s five Directors for three years. Due to
the closing of the transaction subsequent to December 31, 2008, the financial
results of World Waste are not reflected in the accompanying financial
statements.
The
Merger was accounted for as a reverse acquisition of World Waste pursuant to
which Vertex Nevada is considered to be the accounting acquirer. In the merger,
the shareholders of World Waste exchanged 100% of their shares for approximately
42% of the total capital stock of Vertex Nevada. Vertex Nevada is the
continuing entity for financial reporting purposes. Accordingly, the reverse
merger was accounted for as a recapitalization of Vertex
Nevada.
NOTE
10. SUBSEQUENT EVENTS (CONTINUED)
In
connection with the close of the Merger in April 2009, World Waste delivered to
certain of Vertex Nevada’s existing stockholders a total of $3.4 million in
cash, which in addition to the $1 million loan made in February
2009, totaled $4.4 million in consideration. World Waste
also transferred approximately $2.2 million of cash to Vertex
Nevada and Vertex Nevada will assume up to $1.6 million of Vertex LP’s
indebtedness as well as other specified ongoing business
obligations. Therefore, as a result of the merger, the combined
entity had cash on hand of approximately $2.2 million. Vertex Nevada
has secured a line of credit in the amount of up to $3.5 million (which amount
shall in no event be more than 80% of certain accounts held by Vertex Nevada and
50% of the total amount of Vertex Nevada’s inventory, as otherwise described in
the Letter Agreement), in connection with its entry into a Letter Loan Agreement
(the “Letter Agreement”) and a Revolving Line of Credit (the “Line of Credit”)
with Regions Bank (“Regions”) which is expected to be used for feedstock
purchases and general corporate purposes. The Line of Credit bears
interest at LIBOR rate plus 4% per annum, subject to a minimum of 5% per annum,
adjusted monthly, and which is due on May 25, 2010. The Letter
Agreement also provided for a $1.6 million loan, which Vertex Nevada has not
borrowed against to date (the “Letter Loan”) and a $500,000 equipment guidance
line, which Vertex Nevada has not utilized to date. The Letter Loan
would be due on May 25, 2010, and accrue interest at the rate of the greater of
5% or the LIBOR rate plus 1.5% per annum, adjusted monthly. The Line
of Credit (and the Letter Loan and equipment guidance line, should Vertex Nevada
choose to draw on such loans) are secured by a Security Agreement, which gives
Regions a security interest in substantially all of Vertex Nevada’s
assets. The Line of Credit also provided that Vertex Nevada would pay
Regions an aggregate of $17,500 in borrowing fees, and would pay Regions a fee
equal to the unused amount of the Line of Credit multiplied by 0.35%, accruing
daily and payable at the end of each calendar quarter. The Line of
Credit also requires that Vertex Nevada meet and comply with certain liabilities
to assets ratios and lending ratios described in greater detail in the Line of
Credit, as well as certain other affirmative and negative covenants, the breach
of which trigger a default of the Line of Credit.
World
Waste’s stock was quoted on the OTC Bulletin Board under the symbol
“WDWT.OB”, until May 4, 2009, when Vertex Nevada’s common stock symbol became
listed under “VTRN.OB” as a result of the Merger. Additionally effective May 4,
2009, Vertex Nevada’s common stock was effectively reversed in a ratio of one
for ten (1:10) as a result of the exchange ratios set forth in the Merger
Agreement.
On or
around May 5, 2009, Vertex Nevada entered into an agreement with a third party
to supply the third party with a re-refined cutterstock
product. Vertex Nevada has not yet begun supplying feedstock under
the agreement, which calls for commencement of deliveries on or before July 30,
2009. Pursuant to the terms of the agreement, Vertex Nevada agreed to
supply 800 to 2,500 barrels of finished product per day to the third party in
consideration for payment to be made to Vertex Nevada. Vertex Nevada
anticipates supplying feedstock pursuant to the terms of the agreement provided
that its Vertex Thermo-Chemical re-refining process is operational at that
time. Commissioning and restarting the Vertex Thermo-Chemical process
will require additional investment in engineering and equipment related to the
process and while Vertex Nevada intends to meet the timelines and specifications
defined in the agreement, no assurance can be provided that it will be able to
do so.
Vertex
Nevada has been in the process of negotiating a new agreement in connection with
its recovered oil supply agreement with Omega Refining, LLC (“Omega”), while
still operating under the terms of its prior contract, which expired on
September 30, 2008. Vertex Nevada has been working with Omega to
establish a supply relationship based on “spot market” pricing and volumes, and
for future transactions, price and volume will be variable and negotiated based
on the market prices at that time. To date, Vertex Nevada has not
been able to agree to an arrangement that is acceptable to Vertex Nevada and on
or about May 4, 2009 Vertex Nevada concluded that Omega had no intention to
continue operations pursuant to the terms of the previously expired
agreement.
NOTE
10. SUBSEQUENT EVENTS (CONTINUED)
The
possible “spot market” relationship with Omega may encompass the supply of
recovered oil during May or June 2009, and then may provide monthly “spot
contracts” for the purchase of recovered oil on a moving forward
basis. This proposed agreement would be a change from its prior
relationship which held us to a “performance margin”, to a relationship in which
we are able to participate in the market spreads that can be gained based on how
we buy and sell its product. However, instead of maintaining
consistent revenues from its relationship with Omega, as we did under the terms
of the prior agreement, any revenues we generate from a new “spot market”
relationship will be subject to Omega’s actual monthly need for recovered oil
and the market rates and spreads associated with such recovered
oil.
Vertex
Nevada has not however entered into any definitive agreement with
Omega. Prior to the termination by Omega of its original working
relationship, described above, substantially all of its Black Oil revenues were
generated through its relationship with Omega. As a result, its
revenues and results of operations could be adversely affected as a result of
the termination of its previous working arrangement with Omega, even in the
event Vertex Nevada enters into a “spot market” relationship with Omega
following the date of this report. Vertex Nevada is also actively
working to establish arrangements with other potential customers of its products
such as blenders and burners of Black Oil.
Exhibit 99.2
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its
black
oil division and certain assets, liabilities and operations
of
the refining and marketing division)
FINANCIAL
STATEMENTS
March
31, 2009
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its
black
oil division and certain assets, liabilities and
operations
of the refining and marketing division)
CONTENTS
|
|
|
Page
|
Financial
Statements
|
|
|
|
Balance
sheets
|
F-2
|
|
|
Statements
of operations and changes in partners’ capital
|
F-3
|
|
|
Statements
of cash flows
|
F-4
|
|
|
Notes
to financial statements
|
F-5
- F-9
|
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
22,753
|
|
|
$
|
17,616
|
|
Accounts
receivable, net
|
|
|
583,513
|
|
|
|
817,232
|
|
Accounts
receivable – related parties
|
|
|
1,795,996
|
|
|
|
1,817,228
|
|
Due
from partnership
|
|
|
140,000
|
|
|
|
405,219
|
|
Inventory
|
|
|
651,933
|
|
|
|
1,232,904
|
|
Prepaid
expenses
|
|
|
200,359
|
|
|
|
270,522
|
|
Total
current assets
|
|
|
3,394,554
|
|
|
|
4,560,721
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
10,449
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,405,003
|
|
|
$
|
4,571,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,497,171
|
|
|
$
|
1,836,340
|
|
Accounts
payable – related parties
|
|
|
1,479,977
|
|
|
|
2,676,650
|
|
Total
current liabilities
|
|
|
3,977,148
|
|
|
|
4,512,990
|
|
|
|
|
|
|
|
|
|
|
PARTNERS’
CAPITAL
|
|
|
|
|
|
|
|
|
Partners’
Capital
|
|
|
(572,145
|
)
|
|
|
58,753
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND PARTNERS’ CAPITAL
|
|
$
|
3,405,003
|
|
|
$
|
4,571,743
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements
|
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
STATEMENTS
OF OPERATIONS AND CHANGES IN PARTNERS’ CAPITAL
|
|
THREE
MONTHS ENDED MARCH 31, 2009 AND 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,709,263
|
|
|
$
|
14,657,919
|
|
Revenues
– related parties
|
|
|
147,871
|
|
|
|
5,655
|
|
|
|
|
7,857,134
|
|
|
|
14,663,574
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
7,838,642
|
|
|
|
13,705,723
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
18,492
|
|
|
|
957,851
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
administrative
expenses
|
|
|
597,999
|
|
|
|
353,702
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(579,507
|
)
|
|
|
604,149
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(579,507
|
)
|
|
$
|
604,149
|
|
Beginning
partners’ capital
|
|
|
58,753
|
|
|
|
1,280,114
|
|
Current
period distributions
|
|
|
(51,391
|
)
|
|
|
(537,498
|
)
|
Ending
partners’ capital
|
|
$
|
(572,145
|
)
|
|
$
|
1,346,765
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements
|
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
STATEMENTS
OF CASH FLOW
|
THREE
MONTHS ENDED MARCH 31, 2009 AND 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows operating activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
(579,507
|
)
|
|
$
|
604,149
|
|
Adjustments
to reconcile net income (loss) to cash
|
|
|
|
|
|
|
|
|
Provided
by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
573
|
|
|
|
-
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
233,720
|
|
|
|
(689,251
|
)
|
Accounts
receivable – related parties
|
|
|
21,232
|
|
|
|
(88,213
|
)
|
Due
from partnership
|
|
|
265,219
|
|
|
|
-
|
|
Inventory
|
|
|
580,971
|
|
|
|
514,758
|
|
Prepaid
expenses
|
|
|
70,163
|
|
|
|
125,777
|
|
Accounts
payable
|
|
|
660,830
|
|
|
|
99,081
|
|
Accounts
payable – related parties
|
|
|
(1,196,673
|
)
|
|
|
(57,774
|
)
|
Net
cash provided (used) by operating activities
|
|
|
56,528
|
|
|
|
508,527
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Distributions
to limited partners
|
|
|
(51,391
|
)
|
|
|
(537,498
|
)
|
Net
cash provided (used) by financing activities
|
|
|
(51,391
|
)
|
|
|
(537,498
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,137
|
|
|
|
(28,971
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the year
|
|
|
17,616
|
|
|
|
52,650
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
22,753
|
|
|
$
|
23,679
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid for interest
during
year
|
|
$
|
14,650
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial
statements
|
VERTEX
HOLDINGS, L.P., FORMERLY VERTEX ENERGY, L.P.
(certain
assets, liabilities and operations related to its black oil
division
and
certain assets, liabilities and operations of the refining and marketing
division)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The
accompanying unaudited interim financial statements of Vertex Holdings, L.P.,
formerly Vertex Energy, L.P. (certain assets, liabilities and operations related
to its black oil division and certain assets, liabilities and operations of the
refining and marketing division)(“Vertex LP” or the “Company”), 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 contained in the Company’s audited financial statements filed
with the SEC within this 8-K. 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 interim
periods presented have been reflected herein. The results of
operations for our interim periods are not necessarily indicative of the results
to be expected for the full year. Notes to the financial statements
that would substantially duplicate the disclosure contained in the audited
financial statements for fiscal 2008, as reported in the Form 8-K, have been
omitted.
NOTE
2. RELATED PARTIES
The
Company has numerous transactions with Vertex Holdings, L.P., formerly Vertex
Energy, L.P. (also defined herein as 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, and are
reviewed periodically from time to time by the related party transaction
committee. The financial statements included revenues from related
parties of $147,871 and $5,655 and inventory purchases from related parties of
$998,954 and $2,314,724 for the three months ending March 31, 2009 and 2008,
respectively.
NOTE
3. CONCENTRATIONS, SIGNIFICANT CUSTOMERS AND COMMITMENTS
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 $250,000. From time to time during the three months
ended March 31, 2009 and 2008, 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. One large company with various
independent divisions represented 75% of the Company’s gross sales and 94% of
outstanding trade receivables for the three months ended March 31, 2009. One
such company represented 61% of gross sales and 47% of outstanding trade
receivables for the three months ending March 31, 2008.
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 that the Company can
economically produce.
The
Company has several purchase agreements that require purchases of minimum
quantities of the Company’s products. The agreements generally have
one year terms, after which they become month-to-month
agreements. Minimum purchases under these contracts are approximately
$10,213,000 and $8,124,000, for 2009 and 2010, respectively.
NOTE
4. SEGMENT REPORTING
The
Company’s reportable segments include the Black Oil and Refining and Marketing
divisions. Segment
information
for the three months ended March 31, 2009 and 2008, is as follows:
THREE
MONTHS ENDED MARCH 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Oil
|
|
|
Refining
|
|
|
Total
|
|
Revenues
|
|
$
|
5,872,774
|
|
|
$
|
1,984,360
|
|
|
$
|
7,857,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
5,628,299
|
|
|
|
2,210,343
|
|
|
|
7,838,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit (loss)
|
|
|
244,475
|
|
|
|
(225,983
|
)
|
|
|
18,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
499,450
|
|
|
|
98,549
|
|
|
|
597,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(254,975
|
)
|
|
|
(324,532
|
)
|
|
|
(579,507
|
)
|
Net
income (loss)
|
|
$
|
(254,975
|
)
|
|
$
|
(324,532
|
)
|
|
$
|
(579,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,111,984
|
|
|
$
|
1,293,019
|
|
|
$
|
3,405,003
|
|
THREE
MONTHS ENDED MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Oil
|
|
|
Refining
|
|
|
Total
|
|
Revenues
|
|
$
|
11,533,256
|
|
|
$
|
3,130,318
|
|
|
$
|
14,663,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
11,032,896
|
|
|
|
2,672,827
|
|
|
|
13,705,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
500,360
|
|
|
|
457,491
|
|
|
|
957,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
235,919
|
|
|
|
117,783
|
|
|
|
353,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
264,441
|
|
|
|
339,708
|
|
|
|
604,149
|
|
Net
income (loss)
|
|
$
|
264,441
|
|
|
$
|
339,708
|
|
|
$
|
604,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,704,071
|
|
|
$
|
1,693,948
|
|
|
$
|
5,398,019
|
|
NOTE
5. MERGER AGREEMENT
In May,
2008, Vertex LP, Vertex Energy, Inc., a Nevada Corporation (“Vertex Nevada”),
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. The merger closed on April 16, 2009. See Note 6.
NOTE
6. SUBSEQUENT EVENTS
At a
special meeting of World Waste’s stockholders held on March 6, 2009, the holders
of a majority of the outstanding shares of each of World Waste’s common stock,
Series A preferred stock and Series B preferred stock, adopted the Merger
Agreement among World Waste, Vertex LP, Vertex Nevada, Vertex Merger Sub, LLC, a
California limited liability company and wholly-owned subsidiary of Vertex
Nevada, and Benjamin P. Cowart, as agent for the stockholders of Vertex
Nevada. The merger closed on April 16, 2009.
In
connection with the merger agreement, Vertex Nevada assumed the Partnership’s
operations in connection with the fulfillment of a certain relationship with a
major customer and assumed the operations of the Partnership’s refining and
marketing division. The presented historical assets of Vertex LP will
remain the property of the Partnership following the
merger. Accordingly, no assets of
the Partnership were
transferred to the merger corporation. Although subsidiaries
controlled by the Partnership were not transferred, the
new merger corporation
will have the right to acquire these subsidiaries under certain circumstances
specified in the merger agreement. Certain shareholders of Vertex
Nevada received cash proceeds of $4.4 million as part of the
merger.
Upon
consummation of the merger, World Waste merged into Vertex Merger Sub, LLC, a
wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada succeeded to World
Waste’s reporting obligations under the Securities Exchange Act of 1934, as
amended.
As a
result of the merger, each outstanding share of World Waste’s common stock was
exchanged for 0.10 share of common stock, par value $0.001 per share, of Vertex
Nevada, each share of the World Waste’s Series A preferred stock outstanding was
exchanged for 0.4062 shares of Vertex Nevada Series A preferred stock, par value
$0.001 per share, and each outstanding share of World Waste’s Series B preferred
stock was exchanged for 11.651 shares of Vertex Nevada’s Series A preferred
stock. Each option and warrant to acquire a share of World Waste’s
common stock was to be exchanged for options and warrants to acquire common
stock of Vertex Nevada at the same conversion rate as the common stock (the
“Merger”). As a result of the foregoing, the total number of shares
of Vertex Nevada common stock outstanding immediately following the Merger, once
issued, was 8,261,659 shares. The total number of Vertex Nevada’s Series A
preferred immediately following the merger was 4,726,442.
Vertex
Nevada assumed warrants to purchase approximately 94,084 shares of its common
stock, each at a nominal exercise price and warrants to purchase an aggregate of
542,916 shares of common stock with exercise prices ranging from between $10.00
and $27.50 per share and options to purchase 618,800 shares of common stock with
exercise prices ranging from between $1.55 to $37.00 per share in connection
with the Merger. Vertex Nevada also granted warrants to purchase an
aggregate of 774,478 shares of Vertex Nevada’s common stock to the partners of
Vertex LP, which warrants had various exercise prices ranging from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018, and which warrants represented 40% of the total
outstanding warrants and options of World Waste (not taking into account the
warrants with a nominal exercise price, as described above) on the effective
date of the Merger.
As a
result of the Merger, the counterparties to the Merger transaction became the
holders of approximately 42% of Vertex Nevada’s outstanding voting securities.
Benjamin P. Cowart who owns 39% of Vertex Nevada’s outstanding shares, entered
into voting agreements with other shareholders whereby he controlled
approximately 58% of the Vertex Nevada voting common stock as to the vote of
four of Vertex Nevada’s five Directors for three years. Due to the
closing of the transaction subsequent to March 31, 2009, the financial results
of World Waste are not reflected in the accompanying financial
statements.
The
Merger was accounted for as a reverse acquisition of World Waste pursuant to
which Vertex Nevada is considered to be the accounting acquirer. In the merger,
the shareholders of World Waste exchanged 100% of their shares for approximately
42% of the total capital stock of Vertex Nevada. Vertex Nevada is the
continuing entity for financial reporting purposes. Accordingly, the reverse
merger was accounted for as a recapitalization of Vertex
Nevada.
NOTE
6. SUBSEQUENT EVENTS (CONTINUED)
In
connection with the close of the merger in April 2009, World Waste delivered to
certain of Vertex Nevada’s existing stockholders a total of $3.4 million in
cash, which in addition to the $1 million loan made in February
2009,
totaled $4.4 million in consideration. World Waste also transferred
approximately $2.2 million of cash to Vertex Nevada and Vertex Nevada will
assume up to $1.6 million of Vertex LP’s indebtedness as well as other specified
ongoing business obligations. Therefore, as a result of the merger,
the combined entity had cash on hand of approximately $2
million. Vertex Nevada has secured a line of credit in the amount of
up to $3.5 million (which amount shall in no event be more than 80% of certain
accounts held by Vertex Nevada and 50% of the total amount of Vertex Nevada’s
inventory, as otherwise described in the Letter Agreement), in connection with
its entry into a Letter Loan Agreement (the “Letter Agreement”) and a Revolving
Line of Credit (the “Line of Credit”) with Regions Bank (“Regions”) which is
expected to be used for feedstock purchases and general corporate
purposes. The Line of Credit bears interest at LIBOR rate plus 4% per
annum, subject to a minimum of 5% per annum, adjusted monthly, and which is due
on May 25, 2010. The Letter Agreement also provided for a $1.6
million loan, which Vertex Nevada has not borrowed against to date (the “Letter
Loan”) and a $500,000 equipment guidance line, which Vertex Nevada has not
utilized to date. The Letter Loan would be due on May 25, 2010, and
accrue interest at the rate of the greater of 5% or the LIBOR rate plus 1.5% per
annum, adjusted monthly. The Line of Credit (and the Letter Loan and
equipment guidance line, should Vertex Nevada choose to draw on such loans) are
secured by a Security Agreement, which gives Regions a security interest in
substantially all of Vertex Nevada’s assets. The Line of Credit also
provided that Vertex Nevada would pay Regions an aggregate of $17,500 in
borrowing fees, and would pay Regions a fee equal to the unused amount of the
Line of Credit multiplied by 0.35%, accruing daily and payable at the end of
each calendar quarter. The Line of Credit also requires that Vertex
Nevada meet and comply with certain liabilities to assets ratios and lending
ratios described in greater detail in the Line of Credit, as well as certain
other affirmative and negative covenants, the breach of which trigger a default
of the Line of Credit.
World
Waste’s stock was quoted on the OTC Bulletin Board under the symbol “WDWT.OB”,
until May 4, 2009, when Vertex Nevada’s common stock symbol became listed under
“VTRN.OB” as a result of the Merger. Additionally, effective May 4,
2009, Vertex Nevada’s common stock was effectively reversed in a ratio of one
for ten (1:10) as a result of the exchange ratios set forth in the Merger
Agreement.
On or
around May 5, 2009, Vertex Nevada entered into an agreement with a third party
to supply the third party with a re-refined cutterstock
product. Vertex Nevada has not yet begun supplying feedstock under
the agreement, which calls for commencement of deliveries on or before July 30,
2009. Pursuant to the terms of the agreement, Vertex Nevada agreed to
supply 800 to 2500 barrels of finished product per day to the third party in
consideration of payment to be made to Vertex Nevada. Vertex Nevada
anticipates supplying feedstock pursuant to the terms of the agreement provided
that its Vertex Thermo-Chemical re-refining process is operational at that
time. Commissioning and restarting the Vertex Thermo-Chemical process
will require additional investment in engineering and equipment related to the
process and while Vertex Nevada intends to meet the timelines and specifications
defined in the agreement, no assurance can be provided that it will be able to
do so.
Vertex
Nevada has been in the process of negotiating a new agreement in connection with
its recovered oil supply agreement with Omega Refining, LLC (“Omega”), while
still operating under the terms of its prior contract, which expired on
September 30, 2008. Vertex Nevada has been working with
Omega to establish a supply relationship based on “spot market” pricing and
volumes, and for future transactions, price and volume will be variable and
negotiated based on the market prices at that time. To date, Vertex
Nevada has not been able to agree to an arrangement that is acceptable to the
Company and on or about May 4, 2009 Vertex Nevada concluded that Omega had no
intention to continue operations pursuant to the terms of the previously expired
agreement.
NOTE
6. SUBSEQUENT EVENTS (CONTINUED)
The
possible “spot market” relationship with Omega may encompass the supply of
recovered oil during May or June 2009, and then may provide monthly “spot
contracts” for the purchase of recovered oil on a moving forward
basis. This proposed agreement would be a change from its prior
relationship which held us to a “performance margin”, to a relationship in which
we are able to participate in the market spreads that can be gained based on how
we buy and sell its product. However, instead of maintaining
consistent revenues from its relationship with Omega, as we did under the terms
of the prior agreement, any revenues we generate from a new “spot market”
relationship will be subject to Omega’s actual monthly need for recovered oil
and the market rates and spreads associated with such recovered
oil.
Vertex
Nevada has not however entered into any definitive agreement with
Omega. Prior to the termination by Omega of its original working
relationship, described above, substantially all of its Black Oil revenues were
generated through its relationship with Omega. As a result, its
revenues and results of operations could be adversely affected as a result of
the termination of its previous working arrangement with Omega, even in the
event Vertex Nevada enters into a “spot market” relationship with Omega
following the date of this report. Vertex Nevada is also actively
working to establish arrangements with other potential customers of its products
such as blenders and burners of Black Oil.
Exhibit 99.3
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
To the
Board of Directors of
Vertex
Energy, Inc.
Houston,
Texas
We have
audited the accompanying balance sheet of Vertex Energy, Inc. (“the Company”) as
of December 31, 2008 and the related statements of operations, stockholder’s
equity, and cash flows for the period from May 14, 2008 (inception) through
December 31, 2008. 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 audit.
We
conducted our audit 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 audit provides 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, Inc. as of December
31, 2008, and the results of its operations and its cash flows for the period
from May 14, 2008 (inception) through December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ LBB
& Associates Ltd., LLP
Houston,
Texas
June 15,
2009
VERTEX
ENERGY, INC.
BALANCE
SHEET
DECEMER
31, 2008
|
|
December
31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
––
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
––
|
|
|
|
|
|
|
STOCKHOLDER’S
EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value per share; 50,000,000
shares authorized; none issued or outstanding, designated as
follows:
|
|
|
|
|
Series
A Preferred Stock - $0.001 par value per share; 5,000,0000 shares
authorized; none issued or outstanding
|
|
|
––
|
|
Series
B Preferred Stock - $0.001 par value per share; 100 shares authorized;
none issued or outstanding
|
|
|
––
|
|
Common
stock, $0.001 par value per share; 750,000,000 shares authorized; one
share issued
|
|
|
|
|
and
outstanding
|
|
|
––
|
|
Additional
paid-in capital
|
|
|
91,178
|
|
Accumulated
deficit
|
|
|
(91,178
|
)
|
Total
stockholder’s equity
|
|
|
––
|
|
|
|
|
|
|
Total
liabilities and stockholder’s equity
|
|
$
|
––
|
|
|
|
|
|
|
See
accompanying notes to financial
statements
|
VERTEX
ENERGY, INC.
STATEMENT
OF OPERATIONS
FOR
THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH
DECEMBER 31, 2008
|
|
Inception
(May
14,
2008)
Through
December
31,
2008
|
|
|
|
|
|
|
Revenue
|
|
$
|
––
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
General
and administrative
|
|
|
91,178
|
|
Total
expenses
|
|
|
91,178
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(91,178
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(91,178
|
)
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
1
|
|
|
|
|
|
|
See
accompanying notes to financial
statements
|
VERTEX
ENERGY, INC.
STATEMENT
OF STOCKHOLDER’S EQUITY
FOR
THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH
DECEMBER 31, 2008
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
- INCEPTION (MAY14, 2008)
|
|
|
––
|
|
––
|
|
|
––
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
Issuance
of common stock and stock options
|
|
|
––
|
|
––
|
|
|
1
|
|
|
––
|
|
|
91,178
|
|
|
––
|
|
|
91,178
|
|
Net
loss
|
|
|
––
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
(91,178
|
)
|
|
(91,178
|
)
|
BALANCE
– DECEMBER 31, 2008
|
|
|
––
|
|
––
|
|
|
1
|
|
$
|
––
|
|
$
|
91,178
|
|
$
|
(91,178
|
)
|
$
|
––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial
statements
|
VERTEX
ENERGY, INC.
STATEMENT
OF CASH FLOWS
FOR
THE PERIOD FROM INCEPTION (MAY 14, 2008)
THROUGH
DECEMBER 31, 2008
|
|
Inception
(May
14,
2008)
Through
December
31,
2008
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
Net
loss
|
|
$
|
(91,178
|
)
|
Adjustment
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Stock
based compensation expense
|
|
|
91,178
|
|
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 financial
statements
|
VERTEX
ENERGY, INC.
NOTES
TO FINANCIAL STATEMENTS
|
NOTE
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex
Energy, Inc. (the “Company” or “Vertex Nevada”) 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 operations related to its black oil division and certain
assets, liabilities and operations of the refining and marketing division of
Vertex Holdings, L.P., formerly Vertex Energy, L.P.
Vertex
Holdings, 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. The merger
transaction closed on April 16, 2009. See Note 7. In connection with the merger
agreement, Vertex Energy, Inc. assumed the Partnership’s operations in
connection with the fulfillment of a certain arrangement with a major customer
and assumed the operations of the Partnership’s refining and marketing division.
The assets of Vertex LP will remain the property of Vertex LP following the
merger. Accordingly, no assets of Vertex LP were 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.
As the
merger was consummated on April 16, 2009, no transfer of business activities had
occurred during 2008, and the Company consequently had no operations during
2008. The Company’s fiscal year end is December 31.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Stock
Based Compensation
The
Company accounts for share-based expense and activity in accordance with FAS
No. 123(R), “Share-Based Payment,” (“FAS123(R)”) which establishes
accounting for equity instruments exchanged for services. Under the provisions
of FAS123(R), share-based compensation costs are measured at the grant date,
based on the calculated fair value of the award, and are recognized as an
expense over the employee’s requisite service period, generally the vesting
period of the equity grant.
Share-based
payments to non-employees are measured at the grant date, based on the
calculated fair value of the award, and are recognized as an expense over the
service period, generally the vesting period of the equity grant. The Company
estimates the fair value of stock options using the Black-Scholes valuation
model. Key input assumptions used to estimate the fair value of stock options
include the exercise price of the award, expected option term, expected
volatility of the stock over the option’s expected term, risk-free interest rate
over the option’s expected term, and the expected annual dividend yield. The
Company believes that the valuation technique and approach utilized to develop
the underlying assumptions are appropriate in calculating the fair values of the
stock options granted.
VERTEX
ENERGY, INC.
NOTES
TO FINANCIAL STATEMENTS
(CONTINUED)
|
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Basic
and Diluted Loss per Share
Basic and
diluted loss per share has been calculated based on the weighted average number
of shares of common stock outstanding during the period.
Income
Taxes
The
Company has adopted SFAS No. 109 “Accounting for Income Taxes” as of its
inception. Pursuant to SFAS No. 109 the Company is required to compute tax
asset benefits for net operating losses carried forward. The asset and liability
approach is used to account for income taxes by recognizing deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. The Company records a valuation allowance to reduce the deferred
tax assets to the amount that is more likely than not to be
realized.
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.
NOTE
3. 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. There was one share of common stock
outstanding as of December 31, 2008.
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.
On
December 4, 2008, the Company effected a one-for-ten reverse stock split.
This reverse split has been presented retroactively within these financial
statements. Any partial shares have been rounded up to the nearest whole
share.
NOTE
4. 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. The blank check preferred stock can be
designated at the discretion of the Board of Directors. In December 2008, the
Company designated Series A and Series B Preferred Stock.
Each
share of Series A Preferred Stock is entitled to dividends if declared by the
board of directors and shall be converted into shares of Common Stock
automatically upon the first to occur of any of the following: (i) the
affirmative vote or written consent of a majority of the then-outstanding Series
A Preferred Stock; (ii) the closing market price of the common stock averages at
least $15.00 per share over a period of 20 consecutive trading days and the
daily trading volume over the same 20-day period averages at least 7,500 shares;
(iii) the closing of the sale of the Company’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, with a per share price to the
public of at least $10.00 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 Company; or (iv) the closing of an acquisition
resulting in proceeds to the holders of the Series A Preferred Stock of at least
$10.00 per outstanding share of Series A Preferred Stock.
The
Series B Preferred Stock has no rights to dividends or conversion.
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, are entitled to
elect four of the five directors of the Company.
As of
December 31, 2008, there were no shares of preferred stock
outstanding. See Note 7 for preferred stock subsequent
events.
NOTE
5. STOCK COMPENSATION
On
May 16, 2008, the Company granted options to acquire a total of up to
426,500 shares of its common stock to executive officers, a director, and
consultants. The options have an exercise price of $1.20 per share and a term of
10 years from the date of grant. The fair value of the stock at the date of
grant was $1.20 per share and was valued contemporaneous with the grants.
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. A risk free rate of 3.12% and a volatility calculation
of 30.63% were used to value these options. The Company recorded stock
compensation expense of $83,735 in connection with these grants in the
accompanying statement of operations. None of these options were exercisable as
of December 31, 2008.
On
June 2, 2008, the Board of Directors of Vertex Energy, Inc. appointed two
new members to its board of directors, and granted 20,000 options to each of the
two directors. The options have the same terms as the options discussed above.
The fair value of the stock at the date of grant was $1.20 per share and was
valued contemporaneous with the grants. A risk free rate of 3.28% and a
volatility calculation of 30.63% were used to value these options. The fair
value of these options is $22,862 using the Black Scholes valuation model. The
Company recorded stock compensation expense of $7,442 in connection with these
grants in the accompanying statement of operations. None of these options were
exercisable as of June 30, 2008.
|
|
|
|
|
|
Year
Ended
December
31,
2008
|
|
|
|
|
Expected
volatility
|
|
|
30.63
|
%
|
Expected
dividends
|
|
|
0
|
%
|
Expected
term (in years)
|
|
|
10
|
|
Risk-free
rate
|
|
|
3.12-3.28
|
%
|
A summary
of option activity as of December 31, 2008, and changes during the period
then ended is presented below:
Employee
Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Term
|
|
|
Weighted-
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1, 2008
|
|
|
––
|
|
|
|
––
|
|
|
|
|
|
|
––
|
|
Granted
|
|
|
466,500
|
|
|
$
|
1.20
|
|
|
|
|
|
$
|
559,800
|
|
Exercised
|
|
|
––
|
|
|
|
––
|
|
|
|
|
|
|
––
|
|
Forfeited
or expired
|
|
|
––
|
|
|
|
––
|
|
|
|
|
|
|
––
|
|
Outstanding
at December 31,
2008
|
|
|
466,500
|
|
|
$
|
1.20
|
|
|
|
9.37
|
|
|
|
––
|
|
Exercisable
at December 31, 2008
|
|
|
––
|
|
|
|
––
|
|
|
|
|
|
|
|
––
|
|
As of
December 31, 2008, there was $172,841 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements. That cost is
expected to be recognized over a weighted-average period
of approximately 3.4 years.
On
October 10, 2008, the Company issued one share of common stock valued at $1 to
Vertex LP as consideration for the formation of the Company.
NOTE
6. INCOME TAXES
The
Company has no net operating loss carryforward as of December 31, 2008 due to
the Company’s only expense being non-deductible stock compensation.
Consequently, there is no deferred tax asset or valuation allowance attributable
to the Company as of December 31, 2008.
NOTE
7. SUBSEQUENT EVENTS
At a
special meeting of its shareholders held on March 6, 2009, the holders of a
majority of the outstanding shares of each of World Waste’s common stock, Series
A preferred stock and Series B preferred stock, adopted the merger agreement
among World Waste, Vertex LP, a Texas limited partnership, the Company, Vertex
Merger Sub, LLC, a California limited liability company and wholly-owned
subsidiary of the Company, and Benjamin P. Cowart, as agent for the shareholders
of Vertex Nevada.
The
merger closed on April 16, 2009. Upon consummation of the merger,
World Waste became a wholly-owned subsidiary of the Company, and the Company
succeeded to Word Waste’s reporting obligations under the Securities Exchange
Act of 1934.
Each
outstanding share of World Waste’s common stock was exchanged for 0.10 share of
common stock, par value $0.001 per share, of the Company, each share of World
Waste’s Series A preferred stock outstanding was exchanged for 0.4062 shares of
the Company’s Series A preferred stock, par value $0.001 per share, and each
outstanding share of World Waste’s Series B preferred stock was exchanged for
11.651 shares of the Company’s Series A preferred stock. Each option
and warrant to acquire a share of World Waste’s common stock was exchanged for
options and warrants to acquire common stock of the Company at the same
conversion rate as the common stock. As a result of the
foregoing, the total number of shares of common stock immediately following the
merger is 8,261,659 shares, and there were 4,726,442 shares of Series A
preferred stock outstanding.
Vertex
Nevada assumed warrants to purchase approximately 94,084 shares of its common
stock, each at a nominal exercise price and warrants to purchase an aggregate of
542,916 shares of common stock with exercise prices ranging from between $10.00
and $27.50 per share and options to purchase 618,800 shares of common stock with
exercise prices ranging from between $1.55 to $37.00 per share in connection
with the Merger. Vertex Nevada also granted warrants to purchase an
aggregate of 774,478 shares of Vertex Nevada’s common stock to the partners of
Vertex LP, which warrants had various exercise prices ranging from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018, and which warrants represented 40% of the total
outstanding warrants and options of World Waste (not taking into account the
warrants with a nominal exercise price, as described above) on the effective
date of the Merger.
As a
result of the merger, the counterparties to the merger transaction became the
holders of approximately 42% of the combined entity’s outstanding voting
securities. Benjamin P. Cowart, who owns 39% of the combined entity’s common
stock, entered into voting agreements with other shareholders whereby he
controlled approximately 58% of the Company’s voting common stock as to the vote
of four of Vertex Nevada’s five Directors for three years. Due to the
closing of the transaction subsequent to March 31, 2009, the combined financial
results are not reflected in the accompanying financial statements.
The
Merger was accounted for as a reverse acquisition of World Waste pursuant to
which Vertex Nevada is considered to be the accounting acquirer. In the merger,
the shareholders of World Waste exchanged 100% of their shares for approximately
42% of the total capital stock of Vertex Nevada. Vertex Nevada is the
continuing entity for financial reporting purposes. After the closing of the
merger and as a result of the share exchange, Vertex Nevada accounted for the
reverse merger as a recapitalization of World Waste.
In April
2009, the Company issued a total of 400,000 qualified and non-qualified stock
options in connection with employment agreements entered into with its new Chief
Operating Officer and its new Executive Vice President of Business
Development. The 125,000 non-qualified stock options vest immediately
and are exercisable for three years after termination of
employment. The 275,000 qualified options vest in equal portions
quarterly over 4 years and are exercisable for 10 years or 90 days after the
termination of employment. The exercise price of the options was
equal to the fair market value of the stock on the date of grant.
In April
2009, the Company withdrew the designation of its Series B Preferred
Stock. No shares were outstanding at that time.
On May 4,
2009, the Company’s common stock symbol was listed on the over the counter
bulletin board under “VTRN.”
In connection with the closing
conditions of the merger transaction, the Company entered into a financing
arrangement with a commercial bank. The facility is comprised of (1)
a $1.6 million term loan, bearing interested at LIBOR plus 1.5%, (2) a $3.5
million working capital line of credit, with the balance drawable based on
accounts receivable and inventory balances, bearing interest at LIBOR plus 4%,
and (3) a $500,000 equipment financing line, with terms to be determined upon
utilization. All three tranches are secured by all of the assets of
the Company and stipulate that interest is payable monthly, and that the balance
is due May 25, 2010. The financing arrangement is secured by all the
assets of the Company.
On or
around May 5, 2009, the Company entered into an agreement with a third party to
supply the third party with a re-refined cutterstock product. The Company has
not yet begun supplying feedstock under the agreement, which calls for
commencement of deliveries on or before July 30, 2009. Pursuant to the terms of
the agreement, the Company agreed to supply 800 to 2,500 barrels of finished
product per day to the third party. The Company anticipates supplying feedstock
pursuant to the terms of the agreement provided that its Vertex Thermo-Chemical
re-refining process is operational at that time. Commissioning and restarting
the Vertex Thermo-Chemical process will require additional investment in
engineering and equipment related to the process and while the Company intends
to meet the timelines and specifications defined in the agreement, no assurance
can be provided that it will be able to do so.
Vertex
Nevada has been in the process of negotiating a new agreement in connection with
its recovered oil supply agreement with Omega Refining, LLC (“Omega”), while
still operating under the terms of its prior contract, which expired on
September 30, 2008. The Company has been working with Omega to
establish a supply relationship based on “spot market” pricing and volumes, and
for future transactions, price and volume will be variable and negotiated based
on the market prices at that time. To date, Vertex Nevada has not
been able to agree to an arrangement that is acceptable to the Company and on or
about May 4, 2009 the Company concluded that Omega had no intention to continue
operations pursuant to the terms of the previously expired
agreement.
Effective
April 16, 2009, Vertex Nevada entered into employment agreements with its Chief
Executive Officer, Chief Operating Officer and Executive Vice-President of
Business Development. The contracts are for five, four, and two year
terms, respectively, with base salaries of $190,000, $150,000 and $150,000,
respectively.
As part
of the merger, the Company assumed several purchase agreements that require
purchases of minimum quantitities of the Company’s products. The
agreements generally have one-year terms, after which they become month-to-month
agreements. Minimum purchases under these agreements are
approximately $10,213,000 and $8,124,000 in 2009 and 2010,
respectively.
Exhibit
99.4
VERTEX
ENERGY, INC.
BALANCE
SHEETS
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER’S
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value per share; 50,000,000
shares authorized; none issued
or outstanding, designated as follows:
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock - $0.001 par value per share; 5,000,000 shares
authorized;
none issued or outstanding
|
|
|
–
|
|
|
|
–
|
|
Series
B Preferred Stock - $0.001 par value per share; 100 shares authorized;
none issued or outstanding
|
|
|
–
|
|
|
|
–
|
|
Common
stock, $0.001 par value per share; 750,000,000 shares authorized; one
share
issued and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
125,555
|
|
|
|
91,178
|
|
Accumulated
deficit
|
|
|
(125,555
|
)
|
|
|
(91,178
|
)
|
Total stockholder’s equity
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholder’s equity
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial
statements
|
VERTEX
ENERGY, INC.
STATEMENT
OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2009
(UNAUDITED)
|
|
Three
Months Ended
March
31, 2009
|
|
|
|
|
|
Revenue
|
|
$
|
––
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
General
and administrative
|
|
|
34,377
|
|
Total
expenses
|
|
|
34,377
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(34,377
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(34,377
|
)
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
1
|
|
|
|
|
|
|
See
accompanying notes to financial
statements
|
VERTEX
ENERGY, INC.
STATEMENT
OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2009
(UNAUDITED)
|
|
Three
Months Ended March 31, 2009
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
Net
loss
|
|
$
|
(34,377
|
)
|
Adjustment
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Stock
based compensation expense
|
|
|
34,377
|
|
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 financial
statements
|
VERTEX
ENERGY, INC.
|
NOTES
TO FINANCIAL STATEMENTS
|
(UNAUDITED)
NOTE
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying unaudited interim
financial statements of Vertex Energy, Inc. (the “Company” or “Vertex Nevada”),
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 contained in the Company’s audited financial
statements filed with the SEC within this 8-K. 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 interim periods presented have been reflected
herein. The results of operations for our interim periods are not
necessarily indicative of the results to be expected for the full
year. Notes to the financial statements that would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal 2008, as reported in the Form 8-K, have been omitted.
NOTE
2. SUBSEQUENT EVENTS
At a
special meeting of its shareholders held on March 6, 2009, the holders of a
majority of the outstanding shares of each of World Waste Technology, Inc.’s
(“World Waste’s”) common stock, Series A preferred stock and Series B preferred
stock, adopted the merger agreement among World Waste, Vertex Holdings, L.P.,
formerly Vertex Energy, L.P., a Texas limited partnership (“Vertex LP”), the
Company, Vertex Merger Sub, LLC, a California limited liability company and
wholly-owned subsidiary of the Company, and Benjamin P. Cowart, as agent for the
shareholders of Vertex Nevada.
The
merger closed on April 16, 2009. Upon consummation of the merger,
World Waste became a wholly owned subsidiary of the Company, and the Company
succeeded to Word Waste’s reporting obligations under the Securities Exchange
Act of 1934.
Each
outstanding share of World Waste’s common stock was exchanged for 0.10 share of
common stock, par value $0.001 per share, of the Company., each share of World
Waste’s Series A preferred stock outstanding was exchanged for 0.4062 shares of
the Company’s Series A preferred stock, par value $0.001 per share, and each
outstanding share of World Waste’s Series B preferred stock was exchanged for
11.651 shares of the Company’s Series A preferred stock. Each option
and warrant to acquire a share of World Waste’s common stock was exchanged for
options and warrants to acquire common stock of the Company. at the same
conversion rate as the common stock. As a result of the
foregoing, the total number of shares of common stock immediately following the
merger is 8,261,659 shares, and there were 4,726,442 shares of Series A
preferred stock outstanding.
Vertex
Nevada assumed warrants to purchase approximately 94,084 shares of its common
stock, each at a nominal exercise price and warrants to purchase an aggregate of
542,916 shares of common stock with exercise prices ranging from between $10.00
and $27.50 per share and options to purchase 618,800 shares of common stock with
exercise prices ranging from between $1.55 to $37.00 per share in connection
with the Merger. Vertex Nevada also granted warrants to purchase an
aggregate of 774,478 shares of Vertex Nevada’s common stock to the partners of
Vertex LP, which warrants had various exercise prices ranging from $1.55 to
$37.00 per share, and had various expiration dates from between April 28, 2010
and February 26, 2018, and which warrants represented 40% of the total
outstanding warrants and options of World Waste (not taking into account the
warrants with a nominal exercise price, as described above) on the effective
date of the Merger.
As a
result of the merger, the counterparties to the merger transaction became the
holders of approximately 42% of the combined entity’s outstanding voting
securities. Benjamin P. Cowart, who owns 39% of the combined entity’s common
stock, entered into voting agreements with other shareholders whereby he
controlled approximately 58% of the Company’s voting common stock as to the vote
of four of Vertex Nevada’s five Directors for three years. Due to the
closing of the transaction subsequent to March 31, 2009, the combined financial
results are not reflected in the accompanying financial
statements.
The
Merger was accounted for as a reverse acquisition of World Waste pursuant to
which Vertex Nevada is considered to be the accounting acquirer. In the merger,
the shareholders of World Waste exchanged 100% of their shares for approximately
42% of the total capital stock of Vertex Nevada. Vertex Nevada is the
continuing entity for financial reporting purposes. Accordingly, the reverse
merger was accounted for as a recapitalization of Vertex Nevada.
In April
2009, the Company issued a total of 400,000 qualified and non-qualified stock
options in connection with employment agreements entered into with its new Chief
Operating Officer and its new Executive Vice President of Business
Development. The 125,000 non-qualified stock options vest immediately
and are exercisable for three years after termination of
employment. The 275,000 qualified options vest in equal portions
quarterly over 4 years and are exercisable for 10 years or 90 days after the
termination of employment. The exercise price of the options were
equal to the fair market value of the stock on the date of grant.
On April
9, 2009, the Company withdrew the designation of its Series B Preferred
Stock. No shares were outstanding at that time.
On May 4,
2009, the Company’s common stock symbol was listed on the over the counter
bulletin board under VTRN.
In
connection with the closing conditions of the merger transaction, the Company
entered into a financing arrangement with a commercial bank. The
facility is comprised of (1) a $1.6 million term loan, bearing interested at
LIBOR plus 1.5%, (2) a $3.5 million working capital line of credit, with the
balance drawable based on accounts receivable and inventory balances, bearing
interest at LIBOR plus 4%, and (3) a $500,000 equipment financing line, with
terms to be determined upon utilization. All three tranches are
secured by all of the assets of the Company and stipulate that interest is
payable monthly, and that the balance is due May 25, 2010. The
financing arrangement is secured by all the assets of the Company.
On or
around May 5, 2009, the Company entered into an agreement with a third party to
supply the third party with a re-refined cutterstock product. The Company has
not yet begun supplying feedstock under the agreement, which calls for
commencement of deliveries on or before July 30, 2009. Pursuant to the terms of
the agreement, the Company agreed to supply 800 to 2,500 barrels of finished
product per day to the third party. The Company anticipates supplying feedstock
pursuant to the terms of the agreement provided that its Vertex Thermo-Chemical
re-refining process is operational at that time. Commissioning and restarting
the Vertex Thermo-Chemical process will require additional investment in
engineering and equipment related to the process and while the Company intends
to meet the timelines and specifications defined in the agreement, no assurance
can be provided that it will be able to do so.
Vertex
Nevada has been in the process of negotiating a new agreement in connection with
its recovered oil supply agreement with Omega Refining, LLC (“Omega”), while
still operating under the terms of its prior contract, which expired on
September 30, 2008. The Company has been working with Omega to
establish a supply relationship based on “spot market” pricing and volumes, and
for future transactions, price and volume will be variable and negotiated based
on the market prices at that time. To date, Vertex Nevada has not
been able to agree to an arrangement that is acceptable to the Company and on or
about May 4, 2009 the Company concluded that Omega had no intention to continue
operations pursuant to the terms of the previously expired
agreement.
Effective
April 16, 2009, Vertex Nevada entered into employment agreements with its Chief
Executive Officer, Chief Operating Officer and Executive Vice-President of
Business Development. The contracts are for five, four, and two year
terms, respectively, with baase salaries of $190,000, $150,000 and $150,000,
respectively.
As part
of the merger, the Company assumed several purchase agreements that require
purchases of minimum quantitities of the Company’s products. The
agreements generally have one-year terms, after which they become month-to-month
agreements. Minimum purchases under these agreements are
approximately $10,213,000 and $8,124,000 in 2009 and 2010,
respectively.
Exhibit
99.5
VERTEX
ENERGY, INC.
UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
In
May 2008, Vertex Holdings, L.P., formerly known as Vertex Energy, L.P.
(“Vertex LP”), Vertex Energy, Inc., a Nevada corporation (“Vertex Nevada”),
Vertex Merger Sub, LLC, a California limited liability company (“Merger Sub”),
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”).
At a
special meeting of its shareholders held on March 6, 2009, the holders of a
majority of the outstanding shares of each of World Waste’s common stock, Series
A preferred stock and Series B preferred stock, adopted the merger agreement
among World Waste, Vertex LP, a Texas limited partnership, the Company, Vertex
Merger Sub, LLC, a California limited liability company and wholly-owned
subsidiary of the Company, and Benjamin P. Cowart, as agent for the shareholders
of Vertex Nevada.
The
merger closed on April 16, 2009. Upon consummation of the merger,
World Waste merged into Merger Sub, and the Company
succeeded to World Waste’s reporting obligations under the Securities
Exchange Act of 1934, as amended.
As part
of the merger, Vertex Nevada assumed up to $1.6 million of Vertex LP’s
indebtedness and certain other specified obligations of Vertex LP, World Waste
provided consideration of $4.4 million (comprised of a cash payment of $3.4
million and forgiveness of a $1.0 million loan made to Vertex LP in February
2009), World Waste provided $2.2 million of cash to Vertex Nevada. Each
outstanding share of World Waste’s common stock was exchanged for 0.10 share of
common stock, par value $0.001 per share, of the Company, each share of World
Waste’s Series A preferred stock outstanding was exchanged for 0.4062 shares of
the Company’s Series A preferred stock, par value $0.001 per share, and each
outstanding share of World Waste’s Series B preferred stock was exchanged for
11.651 shares of the Company’s Series A preferred stock. Each option
and warrant to acquire a share of World Waste’s common stock was exchanged for
options and warrants to acquire common stock of the Company at the same
conversion rate as the common stock. As a result of the
foregoing, the total number of shares of common stock immediately following the
merger is 8,261,659 shares, and there were 4,726,442 shares of Series A
preferred stock outstanding.
As a
result of the merger, the counterparties to the merger transaction became the
holders of approximately 42% of the combined entity’s outstanding voting
securities. Benjamin P. Cowart, who beneficially owns 39% of the combined
entity’s common stock, entered into voting agreements with other shareholders
whereby he controlled approximately 58% of the Company’s total voting common
stock as to the vote of four of Vertex Nevada’s five Directors for three
years. 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 March 31, 2009,
and adjusts such information to give effect to the merger as if it had occurred
on March 31, 2009.
The
following unaudited pro forma combined statement of operations for the three
months ended March 31, 2009 has been derived from the unaudited statement of
operations for World Waste and Vertex LP and the unaudited statement of
operations for Vertex Energy, Inc., in each case giving effect to the merger as
though it had occurred on January 1, 2009. The unaudited pro forma combined
statement of operations for the year ended December 31, 2008 has been
derived from the audited statements of operations for Vertex Energy, Inc.,
Vertex LP and World Waste giving effect to the merger as though it has occurred
on January 1, 2008.
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.
The
unaudited pro forma combined financial information may have been different had
the companies actually been combined as of January 1, 2008 or
January 1, 2009. All information contained herein should be read in
conjunction with the financial statements and notes thereto of Vertex Nevada and
World Waste included elsewhere in this proxy statement, and the notes to the
unaudited pro forma combined financial information included herein.
VERTEX
ENERGY, INC.
UNAUDITED
PRO FORMA COMBINED BALANCE SHEET
MARCH
31, 2009
|
|
Certain
assets
and
liabilities
of
Vertex
Holdings,
LP
|
|
Vertex
Energy
Inc.
|
|
Pro
forma
Adjustments
(Note
1)
|
|
|
Pro
forma Vertex entities
|
|
|
World
Waste
Technologies,
Inc.
|
|
|
Pro
forma
Adjustments
(Note
1)
|
|
|
Vertex
Energy, Inc.
Pro
forma
Adjusted
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
22,753
|
|
$
|
––
|
|
$
|
(22,753
|
)
|
b
|
$
|
––
|
|
|
$
|
5,848,182
|
|
|
$
|
(3,728,449
|
)
|
a
|
$
|
2,119,733
|
|
Accounts
receivable, net
|
|
|
583,513
|
|
|
––
|
|
|
(583,513
|
)
|
b
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Accounts
receivable-related parties
|
|
|
1,795,996
|
|
|
––
|
|
|
(1,795,996
|
)
|
b
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Due
from partnership
|
|
|
140,000
|
|
|
––
|
|
|
(140,000
|
)
|
b
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Inventory
|
|
|
651,933
|
|
|
––
|
|
|
(651,933
|
)
|
b
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Prepaid
expenses
|
|
|
200,359
|
|
|
––
|
|
|
(200,359
|
)
|
b
|
|
––
|
|
|
|
145,733
|
|
|
|
––
|
|
h
|
|
145,733
|
|
Note
receivable
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
1,000,000
|
k
|
|
|
(1,000,000
|
)
|
|
|
––
|
|
Total
Current Assets
|
|
|
3,394,554
|
|
|
––
|
|
|
(3,394,554
|
)
|
b
|
|
––
|
|
|
|
6,993,915
|
|
|
|
(4,728,449
|
)
|
|
|
2,265,466
|
|
Noncurrent
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment, net
|
|
|
10,449
|
|
|
––
|
|
|
(10,449
|
)
|
c
|
|
––
|
|
|
|
––
|
|
|
$
|
––
|
|
|
$
|
––
|
|
Deposits
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Total
Noncurrent Assets
|
|
|
10,449
|
|
|
––
|
|
|
(10,449
|
)
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Total
assets
|
|
$
|
3,405,003
|
|
$
|
––
|
|
$
|
(3,405,003
|
)
|
|
$
|
––
|
|
|
$
|
6,993,915
|
|
|
$
|
(4,728,449
|
)
|
|
$
|
2,265,466
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,497,171
|
|
$
|
––
|
|
$
|
(2,497,171
|
)
|
b
|
$
|
––
|
|
|
$
|
127,599
|
|
|
$
|
(127,599
|
)
|
a,h
|
$
|
––
|
|
Accounts
payable-related parties
|
|
|
1,479,977
|
|
|
––
|
|
|
(1,479,977
|
)
|
b
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Other
current liabilities
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
200,850
|
|
|
|
(200,850
|
)
|
a,h
|
|
––
|
|
Due
to related parties
|
|
|
––
|
|
|
––
|
|
|
1,600,000
|
|
d
|
|
1,600,000
|
|
|
|
––
|
|
|
|
––
|
|
|
|
1,600,000
|
|
Total
Current Liabilities
|
|
|
3,977,148
|
|
|
––
|
|
|
(2,377,148
|
)
|
|
|
1,600,000
|
|
|
|
328,449
|
|
|
|
(328,449
|
)
|
|
|
1,600,000
|
|
Total
liabilities
|
|
|
3,977,148
|
|
|
––
|
|
|
(2,377,148
|
)
|
|
|
1,600,000
|
|
|
|
328,449
|
|
|
|
(328,449
|
)
|
|
|
1,600,000
|
|
Convertible
redeemable preferred stock, par value $0.001 per share(World
Waste)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
35,672,272
|
|
|
|
(35,672,272
|
)
|
e
|
|
––
|
|
Commitments
and contingencies(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock (World Waste)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
27,595
|
|
|
|
(27,595
|
)
|
e
|
|
––
|
|
Common
stock, par value $0.001 per share (Vertex Energy, Inc.) - 750,000,000
shares authorized; 8,261,659 issued and outstanding
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
8,262
|
|
e
|
|
8,262
|
|
Preferred
Stock Series A, par value $0.001 per share (Vertex Energy, Inc.):
5,000,000 shares authorized; 4,726,442 issued and
outstanding
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
4,726
|
|
e
|
|
4,726
|
|
Additional
paid-in capital
|
|
|
––
|
|
|
125,555
|
|
|
(1,600,000
|
)
|
|
|
(1,474,445
|
)
|
|
|
59,605,371
|
|
|
|
(57,352,893
|
)
|
i
|
|
778,033
|
|
Accumulated
deficit
|
|
|
––
|
|
|
(125,555
|
)
|
|
––
|
|
|
|
(125,555
|
)
|
|
|
(88,639,772
|
)
|
|
|
88,639,772
|
|
f
|
|
(125,555
|
)
|
Accumulated
comprehensive loss
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Partners’
capital
|
|
|
(572,145
|
)
|
|
––
|
|
|
572,145
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Stockholders’
equity
|
|
|
(572,145
|
)
|
|
––
|
|
|
(1,027,855
|
)
|
|
|
(1,600,000
|
)
|
|
|
(29,006,806
|
)
|
|
|
31,272,272
|
|
|
|
665,466
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,405,003
|
|
$
|
––
|
|
$
|
(3,405,003
|
)
|
|
$
|
––
|
|
|
$
|
6,993,915
|
|
|
$
|
(4,728,449
|
)
|
|
$
|
2,265,466
|
|
See
accompanying notes to unaudited pro forma combined financial
statements
VERTEX
ENERGY, INC.
UNAUDITED
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2009
|
|
Certain
assets
and
liabilities
of
Vertex
Holdings,
LP
|
|
Vertex
Energy
Inc.
|
|
Pro
forma
Adjustments
(Note
1)
|
|
Pro
forma Vertex entities
|
|
|
World
Waste
Technologies,
Inc.
|
|
|
Pro
forma
Adjustments
(Note
1)
|
|
Vertex
Energy, Inc.
Pro
forma
Adjusted
|
|
Revenues
|
|
$
|
7,709,263
|
|
$
|
––
|
|
$
|
––
|
|
$
|
7,709,263
|
|
|
$
|
––
|
|
|
$
|
––
|
|
$
|
7,709,263
|
|
Revenues
- related parties
|
|
|
147,871
|
|
|
––
|
|
|
––
|
|
|
147,871
|
|
|
|
––
|
|
|
|
––
|
|
|
147,871
|
|
Total
revenues
|
|
|
7,857,134
|
|
|
––
|
|
|
––
|
|
|
7,857,134
|
|
|
|
––
|
|
|
|
––
|
|
|
7,857,134
|
|
Cost
of revenues
|
|
|
7,838,642
|
|
|
––
|
|
|
––
|
|
|
7,838,642
|
|
|
|
––
|
|
|
|
––
|
|
|
7,838,642
|
|
Gross
profit
|
|
|
18,492
|
|
|
––
|
|
|
––
|
|
|
18,492
|
|
|
|
––
|
|
|
|
––
|
|
|
18,492
|
|
Research
and development expense
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
––
|
|
Selling,
general, and administrative expenses
|
|
|
597,999
|
|
|
34,377
|
|
|
––
|
|
|
632,376
|
|
|
|
834,340
|
|
|
|
––
|
|
|
1,466,716
|
|
Income
(loss )from operations
|
|
|
(579,507)
|
|
|
(34,377
|
)
|
|
––
|
|
|
(613,884
|
)
|
|
|
(834,340
|
)
|
|
|
––
|
|
|
(1,448,224
|
)
|
Interest
income (expense)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
18,468
|
|
|
|
––
|
|
|
18,468
|
|
Other
(income) expense
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
––
|
|
Net
income (loss)
|
|
$
|
(579,507)
|
|
$
|
(34,377
|
)
|
$
|
––
|
|
$
|
(613,884
|
)
|
|
$
|
(815,872
|
)
|
|
$
|
––
|
|
$
|
(1,429,756
|
)
|
Preferred
stock dividend and amortization of beneficial conversion feature, warrant
discount and offering costs
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
(2,618,037
|
)
|
|
|
2,618,037
|
f
|
|
––
|
|
Net
income (loss) attributable to common shareholders
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
|
$
|
(3,433,909
|
)
|
|
$
|
3,433,909
|
|
$
|
––
|
|
Basic
and diluted earnings (loss) per share
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
$
|
(0.12
|
)
|
|
|
––
|
|
$
|
(0.17
|
)
|
Weighted
average number of shares used in calculation
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
27,596,491
|
|
|
|
––
|
|
|
8,355,743
|
e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited pro forma combined financial
statements
VERTEX
ENERGY, INC.
UNAUDITED
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2008
|
|
Certain
assets
and
liabilities
of
Vertex
Holdings,
LP
|
|
Vertex
Energy
Inc.
|
|
Pro
forma
Adjustments
(Note
1)
|
|
Pro
forma Vertex entities
|
|
|
World
Waste
Technologies,
Inc.
|
|
|
Pro
forma
Adjustments
(Note
1)
|
|
|
Vertex
Energy, inc.
Pro
forma
Adjusted
|
|
Revenues
|
|
$
|
62,170,275
|
|
$
|
––
|
|
$
|
––
|
|
$
|
62,170,275
|
|
|
$
|
––
|
|
|
$
|
––
|
|
|
$
|
62,170,275
|
|
Revenues
- related parties
|
|
|
3,043,019
|
|
|
––
|
|
|
––
|
|
|
3,043,019
|
|
|
|
––
|
|
|
|
––
|
|
|
|
3,043,019
|
|
Total
revenues
|
|
|
65,213,294
|
|
|
––
|
|
|
––
|
|
|
65,213,294
|
|
|
|
––
|
|
|
|
––
|
|
|
|
65,213,294
|
|
Cost
of revenues
|
|
|
63,333,141
|
|
|
––
|
|
|
––
|
|
|
63,333,141
|
|
|
|
––
|
|
|
|
––
|
|
|
|
63,333,141
|
|
Gross
profit
|
|
|
1,880,153
|
|
|
––
|
|
|
––
|
|
|
1,880,153
|
|
|
|
––
|
|
|
|
––
|
|
|
|
1,880,153
|
|
Research
and development expense
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
16,359
|
|
|
|
––
|
|
|
|
16,359
|
|
Selling,
general, and administrative expenses
|
|
|
2,157,265
|
|
|
91,178
|
|
|
––
|
|
|
2,248,443
|
|
|
|
4,832,861
|
|
|
|
––
|
|
|
|
7,081,304
|
|
Income
(loss )from operations
|
|
|
(277,112)
|
|
|
(91,178)
|
|
|
––
|
|
|
(368,290
|
)
|
|
|
(4,849,220
|
)
|
|
|
––
|
|
|
|
(5,217,510
|
)
|
Interest
income (expense)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
235,641
|
|
|
|
(193,246
|
)
|
j
|
|
42,395
|
|
Other
(income) expense
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
(332,771
|
)
|
|
|
––
|
|
|
|
(332,771
|
)
|
Net
income (loss)
|
|
$
|
(277,112)
|
|
$
|
(91,178)
|
|
$
|
––
|
|
$
|
(368,290
|
)
|
|
$
|
(4,946,350
|
)
|
|
$
|
(193,246
|
)
|
|
$
|
(5,507,886
|
)
|
Preferred
stock dividend and amortization of beneficial conversion feature, warrant
discount and offering costs
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
(10,259,231
|
)
|
|
|
10,259,231
|
|
f
|
|
––
|
|
Net
income (loss) attributable to common shareholders
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
$
|
––
|
|
|
$
|
(15,205,581
|
)
|
|
$
|
15,205,581
|
|
|
$
|
––
|
|
Basic
and diluted earnings (loss) per share
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
$
|
(0.55
|
)
|
|
|
––
|
|
|
$
|
(0.66
|
)
|
Weighted
average number of shares used in calculation
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
|
27,594,313
|
|
|
|
––
|
|
|
|
8,355,743
|
e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited pro forma combined financial
statements
NOTES
TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE
1. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS:
The
merger was accounted for as a reverse acquisition of World Waste, pursuant to
which Vertex Nevada is considered to be the accounting acquirer. In
the merger, the shareholders of World Waste exchanged 100% of their shares for
approximately 42% of the total capital stock of Vertex Nevada. Vertex
Nevada is the continuing entity for financial reporting
purposes. Accordingly, the reverse merger was accounted for as a
recapitalization of Vertex Nevada.
Immediately
prior to the merger, World Waste was required to satisfy all of its liabilities.
As part of the merger, World Waste made a $3.4 million cash payment to
certain shareholders of Vertex Nevada, forgave a $1.0 million note due from the
same shareholders, and transferred its remaining cash 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
liabilities) were transferred to the combined entity. Accordingly, all such
assets and liabilities remained with Vertex LP and are not part of the combined
company.
EITF 98-3
“Determining Whether a Nonmonetary Transaction Involves Receipt of Productive
Assets or of a Business” outlines the criterion necessary to exist in order to
determine that a transfer constitutes a business for accounting purposes.
Paragraph 6 details the specific determination process and factors, which, as
applied to the merger, are summarized below:
With
respect to the inclusion of long-lived assets, including intangible assets, or
rights to the use of long-lived assets, under the terms of the merger agreement,
there were no assets transferred to Vertex Nevada because Vertex Nevada
currently contracts on a fee-paid basis for the use of all assets it deems to be
necessary to conduct its operations, from either independent third-parties or
related-parties. These contracted assets will remain available to Vertex Nevada
under the same, or substantially similar, terms going forward. Management of the
Vertex Nevada has chosen to contract for the use of assets rather than purchase
or build and own them in order to provide flexibility in its capital equipment
requirements in the event there is a need for more or less capacity due to rapid
growth or contraction in the future. Vertex Nevada expects that it will continue
to rely on contracts for access to assets going forward, to avoid the initial
capital expenditures that would be required to build its own facilities.
Management believes that contracting for, instead of buying or building, capital
infrastructure is a prudent business decision because in addition to allowing
Vertex Nevada to avoid large initial capital outlays and ongoing depreciation
charges and maintenance expenditures related to such capital outlays, it also
enables the combined entity to grow more quickly because it needs only to raise
the working capital necessary to accommodate expected future growth rather than
having to raise both working capital and investment capital.
With
respect to the transfer of intellectual property, Vertex Nevada does not include
any patented products or processes. The Vertex name and its related associations
are licensed to the combined entity, Vertex Energy, Inc.
With
respect to the ability to obtain access to necessary materials or rights, vendor
listings and relationships will transfer to the combined entity. All of the
business activities relating to the Vertex Nevada business segments were
transferred to the combined entity. Similarly, supplies and raw material
contracts will transfer to the combined entity.
With
respect to employees, all employees of Vertex LP that were engaged in the Vertex
Nevada business transferred to the combined entity, including the chief
executive officer.
With
respect to the business processes that are necessary for normal, self-sustaining
operations, the strategic management processes, operational processes, and
resource management processes were all transferred from Vertex LP and will
continue specifically within and for the benefit of the combined
company.
Finally,
the customers of the transferred business are expected to remain the same as a
result the merger. Any contracts with customers are being assigned to the
combined entity and the petroleum products sold will be the same as those sold
by the transferred segments of Vertex LP.
NOTE
1. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (CONTINUED):
Because
all criterion of EITF 98-3 are met under the terms of the merger, and all of the
inputs and processes necessary to continue to conduct normal operations and
sustain a revenue stream are being transferred in the merger, the combined
company accounted for the transfer of the segments to the combined entity as the
transfer of a business.
The
operating results of World Waste have been included in the pro forma statement
of operations. World Waste operating results reflect its biomass gasification
development and costs of being a publicly traded company. Because Vertex Energy,
Inc. expects to focus on its core business primarily within the recycled
petroleum products industry, the historical pro forma information is not
necessarily indicative of future results.
The pro
forma financial statements make certain assumptions with respect to the
continuity of certain contracts and agreements with suppliers and customers, to
which no assurance of future continuity can be provided.
a. Reflects
the following adjustments:
Removal
of Vertex Holdings, LP cash balance (see note b)
|
|
$
|
(22,753
|
)
|
Settlement
of outstanding World Waste obligations (see note h)
|
|
|
(328,449
|
)
|
Payment
to existing Vertex Holdings, LP shareholders
|
|
|
(3,400,000
|
)
|
Other
adjustments to pro forma cash
|
|
$
|
(3,728,449
|
)
|
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 March 31, 2009.
b. To
reflect that pursuant to the merger, all of Vertex Nevada’s assets and
liabilities reflected on its historical balance sheet remain with Vertex LP and
did not transfer to the combined entity.
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
liabilities (which 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).
e. The
capitalization of Vertex Nevada immediately following the merger was as
follows:
Vertex
Nevada common stock
|
|
|
|
|
|
|
|
Former
World Waste common stock*
|
|
|
2,759,659
|
|
|
|
|
|
|
Attributable
to Vertex LP partners
|
|
|
5,502,000
|
|
|
|
|
|
|
Total
initial common stock
|
|
|
8,261,659
|
|
|
|
|
|
|
Former
World Waste nominally priced stock options and warrants*
|
|
|
94,084
|
|
Total
pro forma shares included in earnings per share
calculations
|
|
|
8,355,743
|
|
|
|
|
|
|
|
|
|
|
|
Vertex
Nevada Series A preferred stock
|
|
|
|
|
|
|
|
|
|
World
Waste Series A preferred stock**
|
|
|
1,876,433
|
|
World
Waste Series B preferred stock***
|
|
|
2,850,009
|
|
|
|
|
|
|
Total
initial Series A preferred stock
|
|
|
4,726,442
|
|
———————
*
|
Based
on an exchange ratio of 10 shares of World Waste common stock for each
share of Vertex Nevada common
stock.
|
**
|
Based
on an exchange ratio of approximately 2.46 shares of World Waste
Series A preferred stock for each share of Vertex Nevada
Series A preferred stock.
|
***
|
Based
on an exchange ratio of approximately 0.086 shares of World Waste
Series B preferred stock for each share of Vertex Nevada
Series A preferred stock.
|
f. To
eliminate World Waste’s accumulated deficit, accumulated comprehensive loss, and
income statement account balances upon closing of the merger, which was
accounted for as an acquisition whereby Vertex Nevada is the accounting
acquirer.
g. In
lieu of obtaining shares of Vertex Nevada stock in the merger, a shareholder of
World Waste who exercises his or her dissenters’ rights in accordance with
California law will be entitled to receive a cash payment equal to the fair
market value of the shareholder’s stock as of May 19, 2008. The Company
expects such payments, if any, to be immaterial.
h. As
a condition for closing of the merger transaction, World Waste is required to
settle all outstanding obligations, therefore, all liabilities are reflected as
having been settled for cash in the pro forma balance sheet - see note a.
Certain prepaid expenses are expected to be have value after the closing of the
merger and are carried over to the successor entity, as reflected in the pro
forma balance sheet.
i. Reconciliation
of adjustments to additional paid-in capital:
Vertex
LP liabilities assumed under merger
|
|
$
|
(1,600,000
|
)
|
Elimination
of World Waste balance at March 31, 2009
|
|
$
|
(59,605,371
|
)
|
World
Waste cash
|
|
|
5,848,182
|
|
World
Waste prepaid expenses transferred
|
|
|
145,733
|
|
World
Waste settlement of obligations
|
|
|
(328,449
|
)
|
Cash
payment to Vertex LP Partners
|
|
|
(3,400,000
|
)
|
To
reflect World Waste portion of common stock
|
|
|
(2,760
|
)
|
To
reflect Vertex Nevada portion of common stock
|
|
|
(5,502
|
)
|
To
reflect Vertex Nevada Series A preferred stock
|
|
|
(4,726
|
)
|
Other
adjustments to additional paid-in capital
|
|
$
|
(57,352,893
|
)
|
j. Adjustments
to interest income and interest expense reflect the following for the twelve
months ended December 31, 2008:
Removal
of historical interest income due to change in cash
balances
|
|
|
(235,641
|
)
|
Addition
of pro forma interest income based on pro forma cash
balance
|
|
|
42,395
|
|
Total
World Waste interest income (expense) adjustments
|
|
$
|
(193,246
|
)
|
Amounts
above reflect estimated interest rates of 8% on debt and 2% on cash
balances.
NOTE
2. TAX MATTERS
The
historical pro forma results contain no tax provision, as they reflect the
combination of World Waste’s substantial net operating losses, for which a tax
benefit was not deemed realizable, and a partnership structure, where the
associated income or loss passed directly through to the partners. Pro forma
income taxes for Vertex Nevada for the year ended December 31, 2008 and for
the three months ended March 31, 2009 would have resulted in a benefit of
approximately $1.9 million and $486,000, if not passed through to the partners,
assuming a 34% effective rate and the separate return method.
At March
31, 2009, 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.
NOTE
3. STOCK AND OTHER COMPENSATION
Upon
consummation of the merger, all outstanding unvested options granted to
employees and non-employees automatically vested and became exercisable. As of
March 31, 2009, approximately 6,229,517 (which, upon consummation of the merger,
converted into options to acquire 622,952 shares of Vertex Nevada common stock)
World Waste options were outstanding. Vertex Energy, Inc. accounts for all
options, including those exchanged for World Waste options, in accordance with
SFAS 123R. The option exchange was accounted for in accordance with paragraph 84
of FASB Interpretation No. 44 “Accounting for Certain Transactions
Involving Stock Compensation.” Exchanged options were valued at the merger date
and the related compensation costs were recognized immediately. The pro forma
financial statements do not include the potential impact of this modification,
which is not expected to be material.
NOTE
4. EARNINGS (LOSS) PER SHARE
Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity, such as
stock options, warrants or convertible securities.
The share
numbers set forth below have been adjusted to reflect the merger exchange
ratio:
For the
year ending December 31, 2008, due to their anti-dilutive effect, World
Waste common stock equivalents of 1,281,783, consisting of employee options of
598,800 and non-employee warrants of 682,983, were not included in the
calculation of diluted earnings per share at December 31,
2008.
For the
three months ended March 31, 2009, due to their anti-dilutive effect, World
Waste common stock equivalents of 1,728,912, consisting of World Waste employee
options of 598,800, World Waste non-employee warrants of 663,612, and 466,500
Vertex Nevada options were not included in the calculation of diluted earnings
per share.
As of
March 31, 2009 and December 31, 2008, there were approximately 94,084 warrants
outstanding with a nominal exercise price. These warrants, which were fully
vested upon issuance, were granted in 2005 and 2006 and were valued at the date
of grant. The associated values were amortized over the lives of the debt with
which their issuance was related. All such debt was converted or redeemed in
2006 upon the issuance of World Waste’s Series B Preferred Stock, at which
time the unamortized balance was expensed. For earnings per share purposes, the
warrants are included in basic and diluted earnings per share.
Exhibit
99.6
Glossary
of Selected Terms
The
following abbreviations and definitions are terms commonly used in Vertex
Nevada’s filings with the Securities and Exchange Commission:
No. 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.
No. 6 Oil
- A lesser grade of
oil than No. 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, No. 6 fuel oil, marine
cutterstock, 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, No. 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.
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 No. 2 oil and other
byproducts.