Imperial Petro POR/DS

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 1 of 48
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 COMBINED DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION (PROPOSED BY IMPERIAL PETROLEUM RECOVERY CORPORATION) DEBTORS 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 Debtors 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
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All references to reference the applicable section of the Bankruptcy Code.
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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 Debtors bankruptcy case and are incorporated by reference herein in thei r 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]; and Monthly Operating Report for July 2013 [ECF Document 118]. Documents and pleadings filed in this case are available at the following website: http://www.txsb.uscourts.gov/.
TABLE OF CONTENTS
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INCORPORATION OF DOCUMENTS BY REFERENCE ......................................................... 3 I. INTRODUCTION AND SUMMARY ............................................................................... 6 A. THE SOLICITATION ................................................................................................ 6 B. DEBTORS BUSINESS.............................................................................................. 6 1. Introduction .......................................................................................................... 6 2. IPRCs Microwave Separation Technology (MST) ............................................ 7 3|Page
II.
III. IV.
V.
VI.
VII. VIII. IX. X. XI. XII.
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 CARMICHAELS ET AL. ................. 19 G. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES .......................... 23 H. POST-PETITION FINANCIAL RESULTS OF OPERATION ............................... 25 DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME A. DEFINITIONS. .......................................................................................................... 25 B. RULES OF INTERPRETATION. ............................................................................ 28 C. COMPUTATION OF TIME. .................................................................................... 29 BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS ..................... 29 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 Debtors Shareholders .......................................... 36 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 CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ......................................... 37 A. ENTRY OF CONFIRMATION ORDER. ................................................................ 37 B. FINALITY OF CONFIRMATION ORDER; WAIVER. ......................................... 38 PRESERVATION OF RETAINED CLAIMS AND VESTING ..................................... 38 ACCEPTANCE OR REJECTION OF THE PLAN ......................................................... 39 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ......... 39 MODIFICATIONS AND AMENDMENTS .................................................................... 39 RETENTION OF JURISDICTION .................................................................................. 40 EFFECTS OF CONFIRMATION .................................................................................... 41 A. BINDING EFFECT. .................................................................................................. 41 B. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR PAYMENT. ............................................................................................................... 41 4|Page
C. EXCULPATION AND LIMITATION OF LIABILITY. ......................................... 42 DISCHARGE .................................................................................................................... 42 MISCELLANEOUS PROVISIONS ................................................................................. 42 FEASIBILITY .................................................................................................................. 43 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 XIII. XIV. XV. XVI.
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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 Debtors 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 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 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. 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, 6|Page
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 Companys 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 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 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 Companys 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 IPRCs 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. 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. 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 7|Page
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 customers 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. 8|Page
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 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. 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 9|Page
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 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. 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 10 | P a g e
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 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 which are summarized 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 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 IPRCs 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 IPRCs 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. IPRCs 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. IPRCs focus has been with their Water Technology Division specifically for utilizing the MST for the 11 | P a g e
remediation of FRAC water used in several oil and gas drilling operati ons 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 IPRCs 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 IPRCs 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 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. 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. IPRCs 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 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 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 12 | P a g e
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 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 13 | P a g e
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 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 San Houston State University Other Personnel IPRC relies upon several technical engineers with previous operational experience and knowledge of IPRCs 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 IPRCs assets is set forth in the following table: Category Description Value ($)
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Category Cash on Hand
Description Accounts @ JPMorgan Chase Bank and Wells Fargo 20% ownership interest in Agribiofuels, LLC
Value ($) $15,000 $1,200,0002
Stock and interests in incorporated and unincorporated businesses 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. MST and related technologies 18-Wheeler Trailer (salvage value)
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 and supplies
unknown $5,000
HP laptop computer
$250
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 Companys United States patents and patent applications: Application No. 61/577,334 Patent No.
Title MICROWAVE-ENHANCED PROCESS TO TREAT FRAC WATER
Status Provisional Patent Submitted 12/19/11
Expiration
Debtor is in the process of prosecuting an application to engage an appraiser to appraise this 20% interest in
Agribiofuels, LLC. 15 | P a g e
Title 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 2.
Application No.
Patent No.
Status
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
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 16 | P a g e
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 IPRCs 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. Carmichaels 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.
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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 Springers 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 Debtors 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 16,741,057 11,012,123.49 Revenues 15,177,367 11,348,140.34 Cost of Sales 1,563,690 -336,016.85 Gross Profit/Loss -2,395,583 -3,990,313.86 Net Income/Loss BALANCE SHEET 3,988,997 4,444,932.18
9,145.871.46 7.892.552.96 1.253.318.50 -1 ,458,729.53 4,209,952.30
Total Assets
3
Audited by Karlins & Ramey, CPA Unaudited and for the year then ended. 5 Unaudited and for the year then ended.
4
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SELECTED PREPETITION FINANCIAL INFORMATION 12/31/20093 Total Liabilities Net Worth 12/31/20104 9/23/20115
7,194,390 11,640,639.59 13.257.192.36 -3,205,393 -7,195,707.41 -9 ,047,240.06
SELECTED PREPETITION TAX INFORMATION 2008 10656 8,151,307 7,082,987 1,068,320 1,068,327 1,285,335 -217,008 2009 10657 16,741,057 14,463,098 2,277,959 2,280,354 4,775,585 -2,495,231 2010 10658 11,012,124 10,429,555 582,569 583,077 5,158,109 -4,575,032
Gross Receipts or Sales Cost of Goods Sold Gross Profit/Loss Total Income (Loss) Total Deductions Ordinary Income (Loss)
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 7
Prepared by Karlins & Ramey, CPA Prepared by Karlins & Ramey, CPA 8 Prepared by Karlins & Ramey, CPA
19 | P a g e
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 $1,400,000 200,000 $200,000 $100,000 Secured9
Don Carmichael Mary Jane Carmichael KK & PK Family LP Barry Winston
$1,400,000 200,000 $200,000 $100,000
6/1/2005 6/1/2005 7/26/2005 6/1/2005
Y N Y Y
A Uniform Commercial Code Financing Statement was filed on February 14, 2012, but not for Mary Jane Carmichael.
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Gary Emmott
$25,000
5/26/ 2005
$25,000
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 IPRCs 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 21 | P a g e
Carmichael, Winston and K.K.&P.K., and such security interests were not perfected until February 14, 2012, within one year of the Debtors 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. Gaienne served as Chief Financial Officer and a member of the Board of Directors of IPRC until approximately January 25, 2008. On at least two occasions he represented to the Board of Directors of lPRC that he had prepared IPRC's filings for the United States Securities and Exchange Commission in "audit ready form." In reliance upon Gaienne's affirmative 22 | P a g e
representations to IPRC's Board of Directors, IPRC issued to Gaienne 950,000 shares of IPRC stock. After Gaienne left the employ of IPRC, IPRC discovered that Gaienne's representations to IPRC's Board of Directors were false, deceptive, and fraudulent. Gaienne had failed to prepare IPRC's filings and has caused IPRC to expend more than $125,000.00 in professional fees to accomplish the actions which Gaienne had represented, in his capacity as a fiduciary, that he had completed. Additionally, Gaienne's actions have cost IPRC several hundred thousand dollars, which is a minimum calculation of the amount of investment funds IPRC lost as a result of Gaienne's failure to prepare those filings. IPRC discovered in 2013 that all of Gaiennie's misconduct occurred at the direction and behest of one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott. IPRC further discovered in 2013 that Gaiennie's loyalty has always been these parties, over and above and in lieu of his duty of loyalty to IPRC. In early 2008, Gaiennie removed essentially all of IPRC's cash from its bank accounts and attempted to render IPRC incapable of meeting its financial obligations. All of Gaiennie's conduct was, according to his sworn testimony, at the behest and direction of one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott. Gaiennie caused critical supplies, for which IPRC had paid, to disappear from IPRC's inventory and reappear within the inventory of ABF while acting at the behest and direction of one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott. Gaiennie misappropriated IPRC equipment for use in ABF's biodiesel plant without any financial reimbursement of IPRC for the use or value of that equipment, while acting at the behest and direction of one or more of the Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott. The Carmichaels, Winston, KK&PK (acting by and through Kanady) and Emmott have fraudulently concealed their wrongful conduct. G. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES
IPRC has focused on exporting the MST technology to several large multinational corporations which are summarized below: 1. 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 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 IPRCs last meeting in July 2013 IPRC presented a proposal for a long-term marketing and licensing agreement and anticipates being 23 | P a g e
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. 2. 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 IPRC has been dealing with produce products primarily for the airline industry and NASA. The opportunity IPRC has is to incorporate IPRCs 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. IPRCs 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.
3. 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. IPRCs focus has been with their Water Technology Division specifically for utilizing the MST for the 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 IPRCs 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 IPRCs current 1000 barrels per day (bpd) to over 40,000 bpd to accommodate the throughput requirements of their offshore sites. This company is one of the world leaders in the oil and gas extraction, conversion and transport sectors. 4. 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. 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
24 | P a g e
5. 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. IPRCs 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
H.
POST-PETITION FINANCIAL RESULTS OF OPERATION
Debtors Monthly Operating Report for the period August 2013, is attached hereto as Exhibit 1.
II. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME

A. DEFINITIONS.
For purposes of this Disclosure Statement and Plan, 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 and Plan that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall 25 | P a g e
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. "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. 26 | P a g e
"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, which has been set for the 19th day of December 2011, at 10:00 a.m. in Courtroom 404, 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. DS/Plan shall mean this Amended Combined Disclosure Statement and Plan of Reorganization dated as of November 21, 2011. Effective Date means the date when the Confirmation Order becomes a Final Order. Filing Date means September 23, 2011, the date when the Debtor filed this Chapter 11 proceeding. "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. IRS means the Internal Revenue Service. Other Distributable Proceeds shall mean the proceeds of sale of all assets of the Debtors bankruptcy estate that are not defined as Sale Assets, including but not limited to proceeds derived from the prosecution of all claims under Chapter 5 of the Bankruptcy Code, all litigation claims, whether such causes of action arise from contract, tort theories of liability, breach of fiduciary duty; member, manager or officer liability claims, insurance claims, statutory claims or other claims. "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 Articles II through XVII of this DS/Plan.
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"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 existing or as may be amended hereafter, including those listed supra on page ____. 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 supra on pages ___. "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 _____________, at 5:00 p.m., the deadline by which Ballots to accept or reject the Plan must be received by Debtors counsel by in order to be counted. B. RULES OF INTERPRETATION.
For purposes of this Combined Disclosure Statement and Plan, (a) any reference in this Combined Disclosure Statement and Plan to a contract, instrument, release, indenture, or other agreement or document being in a particular form or on particular terms and conditions means 28 | P a g e
that such document shall be substantially in such form or substantially on such terms and conditions; (b) any reference in this Combined Disclosure Statement and Plan 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 Combined Disclosure Statement and Plan to Sections, Articles, Schedules, and Exhibits are references to Sections, Articles, Schedules, and Exhibits of or to this Combined Disclosure Statement and Plan; (d) the words "herein" and "hereto" refer to this Combined Disclosure Statement and Plan in its entirety rather than to a particular portion of this Combined Disclosure Statement and Plan; (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 Combined Disclosure Statement and Plan; 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 this Disclosure Statement and Plan are prevailing Central Time. In computing any period of time prescribed or allowed by this Combined Disclosure Statement and Plan, the provisions of Fed. R. Bankr. P. 9006(a) shall apply. 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:
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Claimant United States Trustee 4th Quarter Estimate Jayson & Frisbee, Accountant for the Debtor Pendergraft & Simon, LLP, Counsel for the Debtor Ronald P. Little, Appraiser for the Debtor Eric Yollick, Esq., Special Counsel for the Debtor
Estimated Fees and Expenses Through December 31, 2013 $30,000.00 $25,000.00 $150,000.00 $18,000.00 $100,000.00
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 & Frisbee and Eric Yollick shall have the option, 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 equal to 20 shares for each dollar of Allowed Administrative Claim. 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. Treatment. Allowed Administrative Claims in Class 2 shall be paid in full out the Sale 30 | P a g e
B.
Proceeds and/or Other Distributable Proceeds 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, as such assets existed on the Filing Date. The perfection of Dr. Carmichaels security interest on February 14, 2012, may be a voidable preference under 11 U.S.C. 547. 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, as such assets existed on the Filing Date. 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, as such assets existed on the Filing Date. The perfection of Dr. Winstons security interest on February 14, 2012, may be a voidable preference under 11 U.S.C. 547. Class 3-D consists of the Allowed Secured claim of Gary Emmott. Mr. Emmott filed a 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, as such assets existed on the Filing Date. The perfection of Mr. Emmotts security interest on February 14, 2012, may be a voidable preference under 11 U.S.C. 547. 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, as such assets existed on the Filing Date. The perfection of KK&PKs security interest on February 14, 2012, may be a voidable preference under 11 U.S.C. 547. Treatment. Debtor has filed objections to each of the claims of Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, and KK&PK. The Court can either direct that these claim 31 | P a g e
objections be litigated, adjudicated and liquidated and all offsets determined in Adversary Nos. 13-03087 and 13-03098, or can proceed to litigate, adjudicate and liquidate said claims through the claims objection process. However, for purposes of confirmation, the Court shall, if requested by such creditors by motion pursuant to 11 U.S.C. 502(c) and Bankruptcy Rule 3018(a), conduct a hearing at or prior to the Confirmation Hearing, to estimate and temporarily allow such claims in accordance with 11 U.S.C. 502(c) and Bankruptcy Rule 3018(a). Otherwise, such claims shall be considered disallowed for purposes of voting under 11 U.S.C. 1126. Debtor believes that upon the litigation, adjudication and liquidation of these claims either in the claim objection proceedings or in Adversary Nos. 13-03087 and 13-03098, the claims of Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, M.D. and KK&PK will be reduced substantially, if not eliminated. To the extent, however, that such claims are allowed, they will be satisfied in the following fashion: 1. Debtor is hereby requesting that, at the Confirmation Hearing, the Court determine the fair market value of the Debtors 20% partnership interest in Agribiofuels, LLC in accordance with 11 U.S.C. 506(a) Bankruptcy Rule 3012. The Debtor is also requesting under Sandy Ridge Dev. Corp. v. La. Nat'l Bank, 881 F.2d 1346, 1350 (5th Cir. 1998), that the Court authorize the Debtor to convey this partnership interest to Don B. Carmichael, M.D., Mary Jane Carmichael, Barry D. Winston, M.D., Gary Emmott and KK&PK free and clear of liens, claims and encumbrances for a credit on the Allowed Claim of these creditors that is ultimately determined by the Court. Debtor believes that upon valuation of this partnership interest and conveyance of same to said creditors that their claims will be extinguished. If Don B. Carmichael, M.D., Mary Jane Carmichael, Barry D. Winston, M.D., Gary Emmott and KK&PK reject this treatment, Debtor shall seek to have the Court cram down this treatment under 11 U.S.C. 1129(b)(2)(A)(iii) and confirm the Plan over the objections of these creditors. 2. To the extent that any portion of the allowed claims of Don B. Carmichael, M.D., Mary Jane Carmichael, Barry D. Winston, M.D., Gary Emmott and KK&PK remain unpaid after the treatment provided for above, Debtor shall pay the balance of the allowed claims by issuing a Class 3 Plan Note providing for payment of the note in 60 equal 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 month after such claims are finally adjudicated and allowed by Final Orders. Lien Retention: Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, M.D. and KK&PK shall retain all lien rights they held as of the Filing Date on any property of the Debtor in existence as of the Filing Date.
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Default Language: Any default by the Reorganized Debtor in the performance of its obligations under this DS/Plan shall constitute a default and any of Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, M.D. and KK&PK 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 60 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 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 and its legal counsel, Pendergraft & Simon, LLP. Cram Down. In the event that any of Don B. Carmichael, Mary Jane Carmichael, Barry D. Winston, M.D. and KK&PK 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 show that (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; (c) the deferred cash payments will have a value equal to the value of said creditors interest in the estates interest in their collateral. 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 will be necessary.
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Treatment. The ad valorem tax claimants shall be treated in accordance with 11 U.S.C. 1129(a)(9)(C), 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 quarterly as though amortized over a 40 quarter term at a twelve percent interest rate. Each Class 4 Plan Note shall become due and payable in full on five years after the Filing 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 Brentwood Group Debtors 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
CREDITO R NAME AMOUNT DEBTORS SCHEDULES CONTINGENT UNLIQUIDATED DISPUTED/OBJECTION CUD OBJECT10 YES D N/A11 NO NO CREDITOR FILED PROOF OF CLAIM PLAN PROPONENT POSITION ON ALLOWANCE
DATE 8/7/2013
AMOUNT $1,500,000 00.00 00.00 $1,224,139.60 $18,260.71
1. 2. 3. 4.
Agribiofuels, LLC Akin Gump Alan Springer Amtek, Inc.
00.00 13,487.00 $1,234,139.60 $18,260.71
10 11
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.
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UNSECURED CREDITORS
CREDITO R NAME AMOUNT DEBTORS SCHEDULES CONTINGENT UNLIQUIDATED DISPUTED/OBJECTION CUD OBJECT10 N/A CREDITOR FILED PROOF OF CLAIM PLAN PROPONENT POSITION ON ALLOWANCE
DATE
AMOUNT 00.00
5.
6. 7. 8. 9.
Applied Control Engineering (ACE) Eric Yollick Ferrite Grantt Accounting Firm Hoga Technology Hammond
$76,003.33
$4,612.64 $1,227.00 $36,045.00 D D
NO N/A N/A
$4,612.64 00.00 00.00
$90,582.00 $48,000.00 $12,029.10 00.00 $50,000.00 $10,287.41
N/A NO NO YES NO NO 5/6/2013 8/8/2013 $10,769.10 $67,398.56
00.00 $48,000.00 $10,769.10 00.00 50,000.00 $10,287.41
10. James
11. Locke Lord 12. Tebjes, Inc. 13. Thomas

Balke
14. Vision
15.
Engenharia E Consultoria Ltda. Ward Insurance Malec Engineering Total
$3,663.00 $735.00
N/A NO
00.00 735.00
16. Wunderlich-
$1,589,071.79
$1,366,804.46
Treatment. The Allowed Claims of Creditors in this Class 5 shall have the option to choose from the following two treatments: Option 1. Each Creditor with an Allowed Unsecured Claim in this Class may elect to receive the full amount of said Creditors Allowed Unsecured Claim in 60 equal 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 month after such claims are finally adjudicated and allowed by Final Orders.
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Option 2. 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 equal to 12.5 shares for each dollar of Allowed Administrative Claim. 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. 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 and its current board of directors whose curriculum vitae appear in section I-B-7 on page 13 of this DS/Plan. C. DISBURSING AGENT The Disbursing Agent shall be the Debtor's accountant, Mr.
F.
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 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 36 | P a g e
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 Financial Report similar to an MOR but on a quarterly basis (the QOR) 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. 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, file an Emergency Motion with the Court to approve a substitute Disbursing Agent. Within fourty-eight hours after the entry of an order 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; 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 37 | P a g e
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. & 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.
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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 that was entered into before the Filing Date, it will be treated as if it had been breached on the date immediately preceding the Filing Date, and the other party to the agreement may assert a General Unsecured Claim in Class 15 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 and 502. Debtor is unaware of any contracts that need to be rejected. The Plan constitutes a motion to reject any executory contracts to which the Debtor is a party listed on Amended Bankruptcy Schedule G. If the rejection by the Debtor pursuant to the Plan or otherwise of an executory contract or unexpired lease results in a Claim that is not theretofore evidenced by a timely proof of Claim or a proof of Claim that is deemed to be filed timely under applicable law, then such Claim will be forever barred and unenforceable against the Debtors Bankruptcy Estate, unless a proof of Claim is filed with the clerk of the Court and served on counsel for the Debtor within thirty (30) days after entry the Confirmation Order. 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 39 | P a g e
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 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;
B.
C.
D. E.
F.
G.
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H.
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 implementation, consummation, or enforcement of the Plan or the Confirmation Order; 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
I.
J.
K.
L.
M.
N.
O.
A.
BINDING EFFECT.
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, 41 | P a g e
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 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, the Debtor, shall be discharged of and from all claims of creditors in Classes 1 through 5 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 42 | P a g e
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 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 2 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 Combined Disclosure Statement and Plan and Ballots to all known holders of Impaired Claims who are entitled to vote on the Plan. Pursuant to the provisions of the Bankruptcy Code, only Classes of Claims against the Debtor that are Impaired under the terms and provisions of the Plan and entitled to receive a Distribution thereunder are entitled to vote to accept or reject the Plan. Accordingly, Classes of 43 | P a g e
Claims or Interests that are not Impaired under the terms and provision of the Plan are not entitled to vote on the Plan. In addition, Classes of Claims or Interests that are 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 and 5 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 ____________, 2013 AT THE FOLLOWING ADDRESS: 44 | 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 45 | 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 attached hereto as Exhibit 3. It is apparent from the attached Liquidation Analysis that the Plan provides a better distribution to unsecured creditors as 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 this Disclosure Statement and Plan are made by the Debtor as of the date hereof, unless otherwise specified herein, and the delivery of this Disclosure Statement and Plan 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 this Disclosure Statement and Plan 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 and Plan. Although counsel for the Debtor has performed certain limited due diligence in connection with preparing 46 | P a g e
this Disclosure Statement and Plan, he has not verified independently the information contained herein. No Legal or Tax Advice Provided. The contents of this Disclosure Statement and Plan 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 with the following opinion of Bailes Bates &Assoicates, LLP, Certified Public Accountants, regarding the tax consequences of the sale of the Sale Assets contemplated in this DS/Plan: This Disclosure Statement and Plan is not legal advice to you. This Disclosure Statement and Plan 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 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 and Disclosure Statement and Plan. Please note, however, that such approvals are a condition to the Plans Effective Date. XVIII. 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.
XIX.
EXHIBITS TO PLAN AND DISCLOSURE STATEMENT
EXHIBITS Exhibit 1. Exhibit 2. Exhibit 3
DESCRIPTION August Monthly Operating Report - Attached Feasibility Exhibit To be Added Liquidation Analysis To be Added
47 | P a g e
Dated September 17, 2013.
/s/ Leonard H. Simon Leonard H. Simon, Esq. TBN: 18387400; SDOT: 8200 PENDERGRAFT & SIMON 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
48 | P a g e

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Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 1 of 48

IN RE: IMPERIAL PETROLEUM RECOVERY CORPORATION DEBTOR

Case No. 13-30466 Chapter 11

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 2 of 48

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

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Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 4 of 48

VII. VIII. IX. X. XI. XII.

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Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 6 of 48

INTRODUCTION AND SUMMARY

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 7 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 8 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 9 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 10 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 11 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 12 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 13 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 14 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 15 of 48

Category Cash on Hand

Value ($) $15,000 $1,200,0002

Proprietary Technologies and Patent Status

Title MICROWAVE-ENHANCED PROCESS TO TREAT FRAC WATER

Status Provisional Patent Submitted 12/19/11

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 16 of 48

Agribiofuels, LLC (ABF)

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 17 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 18 of 48

Contingent and Unliquidated Claims

9,145.871.46 7.892.552.96 1.253.318.50 -1 ,458,729.53 4,209,952.30

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 19 of 48

7,194,390 11,640,639.59 13.257.192.36 -3,205,393 -7,195,707.41 -9 ,047,240.06

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 20 of 48

Don Carmichael Mary Jane Carmichael KK & PK Family LP Barry Winston

$1,400,000 200,000 $200,000 $100,000

6/1/2005 6/1/2005 7/26/2005 6/1/2005

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 21 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 22 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 23 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 24 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 25 of 48

POST-PETITION FINANCIAL RESULTS OF OPERATION

II. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME

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Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 30 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 31 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 32 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 33 of 48

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 34 of 48

AMOUNT $1,500,000 00.00 00.00 $1,224,139.60 $18,260.71

Agribiofuels, LLC Akin Gump Alan Springer Amtek, Inc.

00.00 13,487.00 $1,234,139.60 $18,260.71

Case 13-30466 Document 129 Filed in TXSB on 09/17/13 Page 35 of 48

$4,612.64 $1,227.00 $36,045.00 D D

$4,612.64 00.00 00.00

$90,582.00 $48,000.00 $12,029.10 00.00 $50,000.00 $10,287.41

N/A NO NO YES NO NO 5/6/2013 8/8/2013 $10,769.10 $67,398.56

00.00 $48,000.00 $10,769.10 00.00 50,000.00 $10,287.41

11. Locke Lord 12. Tebjes, Inc. 13. Thomas

Engenharia E Consultoria Ltda. Ward Insurance Malec Engineering Total