Proposed Disclosure Statement 12/23/13

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 1 of 53
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: IMPERIAL PETROLEUM RECOVERY CORPORATION DEBTOR
Case No. 13-30466 Chapter 11
DEBTORS SECOND AMENDED DISCLOSURE STATEMENT (PROPOSED BY IMPERIAL PETROLEUM RECOVERY CORPORATION) (Dated December 23, 2013)
DEBTORS SECOND AMENDED DISCLOSURE STATEMENT HAS BEEN APPROVED. THE CONFIRMATION HEARING HAS BEEN SET ON FEBRUARY 4, 2014, AT 10:00 A.M., IN COURTROOM 600, UNITED STATES COURTHOUSE, 515 RUSK STREET, HOUSTON, TEXAS, 77002. THE DEADLINE FOR VOTING TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M. ON JANUARY 28, 2014. THE DEADLINE TO FILE OBJECTIONS TO CONFIRMATION IS JANUARY 28, 2014.
On or about January 31, 2013, an involuntary petition was filed against Debtor under chapter 7 of title 11 of the United States Code by petitioning creditors Don Carmichael (Carmichael), KK & PK Family LP (KK&PK), Barry Winston (Winston) and Gary Emmott (Emmott) (collectively the Petitioning Creditors). On April 3, 2013, Debtor filed a motion to convert the case to one under chapter 11 (ECF Document No. 14). On April 4, 2013, the Court entered an order for relief (ECF Document No. 21) and an order granting Debtors motion to convert (ECF Document No. 22). If you are a Creditor or Interest Holder, you should read this Amended Disclosure Statement (the Disclosure Statement) carefully. The Debtor urges all holders of Claims in Impaired Classes receiving Ballots to accept the Amended Plan of Reorganization proposed by the Debtor (the Plan), a true and correct copy of which is attached hereto as Exhibit 1. This Disclosure Statement, any amendments, supplements, and exhibits thereto, the accompanying Ballot form, if any, and the related materials delivered together herewith are being furnished by the Debtor to holders of Impaired Claims and Impaired Interests pursuant to
1|Page
1125,1 in connection with the solicitation by the Debtor of votes to accept or reject the Plan and the transactions as described therein. This Disclosure Statement is designed to provide adequate information to enable holders of Claims against and Interests in the Debtor to make an informed decision whether to vote in favor of or against the Plan. All Creditors are encouraged to read this Disclosure Statement in its entirety before voting to accept or reject the Plan proposed by the Debtor. The projected financial information contained herein has not been the subject of an audit, unless otherwise stated. All holders of Impaired Claims should read and consider carefully the matters described in the Disclosure Statement as a whole prior to voting on the Plan proposed by the Debtor. In making a decision to accept or reject the Plan, each Creditor must rely on its own examination of the Debtor as described in this Disclosure Statement, including the merits and risks involved. You are encouraged to seek the advice of qualified legal counsel with respect to the legal effect of any aspect of the Disclosure Statement. In addition, Confirmation and Consummation of the Plan are subject to conditions precedent that could lead to delays in Consummation of the Plan proposed by Debtor. There can be no assurance that each of these conditions precedent will be satisfied or waived or that the Plan proposed by the Debtor will be consummated. Even after the Effective Date, distributions under the Plan proposed by the Debtor may be subject to delay so that disputed claims can be resolved. No party is authorized by the Debtor to give any information or make any representations with respect to the Disclosure Statement other than that which is contained herein. No representation or information concerning the Debtor, its business or the value of its properties has been authorized by the Debtor, other than as set forth herein. Any information or representation given to obtain your acceptance or rejection of the Plan that is different from or inconsistent with the information or representations contained herein should not be relied upon by any holders of Claims or Interests in voting on the Plan proposed by the Debtor. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH 11 U.S.C. 1125 AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAW. ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST, INTERESTS IN OR SECURITIES OF, THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE COMMISSION) OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY AUTHORITY, AND NEITHER SUCH
1
All references to reference the applicable section of the Bankruptcy Code.
2|Page
COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. This Disclosure Statement shall not be construed to be providing any legal, business, financial or tax advice. Each holder of a Claim or Interest should, therefore, consult with its own legal, business, financial and tax advisors as to any such matters concerning the solicitation, the Plan or the transactions contemplated thereby. INCORPORATION OF DOCUMENTS BY REFERENCE This Disclosure Statement incorporates by reference certain documents relating to the Debtor that are not presented herein or delivered herewith. The following documents have been filed in the Debtors bankruptcy case and are incorporated by reference herein in their entirety, including all amendments thereto filed prior to the date set for confirmation: (a) the Debtors Schedules A, B, C, D, E, F and H filed on April 3, 2013 [ECF Document 18]; Schedule G filed on April 12, 2013 [ECF Document 28]; Amended Schedules B and D filed on June 4, 2013 [ECF Document 76]; Second Amended Statement of Financial Affairs filed July 30, 2013 [ECF Document 112]; Monthly Operating Report for April 2013 [ECF Document 93]; Monthly Operating Report for May 2013 [ECF Document 92]; Monthly Operating Report for June 2013 [ECF Document 108]; Monthly Operating Report for July 2013 [ECF Document 118]; Monthly Operating Report for August 2013 [ECF Document 142]. Monthly Operating Report for September 2013 [ECF Document 184]; Monthly Operating Report for October 2013 [ECF Document 217]; and Monthly Operating Report for November 2013 [ECF Document 244]. Documents and pleadings filed in this case are available at the following website: http://www.txsb.uscourts.gov/. You will need a PACER account in order to access these documents, which can be obtained on the PACER website: www.pacer.gov.
TABLE OF CONTENTS
Page
INCORPORATION OF DOCUMENTS BY REFERENCE ......................................................... 3 I. INTRODUCTION AND SUMMARY ............................................................................... 5 A. THE SOLICITATION ............................................................................................ 5 B. DEBTORS BUSINESS ......................................................................................... 5 1. Introduction ................................................................................................. 5 2. IPRCs Microwave Separation Technology (MST) ................................... 6 3. Competition................................................................................................. 8 5. Potential Customers .................................................................................... 9 6. Protection of Intellectual Property .............................................................. 9 7. Management .............................................................................................. 10 C. ASSETS AS OF APRIL 4, 2013 .......................................................................... 12 1. Proprietary Technologies and Patent Status ............................................. 13 2. Agribiofuels, LLC (ABF) ...................................................................... 14 3. Contingent and Unliquidated Claims ........................................................ 15 D. CREDITORS AND DEBT AS OF APRIL 4, 2013 ............................................. 15
3|Page
PREPETITION FINANCIAL AND TAX INFORMATION ............................... 15 PREPETITION LITIGATION ............................................................................. 17 1. The Montgomery County Lawsuit ............................................................ 17 2. The Harris County Lawsuit ....................................................................... 17 G. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES ...................... 17 1. Bankruptcy Court Proceedings ................................................................. 17 2. Current Business Development................................................................. 21 H. POST-PETITION FINANCIAL RESULTS OF OPERATION ........................... 24 I. PUBLIC DISCLOSURES .................................................................................... 24 II. DEFINITIONS, RULES OF INTERPRETATION .......................................................... 24 AND COMPUTATION OF TIME ............................................................................................... 24 A. DEFINITIONS...................................................................................................... 24 B. RULES OF INTERPRETATION. ........................................................................ 27 C. COMPUTATION OF TIME................................................................................. 27 III. BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS ..................... 28 IV. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS . 28 A. CLASS 1 - Administrative Claims Professional Fee Claims and U.S. Trustee Quarterly Fees ....................................................................................................... 28 B. CLASS 2 All Other Administrative Claims....................................................... 29 C. CLASS 3 Allowed Secured Claims of the Carmichaels, Winston, Emmott and KK&PK Family, L.P............................................................................................. 30 D. CLASS 4 Allowed Secured Claims of Taxing Authorities ............................... 34 E. CLASS 5 Allowed Unsecured Claims of Debtor .............................................. 35 F. CLASS 6 Allowed Interests of Debtors Shareholders...................................... 38 G. CLASS 7 Allowed Priority Claims of the Internal Revenue Service ................ 38 V. MEANS FOR EXECUTION OF THE PLAN.................................................................. 39 A. EXECUTION OF ALL DOCUMENTS NECESSARY TO CONSUMMATE THE PLAN. .......................................................................................................... 39 B. MANAGEMENT OF THE DEBTOR. ................................................................. 39 C. DISBURSING AGENT ........................................................................................ 39 VI. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ........................................ 40 A. ENTRY OF CONFIRMATION ORDER. ............................................................ 40 B. FINALITY OF CONFIRMATION ORDER; WAIVER. ..................................... 41 VII. PRESERVATION OF RETAINED CLAIMS AND VESTING...................................... 41 VIII. ACCEPTANCE OR REJECTION OF THE PLAN ......................................................... 42 IX. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ......... 42 X. MODIFICATIONS AND AMENDMENTS .................................................................... 42 XI. RETENTION OF JURISDICTION .................................................................................. 43 XII. EFFECTS OF CONFIRMATION .................................................................................... 44 A. BINDING EFFECT. ............................................................................................. 44 B. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR PAYMENT. .......................................................................................................... 44 C. EXCULPATION AND LIMITATION OF LIABILITY. .................................... 45 XIII. DISCHARGE.................................................................................................................... 45 XIV. MISCELLANEOUS PROVISIONS................................................................................. 45
E. F.
4|Page
XV. FEASIBILITY .................................................................................................................. 46 XVI. CONFIRMATION OF THE PLAN.................................................................................. 46 A. VOTING PROCEDURES AND REQUIREMENTS........................................... 46 B. ACCEPTANCE. ................................................................................................... 48 C. CONFIRMATION OF THE PLAN...................................................................... 48 D. THE BEST INTERESTS TEST. .......................................................................... 49 XVII. DISCLAIMERS ................................................................................................................ 50 XVIII. CERTAIN ADDITIONAL DISCLOSURES ................................................................... 51 XIX. CONCLUSION AND RECOMMENDATION................................................................ 52 XX. EXHIBITS TO PLAN AND DISCLOSURE STATEMENT .......................................... 52 I. INTRODUCTION AND SUMMARY The following introduction and summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Disclosure Statement. A. THE SOLICITATION
On December 23, 2013, the Debtor filed this Disclosure Statement. This Disclosure Statement is submitted by the Debtor to be used in connection with the solicitation of votes on Debtors Plan. Debtor has requested that the Bankruptcy Court hold a hearing on approval of this Disclosure Statement to determine whether this Disclosure Statement contains adequate information in accordance with 1125, and whether the Disclosure Statement should be confirmed under 11 U.S.C. 1129. Pursuant to 1125(a)(1), adequate information is defined as information of a kind, and in sufficient detail, as far as reasonably practicable in light of the nature and history of the Debtor and the condition of the Debtors books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant Class to make an informed judgment about the [Plan proposed by the Debtor.] A hearing to consider the final approval of the Disclosure Statement was set for December 19, 2013, at 9:30 a.m., in Courtroom 600, United States Courthouse, 515 Rusk Street, Houston, Texas, at which time the Court approved the Second Amended Disclosure Statement. B. 1. DEBTORS BUSINESS Introduction
Imperial Petroleum Recovery Corporation (the Company or IPRC) (http://www.iprc.com), a Nevada corporation, is a public company located in The Woodlands, Texas. IPRC was established in 1995 and was incorporated on February 6, 1997. It is a development stage company that markets a proprietary proven new technology it developed to treat emulsions using microwave energy. The Companys Microwave Separation Technology (MST) is an environmentally friendly computer controlled microwave technology designed to
5|Page
remediate and recover the oil that resides in emulsions a sludge like material that results from the simultaneous presence of hydrocarbons, water and fine solids. The Companys initial market focus was on oil-water emulsion problems facing the petroleum and petrochemical industries, both in upstream and downstream applications. Approximately 1% - 3% of all oil produced and refined consists of these oil based emulsions which translates to a daily requirement of approximately 2 million barrels per day world-wide. The Companys technology is secured with three US patents. Additionally, a new patent for processing Marine Bilge was recently awarded in July 2012 and will run for 20 years that applies only to the USA. The Company also has two other provisional patents for processing Biodiesel and for processing Frac Water. IPRC has approximately 722 shareholders who hold approximately 53,502,477 shares collectively. Dr. Carmichael, KK & PK and Dr. Winston, three of the four Petitioning Creditors, collectively own 3,442,059 shares or 6%. The IPRC officers/directors, Springer and Hammond, own 11,270,544 shares, or 21%. IPRCs common stock currently listed for quotation on the Pink OTC Markets, Inc. Pink Exchange under the trading symbol IREC. 2. IPRCs Microwave Separation Technology (MST)
IPRCs primary business has been the development, marketing and distribution of its Microwave Separation Technology. MST technology uses RF to separate water and oil emulsions. IPRC has developed a proprietary, patented process using high-energy microwaves, called Microwave Separation Technology (MST). MST is designed to treat and eliminate hydrocarbon emulsions, which are homogenous mixtures of oil and water components (or other normally immiscible components). Presently IPRC is capable of demonstrating an MST 1000 Unit. This Unit is twelve years old. IPRCs goal is to become a leader in developing and marketing innovative commercial radio frequency (RF) energy applications that can be used within the petroleum, energy and other industries to treat emulsions containing oil, water, and solids, using its patented technology to recover the oil, eliminate harmful bacteria in water; enhance process to increase efficiency and improve its customers financial performance. Each MST system includes the following components: A patented microwave applicator; A microwave transmitter; Waveguides and auto tuner; Instrumentation and computer automation; Pumps and drives if required; And safety monitors and failsafe interlocking systems
6|Page
In 2009, IPRC entered into a technical service agreement with Petroleo Barsileiro S.A. (Petrobras) pursuant to which IPRC agreed to provide a 16 month demonstration project of the MST technology in Brazil. The technical services agreement with Petrobras provided that IPRC would operate a MST 150 unit at a refinery in Brazil and to conduct various tests of emulsions as determined by the technical staff of Petrobras. Midway through the project Petrobras requested a redesign of the demonstration unit on site and a reconfiguration of the demonstration skid with a full patented applicator. This change was accomplished in September 2010 and the test continued until it was completed in November 2011. The Petrobas technical service agreement ended in 2011. IPRC initially offered MST primarily to the oil field and energy industries but has expanded the use of MST to treating emulsions in the marine industry for processing of Marine Bilge and to treating the bacteria and pathogens used in Frac water emulsions. In 2010 IPRC determined it was in its best interest to focus its business on using its MST technology in the water purification and remediation industries. IPRC located its operations on the site of a fabricator and logistics company located in Houston, Texas This location enables IPRC to conduct demonstrations of the MST technology to interested parties. Debtors technology has been proven under one service contract for demonstration testing in Brazil with Petrobras, which ended in 2011. Additionally, a previous 3 year project at Torrance that ended in 2003, produced technical reports jointly published by IPRC and Exxon Mobil Research & Engineering confirming MST effectiveness.
Oil and Gas Industry Produced oil contains water that is costly to transport and damaging to infrastructure. MST applies RF energy to separate the water and oil emulsions, allowing the removal of the water and solids and enhancing the production of the oil. The RF energy breaks the emulsion by preferentially heating the water inside the oil matrix, which creates differences in surface tension and viscosity. After RF energy is applied, the materials are pumped into a separation tank. If immediate separation is required, a centrifuge can be utilized. The separated oil is then pumped into holding tanks for shipment to customers. The separated water and sediments can be handled in accordance with the customers environmental regulations. The stated goal for finished oil recovered from the emulsions is a product that is 98% free of water and solids; e.g., refinery grade crude. Each MST system is computer-controlled and contains all the elements needed to reclaim oil from oil emulsion and rag layer water located in refineries, tank storage and waste pits. In its initial refinery application, the MST system has been used to improve the efficiency of desalination operations. MST systems are modular and can be conjoined to handle larger capacity requirements as required by the customer.
7|Page
The Company offers its products for sale or lease directly to end-users or can provide the services to a third party company that provides services to an established oil services company. Some potential clients have requested IPRC provide an MST that is significantly user friendly and essentially could be managed by their staff on-site with a simple on-off switch; a dial to set the power level and a temperature guide. These changes can be incorporated into the next design of the MST system.
Marine Industry The provisional patent for the use of MST in marine on-board systems was originally filed in July 2006. The Marine Industry is being tasked by the EPA and other State agencies to improve the efficiency of bilge water handling aboard large ships. Bilge water is a mixture of water and a very small percentage of oil that probably is inadvertently diverted from the engine. Companies that have ships typically try to have systems on-board to capture this small percentage of oil (<1%) so that they avert the risk of heavy fines should the bilge with oil be accidentally discharged since it causes significant environmental problems. IPRCs additional efforts have been successful and its provisional patent for treating marine emulsion wastes was granted in July 2012 and will provide patent protection for the next 20 years. FRAC Water Industry The opportunities for treating Frac water are potentially very lucrative since water is a valuable resource and in very short supply in some locations that is experiencing resurgence in oil drilling such as the Eagle Ford area of Texas. Environmental agencies are concerned that used Frac water if reinjected into oil wells could potentially damage the water aquifers by introducing bacteria or pathogens from the oil wells that is carried in the Frac water. These concerns are serious and many different companies have introduced technology to reduce or eliminate these harmful components in the Frac water so the water could be reused. IPRC tested samples of Frac Water from many different wells from different locations and subjected the material to microwave energy between 30KW and 60KW for up to 30 seconds. The sample results were then sent to an independent lab for evaluation and certification. The results of the lab were then recorded and a provisional patent was submitted on December 11, 2011 to the US Patent Office (Docket No. 0023662.010US). Since the provisional patent was awarded IPRC has reviewed the technology and is in the process of incorporating several changes to the process and continuing discussions with several important clients. 3. Competition
The Company's competitors are firms that employ heat, pressure, chemical and centrifuge processes to dispose of solid and oily non-hazardous oil field wastes. IPRC believes that its products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks.
8|Page
IPRC believes that IPRCs most significant competitors are fully integrated oil and gas processing companies. Smaller companies may also be significant competitors, particularly through collaborative arrangements with oil and gas industry companies. The Companys competitors are national, regional and local, including recognizable companies such as BJ Services, Baker Hughes and Suez. The Company anticipates that it will face additional competition from new entrants that provide significant performance, price, creative or other advantages over those offered by the Company. Many of these competitors have greater name recognition and resources than the Company. Currently, the marine industry uses systems that are on board consisting of water/oil separators; centrifuge systems; chemical systems that add specific chemical compounds to help separate the oil from the bilge water. Almost without exception these on-board systems do not collect all the oil in the bilge which results in the ships having to pump out the bilge when they get to port and have the bilge transported to a facility that specializes in these processes using heat, chemicals and centrifuges. IPRC believes that its products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks. The Company believes that some of its current competitors have significantly greater resources, experience and research and development capabilities. 5. Potential Customers
IPRC intends to market its technology by entering into strategic partnerships with third parties who can market and sell IPRCs products world-wide. The Company has established working relationships with several prominent engineering companies that are currently working within the petroleum industry. It is IPRCs intent to establish suitable joint ventures (JV) with one or more of these companies as a means to penetrate these industries. IPRC has focused on exporting the MST technology to several large multinational corporations. A summary of current contract negotiations is contained in Part G.2, below. 6. Protection of Intellectual Property
The technology used in the MST process is proprietary. The Company has been issued three United States patents to protect its design, has 1 patent for the use of MST in the marine industry and two provisional patents in the production of biodiesel and treatment of Frac water. IPRC may seek additional patents in the future. There can be no assurance that any future patent applications will result in patents being issued. Likewise, there can be no assurance that the Companys patents will afford protection against competitors with similar technology. In addition, there can be no guarantee that the patents will not be infringed upon, designed around by others, or challenged and held to be invalid or unenforceable. Proprietary rights relating to the Company's products and processes generally will be protected from
9|Page
unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. In the absence of patent protection, competitors who independently develop substantially equivalent technology may adversely affect the Companys business. Third-party patents relating to technology utilized by the Company may now exist or may be issued in the future. The Company may need to acquire licenses or contest the validity of any such patents. Significant funds may be required to defend against third party claims of patent infringement. Any such claim could adversely affect the Company until the claim is resolved. Furthermore, any such dispute could result in a rejection of any patent applications or the invalidation of any patents the Company owns. There can be no assurance that any license required under any such patent would be available to the Company or, if available, available on acceptable terms. In addition, there is no guarantee that the Company would prevail in any litigation involving such patent. Any of the foregoing could have a material adverse effect on the Company and its results of operations. The Company seeks to protect the technology used in the MST process in part by confidentiality agreements with its advisors, employees, consultants, suppliers and vendors. The Company also protects its technology by building interlocking security measures into its products. There can be no assurance, however, that these agreements and security measures will not be breached or that competitors will not discover the Companys trade secrets. In addition, there can be no assurance that persons or institutions providing research to the Company will not assert rights to intellectual property arising out of such research. 7. Management
Alan B. Springer, Chairman of the Board, CEO & Chief Financial Officer Mr. Springer graduated from the University of Akron with a Bachelor of Science in industrial management and from the University of Utah (1978) with an MBA in marketing and finance. Postgraduate studies include the Naval Post Graduate School in Monterey, California for international finance. Mr. Springer spent more than twenty-three years working within the U.S. Department of Defense, serving from 1978 to 1994 in various financial management positions including assignments as the Resource Management Officer of the 8th Infantry Division in Germany, 5th Signal Command and the Corps of Engineers in Germany. During this period Mr. Springer was an adjunct professor in the Business College of the European Division of the University of Maryland from 1978 1986 and is currently an adjunct professor at Lone Star College in Houston since 2009. Prior to joining IPRC, Mr. Springer was the Chief Financial Officer for IKON Office Solutions - Document Services Division in Houston, Texas from 1994-1998. IKON Office Solutions is an office technology company providing total document solutions for many Fortune 500 companies
10 | P a g e
James W. Hammond, Board Member James W. Hammond served as a founder and Senior Vice President of Administaff until his retirement in 1998. During his career with Administaff, responsible for the development, integration and maintenance of the company's infrastructure and technology department. He later developed and headed the company's General Service department, which was responsible for all internal support services, including procurement, security, facilities management and strategic planning for the company's national expansion program. Mr. Hammond does not actively participate in the management of Debtor, does not actively participate in financial decisions of Debtor, does not provide engineering expertise to Debtor, and has had limited involvement with Debtor's business, spending approximately only 6 hours of time devoted to Debtor matters in the past year. Mr. Hammond has a Bachelor of Science degree from Virginia Polytechnic Institute and has done graduate work in economics from the University of Houston. After graduating from the Virginia Polytechnic Institute, Mr. Hammond began his career at Exxon where he developed and implemented informational technologies. He holds patents in hydrofining and agricultural products. Mr. Hammond started, managed and sold various companies, including the Management Services Institute. He is a board member of Lutheran Social Services and the Lutheran Board of Directors and is actively involved in community and corporate development projects. Mr. Hammond has been a Director at IPRC since 2003. Ryan A. Boulware, Director of Operations, Field Testing and Training Ryan A. Boulware joined IPRC in May 2010 following 10 years working in the oil and gas industry as a mud engineer in the USA with several of the major oil companies (BP, Halliburton, Shell, etc). Prior to joining IPRC in 2010, Mr. Boulware had never been exposed to an MST unit or the MST technology. However, his 10 years of technical experience and field operations has provided a unique background for his subsequent work with microwave energy where he has gained extensive experience on crude oil analysis and environmental applications, specifically related to emulsion mitigation and treatment technologies. Since joining IPRC, Mr. Boulware has coordinated technical activities related to the companys laboratory, commercial and marketing programs and was the primary technical expert on the new patents granted to IPRC in the areas of marine and FRAC water remediation. He was the project manager at IPRCs site in South America until September 2011 and since that time has worked on redesign and upgrade of the various MST models and components. He is the primary expert on all operational issues involving MST systems and components. Mr. Boulware has an undergraduate degree in Geography from Sam Houston State University Note: Currently, the only employess of the Debtor are Mr. Springer and Mr. Boulware.
11 | P a g e
C.
ASSETS AS OF APRIL 4, 2013
The significant assets of the Company include its patents and intellectual property upon which its Microwave Separation Technology is based; its 20% interest in Agribiofuels, LLC; and its contingent and unliquidated claims for fraud, etc. against the Petitioning Creditors. A complete list of IPRCs assets is set forth in the following table. These values are estimates by Alan Springer, Chief Executive Officer of IPRC, and are the fair market values, unless otherwise indicated. Estimates of the value of certain litigation claims of the company are those of Eric Yollick, litigation counsel for the Debtor:
Category Cash on Hand Stock and interests in incorporated and unincorporated businesses Contingent and unliquidated claims
Description Accounts @ JPMorgan Chase Bank and Wells Fargo 20% ownership interest in Agribiofuels, LLC Claims for fraud, breach of fiduciary duty and tortious interference, tax credits, etc., as set forth in Adversary Proceeding No. 1303087. MST and related technologies 18-Wheeler Trailer (salvage value) HP laptop computer MST-1000 Unit (12 years old); MST
Value ($) $15,000 $00.002
At least $1,200,000
Patents and intellectual property Automobiles, trucks, trailers and other vehicles and accessories Office equipment, furnishings and supplies Machinery, fixtures, equipment
2
$500,000 $5,000 $250 $10,000
Debtors position regarding the value of the Debtors interest in ABF is that such interest is zero based on recent financial statements presented by ABF in discovery, which indicate that the liabilities of ABF exceed $9,000,000. Debtor was unaware of the amount of debt on the books of ABF until it received such financial information on or about October 20, 2013. Debtor had engaged an appraiser to appraise the property owned by ABF, Ronald P. Little, MAI, but it was Mr. Littles preliminary opinion that the value that he would place on ABF would never be sufficiently high enough so as to argue that value of ABFs assets exceeded the debts of ABF. That being the case, Debtor decided not to spend the funds necessary for an appraisal, as it did not appear there was any value for ABFs equity interest holders, including the Debtor, who owns a 20% interest in ABF.
12 | P a g e
Category and supplies
Description shipping container; spare skid; spare parts; generator
Value ($)
1.
Proprietary Technologies and Patent Status
The following table identifies and describes each of the Companys United States patents and patent applications: Title MICROWAVE-ENHANCED PROCESS TO TREAT FRAC WATER MICROWAVE-ENHANCED PROCESS TO MAXIMIZE BIODIESEL PRODUCTION CAPACITY MICROWAVE- ENHANCED PROCESS TO TREAT MARINE EMULSION WASTES RADIO FREQUENCY MICROWAVE ENERGY APPARATUS AND METHOD TO BREAK OIL AND WATER EMULSIONS RADIO FREQUENCY MICROWAVE ENERGY METHOD TO BREAK OIL AND WATER EMULSIONS RADIO FREQUENCY MICROWAVE ENERGY APPLICATOR APPARATUS TO BREAK OIL AND WATER EMULSIONS Application No. 61/577,334 Patent No. Status Provisional Patent Submitted 12/19/11 Expiration
11/340,137
Reinstated
11/489,919
Granted
12/17/2032
08/936,063
5914014
Granted
9/23/2017
09/295,565
6077400
Granted
9/23/2017
09/295,566
6086830
Granted
9/23/2017
13 | P a g e
CERTAIN ADDITIONAL INFORMATION REGARDING DEBTORS PATENTS3 1. All of Debtors patents have been registered only in the USA, and the option to register the patents worldwide is not available any longer as to Debtors current patents. This diminishes the value of Debtors current patents because international firms could all take one of Debtors units; reverse engineer it and manufacture it overseas, and Debtor would not be able to contest it. 2. The three patents dealing with oil/water emulsions expire in 3 years; therefore, these patents have limited value. However, there would be far greater value if IPRC introduced new changes to the technology, which it believes is possible, and file for patent protection domestically and worldwide. If that were done and extended world-wide, these patents would be worth considerably more. 4. the marine bilge is only USA and it is good for 17 years, but the negatives in paragraph 1 apply here as well. 3. The biodiesel and frac water patents are provisional, which affects the value of the patents in a negative fashion. 4. Finally, IPRC has never received an offer for any of these patents and this also would apparently affect the valuation downward. 2. Agribiofuels, LLC (ABF)
Agribiofuels, LLC (ABF) (http://www.agribiofuels.com) is a Texas limited liability company formed March 31, 2005. AgriBioFuels is a privately held LLC involved in the production and supply of renewable fuels to the United States domestic energy market. The companys first venture was the construction of a biodiesel production facility in Dayton, Texas that started up in January, 2007. The plant was to initially produce 20 million gallons of biodiesel per year, and was designed to allow expansion to 40 million gallons of biodiesel per year. To optimize its process, the plant was going to utilize the advanced, Microwave Separation Technology provided by Imperial Petroleum Recovery Corporation. While Imperial Petroleum Recovery Corporations primary focus has been the growth of its MST technology business within the conventional petroleum industry, the companies sought to jointly exploit the favorable capability of MST to enhance the biodiesel production process. As such, IPRC provided the operating and management support for the biodiesel facility, and holds a minority ownership position in ABF.
This is the opinion of the CEO, Alan B. Springer, based on discussions Mr. Springer has had with a proposed expert on valuation of intellectual property rights, A. John Demarco, of the law firm of Pillsbury Winthrop Shaw Pittman LLP. Mr. Demarcos opinion is attached hereto as Exhibit 9.
14 | P a g e
The Manager/Director is Edward C. Gaiennie. Gaiennie was also an officer and director of IPRC through the early part of January 2008. The members/owners of ABF are Don Carmichael, Mary Jane Carmichael, Rex Lewis, Kirk Kanady, Barry Winston, Philip Leggett, Edward Gaiennie, and IPRC, which holds a 20% interest in the company. IPRC established ABF in 2005 and a management agreement between the two organizations was signed on August 1, 2005 with Mr. Springer signing for ABF and James Hammond (IPRC Director) signing for ABF. None of the other 5 investors in ABF were managers, directors or officers they were all passive investors and members of the LLC. The 3 year agreement had a provision for renewals to be made 30 days prior to the expiration for an additional 3 years. It gave IPRC the right to terminate the agreement if ABF failed to make payments. IPRC would hire and pay employees to run the plant, cover all operational and administrative expenses with fees paid under the Agreement. ABF was established with funds from 5 individuals and IPRC was awarded 20% of the equity in ABF by virtue of the promote and for the continued management of the business. Don Carmichael and his mother were the largest investors with about $3M of the total $6.7M invested (44%). Another large investor from Las Vegas, Rex Lewis, also had $2.150M invested); Funds raised purchased 25 acres of land and IPRC built a biodiesel plant with in-house resources and began production in December 2006. ABF lost money in 2006 thru 2011 but remained operational even though over 95% of the existing biodiesel facilities in the United States closed during this period due to changes in State law and feedstock costs that made operations unprofitable. ABF had very low operating costs since equity capital was used to purchase land and build the plant. 3. Contingent and Unliquidated Claims
On January 31, 2012, IPRC and Mr. Springer filed suit against Don Carmichael, et al, for breach of fiduciary duty, fraud, tortious interference, securities fraud and statutory fraud. On March 9, 2012, Defendants filed a general denial and asserted the affirmative defenses of statute of limitations, laches, unclean hands, fraud, and the business judgment rule. Defendants also asserted a counterclaim alleging that IPRC and Mr. Springer wrongfully diverted $1.5 million of ABF earnings. Additional information regarding this lawsuit is provided below. D. CREDITORS AND DEBT AS OF APRIL 4, 2013 The Debtors creditors and debts are summarized and broken down in section IV, infra, at pp 29-36. E. PREPETITION FINANCIAL AND TAX INFORMATION
15 | P a g e
SEC Form 10-K for Imperial Petroleum Recovery Corporation covering FY ending October 31, 2006 October 31, 2010.. SEC Form 10-K for Imperial Petroleum Recovery Corporation covering FY ending October 31, 2011. Any creditor or interest holder who wishes to have a copy of the said Form 10-Ks can request a copy from Debtors counsel, at the following address: Leonard H. Simon, Esq. The Riviana Building 2777 Allen Parkway, Suite 800 Houston, Texas 77019 (713) 737-8207 (Direct) (832) 202-2810 (Direct Fax) lsimon@pendergraftsimon.com See Monthly Operating Report for November 31, 2013, attached hereto as Exhibit 2. SEC Forms 10-K have been filed for the periods identified above. No unaudited financial statements have been filed. Debtor filed tax returns for 2008, 2009, 2010, 2011 and 2012 after April 4, 2013. The Debtor reported losses for each tax year. The Debtor has no present source of income. The Debtor did not withhold federal taxes from compensation paid to Debtor's President, Alan Springer, because Debtor believed that Mr. Springer was a contract employee, and no withholding was required. Therefore no Federal Income tax liability of Debtor for "trust fund liability" will occur for not withholding on such compensation. The Debtor shall amend the creditor matrix to add the IRS as a creditor using the following address: Internal Revenue Service, Centralized Insolvency Operation, P.O. Box 7346, Philadelphia, PS 19101-7346, and IRS Special Procedures, 1919 Smith Street, Stop 5022, Houston, Texas 77002. Debtors accountant, Michael Jayson, believes that IPRCs tax liability for the tax years 2008-2012 cumulatively would be understated by approximately $9,315.00, which would amount to approximately $1,863 per year for the period from 2008 through 2012. See ECF Document 1643. The Petitioning Creditors have alleged that that the Debtors withholding tax liability would be much larger. In addition, the Debtor has no credit facilities with any financial institutions, and from 2008 through April 3, 2013, has primarily relied on personal advances from Debtor's President, Alan Springer and James Hammond, to operate, and such advances have, in part, arisen from the Companys use of Mr. Springers credit cards. The claim of Alan Springer is an insider claim, and consists of a claim for $1,199,297 for accrued salary per Mr. Springers Employment Agreement with the Debtor for the period February 2008 through January 31, 2013. The balance of the claim, $38,512, represented noninterest bearing loans made by Mr. Springer to the Debtor between November 1, 2012 and
16 | P a g e
January 31, 2013. These loans were from Mr. Springers personal bank account into the Debtors bank account. There are no written loan agreements with the Debtor, and Debtor maintains no formal accounting of the loans in writing; however, the dollar value of the loans are recorded on the financial records of IPRC and are reflected on the official 10K filings submitted to the SEC. F. 1. PREPETITION LITIGATION The Montgomery County Lawsuit
On January 31, 2012, IPRC and Alan Springer filed suit against Don Carmichael, et al, for breach of fiduciary duty, fraud, tortious interference, securities fraud and statutory fraud. This case was removed by the Defendants, and it is currently pending as Adversary Proceeding No. 13-3087. 2. The Harris County Lawsuit
On March 27, 2012, Don Carmichael, et al, filed suit against IPRC for breach of several promissory notes and to foreclose on certain property owned by IPRC pursuant to the notes and security agreements held by the plaintiffs, and to appoint a receiver.4 On April 23, 2012, IPRC filed a general denial and plea in abatement. This case was removed by the Defendants, and it is currently pending as Adversary Proceeding No. 13-03098. G. 1. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES Bankruptcy Court Proceedings The following table sets forth the significant bankruptcy orders and events:
Date 04-04-2013 04-04-2013

4
Description Court entered order for relief. Court granted IPRCs motion to convert the case to a reorganization case
Docket # 21 22
Cause No. 2012-18010; Don Carmichael, Mary Jane Carmichael, KK & PK Family LP, Barry Winston and Garry Emmott vs. Imperial Petroleum Recovery Corporation; In the 270th Judicial District Court of Harris County, Texas.
17 | P a g e
Date
Description under Chapter 11 of the Bankruptcy Code
Docket #
05-02-2013
The Montgomery County Lawsuit (Imperial Petroleum Recovery Corporation and Alan Springer vs. Don Carmichael, Mary Carmichael, Kirk Kanady, Barry Winston, Edward Gaiennie, Rex Lewis and Agribiofuels, LLC) was removed to the Bankruptcy Court and docketed under Adversary No. 1303087 The Harris County Lawsuit (Don Carmichael, Mary Jane Carmichael, KK & PK Family LP, Barry Winston and Garry Emmott vs. Imperial Petroleum Recovery Corporation) was removed to the Bankruptcy Court and docketed under Adversary No. 13-03098 The Court entered an order granting IPRCs application to employ Pendergraft & Simon, LLP as bankruptcy counsel The Court entered an order granting IPRCs application to employ Michael Jayson as accountant for the Debtor. Alan Springer assigned all claims and causes of action owned by him in the Montgomery County Lawsuit to IPRC. The Court entered an order granting IPRCs application to employ Eric Yollick as Special Counsel to represent it in the two pending adversary cases. The Court entered an order extending the exclusivity period for the Debtor to file a chapter 11 plan of reorganization. Debtor filed a motion for authority to obtain unsecured credit. Debtor filed an application to employ National Realty Consultants as appraisers. Debtor filed a motion for extension of time to file its 10-K disclosures with the SEC. Debtor filed its Combined Plan of Reorganization and Disclosure Statement. Debtor filed an objection to the claim of Don Carmichael. Debtor filed an objection to the claim of Barry Winston Debtor filed an objection to the claim of Mary Jane Carmichael Debtor filed an objection to the claim of KK & PK Family LP Debtor filed an objection to the claim of Gary Emmott The Court entered an order authoring Debtor to obtain unsecured credit. Debtor filed an objection to the claim of Agribiofuels, LLC
39
05-14-2013
50
05-23-2013 05-23-2013 07-11-2013 07-24-2013 08-02-2013 08-27-2013 08-30-2013 08-30-2013 09-17-2013 09-17-2013 09-17-2013 09-18-2013 09-18-2013 09-18-2013 09-19-2013 09-20-2013
65 66 97 109 116 119 120 121 129 131 132 133 134 135 139 140
18 | P a g e
Date 09-20-2013 09-25-2013 09-25-2013 09-29-2013 10-01-2013 10-01-2013 10-01-2013
Description Debtor filed an objection to the claim of Edward Gaienie. The Court entered an order extending the deadline for Debtor to file its 10-K disclosures until the end of December. The Court entered an order authorizing Debtor to employ NRC as professional appraisers to appraiser Debtors 20% interest in ABF. Don Carmichael, et al, filed a motion to deny Debtors disclosure statement Objection to the motion to deny Debtors disclosure statement filed by IPRC Don Carmichael, et al, filed a motion to compel production of Alan Springers personal tax returns. The Court entered an order setting a hearing on Don Carmichael, et als, motion to deny Debtors disclosure statement and motion to compel. Hearing scheduled for 10-10-2013. Don Carmichael, et al, filed their witness list related to their motion to compel. Don Carmichael, et al, filed a certificate of service return on witness subpoena, related to their motion to compel Debtor filed its witness and exhibit list, related to the objection to disclosure statement and motion to compel. Debtor filed its objection and corrected objection to the motion to compel. Motion to quash subpoena and objection to motion to compel filed by Alan Springer. The Court entered an order denying Alan Springers motion to quash subpoena. The Court entered an order on Don Carmichael, et als motion regarding protective order. Debtor filed an amended objection to claim no. 10 filed by Agribiofuels, LLC Debtor filed an amended objection to claim no. 5 filed by Don Carmichael Debtor filed an amended objection to claim no. 11 filed by Edward Gaiennie. Debtor filed an amended objection to claim no. 7 filed by Gary Emmott Debtor filed an amended objection to claim no. 6 filed by KK & PK Family LP Debtor filed an amended objection to claim no. 8 filed by Mary Jane
Docket # 141 147 149 152 153 154 155 & 156
10-06-2013 10-06-2013 10-07-2013 10-10-2013 10-10-2013 10-11-2013 10-11-2013 10-14-2014 10-14-2013 10-14-2013 10-14-2013 10-14-2013 10-14-2013
159 160 161 & 162 163 & 164 165 173 181 166 167 168 169 170 171
19 | P a g e
Date
Description Carmichael.
Docket #
10-14-2013 10-16-2013 10-16-2013 10-16-2013 10-21-2013 10-21-2013 10-21-2013 10-21-2013 10-21-2013 10-27-2013 10-28-2013 10-28-2013 10-29-2013 10-30-2013 10-31-2013 10-31-2013 10-31-2013 10-31-2013 10-31-2013 10-31-2013
Debtor filed an amended objection to claim no. 9 filed by Barry Winston. Debtor filed a notice to all creditors and parties-in-interest of Debtors withdrawal of combined plan of reorganization and disclosure statement. Debtor filed its chapter 11 plan of reorganization Debtor filed its amended disclosure statement. Debtor filed its monthly operating report for September 2013. The Court entered a protective order related to Don Carmichael, et als, motion to compel. The Court entered on order granting Don Carmichael, et als, motion to compel. The Court entered an agreed order granting Don Carmichael, et als, objection to disclosure statement. The Court entered an agreed order setting deadlines for filing amended claim objections. Debtor filed its second motion to extend the exclusivity period for obtaining acceptances of its plan of reorganization. Don Carmichael, et al, filed a notice of intention to take the deposition of the Debtor. Don Carmichael, et al, filed a notice of intention to take the deposition of Ryan Boulware. The Court entered an order setting a hearing on Debtors motion to extend the exclusivity period. Debtor filed a notice of hearing on Debtors motion to extend the exclusivity period. Don Carmichael, et al, filed a motion to strike claim objections. Don Carmichael filed a response to the Debtors objection to his claim. Gary Emmott filed a response to the Debtors objection to his claim. KK & PK Family LP filed a response to the Debtors objection to its claim. Mary Jane Carmichael filed a response to the Debtors objection to its claim. Barry Winston filed a response to the Debtors objection to its claim.
172 178 179 180 184 185 186 187 188 193 194 195 196 197 198 199 200 201 202 203
20 | P a g e
Date 10-31-2013 10-31-2013 11-01-2013 11-07-2013 11-07-2013 11-10-2013 11-15-2013 11-15-2013 11-19-2013 11-20-2013 11-27-2013 11-27-2013 12-05-2013
Description Agribiofuels, LLC filed a response to the Debtors objection to its claim. Edward Gaiennie filed a response to the Debtors objection to its claim. Debtor filed adversary no. 13-3305 to equitably subordinate claims pursuant to Section 510(c) of the Bankruptcy Code. Debtor filed its exhibit and witness list related to its motion to extend the exclusivity period. Agribiofuels, LLC filed an objection to Debtors motion to extend the exclusivity period. Don Carmichael, et al, filed an objection to Debtors motion to extend the exclusivity period. Don Carmichael, et al, filed a notice of intent to take the deposition of James Hammond. Debtor filed a notice of hearing on Debtors amended disclosure statement and deadline to file objections. The Court entered into an order denying motion to extend exclusivity period. Debtor filed its monthly operating report for October 2013 Agribiofuels, LLC filed its response/objection to Debtors amended disclosure statement. Don Carmichael, et al, file a response/objection to Debtors amended disclosure statement. The Court entered an order granting Don Carmichael, et als, motion to strike.
Docket # 204 205 206 208 209 210 213 215 216 217 222 223 225
2.
Current Business Development
Since April 4, 2013, Debtor has concentrated its efforts on obtaining contracts from several multinational corporations. A summary of these potential customers is provided below: One of IPRCs key prospects is a division of one of the worlds largest oil services companies located in Houston, Texas. This division has a focus on oil and gas drilling and production. They operate in over 85 countries. IPRC began discussions with this company in November 2011 and over the past 20 months have conducted 5 technical demonstrations of various emulsions from several locations in the US. All of the demonstrations were deemed excellent by the technical staff of the Company. In July 2013 IPRC was advised the R&D division had strongly recommended the technology be added to the portfolio of specialized equipment for oil and gas operations in the field world-wide. During a meeting in July 2013 the 21 | P a g e
company presented a proposal for a long-term marketing and licensing agreement for consideration. During a subsequent meeting in October 6, 2013 a contract proposal was requested from IPRC which was submitted. A follow-up meeting held on October 8, 2013 was attended by two business line managers and an Agreement was reached in principle for IPRC to provide a unit for one of their operations for extensive field testing at a remote site in Canada. An updated contract proposal was submitted on October 9, 2013 for a 6 month period which could be extended or allow the purchase of the unit used in the demonstration. We were then advised in November that the specific emulsion our MST would be processing at this site was being sent to one of their labs for evaluation to insure the material was suitable for our demonstration. Target date for the lab completion was December 1, 2013. Once the lab reports are received and evaluated, our contract proposal would be converted into a firm contract with a start date during the 1st quarter 2014. IPRC was further advised if the initial results of the demonstration were successful, IPRC would be engaged in providing MST units for several other locations. The total value of the initial contract was $970,000. A second key prospect for IPRC is one of the largest aluminum companies in the world operating in over 30 countries with over 200 individual locations. The division we have been working with produces products for Boeing, Airbus and NASA. The challenge is for IPRC to incorporate the MST technology with other specialized technology in order to remediate the large volumes of water (100K gallons daily) contaminated with hydraulic fluids, oils and other materials so the water can be safely disposed of. This identical opportunity exists in multiple plants throughout the world. IPRCs first meeting on-site in August 2013 was very positive and IPRC subsequently conducted a lab test evaluation of samples from 8 different locations throughout the plant. Over the next several weeks it was determined the Company wanted a sample of the material processed through the full scale MST 1000 unit since this is the unit that would be used on site. This was a reasonable request and we agreed to coordinate the testing with the new material. A conference call with their key engineers was conducted on December 6, 2013 and confirmed a delivery of approximately 300 gallons of their emulsion for MST testing would be delivered to our plant in Houston to be processed through our MST 1000 in December 2013 if the material arrives in time. IPRC believes IPRC technology could solve the problems at this particular plant. The Company indicated they would want the new MST 1000 units to be commissioned in the 2nd quarter 2014. Total value of the initial contract: $10,000,000. A third key prospect for IPRC is a Chinese Energy Company based out of Beijing with offices in Houston and other countries. IPRCs focus has been with their division dealing with energy and environmental clean-up projects in China to include the remediation of FRAC water and also for waste water treatment plants. IPRC had a meeting on November 7th with the General Manager from Beijing and his key management team here in Houston. It was agreed an LOI would be prepared by IPRC which would enable the relationship to be formalized. Subsequent meeting with the Houston staff resulted in a Letter of Intent (LOI) being submitted on November 19th which encompassed three major deliverables: (1) A marketing and licensing agreement between IPRC and this Company for a one-time fee of $3,000,000; (2) The purchase of MST 1000 units for a total of $6,675,000 over the next three years; and (3) authorization of future manufacturing agreements of MST units to be done in China with the exception of the patented applicator which will continue to be manufactured by IPRC. A conference call on
22 | P a g e
December 6th concluded the financial terms of the LOI have been approved in principal by the General Manager and he directed the document be finalized over the next two weeks. Moreover he has requested a demonstration of the MST technology be conducted for the technical staff of this Company in December at the IPRC plant location so his technical staff could evaluate the MST in operation. Total potential value of this contract: $9,675,000. A fourth key prospect is one of the worlds largest integrated oil companies that have interest in incorporating MST technology to several upstream production fields where they are unable to process emulsions without the use of chemicals. They are attempting to substitute microwave energy for chemicals as an environmentally superior solution. IPRC have renewed discussions that began in 2007 and have recently begun with a focus on processing oil emulsions that exist upstream in several locations within the US. IPRC has conducted technical demonstrations of these emulsions under the direction of their R&D Division in Houston. IPRC believes there is an opportunity for IPRCs technology to be incorporated into both the upstream and eventually downstream operations. The most recent discussion with this prospect took place in November and it was proposed the Company would find a suitable location in the field for the MST Technology where it would be operated by their personnel for a period of at least 6 months; very similar to the plan with prospect #1. This was discussed with the business line managers and a location in California was considered the most likely candidate. Total potential value of this contract for the 6 month demonstration and related costs is: $850,000. A fifth major prospect is one of the largest integrated oil companies in the world based out of the Middle East with the highest proven reserves of any Company. Their focus is on exploration, drilling, refinery operations and extensive chemical businesses. They have joint refining operations in China, Japan, Korea and the United States. IPRC was contacted on October 23rd by one of their major contractors in the Middle East who proposed IPRC could become a prime vendor for this major Company. During our discussions over the past several weeks we discussed the best approach might be to bring the MST technology to one of their joint refinery operations here in the US and this was indorsed by the prospect. On November 25, 2013 we were advised a proposal to incorporate MST into a refinery operation in the US jointly run by a US company and the prospect had been formally proposed and that IPRC should submit the documentation for approval and acceptance of the parent Company. This was accomplished on December 2, 2013 and we are now awaiting approval of that project which would be contained in the Companys FY2014 budget. It is too early to estimate the exact value of this relationship but this company is the worlds largest oil producer of almost 10,000,000 barrels per day (bpd) so the potential is very high so at a minimum we are estimating $1,000,000 for the initial project. A sixth major prospect is a small salt water disposal (SWD) company located in the Houston environment. An NDA was signed and sample material was delivered to IPRC for testing. The results of the testing were satisfactory and a meeting was held on October 8, 2013 at which time additional samples were provided to IPRC for additional testing. This Company is preparing a Letter of Intent (LOI) which we expect to receive before December 31, 2013. The LOI outlines the delivery of one of our MST units to their site for a 3 week field test; if
23 | P a g e
successful, the unit would remain there on a long-term lease with an option to buy. Based upon our discussions we dont see any technical reason why our MST will not be successful in this environment and we expect the deliver and test phase to begin in January 2014. Total potential value of this contract is: $950,000. In summary, the total potential value of these business initiatives is summarized below: Prospect 1: Prospect 2: Prospect 3: Prospect 4: Prospect 5: Prospect 6: Total Potential Contracts: H. $970,000 $10,000,000 $9,675,000 $850,000 $1,000,000 $950,000 $23,445,000
POST-PETITION FINANCIAL RESULTS OF OPERATION
Debtors Monthly Operating Report for the period October 2013, is attached hereto as Exhibit 2. I. PUBLIC DISCLOSURES
Debtor has filed all 10-K and 10-Q public disclosures through 2011 with the SEC. Debtor obtained an order from the Bankruptcy Court to file the 2012 10-K and 10-Q disclosures by December 31, 2013. The Debtor presently intends to file its required disclosures by January 31, 2014, and will ask the Court for an extension due to the need to engage a new accounting firm, as Debtors former accountant has gone in-house with Debtors auditor. If Debtor does not cure the delinquency, the Debtor could face sanctions and/or fines from the SEC.
II. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME

A. DEFINITIONS.
For purposes of this Disclosure Statement, except as expressly provided or unless the context otherwise requires, all capitalized terms not otherwise defined shall have the meanings ascribed to them in this Article. Any term used in this Disclosure Statement that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or Bankruptcy Rules. Whenever the context requires, such terms shall include the plural as well as the singular number, the masculine gender shall include the feminine, and the feminine gender shall include the masculine.
24 | P a g e
"Administrative Claim" or Administrative Priority Claim means a Claim that is entitled to priority under 326, 327, 330, 503(b)(1) - (9), 506(c) or 1103 asserted in this case, which Claims are described and treated in Article IV-A of this DS/Plan. "Administrative Claim Bar Date" means the date set by the Court by which Administrative Claims entitled to priority under 326, 327, 330, 503(b), 506(c) or 1103 asserted in this case, including substantial contribution Claims, must be filed. Debtor will request that the Court set the Administrative Claim Bar Date by separate order of the Court. "Allowed Claim" means a Claim or any portion thereof (i) that has been allowed by a Final Order, (ii) that either has been Scheduled as a liquidated, non-contingent, undisputed Claim in an amount greater than zero in the Debtor's Schedules, as the same may from time to time be amended in accordance with the Bankruptcy Code, Bankruptcy Rules or order of the Bankruptcy Court, or is the subject of a timely filed proof of Claim as to which either no objection to its allowance has been filed (either by way of objection or amendment to the Schedules) within the periods of limitation fixed by the Bankruptcy Code or by any order of the Bankruptcy Court, or any objection to its allowance has been settled, waived through payment, or withdrawn, or has been denied by a Final Order, or (iii) that is expressly allowed in a liquidated amount in the Plan; provided, however that with respect to an Administrative Claim, "Allowed Claim" means an Administrative Claim as to which a timely request for payment has been made in accordance with this Plan (if such written request is required) or other Administrative Claim, in each case as to which (i) a timely objection has not been filed, or (ii) a timely objection is filed and such objection has been settled, waived through payment, or withdrawn, or has been denied by a Final Order. Bankruptcy Estate shall mean the estate created under 541 upon the filing of the Bankruptcy Case. "Bankruptcy Rules" mean, collectively, the Federal Rules of Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of Civil Procedure, as amended, as applicable to the Chapter 11 Case or proceedings therein, and the Local Rules of the Bankruptcy Court, as applicable to the Chapter 11 Case or proceedings therein, as the case may be. "Claim" means a claim against any of the Debtors Bankruptcy Estate, whether or not asserted, as defined in 101(5). "Class" means a category of holders of Claims or Interests, as described in Article IV below. "Confirmation" means entry by the Bankruptcy Court of the Confirmation Order confirming this Plan. "Confirmation Date" means the date of entry by the Bankruptcy Court of the Confirmation Order. Confirmation Hearing means the date set by the Court for a hearing to confirm Debtors Plan,
25 | P a g e
which has been set for Tuesday, February 4, 2014, at 10:00 a.m. in Courtroom 600, United States Courthouse, 515 Rusk Street, Houston, Texas. "Confirmation Order" means the order entered by the Bankruptcy Court confirming the Plan. DIP means the Debtor-in-Possession that continues in possession of its property and is operating its business as a debtor-in-possession pursuant to 11 U.S.C. 1107, 1108. Disclosure Statement shall mean this Second Amended Disclosure Statement dated December 23, 2013. Effective Date means the date when the Confirmation Order becomes a Final Order. "Final Order" means an order or judgment of the Bankruptcy Court, as entered on the docket in the Debtors Bankruptcy Case, the operation or effect of which has not been stayed, reversed, or amended and as to which order or judgment (or any revision, modification, or amendment thereof) the time to appeal or seek review or rehearing has expired and as to which no appeal or petition for review or rehearing was filed or, if filed, remains pending. "Impaired" means, when used with reference to a Claim or Equity Interest, a Claim or Equity Interest that is impaired within the meaning of 1124. "Person means an individual, corporation, partnership, governmental unit, joint venture, association, joint stock company, limited liability company, limited liability partnership, trust, estate, unincorporated organization, or other entity. "Plan" means the Second Amended Plan of Reorganization filed on December 23, 2013, a true and correct copy of which is attached hereto as Exhibit 1. "Plan Documents" means any documents referenced in the Plan that are intended to be executed pursuant to the Confirmed Plan. Priority Claim means a Claim asserted under 507(a)(3-10) against the Debtors Bankruptcy Estate. Retained Claims shall mean all claims, rights, defenses, offsets, recoupments, causes of action, actions in equity, or otherwise, whether arising under the Bankruptcy Code or federal, state, or common law, which constitute property of the Estate within the meaning of Section 541 of the Bankruptcy Code, as well as all claims, rights, defenses, offsets, recoupments, claims for subordination, and causes of action arising under Chapter 5 of the Bankruptcy Code (including without limitation the Avoidance Actions and Subordination Claims) with respect to the Debtor, shall be and hereby are preserved for the benefit of the Reorganized Debtor, and shall be and hereby are deemed to be part of the assets vesting in the Reorganized Debtor. The foregoing includes, but is not limited to, all claims and causes of action referenced in the Debtors bankruptcy Schedules, statement of financial affairs, and disclosure statement as presently
26 | P a g e
existing or as may be amended hereafter, including those listed below on pages 41-2. Reorganized Debtor shall mean the post-Effective Date Debtor who shall be vested with the Bankruptcy Estates assets that are not distributed pursuant to this DS/Plan, who shall continue to pursue the Retained Claims, and who shall continue to conduct the business of the Debtor as described below on pages 39 and 41. "Secured Claim" means a Claim, other than a Setoff Claim, that is secured by an Encumbrance, or the proceeds of the sale of such property, in which the Debtor has an interest, to the extent of the value, as of the Effective Date or such later date as is established by the Bankruptcy Court, of such interest or Encumbrance as determined by a Final Order of the Bankruptcy Court pursuant to 506 or as otherwise agreed upon in writing by Debtor and the holder of such Claim. "Substantial Consummation" shall have the meaning given to that term in 1101(2). Substantial Consummation shall occur on the Effective Date. "Unimpaired Claim" means a Claim that is not an Impaired Claim. Unsecured Claim shall mean a Claim that is not a Secured Claim and that is not entitled to priority under 507(a)(1-9), and includes the deficiency portions of any Secured Claim. "Voting Deadline" means Tuesday, January 28, 2014, at 5:00 p.m., the deadline by which Ballots to accept or reject the Plan must be received by Debtors counsel in order to be counted. B. RULES OF INTERPRETATION.
For purposes of this Disclosure Statement, (a) any reference in this Disclosure Statement to a contract, instrument, release, indenture, or other agreement or document being in a particular form or on particular terms and conditions means that such document shall be substantially in such form or substantially on such terms and conditions; (b) any reference in this Disclosure Statement to an existing document or exhibit filed or to be filed means such document or exhibit as it may have been or may be amended, modified, or supplemented; (c) unless otherwise specified, all references in this Disclosure Statement to Sections, Articles, Schedules, and Exhibits are references to Sections, Articles, Schedules, and Exhibits of or to this Disclosure Statement; (d) the words "herein" and "hereto" refer to this Disclosure Statement in its entirety rather than to a particular portion of this Disclosure Statement; (e) captions and headings to Articles and Sections are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation of this Disclosure Statement; and (f) the rules of construction set forth in 102 and in the Bankruptcy Rules shall apply. C. COMPUTATION OF TIME.
All times referenced in thisDisclosure Statement are prevailing Central Time. In computing any period of time prescribed or allowed by this Disclosure Statement, the provisions of Fed. R. Bankr. P. 9006(a) shall apply.
27 | P a g e
III. BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS With respect to all requests for payment of professional fees pursuant to 327, 328, 330, 331, 503(b), 506(c) or 1103 for services rendered and expenses incurred prior to the Effective Date, such professionals shall file and serve an application for final allowance of compensation and reimbursement of expenses no later than 30 days after the entry of the Confirmation Order. IV. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS All Claims and Interests are placed in the Classes set forth below. A Claim or Interest is placed in a particular Class only to the extent that the Claim or Interest falls within the description of that Class, and is classified in other Classes to the extent that any portion of the Claim or Interest falls within the description of such other Classes. A Claim is also placed in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim is an Allowed Claim in that Class and such Claim has not been paid, released, or otherwise settled. A. CLASS 1 - Administrative Claims Professional Fee Claims and U.S. Trustee Quarterly Fees Description. All Claims entitled to administrative priority under 330(a)(1), 503(b)(2) incurred during the Debtor Bankruptcy Case and U.S. Trustee Quarterly Fees Assessed Pursuant to 28 U.S.C. 1930(a)(6). A summary of the claims in Class 1 are as follows:
Claimant United States Trustee 4th Quarter Estimate Estimated based on quarterly fee paid for Third Quarter of 2013. Jayson & Frisby, Accountant for the Debtor Estimated based on unpaid fees and expenses due as of November 30, 2013, in the amount of $49,300.00. Pendergraft & Simon, LLP, Counsel for the Debtor Estimated based on unpaid fees and expenses due as of November 30, 2013, in the amount of $191,158.58. Eric Yollick, Esq., Special Counsel for the Debtor Estimated based on unpaid fees and expenses due as of November 30, 2013, in the amount of $34,152.89. Attorney and Account to complete public filings with SEC Estimated Fees and Expenses Through February 4, 2014 $1,000.00
$65,000.00
$250,000.00
$75,000.00
$50,000.00
28 | P a g e
Treatment. To the extent an Administrative Claim is allowed by the Court as of the Effective Date, it shall be paid by the Debtor in full on the Effective Date, unless a creditor holding an Allowed Administrative Claim agrees to a different treatment. To the extent an Administrative Claim is allowed after the Effective Date, the Debtor shall pay such claim on the date the order allowing such claim becomes a Final Order. The Debtors Bankruptcy Estate shall be responsible for timely payment of the United States Trustee quarterly fees incurred pursuant to 1930(a)(6). Any fees due as of the date of confirmation of the Plan will be paid in full on the Effective Date of the Plan. The Debtor also shall timely pay post-confirmation quarterly fees assessed pursuant to 28 U.S.C. 1930(a)(6) until such time as the Bankruptcy Court enters a final decree closing this chapter 11 case, or enters an order either converting this case to a case under chapter 7 or dismissing this case. After confirmation, the Debtor shall file with the Bankruptcy Court and shall transmit to the United States Trustee a true and correct statement of all disbursements made by the Debtor for each quarter, or portion thereof that this chapter 11 case remains open in a format prescribed by the United States Trustee. Pendergraft & Simon, LLP, Jayson & Frisby, Eric Yollick or and any other administrative professional engaged by the bankruptcy estate shall have the option, but not the obligation, in lieu of receiving cash upon allowance of their Administrative Claims, of converting some or all of their Allowed Administrative Claims into freely trading common stock of the company issued on the Effective Date pursuant to the provisions of 11 U.S.C. 1145(a) at a rate of exchange based on the average trailing share price for the 30 days preceding confirmation as reflected on the pink sheets (Allowed Amount of Claim average trailing share price for the 30 days preceding confirmation). For example, if the average trailing share price for the 30 days preceding confirmation is equal to 5 cents per share, and the Allowed Amount of Claim is equal to $10,000, then the number of shares issued would be 200,000. The Class 1 professionals, with the exception of the attorney and accountant to complete public filings, have agreed to exchange their claims for stock, if necessary in order to satisfy the confirmation requirements of 11 U.S.C. 1129(a)(9). The attorney and accountant completing public filings may also elect to exchange their claims for stock, but, if not, will be paid by advances from either Alan B. Springer and/or James Hammond, as will the payments for UST Quarterly fees. B. CLASS 2 All Other Administrative Claims. Description. All Claims entitled to Administrative Priority under 503(b)(2) other than Class 1 Administrative Claims. Debtor shall request that the Court set an Administrative Claim Bar Date for the same day the Court sets the hearing on Confirmation of the Debtors Plan. The Order Setting the Administrative Claim Bar Date shall be disseminated to all creditors of the Debtor. Only Administrative Claims that are timely filed by the Administrative Claim Bar Date shall be allowed in this class. Debtor is unaware of any claims in this class at this time.
29 | P a g e
Any Creditor with an Allowed Claim in this Class shall have the option, but not the obligation, in lieu of receiving cash upon allowance of their Administrative Claims, of converting some or all of their Allowed Administrative Claims into freely trading common stock of the company issued on the Effective Date pursuant to the provisions of 11 U.S.C. 1145(a) at a rate of exchange based on the average trailing share price for the 30 days preceding confirmation as reflected on the pink sheets (Allowed Amount of Claim average trailing share price for the 30 days preceding confirmation). For example, if the average trailing share price for the 30 days preceding confirmation is equal to 5 cents per share, and the Allowed Amount of Claim is equal to $10,000, then the number of shares issued would be 200,000.. Treatment. Allowed Administrative Claims in Class 2 shall be paid in full on the Effective Date, or as soon thereafter as such claims are allowed by Final Order. C. CLASS 3 Allowed Secured Claims of the Carmichaels, Winston, Emmott and KK&PK Family, L.P. Description. Class 3-A consists of the Allowed Secured claim of Don B. Carmichael, M.D. Dr. Carmichael filed a proof of claim against the Debtor in the amount of $3,171,275.32. In his proof of claim, Dr. Carmichael claims a security interest in virtually all assets of the Debtor. Debtor has signed security agreements with Dr. Carmichael which describes the security provided by Debtor to such Creditors, and provide a description of the security provided by Debtor under the Security Agreements. Dr. Carmichael is also the holder of 1,767,594 shares of restricted common shares of the Debtor. Class 3-B consists of the Allowed Secured claim of Mary Jane Carmichael. Ms. Carmichael filed a proof of claim against the Debtor in the amount of $ $458,371.01. In her proof of claim, Ms. Carmichael claims a security interest in virtually all assets of the Debtor. Debtor has signed security agreements with Ms. Carmichael which describes the security provided by Debtor to such Creditors, and provide a description of the security provided by Debtor under the Security Agreements. Ms. Carmichaels claim may be unsecured, as the UCC Financing Statement filed on February 14, 2012, did not include her as a secured party. Class 3-C consists of the Allowed Secured claim of Barry D. Winston, M.D. Dr. Winston filed a proof of claim against the Debtor in the amount of $239,580.91. In his proof of claim, Dr. Winston claims a security interest in virtually all assets of the Debtor. Debtor has signed security agreements with Dr. Winston which describes the security provided by Debtor to such Creditors, and provide a description of the security provided by Debtor under the Security Agreements. Class 3-D consists of the Allowed Secured claim of Gary Emmott. Mr. Emmott filed a
30 | P a g e
proof of claim against the Debtor in the amount of $61,727.48. In his proof of claim, Mr. Emmott claims a security interest in virtually all assets of the Debtor. Debtor has signed security agreements with Mr. Emmott which describes the security provided by Debtor to such Creditors, and provide a description of the security provided by Debtor under the Security Agreements. Class 3-E consists of the Allowed Secured claim of KK&PK Family, L.P. (KK&PK). KK&PK filed a proof of claim against the Debtor in the amount of $486,820.17. In its proof of claim, KK&PK claims a security interest in virtually all assets of the Debtor. Debtor has signed security agreements with KK&PK which describes the security provided by Debtor to such Creditors, and provide a description of the security provided by Debtor under the Security Agreements. KK&PK is also the holder of 1,460,179 shares of restricted common shares of the Debtor. The claims of the Creditors in this Class 3 are summarized in the below table:
CREDITOR NAME
CLAIM NO.
AMOUNT
NUMBER OF SHARES HELD 1,767,5945
1. 2. 3. 4. 5.
Don B. Carmichael, M.D. Mary Jane Carmichael Barry D. Winston, M.D. Gary Emmott
$3,171,275.32
$458,371.01
$239,580.91
214,286
$61,727.48
KK&PK Family, L.P. TOTAL:
$486,820.17
1,460,179
$4,417,774.89
3,442,059
Treatment. Debtor has filed objections to each of the claims of Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, and KK&PK (hereinafter referred to as the Class 3 Claims held by the Class 3 Creditors). The Court can either direct that these claim objections be litigated, adjudicated and liquidated and all offsets determined in Adversary
5
Shares are restricted.
31 | P a g e
Nos. 13-03087 and 13-03098, or can proceed to litigate, adjudicate and liquidate said claims through the claims objection process. For purposes of confirmation, the Court has set a hearing on January 7, 2014, to estimate and temporarily allow such claims in accordance with 11 U.S.C. 502(c) and Bankruptcy Rule 3018(a). On October 31, 2013, the five Creditors in this Class filed a Motion to Strike Debtors Amended Objections to Proof of Claims. The Debtor failed to respond and the Court, on December 5, 2013, entered an order granting said motion. ECF Documents 198 and 225. The Court has determined that the original claims objections filed in September 2013, remain viable and outstanding, and that the Debtor and the Class 3 Creditors must proceed with the claims estimation hearing scheduled for January 7, 2014. The Debtor has requested that the Court make a determination under 11 U.S.C. 506(a) and Bankruptcy Rule 3012, of the value of the collateral held by the Class 3 Creditors, the secured portion of the Class 3 Creditors Claims and the unsecured portion of the Class 3 Creditors. The Debtor has filed an Expedited Motion Under Bankruptcy Rule 3012 and 11 U.S.C. 505(a) for Valuation of Security of Alleged Secured Creditors in Class 3 Under the Debtors Plan. ECF Document 236. Therein, the Debtor has taken the position that the value of the collateral held by the Class 3 Creditors is as follows:
COLLATERAL Stock and interests in incorporated and unincorporated businesses Patents and intellectual property Automobiles, trucks, trailers and other vehicles and accessories Office equipment, furnishings and supplies Machinery, fixtures, equipment and supplies
DESCRIPTION 20% ownership interest in Agribiofuels, LLC MST and related technologies 18-Wheeler Trailer (salvage value) HP laptop computer MST-1000 Unit (12 years old); MST shipping container; spare skid; spare parts; generator
VALUE 00.00
$500,000 $5,000 $250 $10,000
TOTAL:
$515,250.00
32 | P a g e
The Debtor believes that the Court has stated that the secured and unsecured portion of the Class 3 Creditors Claims will be determined along with the estimation of the Class 3 Creditors Claims at the January 7, 2014, hearing. To the extent that the Class 3 Claims are allowed, and are determined to be secured claims, they will be satisfied in the following fashion: 1. Option 1. To the extent that any portion of the claims of the Class 3 Creditors are determined to be Allowed Secured Claims, Debtor shall have the option to pay such claim in cash on the later to occur of (a) the Allowance of such Secured Claim by Final Order, or (b) the Effective Date, whereupon the Class 3 Creditors shall release their security interests against the Debtors assets by filing termination statements with the Secretary of State of the State of Texas or taking such other action as may be necessary to release such security interests, and the Bankruptcy Court shall specifically retain jurisdiction to enforce such obligation.. 2. Option 2. To the extent that any portion of the claims of the Class 3 Creditors are determined to be Allowed Secured Claims, alternatively, Debtor shall have the option to pay the balance of the allowed claims by issuing a Class 3 Plan Note to each Class 3 Creditor in an amount of such Creditors Allowed Secured Claim. Each Class 3 Note shall provide for payment of the note in 20 equal quarterly installments of principal and interest at a rate of interest equal to 5% or such other rate of interest chosen by the Court at the Confirmation Hearing, said payments to commence on the first day of the first calendar quarter after such claims are finally adjudicated and allowed by Final Orders, or after the Effective Date, which ever is the later to occur. Lien Retention: The Class 3 Creditors shall retain all lien rights they held on any property of the Debtor. However, upon payment in full of all five Class 3 Notes, the Class 3 Creditors shall be obligated to release such lien rights, and the Bankruptcy Court shall specifically retain jurisdiction to enforce such obligation. Default Language: Any default by the Reorganized Debtor in the performance of its obligations under any one or more of the Class 3 Plan Notes shall constitute a default, and any holder of such defaulted note obligation may then exercise all of their remedies set forth in their prepetition loan documents, including any rights to obtain possession and foreclose upon their collateral, provided, however, before exercising any right or remedy under applicable non-bankruptcy law that may be available, (a) said creditors must give written notice of non-monetary default and an opportunity to cure such default for a period of 30 days from the date of service of such written notice of a non-monetary default, and (b) said creditors must give written notice of monetary default and an opportunity to cure such default for a period
33 | P a g e
of 5 days from the date of service of such written notice of a monetary default. Such written notice shall be served by certified mail, return receipt requested, or by messenger, and shall be addressed to the Debtor, at 61. S.Concord Forest Circle, The Woodlands, TX 77381 , and its legal counsel, Pendergraft & Simon, LLP., The Riviana Building, 2777 Allen Parkway, Suite 800, Houston, Texas 77019. These noticing addresses shall be binding upon the Debtor unless different addresses are provided in writing to the attorneys for the Class 3 Creditors, John Marek and Karen Emmott. Cram Down. In the event that any of the Class 3 Creditors rejects the Plan, the Debtor shall seek to confirm the Plan over the rejection by invoking 11 U.S.C. 1129(b)(2)(A)(i). Specifically, the Debtor will provide each Class 3 Creditor with a promissory note for the amount of said creditors claim, payable in 24 equal quarterly installments of principal and interest calculated at an rate of interest equal to 5% or such other rate of interest chosen by the Court at the Confirmation Hearing, said payments to commence on the first day of the first calendar quarter after such claims are finally adjudicated and allowed by Final Orders, or after the Effective Date, which ever is the latest to occur, and (a) said creditors shall retain their liens securing Claims; (b) the deferred cash payments will total at least the allowed amount of such claim, regardless of whether said creditors make the 11 U.S.C. 1111(b)(2) election; and (c) the deferred cash payments will have at least a value equal to the value of said creditors interest in the estates interest in their collateral. The Lien Retention and Default Language provisions above shall apply. To the extent the Class 3 Creditors Claims are allowed and are determined to be unsecured claims, they will receive the same treatment as the unsecured claims of Creditors in Class 5; however Debtor submits that the Class 3 Creditors are judicially estopped from claiming that their claims are unsecured based on the proofs of claim they have filed. D. CLASS 4 Allowed Secured Claims of Taxing Authorities Description. Class 4 consists of the Allowed Secured Claims of Taxing Authorities, as follows: Class 4-A. Harris County Tax Assessor Collector has filed a proof of claim in the amount of $9,374.94. Debtor is still investigating this claim to determine whether a claim objection will be necessary. Class 4-B. Aldine ISD has filed a proof of claim in the amount of $35,042.68. Debtor is still investigating this claim to determine whether a claim objection will be necessary. Class 4-C. Greens Parkway MUD has filed a proof of claim in the amount of $12,282.28. Debtor is still investigating this claim to determine whether a claim objection
34 | P a g e
will be necessary. Treatment. The ad valorem tax claimants shall be treated as follows: The Reorganized Debtor shall issue to each taxing authority a Class 4 Plan Note for the full amount of the taxes due, as agreed upon by the taxing authority and the Debtor, or as determined by the Court. Principal and interest under each Class 4 Plan Note shall be paid monthly as though amortized over a fourty-eight month term at a twelve percent interest rate. Each Class 4 Plan Note shall become due and payable in full on four years after the Effective Date. Lien Retention: The Taxing Authorities shall retain all liens they currently hold, whether for pre-petition tax years or for the current tax year, on any property of the Debtor until they receive payment in full of all taxes, and interest owed to them under the provisions of this Plan, and their lien position shall not be diminished, subordinated or primed. Default Language: In the event of a default, there will be full reinstatement of the administrative collection powers and rights of ad valorem Taxing Authorities as they existed prior to the filing of the bankruptcy petition in this case, including, but not limited to, the assessment of taxes, the filing of Notices of Tax Liens and the powers of levy, seizure and sale. E. CLASS 5 Allowed Unsecured Claims of Debtor Description. Class 5 Unsecured Creditors are described in the following table:
UNSECURED CREDITORS
CREDITOR NAME
AMOUNT DEBTORS SCHEDULES
CONTINGENT UNLIQUIDATED DISPUTED/OBJECTION CUD OBJECT6
CREDITOR FILED PROOF OF CLAIM
PLAN PROPONENT POSITION ON ALLOWANCE
DATE
AMOUNT
6. 7.
Agribiofuels, LLC (POC 10) Akin Gump
00.00
YES
8/7/2013
$1,500,000.00
00.00
13,487.00
N/A7
00.00
6 7
A Yes notation in this column indicates that the Debtor will file an objection to claim. N/A means that an objection is not needed.
35 | P a g e
UNSECURED CREDITORS
CREDITOR NAME
DATE
AMOUNT
8. 9. 10. 11.
Alan Springer8
$1,234,139.60
NO
$1,224,139.60
Amtek, Inc.
$18,260.71
NO
$18,260.71
Agribiofuels, LLC Applied Control Engineering (ACE) Basic Equipment (POC 12) Ferrite $76,003.33 D N/A
8/7/2013
$1,500,000.00
00.00
00.00
12. 13. 14. 15. 16.
0.00
YES
67,398.66
0.00
$1,227.00
N/A
00.00
Edward C. Galennie Grantt Accounting Firm Hoga Technology $36,045.00 D N/A
8/7/2013
$12,000.00
00.00
00.00
$90,582.00
N/A
00.00
The claim of Alan Springer is an insider claim, and consists of a claim for $1,199,297 for accrued salary per Mr. Springers Employment Agreement with the Debtor for the period February 2008 through January 31, 2013. The balance of the claim, $38,512, represented non-interest bearing loans made by Mr. Springer to the Debtor between November 1, 2012 and January 31, 2013. These loans were from Mr. Springers personal bank account into the Debtors bank account. There are no written loan agreements with the Debtor, and Debtor maintains no formal accounting of the loans in writing; however, the dollar value of the loans are recorded on the financial records of IPRC and are reflected on the official 10K filings submitted to the SEC.
36 | P a g e
UNSECURED CREDITORS
CREDITOR NAME
DATE
AMOUNT
17. 18. 19. 20. 21.
James Hammond9 Locke Lord
$48,000.00
NO
$48,000.00
$12,029.10
NO
5/6/2013
$10,769.10
$10,769.10
Tebjes, Inc.
00.00
YES
8/8/2013
$67,398.56
00.00
Thomas Balke (POC 13) Vision Engenharia E Consultoria Ltda. Ward Insurance WunderlichMalec Engineering Total
$50,000.00
NO
$50,000.00
50,000.00
$10,287.41
NO
$10,287.41
22. 23.
$3,663.00
N/A
00.00
$735.00
NO
735.00
$1,589,071.79
$1,362,191.82
Treatment. The Allowed Claims of Creditors in this Class 5 shall have the option to choose from the following three treatments: Option 1. Each Creditor with an Allowed Unsecured Claim in this Class may elect to receive fifty percent (50%) of the amount of said Creditors Allowed Unsecured Claim in 20 equal quarterly installments of principal and interest calculated at a rate of interest equal to 5% or such other rate of interest chosen by the Court at the Confirmation Hearing, said
9
The claim of James Hammond is an insider claim, and consists of a claim for expense reimbursement which Mr. Hammond testified in his 2004 examination is not supported by documents, concern expenses which he has not quantified or calculated, was supposed to be paid as part of Debtor's contract with Petrobras in Brazil, is not formally documented in writing with the Debtor. Debtor disagrees with this, and believes that Mr. Hammond did prepare an expense voucher with documentation which was reviewed and approved by Mr. Springer and was included with the financial date to the auditors for FY2011 returns. A copy of this expense document was provided to counsel for Petitioning Creditors.
37 | P a g e
payments to commence on the first day of the first calendar quarter after such claims are finally adjudicated and allowed by Final Orders, or after the Effective Date, which ever is the later to occur. Option 2. Each Creditor with an Allowed Unsecured Claim in this Class may elect to receive a cash payment on the Effective Date equal to ten percent (10%) of the allowed amount of the claim of such Creditor. For example, if a Class 5 Creditor has a claim in the allowed amount of $10,000.00, said Creditor will receive a cash payment on the Effective Date equal to $1,000.00. Option 3. Each Creditor with an Allowed Unsecured Claim in this Class may elect to convert some or all of said Creditors Allowed Unsecured Claim into freely trading common stock of the company issued on the Effective Date pursuant to the provisions of 11 U.S.C. 1145(a) at a rate of exchange based on the average trailing share price for the 30 days preceding confirmation as reflected on the pink sheets (Allowed Amount of Claim average trailing share price for the 30 days preceding confirmation). For example, if the average trailing share price for the 30 days preceding confirmation is equal to 5 cents per share, and the Allowed Amount of Claim is equal to $10,000, then the number of shares issued would be 200,000. Cram Down. If the Unsecured Creditors with Allowed Unsecured Claims in this Class 5 vote to reject the Plan in this Class, Debtor shall invoke the provisions of 11 U.S.C. 1129(b)(2)(B) to confirm the Plan notwithstanding such rejection, and shall have the option of invoking any of the Option 1, 2 or 3, above. F. CLASS 6 Allowed Interests of Debtors Shareholders Description. Class 6 consists of the Allowed Interests of current shareholders of the Debtor. Treatment. The Allowed Interest holders in the Debtor shall retain their stock interests in the Debtor as they exist on the Effective Date of the Plan, and such stock interests shall be unimpaired and shall survive the Effective Date unaltered by the DS/Plan; provided, however, because of what is referred to as the absolute priority rule, if any creditor in Classes 3, 4 or 5 object to the fact that the shareholders are retaining their equity interests under circumstances where such creditors are not being paid in full, the interests of current shareholders will be extinguished. In such case the current shareholders stock interests shall be cancelled. G. CLASS 7 Allowed Priority Claims of the Internal Revenue Service Description. Class 7 consists of the Allowed Priority Claims, if any, of the Internal Revenue Service for pre-April 4, 2013, withholding taxes. Treatment. The Allowed priority claim of the Internal Revenue Service shall be treated under 11 U.S.C. 1129(a)(9)(C), and shall paid quarterly payments of principal and
38 | P a g e
interest at the statutory rate provided in the Internal Revenue Code, said payments to commence on the first day of the first calendar quarter after such claims are finally adjudicated and allowed by Final Orders, or after the Effective Date, which ever is the later to occur. A final payment of all unpaid principal and interest shall be due five years after April 4, 2013. IN REFERENCE TO ALL CLASSES DESCRIBED ABOVE, I.E. CLASSES 1-7, CURRENTLY THE DEBTOR HAS NO INCOME STREAM WITH WHICH TO MAKE PAYMENTS UNDER THE PLAN. THE DEBTOR BELIEVES THAT BY THE TIME THE PLAN IS SUBMITTED FOR CONFIRMATION THAT IT WILL HAVE THE REQUIRED FUNDS TO PERFORM UNDER THE PLAN. V. MEANS FOR EXECUTION OF THE PLAN A. EXECUTION OF ALL DOCUMENTS NECESSARY TO CONSUMMATE THE PLAN. On the Effective Date, the Debtor and all Creditors shall, without further order of the Court, execute and deliver all documents and instruments reasonably necessary to effect the transactions provided for in this DS/Plan. B. MANAGEMENT OF THE DEBTOR. The Debtor shall continue to be managed by its prepetition management team, with Alan B. Springer acting as the Debtors CEO, and Ryan A. Boulware acting as the Debtors Director of Operations, Field Testing and Training. The current board of directors consisting of Alan B. Springer and James Hammond, shall remain in place post-Effective Date. The curriculum vitae for Alan B. Springer, Ryan A. Boulware and James Hammond appear in section I-B-7 on page 10 of this Disclosure Statement. The compensation arrangements for Alan B. Springer will be modified when his current contract expires at the end of February 2014. At that time, Mr. Springers going forward compensation will be $128,000 annually, and an employment contract similar to the one currently in place will be executed as between Mr. Springer and the Debtor at that time. The going forward salary arrangement with Ryan A. Boulware will be $90,000 on an annual basis. Mr. Hammond will receive no compensation as a director of the Debtor. C. DISBURSING AGENT The Disbursing Agent shall be the Debtor's accountant, Mr.
1. Disbursing Agent. Michael P. Jayson, CPA.
2. Source of Funds for Distrubutions. On and after the Effective Date, the Debtor shall deliver to the Disbursing Agent funds necessary in order to make the payments to Creditors under the DS/Plan. The Disbursing Agent shall deposit such funds in an interest bearing account
39 | P a g e
in a banking institution approved for deposit of funds held by the Office of the United States Trustee for Southern District of Texas. 3. Distribution of Proceeds to Creditors. The Disbursing Agent shall distribute the proceeds received from the Reorganized Debtor to Creditors with Allowed Claims in accordance with Article IV of this DS/Plan. 4. Reporting to Creditors and to the Court. The Disbursing Agent shall, on a quarterly basis, prepare a r until a final decree is entered and the case is closed. 5. Payment of Post-Confirmation Quarterly Fees. The Disbursing Agent shall continue to report to the United States Trustee (UST) regarding post-confirmation distributions made by the Bankruptcy Estate so that the UST can determine the fees incurred pursuant to 28 U.S.C. 1930(a)(6), and timely pay same until the clerk of the Court closes the Chapter 11 Case. 6. Costs of the Disbursing Agent. The Disbursing Agent shall be paid a one-time set up fee of $1,500 plus $300.00 per month for each month during which he is the Court appointed Disbursing Agent. The one-time set up fee is the charge for time that will be required to open a bank account for the Disbursing Agent, for review of the Confirmed Plan, and time spent in meetings with the Debtors management and bankruptcy counsel to discuss the duties and obligations of the Disbursing Agent and the Debtor under the Plan. Any work performed by Jayson & Frisby beyond Michael P Jaysons duties as Disbursing Agent shall be compensated at the firms normally hourly billing rates. 7. Removal and Replacement of Disbursing Agent. The Disbursing Agent may resign at any time, or the Debtor may remove the Disbursing Agent. Upon the resignation of the Disbursing Agent or the removal of the Disbursing Agent by the Debtor, the Debtor shall, within five days of such an event occurring, approve a substitute Disbursing Agent. Within forty-eight hours after the appointing a new Disbursing Agent, the prior Disbursing Agent shall account for all funds on deposit in the Disbursing Agents account, and transfer the funds to the new Disbursing Agent. VI. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE
The occurrence of each of the following events shall be a separate condition to the Consummation Date. A. ENTRY OF CONFIRMATION ORDER.
The Confirmation Order shall have been signed by the Court and duly entered on the Courts docket in form and substance acceptable to the Debtor, and shall include, among other things, findings of fact and/or conclusions of law that: 1. approve the terms of the Plan, as it may be amended or modified, and all other agreements contemplated by the Plan;
40 | P a g e
2. provide that, except as otherwise expressly provided in the Plan, all entities who have held, hold or may hold Claims against, or Interest in, the Debtors Bankruptcy Estate will be permanently enjoined, on and after the Confirmation Date, from (i) commencing or continuing in any manner any action or other proceeding of any kind with respect to any such Claim, (ii) the enforcement, attachment, collection or recovery by any manner or means of any judgment, award, decree or order against the Debtor or against the Debtors Bankruptcy Estate on account of any such Claim, (iii) creating, perfecting or enforcing any encumbrance of any kind against Debtor or the Debtors Bankruptcy Estate on account of any such Claim, and (iv) asserting any right of setoff, subrogation or recoupment of any kind against any obligation due from Debtor or the Debtors Bankruptcy Estate on account of any such Claim; provided however, notwithstanding any provision of the Plan to the contrary, each holder of a Claim shall be entitled to enforce his, her or its rights under the Plan; 3. reserve the jurisdiction of the Bankruptcy Court in accordance with Section XII, below; 4. terminate the automatic stay under 362; and 5. provide, pursuant to 1125(e), that persons who have solicited acceptances or rejections of the Plan have acted in good faith and in compliance with the provisions, and are not liable on account of such solicitation or participation for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan. B. FINALITY OF CONFIRMATION ORDER; WAIVER.
The Confirmation Order, in form and substance satisfactory to Debtor shall either have become a Final Order, or such condition shall have been waived by the Debtor. VII. PRESERVATION OF RETAINED CLAIMS AND VESTING Vesting. Except as otherwise provided in the DS/Plan or the Confirmation Order, pursuant to 1123(a)(5) and 1141, on the Effective Date, the all assets owned by the bankruptcy estate shall be deemed vested in the Reorganized Debtor. Retention and Enforcement of Causes of Action. All claims, rights, defenses, offsets, recoupments, causes of action, actions in equity, or otherwise, whether arising under the Bankruptcy Code or federal, state, or common law, which constitute property of the Estate within the meaning of Section 541 of the Bankruptcy Code, as well as all claims, rights, defenses, offsets, recoupments, claims for subordination, and causes of action arising under Chapter 5 of the Bankruptcy Code, including, without limitation, the preference claim that the Debtor is considering asserting against one or more of the Carmichaels, Winston, Emmott and KK&PK, shall be and hereby are preserved for the benefit of the Reorganized Debtor, and shall be and hereby are deemed to be part of the assets vested in the Reorganized Debtor on the Effective Date. The foregoing includes, but is not limited to, all causes of action that the Debtor and its estates may hold against the Carmichaels, Winston, Emmott, Gaiennie, ABF and K.K. &
41 | P a g e
P.K. as described in Adversary Proceeding Nos. 13-03087 and 13-03098. Settlement of Retained Claims and Objections to Claims. After the Confirmation Date, the Reorganized Debtor shall be authorized to settle and compromise any and all Retained Claims and any objections to Claims without further order of the Court. VIII. ACCEPTANCE OR REJECTION OF THE PLAN Classes Entitled to Vote. Each Impaired Class of Claims or Interests that will (or may) receive or retain property or any interest in property under the Plan shall be entitled to vote to accept or reject the Plan. Ballots shall be cast and tabulated with respect to Claims against and Interests in the Debtors Bankruptcy Estate. By operation of law, each Unimpaired Class of Claims is deemed to have accepted the Plan and, therefore, is not entitled to vote to accept or reject the Plan. Classes 3 and 5 are impaired and are entitled to vote. Acceptance or Rejection by Impaired Classes. An Impaired Class of Claims shall have accepted the Plan if (i) the holders (other than any holder designated under 1126(e)) of at least two-thirds in amount of the Allowed Claims actually voting in such Class have voted to accept the Plan; and (ii) the holders (other than any holder designated under 1126(e)) of more than one half in number of the Allowed Claims actually voting in such Class have voted to accept the Plan. A Class is deemed not to have accepted the Plan if the Plan provides that the Claims or Interests of such Class do not entitle the holders of Claims or Interests in such Class to receive or retain any property under the Plan on account of such Claim or Interest. Cramdown. The Debtor will request Confirmation of the Plan, as it may be modified from time to time, under 1129(b) (Cramdown). IX. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES Under 365, the Debtor has the right, subject to Bankruptcy Court approval, to assume or reject any executory contracts or unexpired leases. If the Debtor rejects an executory contract or unexpired lease, it will be treated as if it had been breached on the date immediately preceding April 4, 2013, and the other party to the agreement may assert a General Unsecured Claim in Class 5 for damages incurred as a result of the rejection. In the case of rejection of employment agreements and real property leases, damages are subject to certain limitations imposed by 365 and 502. Debtor is unaware of any contracts that need to be rejected.
X. MODIFICATIONS AND AMENDMENTS The Debtor may alter, amend, or modify the Plan or any Exhibits thereto under 1127(a) at any time prior to the Confirmation Date. After the Confirmation Date and prior to the earlier of (i) the Consummation Date; or (ii) Substantial Consummation of the Plan, the Debtor may, under 1127(b), institute proceedings in the Bankruptcy Court to remedy any defect or omission
42 | P a g e
or reconcile any inconsistencies in the Plan, the Disclosure Statement approved with respect to the Plan, or the Confirmation Order, and such matters as may be necessary to carry out the purpose and effect of the Plan so long as such proceedings do not adversely affect the treatment of holders of Claims or Equity Interests under the Plan; provided, however that prior notice of such proceedings shall be served in accordance with the Bankruptcy Rules or order of the Bankruptcy Court. XI. RETENTION OF JURISDICTION
Under 11 U.S.C. 105(a) and 1142, and notwithstanding entry of the Confirmation Order and passage of the Consummation Date, the Court shall retain exclusive jurisdiction over all matters arising out of, and related to, the Chapter 11 Case and the Plan to the fullest extent permitted by law, including, among other things, jurisdiction to: A. Allow, disallow, determine, liquidate, classify, estimate or establish the priority or secured or unsecured status of any Claim or Interest, including the resolution of any request for payment of any Administrative Claim or Priority Claim or the resolution of any objections to the allowance or priority of Claims or Interest; Hear and determine all applications for compensation and reimbursement of expenses of Administrative Claims or Priority Claims; Hear and determine all matters with respect to the assumption or rejection of any executory contract or unexpired lease to which the Debtor is a party or with respect to which the Debtor may be liable, including, if necessary, the liquidation or allowance of any Claims arising therefrom; Effectuate performance of and payments under the provisions of the Plan; Enter such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan, and all contracts, instruments, releases, and other agreements or documents created in connection with the Plan, the Disclosure Statement or the Confirmation Order; Hear and determine disputes arising in connection with the interpretation, implementation, consummation, or enforcement of the Plan, including disputes arising under agreements, documents or instruments executed in connection with the Plan; Consider any modifications of the Plan, cure any defect or omission, or reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order; Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any entity with
B. C.
D. E.
F.
G.
H.
43 | P a g e
implementation, consummation, or enforcement of the Plan or the Confirmation Order; I. Enter and implement such orders as may be necessary or appropriate if the Confirmation Order is for any reason reversed, stayed, revoked, modified, or vacated; Hear and determine any matters arising in connection with or relating to the Plan, the Disclosure Statement, the Confirmation Order or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement or the Confirmation Order; Enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings entered in connection with the Debtors Bankruptcy Case; Hear and determine matters concerning state, local, and federal taxes in accordance with 346, 505, and 1146; Hear and determine all matters related to the property of the Debtors Bankruptcy Estate from and after the Consummation Date; Hear and determine such other matters as may be provided in the Confirmation Order and as may be authorized under the provisions of the Bankruptcy Code; and Enter a final decree closing the Debtors Bankruptcy Case. XII. EFFECTS OF CONFIRMATION A. BINDING EFFECT.
J.
K.
L. M. N. O.
The Plan shall be binding upon all present and former holders of Claims and Interests and their respective successors and assigns. B. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR PAYMENT.
Except as otherwise expressly provided in the Plan, all entities who have held, hold or may hold Claims against, or Interest in, the Debtors Bankruptcy Estate or the Debtor will be permanently enjoined, on and after the Effective Date, from (i) commencing or continuing in any manner any action or other proceeding of any kind with respect to any such Claim, (ii), the enforcement, attachment, collection or recovery by any manner or means of any judgment, award, decree or order against the Debtor or the Debtors Bankruptcy Estate, (iii) creating, perfecting or enforcing any encumbrance of any kind against the Debtor or the Debtors Bankruptcy Estate on account of any such Claim and (iv) asserting any right of setoff not
44 | P a g e
preserved by 11 U.S.C. 553(a), subrogation or recoupment of any kind against any obligation due from the Debtor or the Debtors Bankruptcy Estate on account of any such Claim; provided, however, notwithstanding any provision of the Plan to the contrary, (a) each holder of a Claim shall be entitled to enforce his, her or its rights under the Plan, and (b) there is no injunction concerning claims against any of the current or former principals of the Debtor or against any non-debtor entity. C. EXCULPATION AND LIMITATION OF LIABILITY.
1. Neither the Debtors Bankruptcy Estate, nor the Debtor, nor the Debtors officers, directors, agents, attorneys or accountants will have or incur any liability to any holder of a Claim or an Interest, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of, the solicitation of votes to accept the Plan, the Debtors Bankruptcy Case, the pursuit of confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for their willful misconduct or as provided by the Plan, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. 2. No holder of a Claim or Interest, no other party in interest, none of their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, and no successors or assigns of the foregoing, will have any right of action against the Debtors Bankruptcy Estate or the Debtor, or the Debtors officers, directors, agents, attorneys or accountants for any act or omission in connection with, relating to, or arising out of the solicitation of votes to accept the Plan, or the pursuit of confirmation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except as provided by the Plan or by law. XIII. DISCHARGE Pursuant to Section 1141(d)(3) of the Bankruptcy Code, the Debtor, shall be discharged of and from all claims of creditors in Classes 1 through 5 and 7 under the Plan, except for the obligations under the Plan Documents. XIV. MISCELLANEOUS PROVISIONS
Payment of Statutory Fees. All fees payable under 28 U.S.C. 1930 shall be paid on or as soon after the Consummation Date as is practicable by the Debtor. Severability of Plan Provisions. If, prior to Confirmation, any term or provision of the Plan is held by the Court to be invalid, void or unenforceable, the Court, at the request of a party in interest, shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term
45 | P a g e
or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration or interpretation, the remainder of the terms and provisions of the Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may be altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. Successors and Assigns. The rights, benefits and obligations of any entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor or assign of such entity, Consummation of Plan. The Confirmation Order shall include (a) a finding by the Bankruptcy Court that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order; and (b) the Bankruptcy Court's authorization for the Debtor to consummate the Plan immediately after entry of the Confirmation Order. Governing Law. Unless a rule of law or procedure is supplied by federal law, including the Bankruptcy Code and Bankruptcy Rules, (i) the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan, and (ii) corporate governance matters shall be governed by the laws of the state of incorporation, without giving effect to the principles of conflicts of law thereof. XV. FEASIBILITY The Plan provides for the reorganization of the Debtor. The Bankruptcy Code requires that confirmation of the Plan is not likely to be followed by liquidation or the need for further financial reorganization. For purposes of determining whether the Plan meet this requirement, the Debtor has projected that it will be in a position to fund the monthly payments required under the Plan. Attached hereto and incorporated herein by referenced as Exhibit 3 are a set of projections for the sixty months commencing January 1, 2014. These projections project Net Income that is available for debt service. XVI. CONFIRMATION OF THE PLAN A. VOTING PROCEDURES AND REQUIREMENTS.
The Debtor is providing copies of this Disclosure Statement and Ballots to all known holders of Impaired Claims and Interests who are entitled to vote on the Plan. Pursuant to the provisions of the Bankruptcy Code, Classes 2 through 7 under the Plan are or may be determined to be Impaired under the terms and provisions of the Plan and entitled to vote to accept or reject the Plan. Accordingly, Classes of Claims or Interests that are not Impaired under the terms and provision of the Plan are not entitled to vote on the Plan, which would include Classes 1 and 2 under the Plan. In addition, Classes of Claims or Interests that are
46 | P a g e
not entitled to a Distribution under the terms and provisions of the Plan are deemed to have rejected the Plan and are not entitled to vote to accept or reject the Plan. Under the Plan, holders of Claims in Classes 3, 4, 5, 6 and 7 are, or may be determined to be, Impaired, and, therefore, are entitled to vote to accept or reject the Plan. The following voting procedures (the Voting Procedures) have been established with respect to the amount and classification of Claims and Interests, and the determination of the validity of Ballots submitted, for voting purposes: Unless otherwise provided below, a claim will be deemed temporarily allowed for voting purposes in an amount equal to (i) if a timely filed proof of claim has not been filed, the amount of such claim as set forth in the schedules of assets and liabilities, filed by the Debtor or (ii) the amount of such claim as set forth in a timely filed proof of claim. If a claim is deemed allowed in accordance with the Plan, such claim will be allowed for voting purposes in the deemed allowed amount set forth in the Plan. If a claim has been estimated or otherwise allowed for voting purposes by order of the Court, such claim will be temporarily allowed for voting purposes in the amount so estimated or allowed by the Court. Ballots that are otherwise validly executed but do not indicate either acceptance or rejection of the Plan will not be counted. Only Ballots that are timely received with signatures will be counted. Unsigned ballots will not be counted. Ballots postmarked prior to the Voting Deadline, but received after the Voting Deadline, will be counted. Ballots that are illegible, or contain insufficient information to permit the identification of the creditor, will not be counted. If a creditor simultaneously casts inconsistent duplicate ballots, with respect to the same claim, such ballots shall not be counted. Unless otherwise ordered by the Court, questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawal of ballots shall be determined by the Bankruptcy Court at the Confirmation Hearing. IN ORDER TO BE COUNTED, EXCEPT TO THE EXTENT THE DEBTOR SO DETERMINE OR AS PERMITTED BY THE BANKRUPTCY COURT PURSUANT TO BANKRUPTCY RULE 3018, BALLOTS MUST BE SIGNED AND RETURNED SO THAT THEY ARE RECEIVED NO LATER THAN 5:00 P.M., ON TUESDAY, JANUARY 28, 2013 AT THE FOLLOWING ADDRESS:
47 | P a g e
Leonard H. Simon, Esq. PENDERGRAFT & SIMON, L.L.P. The Riviana Building 2777 Allen Parkway, Suite 800 Houston, Texas 77019 (832) 202-2810 (Telecopy) Email: lsimon@pendergraftsimon.com ATTORNEY FOR DEBTOR BALLOTS WILL BE ACCEPTED BY REGULAR MAIL, FACSIMILE OR EMAIL As mentioned above, if your Ballot is not signed and returned as described, it will not be counted. If your Ballot is damaged or lost, or if you do not receive a Ballot, you may request a replacement by addressing a written request to Debtors counsel at the above address by regular mail, facsimile or email. Please follow the directions contained on the Ballot carefully. The process of soliciting acceptance of the Plan must be fair and open without outside influence in the form of representations, inducements or duress of any kind. To the extent that you believe solicitation of your vote from any party is being sought outside of the judiciallyapproved and statutorily-defined disclosure requirements and Voting Procedures, please contact counsel for the Debtor. B. ACCEPTANCE.
Acceptance of the Plan requires that each Impaired Class of Claims or Interests (as classified therein) accepts the Plan, with certain exceptions hereinafter discussed below. Thus, acceptance of the Plan requires acceptance by each of the Impaired Classes. Classes of Claims and Interests that are Unimpaired under the Plan are deemed to have accepted the Plan. Acceptances of the Plan are being solicited only from those persons who hold Claims or Interests of Impaired Classes. The Bankruptcy Code defines acceptance of the Plan by a Class of Claims as acceptance by the holders of at least two-thirds (2/3) in dollar amount and a majority in number of Claims of that class, but for that purpose, only those Claims, the holders of which actually vote to accept or reject the Plan, are counted. C. CONFIRMATION OF THE PLAN.
To confirm the Plan, 1129 requires the Bankruptcy Court to make a series of determinations concerning the Plan, including, without limitation: (i) that the Plan has classified Claims and Interests in a permissible manner; (ii) that the contents of the Plan complies with the technical requirements of the Bankruptcy Code; (iii) that the Debtor has proposed the Plan in good faith; and (iv) that the Debtor has made disclosures concerning the Plan which are adequate and include information concerning all payments made or promised in connection with the Plan and the HDD Bankruptcy Case. The Debtor believes that all of these conditions have been or 48 | P a g e
will be met with respect to the Plan. The Bankruptcy Code requires that, unless the Cramdown provisions of the Bankruptcy Code (as discussed below) are utilized, as a condition precedent to confirmation, the Plan be accepted by the requisite votes of each Class of Claims and Interests voting as separate Classes. Therefore, the Bankruptcy Court must find, in order to confirm the Plan, that the Plan has been duly accepted. In addition, the Bankruptcy Court must find that the Plan is feasible and that the Plan is in the best interests of all holders of Claims and Interests. Thus, even if holders of Claims were to accept the Plan by the requisite number of votes, the Bankruptcy Court is still required to make independent findings respecting the Plans feasibility and whether the Plan is in the best interests of holders of Claims and Interests before it can confirm the Plan. D. THE BEST INTERESTS TEST.
Whether or not the Plan is accepted by each Impaired Class of Claims entitled to vote on the Plan, in order to confirm the Plan the Bankruptcy Court must independently determine, pursuant to 1129(a)(7), that the Plan is in the best interests of each holder of an Impaired Claim or Interest that has not voted to accept the Plan. This requirement is satisfied if the Plan provides each non-accepting holder of a Claim or Interest in such Impaired Class a recovery on account of such holders Claim or Interest that has a value, as of the Effective Date, at least equal to the value of the Distribution each such holder would receive in a liquidation of the Debtor under Chapter 7. To determine the value that holders of Impaired Claims and Interests would receive if the Debtor was liquidated under Chapter 7, the Bankruptcy Court must determine the aggregate dollar amount that would be generated from the liquidation of the Debtors assets if the Case was converted to Chapter 7 liquidation and the Debtors assets were liquidated by a Chapter 7 trustee (the Liquidation Value). Debtors Liquidation Analysis is as follows: IPRC LIQUIDATION ANALYSIS Cash on Hand Debtors 20% Interest in Agribiofuels, LLC Contingent and unliquidated claims Patents and intellectual property10 Automobiles, trucks, trailers and other vehicles and accessories
10
0.00 0.00 0.00 0.00 $5,000.00
In liquidation, Debtor believes that its patents would have a zero value. These patents only have value if the company is an ongoing business enterprise. This is the opinion of the CEO, Alan B. Springer, based on discussions Mr. Springer has had with a proposed expert on valuation of intellectual property rights, A. John Demarco, of the lawfirm of Pillsbury Winthrop Shaw Pittman LLP. Mr. Demarcos opinion is attached hereto as Exhibit 9. However, Mr. Demarco has not given an opinion on the liquidation value of the patents.
49 | P a g e
IPRC LIQUIDATION ANALYSIS Office equipment, furnishings and supplies Machinery, fixtures, equipment and supplies Chapter 7 Trustees Fees and Fees and Expenses of counsel and accountants TOTAL LIQUIDATION PROCEEDS $250.00 $10,000.00 -$10,000.00 $5,250.0011
It is apparent from the above Liquidation Analysis that, in a liquidation, the Creditors in this estate will receive no distribution at all, and the stock interests of the shareholders will be valueless. Therefore, the Plan provides a better distribution to unsecured creditors than they would receive if this case had been commenced as, or if it was converted to, one under Chapter 7 of the Code. XVII. DISCLAIMERS
The Debtor has No Duty to Update. The statements contained in thisDisclosure Statement are made by the Debtor as of the date hereof, unless otherwise specified herein, and the delivery of thisDisclosure Statement after that date does not imply that there has been no change in the information set forth herein since that date. The Debtor has no duty to update thisDisclosure Statement unless otherwise ordered to do so by the Bankruptcy Court. Source of Information. Counsel for Debtor has relied upon information provided by the Debtor in connection with the preparation of this Disclosure Statement. Although counsel for the Debtor has performed certain limited due diligence in connection with preparing this Disclosure Statement, he has not verified independently the information contained herein. No Legal or Tax Advice Provided. The contents of this Disclosure Statement should not be construed as legal, business or tax advice. Each creditor or holder of an Interest should consult his, her, or its own legal counsel and accountant as to legal, tax and other matters concerning his, her, or its Claim or Interest. However, the Debtor hereby provides the creditors as Exhibit 8 with the opinion of Chris E. Frisby P.C., Certified Public Accountant, regarding the Debtors NOL and the tax consequences of the transactions contemplated in Section IV, above, and the effect those transactions will have on the Companys NOL. This Disclosure Statement is not legal advice to you. ThisDisclosure Statement may not be relied upon for any purpose other than to determine how to vote on the Plan or object to confirmation of the Plan. No Admission Made. Nothing contained herein shall constitute an admission of any fact or liability by any party (including, without limitation, the Debtor) or be deemed evidence of the
11
Liquidation values are based on the estimates of Alan Springer, with the exception of the estimate of the Chapter 7 Trustees Fees and the Fees and Expenses of Professionals for the Trustee, which are the estimate of Debtors undersigned counsel.
50 | P a g e
tax or other legal effects of the Plan on the Debtor or on holders of Claims or Interests. No Regulatory Agency Approval. No governmental or other regulatory agency approvals have been obtained as of the date of the mailing of the Plan andDisclosure Statement. Please note, however, that such approvals are a condition to the Plans Effective Date. XVIII. CERTAIN ADDITIONAL DISCLOSURES
The accounting method used to produce the financial information generated internally by the Debtor is based on the accrual basis. Such financial information is unaudited and prepared by management. Attached hereto as Exhibit 7 is the Report of Independent Registered Public Accounting Firm prepared by LLB & Associates Ltd, LLP as of October 31, 2011, and the related statements of operation, stockholders' deficit, and cash flows for the year then ended. This report is prepared utilizing the accrual basis of accounting. The source of information provided in this Disclosure Statement is from the Debtor and its management, unless stated to the contrary. The following financial information is attached to this disclosure statement: (a) Debtors Monthly Operating Report for the month of November 2013, is attached hereto as Exhibit 2. The Debtors monthly operating reports filed during the chapter 11 case have been prepared by the accounting firm of Jayson & Frisby, which firm has been employed as the accountants for the Debtor. The Monthly Operating Report contains a profit and loss statement, cash flow report, and a balance sheet as of November 30, 2013. (b) Attached hereto as Exhibit 5 is an unaudited balance sheet for the Debtor as of January 31, 2013, prepared by management. Attached hereto as Exhibit 6 is an unaudited profit and loss statement for the year ended November 1, 2012, prepared by management. Attached hereto as Exhibit 7 is the Report of Independent Registered Public Accounting Firm prepared by LLB & Associates Ltd, LLP as of October 31, 2011, and the related statements of operation, stockholders' deficit, and cash flows for the year then ended. Debtor does not have any affiliates, with the exception of ABF. ABF is an affiliate under 11 U.S.C. 101(2)(B). There will be no effect of any affiliates on the Debtors Second Amended Plan of Reorganization. Creditors who receive securities under 11 U.S.C. 1145(a)(1) may resell such securities without restriction unless such holder is deemed to be an underwriter with respect to such securities, as defined in Section 1145(b)(1) of the Bankruptcy Code, which statute specifically includes as underwriters all persons directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect control with the issuer, as provided in Section 2(11) of the Securities Act of 1933. Certain additional information regarding the makeup of the shareholders of IPRC and the post-confirmation equity holdings of insiders are set forth in the table attached hereto as Exhibit 4. Certain Risks Imposed Upon the Unsecured Creditors There is a risk that, if the Unsecured Creditors vote to accept the Plan, the Plan may not
51 | P a g e
be confirmed by the Court, in which case it is likely that the Debtors case would be converted to Chapter 7 or dismissed, in which case, the Debtor believes that the Creditors and shareholders will receive no distribution under the Plan. There is a risk that if the Unsecured Creditors vote to accept the Plan, and the Plan is confirmed, the Debtor may not be able to perform under the Plan, in which event, the Class 3 Creditors might foreclose on their collateral. In such event, the Creditors will receive no distribution under the Plan.
XIX.
CONCLUSION AND RECOMMENDATION
The Debtor believes that Confirmation of the Plan is desirable and in the best interests of all holders of Claims and Interests. The Debtor therefore urges you to vote to accept the Plan and to evidence such acceptance by returning the Ballot(s) so they will be received by the Balloting Deadline.
XX.
EXHIBITS TO PLAN AND DISCLOSURE STATEMENT

DESCRIPTION Second Amended Plan of Reorganization - Attached November Monthly Operating Report - Attached Feasibility Exhibit - Attached Certain Shareholder Information Unaudited balance sheet for the Debtor as of January 31, 2013 Unaudited profit and loss statement for the year ended November 1, 2012, prepared by management. Report of Independent Registered Public Accounting Firm prepared by LLB & Associates Ltd, LLP as of October 31, 2011, and the related statements of operation, stockholders' deficit, and cash flows for the year then ended Opinion of Chris E. Frisby P.C. dated December 18, 2013. Opinion of John Demarco regarding patents
EXHIBITS Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Exhibit 5 Exhibit 6 Exhibit 7
Exhibit 8 Exhibit 9
52 | P a g e

Proposed Disclosure Statement 12/23/13

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Proposed Disclosure Statement 12/23/13

Hochgeladen von

Copyright:

Verfügbare Formate

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 1 of 53

Case No. 13-30466 Chapter 11

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 2 of 53

All references to reference the applicable section of the Bankruptcy Code.

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 3 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 4 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 5 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 6 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 7 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 8 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 9 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 10 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 11 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 12 of 53

ASSETS AS OF APRIL 4, 2013

Value ($) $15,000 $00.002

$500,000 $5,000 $250 $10,000

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 13 of 53

Category and supplies

Description shipping container; spare skid; spare parts; generator

Proprietary Technologies and Patent Status

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 14 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 15 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 16 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 17 of 53

Date 04-04-2013 04-04-2013

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 18 of 53

Description under Chapter 11 of the Bankruptcy Code

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 19 of 53

Date 09-20-2013 09-25-2013 09-25-2013 09-29-2013 10-01-2013 10-01-2013 10-01-2013

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 20 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 21 of 53

Current Business Development

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 22 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 23 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 24 of 53

POST-PETITION FINANCIAL RESULTS OF OPERATION

II. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 25 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 26 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 27 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 28 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 29 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 30 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 31 of 53

NUMBER OF SHARES HELD 1,767,5945

KK&PK Family, L.P. TOTAL:

Shares are restricted.

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 32 of 53

$500,000 $5,000 $250 $10,000

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 33 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 34 of 53

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 35 of 53

AMOUNT DEBTORS SCHEDULES

CONTINGENT UNLIQUIDATED DISPUTED/OBJECTION CUD OBJECT6

CREDITOR FILED PROOF OF CLAIM

PLAN PROPONENT POSITION ON ALLOWANCE

Agribiofuels, LLC (POC 10) Akin Gump

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 36 of 53

AMOUNT DEBTORS SCHEDULES

CONTINGENT UNLIQUIDATED DISPUTED/OBJECTION CUD OBJECT6

CREDITOR FILED PROOF OF CLAIM

PLAN PROPONENT POSITION ON ALLOWANCE

12. 13. 14. 15. 16.