PRE 14C 1 vpt_14-c.txt WORLD WASTE TECHNOLOGIES, INC. MERGER UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14C Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [ ] Definitive Information Statement Voice Powered Technology International, Inc. (Name of Registrant As Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [ ] No fee required [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11 (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 1 NOTICE OF ACTION TAKEN BY WRITTEN CONSENT OF OUR MAJORITY STOCKHOLDER Dear Stockholders: We are writing to advise you that Voice Powered Technology International, Inc. (the "Company") has entered into an Agreement and Plan of Reorganization with World Waste Technologies, Inc. ("WWT"), a privately held corporation based in San Diego, California to merge with WWT (the "Merger"). The Merger is to be accomplished through a merger of a wholly owned subsidiary of the Company with and into WWT, with WWT being the survivor of the Merger. Pursuant to the Merger, all of WWT's outstanding shares will be converted into shares of our common stock. As part of the Merger, we will also amend and restate our Articles of Incorporation to, among other things, effectuate a 1-for-60 reverse split of our common stock. After the Merger is concluded, we will change our corporate name to "World Waste Technologies, Inc." We are also adopting a new employee incentive plan, the 2004 Equity Incentive Plan (the "Equity Plan"). The Merger and the Equity Plan have each been approved by unanimous approval of our Board of Directors. In addition, Belle Group, Ltd., our controlling stockholder, approved the foregoing by written consent in lieu of a meeting on March 25, 2004. The Merger will not be effective until the Articles of Merger between our acquisition subsidiary and WWT are filed with the California Secretary of State. No action is required by you. The accompanying information statement is furnished only to inform our stockholders of the action described above before it takes effect in accordance with Rule 14c-2 promulgated under the Securities Exchange Act of 1934, as amended. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. COMPLETION OF THE MERGER WILL RESULT IN A CHANGE IN CONTROL OF THE COMPANY AND THE ASSUMPTION OF WWT'S ASSETS, LIABILITIES AND OPERATIONS BY THE COMPANY. PLEASE NOTE THAT THE COMPANY'S CONTROLLING STOCKHOLDER HAS VOTED TO APPROVE THE MERGER AND THE ADOPTION OF THE EQUITY PLAN. THE NUMBER OF VOTES HELD BY THE CONTROLLING STOCKHOLDER ARE SUFFICIENT TO SATISFY THE STOCKHOLDER VOTE REQUIREMENT FOR THESE ACTIONS AND NO ADDITIONAL VOTES WILL CONSEQUENTLY BE NEEDED TO APPROVE THESE TRANSACTIONS. Very truly yours, ------------------------ Rob Larcara, President 2 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. 15915 VENTURA BOULEVARD, SUITE 301 ENCINO, CALIFORNIA 91436 INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES EXCHANGE ACT OF 1934 AND REGULATION 14C THEREUNDER TO OUR STOCKHOLDERS: This Information Statement is being sent by first class mail to all record and beneficial owners of the Common Stock, $0.001 par value, of Voice Powered Technology International, Inc., a California corporation (the "Company"). On April 14, 2004, the record date for determining the identity of stockholders who are entitled to receive this Information Statement, 92,970,027 shares of our Common Stock were issued and outstanding. The Common Stock constitutes the sole outstanding class of voting securities of the Company. Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to shareholders. The mailing date of this Information Statement is on or about March 25, 2004. NO VOTE OR OTHER CONSENT OF OUR STOCKHOLDERS IS SOLICITED IN CONNECTION WITH THIS INFORMATION STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. On March 25, 2004, our controlling stockholder (the "Controlling Stockholder"), who owns 74,258,788 shares, or approximately 80%, of our issued and outstanding Common Stock, consented in writing to the following: 1. An amendment and restatement of our Articles of Incorporation that will, among other things, implement a 1 -for -60 reverse split of our common stock (the "Reverse Split") and reduce our authorized Preferred Stock to 10,000,000 shares. 2. Approval of an Agreement and Plan of Reorganization (the "Reorganization Agreement") by and among the Company, V-CO Acquisition, Inc., a wholly owned subsidiary of the Company ("V-CO") and World Waste Technologies, Inc. ("WWT"), whereby the Company, after taking into account the Reverse Split, will issue up to 20,825,000 shares of its Common Stock in exchange for all of the outstanding capital stock of WWT along with warrants to purchase up to an additional 1,075,000 shares of its Common Stock, resulting in 22,025,000 shares of its Common Stock outstanding after giving effect to the Merger (assuming that none of the outstanding warrants are exercised) (the "Merger Transaction"). If all 1,075,000 warrants to purchase the Company's Common Stock are exercised, the Company's total issued and outstanding shares of Common Stock would then total 23,100,000. 3. Approval of a name change, upon the closing of the Merger Transaction, to "World Waste Technologies, Inc." 4. Subject to the closing of the Merger Transaction, the election of four new directors and a change in management. 3 5. Adoption of a 2004 Equity Incentive Plan (the "2004 Plan") for employees, directors, and consultants of the Company. The Controlling Stockholder has not consented to or considered any other corporate action. Our Company will pay the cost of printing and distributing this Information Statement to our stockholders. Brokers, nominees and other custodians will be instructed to forward copies of this Information Statement to the beneficial owners of shares held in custodial accounts. We will reimburse brokers, nominees and other custodians for the expenses incurred in forwarding this Information Statement to the beneficial owners of our Common Stock. FORWARD LOOKING STATEMENTS This Information Statement and other reports that we file with the SEC contain forward-looking statements about our business containing the words "believes," "anticipates," "expects" and words of similar import. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from the results or performance anticipated or implied by such forward-looking statements. Given these uncertainties, stockholders are cautioned not to place undue reliance on forward-looking statements. Except as specified in SEC regulations, we have no duty to publicly release information that updates the forward-looking statements contained in this Information Statement. Additional risks will be disclosed from time to time in our future SEC filings. TABLE OF CONTENTS ----------------- PAGE ---- NO. --- GENERAL................................................................... 8 SUMMARY OF TERMS.......................................................... 9 THE COMPANIES........................................................... 9 STRUCTURE OF THE MERGER................................................. 10 THE COMPANY'S REASONS FOR THE MERGER.................................... 10 WWT'S REASONS FOR THE MERGER............................................ 11 RISK FACTORS............................................................ 11 4 DIRECTORS AND EXECUTIVE MANAGEMENT OF THE COMPANY FOLLOWING THE MERGER TRANSACTION.................................................. 12 SECURITY OWNERSHIP OF MANAGEMENT AND AFFILIATES AFTER MERGER TRANSACTION 14 CONTROLLING STOCKHOLDER................................................... 15 PRIVATE OFFERING.......................................................... 15 General................................................................. 15 Use of Proceeds......................................................... 16 Registration Rights..................................................... 16 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 17 AGREEMENT AND PLAN OF REORGANIZATION...................................... 17 MATERIAL TERMS OF THE MERGER............................................ 18 TERMS OF THE REORGANIZATION AGREEMENT................................... 19 CHANGE IN CONTROL....................................................... 21 CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 21 ACCOUNTING TREATMENT OF THE MERGER...................................... 21 APPRAISAL RIGHTS........................................................ 21 INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................. 21 FEDERAL SECURITIES LAW CONSEQUENCES..................................... 22 DISSENTERS' RIGHTS...................................................... 22 REQUIREMENTS FOR EXERCISING DISSENTERS' RIGHTS.......................... 22 THE AMENDMENTS TO OUR ARTICLES OF INCORPORATION........................... 23 REVERSE STOCK SPLIT..................................................... 23 EFFECT OF THE REVERSE SPLIT............................................. 23 POTENTIAL ELIMINATION OF CUMULATIVE VOTING.............................. 24 CHANGE OF NAME.......................................................... 25 THE 2004 EQUITY INCENTIVE PLAN............................................ 26 PLAN DESCRIPTION........................................................ 26 5 AUTHORIZED SHARES....................................................... 26 ADMINISTRATION.......................................................... 26 ELIGIBILITY............................................................. 26 TERMS AND CONDITIONS OF OPTIONS......................................... 27 Termination of Options................................................ 27 Restricted Stock...................................................... 27 ANTICIPATED OPERATIONS FOLLOWING THE MERGER............................... 28 WORLD WASTE TECHNOLOGIES, INC............................................. 28 THE INDUSTRY............................................................ 28 THE WWT SOLUTION........................................................ 29 THE TECHNOLOGY.......................................................... 30 Overview............................................................ 30 Intellectual Property and Patent Highlights......................... 30 Vessel Operations................................................... 30 CUSTOMERS............................................................... 31 MSW Treatment and Standard Recyclables.............................. 31 Cellulose Fiber..................................................... 31 Cellulose Market for WWT's Initial Facility (Anaheim, CA)........... 31 COMPETITION............................................................. 31 RISK FACTORS............................................................ 32 A Development Stage Company......................................... 32 Ability to Obtain or Sustain Market Acceptance for Services and Products............................................... 32 The Market for Services and Products in the Solid Waste Processing and Recycling Industry is Competitive; WWT may not be Able to Compete Successfully......................... 32 Requirement for a Significant Supply of Solid Waste and Timely Payment for that Solid Waste................................. 32 6 Loss of Key Executives and Failure to Attract Qualified Management could limit Growth and Negatively Impact Operations...... 33 Results of Operations may be Affected by Changing Resale Prices or Market Requirements for Recyclable Materials..................... 33 Results of Operations will Fluctuate................................ 33 Failure to Obtain Required Permits.................................. 34 Our currently planned facility may not be constructed on a timely basis, within budget, or at all..................................... 34 Exposure to Litigation.............................................. 34 Other Companies may Claim Infringement of their Intellectual Property or Proprietary Rights...................................... 34 Success Depends on the Ability to Protect Proprietary Technology.... 35 We face delays in the development of our technology and our technology may not work as well as expected or be economically viable.............................................................. 36 The License Agreement with Bio-Products, Inc. has Certain Requirements to Maintain Exclusivity................................ 36 Failure to Implement New Technologies............................... 36 Further Financing Cannot be Guaranteed.............................. 37 RISKS RELATED TO THE MUNICIPAL SOLID WASTE PROCESSING INDUSTRY.......... 37 Strong Competition from Larger more Experienced Companies........... 37 Environmental Regulations and Litigation could Subject WWT to Fines, Penalties, Judgments and Limitations on its Ability to Expand........................................................... 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................... 38 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 39 WORLD WASTE TECHNOLOGIES, INC. FINANCIAL STATEMENTS....................... 42 ADDITIONAL INFORMATION.................................................... 62 7 GENERAL This Information Statement is being furnished to all of the Common Stock shareholders of the Company, in connection with the approval by the Company's Controlling Stockholder of that certain Reorganization Agreement dated March 25, 2004 with WWT to issue up to 20,825,000 shares of the Company's Common Stock (the "Common Stock") to WWT in exchange for all of the issued and outstanding Common Stock of WWT along with warrants to purchase up to an additional 1,075,000 shares of Common Stock to WWT's warrant holders (assuming that none of the warrants are exercised) (the "Merger Transaction"). In conjunction with the Merger Transaction, the Company's Articles of Incorporation will be amended to, among other things, effect a 1 -for -60 reverse split of the Company's issued and outstanding Common Stock, and to change the name of the Company to "World Waste Technologies, Inc. " (the "Name Change")." The form of the Company's Amended and Restated Articles of Incorporation (the "Amended Articles") are attached to this Information Statement as Appendix A. Furthermore, a 2004 Equity Incentive Plan (the "2004 Plan") will be adopted. The filing of the Amended Articles and the adoption of the Equity Plan are required by the Reorganization Agreement. In addition, upon the closing of the Merger Transaction, all of our existing officers and directors will resign, and four new directors and new management shall be elected. The Merger Transaction is expected to close on or about June 30, 2004, and will become effective upon the filing of the Articles of Merger with the Secretary of State of California. The Company anticipates that the filing will occur on or about June 30, 2004 (the "Effective Date"). The elimination of the need for a special meeting of shareholders to approve the Merger Transaction is authorized by Section 603 of the California Corporation Law (the "California Law") which provides that the written consent of the holders of the outstanding shares of voting stock, having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, may be substituted for such a special meeting. Pursuant to Sections 905 and 1201 of the California Law, a majority of the outstanding shares of voting stock entitled to vote thereon is required in order to approve the Amended Articles and the Merger Transaction. In order to eliminate the costs and management time involved in holding a special meeting and in order to approve the Merger Transaction, the Amended Articles and the 2004 Plan as soon as possible to accomplish the purpose of the Company as hereafter described, the Board of Directors of the Company determined to utilize the written consent of the holder of a majority in interest of the outstanding Common Stock of the Company. The Company's principal stockholder, who beneficially owns approximately eighty percent (80%) of the outstanding Common Stock of the Company entitled to vote on the Merger Transaction, the Amended Articles and the 2004 Plan, gave its written consent to the approval of the foregoing on March 25, 2004. The written consent became effective on March 25, 2004, the date on which it was filed with the Secretary of the Company. The date on which this Information Statement was first sent to the shareholders is on or about March 25, 2004. The record date established by the Company for the purpose of determining the holders entitled to receive this Information Statement is April 14, 2004 (the "Record Date"). 8 Pursuant to Section 603 of the California Law, the Company is required to provide ten-days notice prior to the consummation of any action without a meeting to shareholders who have not consented in writing to such action. The Company is providing to its shareholders of record this Information Statement approximately 20 days prior to the consummation of any corporate action. No additional action will be undertaken pursuant to such written consent. California law provides for dissenters' rights in conjunction with the proposed Merger Transaction. See "Dissenters' Rights". SUMMARY OF TERMS This summary term sheet does not contain all of the information that is important to you. You should carefully read the entire Information Statement and the Appendices, as well as the information we incorporate by reference. THE COMPANIES Voice Powered Technology International, Inc., a California corporation, 15915 Ventura Boulevard, Suite 301, Encino, California 91436 (the "Company"), was incorporated in California in June 1985 and began active operations in January 1990. The Company was formed to develop, market, and distribute low-cost voice recognition and voice activated products. The Company discontinued its operations in March 2001. Since August 2002, the Company has focused on evaluating opportunities that may enhance stockholder value, including pursuing a merger or acquisition of another business entity with long-term growth potential. The Company's shares currently are listed for quotation on the Over the Counter Bulletin Board under the symbol "VPTI" and the closing "bid" price of its shares of common stock on May 10, 2004 was $0.10 per share. World Waste Technologies, Inc., a California corporation, 13520 Evening Creek Drive, Suite 130, San Diego, California 92128 ("WWT"), was formed on February 7, 2003 as Spartan Advisors, L.L.C. Spartan Advisors, L.L.C. was converted to a California "C" corporation on February 25, 2004 and renamed Waste Solutions, Inc. In March 2004, a wholly-owned subsidiary of Waste Solutions, Inc. merged with and into World Waste of America, Inc., a California corporation, and the combined entity changed its name to "World Waste Technologies, Inc." WWT is a development stage company formed to engage in the business of processing and converting municipal solid waste into separated components of sterilized organic and inorganic materials with limited discharge into the air, water, or soil. Pursuant to the terms of the Reorganization Agreement, a wholly owned subsidiary of the Company will merge with and into WWT, with WWT as the surviving corporation. Accordingly, WWT will become a wholly owned subsidiary of the Company. Following the Merger Transaction, the Company will change its name to "World Waste Technologies, Inc." CONSUMMATION OF THE MERGER TRANSACTION WILL RESULT IN A CHANGE IN OUR CONTROL AND THE ASSUMPTION BY THE COMPANY OF WWT'S OPERATIONS AND LIABILITIES. The Company and WWT did not have any preexisting relationship prior to entering into the Reorganization Agreement. None of the Company's officers, directors, or affiliates hold shares of WWT nor do any officers, directors, or affiliates of WWT hold shares of the Company. 9 STRUCTURE OF THE MERGER At the effective time of the Merger Transaction (in each case after giving effect to the Reverse Split): |X| The Company will merge its acquisition subsidiary with and into WWT and the separate corporate existence of the acquisition subsidiary shall cease; |X| The Company will issue up to 20,825,000 shares of its restricted common stock to the shareholders of WWT in exchange for 100% of the issued and outstanding shares of common stock of WWT along with warrants to purchase up to an additional 1,075,000 shares of its restricted common stock to the warrant holders of WWT (assuming that none of the warrants are exercised); and |X| A total of 349,500 shares of the Company's outstanding common stock will be tendered by the Controlling Stockholder for cancellation. As a result of the Merger Transaction, the Company shall be the parent corporation of WWT, which shall continue as the surviving corporation, and the stockholders of WWT will become stockholders of the Company. The current stockholders of the Company will own 1,200,000 shares, or approximately 5% of the issued and outstanding shares of the Company's common stock, based on up to 22,025,000 shares outstanding after the Merger Transaction. We are relying on Rule 506 of Regulation D of the Securities Act of 1933, as amended (the "Act") in regard to the shares we anticipate issuing pursuant to the Merger Transaction. We believe this offering qualifies as a "business combination" as defined by Rule 501(d). Reliance on Rule 506 requires that there are no more than 35 non-accredited purchasers of securities from the issuer in an offering under Rule 506. At the Closing, WWT has represented to us that no more than 35 WWT shareholders will be non-accredited. All other WWT shareholders will be "accredited investors" as defined in Rule 501(a) of Regulation D. THE COMPANY'S REASONS FOR THE MERGER The Company's board of directors considered various factors in approving the Merger Transaction and the Reorganization Agreement, including |X| its current lack of operations; |X| prospects for the future; |X| WWT's potential for growth and expansion; and |X| anticipated increase in stockholder value as a result of the Merger Transaction. In agreeing to the Merger Transaction, the Company's board hoped that the relinquishment of control to WWT's management and adoption of WWT's assets and operations would eventually add value to the Company. The Company's board of directors reached this conclusion after analyzing WWT's operations, prospects 10 and managerial resources, which are described in more detail below, and believes that acquiring WWT's growth potential by means of a merger is the best opportunity to increase value to the Company's stockholders. The Company's board of directors did not request a fairness opinion in connection with the Merger. WWT'S REASONS FOR THE MERGER WWT's board of directors considered various factors in approving the Merger Transaction and the Reorganization Agreement, including: |X| the increased market liquidity expected to result from exchanging stock in a private company for publicly traded securities of the Company; |X| the ability to use registered securities to make acquisition of assets or businesses; |X| increased visibility in the financial community; |X| enhanced access to the capital markets; |X| improved transparency of operations; and |X| perceived credibility and enhanced corporate image of being a publicly traded company. WWT's board of directors did not request a fairness opinion in connection with the Merger Transaction. RISK FACTORS In addition to the risks related to the business of WWT and described elsewhere in this Information Statement, the Merger Transaction entails several risks, including the following: |X| Upon completion of the Merger Transaction, we will assume WWT's plan of operation, which will require substantial additional funds to fully implement. As of March 31, 2004 WWT had cash of $470,226. In order to comply with a condition to the Merger that WWT have a net worth of at least $2,700,000 prior to the Closing (including at least $1,000,000 in cash), and to enable WWT to commence the execution of its business strategy, WWT is currently in the process of seeking to raise up to $4,500,000 in a private placement of its securities. To date, no such securities have been sold, and there can be no assurance that the Company will not waive this closing condition. Even if all or a portion of these funds are raised, we will still be required to raise additional capital following the Merger of between $3,000,000 and $6,000,000 through debt or private equity financings in order to implement our business plan. If WWT is unable to raise this additional necessary financing and the Merger is nonetheless consummated, WWT will need to significantly curtail its operations, or cease operations completely. 11 |X| Our current stockholders will be diluted by the shares issued as part of the Merger Transaction and may be diluted by future issuances of shares, if necessary, to satisfy our working capital needs. Even though 349,500 shares (post split) held by our Controlling Stockholder will be canceled, we are issuing up to 20,825,000 shares (post split) of our common stock to the WWT stockholders along with warrants to purchase up to an additional 1,075,000 shares of our common stock to the warrant holders of WWT as part of the Merger Transaction. If all 1,075,000 warrants to purchase the our common stock are exercised, we would issue up to a total of 21,900,000 shares of common stock as part of the Merger Transaction. The foregoing issuances, along with anticipated issuances to raise additional working capital, will reduce the percentage ownership of our stockholders. |X| The market price of our common stock may decline as a result of the Merger Transaction if the integration of the Company and WWT's businesses is unsuccessful. |X| The existing stockholders of WWT will own up to approximately 95% of our common stock following completion of the Merger Transaction, which will limit the ability of other stockholders to influence corporate matters. DIRECTORS AND EXECUTIVE MANAGEMENT OF THE COMPANY FOLLOWING THE MERGER TRANSACTION Following completion of the Merger Transaction, all of the existing members of our board of directors will resign and new appointees will comprise our board of directors, which will be designated by WWT. Our new management and directors are anticipated to include: NAME AGE POSITION TO BE HELD WITH THE COMPANY Thomas L. Collins 63 Chief Executive Officer and Director (Acting Chief Financial Officer) Steve Racoosin 50 President and Director Fred Lundberg 67 Senior Vice President, Director and Secretary John Pimentel 38 Director Thomas L. Collins - Chief Executive Officer and Director. Mr. Collins has been the Chief Executive Officer and a Director of WWT since February 2004. He worked with Waste Management, Inc. from 1972 to 1995, including serving as the Vice-President and Controller for the Western Region. After retiring from Waste Management Inc. in 1995, Mr. Collins was an independent consultant for the waste industry until joining WWT in January 2003 as Executive Vice President. Mr. Collins has a BA in Business Administration and Accounting from Quincy University and is a CPA. Steve Racoosin - President and Director. Mr. Racoosin has served as President and a Director of WWT since 2002.With more than 20 years experience in the waste business, Mr. Racoosin has knowledge of landfill design, construction and operation, and methane recovery systems. Since 1989, he has been developing steam classification vessels for processing waste along with Dr. Eley and the University of Alabama in Huntsville ("UAH"). From 1998 to 2001 Mr. Racoosin was a founder of Total Recovery Systems International, Inc. which sought 12 tocommercialize the UAH waste processing technology. Later in 2001 Mr. Racoosin continued working on commercializing the UAH technology and in 2002 he founded World Waste of America, which later became World Waste Technologies. Fred Lundberg - Senior Vice President, Secretary and Director. In 2004 Mr. Lundberg joined WWT as Senior Vice President where he is responsible for the engineering design and construction of WWT's facilities, and for the market development and sales of the wetlap fiber production from WWTI facilities. From 2001-2004 Mr. Lundberg was President of Veritas Consulting, LLC, where he provided strategic and tactical consulting services to domestic pulp and paper clients; and he was also Manager of the Pulp and Paper Industry Practice for Baker & O'Brien, Inc., where he provided chemical engineering consulting services and expert witness services to pulp and paper clients under a semi-exclusive consulting contract between Veritas and Baker & O'Brien. From 1998 to 2000 Mr. Lundberg was Acting President/Vice President for Jacobs-Sirrine Consultants, Subsidiary of Jacobs Engineering, Inc. where he managed the Facilities & Economics Group that provided competitive analysis services to pulp and paper clients, and managed and led strategic consulting and due diligence projects for domestic and international pulp and paper clients. Prior to these consulting positions, Mr. Lundberg was for 26 years with Weyerhaeuser where he oversaw the construction and operation of numerous pulp and paper facilities. John Pimentel-Director. Mr. Pimentel has served as a director of WWT since February 2004. From 1993-1996 Mr. Pimentel served as Deputy Secretary for Transportation for the State of California where he oversaw a $4.5 billion budget and 28,000 employees including the Department of Transportation, the California Highway Patrol, and parts of the Department of Motor Vehicles. From 1998 to 2002, he worked with Bain & Company in the firm's Private Equity Group, and the general consulting practice. Since 2003, Mr. Pimentel has been a Director with Cagan McAfee Capital Partners (the Placement Agent) where he is responsible for business development, investment structuring, and portfolio company management. Mr. Pimentel has an MBA from Harvard Business School, and a BA from UC Berkeley. The following advisors to WWT are expected to continue as advisors to the Company following the Merger Transaction: Dr. Michael Eley. Dr. Eley is President of Bio-Products, Inc. and a professor and research scientist at the University of Alabama in Huntsville and was the original inventor of WWT's technology. He is a nationally recognized developer and inventor of processes for the treatment of municipal solid waste. Dr. Eley holds a Ph.D. and an MS in Biochemistry and a BA in Biology. In addition to his teaching and research, Dr. Eley has authored more than 100 published articles and papers in the field of municipal waste recovery. Don Malley. Mr. Malley is the Chief Operating Officer of Bio-Products, Inc. and offers hands-on knowledge and experience in the technical specifics of pressurized steam classification vessels. He successfully operated the first-generation commercial facility based on the patented technology. Mr. Malley has project management experience as a construction supervisor for nine textile facilities throughout Mississippi, and also has experience with HVAC, Electrical Design, and Hydraulics system construction and operations. 13 SECURITY OWNERSHIP OF MANAGEMENT AND AFFILIATES AFTER THE MERGER TRANSACTION The following table sets forth certain information with respect to the anticipated levels of beneficial ownership of our Common Stock after giving effect to the Merger Transaction by each stockholder expected by us to be the beneficial owner of more than 5% of our Common Stock and by each of our anticipated directors and executive officers. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock subject to any warrants or options that are presently exercisable or exercisable within 60 days of the date of this Information Statement, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the warrants or options, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The numbers reflected in the percentage ownership columns are based on the assumption that 23,100,000 shares of our common stock will be outstanding after the Merger (which (i) gives effect to the cancellation of 349,500 (post-split) shares from the Controlling Stockholder as described in this Information Statement, (ii) assumes that WWT will issue 3,000,000 shares in its private offering (including 300,000 warrants issued to the placement agent in connection with the offering), (iii) assumes that 1,200,000 shares are issued to existing note holders of WWT upon the conversion of their notes), and (iv) assumes that all 1,075,000 warrants are exercised. Unless otherwise indicated below, the persons named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. An asterisk denotes beneficial ownership of less than 1%. AMOUNT OF NAME OF BENEFICIAL OWNER BENEFICIALLY PERCENTAGE OWNED SHARES OF CLASS ---------------------------------- --------------------- ------------- Thomas L. Collins(1) 1,150,000 5.0% Steve Racoosin(2) 4,100,000 17.7% John Pimentel 1,400,000 6.1% Cagan McAfee Capital Partners, LLC 4,200,000 18.2% Darren Pedersen 1,340,000 5.8% Fred Lundberg(3) 710,000 3.1% Directors and Executive Officers 7,360,000 31.6% as a Group (4 persons) -------------------- (1) Includes 100,000 shares issuable upon exercise of warrants at $1.50 per share that are exercisable within 60 days of the date hereof. The warrant provides for exercise prior to vesting, and any unvested shares that are exercised will be subject to a lapsing repurchase right in WWT's favor. None of the shares are vested. (2) Includes 100,000 shares issuable upon exercise of warrants at $1.50 per share that are exercisable within 60 days of the date hereof. The warrant provides for exercise prior to vesting, and any unvested shares that are exercised will be subject to a lapsing repurchase right in WWT's favor. None of the shares are vested. 14 (3) Includes 50,000 shares issuable upon exercise of warrants at $1.50 per share that are exercisable within 60 days of the date hereof. The warrant provides for exercise prior to vesting, and any unvested shares that are exercised will be subject to a lapsing repurchase right in WWT's favor. None of the shares are vested. CONTROLLING STOCKHOLDER On March 25, 2004, the following Controlling Stockholder, which owns approximately 80% of our Common Stock, consented in writing to approve the Merger Transaction, the Amended Articles, and the 2004 Plan. Name Shares Percent ----------------------- ------------------ ------------------ Belle Group, Ltd. 74,258,788 80% Under California law, we are required to give all stockholders written notice of any actions that are taken by written consent without a stockholders meeting. Under Section 14(c) of the Securities Exchange Act of 1934 (the "Exchange Act"), the actions taken by written consent without a shareholders meeting cannot become effective until 20 days after the mailing date of this Information Statement. We are not seeking written consent from any of our stockholders and our other stockholders will not be given an opportunity to vote with respect to the actions taken. All necessary corporate approvals have been obtained, and this Information Statement is furnished solely for the purpose of advising stockholders of the actions taken by written consent, as required by California law, and giving stockholders advance notice of the actions taken, as required by the Exchange Act. Stockholders who were not afforded an opportunity to consent or otherwise vote with respect to the actions taken have under California law dissenters' rights in conjunction with the proposed Merger Transaction. See "Dissenters' Rights". PRIVATE OFFERING General ------- In May 2004, WWT commenced a private offering of up to 3,000,000 shares of common stock (together with warrants issuable to the placement agent to acquire up to an additional 300,000 shares of common stock in connection with the offering), at a price of $1.50 per share. The minimum number of shares an investor will be permitted to purchase is 33,333 (for $50,000). The shares will be sold only to "accredited investors" as defined in Regulation D under the Securities Act of 1933. The shares are being offered by Cagan McAfee Capital Partners, L.L.C., on WWT's behalf (the "Placement Agent"). WWT has agreed to pay a placement commission of 8% of the price of all shares sold by the Placement Agent. In addition, WWT has agreed to pay the Placement Agent a non-accountable expense allowance (equal to 2% of the purchase price of the shares) and to issue the 15 Placement Agent, or its affiliates, warrants to purchase WWT's shares, at an exercise price of $1.50 per share, in an amount equal to 10% of the shares sold in the offering. Cagan McAfee Capital Partners, L.L.C. and one of its directors, John Pimentel, who is also a director of WWT, will own collectively after the merger 24.3% of the total issued and outstanding common stock of the Company. As of May 1, 2004, WWT had not received or accepted any subscriptions in connection with this private offering. The agreement and plan of reorganization with WWT conditions the closing of the merger upon, among other things, WWT having a net worth of at least $2.7 million, including at least $1.0 million in cash. In order to satisfy these requirements, WWT must sell at least 2,000,000 shares in its private placement. There can be no assurance that WWT will be able to sell such shares. Unless we note otherwise, the information in this Information Statement regarding the number of our shares to be issued in the Merger and related matters assumes that WWT sells in its private offering the maximum of 3,000,000 shares being offered. Use of Proceeds --------------- WWT anticipates that the net proceeds from its private offering will range from approximately $2,700,000, to approximately $4,050,000, in each case, after deducting anticipated offering expenses. The actual net proceeds will depend upon the number of shares sold by WWT and the actual offering expenses it incurs. The net proceeds from WWT's sale of shares will be used to fund working capital expenses and to fund a portion of the construction of WWT's first facility in Anaheim, California. The allocation of the net proceeds from the offering set forth above represents WWT's best estimate based upon its currently proposed plans and assumptions relating to its operations and certain assumptions regarding general economic conditions. The actual use of the net proceeds may differ. If any of these factors change, we may find it necessary or advisable to reallocate some of the net proceeds or to use a portion of the net proceeds for other purposes. We may also use a portion of the net proceeds for the acquisition of businesses, technologies or products which we believe are complimentary to those of WWT. There are no contracts or agreements to do so, however. Registration Rights ------------------- In its private offering, WWT will agree to cause the Company to file a registration statement after the Merger is completed to register the sales of the shares of common stock sold in the private offering. The Company will be obligated to file a registration statement within 90 days of the Merger's close. 16 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth Common Stock ownership information as of April 14, 2004, with respect to (i) each person known to the Company to be the beneficial owner of more than five percent (5%) of the Company's Common Stock; (ii) each director of the Company; and (iii) all directors, executive officers and designated shareholders of the Company as a group. This information as to beneficial ownership was furnished to the Company by or on behalf of the persons named. Prior to the Merger Transaction, there were 92,970,027 shares of Common Stock outstanding. The information in the table below does not reflect the proposed Merger Transaction, or the proposed 1 -for -60 reverse stock split. Name and Address of Amount Percent of Beneficial Owner Beneficially Owned Class ---------------------------------- ---------------------- ------------- Belle Group, Ltd. 74,258,788 80% 23679 Calabasas Road #412 Calabasas, California 91302 Harold S. Fleischman (1) 1,000,000 1% Robert Larcara (1) 400,000 * Gary Saderup (1) 130,000 * All officers and directors 1,530,000 1.3% as a Group (3 persons) -------------------- * Less than 1% (1) Addresses: 15915 Ventura Blvd., Ste. 301, Encino, CA 91436 Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock subject to any warrants or options that are presently exercisable or exercisable within 60 days of April 14_, 2004 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the warrants or options, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The numbers reflected in the percentage ownership columns are based on 92,970,027 shares of our common stock outstanding as of April 14, 2004. Unless otherwise indicated below, the persons named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. AGREEMENT AND PLAN OF REORGANIZATION On March 25, 2004 the Company entered into an Agreement and Plan of Reorganization (the "Reorganization Agreement") with World Waste Technologies, Inc., a California corporation ("WWT"). The Reorganization Agreement provides for the acquisition of all of the outstanding capital stock of WWT in exchange for up to 20,825,000 shares of the Company's Common Stock along with warrants to purchase up to an additional 1,075,000 shares of the Company's Common Stock (assuming that none of the warrants are exercised), after the 1-for -60 Reverse Split (the "Merger Transaction"). The closing of the Reorganization Agreement is subject to certain covenants, conditions and representations and various due 17 diligence requirements, including WWT having a net worth of at least $2.7 million consisting, in part, of cash of not less than $1 million. Prior to the closing of the Merger Transaction, the Company is required to effect the 1-for -60 Reverse Split. In addition, upon the closing of the Merger Transaction, the Company has agreed to change its name to "World Waste Technologies, Inc." and to elect four new directors, selected by WWT, to the Company's Board of Directors. Upon the close of the Merger Transaction, shareholders of WWT will own approximately 95% of the issued and outstanding Common Stock of the Company and current shareholders of the Company will own approximately 5%. The primary purpose of the Merger Transaction is to allow the Company to acquire and carry on the business of WWT. It is anticipated that becoming a publicly reporting company will further enhance WWT's business visibility and ability to attract and utilize additional sources of capital. MATERIAL TERMS OF THE MERGER Upon the terms and subject to the conditions set forth in the Reorganization Agreement and in accordance with California Law, V-CO, Inc., a wholly owned subsidiary of the Company will be merged with and into WWT (the "Merger"), with WWT as the surviving corporation of the Merger. As a result of the Merger, the outstanding shares of capital stock of each of V-CO and WWT will be converted or canceled in the manner provided by the Reorganization Agreement, the separate corporate existence of V-CO shall cease, and WWT shall continue unimpaired as the surviving corporation in the Merger as a wholly owned subsidiary of the Company. Prior to the Merger, Belle Group, Ltd., the Controlling Stockholder, owned approximately 80% of the shares of the Company's Common Stock. In connection with the Merger, Belle Group, Ltd. will surrender to the Company for cancellation 349,500 shares of the Company's Common Stock (post split) that it currently holds. The Company will then issue to the current shareholders of WWT (the " WWT Shareholders") and the holders of warrants to purchase additional shares of WWT Common Stock, that number of shares of Common Stock of the Company and warrants to purchase additional shares of Company Common Stock as shall represent (assuming full exercise of such warrants) approximately 95% of the issued and outstanding shares of Common Stock of the Company on a fully-diluted basis, after giving effect to the Merger (the "Merger Shares"). Assuming the conversion of certain promissory notes pursuant to the terms of the Reorganization Agreement as described below into approximately 1,200,000 shares, there are currently 17,825,000 shares of WWT Common Stock issued and outstanding and warrants to purchase up to an additional 775,000 shares of the Company's Common Stock issued and outstanding (assuming that none of the warrants are exercised). WWT also plans to issue up to an additional 3,000,000 shares through a private placement to certain accredited investors (plus up to 300,000 warrants issued to the placement agent in connection with the offering) prior to the Closing. After cancellation of the 349,500 shares owned by the Belle Group, Ltd. and the 1 for 60 Reverse Split, the Company will have 1,200,000 shares of Common Stock issued and outstanding. Upon the Closing, assuming the full conversion of all outstanding debt and the placement of the maximum number of shares in the private offering, the Company will issue up to 18 20,825,000 shares of Common Stock to the existing holders of WWT equity securities (plus up to 1,075,000 warrants to the holders of WWT warrants to acquire common stock of WWT, (assuming that none of these warrants are exercised). Belle Group, Ltd., the Controlling Stockholder of the Company and the owner of 74,258,788 of the 92,970,027 outstanding shares of Common Stock (representing approximately 80% of such outstanding shares), has, in connection with the transactions contemplated by the Reorganization Agreement, executed a written consent to approve and adopt a resolution authorizing amendments and restatement to the Company's Articles of Incorporation, to among other things, (1) change its name to World Waste Technologies, Inc., (2) effect a 1 for 60 reverse stock split, and (3) authorize 10,000,000 shares of Preferred Stock. Belle Group, Ltd. has also consented to the 2004 Plan. Pursuant to California law, the Company is hereby notifying its stockholders of the approval of the amendments to its Articles of Incorporation and the adoption of the 2004 Plan to be effectuated upon Closing and, pursuant to the Exchange Act, filing this Information Statement on Schedule 14C which will be mailed to all stockholders of record as of the record date established therefore. The terms of the Reorganization Agreement are more fully described below. TERMS OF THE REORGANIZATION AGREEMENT The following discussion summarizes the material terms of the Reorganization Agreement, a copy of which is attached to this Information Statement as Appendix B and incorporated herein by reference and made an integral part hereof. Stockholders of the Company are urged to read the Reorganization Agreement carefully as it is the legal document that governs the Merger. The Merger. Subject to the terms and conditions of the Reorganization Agreement, all of the WWT stockholders and all holders of WWT warrants will convey all of their shares of common stock of WWT and all warrants to purchase WWT common stock to the Company, in consideration for the right to receive shares of the Company and warrants to purchase Company Common Stock. Following the Merger, the Company will change its corporate name to "World Waste Technologies, Inc." Closing. The Closing will take place at a mutually agreed upon time after the satisfaction or waiver of the conditions set forth in the Reorganization Agreement. Articles of Incorporation and Bylaws of the Company Following the Merger. The Articles of Incorporation and Bylaws of the Company, as in effect at the Effective Time and except as amended as described in this Information Statement, will be the Articles of Incorporation and Bylaws, respectively, of the Company following the Merger. Directors and Officers of the Company Following the Merger. The Agreement provides that the directors and officers of the Company shall be replaced by the WWT designees at Closing. 19 Representations and Warranties. The Agreement contains various representations and warranties of the Company and WWT. The Company represents and warrants to WWT as to, among other things: (i) capital structure; (ii) financial statements; (iii) absence of certain adverse changes; (iv) absence of litigation; (v) recent business operations; (vi) issuance of securities prior to Closing, and (v) no liabilities or claims not previously disclosed. WWT represents and warrants to the Company as to, among other things: (i) financial statements; (ii) absence of certain adverse changes; (iii) absence of litigation; (iv) material contracts, and (v) no liabilities or claims not previously disclosed. No representations or warranties in the Reorganization Agreement shall survive the Closing. Certain Covenants of the Parties. Pursuant to the Agreement, the Company has agreed, among other things, that (i) at the time of the Closing its outstanding capitalization shall consist of 1,200,000 shares of common stock and no issued or outstanding preferred stock; and (ii) it shall have fulfilled its filing obligations with the Commission in a timely manner. WWT, prior to the Closing, shall have a net worth of not less than $2,700,000 including not less than $1,000,000 in cash, as certified by the President and Secretary of WWT. All the parties to the Reorganization Agreement have agreed that, upon the occurrence of certain events related to (i) the cessation of business of WWT or (ii) the commencement of proceedings instituted against it with the purpose of obtaining an adjudication of bankruptcy, seeking liquidation or securing other such relief (each as more fully set forth in the Reorganization Agreement), then, and in each case upon certain terms and subject to certain conditions, the Merger and the other transactions and developments contemplated by the Reorganization Agreement shall, to the extent feasible, be unwound. In addition, subject to the terms and conditions of the Reorganization Agreement, each of the parties has agreed (i) to keep confidential all information furnished in connection with the Merger, (ii) to promptly inform the other parties of the occurrence of certain events, (iii) to use reasonable best efforts to effectuate the Merger, and (iv) to consult each other before issuing any press release with respect to the Merger. Conditions to the Merger. The obligations of the Company and WWT to effect the Merger are subject to the satisfaction or waiver on or prior to the Closing Date of a number of conditions, including but not limited to the following: (a) Each of the representations and warranties of the Company and WWT, as applicable, set forth in the Reorganization Agreement shall have been true and correct in all material respects as of the date of the Reorganization Agreement and as of the Closing Date, except where the failure to be so true and correct would not have a material adverse effect on the party making such representation or warranty; and (b) The Company and WWT, as applicable, shall have performed in all material respects all obligations required to be performed by it under the Reorganization Agreement at or prior to the Closing Date. Termination. In the event the Closing of this Agreement shall not take place due to breach of or failure to meet any condition, then the non-breaching 20 party shall have the right to terminate this Agreement, in which event such party shall have no further right or obligation as against the other party. CHANGE IN CONTROL A change of control of the Company will occur as the result of the Merger Transaction and the issuance of up to 20,825,000 shares of Common Stock of the Company along with warrants to purchase up to an additional 1,075,000 shares of Common Stock of the Company, after the Reverse Split, representing approximately 95% of the voting shares of the Company, in exchange for all of the issued and outstanding member interests of WWT. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Since no action is being taken in connection with the currently outstanding shares of the Company's Common Stock (other than with respect to shares held by the Controlling Stockholder) no gain or loss is anticipated to be recognized by the Company's stockholders (other than the Controlling Stockholder) in connection with the Merger. It is expected that the issuance of the Merger Shares to the WWT Shareholders will be tax-free to such WWT Shareholders. ACCOUNTING TREATMENT OF THE MERGER The transaction is expected to be accounted for as a reverse acquisition in which WWT is the accounting acquirer and the Company is the legal acquirer. The management of WWT is expected to continue as the management of the Company following the Merger. Since the Merger is expected to be accounted for as a reverse acquisition and not a business combination, no goodwill is expected to be recorded in connection therewith and the costs incurred by WWT in connection with the Merger are expected to be accounted for as a reduction of additional paid-in capital. APPRAISAL RIGHTS Under California law, the state in which the Company is incorporated, the Company is required to provide its stockholders with a right of appraisal in connection with the Merger Transaction, and stockholders are accordingly provided with such right. See "Dissenters' Rights". INTERESTS OF CERTAIN PERSONS IN THE MERGER No director, executive officer, associate of any director or executive officer, or any other person has any substantial interest, direct or indirect, by security holdings or otherwise, resulting from the Merger, which is not shared by all other stockholders of the Company pro rata, and in accordance with their respective interests, except that a representative of the Placement Agent will serve as a director of the Company following the Merger. In addition, the Placement Agent owns a significant number of shares of WWT. 21 FEDERAL SECURITIES LAW CONSEQUENCES The Merger Shares to be issued to the owners of WWT in consideration for the cancellation and conversion of their shares of Common Stock of WWT pursuant to the Merger will not be registered under the Securities Act. It is intended that such shares will be issued pursuant to the private placement exemption under Section 4(2) and Regulation D of the Securities Act. The Merger Shares are deemed "restricted stock" and will bear a legend indicating that the resale of such shares may be made only pursuant to registration under the Securities Act or pursuant to an available exemption from such registration. DISSENTERS' RIGHTS The following is a brief summary of the rights of holders of the Company's Common Stock to dissent from the Merger Transaction and receive fair value, as defined by the California General Corporation Law ("CGCL"), for their Common Stock held immediately before the announcement of the Merger Transaction. This summary is not exhaustive, and you should read the applicable sections of Chapter 13 of the CGCL, relevant sections of which are attached to this Information Statement as Appendix C. If you are contemplating the possibility of dissenting from the Merger Transaction, you should carefully review the text of Appendix C, particularly the procedural steps required to perfect dissenters' rights, which are complex. You should also consult your legal counsel. If you do not fully and precisely satisfy the procedural requirements of the CGCL, you will lose your dissenters' rights with respect to the Merger Transaction. We will not notify you of the various deadlines imposed for you to perfect dissenters' rights. REQUIREMENTS FOR EXERCISING DISSENTERS' RIGHTS To exercise dissenters' rights, you must file written notice with us before May __, 2004, of your intent to demand payment for your Common Stock if the Merger Transaction is consummated and becomes effective. If you do not satisfy each of this requirement, you cannot exercise dissenters' rights and will be bound by the terms of the Merger Transaction. You must file the written notice of the intent to exercise dissenters' rights with us, in accordance with Chapter 13 of the CGCL, at: Voice Powered Technology International, Inc. 15915 Ventura Blvd., Suite 301, Encino, CA 91436. Satisfying these requirements is the start of the process and you must then comply with the additional steps set forth in Chapter 13 of the CGCL after the effective date of the Merger Transaction. For purposes of the CGCL, "fair value" with respect to a dissenter's shares means the value of such dissenter's stock immediately before the effective date of the Merger Transaction, excluding any appreciation or depreciation in anticipation of the Merger Transaction, unless that exclusion would be inequitable. Under Section 1312 of the CGCL, a Company shareholder has 22 no right, at law or in equity, to set aside the approval and adoption of the Merger Transaction or the consummation of the Merger Transaction unless the action fails to comply with the procedural requirements of the CGCL, the Company's Articles of Incorporation or Bylaws, or is fraudulent with respect to that shareholder. THE AMENDMENTS TO OUR ARTICLES OF INCORPORATION On March 25, 2004, the Board of Directors voted unanimously to authorize and recommend that in connection with the Merger Transaction the Company's shareholders approve an amendment and restatement to our Articles of Incorporation. This amendment and restatement was approved by the written consent of the Controlling Stockholder. The complete text of the Amended Articles is attached to this Information Statement as Appendix B. REVERSE STOCK SPLIT AND CHANGE IN AUTHORIZED SHARES Upon the filing of the Amended Articles, each share of the Company's issued and outstanding shares of common stock will be reverse split on a 1-for-60 basis. In addition, after taking into account the Reverse Split, the total number of shares that the Company will be authorized to issue will be changed from 119,500,000 to 110,000,000, comprised of 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. The Amended Articles will also eliminate the various classes of Preferred Stock currently in our Articles in order to allow the Board of Directors the flexibility to set new classes, series, and other terms and conditions. Shares of Preferred Stock may be issued in the future by the Board of Directors, without further stockholder approval, for such purposes as the Board deems in the best interest of the Company, including future stock splits and split-ups, stock dividends, equity financings and issuances for acquisitions and business combinations. In addition, such authorized but unissued Common and Preferred shares could be utilized by the Board of Directors for defensive purposes against a hostile takeover attempt, including (by way of example) the private placement of shares or the granting of options to purchase shares to persons or entities sympathetic to, or contractually bound to support, management (the Company has no such present arrangement or understanding with any person) or the reservation of shares for issuance upon exercise of stock purchase rights designed to deter hostile takeovers (the so-called "poison pill"). The flexibility granted to the Board in specifying the rights and preferences of various series of Preferred Stock could similarly be used in designing classes of Preferred Stock which could act as an effective deterrent or defensive tool in a takeover situation including the creation of voting and other impediments which might frustrate persons attempting to gain control of the Company. Such uses of authorized and unissued stock might make any takeover attempt more difficult and could deprive stockholders of the ability to realize above present market premiums, which often accompany such takeover attempts. There are currently no shares of Preferred Stock outstanding and the Company does not have any present intention of issuing any such shares. 23 EFFECT OF THE REVERSE SPLIT Any new shares issued in connection with the Reverse Split will be fully paid and non-assessable. The number of shareholders will remain unchanged as a result of the Reverse Split. The Reverse Split will decrease the number of outstanding common shares but will not affect any shareholder's proportionate interest in our Company, except for minor differences resulting from the rounding up of fractional shares. The par value of our Common Stock will remain unchanged. While the aggregate par value of our outstanding Common Stock will be decreased, our additional paid-in capital will be increased by a corresponding amount. Therefore, the Reverse Split will not affect our total shareholders' equity. All share and per share information will be retroactively adjusted to reflect the Reverse Split for all periods presented in our future financial reports and regulatory filings. While it is expected that the Reverse Split will result in a proportionate increase in the market price of our Common Stock, there can be no assurance that our Common Stock will trade at a multiple of sixty times our current price, or that any such increase will be sustained. If the market price of our stock declines after the implementation of the Reverse Split, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would be the case in the absence of the Reverse Split. The possibility exists that the reduced number of outstanding shares will adversely affect the market for our Common Stock by reducing the relative level of liquidity. In addition, the Reverse Split will increase the number of the shareholders who own odd lots, or less than 100 shares. Consequently, there can be no assurance that the Reverse Split will achieve the results outlined above. After the Reverse Split, the Company will have issued and outstanding approximately 1,200,000 shares of its Common Stock, and we will have the corporate authority to issue approximately 98,800,000 shares of authorized but unissued Common Stock and 10,000,000 unissued shares of Preferred Stock. In addition, upon the close of the Merger Transaction up to 20,825,000 shares will be issued to shareholders of WWT along with warrants to purchase up to an additional 1,075,000 shares to the warrant holders of WWT (assuming that none of the warrants are exercised). The remaining authorized and unissued shares may be issued without shareholder approval at any time, in the sole discretion of our Board of Directors. The authorized and unissued shares may be issued for cash, to acquire property or for any other purpose that is deemed in the best interests of our Company. Any decision to issue additional shares will reduce the percentage of our shareholders' equity held by our current shareholders and could dilute our net tangible book value. We will not become a private Company as a result of the Reverse Split, we expect that our Common Stock will continue to be quoted on the OTC: Bulletin Board and we plan to continue to file reports under the Exchange Act. POTENTIAL ELIMINATION OF CUMULATIVE VOTING The Amended Articles provide for the elimination of cumulative voting in the election of directors upon the Company becoming a "listed corporation" 24 under California law. Cumulative voting entitles each shareholder to cast a number of votes that is equal to the number of voting shares held by such shareholder multiplied by the total number of directors to be elected, and to cast all such votes for one nominee or distribute the votes among up to as many candidates as there are positions to be filled. Without cumulative voting, a shareholder or group of shareholders must hold a majority of the voting shares to cause the election of one or more nominees. Cumulative voting enables a minority shareholder or group of shareholders holding a relatively small number of shares to elect a representative to the Board. California law requires cumulative voting in the election of directors, except that certain qualifying corporations may eliminate cumulative voting by adopting an amendment to their articles of incorporation, which amendment must be approved by the shareholders. The Amended Articles provide that if and when the Company becomes such a qualified corporation (generally a company with shares listed on a qualified stock exchange or quoted on the NASDAQ National Market System), cumulative voting will be eliminated. The elimination of cumulative voting would make it more difficult for a minority shareholder to obtain representation on the Board and could have certain anti-takeover effects (although the possible elimination of cumulative voting is not intended as a takeover-resistive device). The Board believes that each director should represent the interests of all shareholders, and that the presence on the Board of one or more directors representing the interests of a minority shareholder could be disruptive to management. The possible elimination of cumulative voting would help ensure that each director acts in the best interests of all shareholders, because shareholders holding a majority of the voting shares would have the power to elect each of the directors. The Company is currently not a "listed company" and there can be no assurance that it will ever become such a company. Unless and until the company becomes a "listed company" (of which there can be no assurance), cumulative voting with respect to the election of directors will remain in effect. CHANGE OF NAME Upon the filing of the Amended Articles with the California Secretary of State (which will occur upon the closing of the Merger Transaction), the Company's name will be changed to "World Waste Technologies, Inc." The new name will reflect the Company's change in business. On March 25, 2004 the Board of Directors voted unanimously to authorize and recommend that the Company's shareholders approve a proposal to effect the name change. The name change was approved by the written consent of the Controlling Stockholder . 25 THE 2004 EQUITY INCENTIVE PLAN The Board of Directors adopted our 2004 Equity Incentive Plan ("2004 Plan") on March 25, 2004. The 2004 Plan was approved by the written consent of the Controlling Stockholder on March 25, 2004. Under the terms of the 2004 Plan, we are authorized to grant incentive awards for up to 2,000,000 shares of common stock (as adjusted for the Reverse Split). No incentive awards have been granted under the 2004 Plan at the date of this Information Statement. The following is a summary of the 2004 Plan and you should carefully read the entire 2004 Plan attached to this Information Statement as AppendixD. PLAN DESCRIPTION. The purpose of the 2004 Plan is to provide an incentive to attract and retain qualified and competent persons as employees, directors and consultants, upon whose efforts and judgment our success is largely dependent, through the encouragement of stock ownership. The 2004 Plan provides for the grant of options intended to qualify as incentive stock options or ISOs under Section 422 of the Internal Revenue Code and options that are not intended to so qualify, which we refer to as Nonstatutory Stock Options. The 2004 Plan also provides for the grant of our restricted stock within the meaning of Rule 144 of the Securities Act. AUTHORIZED SHARES. The total number of shares of common stock reserved for issuance under the 2004 Plan is 2,000,000 (subject to adjustment in the event of a stock split, stock dividend, recapitalization or similar capital change). If any option granted pursuant to the 2004 Plan terminates, expires, or is canceled or surrendered, in whole or in part, shares subject to the unexercised portion may again be issued pursuant to the exercise of options granted under the 2004 Plan. The shares acquired upon exercise of options granted under the 2004 Plan, will be authorized and unissued shares of common stock. To date, no options have been issued under the 2004 Plan. ADMINISTRATION. The 2004 Plan will be administered by the Compensation Committee of the Board of Directors, which selects the eligible persons to whom options will be granted. The Compensation Committee also determines the number of shares of common stock subject to each option, the exercise price therefore and the periods during which options are exercisable. Further, the Compensation Committee interprets the provisions of the 2004 Plan and, subject to certain limitations, may amend the 2004 Plan. Each option granted under the 2004 Plan will be evidenced by a written agreement between the optionee and the Company. ELIGIBILITY. Options may be granted under the 2004 Plan to all employees (including officers), directors and certain consultants and advisors. Incentive stock options may be granted only to persons who are employees. Upon receiving grants of options, each holder of the options will enter into an option agreement with the Company that contains the terms and conditions deemed necessary by the administrator of the plan. 26 TERMS AND CONDITIONS OF OPTIONS. The exercise price for ISOs granted under the 2004 Plan may not be less than the fair market value of the shares of common stock on the date the option is granted. The exercise price and term for Nonstatutory Stock Options may be any price not less than 85% of the fair market value of the shares of common stock on the date the option is granted. Under the 2004 Plan, the fair market value is the closing price of shares on the business day immediately preceding the date of grant. If the shares are not publicly traded, then the fair market value will be as the administrator of the plan will in its sole and absolute discretion determine in a fair and uniform manner. Options granted under the 2004 Plan have a maximum term of ten years. The exercise price of options granted under the 2004 Plan is payable in cash. Options granted under the 2004 Plan are not transferable, except by will and the laws of descent and distribution. Unless otherwise provided in an option, each outstanding option may, in the sole discretion of the committee, become immediately fully exercisable: if there occurs any transaction, or series of transactions, that has the result that our shareholders immediately before such transaction cease to own at least 51 percent of our voting stock; upon the closing of a transaction, consolidation, reorganization, liquidation or dissolution in which we do not survive; or upon the closing of the sale, lease, exchange or other disposition of all or substantially all our property and assets. The Compensation Committee may in its sole discretion accelerate the date on which any option may be exercised and may accelerate the vesting of any shares subject to any option or previously acquired by the exercise of any option. Options granted to the officers and directors under the 2004 Plan may not be exercised unless otherwise expressly provided in any option, until six months following the date of grant. The committee may also, in its sole discretion, by giving written notice cancel, effective upon the date of the consummation of certain corporate transactions that would result in an option becoming fully exercisable, any option that remains unexercised on such date. Such notice will be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after shareholder approval of such corporate transaction. Termination Of Options. The expiration date of an option is determined by the committee at the time of the grant and is set forth in the applicable option agreement. In no event may an option be exercisable after ten years from the date it is granted. Restricted Stock. Restricted stock may be granted to employees or consultants. The grant may be subject to vesting or forfeiture conditions similar to the options. Additional restrictions on transfer may be imposed. 27 ANTICIPATED OPERATIONS FOLLOWING THE MERGER WORLD WASTE TECHNOLOGIES, INC. Following the Merger, we will assume all of the assets, operations and liabilities of WWT. WWT is a development stage company with a license in the United States for patented technology capable of converting 75-80% of Municipal Solid Waste (MSW) into valuable commodities. This patented process, "Pressurized Steam Classification," uses a sealed rotating vessel loaded with over 20 tons of waste. A proprietary mixture of steam, heat, agitation, and pressure is applied for a specified period to sterilize all material. This process is designed to result in the reduction of the volume while the weight of the waste remains constant. This proprietary technology was developed at the University of Alabama, Huntsville over a 20-year period. The WWT process is designed to convert waste into separated components of "sterilized" organic and inorganic materials with limited discharge (below EPA detectable levels) into the air, water or soil. This process for capturing and disposing of volatile organic compounds is a patent protected technology licensed to WWT. The process extracts a sanitized cellulose material containing papermaking fiber that can be sold after a conventional screening and cleaning process for use in making paperboard and packaging. It is anticipated that additional value may berealized through the capture of inorganic, recyclable materials such as aluminum, steel, plastic bottles and low-grade plastics. WWT plans to create value and reduce costs for waste haulers by: significantly reducing landfill inflows, thereby extending landfill life; reducing hauling costs; and complying with state laws mandating that 50% of MSW be recovered. Management believes that potential public policy benefits will include the ability to retain popular recycling programs, without increasing taxes and fees, and improved air quality. THE INDUSTRY According to industry sources, the approximately $36 billion Municipal Solid Waste industry is dominated by three firms: Waste Management (33% share); Allied Waste (15% share); and Republic Services (10% share). Historically, revenue growth in this industry has been principally driven by fee increases at landfills ("tipping fees"), which fees currently average $34/ton, and long-term collection and hauling contracts with municipalities. Key industry cost drivers are transportation rates, landfill maintenance, tipping fees, labor, recycling and separating facility costs, insurance, and interstate cartage fees. Increased municipal recycling costs (currently estimated by industry sources to average $100/ton) have led several cities, most notably New York, to cut back or even suspend their curbside recycling programs, resulting in public and political backlash. Traditional recycling facilities incur extremely high labor costs to sort, clean, and process materials, while a flat market for commodity pricing constrains profitability. As a result, only an estimated 32% of the over 409 million tons of MSW produced in the U.S. in 2001 was recycled (up from 10% in 1975), with the remainder taking up valuable landfill space. In fact, the average life of a U.S. landfill is 20 years (12 years in the Northeast). Alternatives such as composting or incineration can be either economically unviable or environmentally unsustainable. 28 Many major companies in the waste handling and disposal market have grown primarily through acquisition over the past decade, not through growth in the volume of waste processed annually. WWT management believes the industry is currently actively seeking a technology-based solution that will increase capacity utilization at existing landfills, lower hauling costs, and satisfy the public and political demand for cost-effective recycling. THE WWT SOLUTION Initially, WWT's strategy is to process "Residual Municipal Solid Waste" that has been initially sorted and processed through Republic Services' Taormina Industries Material Recovery Facility (MRF) in Anaheim, CA. Republic Services is a nationwide handler of MSW. Garbage currently enters Republic's MRF from curbside collection vehicles, and is manually sorted to remove non-recyclable items such as car batteries, tires, etc. The remainder is transported via conveyor lines where laborers remove up to 50% of salable commodities such as aluminum, steel, and cardboard. Pursuant to the WWT strategy, we anticipate that the remaining residual MSW ("RMSW") will then be delivered (across the Republic Services campus) to the World Waste leased building (in which WWT will place its processing equipment which is currently being manufactured) for further treatment. WWT's proprietary process is expected to occur in five stages: (i) RMSW will be delivered on-site to WWT's facility located on the campus of Republic Services; (ii) the waste will then be mechanically loaded into WWT's steam vessel (it is anticipated that no sorting, shredding, or opening of bags will be required); (iii) the vessel will be sealed and run for a specified period time, during which time volatile organic compounds will be captured and rendered inert; (iv) at the conclusion of the cycle, the resulting materials will be mechanically separated by commodity type for processing, packaging and shipping; and (v) the remaining waste, anticipated to be between 35-40% of the volume received by WWT, will be placed on Republic Services trucks for transport to the landfill. Each vessel is expected to process approximately 250 tons of RMSW per day. WWT expects to have three primary revenue drivers: 1) Tipping Fees: Under the terms of the Republic contract, Republic ------------ Services has agreed to pay a tipping fee of $30/ton to WWT. 2) Recycling Revenues: Clean recyclable materials, such as scrap steel, ------------------ cans, aluminum, and plastics will be mechanically sorted and collected, then sold. 3) Cellulose Extraction: Commercial tests have demonstrated that over -------------------- 60% of MSW can be processed into a valuable cellulose fiber, with a market value similar to cardboard boxes. This fiber will initially be sold to paper and paperboard manufacturing facilities in Southern California. WWT plans to construct its initial facility, which is currently anticipated to be capable of processing 500 tons/day, on the campus of Republic Services' regional transfer facility in Anaheim, CA. The second phase calls for 29 WWT to build a 2,000 ton/day, 8-vessel plant in Anaheim to process the full 2,500 tons per day provided under the Republic Services contract. WWT's current strategy is to replicate the larger plant at future sites. THE TECHNOLOGY Overview It is anticipated that the waste processing facilities to be offered by WWT will use patented methods and processes developed in conjunction with the University of Alabama in Huntsville. The patented technology has been designed to process and separate material contained in Municipal Solid Waste (MSW). This unique process, known as pressurized steam classification (PSC), treats MSW with a combination of time, temperature and pressure. The most recent patent includes the capturing of Volatile Organic Compounds (VOCs) and was granted by the United States Patent and Trademark Office in October 2001. Intellectual Property and Patent Highlights The University of Alabama at Huntsville currently holds the patent for this PSC technology. This patent was licensed to Bio-Products, Inc. and sublicensed to WWT. The following aspects are covered by the patent: 1) Use of controlled steam, heat, agitation and pressure. 2) The Steam Process Formula(Time + Temperature + Moisture + Pressure). 3) A closed-looped system designed to efficiently capture all volatile organic compounds (VOCs), resulting in insignificant air and water discharge. 4) Sanitization of the municipal solid waste by removal and neutralization of pathogens and toxins, designed to achieve levels exceeding government regulations. 5) Cellulose material is sanitized. 6) Separates cellulose fiber of uniform size, moisture content and consistency. 7) Separates high-density plastics, ferrous and non-ferrous fractions, without destruction,while delaminating paint and removing all labels from recyclables. 8) Melts low-density plastics (such as plastic bags, wrappers, food containers, etc.), which separate from other materials and form plastic agglomerate balls. Vessel Operation MSW will be loaded in batches into a rotating autoclave without sorting, shredding or opening of bags. When the proper amount of material has been loaded into the rotating vessel, it will be sealed and the steam saturation will begin by injecting low-pressure steam into the vessel as it rotates. In a 24-hour period the vessel is expected to process up to 250 tons of MSW. 30 It is anticipated that the vessel will be an ASME designed and built steel autoclave almost 80 feet long. The amount of MSW that can be processed will be based on the weight and volume of the MSW. It is anticipated that the vessel operation will be optimized to handle over 20 tons of MSW with a density of 8 lb./cu. ft. per cycle. CUSTOMERS MSW Treatment and Standard Recyclables WWT has signed a 25-year agreement with Taormina Industries, a wholly-owned division of Republic Services, the third largest MSW firm in the U.S.. This agreement calls for Republic Services to deliver to WWT 2,500 tons per day of waste from their facility located in Anaheim, CA, and provides an on-site location for the World Waste initial facility. The agreement also grants WWT a right of first refusal with respect to the delivery of waste for an additional 10 counties throughout California where Republic has operations. Cellulose Fiber WWT has developed a process to recover unbleached fiber from residual Municipal Solid Waste. The process involves two principal phases. First, residual MSW is treated in an exclusively licensed `pressurized steam classification' process that produces a cellulose-containing fraction. Second, this fraction is further processed using conventional pulp screening and cleaning equipment to yield unbleached fiber suitable for use in the manufacture of corrugating medium, linerboard, recycled paperboard, and core tube stock. Cellulose Market for WWT's Proposed Initial Facility (Anaheim, CA) Within a one hundred mile radius of the proposed site of the WWT Anaheim facility there are 12 major facilities that use recycled fiber to produce recycled paperboard, corrugating medium, or linerboard. When WWT builds its first 2,000 tpd facility in Southern California, total production of WWT fiber in the region is anticipated to be approximately 1,500 tpd, or less than one-quarter of the available market. COMPETITION The $36 billion Municipal Solid Waste industry is currently dominated by three firms: Waste Management (33% share); Allied Waste (15% share); and Republic Services (10% share). WWT does not view MSW haulers as competitors, but rather as consumers for the services we plan to provide. MSW haulers have many options for treating and disposing of MSW under state laws that require up to 50% of all incoming MSW to be recycled. Currently, over 8,000 programs result in 20-25% of all MSW in the US being recycled, up from 10% in 1975 (United Nations Environmental Program Report). These options include Material Recovery Facilities (MRFs), composting, and incineration. Thecompetitors in WWT's industry are primarily comprised of waste handlers who chose to make capital investments in material recovery facilities, incineration, composting, or direct landfills rather than investing in WWT's technology. WWT believes that the primary competitive factors in its industry are price, reliability of service, and quality of recovered cellulose fiber. 31 RISK FACTORS You should consider carefully the following risk factors relating to WWT. Any of the following risks could materially harm the business of WWT. A Development Stage Company. WWT is in the development stage and is subject to all the business risks associated with a new enterprise, including uncertainties regarding product development, constraints on WWT's financial and personnel resources, and dependence on and need for third party relationships. WWT has had no revenues to date and there can be no assurance as to when or whether it will be able to develop sources of revenue or that its operations will become profitable, even if it is able to begin generating revenue. WWT was created by a merger of Waste Solutions, Inc. and World Waste of America, Inc. in March 2004. WWT has not yet sold any products or services or otherwise generated revenue. There can be no assurances that WWT will be able to do any of the foregoing. Ability to Obtain or Sustain Market Acceptance for Services and Products. WWT does not intend to engage in advertising during its development phase. The name is not yet recognized as a brand in the marketplace, and as a result the revenues could suffer. Failure to establish a brand and presence in the marketplace on a timely basis could adversely affect the financial condition and operating results of WWT. Moreover, WWT cannot be sure that it will successfully complete the development and introduction of new products or product enhancements or that any new products developed will achieve acceptance in the marketplace. It may also fail to develop and deploy new products and product enhancements on a timely basis. The Market for Services and Products in the Solid Waste Processing and Recycling Industry is Competitive; WWT may not be Able to Compete Successfully. The market for services and products in the solid waste processing industry is highly competitive. Most of these competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than WWT, and may be able to respond more quickly than WWT can to new or changing opportunities and customer requirements. Also, the competitors have greater name recognition and more extensive customer bases that they can leverage to gain market share. These competitors are able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers than WWT can. Requirement for a Significant Supply of Solid Waste and Timely Payment for that Solid Waste. If WWT does not obtain a supply of solid waste at quantities and qualities that are sufficient to operate its facilities at the expected operating levels, or if third parties do not promptly pay for the solid waste they deliver, the financial condition and operating results could adversely be affected and significantly impacted. One or more of the following factors could impact the price and supply of waste: 32 |X| defaults by waste suppliers under their contracts; |X| a decline in solid waste supply due to increased recovery by material recovery facilities; |X| composting of municipal solid waste; |X| incineration of municipal solid waste; |X| legal prohibitions against processing of certain types of solid waste in its facilities; or |X| increased competition from landfills and recycling facilities. Loss of Key Executives and Failure to Attract Qualified Management could limit Growth and Negatively Impact Operations. WWT depends highly upon its senior management team. It will continue to depend on operations management personnel with waste industry experience. At this time, WWT does not know the availability of such experienced management personnel or how much it may cost to attract and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced operations management personnel could have a material adverse effect on the operations and financial condition. Results of Operations may be Affected by Changing Resale Prices or Market Requirements for Recyclable Materials. WWT's results of operations may be affected by changing resale prices or market requirements for recyclable materials, some of which are priced on a commodity basis. The resale, and market demand for, these materials can be volatile due to numerous factors beyond WWT's control, which may cause significant variability in its period-to-period results of operations. Results of Operations will Fluctuate. WWT's revenues and results of operations will vary from quarter to quarter in the future. A number of factors, many of which are outside its control, may cause variations in its results of operations, including: |X| demand and price for products; |X| the timing and recognition of product sales; |X| unexpected delays in developing and introducing products; |X| increased expenses, whether related to marketing, product development or administration or otherwise; |X| the mix of revenues derived from products; |X| the hiring, retention and utilization of personnel; |X| general economic factors; and 33 |X| changes in the revenue recognition policies required by generally accepted accounting principles. Failure to Obtain Required Permits. There can be no assurance that WWT will successfully obtain the permits required to operate its business because permits to operate waste processing facilities have become increasingly difficult and expensive to obtain. Permits may take years to obtain as a result of numerous hearings and compliance with zoning, environmental and other regulatory measures. Required permits include, but are not limited to, solid waste facility permits, air quality management district permits, and building permits. These permits may be subject to resistance from citizen or other groups and other political pressures. The failure to obtain the required permits to operate its facilities could have a material negative effect on future results of operations. Our currently planned facility may not be constructed on a timely basis, within budget, or at all. No assurance can be given that the Company's currently planned facility to be constructed in Anaheim, CA will be completed on a timely basis, within budget, or at all. Even if completed, no assurances can made the facility will be adequate for the Company's needs or work without difficulties or down times. The Company currently anticipates that it will need to construct additional facilities to serve its needs and that such future facilities will require additional capital. Unforeseen difficulties in the planning or construction of the current or any future facility may lead to significant delays in production and the subsequent generation of revenue. A substantial portion of our revenues will be generated from our agreement with Republic Waste. We anticipate that a substantial portion of our revenues will be generated from our agreement with Republic Waste for the foreseeable future. If this agreement is terminated for any reason or we are unable to extend this agreement on terms favorable to us or at all after it expires, our business, financial condition and results of operations would be materially harmed. Exposure to Litigation. Since WWT personnel are expected to routinely handle solid waste materials, WWT may be subject to liability claims by employees, customers and third parties. WWT currently has insurance in place, however, there can be no assurance that any liability insurance WWT has or purchases will be adequate to cover claims asserted against WWT or that WWT will be able to maintain such insurance in the future. Management believes WWT intends to adopt or has adopted prudent risk management programs to reduce these risks and potential liabilities; however, there can be no assurance that such programs if, and when adopted, will fully protect WWT. Adverse rulings in any legal matters, proceedings and other matters could have a material adverse effect on WWT. Other Companies may Claim Infringement of their Intellectual Property or Proprietary Rights. 34 WWT does not believe that its products or processes violate third party intellectual property rights. Nevertheless, there is no guarantee that such rights are not being, and will not be, violated. If any of the products or processes are found to violate third party intellectual property rights, WWT may be required to re-engineer one or more of those products or processes or seek to obtain licenses from third parties to continue offering its products or processes without substantial re-engineering, and such efforts may not be successful. In addition, future patents may be issued to third parties upon which WWT's technology may infringe. WWT may incur substantial costs in defending against claims under any such patents. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which effectively could block WWT's ability to further develop or commercialize some or all of its products in the U.S. and abroad, and could result in the award of substantial damages against WWT. In the event of a claim of infringement, WWT may be required to obtain one or more licenses from third parties. There can be no assurance that it will be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such license could have a material adverse effect on WWT. Success Depends on the Ability to Protect Proprietary Technology. WWT's success depends, to a significant degree, upon the protection of its, and that or its licensors', proprietary technologies. While WWT currently has a license in the U.S. within the scope of its anticipated business to exploit a number of U.S. patents that protect its processes, the need to pursue additional protections for its intellectual property is likely as new products and techniques are developed and as existing products are enhanced, and there is no guarantee that such protections will be attained in a timely manner, or at all. Legal fees and other expenses necessary to obtain and maintain appropriate patent protection in the U.S. and important foreign countries could be material. Insufficient funding may inhibit the ability of WWT to obtain and maintain such protection. Additionally, if WWT must resort to legal proceedings to enforce its intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk to its proprietary rights if it is unsuccessful in, or cannot afford to pursue, such proceedings. WWT also relies on trade secrets and contract law to protect certain of its proprietary technology. There can be no assurance that any such contract will not be breached, or that if breached, it will have adequate remedies. Furthermore, there can be no assurance that any of WWT's trade secrets will not become known or independently discovered by third parties. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to WWT's trade secrets and know-how. In addition, WWT may be required to obtain licenses to patents or other proprietary rights from third parties. There can be no assurance that any licenses required under any patents or proprietary rights would be made available on acceptable terms, if at all. If WWT does not obtain required licenses, it may encounter delays in product development or find that the development, manufacture or sale of products requiring such licenses could be foreclosed. Additionally, it may, from time to time, support and collaborate in research conducted by universities and 35 governmental research organizations. There can be no assurance that it will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations, or that disputes will not arise with respect to rights in derivative or related research programs conducted by WWT or collaborators. We may face delays in the development of our technology and our technology may not work as well as expected or be economically viable. The steam classification and processing technology has not yet been widely applied within the municipal solid waste industry and may not work as well as expected or be economically viable. The successful application of the technology at large scale and high volumes to create commercially usable cellulose fiber has yet to be conclusively proven. Any inability under WWT's current plan to produce large volumes of commercially usable cellulose fiber may require additional investment in capital equipment and/or increased operating expenses beyond our currently contemplated business and construction plans. Unforeseen difficulties in the development or acceptance of this cellulose fiber may lead to significant delays in production and the subsequent generation of revenue. The License Agreement with Bio-Products, Inc. has Certain Requirements to Maintain Exclusivity. The license agreement with Bio-Products, Inc. ("BPI") is generally exclusive in the United States. However, there are certain limitations to WWT's general exclusivity and also additional requirements necessary to maintain the contract. As a general limitation on the license granted by BPI, "applications in which the cellulosic product of waste, including Municipal Solid Waste, processed utilizing the licensed technology is commingled with coal and/or coal fines to produce a marketable solid combustion fuel end product" are excluded from the license, meaning that WWT can use the licensed technology for these types of applications, but also that BPI may license third parties to use the technology for these same types of applications. In addition, in order to maintain exclusivity, the license requires that on a regular schedule WWT must continue to improve the first facility or construct new facilities in order to increase overall capacity and therefore usage of the licensed technology. Failure to meet the above requirements with respect to the exclusive license may lead to the license being changed to a non-exclusive license, in which case BPI would be free to grant similar non-exclusive licenses to third parties, and in the case of other countries, failure to obtain options in the timeframe required may result in loss of the right to obtain a license in those countries at all. The failure to maintain exclusivity of the license or to secure international exclusivity in any other country could have a material adverse effect on WWT's business, financial condition and results of operations. Failure to Implement New Technologies. WWT expects to utilize proprietary steam classification technology in its processing facilities and to adopt other technologies from time to time. WWT's future growth is partially tied to its ability to improve its knowledge and implementation of waste processing technologies. Inability to successfully implement commercially viable waste processing technologies in response to 36 market conditions in a manner that is responsive to its customers' requirements could have a material adverse effect on WWT. Further Financing Cannot be Guaranteed. WWT needs to raise additional capital in order to meet its business plan, and the required additional financing may not be available on terms acceptable to WWT, or at all. There can be no assurances that WWT's anticipated future financings will occur, or that such financings will be available on acceptable terms. WWT's Placement Agent has committed to assisting it in raising additional capital, but neither the Placement Agent, nor any of WWT's affiliates, nor any other person has made a binding commitment for an investment of additional funds in WWT, and a number of factors beyond their control and WWT's control make any future financings uncertain. No one should rely on the prospect of future financings or any potential public offering in evaluating WWT. RISKS RELATED TO THE MUNICIPAL SOLID WASTE PROCESSING INDUSTRY Strong Competition from Larger more Experienced Companies. Many of WWT's potential competitors are large, well-established companies with substantially larger operating staffs and greater capital resources than it. WWT may not be able to successfully conduct its operations in this highly competitive environment. Such companies may be able to expend greater resources on the existing and changing technologies that WWT believes are and will be increasingly important to attaining success in the industry. Environmental Regulations and Litigation could Subject WWT to Fines, Penalties, Judgments and Limitations on its Ability to Expand. WWT is subject to potential liability and restrictions under environmental laws, including those relating to transport, handling, recycling, treatment, storage and disposal of wastes, discharges to air and water, and the remediation of contaminated soil, surface water and groundwater. The waste management industry has been, and will continue to be subject to regulation, including permitting and related financial assurance requirements, as well as to attempts to further regulate the industry through new legislation. WWT's business is subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions and regulations. If it is not able to comply with the requirements that apply to a particular facility or if it operates without necessary approvals, it could be subject to civil, and possibly criminal, fines and penalties, and it may be required to spend substantial capital to bring an operation into compliance or to temporarily or permanently discontinue, and/or take corrective actions. WWT may not have sufficient insurance coverage for its environmental liabilities. Those costs or actions could be significant to it and significantly impact its results of operations, as well as its available capital. In addition to the costs of complying with environmental laws and regulations, if governmental agencies or private parties brought environmental litigation against WWT, it would likely incur substantial costs in defending against such actions. WWT may be, in the future, a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property 37 damage. A judgment against WWT, or a settlement by WWT, could harm its business, its prospects and its reputation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WWT is a development stage company that has yet to commence operations, and has not generated any revenues to date. As a result, WWT has incurred significant losses, and as of March 31, 2004, WWT had a deficit accumulated during the development stage of $1,805,965 (unaudited). WWT expects to continue to incur significant expenses before it generates any revenues. The following is a summary of certain financial information of WWT since its inception. It should be read in conjunction with WWT's financial statements included elsewhere in this Information Statement. Revenues -------- As of the year ended December 31, 2003, and since inception through March 31, 2004, WWT generated no revenues. Operating Expenses ------------------ Operating expenses for the year ended December 31, 2003, and since inception through March 31, 2004 were $804,605, and $1,805,965, respectively. Of these expenses, general and administrative expenses accounted for $532,450 for the year ended December 31, 2003, and $1,360,502 since inception through March 31, 2004, while research and development expenses accounted for $208,829 for the year ended December 31, 2003, and $277,548 since inception through March 31, 2004. Anticipated Liquidity and Capital Resources Following the Merger ---------------------------------------------------------------- We will assume WWT's assets and liabilities following the Merger Transaction. At March 31, 2004, WWT had $470,226 in cash, notes payable of $1,219,610 and accrued interest of $96,446 (although most of these notes payable and accrued interest are expected to be converted to 1,200,000 shares of WWT's common stock immediately prior to the closing of the Merger Transaction). As of the date of this filing, WWT had no material long-term debt. In order to comply with a condition to the Merger that WWT have a net worth of at least $2,700,000 prior to the Closing (including at least $1,000,000 in cash), and to enable WWT to commence the execution of its business strategy, WWT is currently in the process of seeking to raise up to $4,500,000 in a private placement of its securities. To date, no such securities have been sold, and there can be no assurance that the Company will not waive this closing condition. Even if all or a portion of these funds are raised, we will still be required to raise additional capital following the Merger of between $3,000,000 and $6,000,000through debt or private equity financings in order to implement our business plan. If WWT is unable to raise the necessary financing and the Merger is nonetheless consummated, WWT will need to significantly curtail its operations, or cease operations completely. 38 WWT's management estimates that after giving effect to the Merger Transaction, the combined current capital reserves that result will allow us to operate for at least 12 months without relying on incoming revenue or additional investment assuming at least $4,500,000 is raised from the private placement. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be further reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of our common stock. There can be no assurance that additional financing will be available on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to execute our business strategy. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On March 25, 2004 the Registrant entered into an Agreement and Plan of Reorganization to acquire all of the issued and outstanding capital stock of World Waste Technologies, Inc., ("WWT") a private company, in exchange for up to 21,200,000 shares (post split) of the Company's common stock. As a pre-condition to the acquisition, the Company has agreed to effect a 1 for 60 reverse stock split, and the principal shareholder, The Belle Group, has agreed to cancel 20,970,027 shares (pre split), reducing the number of shares then outstanding to 1,200,000 (post split). At the closing, WWT will become a wholly-owned subsidiary and the WWT shareholders will be issued up to 20,825,000 shares, owning approximately 95% of the outstanding common stock. Since the former shareholders of WWT will become the controlling shareholders of the Company after the transaction, it will be accounted for as an acquisition of VPTI by WWT, using reverse merger accounting. The following pro forma financial statements present the pro forma financial position and operating results as if the transaction had taken place as of the beginning of the year. The pro forma condensed consolidated financial statements may not be indicative of the actual results of the acquisition. The accompanying condensed consolidated pro forma financial statements should be read in connection with the historical financial statements of VPTI and WWT. 39 March 31, 2004 WWT VPTI Adjustments Pro Forma Assets --- ---- ----------- --------- ------ $ 470,226 $ 2,000 $ 472,226 Cash Prepaid expenses and other 63,456 - - 63,456 ----------- --------- ------------ Total current assets 533,682 2,000 535,682 Equipment, net 27,138 - 27,138 Other assets 350,000 - 350,000 ----------- --------- ------------ $ 910,820 $ 2,000 $ 912,820 =========== ========= ============ Liabilities ----------- Accounts payable and other $ 551,779 1,000 $ 552,779 Current portion of note payable 2,068,500 2,068,500 Loans payable - 21,000 21,000 ----------- --------- ------------ Total current liabilities 2,620,279 22,000 2,642,279 Long term liabilities 21,070 - 21,070 Stockholders equity (1,730,529) (20,000) (1,750,529) ------------ ------------ $ 910,820 $ 2,000 $ 912,820 =========== ========= ============ Three Months Ended March 31, 2004 WWT VPTI Adjustments Pro Forma --- ---- ----------- --------- Revenues $ - $ - $ - Expenses Research and development 567,908 1,000 568,908 - - - - - ----------- ----------- ------------ 567,908 1,000 568,908 ----------- ----------- ------------ Net loss $ (567,908) $ (1,000) $ (568,908) =========== =========== ============ Basic and diluted loss per share $ (0.06) $ (0.00) $ (0.03) =========== =========== ============ Weighted average number of shares outstanding 10,000,000 92,970,027 (80,570,027) 22,025,000 40 The pro forma adjustments give effect to the accounting for the transaction as an acquisition by WWT of VPTI using reverse merger accounting. Since there were negligible assets and liabilities of VPTI, there were no significant issues regarding purchase price allocation. The following adjustments to weighted average shares outstanding were made as if the transaction had taken place on January 1, 2003: Elimination of WWT shares (10,000,000) Contribution of shares to VPTI treasury by Belle Group (20,970,027) Reverse stock split of VPTI -- 1 for 60 (70,800,000) Issuance of shares to shareholders of WWT 20,825,000 --------------- (80,175,027) =============== EXPERTS The financial statements (and the related financial statement schedule) of the Company incorporated in this Information Statement by reference from our annual report on Form 10-K for the year ended December 31, 2003 have been audited by Stonefield Josephson, Inc., independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements as of and for the years ended December 31, 2002 and December 31, 2003 of WWT contained in this Information Statement have been audited by Levitz, Zacks & Ciceric, independent auditors, as stated in their report thereon, and the unaudited financial statements for the quarter ended march 31, 2004 and for the period June 18, 2002 (inception) to March 31, 2004 have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 41 World Waste Technologies, Inc. Financial Statements INDEPENDENT AUDITORS' REPORT To the Board of Directors of WORLD WASTE OF AMERICA, INC. Poway, California We have audited the accompanying consolidated balance sheets of World Waste of America, Inc. and Subsidiaries (a development stage company) as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' deficit and cash flows for the year ended December 31, 2003, and for the periods from June 18, 2002 (inception) to December 31, 2002 and 2003. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial position of World Waste of America, Inc. and Subsidiaries (a development stage company) as of December 31, 2003 and 2002, and the consolidated results of their operations and their consolidated cash flows for the year ended December 31, 2003 and for the periods from June 18, 2002 (inception) to December 31, 2002 and 2003, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company incurred a net loss of $804,605 for 2003 and had an accumulated deficit of $1,231,494 as of December 31, 2003. These factors, among others, raise substantial doubt about its ability to continue as a going concern. However, management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Levitz, Zacks & Ciceric San Diego, California April 5, 2004 42 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Balance Sheets December 31 December 31 2003 2002 ------------- ------------- ASSETS: Current Assets: $ $ Cash 167,619 1,897 Prepaid Expenses 18,676 Employee Receivables 409 Note Receivable 12,336 ------------ ------------ Total Current Assets 199,040 1,897 Equipment, net 28,674 34,455 Other Assets: Patent License 350,000 350,000 ------------ ------------ TOTAL ASSETS $ 577,714 $ 386,352 ============ ============ 43 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Balance Sheets (Continued) December 31 December 31 2003 2002 ------------- ------------- LIABILITIES AND STOCKHOLDERS DEFICIT: LIABILITIES: Current Liabilities: $ $ Accounts Payable 12,500 73,570 Accrued Salaries Payable 122,830 58,296 Accrued Interest Payable 73,032 12,032 Accrued Advisory Services 30,000 License Fee Payable 167,500 Accrued Other Liabilities 800 22,068 Current portion of Note Payable 4,943 4,573 Amount Due to Employees 10,256 Convertible Promissory Notes Payable 1,177,000 ------------ ------------ Total Current Liabilities 1,588,605 180,795 ------------ ------------ Long Term Liabilities: Convertible Promissory Notes Payable 364,500 License Fee Payable 167,500 Note Payable, less current portion 22,367 27,310 ------------ ------------ Total Long Term Liabilities 22,367 559,310 ------------ ------------ TOTAL LIABILITIES 1,610,972 740,105 ------------ ------------ STOCKHOLDERS' DEFICIT: Common Stock - $.00001 par value:50,000,000 shares authorized, 10,000,000 shares issued and outstanding at December 31, 2003 and 2002 100 100 Additional Paid-in-Capital 73,136 73,036 Common Stock Subscription 125,000 Deficit Accumulated during development stage (1,231,494) (426,889) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIT (1,033,258) (353,753) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 577,714 $ 386,352 ============ ============ 44 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Statements of Operations June 18, 2002 June 18, 2002 Year Ended (Inception) to (Inception) to December 31 December 31 December 31 2003 2002 2003 * ------------ ------------- ------------ EXPENSES: $ $ $ Research and Development (208,829) (23,910) (232,739) General and Administrative: Salaries (333,850) (108,173) (442,023) Professional Fees (53,510) (56,870) (110,380) Legal Fees (14,924) (83,137) (98,061) Rent (48,000) (31,000) (79,000) Marketing (8,668) (8,540) (17,208) Travel (20,180) (12,817) (32,997) Other (53,318) (22,143) (75,461) ----------- ------------ ----------- Loss from Operations (741,279) (346,590) (1,087,869) ----------- ------------ ----------- OTHER EXPENSES: Interest Expense (63,326) (12,773) (76,099) ----------- ------------ ----------- Total Other Expenses (63,326) (12,773) (76,099) ----------- ------------ ----------- Net Loss $ (804,605) $ (359,363) $(1,163,968) =========== ============ =========== Basic and diluted Net Loss per share $ (0.08) $ (0.04) $ (0.12) =========== ============ =========== Weighted average number of shares outstanding used in calculation 10,000,000 10,000,000 10,000,000 =========== ============ =========== *Approximately $67,526 in Consulting and Travel expenses incurred prior to inception of the business on June 18, 2002 are not included. 45 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Statements of Cash Flow June 18, 2002 June 18, 2002 Year Ended (Inception) to (Inception) to December 31 December 31 December 31 2003 2002 2003 ------------- ------------ ------------- $ $ $ Cash Flow from Operating Activities: Net Loss (804,605) (359,363) (1,163,968) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 5,781 2,412 Changes in operating assets and liabilities: Prepaid Expenses (18,676) (18,676) Employee Receivable (409) Accounts Payable (61,070) 73,570 12,500 Accrued Salaries 64,534 58,296 122,830 Accrued Interest 61,000 12,032 73,032 Accrued Advisory Services 30,000 30,000 Accrued Other Liabilities (21,268) 22,068 800 ------------ ----------- ------------ Net Cash used in Operating Activities (744,713) (190,985) (935,698) ------------ ----------- ------------ Cash flows from investing activities: Purchase of vehicle (4,000) (4,000) Purchase of intangible (182,500) (182,500) Note Receivable (12,336) (12,336) ------------ ----------- ------------ (12,336) (186,500) (198,836) ------------ ----------- ------------ 46 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Statements of Cash Flow June 18, 2002 June 18, 2002 Year Ended (Inception) to (Inception) to December 31 December 31 December 31 2003 2002 2003 ------------- ------------ ------------- $ $ $ Cash flows from financing activities: Amount Due to Employees (10,256) 10,256 - Note Payable on Vehicle (4,573) (984) (5,557) Convertible Promissory Notes Payable 812,500 296,974 1,109,474 Common Stock Subscription 125,000 125,000 Common Stock and Additional Paid in Capital 100 73,236 73,136 ------------ ----------- ------------ 922,771 379,382 1,302,153 ------------ ----------- ------------ Net Increase in Cash 165,722 1,897 167,619 Beginning Cash 1,897 0 0 ------------ ----------- ------------ Ending Cash $ 167,619 $ 1,897 $ 167,619 ============ =========== ============ Interest Paid $ 2,326 $ 741 $ 3,067 Income Taxes Paid $ - 0 - $ - 0 - $ - 0 - Non-Cash Investing and Financing Activities: During 2002, the Company acquired a vehicle for $36,867 with Debt Finance totaling $32,867. The Company acquired its Technology License Agreement from Bio-Products for an up-front payment of $182,500 and a second payment of $167,500 due in June of 2004. During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to Inception. 47 World Waste of America, Inc. and Subsidiaries (A Development Stage Company) Consolidated Statements of Stockholders' Deficit Common Stock Additional ------------------ Paid in Common Stock Shares Dollars Capital Subscription Deficit * Total ---------- ------- --------- ------------ ------------ ------------ $ $ $ $ $ Preformation Expenses (67,526) (67,526) Formation - June 18, 2002 10,000,000 100 73,036 73,136 Net Loss - 2002 (359,363) (359,363) ---------- ------- --------- ------------ ----------- ----------- December 31, 2002 10,000,000 100 73,036 (426,889) (353,753) Additional Paid in Capital 100 100 Common Stock Subscribed 125,000 125,000 Net Loss - 2003 (804,605) (804,605) ---------- ------- --------- ------------ ----------- ----------- December 31, 2003 10,000,000 $ 100 $ 73,136 $ 125,000 $(1,231,494) $(1,033,258) ========== ======= ========= ============ =========== =========== *Accumulated during development stage 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 and 2002 Note 1. DESCRIPTION OF BUSINESS The accompanying Consolidated Financial Statements include the accounts of World Waste of America, Inc. and its wholly owned subsidiaries World Waste of Anaheim, Inc. and World Waste of California, Inc. All significant inter-company accounts and transactions have been eliminated upon consolidation. World Waste of America, Inc., a California corporation, (the Company) was formed on June 18, 2002. The Company holds the U.S. license from Bio-Products International, Inc. with respect to patented technology developed at the University of Alabama in Huntsville, which technology was designed to convert Municipal Solid Waste into commodities. It is anticipated that additional value will be realized through the capture of inorganic, recyclable materials such as aluminum, steel, plastic bottles and low-grade plastics. The Company intends to generate revenue from receiving the waste (tipping fees) and from selling cellulose and recyclable materials. Note 2. GOING CONCERN The accompanying Consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company incurred a net loss of $804,605 for 2003, and had an accumulated deficit of $1,231,494 as of December 31, 2003. Furthermore, the Company does not have the funds necessary to repay the $1,177,000 of Convertible Promissory Notes payable, which are due December 31, 2004 and there is no assurance that the Note holders will convert these notes into common stock. The Company expects to incur substantial additional costs and capital expenditures to complete the initial facility and through the initial year of processing. The ability to complete and operate the facility is subject to the Company obtaining funding and obtaining equipment financing. If this funding is not obtained the Company will be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. Management is continuing its efforts to obtain additional funds so that the Company can meet its obligations. During December 2003 the Company received $125,000 for a subscription for 125,000 shares of the Company's common stock ($1.00 per share). The shares were not issued as of December 31, 2003 and the $125,000 of 49 funds received are included on the accompanying consolidated balance sheet as common stock subscription. In March 2004, the Company merged with a wholly-owned subsidiary of Waste Solutions, Inc., a California corporation, to create World Waste Technologies, Inc. (WWTI). WWTI received proceeds from convertible debt of $750,000 at the time of the merger and an additional $250,000 in April 2004. WWTI issued a warrant for the purchase of 133,333 shares of its common stock in connection with these additional funds. WWTI believes that its existing funds will be sufficient to fund its operating expenses and capital requirements into the third quarter of 2004. WWTI intends to raise additional debt and/or equity financing to sustain its operations and to complete its capital expenditures, although there can be no assurance that it will be able to raise such funds on terms acceptable to WWTI, or at all. Note 3. SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board, since it has derived no revenues from its activities to date. Use of Estimates ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk ---------------------------- The Company maintains its cash balances in a financial institution. Cash balances at the institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Equipment --------- Equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives. At December 31, 2003 and 2002 the only equipment of the Company was a truck which is secured as collateral to a note payable. It is being depreciated over an estimated life of six years. Repairs and maintenance are charged to expense as incurred. 50 Intangibles ----------- Intangible assets are recorded at cost. At December 31, 2003 and 2002, the Company's only intangible asset was the License to the patented technology. The Company will begin amortizing this intangible asset upon completion of the first facility on a straight-line basis over the remaining life of the License. The Company's policy regarding intangible assets is to review such intangible assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If the review indicates that intangible assets are not recoverable (i.e. the carrying amount is less than the future projected undiscounted cash flows), its carrying amount would be reduced to fair value. The Company carried no goodwill on its books at either December 31, 2003 or December 31, 2002. Further, during fiscal 2003 and 2002, the Company had no material impairment of its intangible asset. Research and Development ------------------------ Research and development costs are charged to operations when incurred. Income Taxes ------------ The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, " Accounting for Income Taxes." In accordance with SFAS No. 109, the Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment. Segment Reporting ----------------- The Company currently operates in a single segment. In addition, financial results are prepared and reviewed by management as a single operating segment. The Company continually evaluates its operating activities and the method utilized by management to evaluate such activities and will report on a segment basis when appropriate to do so. Fair Value of Financial Instruments ----------------------------------- The carrying values of cash, note receivable, note payable, accounts payable and other accrued liabilities approximate fair value due to either their short-term nature or interest rates which approximate market rates. It was not practicable to estimate the fair value of the convertible promissory notes payable due to the equity conversion provision embodied in the notes. 51 New Accounting Pronouncements ----------------------------- The Company does not expect the adoption of any issued, but not yet effective, accounting pronouncements to have a material effect, if any, on its financial position or results of operations. Note 4. License Agreement On June 21, 2002, the Company entered into a U.S. technology license agreement with Bio-Products International, Inc., an Alabama corporation, with respect to patented methods and processes developed by Dr. Michael H. Eley in conjunction with the University of Alabama in Huntsville. The patented technology was designed to provide for the processing and separation of material contained in Municipal Solid Waste (MSW). This unique process, known as pressurized steam classification, treats MSW with a combination of time, temperature and pressure. Temperatures of several hundred degrees sterilize the material and the pressure, and agitation causes a pulping action. This combination is designed to result in a large volume reduction, yielding high-density, sterilized product that is ready for market. The most recent patent includes the capturing of all Volatile Organic Compounds and was granted by the United States Patent and Trademark Office in October 2001. The University of Alabama in Huntsville currently holds the patent for the technology. This patent was licensed to Bio-Products, Inc. and this license was assigned to the Company for the United States. The license extends for a period of 20 years from the effective date of the agreement. The agreement shall be automatically extended until the expiration date of the last patent issued to Bio-Products and/or the University of Alabama in Huntsville covering the Technology. For the license, the Company paid a one-time fee of $350,000 paid in several installments, the final installment of $167,500, is due in June 2004, two years after the signing of the agreement. The Company has recorded an intangible asset at $350,000 and has recorded a payable for the outstanding balance. In addition, the Company is obligated to pay a royalty for every ton of waste processed using the licensed technology as follows: Rate Tons processed per day ---- ---------------------- $0.50 1 - 2,000 $1.00 2,000 - 10,000 $1.50 10,000 and up In addition, the Company is obligated to pay a bonus to Bio-Products of two and one half percent (2.5%) of the gross sales price in excess of ten dollars ($10.00) per ton for the cellulosic product produced from MSW, utilizing the Technology. 52 As additional consideration and for their experience and know-how regarding the Technology, the Company agreed to pay Bio-Products a monthly payment for technical services of ten thousand dollars ($10,000) per month from January, 2003 to May 2004 and twenty thousand dollars ($20,000) thereafter. Due to the proprietary nature of the vessel design utilized in the process, the Company also agreed that Bio-Products shall maintain the exclusive right of vessel manufacture, and the Company shall purchase all required process vessels exclusively from Bio-Products at a purchase price of cost plus 15%. In 2003, the Company loaned an officer of Bio-Products $12,336. The amount is shown as current note receivable on the Company's balance sheet. This note was repaid in April 2004. Note 5. SIGNIFICANT CONTRACT In June 2003, the Company signed a 25-year contract with Taormina Industries, a wholly-owned division of Republic Services (Republic) whereby Republic will deliver 2,500 tons per day of waste to the Company for processing. The initial facility will be located on the campus of Republic in Anaheim, California and will be capable of processing 500 tons per day. The second phase calls for the Company to build a 2,000 ton per day plant in the Anaheim area. It is estimated that the initial facility will cost the Company approximately $8.6 million and it is projected to be completed in December, 2004, if the Company is successful in raising the necessary funds. It is estimated that the second phase will cost the Company approximately $35 million, excluding land and building, and it is projected to be completed in early 2006, if the Company is successful in raising the necessary funds. The agreement also grants Republic a Right of First Refusal for an additional 10 counties throughout California where Republic has operations. Under the terms of this first contract, Republic will pay an initial tipping fee of $30 per ton to the Company. The ultimate success of the Company is highly dependent on the ability of both parties to the contract to fulfill their obligations, of which there can be no assurance. Also, as part of the Republic contract, the Company has agreed to enter into a lease with Republic for the initial facility on Republic's campus. The specifics of this lease and its commencement date have not been finalized. The Company will also be required to lease facilities to complete the second phase of the contract. Note 6. NOTE PAYABLE Note payable is comprised as follows: 53 December 31, 2003 2002 ---- ---- Note Payable, monthly installments of $575, with interest at 7.8%, secured by a vehicle $ 27,310 $ 31,883 Less Current portion 4,943 4,573 ------- ------- $ 22,367 $ 27,310 ====== ====== The following is a summary of principal maturities of the Note Payable for years ending December 31: 2004 $ 4,943 2005 5,342 2006 5,774 2007 6,241 2008 5,010 -------- $ 27,310 ======== Note 7. CONVERTIBLE PROMISSORY NOTES PAYABLE Convertible Promissory Notes Payable are convertible into common stock of World Waste of Anaheim, Inc. until 90 days after the first plant is fully operational. The number of shares shall be equal in value to the outstanding balance of the note and shall constitute 0.01% ownership in World Waste of Anaheim, Inc. for each $1,000 of the Note Payable. The Notes accrue interest at eight percent (8%) per annum. Unconverted promissory notes payable plus accrued interest are due and payable December 31, 2004. Note 8. INCOME TAXES The Company has a deferred tax asset of approximately $459,000 related to net operating loss carryforwards of approximately $1,164,000 expiring through 2023, which has been fully reserved due to uncertainties as to its realizability. The valuation allowance increased by $315,000 in 2003 and $144,000 in 2002. The availability of the operating loss carryforwards to offset future taxable income may be limited or curtailed resulting from changes in the Company's stockholders subsequent to December 31, 2003. The provision for income taxes differs from the amount using the statutory federal income tax rate of 34% as follows: 54 2003 2002 ---- ---- Federal tax benefit at statutory rate $ 269,000 $ 123,000 State tax benefit, net 46,000 21,000 Increase in valuation allowance (315,000) (144,000) --------- --------- Provision for Income Taxes $ -0- $ -0- ========= ========= Note 9. COMMITMENT AND CONTINGENCIES As of April 2004, the Company has entered into purchase commitments related to the construction of the initial phase of the Republic contract of $1,757,340 against which payments of $419,375 have been made. Certain affiliates and the principal shareholders and officers of the Company are named defendants in a lawsuit alleging breach of contract, fraud, and misrepresentation related to the breach of a residential real estate lease and a potentially "detachable" warrant to purchase 5% of the Company. It is probable that the Company will also be named in this lawsuit. The principals have and intend to continue to defend themselves on the merits of the case vigorously. The Company does not believe that a settlement, if any, or the cost to defend will have a material impact on the operations of the Company. It is the Company's policy to expense legal costs as incurred. Note 10. RELATED PARTY TRANSACTIONS Transactions with the Placement Agent ------------------------------------- In December 2003, in connection with the anticipated offering of Shares in a Private Placement offering, the Company entered into an agreement with Cagan McAfee Capital Partners, LLC and its affiliated broker dealer Peyton, Chandler & Sullivan, Inc., the Placement Agent, to provide the Company with investment banking advisory and consulting services. The Placement Agent will receive a fee of cash and stock in connection with this offering and a monthly retainer for advisory services. Other Related Party Transactions -------------------------------- In March 2004, Steve Racoosin, the Company's President, entered into an agreement with Cagan McAfee Capital Partners, LLC for the purpose of retaining them to act as his agent to assist in the sale of 500,000 shares of Common Stock of World Waste Technologies, Inc. at $1.00 per share and the cancellation of 500,000 shares for no consideration. 55 Note 11. EMPLOYMENT CONTRACTS The Company entered into employment contracts with two members of its senior executive management. The employment contracts have a term of five years and expire on December 31, 2007 and January 17, 2008. The executives may only be terminated for cause. The employment contracts cover the executives' duties and annual salaries. Note 12. EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 provides for the calculation of basic and diluted earnings 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 reflects the potential dilution of securities that could share in the earnings of an entity, such as stock options, warrants or convertible securities. Potential common shares related to convertible promissory notes payable were not included in the calculation of diluted earnings per share in 2003 and 2002 because of their antidilutive effect. Note 13. SUBSEQUENT EVENTS In March 2004, the Company received a net of $16,500 of financing in the form of additional Convertible Promissory Notes Payable. In March 2004, World Waste of America, Inc., merged with a wholly-owned subsidiary of Waste Solutions, Inc., a California corporation, to create World Waste Technologies, Inc. (WWTI). Cagan McAfee Capital Partners, LLC, the Placement Agent, and its affiliates were the controlling shareholders of Waste Solutions, Inc. Waste Solutions, Inc. is a shell with no material operations. As part of the merger, WWTI obtained an additional $750,000 for the issuance of a convertible secured promissory note at the time of the merger and an additional $250,000 in April 2004. WWTI issued a warrant for the purchase of 133,333 shares of its common stock in connection with these additional funds. The transaction will be accounted for as a reverse merger. Accordingly, the Company will be considered the accounting acquirer and assets and liabilities of the Company will not be adjusted as a result of the merger. Later in March, 2004, WWTI entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation ("VPTI"), to merge with and into VPTI. VPTI is a publicly-traded company trading under the stock symbol VPTI.OB. VPTI is a shell corporation with no material operations. Assuming the satisfactory completion of all closing conditions, including, but not limited to, regulatory approval, the Merger is expected to close in June 2004. As part of the merger agreement WWTI shareholders will receive approximately 95% of the outstanding shares of VPTI. Upon completion of the Merger, VPTI plans to change its name to World Waste Technologies, Inc. The transaction will be accounted for as a reverse merger. Accordingly, WWTI will be considered the accounting acquirer 56 and assets and liabilities of WWTI will not be adjusted as a result of the merger. In March, 2004, the Company entered into a lease for office space in San Diego. The lease term is for two years commencing April 1, 2004. Annual rent is $54,943.20 for year one and $56,633.76 for year 2. Note 14. PRO FORMA DISCLOSURES (UNAUDITED) Waste Solutions, Inc. and VPTI had immaterial assets and liabilities as of December 31, 2003 and immaterial revenue and expenses for the year ended December 31, 2003. Consequently, pro forma condensed financial information for the Company, Waste Solutions, Inc. and VPTI combined as of December 31, 2003, for the year ended December 31, 2003 would be substantially the same as that reported in the accompanying financial statements. 57 World Waste Technologies, Inc. and Subsidiaries (A Development Stage Company) Unaudited Consolidated Balance Sheet March 31 December 31 ASSETS: 2004 2003 ------------- ------------- Current Assets: $ $ Cash 470,226 167,619 Prepaid Expenses 51,120 18,676 Employee Receivables 409 Note Receivable 12,336 12,336 ----------- ----------- Total Current Assets 533,682 199,040 Equipment, net 27,138 28,674 Other Assets: Patent License 350,000 350,000 ----------- ----------- TOTAL ASSETS $ 910,820 $ 577,714 =========== =========== LIABILITIES AND STOCKHOLDERS DEFICIT: LIABILITIES: Current Liabilities: $ $ Accounts Payable 140,869 12,500 Accrued Salaries Payable 61,140 122,830 Accrued Interest Payable 96,446 73,032 Accrued Advisory Services 75,000 30,000 Payable to Bio-Products, Inc. 167,500 167,500 Other Liabilities 5,784 800 Current portion of Note Payable 5,040 4,943 Convertible Promissory Notes Payable 1,193,500 1,177,000 ----------- ----------- Total Current Liabilities 1,745,279 1,588,605 ----------- ----------- Long Term Liabilities: Note Payable, less current portion 21,070 22,367 ----------- ----------- Total Long Term Liabilities 21,070 22,367 ----------- ----------- TOTAL LIABILITIES 1,766,349 1,610,972 ----------- ----------- STOCKHOLDERS' DEFICIT: Common Stock - $.00001 par value: 50,000,000 shares authorized, 10,000,000 shares issued and outstanding at December 31, 2003 and 2002 100 100 Additional Paid-in-Capital 75,336 73,136 Common Stock Subscription 875,000 125,000 Deficit Accumulated during development stage (1,805,965) (1,231,494) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (855,529) (1,033,258) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 910,820 $ 577,714 =========== =========== 58 World Waste Technologies, Inc. and Subsidiaries (A Development Stage Company) Unaudited Consolidated Statements of Operations June 18, 2002 For the Quarters Ended (Inception) to March 31, 2004 March 31, 2003 March 31, 2004 * -------------- -------------- -------------- EXPENSES: $ $ $ Research and Development (44,809) (94,581) (277,548) General and Administrative: Salaries (138,576) (71,571) (580,599) Professional Fees (253,419) (363,799) (819) Legal Fees (82,570) (8,274) (180,631) Rent (4,875) (12,000) (83,875) Marketing - (21,503) (17,208) Travel (7,631) (9,350) (40,628) Other (18,301) (14,986) (93,762) ------------ ------------ ------------ Loss from Operations (550,181) (233,084) (1,638,050) ------------ ------------ ------------ OTHER EXPENSES: Interest Expense (24,290) (10,299) (100,389) ------------ ------------ ------------ Total Other Expenses (24,290) (10,299) (100,389) ------------ ------------ ------------ Net Loss $ (574,471) $ (243,383) $ (1,738,439) ============ ============ ============ Basic and diluted Net Loss per share $ (0.06) $ (0.02) $ (0.17) ============ ============ ============ Weighted average number of shares outstanding used in calculation 10,000,000 10,000,000 10,000,000 ============ ============ ============ *Approximately $67,526 in Consulting and Travel expenses incurred prior to inception of the business on June 18, 2002 are not included. 59 World Waste Technologies, Inc. and Subsidiaries (A Development Stage Company) Unaudited Consolidated Statement of Stockholders' Deficit Common Stock Additional ------------------ Paid in Common Stock Retained Shares Dollars Capital Subscription Deficit * Total ---------- ------- --------- ------------ ------------ ------------ $ $ $ $ $ Preformation Expenses (67,526) (67,526) Formation - June 18, 2002 10,000,000 100 73,036 73,136 Net Loss - 2002 (359,363) (359,363) ---------- ------- --------- ----------- ----------- ----------- December 31, 2002 10,000,000 100 73,036 - (426,889) (353,753) Additional Paid in Capital 100 100 Common Stock Subscribed 125,000 125,000 Net Loss - 2003 (804,605) (804,605) ---------- ------- --------- ----------- ----------- ----------- December 31, 2003 10,000,000 100 73,136 125,000 (1,231,494) (1,033,258) Additional Paid in Capital 2,200 2,200 Common Stock Subscribed 750,000 750,000 Net Loss - 1st Quarter 2004 (574,471) (574,471) ---------- ------- --------- ----------- ----------- ----------- March 31, 2004 10,000,000 $ 100 $ 75,336 $ 875,000 $(1,805,965) $ (855,529) ========== ======= ========= =========== =========== =========== *Accumulated during development stage 60 World Waste Technologies, Inc. and Subsidiaries (A Development Stage Company) Unaudited Consolidated Statements of Cash Flow June 18, 2002 Quarter Ended (Inception) to March 31, 2004 March 31, 2004* -------------- -------------- Cash Flow from Operating Activities: $ $ Net Loss (574,471) (1,738,439) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,536 9,729 Changes in operating assets and liabilities: Prepaid Expenses (32,444) (51,120) Employee Receivable 409 - 0 - Note Receivable - 0 - (182,500) Accounts Payable 128,369 140,869 Accrued Salaries (61,690) 61,140 Accrued Interest 23,414 96,446 Accrued Advisory Services 45,000 75,000 Accrued Other Liabilities 4,984 5,784 ------------ ------------ Net Cash used in Operating Activities (464,893) (1,583,091) ------------ ------------ Cash flows from investing activities: Purchase of Vehicle (4,000) Note Receivable (12,336) ------------ ------------ - (16,336) ------------ ------------ Cash flows from financing activities: Note Payable on Vehicle (1,200) (6,757) Convertible Promissory Notes Payable 16,500 1,125,974 Common Stock Subscription 750,000 875,000 Additional Paid in Capital 2,200 75,436 ------------ ------------ 767,500 2,069,653 ------------ ------------ Net Increase in Cash 302,607 470,226 Beginning Cash 167,619 - 0 - ------------ ------------ Ending Cash $ 470,226 $ 470,226 ============ ============ Interest Paid $ 876 $ 3,943 Income Taxes Paid $ - 0 - $ - 0 - 61 *During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to Inception. ADDITIONAL INFORMATION This Information Statement should be read in conjunction with certain reports that we previously filed with the Securities and Exchange Commission (the "SEC"), including our: Current Report dated March 29, 2004 (the "Form 8-K"); Annual Report for the year ended December 31, 2003 (the "Form 10-KSB"); Quarterly Report for the period ended March 31, 2004 (the "Form 10-QSB"). Copies of these reports are not included in this Information Statement but may be obtained from the SEC's web site at www.sec.gov. We will mail copies of our prior SEC reports to any shareholder upon written request. BY ORDER OF THE BOARD OF DIRECTORS --------------- Rob Larcara President Encino, California May __, 2004 62 Appendix A AMENDED AND RESTATED ARTICLES OF INCORPORATION OF VOICE POWERED TECHNOLOGY, INC. Rob Larcara and Gary Saderup hereby certify that: 1. They are the President and Secretary, respectively, of Voice Powered Technology International, Inc., a California corporation. 2. The Articles of Incorporation of this corporation are hereby amended and restated to read in their entirety as follows: ONE: The name of this corporation is World Waste Technologies, Inc. --- TWO: The purpose of this corporation is to engage in any lawful act or --- activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: This corporation is authorized to issue two classes of shares ----- of stock designated "Common Stock" and "Preferred Stock," respectively. The total number of shares of stock which this corporation shall have authority to issue is 110,000,000 shares, consisting of 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. A. Common Stock 1. Except where otherwise provided by law, by these Amended and Restated Articles of Incorporation, or by resolution of the Board of Directors pursuant to this Article THREE, the holders of the Common Stock issued and outstanding shall have and possess the exclusive right to notice of shareholders' meetings and the exclusive voting rights and powers. 2. Subject to all of the rights of the Preferred Stock, dividends may be paid on the Common Stock, as and when declared by the Board of Directors, out of any funds of the corporation legally available for the payment of such dividends A-1 B. Preferred Stock The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions, or any of them, granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. C. Reverse Stock Split (a) Upon the filing of these Amended and Restated Articles of Incorporation, each outstanding share of the corporation's Common Stock shall be split up and converted into one-sixtieth (1/60th) of one share of Common Stock, without change in the aggregate number of shares of Common Stock the corporation shall be authorized to issue pursuant to this Article Three. (b) In lieu of the issuance of any fractional shares that would otherwise result from paragraph (a) above, the corporation shall issue to any shareholder that would otherwise receive fractional shares one whole share, the additional shares thereby issued being taken from authorized but theretofore unissued shares of Common Stock. FOUR: A. This Article FOUR shall become effective only when this ---- corporation becomes a listed corporation within the meaning of Section 301.5 of the California General Corporations Law ("California Law"), which section provides that a listed corporation means a corporation with outstanding shares listed on the New York Stock Exchange or the American Stock Exchange, or a corporation with outstanding securities designated as qualified for trading as a national market system security on the National Association of Securities Dealers Automatic Quotation System (or any successor national market system) if the corporation has at least 800 holders of its equity securities as of the record date of the corporation's most recent annual meeting of shareholders. B. Upon the effectiveness of this Article FOUR, the election of directors by the shareholders shall not be by cumulative voting. At each election of directors, each shareholder entitled to vote may vote all the shares held by that shareholder for each of several nominees for director up to the number of directors to be elected. The shareholder may not cast more votes for any single nominee than the number of shares held by the shareholder. A-2 FIVE: The liability of the directors of this corporation for monetary ---- damages shall be eliminated to the fullest extent permissible under California law. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Law) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Law, subject only to the applicable limits set forth in Section 204 of the California Law with respect to actions for breach of duty to the corporation and its shareholders. This corporation is authorized to purchase and maintain insurance on behalf of its agents against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such from a company, the shares of which are owned in whole or in part by this corporation, provided that any policy issued by such company is limited to the extent required by applicable law. Any repeal or modification of the foregoing provisions of this Article FIVE by the shareholders of this corporation shall not adversely affect any right or protection of an agent of this corporation existing at the time of that repeal or modification. 4. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors of the corporation. 5. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required vote of the shareholders of the corporation, in accordance with Section 903 of the California Corporation Code. The total number of outstanding shares of the corporation entitled to vote on the foregoing amendment is 92,970,027 shares of Common Stock. The total number of shares of Common Stock voting in favor of the amendments equaled or exceeded the vote required, which percentage vote required was more than fifty percent (50%). ---------------------------- Rob Larcara, President ---------------------------- Gary Saderup, Secretary The undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing Certificate of Amendment are true and correct of their own knowledge. DATED: June __, 2004 ---------------------------- Rob Larcara, President ---------------------------- Gary Saderup, Secretary A-3 APPENDIX C DISSENTERS' RIGHTS UNDER CALIFORNIA GENERAL CORPORATION LAW CORPORATIONS CODE SECTION 1300-1304 1300. (a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the National Market System of the NASDAQ Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. (2) Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. C-1 (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. 1301. (a) If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, such corporation shall mail to each such shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholder's right under such sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309. (b) Any shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation for the purchase of such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short-form merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price. 1302. Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be C-2 stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. 1303. (a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation. (b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefore, unless provided otherwise by agreement. 1304. (a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint. (b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated. (c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. C-3 APPENDIX D VOICE POWERED TECHNOLOGIES INTERNATIONAL, INC. 2004 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this 2004 Stock Option -------------------- Plan is to provide an incentive to attract and retain qualified and competent persons as Employees, Directors, and Consultants, upon whose efforts and judgment our success in largely dependent, through the encouragement of stock ownership. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations and interpretations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall ----------- apply: (a) "Administrator" means the Board or its Committee ------------- appointed pursuant to Section 4 of the Plan. (b) "Affiliate" means an entity other than a Subsidiary (as --------- defined below) which, together with the Company, is under common control of a third person or entity. (c) "Applicable Laws" means the legal requirements relating --------------- to the administration of stock option and restricted stock purchase plans, including under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, other U.S. federal and state laws, the Code, any Stock Exchange rules or regulations and the applicable laws, rules and regulations of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time. (d) "Board" means the Board of Directors of the Company. ----- (e) "Cause" for termination of a Participant's Continuous ----- Service Status will exist if the Participant is terminated by the Company for any of the following reasons: (i) Participant's willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Participant's commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Participant of any proprietary information or D-1 trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant's willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company's ability to terminate a Participant's employment or consulting relationship at any time as provided in Section 5(d) below, and the term "Company" will be interpreted to include any Subsidiary, Parent or Affiliate, as appropriate. (f) "Change of Control" means (1) a sale of all or -------------------- substantially all of the Company's assets, or (2) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, or (3) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company. (g) "Code" means the Internal Revenue Code of 1986, as ---- amended. (h) "Committee" means one or more committees or subcommittees --------- of the Board appointed by the Board to administer the Plan in accordance with Section 4 below. (i) "Common Stock" means the Common Stock of the Company. ------------ (j) "Company" means Voice Powered Technologies International, ------- Inc., a California corporation. (k) "Consultant" means any person, including an advisor, who ---------- is engaged by the Company or any Parent, Subsidiary or Affiliate to render services and is compensated for such services, and any director of the Company whether compensated for such services or not. (l) "Continuous Service Status" means the absence of any --------------------------- interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of D-2 absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Parents, Subsidiaries, Affiliates or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status. (m) "Corporate Transaction" means a sale of all or ----------------------- substantially all of the Company's assets, or a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company. (n) "Director" means a member of the Board. -------- (o) "Employee" means any person employed by the Company or -------- any Parent, Subsidiary or Affiliate, with the status of employment determined based upon such factors as are deemed appropriate by the Administrator in its discretion, subject to any requirements of the Code or the Applicable Laws. The payment by the Company of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (p) "Exchange Act" means the Securities Exchange Act of 1934, ------------ as amended. (q) "Fair Market Value" means, as of any date, the fair ------------------- market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (r) "Incentive Stock Option" means an Option intended to ------------------------ qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Option Agreement. (s) "Involuntary Termination" means termination of a ------------------------- Participant's Continuous Service Status under the following circumstances: (i) termination without Cause by the Company or a Subsidiary, Parent or Affiliate, as appropriate; or (ii) voluntary termination by the Participant within thirty (30) days following (A) a material reduction in the Participant's job responsibilities, provided that neither a mere change in title alone nor D-3 reassignment following a Change of Control to a position that is substantially similar to the position held prior to the Change of Control shall constitute a material reduction in job responsibilities; (B) relocation by the Company or a Subsidiary, Parent or Affiliate, as appropriate, of the Participant's work site to a facility or location more than seventy-five (75) miles from the Participant's principal work site for the Company at the time of the Change of Control; or (C) a reduction in Participant's then-current base salary by at least 33%, provided that an across-the-board reduction in the salary level of all other employees or consultants in positions similar to the Participant's by the same percentage amount as part of a general salary level reduction shall not constitute such a salary reduction. (t) "Listed Security" means any security of the Company that ---------------- is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (u) "Named Executive" means any individual who, on the last ---------------- day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (v) "Nonstatutory Stock Option" means an Option not intended -------------------------- to qualify as an Incentive Stock Option, as designated in the applicable Option Agreement. (w) "Option" means a stock option granted pursuant to the ------ Plan. (x) "Option Agreement" means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice. (y) "Option Exchange Program" means a program approved by the ----------------------- Administrator whereby outstanding Options are exchanged for Options with a lower exercise price or are amended to decrease the exercise price as a result of a decline in the Fair Market Value of the Common Stock. (z) "Optioned Stock" means the Common Stock subject to an --------------- Option. D-4 (aa) "Optionee" means an Employee or Consultant who receives -------- an Option. (bb) "Parent" means a "parent corporation," whether now or ------ hereafter existing, as defined in Section 424(e) of the Code, or any successor provision. (cc) "Participant" means any holder of one or more Options, or ----------- the Shares issuable or issued upon exercise of such Options, under the Plan. (dd) "Plan" means this 2004 Stock Option Plan. ---- (ee) "Reporting Person" means an officer, Director, or greater ---------------- than ten percent shareholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (ff) "Rule 16b-3" means Rule 16b-3 promulgated under the ----------- Exchange Act, as amended from time to time, or any successor provision. (gg) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 14 of the Plan. (hh) "Stock Exchange" means any stock exchange or consolidated -------------- stock price reporting system on which prices for the Common Stock are quoted at any given time. (ii) "Subsidiary" means a "subsidiary corporation," whether ---------- now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (jj) "Ten Percent Holder" means a person who owns stock -------------------- representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 13 ------------------------- of the Plan, the maximum aggregate number of Shares that may be sold under the Plan is two million (2,000,000) Shares of Common Stock. Notwithstanding the foregoing, at no time during which the Common Stock is not a Listed Security shall the total number of Shares issuable upon exercise of all outstanding Options and the total number of shares provided for under any other stock bonus or similar plan of the Company exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of the Rules D-5 of the California Corporations Commissioner, based on the securities which are outstanding at the time the calculation is made. The Shares may be authorized, but unissued, or reacquired Common Stock. If an award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an award in order to satisfy the exercise or purchase price for such award or any withholding taxes due with respect to such exercise or purchase shall be treated as not issued and shall continue to be available under the Plan. Shares issued under the Plan and later repurchased by the Company pursuant to any repurchase right which the Company shall be available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) General. The Plan shall be administered by the Board or a ------- Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. (b) Committee Composition. If a Committee has been appointed ---------------------- pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. The Committee shall in all events conform to any requirements of the Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of --------------------------- the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(q) of the Plan, provided that such determination shall be applied consistently with respect to Participants under the Plan; (ii) to select the Employees and Consultants to whom Options may from time to time be granted; (iii) to determine whether and to what extent Options are granted; D-6 (iv) to determine the number of Shares of Common Stock to be covered by each award granted; (v) to approve the form(s) of agreement(s) used under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, any pro rata adjustment to vesting as a result of a Participant's transitioning from full- to part-time service (or vice versa), and any restriction or limitation regarding any Option, Optioned Stock or restricted stock issued upon exercise of an Option, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(c) instead of Common Stock; (viii) to implement an Option Exchange Program on such terms and conditions as the Administrator in its discretion deems appropriate, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without the prior written consent of the Optionee; (ix) to adjust the vesting of an Option held by an Employee or Consultant as a result of a change in the terms or conditions under which such person is providing services to the Company; (x) to construe and interpret the terms of the Plan and awards granted under the Plan, which constructions, interpretations and decisions shall be final and binding on all Participants; and (xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. 5. Eligibility. ----------- (a) Recipients of Grants. Nonstatutory Stock Options may be -------------------- granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options. (b) Type of Option. Each Option shall be designated in the -------------- Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. D-7 (c) ISO $100,000 Limitation. Notwithstanding any designation ------------------------ under Section 5(b), to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(c), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (d) No Employment Rights. The Plan shall not confer upon any --------------------- Participant any right with respect to continuation of an employment or consulting relationship with the Company, nor shall it interfere in any way with such Participant's right or the Company's right to terminate the employment or consulting relationship at any time for any reason. 6. Term of Plan. The Plan shall become effective on the date ------------ the adoption of the Plan by the Board of Directors is approved by the Company's shareholders. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 15 of the Plan. 7. Term of Option. The term of each Option shall be the term -------------- stated in the Option Agreement; provided that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. [Reserved.] 9. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per Share exercise price for the --------------- Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; or (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. D-8 (ii) In the case of a Nonstatutory Stock Option (A) granted on any date on which the Common Stock is not a Listed Security to a person who is at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator; (B) granted on any date on which the Common Stock is not a Listed Security to any other eligible person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator; or (C) granted on any date on which the Common Stock is a Listed Security to any eligible person, the per share Exercise Price shall be such price as determined by the Administrator provided that if such eligible person is, at the time of the grant of such Option, a Named Executive of the Company, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) Permissible Consideration. The consideration to be paid -------------------------- for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) subject to any requirements of the Applicable Laws, delivery of Optionee's promissory note having such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate after taking into account the potential accounting consequences of permitting an Optionee to deliver a promissory note; (5) other Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised, provided that in the case of Shares acquired, directly or indirectly, from the Company, such Shares must have been owned by the Optionee for more than six months on the date of surrender (or such other period as may be required to avoid the Company's incurring an adverse accounting charge); (6) if, as of the date of exercise of an Option the Company then is permitting employees to engage in a "same-day sale" cashless brokered exercise program involving one or more brokers, through such a program that complies with the Applicable Laws (including without limitation the requirements of Regulation T and other applicable regulations promulgated by the Federal Reserve Board) and that ensures prompt delivery to the Company of the amount required to pay the exercise price and any applicable withholding taxes; or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its D-9 sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise. 10. Exercise of Option. ------------------ (a) General. ------- (i) Exercisability. Any Option granted hereunder -------------- shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the term of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee; provided however that, if required under Applicable Laws, the Option (or Shares issued upon exercise of the Option) shall comply with the requirements of Section 260.140.41of the Rules of the California Corporations Commissioner. (ii) Leave of Absence. The Administrator shall ---------------- have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, vesting of Options shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). In the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Participant's returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Options to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave. (iii) Minimum Exercise Requirements. An Option may ------------------------------- not be exercised for a fraction of a Share. The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable. (iv) Procedures for and Results of Exercise. --------------------------------------- An Option shall be deemed exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan, provided that the Administrator may, in its sole discretion, refuse to accept any form of consideration at the time of any Option exercise. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for D-10 purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (v) Rights as Shareholder. Until the issuance of the --------------------- Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan. (b) Termination of Employment or Consulting Relationship. -------------------------------------------------------- Except as otherwise set forth in this Section 10(b), the Administrator shall establish and set forth in the applicable Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee's Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. Unless the Administrator otherwise provides in the Option Agreement, to the extent that the Optionee is not vested in Optioned Stock at the date of termination of his or her Continuous Service Status, or if the Optionee (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified in the Option Agreement or below (as applicable), the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to Section 7). The following provisions (1) shall apply to the extent an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee's Continuous Service Status, and (2) establish the minimum post-termination exercise periods that may be set forth in an Option Agreement: (i) Termination other than Upon Disability or Death. ----------------------------------------------- In the event of termination of Optionee's Continuous Service Status other than under the circumstances set forth in subsections (ii) through (iii) below, such Optionee may exercise an Option for 30 days following such termination to the extent the Optionee was vested in the Optioned Stock as of the date of such termination. No termination shall be deemed to occur and this Section 10(b)(i) shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who becomes a Consultant. (ii) Disability of Optionee. In the event of termi- ---------------------- nation of an Optionee's Continuous Service Status as a result of his or her disability (including a disability within the meaning of Section 22(e)(3) of the Code), such Optionee may exercise an Option at any time within six months following such termination to the extent the Optionee was vested in the Optioned Stock as of the date of such termination. D-11 (iii) Death of Optionee. In the event of the death ------------------ of an Optionee during the period of Continuous Service Status since the date of grant of the Option, or within thirty days following termination of Optionee's Continuous Service Status, the Option may be exercised by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance at any time within twelve months following the date of death, but only to the extent the Optionee was vested in the Optioned Stock as of the date of death or, if earlier, the date the Optionee's Continuous Service Status terminated. (c) Buyout Provisions. The Administrator may at any time ----------------- offer to buy out for a payment in cash or Shares an Option previously granted under the Plan based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Taxes. ----- (a) As a condition of the grant, vesting or exercise of an Option granted under the Plan, the Participant (or in the case of the Participant's death, the person exercising the Option) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with such grant, vesting or exercise of the Option or the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant's tax withholding obligations under this Section 11 (whether pursuant to Section 11(c), (d) or (e), or otherwise), the Administrator shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. (b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option. (c) This Section 11(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 11, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the "Tax Date"). D-12 (d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option by surrendering to the Company Shares that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. In the case of shares previously acquired from the Company that are surrendered under this Section 11(d), such Shares must have been owned by the Participant for more than six (6) months on the date of surrender (or such other period of time as is required for the Company to avoid adverse accounting charges). (e) Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 11(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 11(d) above must be made on or prior to the applicable Tax Date. (f) In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 12. Non-Transferability of Options. ------------------------------ (a) General. Except as set forth in this Section 12, Options ------- may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option may be exercised, during the lifetime of the holder of an Option, only by such holder or a transferee permitted by this Section 12. (b) Limited Transferability Rights. Notwithstanding anything ------------------------------ else in this Section 12, but subject to any Applicable Laws, the Administrator may in its discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or pursuant to domestic relations orders to "Immediate Family Members" (as defined below) of the Optionee. "Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests. D-13 13. Adjustments Upon Changes in Capitalization, Merger or Certain ------------------------------------------------------------------ Other Transactions. ------------------ (a) Changes in Capitalization. Subject to any action --------------------------- required under Applicable Laws by the shareholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the ----------------------------- dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such action, unless otherwise determined by the Administrator. (c) Corporate Transaction. In the event of a Corporate ---------------------- Transaction (including without limitation a Change of Control), each outstanding Option shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the "Successor Corporation"), unless the Successor Corporation does not agree to assume the award or to substitute an equivalent option or right, in which case such Option shall terminate upon the consummation of the transaction. Notwithstanding the above, in the event (i) of a Change of Control, and (ii) a Participant holding an Option assumed or substituted by the Successor Corporation in the Change of Control, or holding restricted stock issued upon exercise of an Option with respect to which the Successor Corporation has succeeded to a repurchase right as a result of the Change of Control, is Involuntarily Terminated by the Successor Corporation without Cause at the time of, or within twelve months following consummation of, the transaction, then any assumed or substituted Option held by the terminated Participant at the time of termination shall accelerate and become exercisable in full, and any repurchase right applicable to any Shares shall lapse as to all of the Shares. The acceleration of vesting and lapse of repurchase rights D-14 provided for in the previous sentence shall occur immediately prior to the effective date of termination of the Participant's Continuous Service Status. For purposes of this Section 13(c), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction or a Change of Control, as the case may be, each holder of an Option would be entitled to receive upon exercise of the award the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the award at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 13); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. 14. Time of Granting Options. The date of grant of an Option shall, ------------------------- for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator, provided that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 15. Amendment and Termination of the Plan. ------------------------------------- (a) Authority to Amend or Terminate. The Board may at any time ------------------------------- amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment pursuant to Section 13 above) shall be made that would materially and adversely affect the rights of any Optionee under any outstanding grant, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Except as to --------------------------------------- amendments which the Administrator has the authority under the Plan to make unilaterally, no amendment or termination of the Plan shall materially and adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee or holder and the Company. D-15 16. Conditions Upon Issuance of Shares. Notwithstanding any other ------------------------------------- provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option, the Company may require the person exercising the award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. Shares issued upon exercise of Options granted prior to the date on which the Common Stock becomes a Listed Security shall be subject to a right of first refusal in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any third party on such terms and subject to such conditions as is reflected in the applicable Option Agreement. 17. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. Agreements. Options shall be evidenced by Option Agreements in ---------- such form(s) as the Administrator shall from time to time approve. 19. Shareholder Approval. If required by the Applicable Laws, --------------------- continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. 20. Information and Documents to Optionees and Purchasers. Prior to ------------------------------------------------------ the date, if any, upon which the Common Stock becomes a Listed Security and if required by the Applicable Laws, the Company shall provide financial statements at least annually to each Optionee and to each individual who acquired Shares pursuant to the Plan, during the period such Optionee or purchaser has one or more Options outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. D-16