.Here's the bankruptcy plan copy and paste. Please note that this was filed earlier today, hours before the ruling came out that certain creditors get zilch.
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
IMPERIAL PETROLEUM RECOVERY CORPORATION
DEBTOR
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Case No. 13-30466
Chapter 11
DEBTOR’S COMBINED
DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION
(PROPOSED BY IMPERIAL PETROLEUM RECOVERY CORPORATION)
DEBTOR’S COMBINED DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION HAS BEEN SET FOR A FINAL HEARING ON APPROVAL OF THE DISCLOSURE STATEMENT AND A HEARING ON CONFIRMATION OF THE PLAN OF REORGANIZATION ON __________, 2013, AT __________ A.M./P.M., IN COURTROOM 600, UNITED STATES COURTHOUSE, 515 RUSK STREET, HOUSTON, TEXAS, 77002. THE DISCLOSURE PROVIDED IN THIS COMBINED DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION WAS CONDITIONALLY APPROVED BY THE COURT ON __________, 2013. ECF DOCUMENT _____.
On or about January 31, 2012 (the “Filing Date”), 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 Debtor’s motion to convert (ECF Document No. 22).
If you are a Creditor or Interest Holder, you should read this Combined Disclosure Statement and Plan of Reorganization carefully. The Debtor urges all holders of Claims in Impaired Classes receiving Ballots to accept the Plan of Reorganization proposed by the Debtor as contained herein.
This Combined Disclosure Statement and Plan of Reorganization (the “DS/Plan”), 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
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Impaired Claims and Impaired Interests pursuant to § 1125,1 in connection with the solicitation by the Debtor of votes to accept or reject the Plan and the transactions as described herein.
This DS/Plan 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 of Reorganization that the Debtor is proposing. All Creditors are encouraged to read this DS/Plan 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 DS/Plan 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 DS/Plan, 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 DS/Plan. 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.
WITH THE EXCEPTION OF HISTORICAL INFORMATION, FUTURE EVENTS AND MATTERS DISCUSSED HEREIN ARE “FORWARD LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY.
No party is authorized by the Debtor to give any information or make any representations with respect to the DS/Plan 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 DS/PLAN 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
1 All references to “§” reference the applicable section of the Bankruptcy Code. Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 2 of 48
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EVALUATE THIS DS/PLAN ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
THIS DS/PLAN 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 COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
With respect to contested matters, adversary proceedings and other pending or threatened actions (whether or not pending), this DS/Plan and the information contained herein shall not be construed as an admission or stipulation by any Entity, but rather as statements made in settlement negotiations governed by Rule 408 of the Federal Rules of Evidence and any other rule or statute of similar import.
This DS/Plan 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 DS/Plan 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 Debtor’s 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 Debtor’s 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]; and Monthly Operating Report for July 2013 [ECF Document 118]. Documents and pleadings filed in this case are available at the following website:
www.txsb.uscourts.gov/.
TABLE OF CONTENTS Page
INCORPORATION OF DOCUMENTS BY REFERENCE ......................................................... 3
I. INTRODUCTION AND SUMMARY ............................................................................... 6
A. THE SOLICITATION ................................................................................................ 6
B. DEBTOR’S BUSINESS .............................................................................................. 6
1. Introduction .......................................................................................................... 6
2. IPRC’s Microwave Separation Technology (MST) ............................................ 7 Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 3 of 48
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3. Competition........................................................................................................ 10
4. Suppliers ............................................................................................................ 10
5. Potential Customers ........................................................................................... 11
6. Protection of Intellectual Property ..................................................................... 12
7. Management ....................................................................................................... 13
C. ASSETS AS OF THE FILING DATE ...................................................................... 14
1. Proprietary Technologies and Patent Status ...................................................... 15
2. Agribiofuels, LLC (“ABF”) ............................................................................... 16
3. Contingent and Unliquidated Claims ................................................................. 18
D. CREDITORS AND DEBT AS OF THE FILING DATE ......................................... 18
E. SELECTED PREPETITION FINANCIAL AND TAX INFORMATION .............. 18
F. PREPETITION LITIGATION WITH THE CARMICHAEL’S ET AL. ................. 19
G. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES .......................... 23
H. POST-PETITION FINANCIAL RESULTS OF OPERATION ............................... 25
II. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME
A. DEFINITIONS. .......................................................................................................... 25
B. RULES OF INTERPRETATION. ............................................................................ 28
C. COMPUTATION OF TIME. .................................................................................... 29
III. BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS ..................... 29
IV. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS . 29
A. CLASS 1 - Administrative Claims – Professional Fee Claims and U.S. Trustee Quarterly Fees ........................................................................................................... 29
B. CLASS 2 – All Other Administrative Claims. .......................................................... 30
C. CLASS 3 – Allowed Secured Claims of the Carmichaels, Winston, Emmott and KK&PK Family, L.P. ................................................................................................ 31
D. CLASS 4 – Allowed Secured Claims of Taxing Authorities .................................... 33
E. CLASS 5 – Allowed Unsecured Claims of Debtor ................................................... 34
F. CLASS 6 – Allowed Interests of Debtor’s Shareholders .......................................... 36
V. MEANS FOR EXECUTION OF THE PLAN.................................................................. 36
A. EXECUTION OF ALL DOCUMENTS NECESSARY TO CONSUMMATE THE PLAN. ........................................................................................................................ 36
B. MANAGEMENT OF THE DEBTOR. ..................................................................... 36
C. DISBURSING AGENT ............................................................................................ 36
VI. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ......................................... 37
A. ENTRY OF CONFIRMATION ORDER. ................................................................ 37
B. FINALITY OF CONFIRMATION ORDER; WAIVER. ......................................... 38
VII. PRESERVATION OF RETAINED CLAIMS AND VESTING ..................................... 38
VIII. ACCEPTANCE OR REJECTION OF THE PLAN ......................................................... 39
IX. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ......... 39
X. MODIFICATIONS AND AMENDMENTS .................................................................... 39
XI. RETENTION OF JURISDICTION .................................................................................. 40
XII. EFFECTS OF CONFIRMATION .................................................................................... 41
A. BINDING EFFECT. .................................................................................................. 41
B. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR PAYMENT. ............................................................................................................... 41 Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 4 of 48
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C. EXCULPATION AND LIMITATION OF LIABILITY. ......................................... 42
XIII. DISCHARGE .................................................................................................................... 42
XIV. MISCELLANEOUS PROVISIONS ................................................................................. 42
XV. FEASIBILITY .................................................................................................................. 43
XVI. CONFIRMATION OF THE PLAN.................................................................................. 43
A. VOTING PROCEDURES AND REQUIREMENTS. .............................................. 43
B. ACCEPTANCE. ........................................................................................................ 45
C. CONFIRMATION OF THE PLAN. ......................................................................... 45
D. THE BEST INTERESTS TEST. ............................................................................... 46
XVII. DISCLAIMERS ................................................................................................................ 46
XVIII. CONCLUSION AND RECOMMENDATION ................................................................ 47
XIX. EXHIBITS TO PLAN AND DISCLOSURE STATEMENT .......................................... 47
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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 DS/Plan.
A. THE SOLICITATION
On September 17, 2013, the Debtor filed this DS/Plan. This DS/Plan is submitted by the Debtor to be used in connection with the solicitation of votes on Debtor’s Plan.
Debtor has requested that the Bankruptcy Court hold a hearing on approval of this DS/Plan to determine whether this DS/Plan contains “adequate information” in accordance with § 1125, and whether the DS/Plan 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 Debtor’s 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 has been set for ____, 2013, at ____ .m., and confirmation of the Plan has been set for ____, 2013, at ____.m., in Courtroom 600, United States Courthouse, 515 Rusk Street, Houston, Texas, at which time the Court will hold a hearing on approval of the disclosure provided and on confirmation of the Plan proposed by the Debtor (the “Confirmation Hearing”). Objections to the final approval of the Disclosure Statement or objections to Confirmation of the Plan must be in writing and must be filed with the Clerk of the Bankruptcy Court and served on the counsel listed below to ensure receipt by them on or before 5:00 p.m., on ____, 2013. Bankruptcy Rule 3007 governs the form of any such objection.
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
ATTORNEY IN CHARGE FOR DEBTOR
B. DEBTOR’S BUSINESS
1. Introduction
Imperial Petroleum Recovery Corporation (the “Company” or “IPRC”) (http://www.iprc.com), a Nevada corporation, is a public company located in The Woodlands, Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 6 of 48
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Texas. IPRC was established in 1995 and was incorporated on February 6, 1997. It is a development stage company that manufactures and markets a proprietary proven new technology it developed to treat emulsions using microwave energy. The Company’s Microwave Separation Technology (MST) is an environmentally friendly computer controlled microwave technology designed to 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 Company’s 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 Company is transitioning from an entrepreneurial start-up to technology provider to a proven technology company ready to serve the energy industry. IPRC currently has several important business initiatives underway ready to be fully developed.
The Company’s unique and proven 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”. The Company is also working on new designs and technical improvements
IPRC’s common stock currently listed for quotation on the Pink OTC Markets, Inc. Pink Exchange under the trading symbol “IREC”. IPRC has approximately 721 shareholders who hold approximately 53,337,447 shares collectively. The Petitioning Creditors collectively own 10,020,085 shares, or 19%. The IPRC officers/directors, Springer and Hammond, own 11,270,544 shares, or 21%.
2. IPRC’s Microwave Separation Technology (MST)
IPRC’s primary business has been the development, marketing and distribution of its Microwave Separation Technology. MST technology uses RF to separate water and oil emulsions. Emulsions are homogenous mixtures of oil and water components (or other normally immiscible components).
It has developed a proprietary, patented process using high-energy microwaves, called Microwave Separation Technology (“MST”), which is designed to treat and eliminate hydrocarbon emulsions. Its 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.
IPRC located its operations on the site of a fabricator and logistics company located in Houston, Texas servicing many different energy and oil services companies throughout the world. This location enables IPRC to conduct demonstrations of the MST technology to Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 7 of 48
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interested parties and from June 2010 through October 2011 over 35 demonstrations were performed for dozens of companies consisting of oil emulsions and also the treatment of both marine bilge and “Frac” water; e.g., water used in the drilling of wells in several locations in the United States.
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.
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
IPRC currently offers 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 is a provider of microwave technology to the petroleum, energy, renewable and companies that provide environmental services.
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 customer’s environmental regulations.
IPRC has designed several different MST systems to be used in the oil and gas industry to facilitate the separation of water and oil emulsions; the MST-1000, MST-2000, MST-4000 and MST-5000. These systems are designed to process between 1000 barrels per day (bpd) up to 5000 bpd. Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 8 of 48
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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.
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.
The oil and gas industry is a complex, multi-disciplinary sector that varies greatly across geographies. As a heavily regulated industry, operating conditions are subject to political regimes and changing legislation. Governments can either induce or deter investment in exploration and production, depending on legal requirements, fiscal and royalty structures and regulation. In addition, oil and gas prices determine the commercial feasibility of a project. Certain projects may become feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, gas and other commodities has increased during the last few years, complicating the assessment of revenue projections. Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis à vis protecting the environment.
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. IPRC’s 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 Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 9 of 48
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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.
IPRC believes that IPRC’s 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 Company’s 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.
4. Suppliers
The Company primarily uses standard parts and components from a variety of suppliers to produce the hardware for its products. Certain components are currently available only from a few limited sources. To date, the Company has not had difficulty obtaining parts and
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components in sufficient quantity in a timely manner. Several Houston-based fabrication companies have been identified to manufacture MST systems as required. These firms meet the fabrication standards required by petroleum companies worldwide. The Company does not expect to have difficulty fabricating, testing and delivering machines if and when sales of MST systems accelerate.
5. Potential Customers
IPRC intends to market its technology by entering into strategic partnerships with third parties who can market and sell IPRC’s products world-wide. The Company has established working relationships with several prominent engineering companies that are currently working within the petroleum industry. It is IPRC’s 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 which are summarized below:
One of IPRC’s key prospects is a division of one of the world’s 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 excellent and in July 2013 IPRC was advised the R&D division had strongly recommended the technology be added to portfolio of specialized equipment for operations in the field. During IPRC’s last meeting in July 2013, the company presented a proposal for a long-term marketing and licensing agreement and anticipates that it will be contacted in the next several weeks to discuss the steps going forward which is customary since there are several different divisions that need to be brought into discussions on how best to acquire the MST technology.
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 divisionIPRChave been dealing with produce products primarily for the airline industry and NASA. The opportunity IPRC has is to incorporate IPRC’s MST technology to remediate the large volumes of water contaminated with hydraulic fluids, oils and other materials that need to be removed from the water so it can be safely disposed of. This identical opportunity exists in multiple plants throughout the world. IPRC’s first meeting on-site was very positive and IPRC will be conducting a demonstration of samples from 8 different locations throughout the plant during the next two weeks. IPRC believes the initial order could be in excess of $10M which would enable IPRC to complete the requirements for expansion and extension of current and future patents world-wide.
A third key prospect for IPRC is one of the largest international engineering companies in the world with operations in over 100 countries and in several key industries. IPRC’s focus has been with their “Water Technology Division” specifically for utilizing the MST for the Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 11 of 48
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remediation of “FRAC” water used in several oil and gas drilling operations throughout Texas and the Gulf States. IPRC has been in discussions since April 2013 and a technical demonstration was performed for their technical R&D staff in April 2013 at IPRC’s plant site in Houston. The results were excellent and discussions continued on incorporating the patented MST technology in conjunction with other technologies. The technical challenge is to increase the throughput from IPRC’s current 1000 barrels per day (bpd) to over 40,000 bpd to accommodate the throughput requirements of their off-shore sites. This company is one of the world leaders in the oil and gas extraction, conversion and transport sectors.
A fourth key prospect is one of the world’s 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 IPRC’s technology to be incorporated into both the upstream and eventually downstream operations. A sample of the emulsions IPRC evaluated for them is shown below. A clear break of the emulsion is visible between the oil, water and the separated solids at the bottom of the container &D T
A fifth major prospect is another international oil services company that operates throughout the world. IPRC has had business relationships in the past with a division of this company that resulted in a contract to Esso back in 2003. IPRC’s discussions now are focused on their “completion and production segment” which deal with emulsions upstream, drilling fluids and remediation of “FRAC” water. This company is a direct competitor to prospect #1 and a partial competitor to prospect #3
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 Company’s 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 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 Company’s business.
Third-party patents relating to technology utilized by the Company may now exist or may Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 12 of 48
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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 Company’s 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 and post graduate work at Rice University in Houston, Texas.
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 Chief Financial Officer of several strategic tactical NATO organizations in Europe. 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
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
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for all internal support services, including procurement, security, facilities management and strategic planning for the company's national expansion program.
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). 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 company’s 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 IPRC’s 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 San Houston State University
Other Personnel
IPRC relies upon several technical engineers with previous operational experience and knowledge of IPRC’s technology. IPRC also has a formal relationship with several business development groups, primarily Van Scoyoc and Associates, a consulting firm located in Washington D.C. with many clients from the Energy Industry both in the USA and in Europe.
C. ASSETS AS OF THE FILING DATE
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 IPRC’s assets is set forth in the following table:
Category Description Value ($) Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 14 of 48
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Category Description Value ($)
Cash on Hand
Accounts @ JPMorgan Chase Bank and Wells Fargo
$15,000
Stock and interests in incorporated and unincorporated businesses
20% ownership interest in Agribiofuels, LLC
$1,200,0002
Contingent and unliquidated claims
Claims for fraud, breach of fiduciary duty and tortious interference, tax credits, etc., as set forth in Cause No. 12-01-01136-CV; IPRC et al vs. Don Carmichael, M.D., et al.
At least $1,200,000
Patents and intellectual property
MST and related technologies
unknown
Automobiles, trucks, trailers and other vehicles and accessories
18-Wheeler Trailer (salvage value)
$5,000
Office equipment, furnishings and supplies
HP laptop computer
$250
Machinery, fixtures, equipment and supplies
MST-1000 Unit (12 years old); MST shipping container; spare skid; spare parts; generator
$10,000
1. Proprietary Technologies and Patent Status
The following table identifies and describes each of the Company’s United States patents and patent applications:
Title Application No. Patent No. Status Expiration
MICROWAVE-ENHANCED PROCESS TO TREAT FRAC WATER
61/577,334
Provisional Patent Submitted 12/19/11
2 Debtor is in the process of prosecuting an application to engage an appraiser to appraise this 20% interest in Agribiofuels, LLC. Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 15 of 48
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Title Application No. Patent No. Status Expiration
MICROWAVE-ENHANCED PROCESS TO MAXIMIZE BIODIESEL PRODUCTION CAPACITY
11/340,137
Reinstated
MICROWAVE- ENHANCED PROCESS TO TREAT MARINE EMULSION WASTES
11/489,919
Granted
12/17/2032
RADIO FREQUENCY MICROWAVE ENERGY APPARATUS AND METHOD TO BREAK OIL AND WATER EMULSIONS
08/936,063
5914014
Granted
9/23/2017
RADIO FREQUENCY MICROWAVE ENERGY METHOD TO BREAK OIL AND WATER EMULSIONS
09/295,565
6077400
Granted
9/23/2017
RADIO FREQUENCY MICROWAVE ENERGY APPLICATOR APPARATUS TO BREAK OIL AND WATER EMULSIONS
09/295,566
6086830
Granted
9/23/2017
2. Agribiofuels, LLC (“ABF”)
Agribiofuels, LLC (“ABF”) (http://www.agribiofuels.com) is a Texas limited liability company formed March 31, 2005. The Manager/Director is Edward C. Gaiennie. Gaiennie was 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 Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 16 of 48
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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 but did not give any rights for ABF to terminate the agreement prior to the expiration on 8/1/09. 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. Prior to the end of the first year, a discussion between Gaiennie and Springer took place regarding whether to take IPRC’s tax credits and redistribute these credits to the other investors. Mr. Springer has an audit trail of emails from October 2007 indicating that the credits belonged to IPRC and IPRC management could not arbitrarily redistribute them to the other members without some compensation in return, such as waiving of interest on the investor notes or some other form of consideration equal to the value of the tax credits. Carmichael’s position was that he wanted the credits but did not want to compensate IPRC for them.
In January 2008 Mr. Springer was in NYC meeting with a brokerage house to try and secure funds to expand ABF from 12M gallons per year to 36M. Mr. Springer returned on January 25th and met with Carmichael who informed him that the management agreement with IPRC was effectively terminated, and that Gaiennie was going to be the new “manager” of ABF.
While Mr. Springer was in New York, Gaiennie still the CFO and director of IPRC, proceeded to liquidate all but $2,217.41 of the working capital funds from IPRC bank accounts. The breakout shows that Gaiennie, on behalf of ABF, arbitrarily called a note for $140K that IPRC had ABF that was not due until Feb 24, 2009. Gaiennie also increased the interest rate on this note from 8% to 12% retroactively; and reversed other minor transactions. IPRC was left with $2,217.41 from over $230K before this termination and it was clear Gaiennie while still acting in the capacity as CFO of IPRC had made these arbitrary transfers of funds from IPRC to ABF at the direction of the investors in ABF, including the Carmichaels, Winston and Kanady. Gaiennie ostensibly engaged in these activities to maintain his employment at ABF without the consent of Mr. Springer or the IPRC board of directors, of which he was a member. At a later date Mr. Springer received the K1 document prepared by Gaiennie which reflected the tax credits due to IPRC had in fact been redistributed to the other ABF members. This practice continued for the next few years.
Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 17 of 48
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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. The defendants were controlling members and managers of ABF and caused ABF to wrongfully terminate the August 1, 2005 management agreement. They also caused ABF to wrongfully withhold tax credits. They gave instructions to Gaiennie to withdraw funds from IPRC, leaving it with no working capital. Gaiennie has admitted to this in his Rule 2004 examination taken recently.
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.
IPRC / Alan Springer’s pre-petition Montgomery County lawsuit involves purely state court causes of action.
Additional information regarding this lawsuit is provided below.
D. CREDITORS AND DEBT AS OF THE FILING DATE
The Debtor’s creditors and debts are summarized and broken down in section IV, infra, at pp 29-36.
E. SELECTED PREPETITION FINANCIAL AND TAX INFORMATION
SELECTED PREPETITION FINANCIAL INFORMATION 12/31/20093 12/31/20104 9/23/20115 INCOME STATEMENT
Revenues
16,741,057
11,012,123.49
9,145.871.46
Cost of Sales
15,177,367
11,348,140.34
7.892.552.96
Gross Profit/Loss
1,563,690
-336,016.85
1.253.318.50
Net Income/Loss
-2,395,583
-3,990,313.86
-1 ,458,729.53 BALANCE SHEET
Total Assets
3,988,997
4,444,932.18
4,209,952.30
3 Audited by Karlins & Ramey, CPA
4Unaudited and for the year then ended.
5Unaudited and for the year then ended. Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 18 of 48
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SELECTED PREPETITION FINANCIAL INFORMATION 12/31/20093 12/31/20104 9/23/20115
Total Liabilities
7,194,390
11,640,639.59
13.257.192.36
Net Worth
-3,205,393
-7,195,707.41
-9 ,047,240.06
SELECTED PREPETITION TAX INFORMATION 2008 10656 2009 10657 2010 10658
Gross Receipts or Sales
8,151,307
16,741,057
11,012,124
Cost of Goods Sold
7,082,987
14,463,098
10,429,555
Gross Profit/Loss
1,068,320
2,277,959
582,569
Total Income (Loss)
1,068,327
2,280,354
583,077
Total Deductions
1,285,335
4,775,585
5,158,109
Ordinary Income (Loss)
-217,008
-2,495,231
-4,575,032
F. PREPETITION LITIGATION WITH THE CARMICHAELS ET AL.
STATE COURT LAWSUITS
1. The Montgomery County Lawsuit
Cause No. 12-01-01136; Imperial Petroleum Recovery Corporation and Alan Springer vs. Don Carmichael, Mary Carmichael, Kirk Kanady, Barry Winston, Edward Gaiennie, Rex Lewis and Agribiofuels, LLC; In the 9th Judicial District Court of Montgomery County, Texas.
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. The defendants were controlling members and managers of ABF and caused ABF to wrongfully terminate the
6 Prepared by Karlins & Ramey, CPA
7 Prepared by Karlins & Ramey, CPA
8 Prepared by Karlins & Ramey, CPA Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 19 of 48
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August 1, 2005 management agreement. They also caused ABF to wrongfully withhold tax credits. Gaiennie was also the CFO of IPRC.
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 Plaintiffs diverted $1.5 million of ABF earnings to themselves.
This case was removed by the Defendants, and it is currently pending as Adversary Proceeding No. 13-3087.
2. The Harris County Lawsuit
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.
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.
On April 23, 2012, IPRC filed a general denial and plea in abatement.
The lawsuit alleges the following regarding the notes (hereinafter referred to as the “Investor Notes”):
Note Holder Amount of Note Date of Note Principal Amount Due Secured9
Don Carmichael
$1,400,000
6/1/2005
$1,400,000
Y
Mary Jane Carmichael
200,000
6/1/2005
200,000
N
KK & PK Family LP
$200,000
7/26/2005
$200,000
Y
Barry Winston
$100,000
6/1/2005
$100,000
Y
9 A Uniform Commercial Code Financing Statement was filed on February 14, 2012, but not for Mary Jane Carmichael. Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 20 of 48
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Gary Emmott
$25,000
5/26/ 2005
$25,000
Y
Security includes all assets, accounts, deposits, securities and all other investment property, contractual rights, claims, intangibles including patents, patent applications, trademarks, software, engineering drawings, customer lists, goodwill, recorded data.
This case was removed by the Defendants, and it is currently pending as Adversary Proceeding No. 13-03098.
3. Facts Underlying Both Adversary Proceedings
The secured claims of the Barry Winston (“Winston”), Don Carmichael and his mother, Mary Jane Carmichael (the “Carmichaels”), Gary Emmott (“Emmott”), and KK&PK Kanady Family LP (“KK&PK”) arise from a series of promissory notes issued by IPRC in 2005. IPRC borrowed these funds to provide operating revenue for its business, to repay other debt, and to fund working capital needs. The notes each had a term of two years, were secured by the collateral described below, and were convertible into common stock of IPRC at the option of the note holders.
None of the note holders elected to convert their debt into equity in the Company, and IPRC was unable to repay the notes due to tortious and fraudulent conduct of the Carmichaels, Winston, KK&PK and Edward C. Gaiennie ("Gaiennie"), a former officer and director of IPRC. IPRC attempted to settle the debt, but on March 27, 2012, Winston, the Carmichaels, Emmott and KK&PK filed suit against IPRC for breach of the promissory notes and to foreclose on certain property owned by IPRC pursuant to the notes and security agreements, and to appoint a receiver, said suit currently pending as Adversary Proceeding No. 13-03098. The notes were each secured by, among other things, all of IPRC’s assets, accounts, deposits, securities and all other investment property, contractual rights, claims, intangibles including patents, patent applications, trademarks, software, engineering drawings, customer lists, goodwill, recorded data, etc. Property excepted from the security agreements included the Microwave Separation Technology Equipment and the MST skid and the Separator skid because these items were already covered by pre-existing liens.
The Carmichaels, Winston, KK&PK, acting by and through Kirk Kanady, as controlling members of Agribiofuels, L.L.C. ("ABF"), by and through their agent and co-conspirator, Gaiennie, the manager of ABF, tortiously interfered with IPRC's August 1, 2005, Management Agreement by causing ABF wrongfully to terminate that agreement before its term expired. That wrongful termination occurred in 2008. The wrongful termination and the other wrongful conduct was all part of an attempt by these parties to seize all of IPRC's extraordinarily valuable assets, particularly IPRC's technology, patents, and other intangible rights.
In 2005, the Carmichaels, Winston, Emmott and K.K.&P.K. entered into security agreements with IPRC for repayment of certain loans. Many, if not all, of IPRC's assets secure the repayment of those loans. However, said security interests were only perfected as to Don Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 21 of 48
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Carmichael, Winston and K.K.&P.K., and such security interests were not perfected until February 14, 2012, within one year of the Debtor’s Filing Date, January 31, 2013. The perfection of these security interests would be preferences under 11 U.S.C. § 547 if such creditors were insiders.
It is apparent that the wrongful conduct of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Gaiennie, was for the specific purpose of ensuring that they would (a) enjoy all benefits from IPRC and ABF to the exclusion of IPRC and (b) prevent IPRC from having an ability to repay the Investor Notes, in violation of section 1.304 of the Texas Business and Commerce Code under which "Every contract or duty within this title [the Business and Commerce Code] imposes an obligation of good faith in its performance and enforcement." Tex. Bus. & Com. Code Ann. § 1.304 (Vernon 2013).
More specifically, beginning in 2008, Gaiennie acted simultaneously as an agent and officer both for ABF and IPRC, and also acting as the agent for and co-conspirator with the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott, commenced a series of activities that nearly destroyed IPRC. In sworn testimony, Gaiennie admitted that he acted at the direction and behest of Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott, threby breaching his duty of loyalty to IPRC.
Gaiennie, a CPA, caused ABF to withhold tax credits from IPRC, one of the owners of ABF, for fiscal years 2007 through 2011, and caused ABF to distribute those tax credits to one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott. Gaiennie, engaged in a conspiracy with one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott to defraud IPRC by falsely distributing those tax credits in a manner other than a pro rata distribution in accordance with the ownership of ABF and its governing instruments.
Gaiennie, a licensed certified public accountant in the State of Texas, prepared or directed the preparation of the tax returns through which one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott misappropriated the ABF tax credits. Gaiennie has admitted in sworn testimony that one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott directed him to take those actions to withhold the tax credits from IPRC and to distribute those tax credits wrongfully to them for their direct personal benefit since they all have extraordinarily high income and sought, illegally, to shield themselves from tax liability to the United States Department of the Treasury, Internal Revenue Service.
Defendants have also engaged in a conspiracy to harm IPRC by disabling its ability to raise investor funds by providing false information to its auditors for its filings with the United States Securities and Exchange Commission.
continued...
