Imperial Petroleum Recovery Corporation (the "Company" or "IPRC"), with its
wholly owned subsidiary Petrowave Corporation, is a Houston based public company
that has patented microwave technology for use in petroleum and alternative
energy applications, called Microwave Separation Technology ("MST"). IPRC's goal
is to become a leader in developing and marketing innovative commercial radio
frequency ("RF") energy applications that can be used within the petroleum and
other industries to treat emulsions containing oil, water, and solids or in the
production process to enhance process efficiency and improve our customers' end
product.
IPRC was founded in 1990 as a Nevada corporation, and since 1995 its
primary business has been the development, marketing and distribution of MST.
The Company's offices are located at 1970 South Starpoint Drive, Houston, Texas,
and our phone number is (281) 821-1110. Our common stock currently trades
Over-The-Counter (OTC) as a Pink Sheet stock under the symbol "IREC".
Products and Potential Products
The Company currently offers MST to the oil field industry and is
developing the use of MST in the marine industry and in the production of
biodiesel. MST technology uses commercial radio frequencies to separate water
and oil emulsions. Emulsions are homogenous mixtures of oil and water components
(or other normally immiscible components).
Oil and Gas Industry
We have created four (4) MST systems to be used in the oil and gas
industry, MST-1000, MST-2000, MST-4000 and MST-150, our self-contained mobile
system. Produced oil contains water that is costly to transport and damaging to
infrastructure. MST separates the water and oil emulsions, allowing the removal
of the water and production of the oil. The MST system applies RF energy to the
oil emulsion. The RF energy breaks the emulsion by preferentially heating the
water inside the oil matrix. This facilitates separation by creating differences
in surface tension and viscosity. After energy is applied, the material is
pumped into a separation tank. If immediate separation is required, a centrifuge
can be utilized.
1
The separated oil is then pumped into holding tanks for shipment to
customers. The separated water and sediments can be handled in accordance with
the customer's environmental regulations.
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 desalter operations. MST systems are
modular and can be conjoined to handle larger capacity requirements as required
by the customer. The MST 150 is a self-contained mobile unit that can be moved
to a client's site to demonstrate the effectiveness of the large scale, MST 1000
series in resolving various emulsion or process applications.
Each MST system includes the following components:
o A patented microwave applicator;
o A microwave transmitter;
o Waveguides and auto tuner;
o Instrumentation and computer automation;
o Pumps and drives;
o If required, a separation unit; and
o Safety monitors and failsafe interlocking system.
The Company offers its products for sale or lease directly to end-users.
The products may be offered to existing oil emulsion and sludge processors
through geographically specific marketing partnerships.
Marine Industry
We currently have a patent pending for the use of MST in marine on board
systems. The Marine Industry MST is under development to improve the efficiency
of bilge water handling aboard large ships. Testing has been conducted employing
the existing laboratory MST to treat bilge samples taken from several cruise
ships ported in Galveston, Texas. Initial tests have been extremely successful
in demonstrating the application of the MST to enhance the separation of
existing on-board bilge water processing systems. While the Company intends to
develop and/or refine marketing plans to penetrate the marine industry, MST use
in the marine industry is in its early stages of development and there is no
guarantee that it will be successful.
Production of Bio-Diesel
We currently have a patent pending for the use of MST in the production of
biodiesel. Effective August 1, 2005, we licensed the use of MST in the
production of biodiesel to Agribiofuels, LLC, a company in which we own an
interest. Agribiofuels plans to build and operate a high-efficiency, cost
effective 36 million gallon/year biodiesel production facility. IPRC has agreed
to provide certain general business, financial consultation and advice and
management services to Agribiofuels in connection with the operation of its
business and to provide technology and training in operating Microwave
Separation Technology (MST) in the manufacture of biodiesel products. In
connection with these services, commencing August 1, 2005, Agribiofuels shall
pay IPRC a management fee equal to $75,000 per month through Dec. 31, 2005, and
$120,000 thereafter during the development and construction period. In addition,
once the biodiesel facility is operational, Agribiofuels will pay IPRC a
technology and licensing fee based upon throughput.
2
Pure biodiesel contains no petroleum, is derived from many kinds of seed
and vegetable oils produced in the U.S., and can be directly blended with fossil
fuel diesel. When blended with petroleum diesel, the fuel can be readily used in
diesel powered vehicles with no mechanical alterations to the engines. The
exhaust from a vehicle that is switched to a biodiesel mixture immediately
produces cleaner, healthier emissions, and biodiesel is the only alternative to
fuel certified by the Environmental Protection Agency that fulfills the
requirements of Section 211 (B) of the Clean Air Act.
The 2005 Energy Policy Act has created a domestic renewable fuels
utilization requirement of 8 billion gallons per year by 2012 with an
intermediate goal of 4 billion gallons per year by 2008. The 2005 Energy Policy
Act identifies specific groups of consumers who must comply with the Federal
guidelines or face economic penalties in the form of lost or reduced tax
credits, diverted budget appropriations, and possible fines, including:
o All state, federal and local government agencies,
o Large trucking companies,
o School districts with bus fleets,
o Mass transit companies and contractors doing business with the Federal
Government.
In addition to the potential penalties for non-compliance, there will be
incentives to producers, blenders and consumers who use alternative fuels.
The U.S. consumes over 170 billion gallons of petroleum fuel annually. Of
this amount, petroleum diesel accounts for about 40%, or 65 billion gallons. The
Energy Act of 2005 mandates that each of these potential diesel customers must
use a B20 blend (BXX - where the XX represents the % of biodiesel in the blended
product formulation; the difference being the amount of petroleum diesel found
in the blend). The most common biodiesel blend used today is referred to as B20,
indicating a formulation of 20 percent biodiesel and 80 percent diesel. The B20
blend is the minimum blend percentage required to comply with all legislative
mandates currently in effect.
In response to the Federal Directives outlined in the US Energy Policy Act
of 2005 and related legislation in the United States and the European Union, in
fiscal year end 2005, the Company entered into laboratory and field trials to
determine the value of employing its technology to enhance the throughput and
settling times for existing bio-diesel production processes.
The Company believes its MST can be added to existing bio-diesel production
processes which can enable plants to increase its throughput rates by being able
to turn a batch or semi-batch process into a continuous process. While the
Company intends to develop and/or refine marketing plans to penetrate the
biodiesel field, MST use in the production of biodiesel is in its early stages
of development and there is no guarantee that it will be successful.
Research and Development
In fiscal years 2000, 2001, 2002, 2003 and 2004, the Company incurred
minimal research and development costs. IPRC restarted its research and
development efforts as of January 2005 to identify other applications for
microwave treatment of emulsions. It is currently broadening its petroleum
industry focus to include recovered oil processors, bio-diesel process
enhancements and maritime applications involving both the private and
governmental sectors.
3
Marketing and Customers
The Company has currently only leased one MST. However, there are more than
700 oil refineries worldwide with 149 of these located in the United States.
Each is a potential customer of the Company. The Company's marketing strategy is
to:
o Strategically partner with a world-class engineering, manufacturing,
marketing and distribution organization (e.g. Shaw Stone & Webster).
o Focus on commercialization of microwave technology
o Concentrate initially on the 45 refineries in Texas and Louisiana
o Execute existing pipeline of contacts and leads
o Participate in the Federal Government's leadership in promoting
through legislation, grant money and tax credits the development of
alternative fuels, specifically bio-diesel.
Between May 2002 and December 2004, IPRC licensed its MST technology for
distribution thorough Indonesia and Singapore to Tradewinds Oil and Gas Inc.
In August 2005, the Company granted Stone & Webster Management Consultants,
Inc., a wholly-owned subsidiary of The Shaw Group, the right to fabricate and
integrate all MST systems to be delivered to customers in and outside the United
States in exchange for marketing and sales contributions in the fields of crude
oil production, refining and transport, biodiesel and alternative fuels
production, bilge water treatment and environmental clean up projects.
In August 2005, the Company granted Agribiofuels, LLC a license to use the
MST technology in the production of biodiesel. The Company has an ownership
interest in Agribiofuels, which is in the business of providing biodiesel
products to the energy industry. Agribiofuels, with the help of IRPC, plans to
build and operate a high efficiency, low cost biodiesel production facility.
While the Company intends to develop and/or refine marketing plans to
penetrate these areas, it can provide no assurances that the MST or other
products will be accepted in the production processes defined for these sectors.
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. We believe that our products will compete with these products
principally on the basis of improved and extended efficacy and reduction in
environmental risks. The efficacy of applying microwaves to sludge problems has
been well documented in a series of reports prepared for the Electric Power
Research Institute/Center for Materials Production between 1992 and 1994 by
Carnegie Mellon Research Institute, (Reports CR-103872, CR-105736, and
CR-109994, all focusing on Application of Microwave to Oil Water Sludge).
We believe that our most significant competitors are fully integrated oil
and gas processing companies. Smaller companies may also be significant
competitors, particularly through collaborative arrangements with oil and gas
industry companies. The Company's competitors are national, regional and local,
including recognizable companies such as BJ Services, Baker Hughes and Nalco.
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.
4
Competition related to the development of alternative fuels, specifically
hydrogen and biodiesel, is difficult to determine due to the nature of the areas
of hydrogen and biodiesel fuel generation. According to Biodiesel Magazine,
currently there are 42 biodiesel production facilities with stated capacity of
317 million gallons per year in the U.S. of which 8 are in Texas. The Company
believes the requirements of the 2005 Energy Policy Act will cause a spike in
demand that will far outpace supply for the next ten years and beyond. Already,
biodiesel is the fastest growing renewable fuel in the U.S. Its growth rate has
exceeded 100% during the last five years and the Company believes it will
accelerate while the full implications of the 2005 Energy Policy Act are
implemented.
The Company believes that some of its current competitors have
significantly greater resources, experience and research and development
capabilities.
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 2 patent
applications pending for the use of MST in the marine industry and in the
production of biodiesel and may seek additional patents in the future. There can
be no assurance that any future patent applications will result in patents being
issued. Likewise, there can be no assurance that the Company's patents will
afford protection against competitors with similar technology. In addition,
there can be no guarantee that the patents will not be infringed upon, designed
around by others, or challenged and held to be invalid or unenforceable.
Proprietary rights relating to the Company's products and processes generally
will be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. In the absence of patent protection, competitors
who independently develop substantially equivalent technology may adversely
affect the Company's business.
Third-party patents relating to technology utilized by the Company may now
exist or may be issued in the future. The Company may need to acquire licenses
or to contest the validity of any such patents. Significant funds may be
required to defend against third party claims of patent infringement. Any such
claim could adversely affect the Company until the claim is resolved.
Furthermore, any such dispute could result in a rejection of any patent
applications or the invalidation of any patents the Company owns. There can be
no assurance that any license required under any such patent would be available
to the Company or, if available, available on acceptable terms. In addition,
there is no guarantee that the Company would prevail in any litigation involving
such patent. Any of the foregoing could have a material adverse effect on the
Company and its results of operations.
The Company seeks to protect the technology used in the MST process in part
by confidentiality agreements with its advisors, employees, consultants,
suppliers and vendors. The Company also protects its technology by building
interlocking security measures into its products. There can be no assurance,
however, that these agreements and security measures will not be breached or
that competitors will not discover the Company's trade secrets. In addition,
there can be no assurance that persons or institutions providing research to the
Company will not assert rights to intellectual property arising out of such
research.
5
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 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.
Government Regulation
The Company's products are subject to government regulation various
federal, local, state and international laws and regulations relating to
occupational health and safety and the environment including regulations from
the U.S. Environmental Protection Agency. Failure to comply with these
occupational health and safety and environmental laws and regulations or
associated permits may result in the assessment of fines and penalties and the
imposition of investigatory and remedial obligations. The Company believes that
its products meet or exceed all applicable safety and environmental regulations.
All units will be manufactured to meet United States, Canadian and European
standards for construction and safety.
Employees
As of November 1, 2005, the Company had five full-time employees and three
part-time consultants.
ITEM 2 DESCRIPTION OF PROPERTY
The Company leases a 10,000 square foot facility that houses the Company's
corporate offices, test facility and manufacturing divisions in Houston, Texas
under a lease that originally expired in March of 2005. The lease payment for
this space was approximately $6,300 per month. The Company renewed the lease for
one year. The renewed lease expires in March 2006 and has a reduced monthly
lease fee of $5,950.
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding and, to
management's knowledge; no federal, state or local governmental agency is
presently contemplating any proceeding against the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fiscal years ended October 31, 2002, October 31, 2003 or October 31,
2004.
6
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board Pink Sheet
market under the symbol "IREC." The following table sets forth the range of high
and low bid quotations for the Company's Common Stock for each of the quarters
within the last three fiscal years:
Fiscal Year 2004 Low High
---------------- --- ----
First Quarter (11/1/03-1/31/04) $ 0.06 $ 0.12
Second Quarter (2/1/04-4/30/04) $ 0.04 $ 0.13
Third Quarter (5/1/04-7/31/04) $ 0.10 $ 0.15
Fourth Quarter (8/1/04-10/31/04) $ 0.09 $ 0.12
Fiscal Year 2003 Low High
---------------- --- ----
First Quarter (11/1/02-1/31/03) $ 0.13 $ 0.35
Second Quarter (2/1/03-4/30/03) $ 0.18 $ 0.20
Third Quarter (5/1/03-7/31/03) $ 0.05 $ 0.20
Fourth Quarter (8/1/03-10/31/03) $ 0.05 $ 0.11
Fiscal Year 2002 Low High
---------------- --- ----
First Quarter (11/1/01-1/31/02) $ 0.18 $ 0.30
Second Quarter (2/1/02-4/30/02) $ 0.15 $ 0.76
Third Quarter (5/1/02-7/31/02) $ 0.22 $ 0.69
Fourth Quarter (8/1/02-10/31/02) $ 0.18 $ 0.40
Fiscal Year 2001 Low High
---------------- --- ----
First Quarter (11/1/00-1/31/01) $ 0.75 $ 2.00
Second Quarter (2/1/01-4/30/01) $ 0.80 $ 1.48
Third Quarter (5/1/01-7/31/01) $ 0.40 $ 0.89
Fourth Quarter (8/1/01-10/31/01) $ 0.15 $ 0.48
The quotations in the table above reflect inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not represent actual
transactions. The market for Company common stock is limited, sporadic and
highly volatile.
Holders
As of November, 15, 2005, there were approximately 700 registered
shareholders of the Company's common stock.
Dividends
The Company has not paid cash dividends to date, and does not expect to pay
any cash dividends in the foreseeable future. The Company intends to retain any
earnings to finance its future growth.
7
Equity Compensation Plan Information
In 1999, the Company granted 210,000 stock options to employees with an
exercise price of $0.43 per share. The options vested immediately and expired in
2004. During fiscal 2002, 6,977 of these shares were exercised and the remaining
options expired in January 2004.
In 2002, the board authorized the Company's 2002 Stock Option and Incentive
Plan ("2002 Option Plan") under which up to 6,250,000 shares of the Company's
common stock may be issued. Under the 2002 Option Plan, incentive and
nonqualified stock options could be granted to employees, directors and
consultants of the Company. Awards under the 2002 Plan were granted as
determined by the Company's Board of Directors. The options granted pursuant to
the 2002 Option Plan may be either incentive stock options qualifying for
beneficial tax treatment for the recipient or nonqualified stock options. The
terms of the options granted under the 2002 Option Plan will be fixed by the
Company, provided the maximum option term may not exceed ten years from the
grant date. Stock options may be granted at an exercise price determined by the
Company's Board of Directors. Vesting rights will be fixed by the Company's
Board of Directors.
Pursuant to the 2002 Option Plan, the Company was required to receive
stockholder approval of the plan by November 1, 2003. If the stockholders failed
to approve the 2002 Option Plan by November 1, 2003, any awards issued under the
plan would be null and void. Due to the Company's financial condition in fiscal
2003, a stockholder's meeting was never held and the plan was never approved,
and therefore, all options granted under the 2002 Option Plan became null and
void on November 1, 2003. Pursuant to the 2002 Option Plan, the board issued
options to purchase 3,335,000 shares of the Company's common stock at $0.20 per
share, of which 1,650,000 vested immediately. In June of 2003, the Company's
employees were terminated and the unvested options to issue 1,685,000 shares of
the Company's common stock were cancelled. As of November 1, 2003, all of the
awards under the 2002 Option Plan became null and void because the Company
failed to receive stockholder approval.
In April 2004, the board of directors authorized a Restricted Stock Program
to provide up to 7,754,120 shares of the Company's common stock to the Company's
employees and officers. Awards under the Restricted Stock Program are granted as
determined by the Company's board of directors. In April 2004, the Company
agreed to issue 2,000,000 shares of the Company's common stock to certain
employees and officers upon the closing of a $1,500,000 fundraising. As of
October 31, 2004, the closing of the fundraising was not complete and therefore,
none of the 2,000,000 shares were vested.
The following tables set for the Company's common stock issuable to
employees pursuant to the above plans for the fiscal years ended October 31,
2002, October 31, 2003 and October 31, 2004.
8
As of October 31, 2002:
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
To be Issued Upon Weighted Average Equity Compensation
Exercise of Outstanding Exercise Price of Plans (Excluding
Options, Warrants and Outstanding Options, Securities
Rights Warrants and Rights Reflected in Column A)
Plan Category (A) (B) (C)
------------- --- --- ---
Equity Compensation
Plans Approved by
Security Holders - - -
Equity Compensation
Plans Not Approved by
Security Holders 203,023 $0.43 -
------------------------------------------------------------------------------------
Total 203,023 $0.43 -
====================================================================================
As of October 31, 2003:
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
To be Issued Upon Weighted Average Equity Compensation
Exercise of Outstanding Exercise Price of Plans (Excluding
Options, Warrants and Outstanding Options, Securities
Rights Warrants and Rights Reflected in Column A)
Plan Category (A) (B) (C)
------------- --- --- ---
Equity Compensation
Plans Approved by
Security Holders - - -
Equity Compensation
Plans Not Approved by
Security Holders 3,553,023 $0.22 4,600,000
------------------------------------------------------------------------------------
Total 3,553,023 $0.22 4,600,000
====================================================================================
As of October 31, 2004:
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
To be Issued Upon Weighted Average Equity Compensation
Exercise of Outstanding Exercise Price of Plans (Excluding
Options, Warrants and Outstanding Options, Securities
Rights Warrants and Rights Reflected in Column A)
Plan Category (A) (B) (C)
------------- --- --- ---
Equity Compensation
Plans Approved by
Security Holders - - -
Equity Compensation
Plans Not Approved by
Security Holders 2,000,000 $0.00 5,754,120
------------------------------------------------------------------------------------
Total 2,000,000 $0.00 5,754,120
====================================================================================
9
Recent Sales of Unregistered Securities
In October 1999, the Company issued a warrant to a trust to purchase
1,116,071 shares of its common stock. The initial exercise price of this warrant
was $3 per share and expires in October 2003. These warrants all specify that
the rights of the warrant holders are entitled to "full ratchet" anti-dilution
adjustments in the event the Company issues shares of common stock or securities
convertible into or exchangeable for common stock at a price per share less than
the warrant exercise price. The Company found that this anti-dilution adjustment
was triggered and the Company adjusted the warrant from 1,116,071 at $3.00 to
16,741,065 at $.20. During 2003 the trust settled and cancelled the agreement
with the Company by accepting 1,700,000 shares of the Company's common stock.
In May 2001, the company issued a warrant to purchase 108,850 shares of
common stock to two vendors for value received as consulting services. The
warrants had an exercise price of $3.00 per share and expired in May 2004.
During fiscal years 2002 and 2003, the Company issued to an investor
secured convertible promissory notes with an aggregate principal value of
$1,725,417. The notes bear interest at a rate of 12 percent per annum and
matured on December 16, 2002. The note agreement governing the terms of the
notes was amended to extend the maturity date to December 31, 2004. The
principal and interest on the notes may be converted at the option of the holder
into shares of common stock at a conversion price of $0.20 per share. Upon an
event of default, the notes begin to accrue interest at a maximum rate of
eighteen percent (18%) per annum. Effective January 1, 2005, the notes were
converted into 11,101,900 shares of stock.
On November 1, 2003, pursuant to the 2002 Option Plan, the Company issued
options to purchase 3,350,000 shares of the Company's common stock at $0.20 per
share to seven (7) employees. Options to purchase 1,650,000 vested immediately,
the remaining vested equally on November 1, 2004 and November 1, 2005. As of
November 1, 2003, all the options were null and void because the 2002 Option
Plan never received shareholder approval.
In September, 2004, the Company issued 250,000 shares of stock and agreed
to pay $15,000 in cash over six months in settlement of an accounts payable
balance of $91,236.
In October 2004, the Company issued a 3 year 7.5% note payable for $96,315
and issued 330,879 shares of stock in settlement of $193,095 accounts payable
balance with a vendor.
10
Also in October 2004 the Company issued 1,397,389 shares of common stock
and paid $50,000 in settlement of a note payable to a related party in which the
Company retired $239,500 of debt and accrued interest of $254,574.
During fiscal year 2004 the Company issued to investors secured convertible
note subscription agreements with generated cash flows of $1,125,000. The
subscription agreements bear interest at a rate of 12 percent per annum and
after the agreements were executed into promissory notes in fiscal 2005 they
mature on various dates in fiscal 2007. The notes are convertible at $0.15 per
share. Maturity dates are May 26, June 1, and July 26, 2007. The purchasers of
the convertible notes will be issued warrants for the purchase of the Company's
stock. The warrants vest immediately upon grant and have a weighted-average
remaining contractual life of 3 years. The exercise price of the warrants is
$.15 and they expire during fiscal year 2008. In accordance with the terms
sheet, the warrants will be issued when the definitive loan agreements are
signed. The loan agreements were not signed until 2005, therefore the warrants
were not issued until 2005.
During Fiscal year 2004 the Company agreed to issue 2,000,000 of restricted
stock to participating officers and employees with a weighted average fair
market value of $.10 per share, but have not issued any shares as of October 31,
2004.
Each issuance was exempt from registration pursuant to Section 4(2) under
the Securities Act of 1933, as amended, as a transaction by an issuer not
involving any public offering.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussions of our results of operations and financial
position should be read in conjunction with the financial statements and notes
pertaining to them that appear elsewhere in this Form 10-KSB.
Critical Accounting Policies
Our consolidated financial statements are based on the selection and
application of accounting principles generally accepted in the United States of
America, which require us to make estimates and assumptions about future events
that affect the amounts reported in our financial statements and the
accompanying notes. Future events and their effects cannot be determined with
absolute certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results could differ from those estimates, and any
such differences may be material to the financial statements. We believe that
the following policies may involve a higher degree of judgment and complexity in
their application and represent the critical accounting policies used in the
preparation of our financial statements. If different assumptions or conditions
were to prevail, the results could be materially different from our reported
results.
In December 2003, the SEC issued Staff Accounting Bulleting (SAB) No. 104,
Revenue Recognition, which codifies, revises and rescinds certain sections of
SAB No. 101, Revenue Recognition, in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes noted in SAB No. 104 did not have a material
effect on our consolidated results of operations, consolidated financial
position or consolidated cash flows.
11
Overview
The Company currently offers MST to the oil field industry and is
developing the use of MST in the marine industry and in the production of
bio-diesel. MST technology uses commercial radio frequencies to separate water
and oil emulsions. In 2002 and 2003, the Company focused primarily on various
fund raising efforts. During 2002 and 2003, the Company's only operations were
the shipment and set up of a MST-1000 to Kellogg Brown & Root/Exxon Mobil for
use in the Esso's oil field gathering facility located in Africa and leasing
certain equipment to third parties. . The unit shipped for use in Esso's oil
field was IPRC's second commercial system and reflects the slow acceptance of
the use of microwave technology in separating emulsion within the petroleum and
gas industry. Due to the Company's financial condition, in June 2003, the
Company terminated all of 7 its employees. Since June 2003, the Company has
re-hired 4 employees.
In January 2004, the Company's internal management team changed
significantly. Henry Kartchner resigned as Chairman and CEO and C. Brent
Kartchner resigned as President. The Board of Directors appointed Alan Springer
as Chairman and CEO and Edward Gaiennie as the Chief Financial Officer. The new
management of the Company created and began implementing a business model
consisting of five (5) critical areas:
Raising Additional Capital. Finding and securing working capital was the
first step in the business model. The Company was able to raise $1,125,000
during the fiscal year ended October 31, 2004 and by April 1, 2005, $1.5 million
had been raised. These dollars were utilized to keep the company operational.
Settle Prior Obligations. The Company decided to request some of the
Company's investors restructure their debt obligations. As of October 31, 2003,
the Company had $873,494 in notes payable. During fiscal 2004, the Company was
able to settle $498,494 of the outstanding notes payable for $250,000 and
1,397,389 shares of restricted common stock of the Company. The Company was able
to settle $284,331 of outstanding accounts payable for $15,000 in cash, a 3 year
7.5% notes payable for $96,315 and 330,879 shares of the Company's common stock.
Lastly, in fiscal 2004, the Company was able to pay off a $22,475 note payable
to a related party by assigning the note holder $18,000 of our notes receivable.
In addition in fiscal 2005, the Company was able to settle $2,300,000 of
outstanding obligations for 14,737,105 shares of restricted stock of the Company
(see subsequent events).
Establish Strategic Relationships. In 2004, the Company began looking for a
strategic partner who could be the Company's global provider of turnkey,
value-added engineering design, procurement, construction, maintenance, and
operations services supporting the petrochemical, refining and gas processing
industries. In fiscal 2005, the Company entered into a Strategic Marketing,
Manufacturing and Technology Licensing Agreement with a subsidiary of a Fortune
500 organization with over 18,000 employees strategically located around the
world, to fabricate and integrate all MST systems to be delivered to customers
in and outside the United States in exchange for marketing and sales
contributions in the fields of crude oil production, refining and transport,
biodiesel and alternative fuels production, bilge water treatment and
environmental clean up projects.
12
This relationship is continuing to expand and the Company hopes to receive
significant support from the involvement of our strategic partner members on its
business development team.
Develop New MST Applications. The Company has identified additional
technical opportunities for its MST in applications involving biodiesel, bilge
water, and environmental hydrocarbon clean-up. A test is currently being
conducted to validate the impact of the MST on increasing the biodiesel
production process, thus adding production capacity to existing operations. In
addition to biodiesel, the Company has continued to evaluate the opportunities
for introducing the MST into the marine industry's bilge water treatment
process.
In June 2004, IPRC entered into a security deposit payment forbearance
agreement with the successor in interest to Mobil Technology Company in
connection with the marketing agreement entered into in October 1999 with Mobil
Technology Company ("MTC"). Pursuant to the 1999 agreement, MTC provided IPRC a
$1,000,000 security deposit, which IPRC was to repay on August 10, 2003.
Pursuant to the forbearance agreement, if the Company entered into a contract
for the sale, or license of one or more MST units by October 31, 2004, the
Company was obligated to payoff the security deposit in six (6) quarterly
installments. If IPRC fails to enter into a contract for the sale, or license of
one or more MST units by October 31, 2005 or fails to payoff the security
deposit by December 31, 2005, then IPRC shall accrue interest on the unpaid
security deposit plus any accrued interest, at a rate equal to the prime rate of
Citibank (New York) at the close of business on the last business day of the
calendar year immediately preceding each respective year plus 4%. As of November
22, 2005, the Company had not entered into a contract for the sale, or license
of one or more MST units and the Company has not made any installments.
Therefore, the Company is currently in default under the forbearance agreement;
however, the successor to MST has not made any demands.
Recent Developments
Pursuant to management's current business plan, in January 2005, the
Company converted the principal and accrued but unpaid interest totaling
$2,309,008 of that certain bridge loan executed in May 2002 in favor of IPRC
Bridge, L.P. for 11,101,900 shares of the Company's common stock. Additionally,
in January 2005, the Company was able to convert the principal and accrued but
unpaid interest totaling $742,538 of that certain note executed in February 2001
in favor of Maya, LLC for 2,953,2058 shares of the Company's common stock.
In April 2005, the Company terminated and settled that certain Guaranteed
Investment Contract ("GIC"), dated July 18, 2001, executed by and between the
Company and an investor who is a former member of the Company's board. Pursuant
to the GIC, the investor provided the Company with an initial investment of
$100,000. In return the Company issued the investor 200,000 shares of the
Company's common stock and was promised to pay the investor $2,000,000 on July
18, 2008. In consideration of the termination and settlement of the GIC, the
Company issued the investor an addition 682,301 shares of the Company's common
stock, which was the equivalent of the $100,000 initial investment and interest
accrued at 12% per annum from July 18, 2001 until April 2005 converted into
shares of the Company's common stock.
Between May and August of 2005, the Company executed notes and issued
warrants for the subscription agreements the Company had been receiving since
April 2004. The total principal amount of the notes is $2,175,000, of which
$1,125,000 was attributable to note subscriptions received in fiscal 2004. The
notes accrue interest at 12% per annum and the total principal plus interest is
due and payable in 2007. The notes are secured by a majority of the Company's
assets, including the Company patents and pending patents. The investors may
convert the outstanding balance and any accrued but unpaid interest on the notes
at an exercise price of $0.15 per share. In addition, the Company granted the
investors certain piggyback registration rights for the shares issuable upon the
conversion of the notes. Lastly, in connection with the notes, the Company
issued warrants to purchase 7,250,000 shares of the Company's common stock at an
exercise price of $0.15 per share and expire on a staggered basis in fiscal year
2008.
13
In August 2005, the Company granted Stone & Webster Management Consultants
the right to fabricate and integrate all MST systems to be delivered to
customers in and outside the United States in exchange for marketing and sales
contributions in the fields of crude oil production, refining and transport,
biodiesel and alternative fuels production, bilge water treatment and
environmental clean up projects. In addition the Company granted Agribiofuels,
LLC, a company partially owned by IPRC a license to use the MST technology in
the production of biodiesel.
Results of Operations
Comparison of fiscal years ended October 31, 2004 and 2003
Revenue. Revenue decreased 95%, or $577,733, to $30,200 for fiscal year
2004 ending October 31, 2004, compared to $607,933 in fiscal 2003. The decrease
in revenues is primarily attributable to the revenue recognized during 2003
related to the contract for the Esso project which was completed and shipped
during fiscal year ended 2003. The Company received no revenues in fiscal year
2004 for the sale or use of a MST system.
Cost of Goods Sold and Gross Profit (Loss). Cost of goods sold decreased
100%, or $504,849, to $660 for the year ended October 31, 2004, compared to
$505,049 in fiscal 2003. The decrease is attributable to the cost recognized
during 2003 related to the contract for the Esso project which was completed and
shipped during the year ended 2003.
Selling, General and Administrative. General and administrative expenses
decreased 33%, or $278,513, to $573,498 for the year ended October 31, 2004,
compared to $852,011 in fiscal 2003. The decrease is primarily attributable to
the Company furloughing employees from June 2003 to March 2004 as well as a
decrease in the number of employees on staff during 2004 compared to 2003. In
addition, the Company entered into an office sharing agreement with a related
party during June 2003 which continued until September 30, 2005.
Interest Expense. Interest expense increased 19%, or $136,430, to $854,077
for the year ended October 31, 2004, compared to $717,647 in fiscal 2003. The
increase was primarily attributable to the effect of compounding interest the
Company's outstanding notes and an increase in the interest rate of the
Company's obligation under the forbearance agreement, these increases accounted
for approximately $61,000. In addition the value of the stock underlying the GIC
decreased during the year ended October 31, 2004; therefore the interest expense
on the GIC increased approximately $38,000. In addition, the accrued interest
expense on the note subscription agreements totaling $1,125,000 for fiscal 2004
was approximately $37,000 based on the terms of the final note agreements
executed in fiscal 2005.
Gain on Settlement of Debt. Gain on Settlement increased 11,271%, or
$672,086, to $678,049 for the year ended October 31, 2004, compared to $5,963 in
fiscal 2003. During fiscal 2004, the Company paid $250,000, issued 1,978,268
shares of the Company's common stock and exchanged $18,000 of receivables in
full settlement of $544,730 in outstanding debt and $606,133 in accrued
interest. During fiscal 2003, the Company settled two unsecured creditor
accounts totaling $12,409 by paying $6,446.
14
Going Concern
For the year ended October 31, 2004, the Company's independent auditors
stated that the Company's financial condition raises substantial doubts about
its ability to continue as a going concern. The Company has generated limited
revenue through October 31, 2004, and has sustained substantial losses from
operations since inception. In addition, as of October 31, 2004, the Company's
current liabilities exceeded its current assets by $5,472,043, it had $450,442
of debt obligations that were past due, and a deficit accumulated of
$18,538,812. During fiscal year 2004, the Company used $447,148 of cash in
operating activities, which was funded primarily through the issuance of debt,
rather than provided by its operations. These conditions raise substantial doubt
as to the ability of the Company to continue as a going concern. Management will
be required to, and expects to, raise additional capital through the issuance of
debt securities and offerings of equity securities to fund the Company's
operations, and will attempt to continue raising capital resources until such
time as the Company generates revenues sufficient to maintain itself as a viable
entity. However, there is no assurance that such financing will be obtained.
Liquidity and Capital Resources
The Company currently uses cash generated primarily from its financing
activities and expects to continue to do so until it is able to generate
sufficient capital from its operating activities. The Company expects to
continue to experience substantial working capital requirements. As of October
31, 2004, IPRC's aggregate current liabilities were $5,893,495 compared to
$6,295,853 at October 31, 2003. Also as of October 31, 2004, the Company had
negative working capital of $5,474,639 compared to negative working capital of
$6,295,521 at October 31, 2003. During 2004, the Company obtained subscription
agreements for notes totaling $1,125,000.
As of October 31, 2004, the Company had cash of $412,156. Giving effect to
the closing of the sale of the notes in August 2005 and the execution of the
management agreement with Agribiofuels, LLC, we believe we have sufficient cash
to fund current operations through August 2006. The Company's current burn rate
in is $70,000 per month. As the operations of the Company ramp up, our burn rate
is expected to increase to $110,000 per month. The Company used approximately
$1,400,000 to fund its operations and settle existing debt for fiscal 2005. This
money was used for research and development and for general and administrative
expenses. The Company funded its 2005 fiscal expenditures, commitments and
capital requirements primarily through cash flows from financing activities,
with an increasing amount of the Company's working capital requirements provided
through cash flows from operations. There can be no assurance that the Company's
operations will be able to generate sufficient capital from operations. Further,
there can be no assurance that the Company will be able to raise sufficient
funds from financings to fund its working capital requirements, or if financings
occur, that they would be completed on terms favorable to the Company. The
Company anticipates that it will need to engage in best efforts sales of its
securities to raise needed working capital. Failure to raise necessary working
capital will cause us to curtail operations.
Operating Activities. Cash used in operating activities during the year
ended October 31, 2004, amounted to $447,148, an increase of 10%, or $44,241
over the $402,907 of cash used in operating activities during fiscal 2003.
15
Investing Activities. Cash provided by investing activities during the year
ended October 31, 2004 and 2003, amounted to $0.
Financing Activities. The Company has financed its operating and financing
activities primarily from the proceeds of private placements of common stock and
through debt. During the year ended October 31, 2004, the Company did not raise
any proceeds from the sale of common stock. However, the Company issued
1,978,268 shares of its common stock to settle notes and accounts payable. The
Company did not raise any proceeds from the sale of common stock in the year
ended October 31, 2003. However in fiscal 2003, the Company issued 1,700,000
shares of its common stock to settle a warrant agreement with a note holder.
During the year ended October 31, 2004, the Company received proceeds of
$1,125,000 from debt, an increase of 210%, or $762,070, over the $362,930
received from proceeds of debt in the year ended October 31, 2003.
At October 31, 2004, the Company had debt obligations with maturities
during fiscal 2005 of $2,835,160. Approximately $375,000 of short-term debt
obligations are from related parties and are currently past due, In addition
there is $75,442 note payable which is past due. The Company extended the
maturity dates of convertible promissory notes with a principal balance of
$1,725,417 from December 31, 2003 to December 31, 2004.
During fiscal 2004, the Company hired new officers who raised $1,125,000
through the issuance of convertible note subscription agreements to investors.
The subscription agreements were issued, but convertible notes were not executed
until fiscal 2005 when definitive note agreements were signed. The notes bear
interest at a rate of twelve percent (12%) per annum and are convertible into
shares of common stock at a conversion price of $0.15 per share. These notes
will mature on a staggered basis in fiscal year 2007.
Comparison of fiscal years ended October 31, 2003 and 2002
Revenue. Revenue decreased 43%, or $453,580, to $607,933 in the year ended
October 31, 2003, compared to $1,061,513 in fiscal 2002. The decrease in
revenues is primarily attributable to the Company's lease of an MST-1000 unit in
Torrance, California ending in December of 2003.
Cost of Goods Sold and Gross Profit (Loss). Cost of goods sold decreased
22%, or $143,992, to $505,049 for the year ended October 31, 2003, compared to
$649,041 in fiscal 2002. The decrease is primarily attributable to the Company's
lease of an MST-1000 unit in Torrance, California ending in December of 2003.
Selling, General and Administrative. General and administrative expenses
decreased 43%, or $647,473, to $852,011 for the year ended October 31, 2003,
compared to $1,499,484 in fiscal 2002. The decrease is primarily attributable to
3 items: (i) the Company furloughing employees from June 2003 to March 2004;
(ii) a decrease in legal and professional expenses due to the lack of activity
in the Company, and (iii) the Company entering into an office sharing agreement
with a related party during June 2003 which is ongoing.
Interest Expense. Interest expense increased 50%, or $239,905, to $717,647
for the year ended October 31, 2003, compared to $477,742 in fiscal 2002. The
increase was primarily attributable to the issuance of promissory notes under a
private placement during the second half of fiscal year 2002, (i.e. the notes
were outstanding longer in 2003), this accounted for approximately $161,000 of
the increase, and , compounding of interest effect on certain notes accounting
for approximately $47,000 of the increase. In addition there was an increase in
interest expense from the GIC as the value of the underlying stock decreased
during the year ended October 31, 2003. The interest expense on the GIC
increased $31,000 in 2003 as compared to 2002.
16
Gain on Extinguishment of Debt. Gain on Extinguishment of debt decreased
92%, or $67,031 to $5,963 in the year ended October 31, 2003, compared to
$72,994 in fiscal 2002. During fiscal 2003 the Company settled two unsecured
creditor accounts totaling $12,409 by paying $6,446. During fiscal 2002, the
Company recorded $38,710 in gain on extinguishment of debt in which the Company
paid $75,000 in full settlement of $100,000 in outstanding debt and $13,710 in
accrued interest. The Company also wrote off $34,284 of accounts payable which
were over five-years old.
Going Concern
For the year ended October 31, 2003, the Company's independent auditors
stated that the Company's financial condition raises substantial doubts about
its ability to continue as a going concern. The Company has generated limited
revenue through October 31, 2003, and has sustained substantial losses from
operations since inception. In addition, as of October 31, 2003, the Company's
current liabilities exceeded its current assets by $6,295,521, it had $948,936
of debt obligations that were past due, and a deficit accumulated of
$17,681,581. During fiscal year 2003, the Company used $402,907 of cash in
operating activities, which was funded primarily through the issuance of debt,
rather than provided by its operations. These conditions raise substantial doubt
as to the ability of the Company to continue as a going concern. Management will
be required to, and expects to, raise additional capital through the issuance of
debt securities and offerings of equity securities to fund the Company's
operations, and will attempt to continue raising capital resources until such
time as the Company generates revenues sufficient to maintain itself as a viable
entity. However, there is no assurance that such financing will be obtained.
Liquidity and Capital Resources
The Company currently uses cash generated primarily from its financing
activities and expects to continue to do so until it is able to generate
sufficient capital from its operating activities. The Company expects to
continue to experience substantial working capital requirements. As of October
31, 2003, IPRC's aggregate current liabilities were $6,295,853 compared to
$5,029,690 at October 31, 2002. As of October 31, 2003, the Company had negative
working capital of $6,295,521 compared to negative working capital of $4,955,437
at October 31, 2002.
Operating Activities. Cash used in operating activities during the year
ended October 31, 2003, amounted to $402,907, a decrease of 57%, or $539,295
over the $942,201 of cash used in operating activities during fiscal 2002. The
decrease in cash used in operations was due to the decrease in the net loss of
the Company from $1,785,068 in 2002 to $1,595,640 in 2003, and to the increase
in accrued liabilities of $742,202 in 2003 vs. $329,495 in 2002.
Investing Activities. Cash provided by investing activities during the year
ended October 31, 2003, amounted to $0, a decrease of $9,365, over the $9,365 of
cash provided by investing activities in fiscal 2002.
Financing Activities. The Company has financed its operating and financing
activities primarily from the proceeds of private placements of common stock and
through issuance of debt. During the year ended October 31, 2003, the Company
did not raise any proceeds from the sale of common stock. However, the Company
issued 1,700,000 shares of its common stock to settle a warrant agreement with a
note holder. During the year ended October 31, 2003, the Company received
proceeds of $362,930 from the issuance of debt, a decrease of 64%, or $653,231,
over the $1,016,161 received from proceeds of debt in the year ended October 31,
2002.
17
The Company extended the maturity dates of convertible promissory notes
with a principal balance of $1,372,487 from December 31, 2002 to December 31,
2003. In addition, the Company has long term debt obligations in the amount
$5,999 which is amortizing monthly until 2005.
During fiscal 2001, the Company engaged Odyssey Capital, LLC a Houston
based company to provide investment banking and financial consulting services.
During fiscal years 2003 and 2002, the Company raised $1,725,417 through the
issuance of convertible promissory notes to investors introduced to the Company
by Odyssey Capital. The notes bear interest at a rate of twelve percent (12%)
per annum, compounded monthly, and are convertible into shares of common stock
at a conversion price of $0.15 per share. The maturity dates of these notes were
extended to December 31, 2003 and then extended again to December 31, 2004.
18
ITEM 7 FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 20
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS AS OF OCTOBER 31, 2004, 2003 AND 2002 21
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 2004, 2003 AND 2002 22
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS
ENDED OCTOBER 31, 2004, 2003 AND 2002 23
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
OCTOBER 31, 2004, 2003 AND 2002 24
NOTES TO FINANCIAL STATEMENTS 26-40
19
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Imperial Petroleum Recovery Corporation
Houston, Texas
We have audited the accompanying consolidated balance sheets of Imperial
Petroleum Recovery Corporation (the "Company" or "IPRC") as of October 31, 2004
and 2003, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of October 31,
2004, and the results of its operations and its cash flows for each of the two
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has incurred significant losses the last three
fiscal years and has an accumulated deficit at October 31, 2004 totaling
$18,538,812. In addition, the Company had $450,442 of debt obligations that were
past due, all of which raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
also described in Note B. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts nor to the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
/s/ Malone & Bailey, PC
-----------------------
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
October 21, 2005
20
Imperial Petroleum Recovery Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
For the Periods Ended October 31,
ASSETS
--------------------------------------------
Unaudited
2004 2003 2002
------------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 412,156 $ 332 $ 46,307
Trade accounts receivable, net 200 -- 20,495
Other receivable - related party 2,500 -- --
Prepaid expenses 4,000 -- 7,451
------------ ------------ ------------
Total current assets 418,856 332 74,253
PROPERTY AND EQUIPMENT, net (Notes D, E, G and H) 251,223 387,263 537,247
OTHER ASSETS, net of accumulated amortization of $20,831, $16,049 and
$11,267 for the years ended 2004, 2003 and 2002, respectively 47,991 48,773 53,555
------------ ------------ ------------
Total assets $ 718,070 $ 436,368 $ 665,055
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade accounts payable $ 756,558 $ 1,042,164 $ 877,158
Other payables - related parties (Note L) 123,115 136,677 19,385
Accrued liabilities 1,801,853 1,405,932 672,443
Deferred revenue -- 30,000 143,625
Notes payable - related parties (Note E) 375,000 873,494 863,494
Bridge note payable (Note F) 1,725,417 1,725,417 1,372,487
Current maturities of long-term obligations (Note G) 1,109,743 1,079,722 1,078,938
Other 1,807 2,445 2,160
------------ ------------ ------------
Total current liabilities 5,893,493 6,295,851 5,029,690
Long-term obligations, less current maturities (Note G) 1,186,403 4,192 8,806
Other -- 1,807 4,252
Guaranteed Investment Contract Liability, (Note J) 394,132 248,354 140,503
------------ ------------ ------------
Total liabilities 7,474,028 6,550,204 5,183,251
STOCKHOLDERS' DEFICIT (Notes B, C, I, J, and K)
Common stock, par value $0.001; authorized 100,000,000 shares; issued and
outstanding 20,845,687, 18,867,419, and 17,167,419 shares respectively 20,846 18,868 17,168
Additional paid-in capital 11,762,008 11,548,877 11,550,577
Accumulated deficit (18,538,812) (17,681,581) (16,085,941)
------------ ------------ ------------
Total stockholders' deficit (6,755,958) (6,113,836) (4,518,196)
------------ ------------ ------------
$ 718,070 $ 436,368 $ 665,055
============ ============ ============
The accompanying notes are an integral part of these statements.
21
Imperial Petroleum Recovery Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended October 31,
-------------------------------------------
Unaudited
2004 2003 2002
------------- ------------ -------------
Revenues (Notes H and O) $ 30,200 $ 607,933 $ 1,061,513
Cost of goods sold (660) (505,049) (649,041)
------------ ------------ ------------
Gross profit (loss) 29,540 102,884 412,472
Operating expenses
Selling, general and administrative expenses 573,498 852,011 1,499,484
Depreciation and amortization expense 140,822 149,098 152,518
Inventory impairment -- -- 153,290
------------ ------------ ------------
Total operating expenses 714,320 1,001,109 1,805,292
------------ ------------ ------------
Loss from operations (684,780) (898,225) (1,392,820)
Other income (expense)
Interest income 10 -- --
Gain on extinguishment of debt 678,049 5,963 72,994
Gain on disposition of assets 3,567 14,269 12,500
Interest expense (854,077) (717,647) (477,742)
------------ ------------ ------------
(172,451) (697,415) (392,248)
Income taxes (Note N) -- -- --
------------ ------------ ------------
Net loss $ (857,231) $ (1,595,640) $ (1,785,068)
============ ============ ============
Net loss per common share - basic and diluted (Note M) $ (0.04) $ (0.09) $ (0.10)
============ ============ ============
Weighted average common shares outstanding - basic and diluted (Note M)
19,067,859 17,675,090 17,167,419
============ ============ ============
The accompanying notes are an integral part of these statements.
22
Imperial Petroleum Recovery Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended October 31, 2004, 2003 & 2002
Additional
Common stock paid-in
Shares Amount capital Deficit
---------- -------- ------------ -------------
Balances as of October 31, 2001 (Restated- Note C) 17,167,419 $17,168 $ 11,550,577 $(14,300,873)
Net loss (1,785,068)
---------- ------- ------------ ------------
Balances as of October 31, 2002 (Unaudited) 17,167,419 17,168 11,550,577 (16,085,941)
Exercise of Warrants 1,700,000 1,700 (1,700)
Net loss -- -- -- (1,595,640)
---------- ------- ------------ ------------
Balances as of October 31, 2003 18,867,419 18,868 11,548,877 (17,681,581)
Issuance of common stock in satisfaction
of debt (Note H) 250,000 250 24,750 --
Issuance of common stock in satisfaction
of debt (Note H) 1,397,389 1,397 152,315 --
Issuance of common stock in satisfaction
of debt (Note H) 330,879 331 36,066 --
Net loss -- -- -- (857,231)
---------- ------- ------------ ------------
Balances as of October 31, 2004 20,845,687 $20,846 $ 11,762,008 $(18,538,812)
========== ======= ============ ============
The accompanying notes are an integral part of these statements.
23
Imperial Petroleum Recovery Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31,
-----------------------------------------
Unaudited
2004 2003 2002
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss $ (857,231) $(1,595,640) $(1,785,068)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 140,822 149,098 152,518
Share-based compensation 200,000 -- --
Interest accretion on Guaranteed Investment Contract 145,778 107,858 77,189
Gain on settlement of debt for stock (675,229) -- --
Gain on write-off of current liabilities (2,821) (5,963) (72,994)
(Gain)/loss on disposal of property and equipment -- (14,268) (12,500)
Changes in assets and liabilities:
Trade accounts receivable (200) 20,495 98,001
Inventory -- -- 153,290
Prepaid & other expenses (28,500) 7,451 8,873
Trade accounts payables (53,954) 190,906 (37,633)
Other payables, related party 8,913 117,292 (26,484)
Accrued liabilities 705,274 742,202 329,495
Deferred revenue (30,000) (122,338) 173,112
----------- ----------- -----------
Total adjustments 410,083 1,192,733 842,867
----------- ----------- -----------
Net cash used in operating activities (447,148) (402,907) (942,201)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment -- -- (3,135)
Proceeds from disposal of property and equipment -- -- 12,500
----------- ----------- -----------
Net cash provided by investing activities -- -- 9,365
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - related parties -- -- 310,233
Principal payments on notes payable - related parties (254,500) -- --
Proceeds from issuance of bridge loan -- 362,930 1,016,161
Proceeds from convertible note subscriptions 1,125,000 -- --
Principal payments on current portion of long-term
obligations (11,528) (5,342) (347,152)
Principal payments on long-term obligations -- (656) (1,759)
----------- ----------- -----------
Net cash provided by financing activities 858,972 356,932 977,483
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 411,824 (45,975) 44,647
Cash and cash equivalents at beginning of period 332 46,307 1,660
----------- ----------- -----------
Cash and cash equivalents at end of period $ 412,156 $ 332 $ 46,307
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 16,650 $ 23,699 $ 37,742
The accompanying notes are an integral part of these statements.
24
Imperial Petroleum Recovery Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Non-cash investing and financing activities
2004
During fiscal 2004, the Company paid $200,000 in full settlement of $258,994 in
outstanding debt and $254,779 in accrued interest. As a result of this
settlement, the Company recorded a gain on extinguishment of debt of $313,773.
During fiscal 2004, the Company paid $50,000 and issued 1,397,389 shares of
stock in full settlement of $239,500 in outstanding debt and $254,574 in accrued
interest. As a result of this settlement, the Company recorded a gain on
extinguishment of debt of $290,361.
The Company issued a 3 year 7.5% note payable for $96,315 and issued 330,879
shares of stock in settlement of $193,095 accounts payable balance with a
vendor. As a result of this settlement the Company recorded a gain on
extinguishment of debt of $60,383. The portion of accounts payable written off
by the vendor related to interest charges.
The Company issued 250,000 shares of stock and agreed to pay $15,000 in cash
over six months in settlement of an accounts payable balance of $91,236. The
Company recorded an initial gain on extinguishment of debt of $6,236 (Accounts
payable balance of $46,236 written off by vendor in exchange for shares valued
at $25,000 and agreed cash payments of $15,000). Once all of the cash payments
are made, the vendor will write off the remaining balance of $45,000. As of May
2005 all cash payments had been made.
The Company exchanged $18,000 of notes receivable from certain employees in
exchange for a related party net loan balance of $22,475 made to the Company. As
a result of this settlement the Company recorded a gain of $4,475.
2003
The Company settled certain accounts payable accounts for $5,963 less than owed.
This resulted in the Company recording a gain on extinguishment of debt of
$5,963.
2002 (Unaudited)
For the fiscal year of 2002, the Company paid $75,000 in full settlement of
$100,000 in outstanding debt and $13,710 in accrued interest. As a result of
this settlement, the Company recorded a gain on extinguishment of debt of
$38,710.
Notes Payable-Related Parties and accrued interest totaling $407,584 and $9,421
respectively were converted into Bridge Notes Payable as of May 17, 2002.
The accompanying notes are an integral part of these statements.
25
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization and business activity
Imperial Petroleum Recovery Corporation, a Nevada corporation, incorporated
in 1982 (the "Company" or "IPRC") commenced operations in the fiscal year 1995
and is committed to developing and marketing a proprietary oil sludge
remediation process and microwave separation technology equipment (MST units)
that use high energy microwaves to separate water, oil and solids.
2. Principles of consolidation and financial statement presentation
The consolidated financial statements include the accounts and operations
of the Company and its wholly-owned subsidiary, Petrowave Corporation.
Significant intercompany transactions and balances have been eliminated in
consolidation.
3. Use of estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenue and expenses during the reporting
period. Actual results could differ from those estimates.
4. Cash and cash equivalents
The Company considers all highly liquid investments, with original maturity
dates of three months or less when purchased, to be cash equivalents.
5. Inventories
Inventory consists of components to be assembled into the Company's
products. Inventory is valued at lower of cost or market. Cost is determined
using the first-in, first-out method. As of October 31, 2004, 2003 and 2002, the
Company held no inventory.
6. Other assets
Included in other assets are long-term deposits and patents. The cost of
patents is capitalized and amortized to operations on the straight-line method
over their estimated useful lives or statutory lives whichever is shorter.
7. Property and equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated useful
lives. The straight-line method of depreciation is followed for financial
reporting purposes.
26
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. Impairment of long-lived assets
The Company reviews all long-term assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable through undiscounted future cash flows. If an impairment loss
has occurred, such loss is recognized in income.
9. Revenue recognition - long-term contracts
Revenue relating to crude oil sludge recovery services contracts in the
accompanying financial statements is recognized using the
percentage-of-completion method and, therefore, take into account the costs,
estimated earnings and revenue to date on contracts not yet completed. The
revenue recognized is that portion of the total contract price that cost
incurred to date bears to anticipated final total cost, based on current
estimates of cost to complete.
Contract costs include all direct and allocable indirect labor, benefits,
and materials unique to or installed in the project, subcontractor cost
allocations, including employee benefits and equipment expense. At the time a
loss on a contract becomes known, the entire amount of the estimated ultimate
loss is recognized in the financial statements. As long-term contracts extend
over one year, revisions in cost and earnings estimates during the course of the
work are reflected in the accounting period in which the facts which require the
revision become known. Costs attributable to contract claims or disputes are
carried in the accompanying balance sheets only when realization is probable.
These costs are recorded at the lesser of actual costs incurred or the amount
expected to be realized. It is reasonably possible that estimates by management
related to contracts can change in the future. As of October 31, 2002, the
Company only has one contract in progress.
Revenue earned on contracts in progress in excess of billings (billings in
excess of costs) is classified as a current asset. Amounts billed in excess of
revenue earned (cost in excess of billings) are classified as current
liabilities. At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss is recognized in the financial statements.
10. Other revenue recognition
Revenues on contracts from rental equipment are recognized according to
contract terms.
11. Fair value of financial instruments
Cash and cash equivalents, accounts payable and accrued liabilities are
reflected in the financial statements at fair value because of the short-term
maturity of these instruments. Notes payable to third parties and related
parties as reflected in the financial statements approximate their fair value.
27
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
12. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect during the years in which the
differences are expected to reverse. An allowance against deferred tax assets is
recorded in whole or in part when it is more likely than not that such tax
benefits will not be realized.
13. Warrants
In accordance with Statement of Financial Accounting Standards No. 123
(SFAS No. 123) "Accounting for Stock-Based Compensation", expense is recognized
in connection with the grant of warrants when issued using the fair-market-value
method. Pro forma adjusted net income calculated by applying the fair value
requirement for warrants issued for recognition of expense is not included
because there is no significant impact in application of the standard.
14. Loss per common share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per Share" (SFAS No. 128). SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS are calculated by dividing
earnings (loss) available to common shareholders by the weighted-average number
of common shares outstanding during each period. Diluted EPS are similarly
calculated, except that the weighted-average number of common shares outstanding
includes common shares that may be issued subject to existing rights with
dilutive potential. Potential common shares having an antidilutive effect on
periods presented are not included in the computation of dilutive EPS.
15. New Accounting Pronouncements
In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued. SFAS
145, which is effective for financial statements issued on or after May 15,
2002, rescinds the automatic treatment of gains and losses from extinguishments
of debt as extraordinary unless they meet the criteria for extraordinary items
as outlined in Accounting Principles Board Opinion No. 30,"Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
145 also requires sale-leaseback accounting for certain lease modifications that
have economic effects similar to a sale-leaseback transaction and makes various
corrections to existing pronouncements. The adoption of SFAS 145 required the
Company to modify the presentation of its gain on extinguishments of debt in its
statements of operations.
28
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment,
which establishes standards for transactions in which an entity exchanges its
equity instruments for goods or services. This standard requires an issuer to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. In March 2005, the SEC released
Staff Accounting Bulletin (SAB) 107, Share-Based Payment, which expresses views
of the SEC Staff about the application of SFAS No. 123(R). In April 2005 the SEC
issued a rule that SFAS No. 123(R) will be effective for the first interim or
annual reporting period beginning on or after December 15, 2005. The Company is
still evaluating what impact, if any, the adoption of this standard will have.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
generated limited revenue through October 31, 2004, and has sustained
substantial losses from operations since inception. In addition, as of October
31, 2004, the Company's current liabilities exceeded its current assets by
$5,474,637, it had $450,442 of debt obligations that were past due, and a
deficit accumulated of $18,538,812. During fiscal year 2004, the Company used
$447,148 of cash in operating activities, which was funded primarily through the
issuance of debt, rather than provided by its operations.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
The Company has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to provide the Company
with the ability to continue in existence:
During March of 2004, the Company hired a new management team which has
raised $1,125,000 of new capital through October 31, 2004.
Beginning in January 2005, the Company began to explore the benefits of a
strategic relationship with a major engineering, manufacturing and construction
firm to further promote the Microwave Separation Technology ("MST") throughout
the US and overseas locations. This firm is a world leader in environmental
studies and consulting; engineering, design and construction for refinery, gas
processing applications and petrochemical operations.
29
NOTE B - GOING CONCERN - CONTINUED
During February 2005, the Company filed for a provisional patents using MST
in the production of biodiesel. Also beginning in February 2005, the Company
entered into discussions regarding the lease of the MST for the production of
biodiesel fuel to enhance production throughput. IPRC also intends to
participate in a research initiative with several universities and research
centers to examine the MST technology in this application.
During fiscal year 2001, the Company entered into an agreement with Kellogg
Brown & Root /ExxonMobil to sell a MST-1000 to Esso's oil field gathering
facility located in Africa. The Company shipped the unit in December of 2002.
The equipment arrived in Chad in 2003 and was heavily damaged during shipment.
During 2004 the Company had the equipment repaired. Upon initial attempts to
commission the unit, it was discovered that the centrifuge pumps were inadequate
for site conditions. The centrifuge subcontractor began production of the new
pump skid in early 2005 and the new pump skid was shipped to Chad during fiscal
fourth quarter of 2005. The Company is in discussion with ExxonMobil to schedule
the MST-1000 unit commissioning, so that it can be turned over to them.
NOTE C - RESTATEMENT OF ACCUMULATED DEFICIT AT OCTOBER 31, 2001
In connection with the audit of the Company's financial statements as of
October 31, 2004 and 2003, we determined that interest expense and the
corresponding liability relating to certain debt instruments and the Guaranteed
Investment Contract had not been accounted for in accordance with the terms of
their underlying documents. Consequently, the accumulated deficit as of October
31, 2001 has been reduced by approximately $161,000. The restated accumulated
deficit as of October 31, 2001 is included in our Statement of Stockholders
Deficit.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the
following:
Notes payable consist of the following:
------------ ----------- -------------
Unaudited
2004 2003 2002
------------ ----------- -------------
20% note payable, interest compounded monthly, to Treeview $ - $ 258,994 $ 248,994
Investments, Inc., a shareholder, matured December 31, 2001,
collateralized by all of the shares of stock of the Company's
wholly owned subsidiary and a lien on the Company's patents and
trademarks. Subsequent to the maturity date, interest is being
charged at the loan default rate of 24%, compounded monthly.
Settled In August 2004
12% note payable, interest compounded daily, to Maya, LLC a related party
and stockholder, was due in full July 31, 2001, collateralized by
demonstration unit. Subsequent to the maturity date, interest is being
charged at the loan default rate of 18%,
compounded daily. Past due as of October 31, 2004. 375,000 375,000 375,000
20% note payable interest compounded monthly, to Hensel Family LP,
a related party and stockholder, matured October 31, 2001.
Subsequent to the maturity date, interest is being charged at the
loan default rate of 24%, compounded monthly. Settled in October
2004 - 239,500 239,500
------------ ----------- -------------
$ 375,000 $ 873,494 $ 863,494
============ =========== =============
NOTE F - BRIDGE NOTE PAYABLE
In March of 2002, the Company entered into a private placement. In May of
2002 a financing source on behalf of the Company completed the minimum funding
($800,000) requirement under a $2,000,000 private placement with Odyssey
Capital. The bridge loan is a secured promissory note bearing interest at 12
percent, compounded monthly, with an initial maturity of December 16, 2002. The
note was extended twice to December 31, 2003 and then to December 31, 2004. The
debt instruments are convertible at the option of the holder to $0.001 par value
common stock at $0.20 per share (trading price during March of 2002). In the
event of default, the interest rate on the debt will increase to the maximum
allowed by law in Texas (18 percent). The balance of the bridge loan for the
years ended October 31, 2004 and 2003 was $1,725,417, and $1,372,487 as of
October 31, 2002. During January 2005 the note of $1,725,417 and accrued
interest of $561,048 were converted into 11,101,900 shares of stock.
31
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
------------ ------------- ------------
Unaudited
2004 2003 2002
------------ ------------- ------------
Security deposit payable to a company relating to a prior $ 1,000,000 $ 1,000,000 $ 1,000,000
Marketing Agreement. The note bears interest at prime rate plus
4%, compounded daily. The interest rate is adjusted annually as
of the beginning of the year based upon the prime rate at the end
of the previous calendar year. The security deposit was
initially due in full in August 2003. The note was extended to
November 15, 2004
10% note payable to a corporation, due September 2003, interest
paid in full at date incurred, and principal due in full at
maturity, not collateralized. Note is past due 75,442 75,442 75,442
11% note to a financial institution, due August 2005, payments of
principal and interest in the amount of $418 due monthly,
collateralized by automobiles. 4,192 8,472 12,302
7.5% note payable to a corporation, due November 2007, payments
of principal and interest of $2,996 due monthly, collateralized
by demo trailer and skid. 91,512 - -
Subscriptions purchased for convertible notes bearing an
interest rate of 12%, compounded monthly and a conversion price
of $.15 per share payable to various individuals, principal and
interest due at maturity. Collateralized by liens on the
Company's patents and trademarks. Maturity dates are May 26,
June 1, and July 26, 2007. 1,125,000 - -
-----------------------------------------
Total 2,296,146 1,083,914 1,087,744
Less current maturities 1,109,743 1,079,722 1,078,938
------------ ------------- ------------
Long-term portion $ 1,186,403 $ 4,192 $ 8,806
============ ============= ============
Scheduled maturities of long-term obligations as of October 31, 2004, are
as follows:
Year ending October 31,
Past Due $ 75,442
2005 1,034,301
2006 32,447
2007 1,153,956
------------
$ 2,296,146
============
32
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Lessee leasing
The Company leases office space, a manufacturing and lab facility, and
office equipment under long-term operating and capital leases expiring through
the year 2005 with monthly payments of approximately $6,300. Under the operating
lease agreements, the Company is required to maintain property insurance and
assume the responsibility for maintaining the property. The Company signed a new
one year lease on April 1, 2005 for the office space, manufacturing and lab
facility at a rate of $5,950 per month.
The Company's future minimum lease payments under operating leases at
October 31, 2004, are as follows:
Operating
Year ending October 31, leases
----------------------- -----------
2005 $ 73,150
2006 29,750
Thereafter -
-----------
Total minimum lease payments 102,900
Total rent expense for the years ended October 31, 2004, 2003, 2002, was
approximately $75,600.
2. Leasor leasing
The Company leased certain equipment to third parties during 2002. Total
rental income for the year ended October 31, 2002 for these leases was
approximately $325,000. All leases expired during 2002 and the Company has not
entered into any new leases as of October 31, 2004.
NOTE I - STOCKHOLDERS' DEFICIT
Common stock
During fiscal 2003, the Company issued 1,700,000 shares of common stock in
settlement of cashless exercise agreement.
During fiscal 2004, the Company issued shares of stock of 330,879 and
250,000 in satisfaction of an accounts payable debt of $96,780 and $46,236
respectively.
Also during fiscal 2004 the Company issued 1,397,389 shares of common stock
and paid $50,000 in settlement of a note payable to a related party in which the
Company retired $239,500 of debt and accrued interest of $254,574.
33
NOTE J - GUARANTEED INVESTMENT CONTRACT
In July 2001, a shareholder and former member of the Board of Directors
purchased 200,000 shares of the Company's common stock and a Guaranteed
Investment Contract ("GIC") from the Company for $100,000. The GIC entitles the
shareholder a 20 times the rate of return over a period of seven years ending in
2008 amounting to $2,000,000. The investment is secured by a third position lien
on certain equipment of the Company. The Company may repay this investment,
which matures on July 18, 2008, together with the related rate of return earned
to that date, less the market value of the common stock at the repayment date,
any time after July 18, 2002. This obligation is presented as GIC Liability on
the balance sheet. The difference between the contract redemption amount and the
purchase price is being accreted on a straight-line basis over seven years and
is being added to the GIC liability less the market value of the 200,000 shares
that were issued. In April 2005 this GIC agreement was terminated and settled.
The Company issued an additional 682,301 share of common stock. The holder
agreed to terminate the GIC and release his lien position.
NOTE K - WARRANTS, STOCK OPTIONS & RESTRICTED STOCK PROGRAM
Warrants
The Company's board of directors has the authority to sell or grant
warrants to certain non-employees. These warrants are considered nonqualified
for income tax purposes.
At various dates during 1997 and 1998, the Company issued 11,375,000
warrants to a limited liability company (LLC) to purchase shares of its common
stock. The initial exercise price of all of the LLC warrants was $1 per share
and each warrant expires four years after the grant date. LLC had 10,500,000
warrants expire during the year ended October 31, 2002. The remaining 875,000
warrants expired on December 10, 2002. The LLC did not exercise any of its
warrants.
In October 1999, the Company issued a warrant to a Trust to purchase
1,116,071 shares of its common stock. The initial exercise price of this warrant
was $3 per share and expires in October 2003.
These warrants all specify that the rights of the warrant holders are
entitled to "full ratchet" anti-dilution adjustments in the event the Company
issues shares of common stock or securities convertible into or exchangeable for
common stock at a price per share less than the warrant exercise price. Upon any
such adjustment, the holder of a warrant would be entitled to exercise the
warrant at an exercise price per share equal to the price per share at which the
shares of common stock or securities convertible into or exchangeable for common
stock were issued. The warrants also specify that any such adjustment would
trigger an additional adjustment in the number of shares for which the warrant
is exercisable. The warrants specify that such number would be adjusted by
multiplying the number of shares subject to the warrant immediately before the
adjustment by a fraction, the numerator of which would be the per share exercise
price immediately before the adjustment and the denominator of which would be
the per share exercise price after the adjustment. In addition the trust held a
cashless exercise provision.
34
NOTE K - WARRANTS, STOCK OPTIONS & RESTRICTED STOCK PROGRAM - CONTINUED
Following the issuance of these warrants, the Company has issued shares of
its common stock at prices that triggered or could be deemed to trigger the
above-described anti-dilution provisions on a number of occasions. In addition
the Company issued notes convertible into the Company common stock at $.20
during fiscal year 2002 and 2003. Based upon this it was deemed that the
anti-dilution adjustment was triggered and the Company adjusted the warrant from
1,116,071 at $3.00 to 16,741,065 at $.20. During 2003 the trust settled and
cancelled the agreement with the Company by accepting 1,700,000 shares of the
Company stock.
During fiscal 2004 the Company received advances totaling $1,125,000, for
future issuances of 12% convertible notes with 50% warrant coverage. The
purchasers of the convertible notes will be issued warrants for the purchase of
the Company's stock. The warrants vest immediately upon grant and have a
weighted-average remaining contractual life of 3 years. The exercise price of
the warrants is $.15 and they expire during fiscal year 2008. In accordance with
the terms sheet, the warrants will be issued when the definitive loan agreements
are signed. The loan agreements were not signed until 2005, therefore the
warrants were not issued until 2005.
Changes in the Company's warrants are as follows:
Exercise Weighted-average
Warrants price exercise price
---------------- ----------------- ---------------------
Outstanding at November 1, 2001 (Unaudited) 12,958,696 $ 1.00 - 3.00 $ 1.21
Anti-dilution adjustment 15,624,994 0.20 0.20
Expired (10,500,000) 3.00 3.00
----------------
Outstanding at October 31, 2002 (Unaudited) 18,083,690 0.20 - 3.00 1.21
Exercised (1,700,000) 0.20 0.20
Expired (1,125,125) 3.00 3.00
Cancelled (15,041,065) 0.20 0.20
----------------
Outstanding at October 31, 2003 217,500 3.00 3.00
Expired (217,500) 3.00
----------------
Outstanding at October 31, 2004 -
================
Exercisable at October 31, 2004 -
================
Options
The Company also grants stock options to employees for services rendered.
The stock options are also nonqualified for income tax purposes. Stock-based
compensation is accounted for under Accounting Principles Board Opinion No. 25,
under which no compensation cost has been recognized. If the Company had
recognized compensation expense based upon fair value at the grant date for the
awards consistent with Financial Accounting Standards No. 123 (FAS 123), the
proforma adjustments would not be material to the financial statements.
35
NOTE K - WARRANTS, STOCK OPTIONS & RESTRICTED STOCK PROGRAM - CONTINUED
During 1999, the Company granted 210,000 stock options to employees with a
strike price of $0.43 per share. The options vest immediately and expire in five
years. No compensation expense was recognized on the grant date. The
weighted-average remaining contractual life of the options is 3.2 years. All of
the stock options under this plan expired in January 2004.
During 2003, the Company established a stock option plan for employees with
the initial grant of options. Approved by the Board the plan was to be put forth
in front of shareholders in order for it to be a qualified plan under IRS rules.
However due to the Company's financial condition a stockholder meeting was never
held and under the terms of the plan if the stockholders fail to approve the
plan within a year after the effective date any awards made became null and
void. The stock options had an exercise price of $.20 and expired in ten years
some of the options vested immediately and others vested over the period of
employment. Since all of the employees were terminated on or before June 6, 2003
only the initial grant of 1,650,000 shares were made. As it was the intention of
the Company to recognize certain employees under the stock option plan, the
Company issued new options in March of 2005 to the employees who were not
executive officers totaling 1,225,000 shares with an exercise price $.20.
Changes in the Company's stock options are as follows:
Exercise Weighted-average
Options price exercise price
------------- --------------- ---------------------
Outstanding at November 1, 2001 (Unaudited) 210,000 $ 0.43 $ 0.43
Granted - - -
Exercised (6,977) 0.43 0.43
------------
Outstanding at October 31, 2002 (Unaudited) 203,023 0.43 0.43
Granted 1,650,000 0.20 0.20
Exercised - - -
Cancelled (1,650,000) 0.20 0.20
------------
Outstanding at October 31, 2003 203,023 0.23 0.23
Granted - - -
Expired (203,023) 0.43 0.43
------------
Outstanding at October 31, 2004 -
============
Exercisable at October 31, 2004 -
============
36
NOTE K - WARRANTS, STOCK OPTIONS & RESTRICTED STOCK PROGRAM - CONTINUED
Restricted Stock Program
The Company issues shares of IPRC common stock in the form of restricted
stock to participating officers and employees. The restricted stock generally
has a vesting period before issuance during which time it is subject to
forfeiture if the participants' employment is terminated. Once issued the stock
sale is restricted under rule 144. Unearned compensation expense associated with
restricted stock grants represents the market value of IPRC common stock at the
dated of grant and is recognized as a charge to income ratably over the vesting
period. During Fiscal year 2004 the Company agreed to issue 2,000,000 shares
with a weighted average fair market value of $.10 per share, but have not issued
any shares as of October 31, 2004. The compensation charge and related liability
for the year ended October 31, 2004 was $200,000.
NOTE L - RELATED PARTY TRANSACTIONS
The Company has at various times entered into transactions with related
parties, including officers, directors and major shareholders, wherein these
parties have advanced or loaned funds to the Company needed to support its daily
operations.
In addition to matters in Notes E, G, and J the Company had related party
transactions relating to the following:
1. Food Development Corporation
Food Development Corporation (FDC), an entity controlled by a stockholder
and officer of the Company, has on occasion loaned the Company funds to support
daily operations. During 2003, FDC loaned $80,000 of which funds were used to
pay certain employees and consultants. FDC agreed to write off said amounts in
December 2003. During 2003 and 2004 FDC made loans to the Company in support of
the daily operation. During June of 2003 the Company entered into an office
sharing-agreement with FDC. The amount of reimbursement accrued and offset
against loans made by FDC for the years ended October 31, 2004 and 2003 was
$44,586 and $19,673 respectively. The payable balances included in related party
payables were $19,141, $32,703, and $0 as of October 31, 2004, 2003 and 2002
respectively.
2. Management agreement
During November 1998, the Company entered into a five year management
agreement with a company controlled by a major stockholder. The agreement calls
for general business and financial consultation and certain management services
to be provided to the Company by the related party in exchange for an annual
management fee equal to five percent of the Company's gross revenues.
37
NOTE L - RELATED PARTY TRANSACTIONS - CONTINUED
During 2004, 2003 and 2002, the Company recorded approximately $0, $31,147
and $53,076, respectively, in management fees which are included in selling,
general and administrative expenses.
The agreement ended in November 2003. The Company has a balance payable of
$73,413, $73,413 and $15,590 as of October 31, 2004, 2003 and 2002,
respectively. The amount owed was in dispute so the Company settled for $100,000
as the stockholder agreed to invest the $100,000 accrued management fees and
$100,000 cash in the Company's 12% Convertible notes issued in June 2005.
3. Employee Benefits
During 2004 an entity owned by the CEO and CFO of the Company provided
benefits to certain employees utilizing a professional employment organization
("PEO"). The Company paid $33,332 for this service. The employees covered were
paid a portion of their salaries through the PEO Company. This amount was
approximately $4,600. The entity owned by the CEO and CFO had an existing
contract with the PEO as the Company's credit made it difficult to purchase
insurance for its employees. The $4,000 prepaid expense balance is the November
2004 benefits paid in October 2004.
4. Other Related Party Payable
During 2003 a former CEO made a loan to cover payroll cost and is owed a
balance of $19,821 as of October 31, 2004 and 2003 this amount is
included in related party payables. In addition the former President is
owed for un-reimbursed expenses $10,740, $10,740 and $3,795 as of October
31, 2004, 2003 and 2002, respectively.
NOTE M - LOSS PER COMMON SHARE
The following data show the amounts used in computing net loss per common
share, including the effect on net loss for the accretion of redeemable common
stock to the redemption amount (Note H).
Year ended October 31,
--------------------------------------------------------
Unaudited
2004 2003 2002
------------ ------------ ------------
Net loss per common share - basic and diluted
Net loss available to common shareholders $ (857,231) $ (1,595,640) $ (1,785,068)
------------ ------------ ------------
Net loss available to common shareholders $ (857,231) $ (1,595,640) $ (1,785,068)
============ ============ ============
Common shares outstanding during
the entire period 18,867,419 17,167,419 17,167,419
Weighted average common shares issued during the period
200,440 507,671 --
------------ ------------ ------------
Weighted average number of common
shares used in basic EPS 19,067,859 17,675,090 17,167,419
Dilutive effect of stock options and warrants -- -- --
------------ ------------ ------------
Weighted average number of common
shares and dilutive potential common
stock used in diluted EPS 19,067,859 17,675,090 17,167,419
============ ============ ============
Net loss per share - basic and diluted $ (0.04) $ (0.09) $ (0.10)
============ ============ ============
38
The average number of shares relating to all outstanding options and
warrants and to potentially convertible debt instruments have been omitted from
the computation of diluted loss per share because their inclusion would have
been antidilutive for all periods (Notes F and K).
NOTE N - INCOME TAXES
The Company uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes. During fiscal, the Company incurred
net losses and, therefore, has no tax liability. The net deferred tax asset
generated by the loss carry-forward has been fully reserved. The cumulative net
operating loss carry-forward is approximately $17,441,305 at October 31, 2004,
and will expire in the years 2013 through 2024.
At October 31 2004, deferred tax asset consisted primarily of the
following:
--------------
2004
--------------
Deferred tax assets
Net operating loss carryforward $ 6,023,898
Valuation allowance (6,023,898)
--------------
Net deferred tax asset $ -
==============
NOTE O - CONCENTRATION
Revenue for the years ended October 31, 2003 and 2002 comprised of $562,933
and $665,513 related to the construction and delivery of an MST unit to a single
customer. In addition, the Company recorded $325,000 in fiscal 2002 of rental
income from leasing its crude oil sludge recovery equipment to a single
customer.
39
NOTE P - SUBSEQUENT EVENTS
The Company's obligation for the Bridge note payable (Note F) of $1,725,417
plus accrued interest of $561,048 was converted into 11,101,900 shares of the
Company's common stock.
The Company also settled debt obligation for the note payable with Maya,
LLC (Note E) consisting of a principal note balance of $375,000 plus accrued
interest of $339,429 for 2,953,205 shares of the Company's common stock.
The Company's obligation for the GIC agreement (Note J) was terminated and
settled in exchange for 682,301 shares of common stock. The holder agreed to
terminate the GIC and release his lien position.
The Company signed a one year lease for office space along with
manufacturing and lab facilities at a rate of $5,950 per month.
Accrued management fees of $73,413 (Note M #2) owed to Maya, LLC by the
Company was converted into a $100,000, 12% convertible note, also Maya, LLC
invested an additional $100,000 cash into the Company's 12% convertible notes.
The Company issued final agreements for the 12% convertible notes totaling
$2,175,000. $1,125,000 of proceeds for the notes were received in fiscal 2004
for note subscriptions. Proceeds received for fiscal 2005 from the issuance of
the 12% convertible notes were $950,000 cash and $100,000 in extinguishment of
debt. Warrants associated with the convertible notes were also issued in fiscal
2005.
During fiscal 2005 the Company issued 2,040,000 shares of common stock to
employees as share based compensation.
In August 2005 the Company signed a management agreement with Agribiofuels,
LLC ("Agribiofuels") a related party to provide certain general business,
financial consultation and advice and management services to Agribiofuels in
connection with the operation of its business and to provide technology and
training in operating Microwave Separation Technology (MST) in the manufacture
of biodiesel product. Commencing August 1, 2005, Agribiofuels shall pay IPRC, in
consideration of the services rendered by IPRC equal to $75,000 per month
through Dec. 31, 2005, and $120,000 thereafter during the construction and
development period. In addition, once the biodiesel facility is operational,
Agribiofuels will pay IPRC a technology and licensing fee based upon throughput.
40
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In September of 2003, Grant Thornton, LLP ("GT") notified the Company that
it resigned as the Company's independent auditor effective immediately.
GT was engaged as the Company's independent auditor since April 9, 1997.
GT's report on the financial statements for the fiscal year ended October 31,
2001 contained no adverse opinion or disclaimer of opinion related to audit
scope or accounting principles however it was modified as to the uncertainty of
the company's ability to continue as a going concern. GT had completed the field
work on the October 31, 2002 audit. However, since the Company had not paid GT's
fees incurred to date, GT felt it was in their best interest not to complete the
audit and issue the report.
During the Company's fiscal year ended October 31, 2002 and the subsequent
interim periods preceding GT's resignation, there were no disagreements between
the Company and GT on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to GT's satisfaction, would have caused GT to
make reference to the subject matter of the disagreement in connection with
their report.
In February 2005 the Company engaged Malone & Bailey, PC as our new
independent accountant to audit the years ended October 31, 2004 and 2003.
ITEM 8A CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to its management, including its Chief Executive Officer/Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-15(e). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
At the end of the period covered by this Annual Report, the Company carried
out an evaluation, under the supervision and with the participation of its
management, including its Chief Financial Officer, of the effectiveness of the
design and operation of Company's disclosure controls and procedures. Based upon
the foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that, as of October 31, 2004, October 31, 2003 and October 31, 2002
the disclosure controls and procedures of the Company were not effective to
ensure that the information required to be disclosed in the Company's Exchange
Act reports was recorded, processed, summarized and reported on a timely basis.
In connection with the completion of its audit of, and the issuance of its
report on the financial statements of the Company for the year ended October 31,
2004, Malone & Bailey, PC identified deficiencies in Company's internal controls
related to the accrual of liabilities and the related expense recognition, gain
on extinguishment of debt recognition, and disclosure controls relating to such
transactions. The adjustments to these accounts and the footnote disclosure
deficiencies were detected in the audit process and have been appropriately
recorded and disclosed in this Form 10-KSB. We are in the process of improving
our internal controls in an effort to remediate these deficiencies. Additional
effort is needed to fully remedy these deficiencies and we are continuing our
efforts to improve and strengthen our control processes and procedures. Our
management and directors will continue to work with our auditors and other
outside advisors to ensure that our controls and procedures are adequate and
effective.
41
There were no changes in internal controls over financial reporting that
occurred during the fiscal quarter ended October 31, 2004, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 8B OTHER INFORMATION
The Company failed to file an 8-K for the following:
o In June 2004, IPRC entered into a security deposit payment forbearance
agreement with successor in interest to MTC in connection with the
marketing agreement entered into in October 1999 with MTC Pursuant to the
1999 agreement, MTC provided IPRC a $1,000,000 security deposit, which IPRC
was to repay on August 10, 2003. Pursuant to the forbearance agreement, if
the Company entered into a contract for the sale, or license of one or more
MST units by October 31, 2004, the Company was obligated to payoff the
security deposit in six (6) quarterly installments. If IPRC fails to enter
into a contract for the sale, or license of one or more MST units by
October 31, 2005 or fails to payoff the security deposit by December 31,
2005, then IPRC shall accrue interest on the unpaid security deposit plus
any accrued interest, at a rate equal to the prime rate of Citibank (New
York) at the close of business on the last business day of the calendar
year immediately preceding each respective year plus 4%.
o During fiscal years 2002 and 2003, the Company issued to an investor
secured convertible promissory notes with an aggregate principal value of
$1,725,417. The notes bear interest at a rate of 12 percent per annum and
matured on December 16, 2002. The note agreement governing the terms of the
notes was amended to extend the maturity date to December 31, 2004. The
principal and interest on the notes may be converted at the option of the
holder into shares of common stock at a conversion price of $0.20 per
share. Upon an event of default, the notes begin to accrue interest at a
maximum rate of eighteen percent (18%) per annum. Effective January 1,
2005, the notes were converted into 11,101,900 shares of stock.
o During fiscal 2003, the Company issued 1,700,000 shares of common stock in
settlement of cashless exercise agreement.
o In September of 2003, Grant Thornton, LLP ("GT") notified Imperial
Petroleum Recovery Corporation (the "Company") that it resigned as the
Company's independent auditor effective immediately. GT was engaged as the
Company's independent auditor since April 9, 1997. GT's report on the
financial statements for the fiscal year ended October 31, 2001 contained
no adverse opinion or disclaimer of opinion related to audit scope or
accounting principles however it was modified as to the uncertainty of the
company's ability to continue as a going concern. GT had completed the
field work on the October 31, 2002 audit. However, since the Company had
not paid GT's fees incurred to date, GT felt it was in their best interest
not to complete the audit and issue the report. During the Company's fiscal
year ended October 31, 2002 and the subsequent interim periods preceding
GT's resignation, there were no disagreements between the Company and GT on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to GT's satisfaction, would have caused GT to make reference to
the subject matter of the disagreement in connection with their report.
42
o On November 1, 2003, pursuant to the 2002 Option Plan, the Company issued
options to purchase 3,350,000 shares of the Company's common stock at $0.20
per share to seven (7) employees. Options to purchase 1,650,000 vested
immediately, the remaining vested equally on November 1, 2004 and November
1, 2005. As of November 1, 2003, all the options were null and void because
the 2002 Option Plan never received shareholder approval.
o In September, 2004, the Company issued 250,000 shares of stock and agreed
to pay $15,000 in cash over six months in settlement of an accounts payable
balance of $91,236.
o In October 2004, the Company issued a 3 year 7.5% note payable for $96,315
and issued 330,879 shares of stock in settlement of $193,095 accounts
payable balance with a vendor.
o In October 2004 the Company issued 1,397,389 shares of common stock and
paid $50,000 in settlement of a note payable to a related party in which
the Company retired $239,500 of debt and accrued interest of $254,574.
o During fiscal year 2004 the Company issued to investors secured convertible
note subscription agreements with generated cash flows of $1,125,000. The
subscription agreements bear interest at a rate of 12 percent per annum and
after the agreements were executed into promissory notes in fiscal 2005
they mature on various dates in fiscal 2007. The notes are convertible at
$0.15 per share. Maturity dates are May 26, June 1, and July 26, 2007. The
purchasers of the convertible notes will be issued warrants for the
purchase of the Company's stock. The warrants vest immediately upon grant
and have a weighted-average remaining contractual life of 3 years. The
exercise price of the warrants is $.15 and they expire during fiscal year
2008. In accordance with the terms sheet, the warrants will be issued when
the definitive loan agreements are signed. The loan agreements were not
signed until 2005, therefore the warrants were not issued until 2005.
o During fiscal year 2004 the Company agreed to issue 2,000,000 of restricted
stock to participating officers and employees with a weighted average fair
market value of $.10 per share, but have not issued any shares as of
October 31, 2004.
o In January 2003, Christopher G. DeClaire was appointed the chief executive
officer and resigned in May 2003. Alan Springer and Edward Gaiennie were
appointed directors in April 2003. In January 2004, Henry Kartchner
resigned as Chairman and CEO and C. Brent Kartchner resigned as President.
The Board of Directors appointed Alan Springer as Chairman and CEO and
Edward Gaiennie as the Chief Financial Officer.
o In February 2005 the Company engaged Malone & Bailey, PC as our new
independent accountant to audit the years ended October 31, 2004 and 2003.
43
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following are the directors, executive officers and key employees
of the Company.
Name Age Position
---- --- --------
Alan B. Springer 61 Chairman and Chief Executive Officer
Edward C. Gaiennie 41 Chief Financial Officer, Secretary-Treasurer ,
Principal Accounting Officer and Director
A.V. McGraw 77 Director
James Hammond 69 Director
Alan B. Springer. Mr. Springer has served as a director of the Company
since April 2003. Mr. Springer assumed the role of Chairman of the Board and
Chief Executive Officer in January of 2004. From 1998 to 2004 Mr. Springer was a
Managing Director of Odyssey Capital, LLC. From 1994 to 1998, Mr. Springer
served as the Chief Financial Officer for IKON Office Solutions - Document
Services Division in Houston, Texas. IKON Office Solutions is an office
technology company providing total document solutions for many Fortune 500
companies. From 1968 to 1994 Mr. Springer worked within the U.S. Department of
Defense, serving in various financial management positions as the Financial
Officer of several strategic tactical NATO organizations. During this period
1978 - 1986 Mr. Springer was an adjunct professor in the European Division of
the University of Maryland in their Business College. Mr. Springer graduated
from the University of Akron with a Bachelor of Science in industrial
engineering and from the University of Utah with an MBA. Postgraduate studies
include the Naval Post Graduate School in Monterey, California and the Air War
College in Montgomery, Alabama both during his military career.
Edward C. Gaiennie. Mr. Gaiennie has served as a director of the Company
since April 2003. He became Principal Accounting Officer, Secretary, Treasurer
and Chief Financial Officer of the Company in January 2004. From 1999 to 2004,
Mr. Gaiennie was Controller of Odyssey Capital, LLC and its predecessor Company
ROI Group, LLC. Previous to 1999, Mr. Gaiennie was employed as a certified
public accountant. Seven of those years were with Price Waterhouse Coopers LLP.
In his eleven years of public accounting Mr. Gaiennie served as a business
advisor to high growth companies with an emphasis in construction and
manufacturing. Mr. Gaiennie has a Bachelor of Science degree in business and
accounting from Louisiana State University.
A.V. "Buddy" McGraw. Mr. McGraw has served as a director since November
2000. Since 1977, he has served as General Manager and President of Centex
Materials, Inc., a wholly owned subsidiary of Centex Corporation. In 1991, Mr.
McGraw co-founded Phonon Technologies, Inc., a small microwave research and
development company in Houston, Texas, which later sold its assets to Microwave
Technology Acquisition Corporation in 1996. Mr. McGraw has previously served as
Chairman of the Board of the Texas Aggregate and Concrete Association and he
continues to provide consulting services to the construction aggregate and ready
mix concrete industries. A recipient of the Austin, Texas' Distinguished Citizen
Award, Mr. McGraw has been active in the Texas political arena, and has proven
to be an effective negotiator with regulatory agencies, energy corporations,
government authorities, financial institutions and the transportation industry.
Mr. McGraw graduated from the University of Texas at Austin with a business
administration degree.
44
James W. Hammond. Mr. Hammond has served as a director since July 2001. In
1986, Mr. Hammond co-founded Administaff, one of the largest professional
employer organizations in the United States. In 1997, Mr. Hammond retired from
Administaff as a director and as Senior Vice President, after its initial public
offering. Prior to founding Administaff, Mr. Hammond held several positions at
Exxon in a wide range of activities including research, refining, new ventures,
chemicals, production, pipelines, transportation, sales and marketing, and
corporate planning. Presently, he holds management and advisory positions in
five private companies and serves on the Board of Directors of three national
charities and a university. Mr. Hammond received a Bachelor of Science degree in
chemical engineering from Virginia Tech and did post graduate work in economics
at the University of Houston.
Audit Committee Matters
The Company's Audit Committee is comprised of James Hammond and Buddy
McGraw. The Audit Committee is responsible for, among other things, overseeing
the Company's accounting and financial reporting processes and audits of the
Company's financial statements. There are currently no members of the Audit
Committee who qualify as an "audit committee financial expert." There are
currently no members of the Audit Committee who are "independent" as defined in
federal securities laws. The Company intends to add additional members to the
Board of Directors, and the Audit Committee, that would qualify as a financial
expert and as independent. However, the Company cannot assure you as to whether,
or when, they will succeed in recruiting an acceptable director.
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires
the Company's executive officers and directors and any persons who own
beneficially more than 10% of the Company's Common Stock to file initial reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") as well as to furnish the Company with a copy of each such
report. Additionally, SEC regulations require the Company to identify in its
proxy statement and Annual Report on Form 10-KSB those individuals for whom one
or more of these reports required under Section 16 was not filed on a timely
basis during the most recent fiscal year or prior fiscal years. To management's
knowledge, no executive officers, directors and 10% stockholders have met the
requirements of Section 16(a) during the 2002, 2003 and 2004 fiscal years.
Specifically, Mr. Springer and Mr. Gaiennie failed to file Form 3's in fiscal
year 2004. Mr. Springer and Mr. Gaiennie failed to file a Form 4 or Form 5 upon
the issuance of their respective restricted stock rights granted in April 2004.
Code of Ethics
The Company has adopted a Code of Ethics that applies to all of its
directors, officers (including its chief executive officer, chief financial
officer, chief accounting officer and any person performing similar functions)
and employees.
45
ITEM 10 EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid or accrued by IPRC to or on behalf of the Company's Chief
Executive Officer and other executive officers for services provided in the
fiscal years indicated.
SUMMARY COMPENSATION TABLE
Name and
Principal Positions Year Annual Compensation compensation Compensation
Salary ($) Bonus ($) Stock Award Options
---------- --------- ----------- ---------------------
Alan B. Springer (Chairman and
CEO) (1) 2004 $ 38,500 $75,000(2)
Henry H. Kartchner (Former
Chairman and CEO) (3) 2004 $ 1,000
2003 $ 17,500
2002 $ 30,000 450,000(4)
2001 -
2000 $ 16,155 $120,000
Christopher G. DeClaire (Former
CEO) (5) 2003 $ 17,308
C. Brent Kartchner (Former
President) (6) 2004 $ 1,000
2003 $ 29,077
2002 $ 56,302 400,000(7)
2001 $ 112,460
2000 $ 130,770 $50,000
Edward C. Gaiennie (CFO) (8) 2004 $ 38,500 $35,000(9)
William W. Chalmers, Jr.
(President & CEO) (10) 2001 $ 100,440
2000 $ 12,500
(1) Mr. Springer was appointed Chief Executive Officer in January 2004, this
includes Mr. Springer's compensation from January 2004 until October 31,
2004.
(2) Mr. Springer was granted the right to 750,000 restricted shares as a part
of his incentive driven compensation package which included a lower than
market salary upon the closing of a $1,500,000 financing. As of October 31,
2004, the financing had not closed. Mr. Springer will not receive dividends
on the restricted shares until the financing has closed. As of October 31,
2004, the value of the restricted shares using the Company's closing price
of $0.09 per share on October 29, 2004 is $67,500.
(3) Mr. Henry Kartchner was Chief Executive Officer from April 2001 until April
2004; this table includes all compensation paid to Mr. Kartchner during
that period.
46
(4) Mr. Kartchner was issued an option to purchase 450,000 shares of the
Company's common stock pursuant to the 2002 Option Plan at an exercise
price of $0.20 per share. As of October 31, 2003, those options were null
and void because the Company did not receive stockholders authorization for
the 2002 Option Plan.
(5) DeClaire was the Chief Executive Officer from January to May of 2003.
(6) Mr. Brent Kartchner was president until April 2004; this table includes all
compensation paid to Mr. Kartchner through April 2004.
(7) Mr. Kartchner was issued an option to purchase 400,000 shares of the
Company's common stock pursuant to the 2002 Option Plan an exercise price
of $0.20 per share. As of October 31, 2003, those options were null and
void because the Company did not receive stockholders authorization for the
2002 Option Plan.
(8) Mr. Gaiennie was appointed Chief Financial Officer in January 2004, this
includes Mr. Gaiennie's compensation from January 2004 until October 31,
2004.
(9) Mr. Gaiennie was granted the right to 350,000 restricted shares as a part
of his incentive driven compensation package which included a lower than
market salary upon the closing of a $1,500,000 financing. As of October 31,
2004, the financing had not closed. Mr. Gaiennie will not receive dividends
on the restricted shares until the financing has closed. As of October 31,
2004 the value of the restricted shares using the Company's closing price
of $0.09 per share on October 29, 2004 is $31,500.
(10) Mr. Chalmers was President and Chief Executive Officer from October 16,
2000 to April 24, 2001, this table includes all compensation paid during
that time period.
Option Grants in 2002Fiscal Year
(Individual Grants)
Number of Securities Percent of Total
Underlying Options Options Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/Sh) Date
----------------------- --------------------- -------------------- ------------------- ----------------------
Henry H. Kartchner 450,000 13% $0.20 November 1, 2010 (1)
C. Brent Kartchner 400,000 12% $0.20 November 1, 2010 (1)
(1) These options were issued pursuant to the 2002 Option Plan. As of October
31, 2003, these options were null and void because the Company did not
receive stockholders authorization for the 2002 Option Plan.
Compensation of Directors
Directors receive no compensation or fees for their services rendered
in such capacity at this time.
Employment Contracts
The Company had not entered into employment contracts with any of its
employees.
47
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
As of November 22, 2005, 40,085,029 shares of common stock were
outstanding. The following table sets forth, as of September 13, 2005, certain
information with respect to shares beneficially owned by: (a) each person who is
known to be the beneficial owner of more than 5% of our outstanding shares of
common stock, (b) each director or nominee for director, (c) each named
executive officers, and (d) all current directors and executive officers as a
group.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option) within sixty days of
the date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares is deemed to include the amount of
shares beneficially owned by such person by reason of such acquisition rights.
As a result, the percentage of outstanding shares of any person as shown in the
following table does not necessarily reflect the person's actual voting power at
any particular date.
To the Company's knowledge, except as indicated in the footnotes to this
table and pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The address of each of the
individuals listed is 1970 S. Starpoint Drive, Houston, Texas 77032, except
where footnoted.
SHARES BENEFICIAL OWNED
BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENT OF CLASS
---------------- ---------------------- ----------------
Henry H. Kartchner 2,691,020 (1) 4.35%
Alan B. Springer 1,600,000 (2) 2.59%
C. Brent Kartchner 876,525 (3) 1.42%
Edward C. Gaiennie 950,000 (4) 1.54%
Rex Lewis (5) 8,578,205 (6) 13.87%
Don B. Carmichael (7) 27,101,900 (8) 43.83%
All current directors and executive officers as a group 2,700,000 4.37%
(8 persons)
(1) Includes 1,087,646 shares held by Food Development Corporation which Mr.
Kartchner controls. This does not include Mr. Kartchner's option to
purchase 450,000 shares of the Company's common stock because such option
is null and void pursuant to the terms of the 2002 Option Plan.
48
(2) Includes 750,000 shares of restricted stock to be issued to Mr. Springer
for the completion of the $1,500,000 financing and 850,000 shares to be
issued to Mr. Springer for the negotiation and restructuring of
approximately $5.1 million of the Company's debt. As of September 13, 2005,
the financing was completed and the majority of the Company's debt has been
restructured.
(3) This does not include Mr. Kartchner's option to purchase 450,000 shares of
the Company's common stock because such option is null and void pursuant to
the terms of the 2002 Option Plan.
(4) Includes 350,000 shares of restricted stock to be issued to Mr. Gaiennie
for the completion of the $1,500,000 financing and 600,000 shares to be
issued to Mr. Gaiennie for the negotiation and restructuring of
approximately $5.1 million of the Company's debt. As of September 13, 2005,
the financing was completed and the majority of the Company's debt has been
restructured.
(5) Mr. Lewis' principal business address is 2325 A Renaissance Dr., Las Vegas,
Nevada 89119. The shares beneficially owned by Mr. Lewis are held in the
name of Maya, LLC and All Safe, LLC, entities controlled by Mr. Lewis.
(6) This includes $200,000 in convertible promissory notes which are
convertible at $0.15 into 1,333,333 shares of stock in addition to holding
warrants to purchase another 666,667 shares at $0.15.
(7) Don B. Carmichael's business address is 714 FM 1960W Suite 107 Houston, TX
77090.
(8) This includes 11,101,900 shares held in the name of IPRC Bridge, LP. Mr.
Carmichael is the general partner of IPRC Bridge, LP. Mr. Henry Kartchner
and Mr. Hammond are limited partners in IPRC Bridge LP, each owning less
than five percent (5%) of the outstanding partnership interests. In
addition Mr. Carmichael holds convertible promissory notes totaling
$1,400,000 as of September 15, 2005, which are convertible at $.15 and
warrants to purchase an additional 4,666,667 shares at $0.15.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2000, Henry H. Kartchner advanced $50,000 to the Company. The
advance was to be repaid one week later, on December 13, 2000, for a fee of
$3,000. In July 2001, the unpaid balance of $53,000 was converted into a
promissory note accruing interest at a rate of 10% per annum with interest to
accrue retroactively from January 1, 2001. The promissory note, which matured on
September 15, 2001, gives the holder the option to convert any unpaid balance
into shares of the Company's Common Stock at $0.40 per share. In May 2002, Mr.
Kartchner agreed to exchange this note, which had an outstanding balance of
$71,433, for a limited partnership interest in IPRC Bridge, LP. In connection
with this exchange, Mr. Kartchner agreed to cancel the note payable owed by IPRC
in exchange for receiving the limited partnership from the IPRC Bridge, LP.
Through May 2002, Mr. Hammond was owed $16,747 pursuant to advances he had
made to the Company. In May 2002, Mr. Hammond agreed to exchange this debt for a
limited partnership interest in IPRC Bridge, LP, which was valued at $16,747. In
connection with this exchange, Mr. Hammond agreed to cancel the debt owed by the
Company in exchange for receiving the limited partnership interest in the IPRC
Bridge LP.
49
On January 19, 2001, the Company borrowed $375,000 from Maya, LLC. The loan
was funded in March 2001 and is secured by the MST Demonstration Unit currently
located at the Company's business office in Houston, Texas. The loan currently
accrues interest at a rate of eighteen percent (18%) per annum and is payable on
demand. During January 2005 the Company settled the note and accrued interest of
$743,538 by issuing 2,953,205 shares of the Company Common Stock.
From April 2001 through September 2001, the Company borrowed $219,500 from
Scott Hensel, a former member of the Board of Directors. The loans were used to
fund operations and accrued interest at a rate of 20% per annum. They had a
staggered maturity schedule. Mr. Hensel loaned an additional $20,000 to the
Company in December 2001 under the agreement at an interest rate of 20% per
annum. The loan is in default therefore the interest rate was increased to 24%.
As of October 31, 2003 and 2002, the Company owed approximately $413,353 and
$325,927 in principal and interest respectively. The Company settled the notes
and accrued interest by paying $50,000 and issuing 1,397,389 shares of the
Company's Common Stock.
In July 2001, Paul Howarth loaned the Company $222,399 and $26,595 during
September and October 2001. The loans, which accrued interest at a rate of 20%
per annum, began to accrue interest at a default rate of 24% per annum after
December 31, 2001. In connection with these loans, the Company (a) executed a
pledge agreement wherein IPRC pledged 100% of the shares of its wholly-owned
subsidiary, Petrowave, Inc. and any other subsidiaries the Company forms, and
(b) granted Mr. Howarth a lien on its patents and trademarks.
In October 1999, the Company issued to Howarth Family Trust, Ltd., a
warrant to purchase 1,116,071 shares of IPRC common stock at an exercise price
of $3.00 per share. Pursuant to "full-ratchet" anti-dilution provision contained
in the warrant, the exercise price of the warrant has decreased to $0.20 per
share and the number of shares which may be acquired increased to 16,741,065
shares. The Company settled this agreement in June 2003 by issuing 1,700,000
shares of the Company's common stock and adding $10,000 to his promissory note.
During August of 2004 the Company settled the entire promissory note of $258,994
plus accrued interest of $254,779 for a cash payment of $200,000.
On July 18, 2001, Thomas Rossi purchased 200,000 shares of the Company's
Common Stock and a Guaranteed Investment Contract from the Company for $100,000.
The Guaranteed Investment Contract entitles the shareholder a 20 times rate of
return over a period of 7 years ending on July 18, 2008. The investment is
secured by a third position lien on certain equipment of the Company that is
leased to a customer and located in a refinery in Torrance, California. The
Company may repay this investment, which matures on July 18, 2008, together with
the related rate of return earned to that date, any time after July 18, 2002
without penalty. The amount outstanding at October 31, 2004, 2003 and 2002 was
$$394,131, $248,354 and $140,503, respectively. In April 2005 the Company and
the holder agreed to cancel the agreement and Mr. Rossi received and additional
682,301 shares of stock in addition to the 200,000 initially issued.
In November 2001, the Company entered into a consulting agreement with
Odyssey Capital, LLC wherein Odyssey Capital agreed to provide business and
financial advisory services to the Company. The consulting agreement was for a
term of three months and provided that Odyssey Capital would receive the
following: (a) a monthly financial advisory fee of $20,000, in addition to other
compensation if a private placement of securities was made to refinance the
Bridge Note. This private placement never was undertaken therefore the
contingent fees were not recorded. The agreement continued on a month-to-month
basis until the agreement was amended in December 2002. The December 2002
amendment provided that (a) the financial advisory fee would be reduced to
$10,000 per month; (b) the agreement would terminate December 31, 2003. The
agreement was terminated by both parties in May of 2003 and any amounts owed or
due under the agreement were cancelled by and agreed to by both parties.
50
Food Development Corporation (FDC), an entity controlled by a stockholder
and former officer of the Company, has on occasion loaned the Company funds to
support daily operations. During 2003, FDC loaned $80,000 of which funds were
used to pay certain employees and consultants. FDC agreed to write off said
amounts in 2003. During 2003 and 2004 FDC made loans to the Company in support
of the daily operation. During June of 2003 the Company entered into an office-
sharing-agreement with FDC. The amount of reimbursement accrued and offset
against loans made by FDC for the years ended October 31, 2004 and 2003 was
$44,586 and $19,673 respectively.
The Company issues shares of IPRC common stock in the form of restricted
stock to participating officers and employees. The restricted stock generally
has a vesting period before issuance during which time it is subject to
forfeiture if the participants' employment is terminated. Once issued the stock
sale is restricted under rule 144. Unearned compensation expense associated with
restricted stock grants represents the market value of IPRC common stock at the
date of grant and is recognized as a charge to income ratably over the vesting
period. During fiscal year 2004 the Company issued 2,000,000 shares.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of the annual
report:
3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibits 2 and 2.1 to the Company's Registration Statement on Form
10-KSB filed with the Commission with a filing date of August 8, 1996,
Commission file No. 0-21169).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal year end October
31, 1996 filed with the Commission with a filing date of November 26,
1997, Commission File No. 0-21169).
10.1 Marketing Agreement dated October 6, 1999 with Mobil Technology Company
and the Company (incorporated by reference to Exhibit 10.1 to the
Company's current report on Form 8-K filed with the Commission on
February 26, 2001).
10.2 Loan Agreement dated January 19, 2001 between Maya, LLC and the Company
(incorporated by reference to Exhibit 10.2 to the Company's annual
report on Form 10-QSB filed with the Commission on March 20, 2001).
10.3 Purchase of Shares of Common Stock issued to Maya LLC (incorporated by
reference to Exhibit 1 to the Schedule 13D of Maya LLC filed with the
Commission on September 25, 1997).
10.4 Warrant for the Purchase of Shares of Common Stock dated December 11,
1997 issued to Maya LLC (incorporated by reference to Exhibit 1 to the
Schedule 13D/A of Maya LLC filed with the Commission on December 22,
1997).
10.5 Warrant for the Purchase of Shares of Common Stock dated March 11, 1998
issued by the Company to Maya LLC (incorporated by reference to Exhibit
1 to the Schedule 13D/A of Maya LLC filed with the Commission on March
23, 1998).
51
10.6 Warrant for the Purchase of Shares of Common Stock exercisable as of
July 11, 1998 issued by the Company to Maya LLC (incorporated by
reference to Exhibit 1 to the Schedule 13D/A of Maya LLC filed with the
Commission of June 22, 1998).
10.7 Warrant for the Purchase of Shares of Common Stock dated December 8,
1998 issued by the Company to Maya LLC (incorporated by reference to
Exhibit 1 to the Schedule 13D/A of Maya LLC filed with the Commission
on December 18, 1998).
10.8 Warrant for the Purchase of Shares of Common Stock dated October 6,
1999 issued by the Company to the Howarth Family Trust (incorporated by
reference to Exhibit 4 to the Schedule 13D of the Howarth Family Trust
dated 10/1/87 filed with the Commission on June 13, 2001).
10.9 Loan Agreement between the Company and Treeview Investments Inc. dated
as of July 27, 2001 (incorporated by reference to Exhibit 5 to the
Schedule 13D/A of Paul Howarth filed with the Commission on August 13,
2001).
10.10 Amendment No. 1 dated July 27, 2001 to the Warrant for the Purchase of
Shares of Common Stock dated December 11, 1997 issued by the Company to
the Howarth Family Trust (incorporated by reference to Exhibit 6 to the
Schedule 13D/A of the Howarth Family Trust dated 10/1/87 filed with the
Commission on August 13, 2001).
10.11 License Agreement between IPRC and Tradewinds Oil and Gas Inc.
10.12 Security Deposit Forbearance Agreement, dated June 8, 2004, between
IPRC and successor in interest to Mobil.
10.13 Management Agreement, effective August 1, 2005, between IPRC and
Agribiofuels, LLC.
10.14 2002 Stock Option Plan
10.15 Form of Note Agreement, executed in 2005, between IPRC and investors.
10.16 Form of Registration Right Agreement, executed in 2005, between IPRC
and investors
10.17 Form of Warrant Agreement, executed in 2005, between IPRC and
investors.
10.18 Strategic Marketing Manufacturing and Technology Licensing Agreement.
21.1 Subsidiaries of Registrant
31.1 Certification of Alan Springer.
31.2 Certification of Edward Gaiennie.
32.1 Certification for Sarbanes-Oxley Act of Alan Springer.
32.2 Certification for Sarbanes-Oxley Act of Edward Gaiennie.
52
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Malone & Bailey, PC, are the Company's independent auditors engaged to
examine the financial statements of the Company for the fiscal years ended
October 31, 2004 and 2003. Malone & Bailey, PC has performed the following
services and has been paid the following fees for these fiscal years:
Audit Fees
Malone & Bailey, PC was paid aggregate fees of approximately $55,000
for the fiscal years ended October 31, 2004 and 2003 for professional services
rendered for the audits of the Company's annual consolidated financial
statements.
Audit Related Fees
Malone & Bailey, PC was not paid any additional fees for the fiscal
years ended October 31, 2004 and 2003 for assurance and related services
reasonably related to the performance of the audit of the Company's consolidated
financial statements.
Tax Fees
Malone & Bailey, PC was not paid any aggregate fees for the fiscal
years ended October 31, 2004 and 2003 for professional services rendered for tax
compliance, tax advice and tax planning.
Other Fees
Malone & Bailey, PC was paid no other fees for professional services
during the fiscal years ended October 31, 2004 and 2003.
53
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: /s/ Alan Springer
--------------------------------------------------
Alan Springer, Chairman and Chief
Executive Officer
Date: November __, 2005
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Alan Springer
------------------------------- Chairman of the Board November __, 2005
Alan Springer and Chief Executive Officer
/s/ Edward C. Gaiennie Vice President, Chief Financial Officer, November __, 2005
------------------------------- Principal Accounting Officer
Edward C. Gaiennie and Director
/s/ James Hammond
------------------------------- Director November __, 2005
James Hammond
/s/ A.V. McGraw
------------------------------- Director November __, 2005
A.V. McGraw
54
IMPERIAL PETROLEUM RECOVERY CORPORATION
Exhibit Index to Form 10-KSB
Exhibit No. Identification of Exhibit
3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibits 2 and 2.1 to the Company's Registration Statement on Form
10-KSB filed with the Commission with a filing date of August 8, 1996,
Commission file No. 0-21169).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal year end October
31, 1996 filed with the Commission with a filing date of November 26,
1997, Commission File No. 0-21169).
10.1 Marketing Agreement dated October 6, 1999 with Mobil Technology Company
and the Company (incorporated by reference to Exhibit 10.1 to the
Company's current report on Form 8-K filed with the Commission on
February 26, 2001).
10.2 Loan Agreement dated January 19, 2001 between Maya, LLC and the Company
(incorporated by reference to Exhibit 10.2 to the Company's annual
report on Form 10-QSB filed with the Commission on March 20, 2001).
10.3 Purchase of Shares of Common Stock issued to Maya LLC (incorporated by
reference to Exhibit 1 to the Schedule 13D of Maya LLC filed with the
Commission on September 25, 1997).
10.4 Warrant for the Purchase of Shares of Common Stock dated December 11,
1997 issued to Maya LLC (incorporated by reference to Exhibit 1 to the
Schedule 13D/A of Maya LLC filed with the Commission on December 22,
1997).
10.5 Warrant for the Purchase of Shares of Common Stock dated March 11, 1998
issued by the Company to Maya LLC (incorporated by reference to Exhibit
1 to the Schedule 13D/A of Maya LLC filed with the Commission on March
23, 1998).
55
10.6 Warrant for the Purchase of Shares of Common Stock exercisable as of
July 11, 1998 issued by the Company to Maya LLC (incorporated by
reference to Exhibit 1 to the Schedule 13D/A of Maya LLC filed with the
Commission of June 22, 1998).
10.7 Warrant for the Purchase of Shares of Common Stock dated December 8,
1998 issued by the Company to Maya LLC (incorporated by reference to
Exhibit 1 to the Schedule 13D/A of Maya LLC filed with the Commission
on December 18, 1998).
10.8 Warrant for the Purchase of Shares of Common Stock dated October 6,
1999 issued by the Company to the Howarth Family Trust (incorporated by
reference to Exhibit 4 to the Schedule 13D of the Howarth Family Trust
dated 10/1/87 filed with the Commission on June 13, 2001).
10.9 Loan Agreement between the Company and Treeview Investments Inc. dated
as of July 27, 2001 (incorporated by reference to Exhibit 5 to the
Schedule 13D/A of Paul Howarth filed with the Commission on August 13,
2001).
10.10 Amendment No. 1 dated July 27, 2001 to the Warrant for the Purchase of
Shares of Common Stock dated December 11, 1997 issued by the Company to
the Howarth Family Trust (incorporated by reference to Exhibit 6 to the
Schedule 13D/A of the Howarth Family Trust dated 10/1/87 filed with the
Commission on August 13, 2001).
10.11 License Agreement between IPRC and Tradewinds Oil and Gas Inc.
10.12 Security Deposit Forbearance Agreement, dated June 8, 2004, between
IPRC and successor in interest to Mobil.
10.13 Management Agreement, effective August 1, 2005, between IPRC and
Agribiofuels, LLC.
10.14 2002 Stock Option Plan
10.15 Form of Note Agreement, executed in 2005, between IPRC and investors.
10.16 Form of Registration Right Agreement, executed in 2005, between IPRC
and investors
10.17 Form of Warrant Agreement, executed in 2005, between IPRC and
investors.
10.18 Strategic Marketing Manufacturing and Technology Licensing Agreement.
21.1 Subsidiaries of Registrant
31.1 Certification of Alan Springer.
31.2 Certification of Edward Gaiennie.
32.1 Certification for Sarbanes-Oxley Act of Alan Springer.
32.2 Certification for Sarbanes-Oxley Act of Edward Gaiennie.
56
Exhibit 10.11
MARKETING and LICENSE AGREEMENT
THIS AGREEMENT, effective this 1st day of May 2002 ("Agreement Date"), is
between Tradewinds Oil and Gas International, Ltd. ("Tradewinds"), a Texas
limited partnership having offices at 8811 Gaylord, Suite 200, Houston, Texas
77024 or its Designee, and Imperial Petroleum Recovery Corporation ("Imperial"),
a Nevada corporation having offices at 1970 South Starpoint Drive, Houston,
Texas 77032.
1. BACKGROUND
1.1 Imperial has developed certain Microwave Separation Technology (MST)
for breaking or separating Emulsions based on microwave energy and has the
capability, as hereinafter defined, to market, make or have made Microwave
Separation Technology Equipment for leasing, licensing or sale to MST Customers,
and to provide MST Technical and MST Maintenance Support to MST Customers
leasing, licensing or purchasing the Microwave Separation Technology Equipment;
1.2 Tradewinds and its affiliates have the capabilities, hereinafter
defined, to market Microwave Separation Technology Equipment in the Field of
Use;
1.3 Imperial, hereby, appoints Tradewinds to be its exclusive licensee
having exclusive use of the Microwave Separation Technology (MST) within the
nations of Indonesia and Singapore for Microwave Separation Technology Equipment
products in the Field of Use, and to work closely with Tradewinds in the
research, development and testing of such products on the terms and conditions
set forth in this Agreement. Tradewinds accepts such appointment.
NOW, THEREFORE, intending to be legally bound, Imperial and Tradewinds
agree as follows:
2. DEFINITIONS
2.1 Microwave Separation Technology means patented equipment, processes,
trade secrets, and know how, pertaining to Imperial Intellectual Property
Rights, for separating or breaking emulsions using microwave energy.
2.2 Microwave Separation Technology Unit (MSTU)
a. The MSTU means Microwave Separation Technology Equipment that contains
a microwave transmitter having a total power output of up to
seventy-five (75) kilowatts (designated MST-1000), or more if
commercially available. Microwave Separation Technology Equipment
having two or more Microwave Separation Technology Units would contain
microwave transmitters having total power output up to 75 kilowatts
multiplied by the number of units.
b. The MSTU will generally include a system for exposing sludge or an
Emulsion to microwave energy such as a microwave generator, wave
guides, an applicator, pump, piping and electrical that may be
connected to at least one holding tank and/or a separation device for
processing organic liquids, aqueous liquids and/or solids. This term,
MSTU, is interchangeable with "Product".
2.3 Field of Use means any process or operation related to: recovering
hydrocarbons from a naturally occurring reservoir or similar natural source;
which will allow refining of such hydrocarbons into intermediates, such as a gas
oil, or final products, such as gasoline; and/or manufacturing of petrochemicals
and/or petrochemical feedstocks. Field of use includes the clean up and recovery
of hydrocarbons due to spills, ruptures or similar events. Field of use includes
any process, within the petroleum and petrochemical industries, employing Radio
Frequency (RF) energy, jointly agreed to by Imperial and Tradewinds, to provide
a viable economic application for the MST technology. Applications may include,
but not be limited to, recovery of hydrocarbons from sludge tanks, sludge pits,
tanker / ship bottoms, as well as remediation of environmental problems created
by hydrocarbon spills, pipeline leaks, process upsets, and other hydrocarbon
related upsets.
2.4 "Product" or "Products" shall mean all products manufactured and
controlled by Imperial on the date of the execution of this Agreement and
includes any improvements or replacements to such products. It shall also
include all future products manufactured by Imperial with an application within
the Field of Use.
2.5 Territory shall mean nations of Indonesia and Singapore.
2.6 Term of Agreement shall mean the period during which this License
Agreement is in effect as set forth in Article 6, Section 6.2 and Article 12,
Section 12.1.
2.7 Emulsion means a petroleum material fed into the Microwave Separation
Technology Equipment containing a suspension of immiscible liquid phases, and/or
a suspension of one or more solids and one or more liquid phases.
2.8 Imperial Intellectual Property Rights mean all patents (including
patent applications), copyrights and trademarks for Microwave Separation
Technology owned by Imperial. Imperial Intellectual Property Rights include the
associated know how for making, using, sublicensing, leasing, marketing, and
selling Microwave Separation Technology.
2.9 MST Maintenance Support means all routine, preventive, and/or
emergency maintenance or service performed on Microwave Separation Technology
Equipment.
2.10 MST Customer means any lessee, licensee, or purchaser of Microwave
Separation Technology Equipment.
2.11 Cost of Product (COP) means the price for the purchase of Microwave
Separation Technology Equipment to include the MST equipment purchased, hood
boxing, port delivery to Houston, Houston port charges, agency and
documentation, insurance and ocean freight delivered ex quay port of (named port
of destination, for example Jakarta or Singapore), commissioning and start-up
engineering support, training and first year warranty maintenance related to
delivery of the MST system to the named Port of Destination (Delivered Ex Quay)
and the installation of the MST Equipment at the Customer's chosen location.
2.12 Tradewinds means Tradewinds Oil and Gas International, Ltd. a Texas
Limited Partnership and its Affiliates or Designee. The term "Affiliate" shall
mean any company, partnership or joint venture controlled by, controlling or
under common control with Tradewinds or any Tradewinds appointed Designee. For
2
the purposes of this definition, "control" means the direct or indirect
beneficial ownership of fifty percent (50%) or more of the stock entitled to
vote in the election of directors or, if there is no such stock, fifty percent
(50%) or more of the ownership interest in such company, partnership or joint
venture.
2.13 MST Technical Support means all support provided by Imperial and / or
Tradewinds to MST Customers and potential MST Customers for MST Equipment or
Laboratory Technology that includes, but is not limited to, training of MST
Customer personnel, assistance during the start-up and testing of MST Equipment,
troubleshooting technical problems in an MST application that is not performing
to a MST Customer's satisfaction, response to a MST Customer's request for
technical assistance to optimize the MST Equipment, and technical support
services.
2.14 Equipment Cost means the costs as shown in Section 6.4 of major
equipment and fabrication labor necessary to construct MST Equipment, deliver
the system ex quay to the named port of destination, the commissioning and
start-up support required to prepare the system for operation, and operator
training costs.
2.15 Delivered Ex Quay (DEQ) means that the seller delivers when the goods
are placed at the disposal of the buyer not cleared for import on the quay
(wharf) at the named port of destination. The seller has to bear costs and risks
involved in bringing the goods to the named port of destination and discharging
the goods on the quay (wharf). The DEQ term requires the buyer to clear the
goods and pay for all formalities, duties taxes and other charges upon import.
3. RIGHTS GRANTED
3.1 Imperial grants Tradewinds, and Tradewinds accepts, subject to the
terms and conditions set forth, herein, including Paragraph 3.2, an exclusive
license and right to market Microwave Separation Technology under Imperial's
Intellectual Property Rights within the nations of Indonesia and Singapore. In
addition, if during the term of this agreement Tradewinds identifies and brings
to Imperial contracts for business within countries outside of Singapore and
Indonesia not represented on an exclusive basis by another entity, Tradewinds
shall be entitled to participate with Imperial in the business developed outside
of Indonesia and Singapore.
3.2 Imperial has extended its marketing agreement with ____________ to
permit them to market the MST within the __________ organization on a
non-exclusive basis. If Tradewinds markets MST units to _________ facilities
within Indonesia or Singapore, Tradewinds will pay the Cost of Product (COP) for
all units Tradewinds places within ___________ Singapore or Indonesian
operations.
3.3 Except as provided herein, Tradewinds shall be responsible for all
costs associated with the conduct of its marketing, including commissions or
other compensation to sales representatives employed by Tradewinds. Tradewinds
will be responsible for the costs incurred to move the MST equipment from the
Port of Destination within Indonesia or Singapore to the installation site, the
costs of site preparation, and the lodging, food, travel and living expenses
within Indonesia or Singapore for any Imperial Petroleum Recovery Corporation
personnel involved in the installation, training and equipment maintenance
efforts.
3
4. SERVICES PROVIDED BY IMPERIAL
4.1 Imperial will be responsible for making or having made the Microwave
Separation Technology Equipment for each order placed by Tradewinds. Imperial
will oversee the manufacturing and delivery of Microwave Separation Technology
Equipment to the named port of destination (Delivered Ex Quay), defined for this
agreement as the port city identified by Tradewinds closest to the installation
site, capable of receiving and offloading the MST from the ocean going vessel
contracted to move the equipment from its manufactured location, or the Port of
Houston, Texas. Imperial will fabricate, test and commission the unit based upon
the information provided by Tradewinds for its customer's site. Tradewinds will
perform, or have performed the site preparation work and the installation and
connections required to operate the MST Unit. Imperial will train up to 10
operators in the use of the MST and insure that the unit is functioning properly
after installation. Imperial will provide a 12 month warranty on parts and
labor. Title to the Products shall vest in Buyer immediately upon payment to
Seller of the Cost of Product.
4.2 Imperial will provide, in a form that complies with industry
standards, an operating manual, safety manual, process flow diagrams, piping and
instrumentation diagrams, and wiring diagrams and will provide at least 20 hours
of training for each MST Customer. Imperial will also provide MST Technical
Support, as defined herein, to Tradewinds.
4.3 Imperial will provide to Tradewinds training as per Article 4.4,
technical and laboratory support with respect to the use, application and
quality of Product as specified by Imperial.
4.4 Imperial will provide at its cost MST Installation and Maintenance
Support, as defined herein, to each Tradewinds MST Customer. Imperial standard
overseas commissioning package provides field supervision for 2 engineers, for a
maximum of 34 days. Tradewinds will provide for commercial standard, local
lodging, transportation and meals. If installation requires more than 34 days,
the additional days will be billed to Tradewinds or its Designee at $1,000 per
engineer per day and Tradewinds will provide for commercial standard, local
lodging, transportation and meals. If onsite training is requested, the standard
operator-training package is presented in English and includes 14 days of
hands-on training for up to 10 operators. Additional engineering and training
support is available at $1,000 per engineer/instructor per day (travel to and
from, and onsite) plus airfare and lodging. The standard Maintenance Support
includes two semi-annual maintenance on-site inspections during the first twelve
months following commissioning. Imperial will bear all costs of the standard
Maintenance Support package except for the in-country expenses of
transportation, lodging and meals on a commercial standard basis incurred by the
engineer(s) assigned the maintenance and inspection function. The standard
packages may be modified as to number of Imperial personnel and days on site, as
requested by Tradewinds.
4.5 Imperial will provide and maintain bench unit test facilities and
personnel for testing Emulsions from potential MST Customers. Imperial will
coordinate with Tradewinds to obtain access to additional laboratory equipment
as may be required, from time to time, to provide adequate evaluation of MST
Customer emulsions.
5. SERVICES PROVIDED BY TRADEWINDS
5.1 Marketing. Tradewinds will use commercially reasonable efforts to
develop the market for the Microwave Separation Technology within Indonesia and
Singapore.
4
5.2 Marketing services provided by Tradewinds shall include, but are not
limited to, developing a technology fact sheet, including Microwave Separation
Technology on the Tradewinds Web site, disseminating information related to
Microwave Separation Technology to sites partially or fully owned, operated or
serviced by Tradewinds. Tradewinds will also use reasonable efforts, at its own
discretion, to publicize Microwave Separation Technology, including presenting
papers and publications, and advertising.
5.3 Tradewinds will be responsible for the costs incurred once the MST
equipment has been Delivered Ex Quay (DEQ) at the named port of destination, to
clear customs and move the MST equipment to the installation site, the costs of
site preparation, and the lodging, food, travel and living expenses within
Indonesia or Singapore for any Imperial Petroleum Recovery Corporation personnel
involved in the installation, training and equipment maintenance efforts.
6. TERMS
6.1 Tradewinds will pay Imperial a licensing fee of _______________ for a
two year license agreement. In exchange for this and other consideration,
Imperial grants an exclusive license to Tradewinds to market Microwave
Separation Technology products within the Field of Use throughout Indonesia and
Singapore for two years beginning 1 May 2002 and running through 30 April 2004.
Tradewinds will prepay the licensing fee at a rate of ______________ per month
for six months beginning November 2001 and continuing through April 2002. The
sixth payment (April 2002, or earlier as determined by Tradewinds) will complete
the payment schedule for the two-year term of the agreement.
6.2 The license agreement is effective May 1, 2002 and runs for two years
through April 30, 2004. Contracts generated by Tradewinds in the Field of Use
within Indonesia and Singapore prior to May 1, 2002 will be honored for their
exclusivity to Tradewinds as if they were concluded on or after May 1, 2002.
6.3 The license agreement will be automatically renewed for two years if
Tradewinds purchases $______________ or more of MST equipment from Imperial,
excluding the monthly license fee, in the previous licensing agreement term. If
Tradewinds purchases, excluding the monthly license fee, from Imperial in the
previous licensing period have exceeded $________________ US, the license
agreement will be automatically renewed for four years. If Tradewinds purchases
are sufficient to automatically renew the license agreement, no additional
license fee will be required for the renewal period.
6.4 Tradewinds will order and purchase from Imperial all of its Microwave
Separation Technology (MST) units, spare parts and replacement items.
The Cost of Product (COP) will include the Equipment Cost, packaging for export,
insurance, transportation, and support staff for each system, which may include
both the MST and centrifuge (Alfa Laval OFPX 610) components as follows:
- For a MST-1000 (1 MST; 1 centrifuge) the COP is $___________ US dollars.
- For a MST-2000 (2 MST; 2 centrifuge) the COP is $___________ US dollars.
- For a MST-3000 (3 MST; 2 centrifuge) the COP is $___________ US dollars.
- For a MST-4000 (4 MST; 3 centrifuge) the COP is $___________ US dollars.
- The parties will negotiate the price for MST systems larger than a MST-4000
in good faith.
The Cost of Product for each system ordered will include, in addition to the
equipment cost, the costs for packing, insurance and shipment of goods to the
named port of destination, Delivered Ex Quay (DEQ), training client personnel in
5
the use of the system, commissioning at the customer site, two maintenance
inspections within the first year of operation following the commissioning. A
spare parts package as requested by the client will be a separate cost. The Cost
of Product price list for this paragraph 6.4 may be adjusted periodically.
6.5 Tradewinds will pay to Imperial 20% of all net revenues generated from
each MST unit in service within Indonesia and Singapore commencing 24 months
from the date a unit is first commissioned and placed in service. Tradewinds
will make net revenue payments to Imperial within 30 days following the close of
each fiscal quarter in Tradewinds' fiscal year, with any annual adjustments made
at the close of the fiscal year. Net Revenue is defined as Gross Revenue less
Tradewinds' direct costs related to each individual MST. Net revenue will be
derived from the following sources:
- Tradewinds sale of MST units to a third party within Indonesia;
- Tradewinds leasing of MST units to a third party within Indonesia;
- Tradewinds use of MST units to solve its own operational problems or to
solve problems of other clients;
- Sale of oil or other recovered material by use of Imperial MST units.
7. INTELLECTUAL PROPERTY
7.1 Imperial will disclose to TRADEWINDS all of its patents, including,
applications, continuations, continuations-in-parts, divisionals, issued
patents, and foreign counterparts fully or partially owned by Imperial related
to treatment of Emulsions, sludge and any other application using microwave
energy.
8. SAFETY STANDARDS
8.1 TRADEWINDS will follow to the best of its ability all applicable
Indonesian standards for Process Safety Management regulations and all other
health and safety policies applicable to each MST Customer site.
8.2 Imperial will provide all warning devices and precautionary measures,
including emergency shutdown systems, that are required by United States law or
requested by Tradewinds to conform to Indonesian standards in following accepted
engineering practices to protect persons and property while installing and
operating Microwave Separation Technology Equipment and will meet all United
States performance and safety Requirements.
8.3 Imperial will make available a qualified professional to periodically
inspect the MST Equipment at MST Customer sites to determine that the MST
Equipment is in compliance with OSHA PSM Standards. This service initially will
be provided at Imperial's expense every six months for the first 12 months
following the commissioning of each unit, except that Tradewinds will provide
for in-country expenses such as commercial travel, commercial lodging, food and
any applicable governmental tolls. After the completion of the second inspection
concluding the first twelve month period, future inspections of each unit will
be at Tradewinds expense and at the daily rates charged by Imperial as shown in
Section 4.4 and will be available as required by Tradewinds. Summary reports
will be provided by Imperial to TRADEWINDS to document compliance, and for
informational and marketing purposes.
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9. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF IMPERIAL
Imperial hereby represents, warrants, and covenants to TRADEWINDS during
the Term of this Agreement and any extensions thereof that:
9.1 Imperial will provide all services in accordance with this Agreement
and all Microwave Separation Technology Equipment delivered ex quay (DEQ) to the
named port of destination to Tradewinds' MST Customer sites and will meet the
specifications agreed to for that MST Customer.
9.2 Imperial and Tradewinds will meet all safety standards in accordance
with this Agreement; will disclose to MST Customers procedures for the safe
operation of the Microwave Separation Technology Equipment. Imperial will
exercise due care in the construction, installation, and schooling in the
maintenance of Microwave Separation Technology Equipment and training of
personnel to prevent injuries to persons, harm to the environment and damage to
property.
9.3 Imperial agrees to comply with all United States laws, decrees, rules,
regulations, orders, ordinances, actions, and requests of national, state and/or
local courts and governmental units in the performance of its obligation under
this Agreement.
9.4 Microwave Separation Technology does not infringe on the intellectual
property rights or other proprietary rights of any third party of which Imperial
is aware as of this Agreement Date, and further that Microwave Separation
Technology is not a misappropriation of any third party's intellectual property
rights or other proprietary rights of which Imperial is aware as of this
Agreement Date.
9.5 Except for Paragraphs 9.1 to 9.4, IMPERIAL MAKES NO REPRESENTATIONS OR
WARRANTIES TO TRADEWINDS OF ANY KIND, EXPRESS OR IMPLIED.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF TRADEWINDS
TRADEWINDS represents, warrants, and covenants to Imperial during the Term
of this Agreement and any extensions thereof that:
10.1 TRADEWINDS will provide to the best of its ability all services in
accordance with this Agreement.
10.2 TRADEWINDS will exercise to the best of its ability due care in
providing the services in accordance with this Agreement so as to avoid injuries
to persons, harm to the environment, and damage to property.
10.3 TRADEWINDS will comply with the best of its ability with all United
States and Indonesian laws, decrees, rules, regulations, orders, ordinances,
actions, and requests of national, state and/or local courts and governmental
units in the performance of its obligation under this Agreement.
10.4 Except for Paragraphs 10.1 to 10.3, TRADEWINDS MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED.
11. LIABILITY
11.1 Indemnification of Imperial. Tradewinds shall defend, indemnify, and
hold the Imperial harmless from and against any liability, loss, cost, penalty,
damage or expense (including attorney fees) to the extent arising either
directly or indirectly out of:
7
a. the negligence or willful misconduct of Tradewinds, or an
employee, officer, director Affiliate, partner, principal, agent,
representative of Tradewinds in the performance of this Agreement
or any purchase order issued hereunder;
b. any failure by Tradewinds or an employee, officer, director,
Affiliate, partner, principal, agent, representative of
Tradewinds to comply with any applicable Law;
c. any claim made by an employee of Tradewinds for compensation,
loss of salary from any dispute lodged by a Tradewinds employee;
d. the strict liability of Tradewinds; and
e. the breach of any representation or warranty in this Agreement.
11.2 Indemnification of TRADEWINDS. Imperial shall defend, indemnify,
and hold Tradewinds harmless from and against any liability, loss, cost,
penalty, damage or expense (including attorney fees) to the extent arising
either directly or indirectly out of:
a. any dangerous or volatile characteristics of the Products, which
characteristics are or become known to Imperial, but have not or
are not disclosed to Tradewinds; and if conveyed to Tradewinds,
Tradewinds shall have complied with Imperial's direction to
discontinue use of the Product until such time as correction of
the problem has been made;
b. the negligence or willful misconduct of Imperial, or an employee,
officer, director Affiliate, partner, principal, agent,
representative or subcontractor of Imperial in the performance of
this Agreement or any purchase order issued hereunder;
c. products liability claims related to the Product;
d. any failure by Imperial or an employee, officer, director,
Affiliate, partner, principal, agent, representative or
subcontractor of Imperial to comply with any applicable Law;
e. the infringement or claimed infringement of any Intellectual
Property right of a third party that relates to the Product;
f. the strict liability of Imperial; and
g. the breach of any representation or warranty in this Agreement.
11.3 Concurrent Liability. In the event of a Loss arising out of the
joint negligence or willful misconduct of Tradewinds and Imperial, Tradewinds
and Imperial shall be liable to each other and to any damaged third party in
proportion to their relative degree of fault.
11.4 Settlement or Compromise. Any settlement or compromise made or
caused to be made by the Indemnified Person or the Indemnifying Person, as the
case may be, of any Loss shall also be binding upon the Indemnifying Person or
the Indemnified Person, as the case may be, in the same manner as if a final
judgment or decree had been entered by a court of competent jurisdiction in the
amount of such settlement or compromise; provided, that no obligation arising
out of such Loss shall be imposed on the Indemnified Person or the Indemnifying
Person as a result of such settlement without the prior written consent of such
Person, which consent shall not be unreasonably withheld.
11.5 Insurance or Benefits. In no event shall the indemnities provided
hereunder be limited in any way to the amount or type of damages, compensation
or other benefits payable by or for a Person under any insurance policy or Law
including, but not limited to, any workers' compensation statute or any
disability or other employee benefit statute.
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11.6 Survival of Obligations. The indemnification obligations of the
parties shall survive the termination of this Agreement for two years beyond the
termination date of this contract, including extension dates.
11.7 Dispute Settlement. The Parties will endeavor to resolve by
negotiation any dispute, controversy or claim arising out of or relating to or
in connection with this Agreement, or its breach, termination or invalidity,
("Dispute") that may arise between them. In addition, if either Party requests
that a Dispute be submitted to mediation, the mediation will be conducted in
Houston, Texas and both Parties will participate in mediation in good faith.
12. TERM AND TERMINATION
12.1 The Term of this Agreement shall be for two years (2 years). The
license agreement is effective May 1, 2002 and runs for one year through April
30, 2004. Contracts generated by Tradewinds in the Field of Use within Indonesia
and Singapore prior to May 1, 2002 will be honored for their exclusivity to
Tradewinds as if they were concluded on or after May 1, 2002. Further, any
business generated or created by Tradewinds during the term of this agreement
shall be considered as under the contract for a five-year period after the
contract expiration.
12.2 The license agreement may be renewed for two years or longer based on
negotiations between the Parties. It will be automatically renewed for two years
if Tradewinds payments, excluding the monthly license fee, to Imperial in the
previous licensing period have exceeded $1,500,000 US.
12.3 This Agreement shall terminate immediately and without notice upon the
institution of insolvency, bankruptcy or similar proceeding by or against either
party. If the proceeding is against Imperial, Tradewinds shall have the right to
continue to utilize the MST and related technology as if this agreement was
still in effect.
12.4 Upon termination of this Agreement and upon the written request of the
other party, Imperial shall return all copies of TRADEWINDS Proprietary
Information, and TRADEWINDS shall return all copies of Imperial Proprietary
Information related to Microwave Separation Technology and Improvements thereof,
except that Imperial and TRADEWINDS may retain one copy for the purpose of
determining its legal obligations under Article 14.
13. INDEPENDENT CONTRACTOR
13.1 In performing their obligations under this Agreement, Imperial and
TRADEWINDS are both independent contractors. Imperial and TRADEWINDS shall use
their own discretion and shall have complete control over services that each
provide and shall assume the rights, obligations, and liabilities, applicable to
each as an independent contractor. Nothing contained in this Agreement or the
Exhibits shall be construed to constitute Imperial or any of its employees or
officers as an employee, agent, joint venturer, or partner of TRADEWINDS or its
affiliates, successors, or assignees.
13.2 Imperial is not, and shall not represent itself to be, an agent or
representative of TRADEWINDS.
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14. CONFIDENTIALITY
14.1 Imperial and TRADEWINDS have executed a Non-Disclosure and
Confidentiality Secrecy Agreement effective December 15, 2001, attached in
Appendix A. The term of this Non-Disclosure and Confidentiality Secrecy
Agreement shall be extended to remain in effect during the Term of this
Agreement and all extensions thereof. All obligations undertaken by the parties
with respect to confidentiality and restrictions of use of Proprietary
Information disclosed under the Non-Disclosure and Confidentiality Secrecy
Agreement will be extended to terminate two years from the date of termination
of this Agreement including all extensions thereof. Proprietary Information that
may be disclosed under this Non-Disclosure and Confidentiality Secrecy Agreement
is amended to include improvements of emulsion breaking and separations
technology, as well as any other application.
14.2 Except for the provisions of Articles 3 and 10 of this Agreement,
nothing contained herein shall be construed as granting either party any right
or license under any copyright, patent, trade secret, or other intellectual
property rights of the other party, nor as obligating either party to make such
grants to the other party. Each Party shall insure that no distribution of the
other's proprietary documentation or system design data is made without the
express written approval of the other Party.
14.3 Without the written consent of TRADEWINDS, Imperial shall not disclose
the terms of this Agreement to MST Customers, including MST Customer sites fully
or partially owned or operated by Tradewinds.
15. NOTICES
All notices and other communications will be in writing and will be deemed
given when delivered if given in person, when deposited in the mail if sent by
certified or registered mail, return receipt requested, postage prepaid and
properly addressed, or when transmitted if sent by facsimile to the parties as
follows.
For Imperial Technical, Legal, and Business Matters:
For Tradewinds Technical, Legal, and Business Matters:
Tradewinds Oil & Gas International, Ltd
16. RIGHT OF AUDIT
16.1 Imperial shall have the right, exercisable by delivery of written
notice to Tradewinds within 90 days after the close of each year under this
Agreement and after any termination of this Agreement, to have the pertinent
records of Tradewinds examined by an independent accountant mutually agreed to
by TRADEWINDS and Imperial for the purpose of verifying the payments in Article
6. All fees requested by such accountant for carrying out this examination will
be paid by Imperial. Such examination shall be conducted during normal business
hours. To the extent possible, examinations shall be scheduled at a time most
convenient to Tradewinds. Except as required by law, the accountant employed by
Imperial shall not disclose to anyone except Imperial and TRADEWINDS the result
of, or any of the data discovered in, any such examination, and shall not
disclose to Imperial any proprietary information of Tradewinds except to the
extent necessary for the verification permitted by this Article. After
completion of the examination, inaccuracies which the examination shall have
10
disclosed, if any, shall be promptly adjusted. The determination of such
independent public accountant shall be final.
17. ASSIGNMENT
17.1 This Agreement may not be assigned by either party without the prior
written consent of the other party, except, however, in the event all or
substantially all of a party's assets, business or stock is purchased by an
acquirer or transferred to an Affiliate, this Agreement may be assigned to the
acquirer or Affiliate provided that any rights and/or obligations under this
Agreement are binding and inure to the benefit of the assignee.
18. APPLICABLE LAW
18.1 This Agreement will be construed and interpreted in accordance with
the plain meaning of its terms and, subject thereto, in accordance with the
substantive laws of the State of Texas, USA, without giving effect to Texas'
principles of conflict of laws. Where U.S. Federal subject matter or diversity
exists in respect of a dispute which the parties cannot themselves amicably
resolve, the parties designate the United States District Court having
jurisdiction for the state of Texas, as the exclusive forum for the resolution
of that dispute and agree to submit themselves and the dispute exclusively to
the jurisdiction of that Court. Where U.S. Federal subject matter or diversity
jurisdiction in respect of the dispute does not exist, the parties designate the
Circuit Court of the County of Harris, Texas as the exclusive forum for the
resolution of that dispute and agree to submit themselves and the dispute
exclusively to the jurisdiction of that Court. The rights and obligations of the
parties regarding resolution of disputes, as set forth in this Paragraph 20.1,
shall survive any termination of this Agreement.
19. INSURANCE
19.1 Without limiting or qualifying any liability otherwise assumed by
Imperial under this Agreement, Imperial shall, during the term of this Agreement
provide and carry at its own expense, at least the insurance below to protect
itself. Additionally, the insurance obtained below shall be sufficient to cover
claims made after termination of the Agreement relating to events that occurred
during the term of this Agreement.
(i) Statutory Workmen's compensation and employer's Liability
Insurance in compliance with the laws of the states where Imperial performs its
services.
(ii) Comprehensive General Liability Insurance with limits of not less
than $5,000,000 per occurrence for bodily injury and property damage; said
Comprehensive General Liability Insurance to include within sixty (60) days
after the Effective Date of this Agreement coverage for claims of patent
infringement or other violations of a third party's proprietary rights. If any
company or entity is excluded from coverage for claims related to patent
infringement or other violations of a third party's proprietary rights, Imperial
shall have nine (9) months from the Agreement Date to remedy such an exclusion.
(iii) Automotive Public Liability Insurance upon each and every unit
of automotive equipment operated or used by Imperial in the performance of this
Agreement with combined single limits of not less than $1,000,000 per accident.
19.2 Tradewinds shall procure and at all times maintain at its expense
policies of insurance of the types required to protect itself.
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19.3 Certificates of Insurance or certified copies of all insurance
policies required in Paragraphs 19.1 and 19.2 will be exchanged between
TRADEWINDS and Imperial at the mutual request of both parties.
20. MISCELLANEOUS
20.1 This Agreement and all Appendices, including the Non-Disclosure and
Confidentiality Secrecy Agreement in Appendix A, constitutes the full
understanding of the parties and a complete and exclusive statement of its terms
and supersedes all prior agreements, arrangements and understandings relating to
the subject matter hereof.
20.2 No modification of this Agreement or waiver of any of its terms and
conditions will be of any force or effect unless made in writing and signed by a
duly authorized officer of each of the parties.
20.3 All terms of this Agreement are severable, and any term that may be
prohibited or unenforceable by law shall be ineffective only to the extent of
such prohibition or unenforceability without affecting the enforceability of the
remainder of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized officials as of the dates below.
IMPERIAL PETROLEUM TRADEWINDS TECHNOLOGY
RECOVERY CORPORATION COMPANY
By: By:
---------------------------- ------------------------
Name: C. Brent Kartchner Name: James E. Scott III
---------------------------- ------------------------
Title: President Title: President
--------------------------- -----------------------
Date: February 11, 2002 Date: February 11, 2002
---------------------------- -----------------------
OMITTED APPENDICES
APPENDIX A: NONDISCLOSURE AND SECRECY AGREEMENT
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Exhibit 10.12
SECURITY DEPOSIT PAYMENT FORBEARANCE AGREEMENT
THIS Agreement, effective as of the Eighth day of June, 2004 ("Effective
Date"), is between Successor in Interest to MTC (herein referred to as Successor
in Interest to MTC), a corporation of the State of New York and Imperial
Petroleum Recovery Corporation (herein referred to as IPRC), a company formed
under the laws of Nevada.
WITNESSETH THAT:
WHEREAS, Mobil Technology Company ("MTC") and IPRC entered into an
agreement, effective October 6th, 1999 ("Prior Agreement") pursuant to which MTC
provided IPRC with security deposit of one million United States Dollars (U.S.
$1,000,000) ("Security Deposit); and
WHEREAS, the Prior Agreement terminated on October 6, 2001; and
WHEREAS, IPRC was to repay the Security Deposit on August 10, 2003, which
obligation survived termination of the Prior Agreement; and
WHEREAS, IPRC has not repaid the Security Deposit as of the effective date
of this Agreement and is currently in default of its obligation to repay the
Security Deposit under the Prior Agreement and as a result of such default, IPRC
further owes interest on the Security Deposit as specified in the Prior
Agreement, which obligation further survived termination of the Prior Agreement;
and
WHEREAS, the right under the Prior Agreement to receive the Security
Deposit and accrued interest from IPRC was assigned from MTC to Successor in
Interest to MTC on December 6, 2002 and as a result of that assignment,
Successor in Interest to MTC is a secured creditor of IPRC; and
WHEREAS, to avoid creating a situation that could cause IPRC to file for
bankruptcy, Successor in Interest to MTC is willing to forebear its collection
of the Security Deposit as a single payment and to allow IPRC to make six
payments totaling one million United States Dollars (U.S.$1,000,000) as set
forth herein and further, if IPRC makes all of such Security Deposit payments on
or before the specified timetable, Successor in Interest to MTC is willing to
forgive the accrued interest on the Security Deposit.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
1.01 Terms defined in this Agreement shall have the definitions provided
herein. Terms not defined in this Agreement shall have the meaning defined for
them in the Prior Agreement. In the event of any conflict between the terms of
this Agreement and the Prior Agreement, the terms of this Agreement shall
control.
ARTICLE II- PAYMENTS
2.01 As used herein, "Financial Trigger Event" shall mean the effective
date of the first agreement between IPRC (or any affiliate, agent or licensee
with rights to sublicense MST) and any third party for the lease, sale, or
license of one or more MST Units after the Effective Date. IPRC agrees to
promptly notify Successor in Interest to MTC in writing of the execution of any
agreement on or before October 31, 2004 between IPRC or any affiliate, agent, or
licensee with rights to sublicense MST and any third party for the lease, sale,
or license of one or more MST Units.
2.02 Provided that the Financial Trigger Event occurs on or before October
31, 2004, Successor in Interest to MTC and IPRC agree that the Security Deposit
payment schedule is changed from that specified in Sections 6.3, 6.4 and 6.5 of
the Prior Agreement to that specified below. Payment will be made by IPRC to
Successor in Interest to MTC according to the specified schedule and no invoices
will be required from Successor in Interest to MTC to IPRC before making such
payments.
Until lPRC shall fully repay the Security Deposit, thirty (30) days
after the conclusion of each calendar quarter (January to March, April to June,
July to September and October to December or any portion thereof) after the
Financial Trigger Date, IPRC shall pay Successor in Interest to MTC at least
Sixty Thousand United States Dollars (U.S.$60,OOO.00) for each MST Unit sold,
leased or licensed after the Financial Trigger Date. Failure to make the
specified payments on time shall be a default. Examples of the application of
this payment schedule are shown in Appendix I.
2.03 If the Financial Trigger Event occurs on or before October 31, 2004
and IPRC repays the entire Security Deposit on or before December 1, 2005 as
specified in Section 2.02, Successor in Interest to MTC will forgive any
interest accrued and due under the Prior Agreement, however if anyone or more of
the payments called for in Section 2.02 are not made as specified or if the
Security Deposit was not entirely repaid by December 1, 2005, IPRC shall
continue to be obligated to pay the Security Deposit payments as specified in
Section 2.02 and shall pay Successor in Interest to MTC interest on the Security
Deposit as follows:
Interest due on the Security Deposit, including accrued interest, from
August 10, 2003 up to the date IPRC pays the Security Deposit and accrued
interest in full will be charged upon the unpaid Security Deposit plus any
accrued interest at a rate equal to the prime rate of Citibank (New York) at the
close of business on the last business day of the calendar year immediately
preceding each respective year (or portion thereof) that the Security Deposit
remains unpaid, plus four percent (4%) per annum. The interest will be added to
the amount that IPRC owes Successor in Interest to MTC.
2.04 If the Financial Trigger Event does not occur on or before October 31,
2004, IPRC shall continue to be obligated to pay the Security Deposit, including
accrued interest, charged upon the unpaid Security Deposit plus any accrued
interest, at a rate equal to the prime rate of Citibank (New York) at the close
of business on the last business day of the calendar year immediately preceding
each respective year (or portion thereof) that the Security Deposit remains
unpaid, plus four percent (4%) per annum beginning on August 10, 2003 and ending
when the Security Deposit plus accrued interest has been paid in full to
Successor in Interest to MTC and failure to pay the Security Deposit, including
any accrued interest, by October 31, 2004 shall be a default. The interest will
be added to the amount that IPRC owes Successor in Interest to MTC.
2.05 Payments made by IPRC to Successor in Interest to MTC shall be first
credited to repayment of the Security Deposit without accrued interest and then
to payment of accrued interest. IPRC shall pay Successor in Interest to MTC
accrued interest in successive fifty thousand United States dollar (U.S.$50,OOO)
payments every thirty (30) days beginning upon the repayment of the Security
Deposit and continuing until all accrued interest due Successor in Interest to
MTC has been paid. Failure to make accrued interest payments on time shall be a
default.
2.06 All amounts specified in this Agreement are in U.S. Dollars and are
net of any value added taxes (VAT), and all payments provided for in this
Agreement shall be paid in United States Dollars and be remitted preferably by
wire transfer, or by check or draft, to the following banking address, or to
such other new banking address provided by Successor in Interest to MTC upon
ninety (90) days prior written notice thereof to IPRC. Payments by wire shall be
to:
For the account of: Successor in Interest to MTC
Or if by check or draft to:
Successor in Interest to MTC
All payments due from IPRC shall be equal to one hundred percent (100%) of
the invoice amount or the amount specified in this Agreement without deductions
for any taxes, assessments or charges levied, assessed or imposed (other than by
the Government of the U.S.A.) which IPRC or Successor in Interest to MTC or any
other party shall be required to payer withhold in respect to or calculated with
reference to such payment due Successor in Interest to MTC. Any such taxes,
assessments, and/or charges shall be paid by IPRC, on behalf of and in the name
of Successor in Interest to MTC, and receipts for such taxes, assessments or
charges shall be forwarded to Successor in Interest to MTC.
ARTICLE III - ADDITIONAL COVENANTS
3.01 IPRC represents and warrants that it has not paid any dividends or
other capital distributions or made any other distribution or payment on account
of or in redemption, retirement, or purchase of any capital stock (collectively,
"Distributions") to any of its shareholders during the time period from August
10, 2002 to the Effective Date.
3.02 Until the Security Deposit, including any accrued interest, is paid to
Successor in Interest to MTC in full, without Successor in Interest to MTC's
express written consent:
(a) IPRC agrees that no Distributions shall be made to any of its
shareholders, however an already agreed payment of up to three hundred thousand
United States Dollars (U.S.$300,000.00) total may be made to IPRC's three
largest shareholders; and
(b) IPRC agrees that it shall pay no other creditor a greater
percentage of its indebtedness to such creditor than it shall pay to Successor
in Interest to MTC, however IPRC may pay its creditors its actual costs that are
reasonable for office rent, office supplies, office equipment, utilities, taxes,
wages and salaries for employees other than officers or IPRC shareholders and
travel and entertainment expense associated with marketing MST Units up to a
maximum of fifty thousand United States Dollars (U.S.$50,000.00) per month,
which maximum shall be increased by up to an additional twenty-five thousand
United States Dollars (U.S.$25,000.00) per month if needed to support expanded
marketing efforts for MST Units.
3.03 Beginning with the Financial Trigger Date, IPRC shall deliver to
Successor in Interest to MTC as soon as available, but in any event within 30
days after the end of each calendar quarter, a company prepared consolidated
balance sheet and income statement covering IPRC's consolidated operations
during such period, in a form acceptable to Successor in Interest to MTC and
certified by a responsible officer of IPRC.
ARTICLE VI - ADDITIONAL REQUIREMENTS
4.01 The obligation of Successor in Interest to MTC to forbear its rights
to receive the Security Deposit from the Prior Agreement is subject to the
condition precedent that Successor in Interest to MTC shall have received, in
form and substance satisfactory to it, the following:
(a) this Agreement;
(b) an officer's certificate of IPRC with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;
(c) annual consolidated balance sheet and income statement covering
IPRC's consolidated operations during 2002 and 2003 (unaudited ones acceptable)
as soon as practical after the Financial Trigger Date; and
(d) such other documents, and completion of such other matters, as
Successor in Interest to MTC may reasonably deem necessary or appropriate.
4.02 Should IPRC have an opportunity to sell, lease or otherwise transfer
the Torrance MST Equipment ("Collateral") to a third party for fair value, IPRC
shall promptly notify Successor in Interest to MTC and Successor in Interest to
MTC, at its sole discretion under terms acceptable to Successor in Interest to
MTC, may provide IPRC with a written waiver of its security interest.
4.03 Successor in Interest to MTC (through any of its or its affiliates'
officers, employees, or agents) shall have the right, upon reasonable prior
notice, from time to time during IPRC's usual business hours but no more than
once a year (unless IPRC is in default of any of its obligations under this
Agreement), to inspect IPRC's Books and to make copies thereof and to check,
test, and appraise the Collateral in order to verify IPRC's financial condition
or the amount, condition of, or any other matter relating to, the Collateral.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
5.01 IPRC represents and warrants as follows:
(a) IPRC has good title to the Collateral, free and clear of liens,
except for liens to Successor in Interest to MTC and its affiliates. All
inventory is in all material respects of good and marketable quality, free from
all material defects, except for inventory for which adequate reserves have been
made.
(b) There are no actions or proceedings pending by or against IPRC or
any of its affiliates before any court or administrative agency in which a
likely adverse decision could reasonably be expected to have a material adverse
effect on IPRC's interest or Successor in Interest to MTC's security interest in
the Collateral.
(c) All consolidated financial statements related to IPRC and any of
its affiliates that are delivered by IPRC to Successor in Interest to MTC fairly
present in all material respects IPRC's consolidated financial condition as of
the date thereof and IPRC's consolidated results of operations for the period
then ended. Since the date of the most recent of such financial statements
submitted to Successor in Interest to MTC, no event or circumstance has occurred
or exists, which individually or in the aggregate has resulted or could
reasonably be expected to result in a material adverse effect.
(d) IPRC is. in default of its obligation to repay the Security
Deposit under the Prior Agreement.
(e) Successor in Interest to MTC , through its predecessor, MTC,
holds a valid, perfected first priority lien against the Collateral, which lien
will continue in full force and effect until repayment of the Security Deposit
is made in full.
(f) Successor in Interest to MTC, through its predecessor, MTC, has
the present right to exercise all of the remedies available to MTC under the
Prior Agreement.
ARTICLE VI - ASSIGNMENT
6.01 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors to substantially the entire assets and
business of the respective parties hereto. This Agreement shall be assignable by
Successor in Interest to MTC to any of its affiliates but shall not otherwise be
assignable by either party without the prior written consent of the other party.
Any and all assignments of this Agreement or of any interests therein not made
in accordance with this Paragraph shall be void.
ARTICLE VII- DEFAULT
7.01 If IPRC shall be in default of any obligation hereunder, Successor in
Interest to MTC may give written notice to IPRC specifying the claimed
particulars of such default and in the event IPRC shall not have remedied such
default within sixty (60) days after the date of such notice,
(a) The entire unpaid principal sum of the Security Deposit plus any
and all interest accrued thereon shall, at the option of Successor in Interest
to MTC, become due and payable immediately without presentment, demand, notice
of payment, protest, notice of protest, or other notice of dishonor, all of
which are expressly waived by IPRC.
(b) Successor in Interest to MTC shall have with respect to the
Collateral all of the rights and remedies of a secured party under the Uniform
Commercial Code or any other applicable law and all rights provided herein or in
any other applicable security, loan or other agreement, all of which rights and
remedies shall, to the full extent permitted by law, be cumulative.
(c) Successor in Interest to MTC may require IPRC at its expense to
assemble the Collateral and make it available to Successor in Interest at a
place to be designated by Successor in Interest to MTC which is reasonably
convenient to Successor in Interest to MTC and IPRC.
(d) Successor in Interest may sell the Collateral or any part thereof
at public or private sale, at any of Successor in Interest to MTC's offices or
elsewhere, for cash, on credit or for future delivery, and at such prices and
upon such other terms as Successor in Interest to MTC may deem commercially
reasonable.
(e) Any notice of sale, disposition or other intended action by
Successor in Interest to MTC, sent to IPRC at the address specified below, or
such other address of IPRC as may from time to time be shown on Successor in
Interest to MTC's records, at least five (5) days prior to such action, shall
constitute reasonable notice to IPRC.
(f) The rights and remedies provided to Successor in Interest herein
are not exclusive and are in addition to any other rights and remedies Successor
in Interest already has under the Prior Agreement and may now or hereafter have
at law or in equity, and each and every such right or remedy shall be cumulative
and concurrent, and in addition to every other such right or remedy, and may be
pursued singly, concurrently, successively or together, at the sole discretion
of Successor in Interest to MTC, and shall not be exhausted by anyone exercise
thereof but may be exercised as often as occasion therefore shall occur. The
failure to exercise or delay in exercising any such right or remedy shall not be
construed as a waiver or release thereof.
ARTICLE VIII - MISCELLANEOUS
8.01 The validity and interpretation of this Agreement and the legal
relations of the parties to it shall be governed by the laws of the Commonwealth
of Virginia, U.S.A. without recourse to its conflicts of law rules.
8.02 None of the provisions of this Agreement shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any material statute, law
or ordinance, the latter shall prevail; but in such event the provision of this
Agreement affected shall be curtailed and limited only to the extent necessary
to bring it within the legal requirements.
8.03 IPRC shall not cause or permit the release of any advertising,
publicity, news release or other public announcement referring to this Agreement
or having or containing any reference to Successor in Interest or its affiliates
or in which the name of Successor in Interest Research and Engineering Company,
Successor in Interest to MTC, Successor in Interest to MTC, Successor in
Interest to MTC, Successor in Interest to MTC or Successor in Interest appears
until written approval has been obtained from Successor in Interest to MTC,
however IPRC may re-release or refer to previously published information that
refers to Successor in Interest or its affiliates.
8.04 The headings in this Agreement are for informational purposes and
should not be construed as altering the terms of the Agreement.
ARTICLE IX - ADDRESSES
9.01 The addresses of the parties hereto are as follows, but either party
may change its address for the purpose of this Agreement by notice in writing to
the other party:
Successor in Interest to MTC:
Imperial Petroleum Recovery Corporation 1970\
South Starpoint Drive
Houston TX 77032
Telephone: 281 821 1110
Attn: Alan Springer
In the event notices, statements, payments received under this Agreement by a
party hereto are sent by certified or registered mail to the party entitled
thereto at the address provided for in this Agreement, they shall be deemed to
have been given or made as of the date so mailed, and if sent by wire then as of
the date transferred.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their respective corporate names by their respective officers thereunto duly
authorized.
IMPERIAL PETROLEUM SUCCESSOR IN INTEREST TO MTC
RECOVERY CORPORATION
By By
Name: Name:
Title Title
Date: Date:
APPENDIX I
Payment Calculation Examples:
Example 1:
A. Assume Financial Trigger Date is May 1, 2004
B. Assume IPRC sells one (1) MST Unit in the May 1 transaction C. IPRC should
pay Successor in Interest at least $60,000 on each July 30, October 30,
January 30, and April 30 thereafter until the Security Deposit and accrued
interest have been paid in full.
Example 2:
D. Assume Financial Trigger Date is May 1, 2004
E. Assume IPRC sells two (2) MST Units in the May 1 transaction F. IPRC should
pay Successor in Interest at least $120,000 on each July 30, October 30,
January 30, and April 30 thereafter until the Security Deposit and accrued
interest have been paid in full.
Example 3:
G. Assume Financial Trigger Date is May 1, 2004
H. Assume IPRC sells three (3) MST Units in the May 1 transaction
I. IPRC should pay Successor in Interest to MTC at least $180,000 on each July
30, October 30, January 30, and April 30 thereafter until the Security
Deposit has been paid in full. Under the terms of the Agreement, if IPRC
makes the specified payments on time, Successor in Interest to MTC will
forgive the accrued interest.
Example 3a:
J. Assume Financial Trigger Date is May 1, 2004
K. Assume IPRC sells three (3) MST Units in the May 1 transaction
L. IPRC should pay Successor in Interest to MTC at least $180,000 on each July
30, October 30, January 30, and April 30 thereafter until the Security
Deposit has been paid in full, and if IPRC should fail to make one or more
payments on time, then also until the accrued interest has been paid in
full.
Exhibit 10.13
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") is made and entered into this the 1st
day of August 2005 between Agribiofuels, LLC, ("Agribiofuels") a Texas Limited
Liability Company and Imperial Petroleum Recovery Corporation ("IPRC"), a Nevada
Corporation, and any subsidiaries.
WITNESSETH:
WHEREAS, Agribiofuels is in the business of providing biodiesel product to
the energy industry;
WHEREAS, Agribiofuels desires to have access to the services and technology of
IPRC;
WHEREAS, IPRC has the ability to provide certain general business, financial
consultation and advice and management services to Agribiofuels in connection
with the operation of its business and to provide technology and training in
operating Microwave Separation Technology (MST) in the manufacture of biodiesel
product;
NOW, THEREFORE, in consideration of the promises and the mutual covenants of the
parties hereto and other good and valuable consideration paid and received by
each of the parties to this Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
SECTION 1. ENGAGEMENT
Agribiofuels hereby engages IPRC as an independent contractor and
consultant to provide general business consultation and advice and management
services to Agribiofuels and its subsidiaries in connection with the operation
of their respective businesses.
SECTION 2. MANAGEMENT SERVICES
IPRC through its members and/or employees, shall provide Agribiofuels with
management services as specified in section six of the Regulations of
Agribiofuels, LLC and other management services not there listed which may be
required from time to time for the effective conduct of Agribiofuels' business.
In addition, IPRC shall recruit, retain and train all employees necessary for
the operation of Agribiofuels, LLC's biodiesel production facility.
SECTION 3. MICROWAVE SEPARATION TECHNOLOGY LICENSE AND SERVICES
IPRC hereby grants to Agribiofuels a license to use its MST technology (and
any improvements to such technology developed by Agribiofuels employees) for the
production, use and sale of biodiesel for the duration of this contract. Such
license is exclusively for the production of biodiesel and may not be used for
any other process or project. This license is not transferable. This license
expires at the same time as this contract. IPRC shall provide technical and
training services for the use of MST in Agribiofuels' biodiesel production. For
the purposes of this agreement, "MST" shall mean a microwave separation
technology unit and centrifuge, along with its associated control hardware and
software for the production of biodiesel as described in U.S. Patent #
5,914,014, # 6,077,400 and # 6,086,830.
SECTION 4. MANAGEMENT AND MST FEES
Commencing on the date hereof (the "Effective Date"), Agribiofuels shall
pay IPRC a management fee, in consideration of the services rendered by IPRC
pursuant to Section 2 above. Such fee will be due and payable on the 15th day of
each month. Once the biodiesel facility is operational, Agribiofuels will pay
IPRC the greater of a throughput fee per gallon of biodiesel produced or pay an
amount equal to ____________.
In addition, Agribiofuels agrees to use the MST in the biodiesel process.
Once an MST is deployed, the minimum parking fee per MST is $_________ per
month. Once the biodiesel facility is operational, Agribiofuels agrees to pay
IPRC per MST the greater of $________ or a throughput charge of $ ____ per
gallon of biodiesel produced.
SECTION 5. TERM OF AGREEMENT
The term of this Agreement shall be for a period of three (3) years
commencing on the Effective Date. Renewals will be made 30 days prior to the end
of the Agreement and be for a term of an additional three (3) years if agreed by
both parties.
SECTION 6. TERMINATION
IPRC may terminate this agreement if Agribiofuels fails to make any payment
due to IPRC. IPRC shall provide Agribiofuels written notice of any delinquent
payment and twenty (20) days after the date of said notice to pay the delinquent
amount.
SECTION 7. NOTICES
7.1 Manner of Notice. All notices, statements or other documents which any
party shall be required or shall desire to give to the others hereunder shall be
in writing and shall be given by the parties hereto only as follows: (a) by
personal delivery, (b) by addressing it as indicated below, and by depositing it
certified mail. Postage prepaid, in the U.S. mail, first class (airmail if the
address is outside of the country in which such notice is deposited), or (c) by
addressing it as indicated below, and by delivering it toll prepaid to a
telegraph, cable company or courier service (e.g., Federal Express).
7.2 Delivery of Notice. Addresses. If so delivered, mailed, telegraphed, cabled
or couriered, each such notice, statement or other document shall, except as
herein expressly provided, be conclusively deemed to have been given when
personally delivered, or on the third business day after the date of mailing, or
on the date of delivery to a telegraph or cable company or on the first business
day after delivery to a courier service, as the case may be. The addresses of
the parties shall be those of which the other parties actually receives written
notice pursuant to this Section 7 and until further notice are:
IPRC
1970 South Starpoint Drive
Houston, TX 77032
Agribiofuels, LLC
SECTION 8. MISCELLANEOUS
8.1 Entire Agreement; Amendments. This agreement contains all of the terms and
conditions agreed upon by the parties hereto in connection with the subject
matter hereof. This Agreement may not be amended, modified or changed except by
written instrument signed by all of the parties hereto.
8.2 Assignment; Successors. This Agreement shall not be assigned and is not
assignable by any party without the prior written consent of each of the parties
hereto; provided, however, that IPRC may assign, without the prior consent of
Agribiofuels, its rights and obligations under this Agreement to any of its
affiliates controlled by IPRC and provided further, that IPRC may assign the
right to receive any payment hereunder to any other person or entity. Subject to
the preceding sentence, this Agreement shall insure to the benefit of and be
binding upon the parties hereto and respective permitted successors and assigns.
8.3 Captions. All captions and headings are inserted for the convenience of the
parties, and shall not be used in any way to modify, limit, construe or
otherwise affect this Agreement.
8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal domestic laws of the State of Texas without
reference to the choice of law principles thereof.
8.5 Attorney's Fees. If any legal action is brought concerning any matter
relating to this Agreement, or by reason of any breach of any covenant,
condition or agreement referred to herein, the prevailing party shall be
entitled to have and recover from the other party to the action all costs and
expenses of suit, including attorney's fees.
8.6 Severability: If any term, provision or condition of this Agreement is
determined by a court or other judicial or administrative tribunal to be
illegal, void or otherwise ineffective to herein, the prevailing party shall not
be affected thereby and shall remain in full force and effect.
8.7 Interpretation. In the event of a dispute hereunder, this Agreement shall
be interpreted in accordance with its fair meaning and shall not be interpreted
for or against any party hereto on the ground that such party drafted or caused
to be drafted this Agreement or any part hereof.
8.8 Indemnity. The parties of this Agreement shall indemnify and hold one
another and their respective officers, directors, employees and agents, harmless
from any and all loss, cost, liability and damage (including attorneys' fees)
arising out of or be connected with, any act performed or omitted to be
performed or omitted to be performed under this agreement, provided such act or
omission was taken in good faith, and in the event of criminal proceedings, that
the indemnity had no reasonable cause to believe his conduct was unlawful. An
adverse judgment or plea of "nolo" contender shall not, of itself, create a
presumption that the indemnity did not act in god faith or that he had
reasonable cause to believe his conduct was unlawful. Expenses incurred in
defending a civil or criminal action shall be paid by the indemnitor upon
receipt of an undertaking by or behalf of the indemnity to pay such amount if it
be later shown that such person was not entitled to indemnification.
IN WITNESS WHEREOF, the parties hereto have caused this Management Agreement to
be duly executed as of the first above written.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: signed copy on file
Name: Alan B. Springer
Title: Chairman/CEO
AGRIBIOFUELS, LLC
By: signed copy on file
Name: James W. Hammond
Title: Manager
Exhibit 10.14
IMPERIAL PETROLEUM RECOVERY CORPORATION
2002 STOCK OPTION AND INCENTIVE PLAN
TABLE OF CONTENTS
Page
1. PURPOSE........................................................................................1
2. DEFINITIONS....................................................................................1
3. ADMINISTRATION OF THE PLAN.....................................................................6
3.1. Board.................................................................................6
3.2. Committee.............................................................................6
3.3. Terms of Awards.......................................................................6
3.4. No Liability..........................................................................7
4. STOCK SUBJECT TO THE PLAN......................................................................7
5. EFFECTIVE DATE AND TERM OF THE PLAN............................................................8
5.1. Effective Date........................................................................8
5.2. Term..................................................................................8
6. AWARD ELIGIBILITY..............................................................................9
6.1. Company or Subsidiary Employees; Service Providers; Other Persons.....................9
6.2. Successive Awards.....................................................................9
7. LIMITATIONS ON GRANTS..........................................................................9
7.1. Limitation on Shares of Stock Subject to Awards and Cash Awards.......................9
7.2. Limitations on Incentive Stock Options................................................9
8. AWARD AGREEMENT................................................................................10
9. OPTION PRICE...................................................................................10
10. VESTING, TERM AND EXERCISE OF OPTIONS..........................................................10
10.1. Vesting...............................................................................10
10.2. Term..................................................................................11
10.3. Acceleration..........................................................................11
10.4. Termination of Service................................................................11
10.5. Limitations on Exercise of Option.....................................................11
10.6. Method of Exercise....................................................................11
10.7. Form of Payment.......................................................................12
10.8. Rights of Holders of Options..........................................................12
10.9. Delivery of Stock Certificates........................................................12
10.10. Reload Options........................................................................12
11. TRANSFERABILITY OF OPTIONS.....................................................................13
11.1. Transferability of Options............................................................13
11.2. Family Transfers......................................................................13
12. STOCK APPRECIATION RIGHTS......................................................................13
12.1. Right to Payment......................................................................14
12.2. Other Terms...........................................................................14
13. RESTRICTED STOCK...............................................................................14
13.1. Grant of Restricted Stock or Restricted Stock Units...................................14
13.2. Restrictions..........................................................................14
13.3. Restricted Stock Certificates.........................................................15
13.4. Rights of Holders of Restricted Stock.................................................15
13.5. Rights of Holders of Restricted Stock Units...........................................15
13.6. Termination of Service................................................................15
13.7. Delivery of Stock and Payment Therefor................................................16
14. DEFERRED STOCK AWARDS..........................................................................16
14.1. Nature of Deferred Stock Awards.......................................................16
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation.....................16
14.3. Rights as a Stockholder...............................................................16
14.4. Restrictions on Transfer..............................................................17
14.5. Termination...........................................................................17
i
15. UNRESTRICTED STOCK AWARDS......................................................................17
16. PERFORMANCE STOCK AWARDS.......................................................................17
16.1. Nature of Performance Stock Awards....................................................17
16.2. Rights as a Stockholder...............................................................18
16.3. Termination of Service................................................................18
17. DIVIDEND EQUIVALENT RIGHTS.....................................................................18
17.1. Dividend Equivalent Rights............................................................18
17.2. Interest Equivalents..................................................................19
17.3. Termination of Service................................................................19
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS........................................................19
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards................................19
18.2. Form and Timing of Payment Under Awards; Deferrals....................................19
18.3. Performance and Annual Incentive Awards...............................................20
18.3.1. Performance Conditions........................................................20
18.3.2. Performance or Annual Incentive Awards Granted to
Designated Covered Employees..................................................20
18.3.3. Written Determinations........................................................22
18.3.4. Status of Section 18.3.2 Awards Under Code Section 162(m)..................22
19. PARACHUTE LIMITATIONS..........................................................................23
20. REQUIREMENTS OF LAW............................................................................23
20.1. General...............................................................................23
20.2. Rule 16b-3............................................................................24
20.3. Limitation Following a Hardship Distribution..........................................24
21. AMENDMENT AND TERMINATION OF THE PLAN..........................................................25
22. EFFECT OF CHANGES IN CAPITALIZATION............................................................25
22.1. Changes in Stock.....................................................................25
22.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change in Control Occurs....................................................26
22.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a Change in
Control..............................................................................26
22.4. Adjustments..........................................................................27
22.5. No Limitations on Company............................................................27
23. POOLING........................................................................................27
24. DISCLAIMER OF RIGHTS...........................................................................27
25. NONEXCLUSIVITY OF THE PLAN.....................................................................28
26. WITHHOLDING TAXES..............................................................................28
27. CAPTIONS.......................................................................................29
28. OTHER PROVISIONS...............................................................................29
29. NUMBER AND GENDER..............................................................................29
30. SEVERABILITY...................................................................................29
31. GOVERNING LAW..................................................................................29
ii
IMPERIAL PETROLEUM RECOVERY CORPORATION
2002 STOCK OPTION AND INCENTIVE PLAN
Imperial Petroleum Recovery Corporation, a Nevada corporation (the
"Company"), sets forth herein the terms of the Company's 2002 Stock Option and
Incentive Plan (the "Plan").
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract,
retain, and compensate highly qualified officers, key employees, and other
persons, and to motivate such officers, key employees, and other persons to
serve the Company and its Affiliates (as defined herein) and to expend maximum
effort to improve the business results and earnings of the Company, by providing
to such officers, key employees and other persons an opportunity to acquire or
increase a direct proprietary interest in the operations and future success of
the Company and with other financial incentives. To this end, the Plan provides
for the grant of stock options, stock appreciation rights, restricted stock,
restricted stock units, deferred stock awards, unrestricted stock awards,
performance stock awards, dividend equivalent rights, performance awards and
annual incentive awards in accordance with the terms hereof. Stock options
granted under the Plan may be non-qualified stock options or incentive stock
options, as provided herein.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "Affiliate" means, with respect to the Company, any company or other
trade or business that controls, is controlled by or is under common control
with the Company within the meaning of Rule 405 of Regulation C under the
Securities Act, including, without limitation, any Subsidiary.
2.2 "Annual Incentive Award" means a conditional right granted to a Grantee
under Section 18.3.2 hereof to receive a cash payment, Stock or other Award,
unless otherwise determined by the Committee, after the end of a specified
fiscal year.
2.3 "Award" means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, Dividend Equivalent Rights, Performance or Annual Incentive
Awards under the Plan.
1
2.4 "Award Agreement" means the written agreement between the Company and a
Grantee that evidences and sets out the terms and conditions of an Award.
2.5 "Benefit Arrangement" shall have the meaning set forth in Section 19
hereof.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Cause" means, as determined by the Board and unless otherwise provided
in an applicable employment agreement with the Company or an Affiliate, (i)
gross negligence or willful misconduct in connection with the performance of
duties; (ii) conviction of a criminal offense (other than minor traffic
offenses); or (iii) material breach of any term of any employment, consulting or
other services, confidentiality, intellectual property or non-competition
agreements, if any, between the Service Provider or employee and the Company or
an Affiliate.
2.8 "Change in Control" means a merger, consolidation, or reorganization of
the Company with one or more other entities in which the Company is not the
surviving entity, a sale of substantially all of the assets of the Company to
another entity, or any transaction (including, without limitation, a merger or
reorganization in which the Company is the surviving entity) approved by the
Board that results in any person or entity (or person or entities acting as a
group or otherwise in concert) owning fifty percent (50%) or more of the
combined voting power of all classes of securities of the Company.
2.9 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.10 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any Affiliate.
2.11 "Company" means Imperial Petroleum Recovery Corporation.
2.12 "Covered Employee" means a Grantee who is a Covered Employee within
the meaning of Section 162(m)(3) of the Code.
2.13 "Deferred Stock" means a right, granted to a Grantee under Section 14
hereof, to receive Stock, cash or a combination thereof at the end of a
specified deferral period.
2
2.7 "Disability" means the Grantee is unable to perform each of the
essential duties of such Grantee's position by reason of a medically
determinable physical or mental impairment which is potentially permanent in
character or which can be expected to last for a continuous period of not less
than 12 months; provided, however, that, with respect to rules regarding
expiration of an Incentive Stock Option following termination of the Grantee's
Service, Disability shall mean the Grantee is unable to engage in any
substantial gainful activity by reason of a medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
2.14 "Dividend Equivalent" means a right, granted to a Grantee under
Section 17 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
2.15 "Effective Date" means November 1, 2002.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.17 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed on
an established national or regional stock exchange, admitted to quotation on The
Nasdaq Stock Market, or publicly traded on an established securities market, the
Fair Market Value of a share of Stock shall be the closing price of the Stock on
such exchange or in such market (if there is more than one such exchange or
market the Board shall determine the appropriate exchange or market) on the
Grant Date or such other determination date (or if there is no such closing
price reported, the Fair Market Value shall be the mean between the highest bid
and lowest asked prices or between the high and low sale prices on such trading
day) or, if no sale of Stock is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the Stock is not
listed on such an exchange, quoted on the Nasdaq Stock Market or traded on such
a market, Fair Market Value shall be the value of the Stock as determined by the
Board in good faith.
2.18 "Family Member" means a person who is a spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of the Grantee, any person
sharing the Grantee's household (other than a tenant or employee), a trust in
which these persons have more than fifty percent of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than fifty percent of the voting interests. 2.19 "Grant Date" means, as
determined by the Board or authorized Committee, the latest to occur of (i) the
date as of which the Board approves an Award, (ii) the date on which the
recipient of an Award first becomes eligible to receive an Award under Section 6
hereof, or (iii) such other date as may be specified by the Board.
3
2.20 "Grantee" means a person who receives or holds an Award under the
Plan.
2.21 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.22 "Non-qualified Stock Option" means an Option that is not an Incentive
Stock Option.
2.23 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.24 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.25 "Other Agreement" shall have the meaning set forth in Section 19
hereof.
2.26 "Outside Director" means a member of the Board who is not an officer
or employee of the Company.
2.27 "Performance Award" means a conditional right granted to a Grantee
under Section 18.3 hereof to receive a cash payment, Stock or other Award,
unless otherwise determined by the Committee, after the end of a period of up to
10 years.
2.28 "Performance Stock Award" means Awards granted pursuant to Section 16.
2.29 "Plan" means this Imperial Petroleum Recovery Corporation 2002 Stock
Option and Incentive Plan.
2.30 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.31 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 13.2 hereof.
4
2.32 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to Section 13 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.33 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 13 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.34 "Securities Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.
2.35 "Service" means service as an employee, officer, director or other
Service Provider of the Company or an Affiliate. Unless otherwise stated in the
applicable Award Agreement, a Grantee's change in position or duties shall not
result in interrupted or terminated Service, so long as such Grantee continues
to be an employee, officer, director or other Service Provider of the Company or
an Affiliate. Subject to the preceding sentence, whether a termination of
Service shall have occurred for purposes of the Plan shall be determined by the
Board, which determination shall be final, binding and conclusive.
2.36 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or Affiliate, and employees of any of the foregoing, as such persons
may be designated from time to time by the Board pursuant to Section 6 hereof.
2.37 "Stock" means the common stock, par value $.001 per share, of the
Company.
2.38 "Stock Appreciation Right" or "SAR" means a right granted to a Grantee
under Section 12 hereof.
2.39 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.40 "Termination Date" means the date upon which an Option shall terminate
or expire, as set forth in Section 10.2 hereof.
2.41 "Unrestricted Stock Award" means an Award granted pursuant to Section
15 hereof.
5
3. ADMINISTRATION OF THE PLAN
3.1. Board
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's articles of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's articles of incorporation and by-laws
and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Award or any Award Agreement shall be final and
conclusive. To the extent permitted by law, the Board may delegate its authority
under the Plan to a member of the Board or to an executive officer of the
Company who is a member of the Board.
3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the articles of incorporation and by-laws of
the Company and applicable law. In the event that the Plan, any Award or any
Award Agreement entered into hereunder provides for any action to be taken by or
determination to be made by the Board, such action may be taken or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. To the
extent permitted by law, the Committee may delegate its authority under the Plan
to a member of the Board or an executive officer of the Company who is a member
of the Board.
3.3. Terms of Awards.
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority:
(i) to designate Grantees,
(ii) to determine the type or types of Awards to be made to a Grantee,
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(iii) to determine the number of shares of Stock to be subject to an
Award,
(iv) to establish the terms and conditions of each Award (including,
but not limited to, the exercise price of any Option, the nature and duration of
any restriction or condition (or provision for lapse thereof) relating to the
vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock
subject thereto, and any terms or conditions that may be necessary to qualify
Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement evidencing an Award,
(vi) to amend, modify, or supplement the terms of any outstanding
Award, and
(vii) in order to effectuate the purposes of the Plan but without
amending the Plan, to modify Awards to eligible individuals who are foreign
nationals or are individuals who are employed outside the United States to
recognize differences in local law, tax policy, or custom.
As a condition to any subsequent Award, the Board shall have the right, at
its discretion, to require Grantees to return to the Company Awards previously
made under the Plan. Subject to the terms and conditions of the Plan, any such
new Award shall be upon such terms and conditions as are specified by the Board
at the time the new Award is made. The Board shall have the right, in its
discretion, to make Awards in substitution or exchange for any other award under
another plan of the Company, any Affiliate, or any business entity to be
acquired by the Company or an Affiliate. The Company may retain the right in an
Award Agreement to cause a forfeiture of the gain realized by a Grantee on
account of actions taken by the Grantee in violation or breach of or in conflict
with any non-competition agreement, any agreement prohibiting solicitation of
employees or clients of the Company or any Affiliate thereof or any
confidentiality obligation with respect to the Company or any Affiliate thereof
or otherwise in competition with the Company or any Affiliate thereof, to the
extent specified in such Award Agreement applicable to the Grantee. Furthermore,
the Company may annul an Award if the Grantee is an employee of the Company or
an Affiliate thereof and is terminated for Cause as defined in the applicable
Award Agreement or the Plan, as applicable.
3.4. No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award or
Award Agreement.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 22 hereof, the number of
shares of Stock available for issuance under the Plan shall be the greater of
6,250,000 or 20% of outstanding shares of stock commencing as of the effective
date of the plan. Stock issued or to be issued under the Plan shall be
authorized but unissued shares. If any shares covered by an Award are not
purchased or are forfeited, or if an Award otherwise terminates without delivery
of any Stock subject thereto, then the number of shares of Stock counted against
the aggregate number of shares available under the Plan with respect to such
Award shall, to the extent of any such forfeiture or termination, again be
available for making Awards under the Plan. If the exercise price of any Option
granted under the Plan is satisfied by tendering shares of Stock to the Company
(by either actual delivery or by attestation), only the number of shares of
Stock issued net of the shares of Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
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5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date, subject to approval
of the Plan by the Company's stockholders within one year of the Effective Date.
Upon approval of the Plan by the stockholders of the Company as set forth above,
all Awards made under the Plan on or after the Effective Date shall be fully
effective as if the stockholders of the Company had approved the Plan on the
Effective Date. If the stockholders fail to approve the Plan within one year
after the Effective Date, any Awards made hereunder shall be null and void and
of no effect.
5.2. Term.
The Plan shall terminate automatically ten (10) years after its adoption by
the Board and may be terminated on any earlier date as provided in Section 21.
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6. AWARD ELIGIBILITY
6.1. Company or Subsidiary Employees; Service Providers; Other Persons
Subject to Section 7, Awards may be made under the Plan to: (i) any
employee of, or a Service Provider to, the Company or of any Affiliate,
including any such employee or Service Provider who is an officer or director of
the Company, or of any affiliate, as the Board shall determine and designate
from time to time; such individual must have twelve (12) months of continuous
satisfactory employment in order to be eligible for participation in this
program; (ii) any Outside Director, and (iii) any other individual whose
participation in the Plan is determined to be in the best interests of the
Company by the Board. 6.2. Successive Awards.
An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
7. LIMITATIONS ON GRANTS
7.1. Limitation on Shares of Stock Subject to Awards and Cash Awards.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, the maximum number of shares of Stock
subject to Options that can be awarded under the Plan to any person eligible for
an Award under Section 6 hereof is five hundred thousand (500,000) per year.
During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act, the maximum number of shares that can be awarded
under the Plan, other than pursuant to an Option to any person eligible for an
Award under Section 6 hereof is five hundred thousand (500,000) per year. The
preceding limitations in this Section 7.1 are subject to adjustment as provided
in Section 22 hereof. The maximum amount that may be earned as an Annual
Incentive Award or other cash Award in any fiscal year by any one Grantee shall
be [$100,000] and the maximum amount that may be earned as a Performance Award
or other cash Award in respect of a performance period by any one Grantee shall
be [$100,000].
7.2. Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee's employer and its Affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
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8. AWARD AGREEMENT
Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by the Company and by the Grantee, in such form or
forms as the Board shall from time to time determine. Award Agreements granted
from time to time or at the same time need not contain similar provisions but
shall be consistent with the terms of the Plan. Each Award Agreement evidencing
an Award of Options shall specify whether such Options are intended to be
Non-qualified Stock Options or Incentive Stock Options, and in the absence of
such specification such options shall be deemed Non-qualified Stock Options.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price shall be at least
the aggregate Fair Market Value on the Grant Date of the shares of Stock subject
to the Option; provided, however, that in the event that a Grantee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the Company's outstanding Stock), the Option Price
of an Option granted to such Grantee that is intended to be an Incentive Stock
Option shall be not less than the greater of the par value of a share of Stock
or 110 percent of the Fair Market Value of a share of Stock on the Grant Date.
In no case shall the Option Price of any Option be less than the par value of a
share of Stock.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting.
Subject to Sections 10.2 and 22.3 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this Section 10.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The Board may provide,
for example, in the Award Agreement for (i) accelerated exercisability of the
Option in the event the Grantee's Service terminates on account of death,
Disability or another event, (ii) expiration of the Option prior to its term in
the event of the termination of the Grantee's Service, (iii) immediate
forfeiture of the Option in the event the Grantee's Service is terminated for
Cause or (iv) unvested Options to be exercised subject to the Company's right of
repurchase with respect to unvested shares of Stock.
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10.2. Term.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the outstanding Stock), an Option granted to such
Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its Grant Date.
10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the stockholders
of the Company as provided in Section 5.1 hereof.
10.4. Termination of Service.
Each Award Agreement shall set forth the extent to which the Grantee shall
have the right to exercise the Option following termination of the Grantee's
Service. Such provisions shall be determined in the sole discretion of the
Board, need not be uniform among all Options issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of Service.
10.5. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein, or after ten years following the
Grant Date, or after the occurrence of an event referred to in Section 22 hereof
which results in termination of the Option.
10.6. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised. The minimum number of shares of
Stock with respect to which an Option may be exercised, in whole or in part, at
any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement and (ii) the maximum number of shares
available for purchase under the Option at the time of exercise.
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10.7. Form of Payment
Payment of the Option Price for the shares purchased pursuant to the
exercise of an Option shall be made (i) in cash or in cash equivalents
acceptable to the Company; (ii) through the tender to the Company of shares of
Stock, which shares, if acquired from the Company, shall have been held for at
least six months and which shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their Fair Market
Value on the date of exercise; or (iii) by a combination of the methods
described in (i) and (ii). Unless the Board provides otherwise in the Award
Agreement, payment in full of the Option Price need not accompany the written
notice of exercise provided that the notice of exercise directs that the
certificate or certificates for the shares of Stock for which the Option is
exercised be delivered to a licensed broker acceptable to the Company as the
agent for the individual exercising the Option and, at the time such certificate
or certificates are delivered, the broker tenders to the Company cash (or cash
equivalents acceptable to the Company) equal to the Option Price for the shares
of Stock purchased pursuant to the exercise of the Option plus the amount (if
any) of federal and/or other taxes which the Company may in its judgment, be
required to withhold with respect to the exercise of the Option. An attempt to
exercise any Option granted hereunder other than as set forth above shall be
invalid and of no force and effect.
10.8. Rights of Holders of Options
Unless otherwise stated in the applicable Award Agreement, an individual
holding or exercising an Option shall have none of the rights of a shareholder
(for example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 22 hereof, no adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such issuance.
10.9. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
10.10. Reload Options.
At the discretion of the Board and subject to such restrictions, terms and
conditions as the Board may establish, Options granted under the Plan may
include a "reload" feature pursuant to which a Grantee exercising an Option by
the delivery of a number of shares of Stock in accordance with Section 10.6
hereof would automatically be granted an additional Option (with an exercise
price equal to the Fair Market Value of the Stock on the date the additional
Option is granted and with such other terms as the Board may provide) to
purchase that number of shares of Stock equal to the number delivered to
exercise the original Option with an Option term equal to the remainder of the
original Option term unless the Board otherwise determines in the Option Award
Agreement for the original grant.
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11. TRANSFERABILITY OF OPTIONS
11.1. Transferability of Options
Except as provided in Section 11.2, during the lifetime of a Grantee, only
the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's
guardian or legal representative) may exercise an Option. Except as provided in
Section 11.2, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.
11.2. Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer,
not for value, all or part of an Option which is not an Incentive Stock Option
to any Family Member. For the purpose of this Section 11.2, a "not for value"
transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic
relations order in settlement of marital property rights; or (iii) a transfer to
an entity in which more than fifty percent of the voting interests are owned by
Family Members (or the Grantee) in exchange for an interest in that entity.
Following a transfer under this Section 11.2, any such Option shall continue to
be subject to the same terms and conditions as were applicable immediately prior
to transfer. Subsequent transfers of transferred Options are prohibited except
to Family Members of the original Grantee in accordance with this Section 11.2
or by will or the laws of descent and distribution. The events of termination of
Service of Section 10.4 hereof shall continue to be applied with respect to the
original Grantee, following which the Option shall be exercisable by the
transferee only to the extent, and for the periods specified in Section 10.4.
12. STOCK APPRECIATION RIGHTS
The Board each is authorized to grant SARs to Grantees on the following
terms and conditions:
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12.1. Right to Payment.
A SAR shall confer on the Grantee to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Board. The grant price of an SAR shall not be less than the Fair Market
Value of a share of Stock on the date of grant except as provided in Section
18.1. 12.2. Other Terms.
The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in whole
or in part (including based on achievement of performance goals and/or future
service requirements), the time or times at which SARs shall cease to be or
become exercisable following termination of Service or upon other conditions,
the method of exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed to be
delivered to Grantees, whether or not a SAR shall be in tandem or in combination
with any other Award, and any other terms and conditions of any SAR. SARs may be
either freestanding or in tandem with other Awards. 13. RESTRICTED STOCK
13.1. Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Awards under Section 6 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
13.2. Restrictions.
At the time a grant of Restricted Stock or Restricted Stock Units is made,
the Board shall establish a period of time (the "Restricted Period") applicable
to such Restricted Stock or Restricted Stock Units. Each Award of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted Period.
The Board may, in its sole discretion, at the time a grant of Restricted Stock
or Restricted Stock Units is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period, including the satisfaction
of corporate or individual performance objectives, which may be applicable to
all or any portion of the Restricted Stock or Restricted Stock Units in
accordance with Section 18.3.1 and 18.3.2. Neither Restricted Stock nor
Restricted Stock Units may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect to
such Restricted Stock or Restricted Stock Units.
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13.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company or the restrictions lapse, or (ii) such certificates shall be
delivered to the Grantee, provided, however, that such certificates shall bear a
legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Award Agreement.
13.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board may
provide that any dividends paid on Restricted Stock must be reinvested in shares
of Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any,
received by a Grantee with respect to Restricted Stock as a result of any stock
split, stock dividend, combination of shares, or other similar transaction shall
be subject to the restrictions applicable to the original Grant. 13.5. Rights of
Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash payment for each Restricted Stock Unit held equal to the per-share
dividend paid on the Stock. Such Award Agreement may also provide that such cash
payment will be deemed reinvested in additional Restricted Stock Units at a
price per unit equal to the Fair Market Value of a share of Stock on the date
that such dividend is paid.
13.6. Termination of Service.
Unless the Board otherwise provides in an Award Agreement or in writing
after the Award Agreement is issued, upon the termination of a Grantee's
Service, any Restricted Stock or Restricted Stock Units held by such Grantee
that has not vested, or with respect to which all applicable restrictions and
conditions have not lapsed, shall immediately be deemed forfeited. Upon
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have
no further rights with respect to such Award, including but not limited to any
right to vote Restricted Stock or any right to receive dividends with respect to
shares of Restricted Stock or Restricted Stock Units.
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13.7. Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, unless otherwise provided in the Award Agreement, upon payment by the
Grantee to the Company, in cash or by check, of the aggregate par value of the
shares of Stock represented by such Restricted Stock or Restricted Stock Units
(or such other higher purchase price determined by the Board), a stock
certificate for such shares shall be delivered, free of all such restrictions,
to the Grantee or the Grantee's beneficiary or estate, as the case may be. 14.
DEFERRED STOCK AWARDS
14.1. Nature of Deferred Stock Awards.
A Deferred Stock Award is an Award of phantom stock units to a Grantee,
subject to restrictions and conditions as the Board may determine at the time of
grant. Conditions may be based on continuing Service and/or achievement of
pre-established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the Grantee executing the Deferred Stock Award Agreement.
The terms and conditions of each such agreement shall be determined by the
Board, and such terms and conditions may differ among individual Awards and
Grantees. At the end of the deferral period, the Deferred Stock Award, to the
extent vested, shall be paid to the Grantee in the form of shares of Stock.
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation.
The Board may, in its sole discretion, permit a Grantee to elect to receive
a portion of the cash compensation or Restricted Stock Award otherwise due to
such Grantee in the form of a Deferred Stock Award. Any such election shall be
made in writing and shall be delivered to the Company no later than the date
specified by the Board and in accordance with rules and procedures established
by the Board. The Board shall have the sole right to determine whether and under
what circumstances to permit such elections and to impose such limitations and
other terms and conditions thereon as the Board deems appropriate.
14.3. Rights as a Stockholder.
During the deferral period, a Grantee shall have no rights as a
Stockholder; provided, however, that the Grantee may be credited with Dividend
Equivalent Rights with respect to the phantom stock units underlying his
Deferred Stock Award, subject to such terms and conditions as the Board may
determine.
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14.4. Restrictions on Transfer.
A Deferred Stock Award may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of during the deferral period.
14.5. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement or, in writing after the Award Agreement is issued, a Grantee's right
in all Deferred Stock Awards that have not vested shall automatically terminate
upon the Grantee's termination of Service for any reason.
15. UNRESTRICTED STOCK AWARDS
The Board may, in its sole discretion, grant (or sell at par value or such
other higher purchase price determined by the Board) an Unrestricted Stock Award
to any Grantee pursuant to which such Grantee may receive shares of Stock free
of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such Grantee.
16. PERFORMANCE STOCK AWARDS
16.1. Nature of Performance Stock Awards.
A Performance Stock Award is an Award entitling the recipient to acquire
shares of Stock upon the attainment of specified performance goals. The Board
may make Performance Stock Awards independent of or in connection with the
granting of any other Award under the Plan. The Board in its sole discretion
shall determine whether and to whom Performance Stock Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Stock; provided, however, that the Board
may rely on the performance goals and other standards applicable to other
performance unit plans of the Company in setting the standards for Performance
Stock Awards under the Plan. At any time prior to the Grantee's termination of
Service by the Company and its Affiliates, the Board may in its sole discretion
accelerate, waive or amend any or all of the goals, restrictions or conditions
imposed under any Performance Stock Award.
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16.2. Rights as a Stockholder.
A Grantee receiving a Performance Stock Award shall have the rights of a
Stockholder only as to shares actually received by the Grantee under the Plan
and not with respect to shares subject to the Award but not actually received by
the Grantee. A Grantee shall be entitled to receive a Stock certificate
evidencing the acquisition of Stock under a Performance Stock Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Stock Award (or in a performance plan adopted by the Board).
16.3. Termination of Service.
Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee's rights
in all Performance Stock Awards shall automatically terminate upon the Grantee's
termination of Service for any reason.
17. DIVIDEND EQUIVALENT RIGHTS
17.1. Dividend Equivalent Rights.
A Dividend Equivalent Right is an Award entitling the recipient to receive
credits based on cash distributions that would have been paid on the shares of
Stock specified in the Dividend Equivalent Right (or other award to which it
relates) if such shares had been issued to and held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any Grantee as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend Equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment. Dividend Equivalent Rights may be settled in
cash or Stock or a combination thereof, in a single installment or installments,
all determined in the sole discretion of the Board. A Dividend Equivalent Right
granted as a component of another Award may provide that such Dividend
Equivalent Right shall be settled upon exercise, settlement, or payment of, or
lapse of restrictions on, such other award, and that such Dividend Equivalent
Right shall expire or be forfeited or annulled under the same conditions as such
other award. A Dividend Equivalent Right granted as a component of another Award
may also contain terms and conditions different from such other award.
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17.2. Interest Equivalents.
Any Award under this Plan that is settled in whole or in part in cash on a
deferred basis may provide in the grant for interest equivalents to be credited
with respect to such cash payment. Interest equivalents may be compounded and
shall be paid upon such terms and conditions as may be specified by the grant.
17.3. Termination of Service.
Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee's rights
in all Dividend Equivalent Rights or interest equivalents shall automatically
terminate upon the Grantee's termination of Service for any reason.
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards
Awards granted under the Plan may, in the discretion of the Board, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Affiliate, or any business entity to be acquired by the Company or
an Affiliate, or any other right of a Grantee to receive payment from the
Company or any Affiliate. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award, the Board shall require the surrender of such other
Award in consideration for the grant of the new Award. In addition, Awards may
be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Affiliate, in which the value of
Stock subject to the Award is equivalent in value to the cash compensation (for
example, Deferred Stock or Restricted Stock), or in which the exercise price,
grant price or purchase price of the Award in the nature of a right that may be
exercised is equal to the Fair Market Value of the underlying Stock minus the
value of the cash compensation surrendered (for example, Options granted with an
exercise price "discounted" by the amount of the cash compensation surrendered).
18.2. Form and Timing of Payment Under Awards; Deferrals
Subject to the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or an Affiliate upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as the
Board shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Board or upon occurrence of one or more specified
events. Installment or deferred payments may be required by the Board or
permitted at the election of the Grantee on terms and conditions established by
the Board. Payments may include, without limitation, provisions for the payment
or crediting of a reasonable interest rate on installment or deferred payments
or the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
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18.3. Performance and Annual Incentive Awards
18.3.1. Performance Conditions
The right of a Grantee to exercise or receive a grant or settlement
of any Award, and the timing thereof, may be subject to such performance
conditions as may be specified by the Board. The Board may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce the amounts payable under any Award subject to performance conditions,
except as limited under Sections 18.3.2 hereof in the case of a Performance
Award or Annual Incentive Award intended to qualify under Code Section 162(m).
If and to the extent required under Code Section 162(m), any power or authority
relating to a Performance Award or Annual Incentive Award intended to qualify
under Code Section 162(m), shall be exercised by the Committee and not the
Board.
18.3.2. Performance or Annual Incentive Awards Granted to
Designated Covered Employees
If and to the extent that the Committee determines that a Performance
or Annual Incentive Award to be granted to a Grantee who is designated by the
Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance or Annual Incentive Award shall
be contingent upon achievement of preestablished performance goals and other
terms set forth in this Section 18.3.2.
(i) Performance Goals Generally. The
performance goals for such Performance or Annual Incentive
Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each
of such criteria, as specified by the Committee consistent
with this Section 18.3.2. Performance goals shall be objective
and shall otherwise meet the requirements of Code Section
162(m) and regulations thereunder including the requirement
that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that
such Performance or Annual Incentive Awards shall be granted,
exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance goals
must be achieved as a condition to grant, exercise and/or
settlement of such Performance or Annual Incentive Awards.
Performance goals may differ for Performance or Annual
Incentive Awards granted to any one Grantee or to different
Grantees.
20
(ii) Business Criteria. One or more of the
following business criteria for the Company, on a consolidated
basis, and/or specified subsidiaries or business units of the
Company (except with respect to the total stockholder return
and earnings per share criteria), shall be used exclusively by
the Committee in establishing performance goals for such
Performance or Annual Incentive Awards: (1) total stockholder
return; (2) such total stockholder return as compared to total
return (on a comparable basis) of a publicly available index
such as, but not limited to, the Standard & Poor's 500 Stock
Index; (3) net income; (4) pretax earnings; (5) earnings
before interest expense, taxes, depreciation and amortization;
(6) pretax operating earnings after interest expense and
before bonuses, service fees, and extraordinary or special
items; (7) operating margin; (8) earnings per share; (9)
return on equity; (10) return on capital; (11) return on
investment; (12) operating earnings; (13) working capital;
(14) ratio of debt to stockholders' equity and (15) revenue.
(iii) Performance Period; Timing For
Establishing Performance Goals. Achievement of performance
goals in respect of Performance Awards shall be measured over
a performance period of up to ten years and achievement of
performance goals in respect of Annual Incentive Awards shall
be measured over a performance period of up to one year, as
specified by the Committee. Performance goals shall be
established not later than 90 days after the beginning of any
performance period applicable to such Performance or Annual
Incentive Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance or Annual Incentive Award
Pool. The Committee may establish a Performance or Annual
Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring Company performance in connection with
Performance or Annual Incentive Awards.
(v) Settlement of Performance or Annual
Incentive Awards; Other Terms. Settlement of such Performance
or Annual Incentive Awards shall be in cash, Stock, other
Awards or other property, in the discretion of the Committee.
The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such
Performance or Annual Incentive Awards. The Committee shall
specify the circumstances in which such Performance or Annual
Incentive Awards shall be paid or forfeited in the event of
termination of Service by the Grantee prior to the end of a
performance period or settlement of Performance Awards.
21
18.3.3. Written Determinations.
All determinations by the Committee as to the establishment of
performance goals, the amount of any Performance Award pool or potential
individual Performance Awards and as to the achievement of performance goals
relating to Performance Awards, and the amount of any Annual Incentive Award
pool or potential individual Annual Incentive Awards and the amount of final
Annual Incentive Awards, shall be made in writing in the case of any Award
intended to qualify under Code Section 162(m). To the extent required to comply
with Code Section 162(m), the Committee may delegate any responsibility relating
to such Performance Awards or Annual Incentive Awards.
18.3.4. Status of Section 18.3.2 Awards Under Code Section 162(m)
It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Section 18.3.2 hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Code Section 162(m) and regulations thereunder shall, if so designated by the
Committee, constitute "qualified performance-based compensation" within the
meaning of Code Section 162(m) and regulations thereunder. Accordingly, the
terms of Section 18.3.2, including the definitions of Covered Employee and other
terms used therein, shall be interpreted in a manner consistent with Code
Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given Grantee
will be a Covered Employee with respect to a fiscal year that has not yet been
completed, the term Covered Employee as used herein shall mean only a person
designated by the Committee, at the time of grant of Performance Awards or an
Annual Incentive Award, as likely to be a Covered Employee with respect to that
fiscal year. If any provision of the Plan or any agreement relating to such
Performance Awards or Annual Incentive Awards does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.
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19. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Affiliate, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
Grantees or beneficiaries of which the Grantee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Grantee under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Grantee as described in clause
(ii) of the preceding sentence, then the Grantee shall have the right, in the
Grantee's sole discretion, to designate those rights, payments, or benefits
under this Plan, any Other Agreements, and any Benefit Arrangements that should
be reduced or eliminated so as to avoid having the payment or benefit to the
Grantee under this Plan be deemed to be a Parachute Payment. 20. REQUIREMENTS OF
LAW
20.1. General.
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to an Award
upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company,
and any delay caused thereby shall in no way affect the date of termination of
the Award. Specifically, in connection with the Securities Act, upon the
exercise of any Option or the delivery of any shares of Stock underlying an
Award, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Award, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual exercising an Option may acquire
such shares pursuant to an exemption from registration under the Securities Act.
Any determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
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20.2. Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan. In the event that Rule 16b-3 is revised or replaced,
the Board may exercise its discretion to modify this Plan in any respect
necessary to satisfy the requirements of, or to take advantage of any features
of, the revised exemption or its replacement.
20.3. Limitation Following a Hardship Distribution.
To the extent required to comply with Treasury Regulation
ss.1.401(k)-1(d)(2)(iv)(B)(4), or any amendment or successor thereto, a
Grantee's "elective and employee contributions" (within the meaning of such
Treasury Regulation) under the Plan shall be suspended for a period of twelve
months following such Grantee's receipt of a hardship distribution made in
reliance on such Treasury Regulation from any plan containing a cash or deferred
arrangement under Section 401(k) of the Code maintained by the Company or a
related party within the provisions of subsections (b), (c), (m) or (o) of
Section 414 of the Code.
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21. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made; provided, however, that the Board shall not, without approval of the
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul an Award if the Grantee is an
employee of the Company or an Affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 21 or
Section 22 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Award theretofore awarded under the Plan. 22. EFFECT OF CHANGES IN
CAPITALIZATION
22.1. Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Awards are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
shares that are subject to the unexercised portion of an Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share. The conversion of any convertible securities of the Company shall not be
treated as an increase in shares effected without receipt of consideration.
Notwithstanding the foregoing, in the event of a spin-off that results in no
change in the number of outstanding shares of Stock of the Company, the Company
may, in such manner as the Company deems appropriate, adjust (i) the number and
kind of shares subject to outstanding Awards and/or (ii) the exercise price of
outstanding Options and Stock Appreciation Rights.
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22.2. Reorganization in Which the Company Is the Surviving Entity and
in Which No Change in Control Occurs.
Subject to Section 22.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities in which no Change in Control Occurs, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.
Subject to any contrary language in an Award Agreement evidencing an Award, any
restrictions applicable to such Award shall apply as well to any replacement
shares received by the Grantee as a result of the reorganization, merger or
consolidation.
22.3. Reorganization, Sale of Assets or Sale of Stock Which
Involves a Change in Control.
(a) Subject to Section 22.3(b), upon the dissolution or liquidation of
the Company or upon any transaction that results in a Change in Control, (i) all
outstanding shares subject to Awards shall be deemed to have vested, and all
restrictions and conditions applicable to such shares subject to Awards shall be
deemed to have lapsed, immediately prior to the occurrence of such event, and
(ii) all Options outstanding hereunder shall become immediately exercisable for
a period of fifteen days immediately prior to the scheduled consummation of the
event. Any exercise of an Option during such fifteen-day period shall be
conditioned upon the consummation of the event and shall be effective only
immediately before the consummation of the event. Upon consummation of any such
event, the Plan and all outstanding but unexercised Options shall terminate. The
Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at which
the Company gives notice thereof to its shareholders.
(b) Section 22.3(a) shall not apply to the extent provision is made in
writing in connection with a transaction described in Section 22.3(a) for the
assumption of such Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares or units and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. 22.4. Adjustments.
26
22.4. Adjustments.
Adjustments under this Section 22 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
22.5. No Limitations on Company.
The making of Awards pursuant to the Plan shall not affect or limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
23. POOLING
In the event any provision of the Plan or the Award Agreement would prevent
the use of pooling of interests accounting in a corporate transaction involving
the Company and such transaction is contingent upon pooling of interests
accounting, then that provision shall be deemed amended or revoked to the extent
required to preserve such pooling of interests. The Company may require in an
Award Agreement that a Grantee who receives an Award under the Plan shall, upon
advice from the Company, take (or refrain from taking, as appropriate) all
actions necessary or desirable to ensure that pooling of interests accounting is
available.
24. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any Affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In addition, notwithstanding anything contained in the Plan to the
contrary, unless otherwise stated in the applicable Award Agreement, no Award
granted under the Plan shall be affected by any change of duties or position of
the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company or an Affiliate. The obligation of the
Company to pay any benefits pursuant to this Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the manner
and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Grantee or beneficiary under the terms of the Plan. No Grantee shall have any of
the rights of a shareholder with respect to the shares of Stock subject to an
Option except to the extent the certificates for such shares of Stock shall have
been issued upon the exercise of the Option.
27
25. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
26. WITHHOLDING TAXES
The Company or an Affiliate, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to
the Company or the Affiliate, as the case may be, any amount that the Company or
the Affiliate may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Company or the
Affiliate, which may be withheld by the Company or the Affiliate, as the case
may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the Affiliate to
withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering
to the Company or the Affiliate shares of Stock already owned by the Grantee.
The shares of Stock so delivered or withheld shall have an aggregate Fair Market
Value equal to such withholding obligations. The Fair Market Value of the shares
of Stock used to satisfy such withholding obligation shall be determined by the
Company or the Affiliate as of the date that the amount of tax to be withheld is
to be determined. A Grantee who has made an election pursuant to this Section 26
may satisfy his or her withholding obligation only with shares of Stock that are
not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar
requirements.
28
27. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
28. OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
29. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
30. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
31. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Grants awarded hereunder shall be governed by the laws of the State of
Nevada other than any conflicts or choice of law rule or principle that might
otherwise refer construction or interpretation of this Plan and the instruments
evidencing the Awards awarded hereunder to the substantive laws of any other
jurisdiction.
* * *
To record adoption of the Plan by the Board as of November 1, 2002, and
approval of the Plan by the stockholders on __________ __, 2003, the Company has
caused its authorized officer to execute the Plan.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: Henry H. Kartchner
(Signature)
Name: Henry H. Kartchner
Title: Chairman
Date: November 1, 2002
29
Exhibit 10.15
NOTE AGREEMENT
This NOTE AGREEMENT ("Agreement") is entered into this the ____ day of
________ 2005 (the "Effective Date"), by and between _________ (the "Lender");
and Imperial Petroleum Recovery Corporation, a Nevada corporation ("Borrower").
Recitals:
A. Borrower seeks funds to provide operating revenue for its business and
is willing to provide a secured, convertible note to Lender.
B. Lender is willing to loan sums to Borrower on the terms and conditions
set forth in this Loan Agreement and the related documents to be
prepared in conjunction with a loan by Lender to Borrower.
Agreement:
NOW THEREFORE, in consideration of the promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
ARTICLE I
LOAN; NOTES
1.1 AMOUNT OF LOANS. The Lender shall loan to the Borrower pursuant to
the terms and conditions set forth in this Agreement $ ________. The amount of
each Loan shall be indicated by inserting the principal amount of the Loan, the
date of the advance, and the signatures of Lender and Borrower on EXHIBIT A to
this Agreement. The Loan(s) are herein referred to collectively as the "Loans"
and individually as a "Loan."
1.2 INTEREST RATE. The interest rate on the Loans shall be twelve
percent (12%) per annum, simple interest from that date of each advance until
the time of repayment and shall be paid in a single payment in full together
with payment of all other indebtedness under this Agreement on the "Due Date"
(defined below). From and after the Due Date, or the date which is five (5) days
after the occurrence of any Event of Default (defined below), at the option of
Lender or the holder of any or all of the Note(s) (defined below), all amounts
owing under any Loan shall become immediately due and payable in full and, to
the extent not then paid, shall bear interest at a default rate equal to 15%.
Such default interest shall be paid on the first day of each month thereafter,
or on demand, if sooner demanded.
1.3 ISSUANCE OF NOTES FOR THE LOANS. Each of the Loans will be
evidenced by a promissory note in the form attached hereto as EXHIBIT B (herein
collectively referred to as the "Notes," and individually as the "Note"). This
Agreement and the Notes set forth the terms and conditions on which the Loans
are being made.
1.4 DUE DATE. The principal and all accrued interest on the Loans shall
be due and payable on the "Due Date" which shall be two years after the date on
which this document was executed unless otherwise due at Lender's option in
respect of an Event of Default as provided in this agreement or the Note.
1.5 USE OF LOAN FUNDS. Borrower shall expend the Loaned Funds to repay
debt and fund working capital needs.
1.6 SECURITY. As security for the performance of Borrower's obligations
with respect to the Loans and under this Agreement, Borrower shall grant a
security interest in certain assets of Borrower as set forth in a Security
Agreement (the "Security Agreement") dated the same date hereof, and attached
hereto as EXHIBIT C. Said security shall be shared jointly by all Lenders.
Exercise of any rights under the Security shall be decided by majority vote of
all Lenders sharing in such security. Each Lender shall receive one vote for
each dollar that remains outstanding to such Lender. Any portion of the loan
converted into Common Stock pursuant to the terms of the Promissory Note shall
no longer be secured pursuant to this agreement and shall no longer possess a
vote. Lender is hereby authorized to file, and Borrower hereby ratifies and
approves Lender's filing of, any and all UCC financing statements and other
perfection certificates to perfect the security interest authorized hereby and
created by the Security Agreement on terms consistent with the Loan Documents.
1.7 LOAN DOCUMENTS. This Agreement, the Notes and the Security
Agreement are hereinafter collectively referred to as the "Loan Documents."
1.8 CONVERSION TO COMMON STOCK AT OPTION OF LENDER. Anything contained
elsewhere in this Agreement or in the other Loan Documents to the contrary
notwithstanding, at the option of Lender at any time or times following a
"Change in Control" (defined below) over Borrower while any of the indebtedness
evidenced by the Loan Documents is outstanding, Lender may elect, by notice to
Borrower, to convert all or any portion (or portions) of the indebtedness,
including principal and any accrued and unpaid interest, in each case, to a
number shares of the common stock, par value $0.001 per share ("Common Stock"),
of Borrower determined by dividing the amount of such indebtedness to be so
converted at such time by an amount equal to $0.15 per share of Common Stock.
Immediately upon Borrower's becoming aware of the occurrence of any events
giving rise to a Change in Control over Borrower, Borrower shall notify Lender
of the occurrence thereof and shall provide to Lender therewith a statement of
all material terms or conditions which may have bearing on Lender's choice
whether to exercise its right to convert the indebtedness to Common Stock. A
"Change in Control" shall consist of (a) any public announcement by Borrower of
its intent to consummate (i) any proposed merger of Borrower in which Borrower
would not be the surviving corporation or as a result of which a majority of the
board of directors would consist of "New Persons" (defined below) or more than
25% of the outstanding voting power over Borrower would be beneficially owned by
New Persons; (ii) a dissolution of Borrower; or (iii) any sale of any assets of
Borrower or its subsidiaries involving more than $2 million in value, or (b) the
occurrence of any New Person, becoming, or publicly offering to Borrower or any
of its stockholders to become, the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 25% or more of Borrower's outstanding Common
Stock or other voting securities. A "New Person" or "New Persons" shall mean any
person (as such term is used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended ("Exchange Act")) or persons other than (A) any
current equity holder which holds five percent (5%) or more of the Common Stock
in Borrower and has reported such ownership publicly, or any affiliate thereof;
(B) an employee benefit plan of Borrower or any subsidiary or any entity holding
shares of capital stock of Borrower for or pursuant to the terms of any such
employee benefit plan in its role as an agent or trustee for such plan; or (C)
any affiliate of Borrower as of the date of this Agreement.
1.9 PREPAYMENT. The indebtedness evidenced by this Agreement and the
other Loan Documents may be prepaid by Borrower at any time. However, upon a
tender of payment by Borrower, Lender shall have the right to refuse repayment
and, as set forth elsewhere in this Agreement, convert any or all of the loan
and/or accrued interest into Common Stock. Lender must exercise Lender's
conversion within 15 calendar days after receipt of the payment from Borrower by
returning the tendered payment to Borrower along with the fully executed Note
Conversion Exercise Form attached to the Convertible Secured Promissory Note.
2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants to Lender as follows:
2.1 ORGANIZATION AND STANDING. ARTICLES AND BY-LAWS. Borrower is a
corporation duly organized and existing under, and by virtue of, the laws of
Nevada and is in good standing under such laws in each jurisdiction in which the
failure by Borrower to be in good standing would have a material adverse effect
upon Borrower. Borrower has the requisite power and authority to own and operate
its properties and assets, and to carry on its business as presently conducted
and as proposed to be conducted.
2.2 CORPORATE POWER. Borrower has all requisite legal and corporate
power and authority to execute and deliver this Agreement and to carry out and
perform its obligations under the terms of this Agreement and the other Loan
Documents.
2.3 AUTHORIZATION. All corporate action on the part of Borrower, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of its obligations under this Agreement and the other Loan
Documents has been taken. This Agreement and the other Loan Documents when
executed and delivered by Alan B. Springer, Chief Executive Officer of Borrower,
shall constitute a valid and binding obligation of Borrower, enforceable in
accordance with their terms, subject only to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
2.4 NO CONFLICT. The execution of this Agreement and the other Loan
Documents by Borrower and its delivery to Lender are not contrary to the
Articles of Incorporation or bylaws of Borrower. The execution and delivery of
this Agreement and the other Loan Documents and the consummation of the
transactions contemplated by this Agreement and the other Loan Documents by the
Borrower will not (i) with the passage of time, the giving of notice, or
otherwise, result in a violation or breach of, or constitute a default under,
any term or provision of any materia1 agreement to which Borrower is a party or
to which any of its properties are subject; (ii) result in the creation of any
lien or other charge upon the assets of Borrower, other than the liens created
pursuant to the Security Agreement; (iii) result in an acceleration or
termination of any note, loan or security interest agreement or other agreement,
or (iv) result in a violation of any order, judgment, decree, rule, regulation
or law.
2.5 SURVIVAL. All representations and warranties of Borrower made in
this Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by Lender or funding of the Loans shall affect the representations
and warranties of Borrower or the right of Lender to rely upon them. Without
prejudice to the survival of any other obligation of Borrower under this
Agreement or any other Loan Document, the obligations of Borrower under Sections
6.1 and 6.2 shall survive repayment of the Note and termination of the Loan.
2.6 FINANCIAL CONDITION. Borrower acknowledges that he is aware of that
the Company is behind on its filings with the SEC and the lender acknowledges
receipt of its Form 10-KSB for the fiscal year ended October 31, 2001 ("Form
10-KSB"). The Company will issue to you an unaudited balance sheet as of October
31, 2002 and will undertake updating its audits and filings with the SEC.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Form
10-KSB:
(a) There has not been (i) any material adverse change in the business,
operations, properties, assets, or condition of Borrower; or (ii) any damage,
destruction, or loss to Borrower (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties, assets,
or condition of Borrower;
(b) Borrower has not (i) amended its articles of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Borrower; (iv) made any material change
in its method of management, operation, or accounting; or (v) entered into any
other material transaction; and
3
(c) Borrower has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
or contingent); (ii) paid any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the balance
sheet therein; (iii) sold or transferred, or agreed to sell or transfer, any of
its assets, properties, or rights (except assets, properties, or rights not used
or useful in its business which, in the aggregate have a value of less than
$2,000), or canceled, or agreed to cancel, any debts or claims (except debts or
claims which in the aggregate are of a value of less than $1,000); (iv) made or
permitted any amendment or termination of any contract, agreement, or license to
which it is a party if such amendment or termination is material, considering
the business of Borrower; or (v) issued, delivered, or agreed to issue or
deliver any stock, bonds or other corporate securities including debentures
(whether authorized and unissued or held as treasury stock).
2.8 LITIGATION AND PROCEEDINGS. Except as expressly disclosed in the
Form 10-KSB there is no proceeding by or before (or, to the knowledge of
Borrower, any investigation by) any governmental or other instrumentality or
agency, pending, or, to the knowledge of Borrower, threatened against or
affecting Borrower or any of its properties or rights, except for such actions,
suits, proceedings, arbitrations or investigations that do not have and are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the condition of Borrower. There are no proceedings pending or, to the
best knowledge of Borrower, threatened, seeking to prevent or challenging the
transactions contemplated by this Loan Agreement. Since the date of the Form
10-KSB, there are no proceedings, pending or to the knowledge of Borrower
threatened, which would require disclosure pursuant to Item 103 of Regulation
S-B of the Securities Act of 1933. Borrower is not subject to any judgment,
order or decree entered in any proceeding, which has had or could have a
material adverse effect on the condition of Borrower.
2.9 SEC FILINGS. Borrower is not current in its filings with the
Securities and Exchange Commission. However it will undertake to get filings
current as soon as possible.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE LENDER
Lender hereby represents and warrants to Borrower as follows:
3.2 AUTHORITY. Lender has all requisite authority or capacity to
execute and deliver this Agreement and those of the other Loan Documents to
which Lender is a party and to carry out and perform Lender's obligations under
the terms of this Agreement.
3.3 AUTHORIZATION. All action on the part of Lender necessary for the
authorization, execution, delivery and performance of Lender's obligations under
this Agreement and those of the other Loan Documents to which Lender is a party,
have been taken. This Agreement and those of the other Loan Documents to which
Lender is a party, when executed and delivered by Lender, shall constitute a
valid and binding obligation of Lender enforceable in accordance with their
terms, subject only to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
4
ARTICLE IV
DEFAULT
4.1 EVENTS OF DEFAULt. Each of the following shall be deemed an "Event
of Default" under the Loan Documents:
(a) Borrower shall fail to pay when due any payment of principal or
interest under a Note or any part thereof.
(b) Any representation or warranty made or deemed made by Borrower (or
any of its officers) in any Loan Document shall be false, misleading, or
erroneous in any material respect when made or deemed to have been made.
(c) Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in this Agreement or any other Loan
Document.
(d) Borrower shall commence a voluntary proceeding seeking liquidation,
reorganization, or other relief with respect to itself or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or a substantial part of Borrower's property or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it or
shall make a general assignment for the benefit of creditors or shall take any
corporate action to authorize any of the foregoing.
(e) An involuntary proceeding shall be commenced against Borrower
seeking liquidation, reorganization, or other relief with respect to it or its
debts under any bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian,
or other similar official for it or a substantial part of its property, and such
involuntary proceeding shall remain undismissed and unstayed for a period of
sixty (60) days.
ARTICLE V
GENERAL PROVISIONS
5.2 REMEDIES UPON DEFAULT If any Event of Default shall occur and be
continuing, Lender may without notice terminate the Loan and declare the Note or
any part thereof to be immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by Borrower. If any Event of Default shall occur and be
continuing, Lender may exercise all rights and remedies available to it in law
or in equity, under the Loan Documents.
5.3 PERFORMANCE BY LENDER. If Borrower shall fail to perform any
covenant or agreement contained in any of the Loan Documents, Lender may perform
or attempt to perform such covenant or agreement on behalf of Borrower. In such
event, Borrower shall, at the request of Lender promptly pay any amount expended
by Lender in connection with such performance or attempted performance by
Lender. Notwithstanding the foregoing, it is expressly agreed that Lender shall
not have any liability or responsibility for the performance of any obligation
of Borrower under this Agreement or any other Loan Document.
5
ARTICLE VI
GENERAL PROVISIONS
6.1 EQUITABLE RELIEF. Borrower recognizes that in the event Borrower
fails to pay, perform, observe, or discharge any or all of the obligations, any
remedy at law may prove to be inadequate relief to Lender. Borrower therefore
agrees that Lender, if Lender so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
6.2 NO WAIVER CUMULATIVE REMEDIES. No failure on the part of Lender to
exercise and no delay in exercising and no course of dealing with respect to,
any right, power, or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
6. 3 AMENDMENT; WAIVER. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender and
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
6.4 NO DUTY. All attorneys, accountants and consultants retained
exclusively by Lender shall have the right to act exclusively in the interest of
Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or
other duty or obligation of any type or nature whatsoever to Borrower or any of
Borrower's owners or an other person.
6.5 NOTICE. Any notice or communication to be given under the terms of
this Agreement ("Notice") shall be in writing and shall be personally delivered
or sent by facsimile, overnight delivery or registered or certified mail, return
receipt requested. Notice shall be effective (i) if personally delivered, when
de1ivered; (ii) if delivered by facsimile, on the day of transmission thereof on
a proper facsimile machine with confirmed answerback; (iii) if delivered by
overnight delivery, the day after delivery thereof to a reputable overnight
courier service; and (iv) if mailed, at midnight on the third business day after
deposit in the mail, postage prepaid. Notices shall be addressed as follows:
If to Borrower: Imperial Petroleum Recovery Corporation
1970 South Starpoint Drive
Houston, Texas 77032
Attn: Alan B. Springer, Chairman and CEO
Fax No.: 281-821 -1118
If to Lender:
or at such other address as a party may from time to time designate by Notice
hereunder.
6.6 COSTS, EXPENSES AND TAXES. If Borrower fails to pay when due the
principal of, or any interest on, the Loans, or fails to comply with any other
provisions of this Agreement or any other Loan Document, Borrower wil1 pay on
demand all costs and expenses including, without limitation, reasonable
attorneys' fees and legal expenses, incurred by Lender in connection with
collecting any sums due on or on account of the Loan or in otherwise enforcing
any of Lender's rights under this Agreement or the other Loan Documents.
6
6.7 BINDING EFFECT. This Agreement and the other Loan Documents shall
be binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the right
to assign its rights hereunder or any other Loan Document, or any interest
herein or therein without the prior written consent of Lender.
6.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and the applicable laws of the
United States of America. This Agreement has been entered into in Houston,
Texas, and it shall be performable for all purposes in Houston, Texas. Any
action, or proceeding against Borrower under or in connection with any of the
Loan Documents may be brought in any state or federal court in Houston, Texas.
The Borrower hereby irrevocably (i) submits to the exclusive jurisdiction of
such courts, and (ii) waives any objection it may now or hereafter have as to
the venue of any such action or proceeding brought in any such court, or that
any such court is an inconvenient forum. Borrower agrees that service of process
upon it may be made by certified or registered mail return receipt requested at
its address specified above. Nothing herein or in any of the other Loan
Documents shall affect the right of Lender to serve process in any other manner
permitted by law or shall limit the right of Lender to bring any action or
proceeding against Borrower or with respect to any of its property in courts in
other jurisdictions. Any action or proceeding by Borrower against Lender shall
be brought only in a Court located in Houston, Texas.
6.9 FURTHER ASSURANCES. Each of the parties hereto take all such
actions, and shall execute and deliver all such documents and instruments as may
be reasonably requested by the others to carry out the purposes and intent of
the provisions of this Agreement.
6.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision
6.11 COUNTERPARTS. This Agreement and the other Loan Documents may be
executed in multiple counterparts, each of which shall be enforceable against
the party actually executing such counterpart, and all of which together shall
constitute one instrument. This Agreement and any other Loan Document may be
executed and sent via facsimile which facsimile shall be binding and enforceable
as if an original; provided, however, that original executed copies of this
Agreement and of the other Loan Documents shall in fact be required to be
delivered by each of the parties.
6.12 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
6.13 CONSTRUCTION. Borrower and Lender acknowledge that each of them
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by Borrower and Lender.
6.14 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Event of Default if such action is taken or such condition
exists.
6.15 NO ORAL AGREEMENT. This written agreement, the note and the
security agreement represent the final agreement between the parties and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties. There are no oral agreements between the parties. IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written. BORROWER: IMPERIAL PETROLEUM RECOVERY CORPORATION
By: /s/ Alan B. Springer
----------------------------------
Alan B. Springer, Chairman and CEO
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EXHIBIT A TO NOTE AGREEMENT
SCHEDULE OF LOANS
--------------------- --------------------- ----------------------------------------- ---------------------------------------
Signature on behalf of Borrower by an
Date of Loan Principal Amount of officer of Borrower (with printed
Loan Signature on behalf of Lender name and title).
--------------------- --------------------- ----------------------------------------- ---------------------------------------
--------------------- --------------------- ----------------------------------------- ---------------------------------------
TOTAL
--------------------- --------------------- ----------------------------------------- ---------------------------------------
8
Exhibit 10.16
IMPERIAL PETROLEUM RECOVERY CORPORATION.
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
THIS PIGGYBACK REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made
as of August 5, 2005, by and among Imperial Petroleum Recovery Corporation, a
Nevada corporation (the "COMPANY"), and the persons listed on the attached
EXHIBIT A, as amended from time to time, who become signatories to this
Agreement (collectively, the "HOLDERS").
WHEREAS, the Company is offering convertible notes (the "Notes") to
certain qualified investors in one or more private placement offerings
(collectively, the "Offerings");
WHEREAS, the Notes are convertible into shares of the Company's Common
Stock;
WHEREAS, in connection with entering into this Agreement, each of the
Holders is purchasing Notes; and
WHEREAS, in connection with the foregoing transactions, the Company and
the Holders desire to provide certain registration rights to the Holders.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean shares of the Company's Common Stock, par
value $.001 per share.
"HOLDER" shall mean any holder of outstanding Registrable Securities,
which have not been sold to the public, but only if such holder is one of the
Holders.
"QUALIFIED PUBLIC OFFERING" shall mean a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the Company's Common Stock.
The terms "REGISTER", "REGISTERED", and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement on Form
S-1, S-2, S-3, SB-1 or SB-2 in compliance with the Securities Act of 1933, as
amended ("REGISTRATION STATEMENT"), and the declaration or ordering of the
effectiveness of such Registration Statement.
"REGISTRABLE SECURITIES" shall mean all Common Stock not previously
sold to the public and issued upon conversion of the Notes purchased by or
issued to the Holders, including Common Stock issued pursuant to stock splits,
stock dividends and similar distributions.
1
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with this Agreement, including, without limitation, all federal and
state registration, qualification, and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for all Holders
(if different from counsel to the Company), fees and disbursements of
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, and the expense of any
special audits incident to or required by any such registration.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities pursuant to this
Agreement.
2. NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES. Subject to the terms of this Agreement, if after the closing of the
Company's initial Qualified Public Offering the Company decides to Register any
of its Common Stock (either for its own account or the account of a security
holder or holders exercising their respective demand registration rights) on a
form that would be suitable for a registration involving solely Registrable
Securities, the Company will: (i) promptly give each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable Blue Sky or
other state securities laws) and (ii) include in such Registration (and any
related qualification under Blue Sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request delivered to the Company by any Holder within 20 days after
delivery of such written notice from the Company.
3. UNDERWRITING IN PIGGYBACK REGISTRATION.
(A) NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION. If the
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 2. In such event, the right
of any Holder to Registration shall be conditioned upon such underwriting and
the inclusion of such Holder's Registrable Securities in such underwriting to
the extent provided in this Agreement. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the underwriter's representative for such
offering (the "Underwriter's Representative"). The Holders shall have no right
to participate in the selection of the underwriters for an offering pursuant to
this Agreement.
(B) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. If the
Underwriter's Representative advises the Holders seeking registration of
Registrable Securities pursuant to this Agreement in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the Registration and underwriting by selling
shareholders shall be allocated among all Holders requesting and legally
entitled to include such securities in such Registration, in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities which
such Holders would otherwise be entitled to include in such Registration. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 3(b) shall be included in the Registration Statement.
2
4. WITHDRAWAL IN PIGGYBACK REGISTRATION. If any Holder disapproves of
the terms of any such underwriting, such person may elect to withdraw therefrom
by written notice to the Company and the Underwriter's Representative delivered
at least seven days prior to the effective date of the Registration Statement.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with Registrations pursuant to this Agreement, shall be borne by the
Company. All Registration Expenses incurred in connection with any other
Registration, qualification, or compliance, shall be apportioned among the
Holders and other holders of the securities so registered on the basis of the
number of shares so registered. All Selling Expenses shall be borne by the
holders of the securities Registered pro rata on the basis of the number of
shares Registered.
6. TERMINATION OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted under this Agreement and to receive notices
pursuant to Section 2 of this Agreement shall terminate, with respect to each
Holder, on the earlier of (i) the date five years after the closing date of the
first Qualified Public Offering of securities pursuant to a Registration
Statement to occur after the date of this Agreement, and (ii) with respect to
each Holder if such Holder is eligible to sell all of such Holder's Registrable
Securities under Rule 144 of the Securities Act within any three month period
without volume limitations, or under Rule 144(k) thereunder.
7. REGISTRATION PROCEDURES AND OBLIGATIONS. Whenever required under
this Agreement to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use its reasonable efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such Registration Statement effective for up to 120 days.
(b) Prepare and file as expeditiously as reasonably practicable and in
any event within ninety (90) days with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
3
(d) Use its reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business in any jurisdiction where it is not
so qualified or to file a general consent to service of process in any such
states or jurisdictions, and provided further that in the event any jurisdiction
in which the securities shall be qualified imposes a non-waivable requirement
that expenses incurred in connection with the qualification of the securities be
borne by selling shareholders, such expenses shall be payable pro rata by
selling shareholders.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered for sale in connection with a registration
pursuant to this Agreement, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters (with a copy provided to each
holder of Registrable Securities) in an underwritten public offering, and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters (with a copy provided to each holder of Registrable
Securities).
(i) Use all reasonable efforts to list the Registrable Securities
covered by such registration statement on any securities exchange on which the
Common Stock of the Company is then listed, or such securities exchange as shall
be selected by the Company.
(j) Notify each seller of Registrable Securities under such
registration statement of (i) the effectiveness of such registration statement,
(ii) the filing of any post-effective amendments to such registration statement,
or (iii) the filing of a supplement to such registration statement.
(k) Make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Registrable Securities, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all material financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
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8. INFORMATION FURNISHED BY HOLDER.
(a) It shall be a condition precedent of the Company's obligations
under this Agreement that each Holder of Registrable Securities included in any
Registration furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
Registration.
(b) Any Holder that makes an untrue statement or omission will
indemnify and hold harmless the Company, each of its officers, directors,
employees and agents, legal counsel, independent accountant, underwriter against
all Damages, claims, liability, judgments, attorneys fees, court costs or other
harm of any nature whatsoever arising out of or based upon any untrue statement
or omission contained in any such Registration Statement or any document
required for, or related to, a Registration. Company shall notify any Holder
against which it may seek indemnification of any such claim related to any
untrue statement or omission by any Holder. The indemnifying party shall have
the right to participate in and to assume the defense of such claim; provided,
that the indemnifying party must reasonably approve defense counsel selected by
the indemnifying, however, if either party reasonably determines that there may
be a conflict between the position of the Company and the Holders in conducting
the defense of such action, suit, or proceeding by reason of recognized claims
for indemnity, then counsel for such party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interest of such party. If damages are adjudged to be attributable
to more than one party, the amount paid or payable as damages shall be prorated
as is appropriate to reflect the relative fault of each party that contributed
to cause the damage. The obligations of the Company and Holders under this
Section shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement or otherwise.
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Nevada. Any suit for the enforcement
of this Agreement may be brought in the courts of Texas or any federal court
sitting in Texas and each party hereto consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit being
made upon the Company by mail at the address specified above. Each party hereto
hereby waives any objection that it may now or hereafter have to the venue of
any such suit or any such court or that such suit was brought in any
inconvenient court.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. HEADINGS. The headings of the sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
5
12. NOTICES. Notices under this Agreement shall be in writing and shall
be sufficient if delivered personally or mailed by first class mail, postage
paid, or sent by overnight courier service or electronic facsimile transmission
to the party to whom such notice is given, with a copy to all other parties
hereto, as follows:
(a) If to the Company:
Imperial Petroleum Recovery Corporation
1970 South Starpoint Drive
Houston, TX 77032-5120
Attn: Mr. Alan B. Springer
(b) If to any Investor, at the address of such Holder
set forth on their respective counterpart signature page hereto; or at such
other address as any party may give notice pursuant to this section, provided
that any such notice, if given by the Company, may be addressed to the address
set forth in the Company's books as the address of any Investor or other person
listed as a record holder of its capital stock. Any such notice addressed as
provided herein shall be effective when deposited in the United States mail,
duly addressed and with postage and fees prepaid, and the postmark shall
conclusively determine the date of such deposit thereon.
13. AMENDMENT OF AGREEMENT. Only a written instrument signed by the
Company and by persons holding Notes comprising a majority of the aggregate
principal amount outstanding thereunder may amend any provision of this
Agreement.
14. SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
15. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
constitutes the entire contract among the Company and the Holders relative to
the subject matter hereof. Subject to the exceptions specifically set forth in
this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successor, and assigns of the parties.
IN WITNESS WHEREOF, the undersigned have executed and delivered, or
caused to be executed and delivered by their officers hereunto duly authorized,
this Agreement, as of the date first set above.
THE COMPANY:
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: Alan B. Springer
Alan B. Springer, President and CEO
6
COUNTERPART INVESTOR SIGNATURE PAGE
EXHIBIT A
SCHEDULE OF HOLDERS
Aggregate Principal
Name & Address of Holders Convertible Note # Balance
7
Exhibit 10.17
WARRANT AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 ("ACT") OR
APPLICABLE STATE SECURITIES LAWS ("STATE ACTS") AND SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
WARRANT TO PURCHASE _________ SHARES OF COMMON STOCK
IMPERIAL PETROLEUM RECOVERY CORPORATION
A Nevada Corporation
1970 South Starpoint Drive
Houston, Texas 77032
Not Transferable or Exercisable Except
Upon Conditions Herein Specified
IMPERIAL PETROLEUM RECOVERY CORPORATION, a Nevada corporation ("Company"),
hereby certifies that ____________, is on the books of the Company maintained
for such purposes, as the registered holder hereof ("Holder"), for value
received, is entitled to purchase from the Company the number of fully paid and
non-assessable shares of Common Stock of the Company, $.001 par value ("Shares"
or "Common Stock"), stated above at the purchase price per Share set forth in
Section 1(b) below (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided. This Warrant is being issued pursuant the Subscription and Note
agreement herewith (the "Agreement"), to which the Company and Holder are
parties. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
1. EXERCISE OF WARRANTS.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Warrant Agreement, with the attached Purchase Form duly
executed, at the principal office of the Company, or at such other place as the
Company may designate by notice to the Holder hereof, together with the original
convertible Note and a certified or bank cashier's check payable, at the time of
exercise, to the order of the Company in the amount of the Exercise Price times
the number of Shares being purchased in addition to conversion of the
Convertible Note. The Company shall deliver to the Holder hereof, as promptly as
practicable, certificates representing the Shares being purchased. This Warrant
may be exercised in whole or in part; and, in case of exercise hereof in part
only, the Company, upon surrender hereof, will deliver to the Holder a new
Warrant Agreement or Warrant Agreements of like tenor entitling the Holder to
purchase the number of Shares as to which this Warrant has not been exercised.
1
(b) This Warrant may be exercised at a price of $0.15 per share (the
"Exercise Price"); PROVIDED HOWEVER, that the Exercise Price shall be subject to
adjustment pursuant to Section 6(b). This Warrant shall expire at the close of
business on _____________________ ___ , 2008.
2. TRANSFER OF WARRANT.
This Warrant may not be sold, transferred, hypothecated, or assigned,
in whole or in part, without the prior written consent of the Company.
3. RIGHTS AND OBLIGATIONS OF WARRANT HOLDER.
(a) The Holder of this Warrant Agreement shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or in
equity; PROVIDED, HOWEVER, that in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Warrant, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Warrant Agreement, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited to those expressed herein and the
Holder of this Warrant, by his acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Agreement,
including, without limitation, all the obligations imposed upon the Holder
herein. In addition, the Holder of this Warrant Agreement, by accepting the
same, agrees that the Company may deem and treat the person in whose name this
Warrant Agreement is registered on the books of the Company maintained for such
purposes as the absolute, true and lawful owner for all purposes whatsoever,
notwithstanding any notation of ownership or other writing thereon, and the
Company shall not be affected by any notice to the contrary.
(b) No Holder of this Warrant Agreement shall be entitled to vote or
receive dividends or to be deemed the holder of Shares for any purpose, nor
shall anything contained in this Warrant Agreement be construed to confer upon
any Holder of this Warrant Agreement any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any action by the
Company, whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise, receive notice of
meetings or other action affecting stockholders (except for notices provided for
herein), receive dividends, subscription rights, or otherwise, until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
thereof shall have become deliverable as provided herein; PROVIDED, HOWEVER,
that any such exercise on any date when the stock transfer books of the Company
shall be closed shall constitute the person in whose name the certificate for
those Shares are to be issued as the record holder thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open, and the Warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
2
4. SHARES UNDERLYING WARRANTS.
The Company covenants and agrees that all Shares delivered upon
exercise of this Warrant shall, upon delivery and payment therefor, be duly and
validly authorized and issued, fully paid and on-assessable, and free from all
stamp taxes, liens and charges with respect to the purchase thereof.
5. DISPOSITION OF WARRANTS OR SHARES; REGISTRATION RIGHT.
(a) The Holder of this Warrant Agreement and any transferee hereof or
of the Shares issuable upon the exercise of the Warrant Agreement, by their
acceptance hereof, hereby understand and agree that the Warrant, and the Shares
issuable upon the exercise hereof, have not been registered under either the Act
or State Acts and shall not be sold, pledged, hypothecated, or otherwise
transferred (whether or not for consideration) except upon the issuance to the
Company of an opinion of counsel favorable to the Company or its counsel or
submission to the Company of such evidence as may be satisfactory to the Company
or its counsel, in each such case, to the effect that any such transfer shall
not be in violation of the Act or the State Acts. It shall be a condition to the
transfer of this Warrant that any transferee of this Warrant deliver to the
Company his written agreement to accept and be bound by all of the terms and
conditions of this Warrant Agreement. The Holder acknowledges that the Company
has granted registration rights as described in the Registration Rights
Agreement that is part of the Agreement.
(b) The stock certificates of the Company that will evidence the shares
of Common Stock with respect to which this Warrant may be exercisable will be
imprinted with a conspicuous legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 ("ACT") OR
THE SECURITIES LAWS OF ANY STATE ("STATE ACTS"). SUCH
SECURITIES SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) AT
ANY TIME WHATSOEVER EXCEPT UPON REGISTRATION OR UPON DELIVERY
TO THE COMPANY OF AN OPINION OF ITS COUNSEL SATISFACTORY TO
THE COMPANY OR ITS COUNSEL THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER OR THE SUBMISSION OF SUCH OTHER EVIDENCE AS
MAY BE SATISFACTORY TO THE COMPANY OR ITS COUNSEL TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
ACT, STATE ACTS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER."
6. ADJUSTMENTS.
The number of Shares purchasable upon the exercise of each Warrant is
subject to adjustment from time to time upon the occurrence of any of the events
enumerated below:
(a) If at any time after the date of this Warrant and so long as this
Warrant is outstanding, there is a reverse stock split (combination), stock
split, stock dividend, subdivision, or similar distribution with respect to the
Common Stock, or a combination of the Common Stock, then, in such event, the
Exercise Price shall be adjusted in accordance with (b) below.
3
(b) Immediately upon the effective date of any event requiring
adjustment pursuant to (a), the Company shall adjust the Exercise Price then in
effect (to the nearest whole cent) as follows:
i) in the event such adjustment is caused by a
forward stock split, stock dividend, subdivision, or other
similar distribution of shares of Common Stock, the Exercise
Price in effect, immediately prior to the effective date of
such event shall be decreased to an amount which shall bear
the same relation to the Exercise Price in effect immediately
prior to such event as the total number of shares of Common
Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock outstanding immediately
after such event;
ii) in the event such adjustment is caused by a
combination of shares of Common Stock, the Exercise Price in
effect immediately prior to the close of business on the
effective date of such event shall be increased to an amount
which shall bear the same relation to the Exercise Price in
effect immediately prior to such event as the total number of
shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock
outstanding immediately after such event.
(c) Upon each adjustment of the Exercise Price pursuant to (b) above,
the Warrant outstanding prior to such adjustment in the Exercise Price shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares of Common Stock (calculated to the nearest hundredth) obtained
by (i) multiplying the number of shares of Common Stock issuable upon exercise
of the Warrant prior to adjustment of the number of shares of Common Stock by
the Exercise Price in effect prior to adjustment of the Exercise Price and (ii)
dividing the product so obtained by the Exercise Price in effect after such
adjustment of the exercise price.
(d) In case the Company (i) consolidates with or merges into any other
entity and is not the continuing or surviving entity of such consolidation or
merger, or (ii) permits any other entity to consolidate with or merge into the
Company and the Company is the continuing or surviving Company but, in
connection with such consolidation or merger, the Common Stock is changed into
or exchanged for common stock or other securities of any other entity or cash or
any other assets, or (iii) transfers all or substantially all of its properties
and assets to any other entity, or (iv) effects a reorganization or
reclassification of the equity of the Company in such a way that holders of
Common Stock shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Common Stock, then, and in each such case, the
Company shall provide Holder with not less than 60 days notice of such event and
Holder must within said 60 day notice period exercise this Warrant and Holder
shall, after exercise of this Warrant receive the appropriate number of shares
of Common Stock and shall be entitled to receive, consistent with the number of
shares held by Holder, the stock and other securities, cash and assets paid upon
consummation of such consolidation, merger, transfer, reorganization or
reclassification. Failure of Holder to so exercise this Warrant within the 60
day notice period shall result in the extinguishments of any and all rights set
forth in this Warrant but shall not, in any manner, void, affect or extinguish
the entitlement of Holder to repayment of the Note and any and all accrued
interest or other entitlement set forth in the Note.
4
7. LOSS OR DESTRUCTION.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant Agreement and, in the case of
any such loss, theft or destruction, upon delivery of an indemnity agreement or
bond satisfactory in form, substance and amount to the Company or, in the case
of any such mutilation, upon surrender and cancellation of this Warrant
Agreement, the Company will execute and deliver, in lieu thereof, a new Warrant
Agreement of like tenor.
8. SURVIVAL.
The various rights and obligations of the Holder hereof as set forth
herein shall survive the exercise of the Warrants represented hereby and the
surrender of this Warrant Agreement.
9. NOTICES.
Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid (or
similar delivery if outside of the United States), and will be deemed to have
been given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be; and, if to the
Company, it will be addressed to the address specified on the cover page hereof,
and if to the Holder, it will be addressed to the registered Holder at its, his
or her address as it appears on the books of the Company.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: /s/ Alan B. Springer
-------------------------------------------
Alan B. Springer, Chairman and CEO
HOLDER:
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WARRANT EXERCISE AND STOCK PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
To IMPERIAL PETROLEUM RECOVERY CORPORATION:
The undersigned, the holder of the enclosed Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________* shares of Common Stock of Imperial Petroleum
Recovery Corporation and herewith makes payment of:
I am including a cashier's or certified bank check in the amount of $
________________.
I request that the certificate or certificates for such shares be
issued in the name of and delivered to the undersigned.
City__________________________________ State _____ Zip Code
(*) Insert here not greater than the number of shares listed on the face of
the Warrant without making any adjustment for additional or fewer
shares of Common Stock pursuant to the adjustment provisions of the
Warrant Agreement. Such adjustments will be made by the Company.
6
Exhibit 10.18
STRATEGIC MARKETING, MANUFACTURING AND TECHNOLOGY LICENSING AGREEMENT
This Strategic Marketing, Manufacturing and Technology Licensing
Agreement ("Agreement") dated August 26 , 2005 (the "Effective Date") between
Imperial Petroleum Recovery Corporation, a Nevada corporation ("IPRC") whose
address is 1970 S. Starpoint Drive, Houston, Texas 77032 and Stone & Webster
Management Consultants, Inc., a Louisiana corporation ("SWMC") whose address is
4171 Essen Lane, Baton Rouge, LA 70809. IPRC and SWMC are sometimes collectively
referred to as the "Parties".
RECITALS
A. IPRC has developed and owns the intellectual property rights to
Microwave Separation Technology (MST), for treating oil/water/solids emulsions.
The MST optimizes crude oil production, refining and transport, enhances
bio-diesel and alternative fuels production while lessening environmental
hazards
B. IPRC has worked closely with SWMC to manufacture and integrate MST
throughout refineries in the USA.
C. SWMC or SWMC's affiliates are involved in the Consulting, Financing,
Engineering, Procurement, and Construction in various industries worldwide,
including refineries and petrochemical plants.
D. IPRC desires to grant SWMC the exclusive right to fabricate all MST
Units to be delivered to customers in the United States and to give SWMC the
right to integrate the MST in refineries throughout the United States in
exchange for marketing and sales contributions.
AGREEMENT
1. DEFINITIONS. For purposes of this Agreement, the following
definitions apply:
(a) "Cost" means the cost represented on the bill of materials
supporting the most current Unit price at the time of cancellation or
termination.
(b) "Inventory" means any materials used to fabricate the Units ordered
by SWMC pursuant to a purchase order from the IPRC.
(c) "Materials" means labor, components and supplies used in the
manufacturing, testing, packaging, and distribution of the Units.
(d) "MST Unit" means any microwave system that utilizes IPRC's patented
applicator and process to treat emulsions with microwave energy. An "MST Unit"
does not include any separations device or software control system to integrate
the microwave and separator, or any software control system to operate a
stand-alone "MST Unit" without a separations device, unless explicitly stated as
being included.
1
(e) "Primary Seller" refers to either IPRC or SWMC in situations where
one party has taken a clear lead in making an initial contact, progressing
negotiations, and finalizing a sale or lease agreement. This distinction, where
appropriate, should be substantially clear to both parties and shall be agreed
to by both parties in good faith. This distinction is relevant for Section 12
(IPRC Open Bid Fabrication Option and SWMC Matching First Right of Refusal) and
Sections 21 and 22(Revenue Sharing).
2. TERM. This Agreement commences on the Effective Date and shall
continue for four years thereafter (the "Initial Term"). After the expiration of
the Initial Term (unless this Agreement has otherwise been terminated), this
Agreement shall be automatically renewed for separate but successive two-year
terms unless either party provides written notice to the other party that it
does not intend to renew this Agreement ninety days or more prior to the end of
the current term.
3. APPLICABILITY AND EXCLUSIONS. This Agreement will apply to all MST
sales and leases completed by contract during the term of this Agreement except
those specifically excluded in this Agreement. This Agreement will not apply to
any MST sale or lease to either IPRC or SWMC made for the purpose of entering
into business either individually or jointly as an MST service contract provider
or made for the purpose of entering into the biodiesel business as a producer
rather than as a technology provider to a third party biodiesel producer. The
parties agree that an addendum to this Agreement will be drafted to cover the
biodiesel production and/or the sale or lease of MST relating to biodiesel to a
third party biodiesel producer.
4. "PIONEER" PRICING EXCLUSIONS. Both IPRC and SWMC recognize it may be
necessary or desirable to offer a special "pioneer" sale or lease price to the
first three potential MST users to gain entry in the marketplace. Both IPRC and
SWMC agree they will accept reduced net income on the first three MST units in
equal percentage proportions if either party determines a low cost "pioneer"
rate is required to make any of the first three MST unit sales or leases. This
reduction will apply to all phases of the project, including fabrication, sale
and lease income, but neither party will be required to perform any service for
a price below its actual cost. Each party agrees it will not unreasonably
withhold its cooperation or performance of otherwise obligated services should
either party request a "pioneer" rate. Both parties agree their primary emphasis
in making the first three MST unit sales or leases shall be on gaining market
entry and acceptance rather than meeting the income targets stated elsewhere in
this Agreement. Both parties also agree this "pioneer" option will only be
invoked after all reasonable efforts have been made to achieve a sale or lease
price in line with the standard MST unit pricing targets. Special "pioneer"
pricing shall not be available to either IPRC or SWMC for the sale or lease of
an MST unit for its own use unless specifically agreed to without prior
obligation by the other party.
5. EXCLUSIVE U.S. FABRICATOR. IPRC hereby grants SWMC the exclusive
right to fabricate all MST Units to be delivered to customers in the United
States through the term of the Agreement provided SWMC fulfills the marketing,
sales and fabrication obligations established by this Agreement. The preferred
fabricator will be Shaw Maintenance, Inc.
6. PREFERRED OVERSEAS FABRICATOR. IPRC also grants SWMC the exclusive
right to fabricate all MST Units to be delivered to customers outside of the
United States through the term of the Agreement provided SWMC fulfills the
marketing, sales and fabrication obligations established by this document
provided the use of SWMC as Fabricator does not conflict with local requirements
or inhibit the sale, lease or collective economic returns to the Parties related
to use of MST outside the United States.
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7. MICROWAVE APPLICATOR FABRICATION. IPRC will fabricate all patented
MST microwave applicator components, and SWMC shall obtain all patented MST
applicator components from IPRC at a cost that reflects IPRC's standard margins.
At its sole discretion, IPRC may elect to utilize the services of SWMC or a
third party contractor to fabricate the patented MST microwave applicator
components.
8. SEPARATION SYSTEM FABRICATION AND MST UNIT / SEPARATOR CONTROL
INTEGRATION. Some MST users will require both an MST Unit microwave system and a
product separator system to achieve their process goals. Since many separator
providers produce their own skid mounted systems, IPRC will generally contract
separately with these providers to obtain the separator equipment, and IPRC will
complete the integration of the mechanical and software control components of
the microwave and separator systems. At its sole discretion, IPRC may elect to
utilize the services of SWMC or a third party fabricator to complete integration
of the microwave and control components. In situations where this is impractical
or impossible, such as when an MST unit is part of a substantially larger
project, but not limited to that example, IPRC shall grant SWMC permission in
writing to enter into an appropriate contract to sell or lease MST technology
and shall not unreasonably withhold such permission.
9. LICENSE. IPRC hereby grants SWMC a non-exclusive license during the
term of this Agreement to use IPRC's patents; trade secrets and other related
intellectual property related to the MST Units as necessary to perform SWMC's
obligations under this Agreement.
10. MARKETING. Both parties agree to use reasonable effort to promote
the commercial success of the MST technology. Commercial success is defined as
the fabrication of at least one MST unit each calendar year during the term of
the Agreement. In consideration for these efforts, IPRC hereby grants SWMC the
right to market MST to potential MST customers within the fields of crude oil
production, refining and transport, biodiesel and alternative fuels production,
bilge water treatment and environmental clean up projects. IPRC will provide to
SWMC marketing material that can be utilized for marketing purposes. When
appropriate, the parties will continue to develop the current marketing
materials as well as future marketing materials in order to enhance current and
future opportunities.
11. FABRICATION PRICE AND PAYMENT TERMS. The price to be paid by IPRC
to SWMC for the MST Units will be negotiated and agreed to by the parties;
provided, that the price must at a minimum reflect SWMC's standard margins. The
price for Units will be reviewed periodically by the parties. Any changes and
timing of changes shall be agreed to by the parties. Prices quoted are exclusive
of federal, state and local excise sales use and similar taxes, and any other
duties, and the contract holder (either SWMC or IPRC) shall be responsible for
all such items. Payment for any related materials, services or other costs not
incorporated into the MST Unit(s) as part of the purchase order to be paid by
IPRC will be agreed to by the parties.
12. IPRC OPEN BID FABRICATION OPTION AND SWMC MATCHING FIRST RIGHT OF
REFUSAL. For any MST sale or lease in which SWMC is not the Primary Seller, IPRC
will have the right to obtain an open market bid for work essentially equal to
that proposed by SWMC. If a legitimate open market bid is less than the SWMC
cost by 10% or more, SWMC will have the right to match that bid and perform the
work with first right of refusal, and IPRC will have the right to select the
open bid proposal if SWMC declines to match the open bid.
13. WORK. SWMC agrees to use reasonable commercial efforts to perform
the Work pursuant to purchase orders or changes thereto issued by IPRC and
accepted by SWMC. "Work" means to procure Materials and to fabricate, assemble,
and test the MST Units pursuant to detailed written Specifications for each such
unit, which are provided by IPRC and accepted by SWMC, and to deliver and
install such units (depending on the specific scope of work that has been agreed
to). "Specifications" means for each MST Unit or revision thereof written
requirements that include, but are not limited to, bill of materials, designs,
schematics, assembly drawings, process documentation, test specifications and
other specification materials.
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14. PURCHASE ORDERS. IPRC, potentially in conjunction with Customer or
end-user will issue written purchase orders, which specify all Work to be
completed within a commercially reasonable period commencing on the date of the
purchase order. Each purchase order shall reference this Agreement and the
applicable Specifications. IPRC may use its standard purchase order form to
release items, quantities, prices, schedules, change notices, specifications, or
other notice provided for hereunder. The parties agree that the terms and
conditions contained in this Agreement shall prevail over any inconsistent terms
and conditions of any purchase order, acknowledgment form or other instrument.
15. SHIPMENTS. The MST Units are sold FOB SWMC's facility. Title to and
the risk of loss for the MST Units shall pass to IPRC upon delivery by SWMC to
an IPRC-specified carrier at the SWMC's delivery dock.
16. ENGINEERING CHANGES. IPRC may request in writing SWMC incorporate
engineering changes into MST Units. Such request will include a description of
the proposed engineering change sufficient to permit SWMC to evaluate its
feasibility and cost. SWMC's evaluation shall be in writing and shall state the
costs to include their standard margins and be in sufficient detail to include
material, anticipated labor costs, time for implementation and the impact on the
delivery schedule and pricing of the MST Units. SWMC will not be obligated to
proceed with the engineering change until (a) the parties have agreed upon the
changes to the MST Unit's Specifications, delivery schedule and unit pricing and
(b) IPRC has issued a purchase order for the implementation costs agreeing what
costs are to be borne by IPRC including, without limitation, one-time charges,
and the Cost of Inventory and Special Inventory on-hand and on-order that
becomes obsolete. Engineering changes deemed necessary by SWMC will be reviewed
and approved by IPRC before implementation.
17. UNIT ACCEPTANCE. The MST Units delivered by Fabricator will be
inspected and tested as required by IPRC within 60 days of receipt unless
customer schedules prohibit acceptance testing within 60 days, in which case
IPRC shall notify SWMC in writing and a suitable remedy shall be agreed to in
writing. If any MST Units are found to be defective in material or workmanship,
then IPRC has the right to reject such Units during said period. MST Units not
rejected during said period will be deemed accepted. IPRC may return defective
MST Units, freight collect, after obtaining a return material authorization
number from SWMC to be displayed on the shipping container and completing a
failure report. Rejected MST Units will be promptly repaired or replaced, at
SWMC's option, and returned freight pre-paid. If the Unit is source-inspected by
IPRC prior to shipment, IPRC will inspect goods five days prior to the requested
shipment date.
18. EXPRESS LIMITED WARRANTY. SWMC warrants MST Units will have been
fabricated in accordance with IPRC's applicable Specifications and will be free
from defects in workmanship for a period of 365 days from the date of
acceptance. Materials are warranted to the same extent that the original
manufacturer warrants the Materials. This express limited warranty does not
apply to (a) Materials consigned or supplied by IPRC to SWMC; (b) defects
resulting from failure due to IPRC's Specifications or the design of the MST
Units; (c) MST Units that have been abused, damaged, altered, not handled in
accordance with SWMC's instructions or misused by any person or entity after
title passes to IPRC. Upon any failure of a MST Unit to comply with the above
warranty, SWMC's sole obligation to IPRC, and IPRC's sole remedy, is for SWMC,
at its option, to promptly repair or replace such unit, at its cost up to the
compensation received for the deficient services or materials, and return it to
IPRC freight prepaid. IPRC shall return MST Units covered by the warranty
freight pre-paid after completing a failure report and obtaining a return
material authorization number from SWMC to be displayed on the shipping
container. IPRC will provide its own warranties, as applicable, directly to any
of its end users or other third parties. SWMC's express warranty set forth in
this paragraph shall be SWMC's exclusive warranty in lieu of any other warranty,
whether express or implied.
4
19. END-USER CONTRACTS. In general, regardless of which party is the
Primary Seller, the contract for the sale or lease of an MST Unit to a third
party user will be made between IPRC and the third party user. In situations
where this is impractical or impossible, such as when an MST unit is part of a
substantially larger project, but not limited to that example, IPRC shall grant
SWMC permission in writing to enter into an appropriate contract to sell or
lease MST technology and shall not unreasonably withhold such permission. This
agreement includes a "most favored nation" relationship whereby SWMC will
receive the lowest prices offered from IPRC for products and services.
20. TRAINING AND ROUTINE MAINTENANCE RESPONSIBILITY. IPRC will be
responsible to provide training on MST unit operation and routine maintenance to
protect its contract and warranty obligations and IPRC will retain any profit
from these operations. IPRC shall, by mutual agreement, transfer the actual
execution of these responsibilities to SWMC in situations where both parties
agree this is desirable and SWMC will retain any profit from these operations.
21. REVENUE SHARING FROM MST SALES CONTRACTS. MST units sold to
customers will generate a lump sum payment in the form of a capital sale markup,
which includes a one-time technology licensing fee per unit, and a monthly
income in the form of a standard capacity-based technology use fee per unit.
SWMC will receive a lump sum payment for the fabrication of the MST and retain
100% of the fabrication markup whereas IPRC will receive 100% of the fees
relating to technology licensing and use. When the lump sum payment from the
customer is received:
(a) SWMC will receive an amount to cover fabrication cost of the MST to
include their standard margin. IPRC will receive an amount to cover the cost
plus their standard margin of any centrifuge and separator equipment delivered
plus other costs required for the sale including, but not limited to
non-recovered laboratory and demonstration unit expenses, applicator
fabrication, microwave and separator mechanical and software control
integration, unit transport, insurance and start-up costs
(b) IPRC will receive AN AGREED UPON AMOUNT of the remaining lump sum
payment as a one-time technology licensing fee
(c) Any remaining funds from the lump sum payment will be split equally
between both parties
(d) IPRC will receive future monthly technology use fee payments
22. REVENUE SHARING FROM MST LEASE CONTRACTS. MST units leased to
customers will generate monthly income in the form of a lease payment and a
standard capacity-based technology use fee. The parties shall enter into a sales
leaseback arrangement with a third party financing company in order to satisfy
items 21(a) and 21(b) (as if it were a sale). Any lease revenue above the lease
payment to the third financing company will be split equally.
5
23. TERMINATION. This Agreement may be terminated by SWMC or IPRC for
any reason upon 90 days written notice to either party if (a) the other party
defaults in any payment to the terminating party and such default continues
after a cure for a period of 60 days after the delivery of written notice
thereof by the terminating party to the other party; or (b) if the other party
defaults in the performance of any other material term or condition of this
Agreement and such default continues un-remedied for a period of 60 days after
the delivery of written notice thereof by the terminating party to the other
party. Expiration or termination of this Agreement under any of the foregoing
provisions shall not affect the amounts due under this Agreement by either party
that exist as of the date of expiration or termination for any completed work
for any completed work or ongoing revenue sharing commitments
24. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary,
neither IPRC nor SWMC (including SWMC's or IPRC's respective affiliates,
subcontractors, vendors, suppliers, and employees) shall be liable for any
indirect, incidental, or consequential loss or damage (including loss of
profits), whether arising in contract, tort or otherwise, and irrespective of
fault or negligence. IPRC and SWMC's total aggregate liability in connection
with all claims related to any purchase order issued by IPRC under this
Agreement shall in no event exceed the compensation received under the specific
purchase order.
25. INDEMNITY. Each party agrees to indemnify, defend and hold harmless
the other party from any and all losses, claims, expenses, damages asserted
against or suffered by the other party to the extent caused by the party.
26. CONFIDENTIALITY. Both IPRC and SWMC recognize the importance of the
other parties' Confidential Information (as defined below). The receiving party
agrees (i) to hold the disclosing party's Confidential Information in strict
confidence and to take all reasonable precautions to protect such Confidential
Information (including, without limitation, all precautions the receiving party
employs with respect to its confidential materials), (ii) not to divulge any
such Confidential Information or any information derived therefrom to any third
person, and (iii) not to make any use whatsoever at any time of such
Confidential Information except as expressly authorized in this Agreement. Any
employee, agent or contractor given access to any Confidential Information must
have a legitimate "need to know" and shall be bound by confidentiality
obligations similar to those contained herein. Without granting any right or
license, the disclosing party agrees that the foregoing clauses (i), (ii) and
(iii) shall not apply with respect to information the receiving party can
document: (A) is in or (through no improper action or inaction by the receiving
party) enters the public domain; (B) was rightfully in its possession or known
by it prior to receipt from the disclosing party; (C) was rightfully disclosed
to it by another person without restriction; or (D) is required to be disclosed
by the receiving party to comply with applicable laws or regulations, to defend
or prosecute litigation or to comply with governmental regulations, provided
that the receiving party provides prior written notice of such disclosure to the
disclosing party, takes reasonable and lawful actions to avoid or minimize the
degree of such disclosure and provides the disclosing party a reasonable
opportunity to seek a protective order or injunction to limit such disclosure.
For purposes of this Agreement, "Confidential Information" of a disclosing party
shall mean, any information relating in any way to the properties, products,
processes or business of the disclosing party (including, without limitation,
source code, computer programs, algorithms, names and expertise of employees and
consultants, trade secrets, know-how, formulas, processes, inventions (whether
patentable or not), schematics and other technical, business, financial,
customer and product development plans, forecasts, strategies and information).
Where appropriate the parties agree that some information, which may be
considered confidential, may need to be presented within marketing material. For
that purpose both parties agree the information will not be confidential and can
be disclosed. Specifically, the parties agree that information included in
presentations, brochures and other marketing material including hard-copy and
electronic version developed by IPRC or jointly by the parties will not be
considered Confidential Information unless they are clearly marked
"Confidential".
6
Immediately upon termination or expiration of this Agreement, the
receiving party will turn over to the disclosing party all Confidential
Information of the disclosing party and all documents or media containing any
such Confidential Information.
The receiving party acknowledges and agrees that due to the unique
nature of the disclosing party's Confidential Information, there can be no
adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the receiving party or third parties to unfairly compete
with the disclosing party resulting in irreparable harm to the disclosing party,
and therefore, that upon any such breach or any threat thereof, the disclosing
party shall be entitled to appropriate equitable relief in addition to whatever
remedies it might have at law. Any breach of this Section will constitute a
material breach of this Agreement.
27. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties with respect to the transactions contemplated hereby and
supersedes all prior agreements and understandings between the parties relating
to such transactions.
28. AMENDMENTS. This Agreement may be amended only by written consent
of both Parties.
29. INDEPENDENT CONTRACTOR. Neither party shall, for any purpose, be
deemed to be an agent of the other party. The relationship between the parties
shall only be that of independent contractors. Neither party shall have any
right or authority to assume or create any obligations or to make any
representations or warranties on behalf of any other party, whether express or
implied, or to bind the other party in any respect whatsoever.
30. EXPENSES. In the event a dispute between the parties hereunder with
respect to this Agreement must be resolved by litigation or other proceeding or
a party must engage an attorney to enforce its right hereunder, each party shall
pay its legal fees.
31. INSURANCE. SWMC and IPRC agree to maintain appropriate insurance to
cover their respective risks under this Agreement with coverage amounts
commensurate with levels in their respective markets. IPRC specifically agrees
to maintain insurance coverage for any finished MST Units or Materials the title
and risk of loss of which passes to IPRC pursuant to this Agreement and that are
stored on the premises of IPRC.
32. FORCE MAJEURE. In the event that either party is prevented in good
faith from performing or is unable to perform any of its obligations under this
Agreement (other than a payment obligation) due to any Act of God, fire,
casualty, flood, earthquake, war, strike, lockout, epidemic, destruction of
production facilities, riot, insurrection, Materials unavailability, or any
other cause beyond the reasonable control of the party invoking this section,
and if such party shall have used its commercially reasonable efforts to
mitigate its effects, such party shall give prompt written notice to the other
party, its performance shall be excused, and the time for the performance shall
be extended for the period of delay or inability to perform due to such
occurrences. Regardless of the excuse of Force Majeure, if such party is not
able in good faith to perform within 90 days after such event, the other party
may terminate the Agreement.
33. SUCCESSORS, ASSIGNMENT. These Agreements shall be binding upon and
inure to the benefit of the parties hereto and there respective successors,
assigns and legal representatives. Neither party shall have the right to assign
or otherwise transfer its rights or obligations under this Agreement except with
the prior written consent of the other party, not to be unreasonably withheld.
Notwithstanding the foregoing, SWMC may assign this Agreement to any of its
affiliates with IPRC approval which will not be unreasonably withheld
7
34. NOTICES. All notices required or permitted under this Agreement
will be in writing and will be deemed received (a) when delivered personally;
(b) when sent by confirmed facsimile; (c) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or (d)
one day after deposit with a commercial overnight carrier. All communications
will be sent to the addresses set forth above or to such other address as may be
designated by a party by giving written notice to the other party pursuant to
this section.
35. PRESS RELEASES. A party shall not issue any press release, circular
or announcement in relation to this Agreement without the prior written consent
of the other Party; provided, however, that a party may make such disclosures as
required by law or by the rules of any stock exchange.
36. EVEN-HANDED CONSTRUCTION. The terms and conditions as set forth in
this Agreement have been arrived at after mutual negotiation, and it is the
intention of the parties that its terms and conditions not be construed against
any party merely because it was prepared by one of the parties.
37. GOVERNING LAW. This Agreement shall be governed and construed in
all respects in accordance with the domestic laws and regulations of the State
of Louisiana, without regard to its conflicts of laws provisions.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By: /s/ Alan B. Springer
--------------------------------------------
Name: Alan B. Springer
Title: Chairman and Chief Executive Officer
STONE & WEBSTER MANAGEMENT CONSULTANTS, INC.
By: /s/ Daniel J. Shapiro
--------------------------------------------
Name: Daniel J. Shapiro
Title: President
8
Exhibit 21.1
Subsidiaries of Registrant
Petrowave Corporation
1970 S Starpoint Dr.
Houston, TX 77032
100% Owned Subsidiary
Tax ID#91-1953872
Exhibit 31.1
CERTIFICATIONS
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Alan Springer, certify that:
1. I have reviewed this annual report on Form 10-KSB of Imperial
Petroleum Recovery Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
November __, 2005
By: /s/ Alan Springer
---------------------------------------------
Alan Springer
Chief Executive Officer, President and Director
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATIONS
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Edward C. Gaiennie, certify that:
1. I have reviewed this annual report on Form 10-KSB of Imperial
Petroleum Recovery Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November __, 2005
By: /s/ Edward C. Gaiennie
---------------------------------------------
Edward C. Gaiennie
Chief Financial Officer
(Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Imperial Petroleum Recovery
Corporation; (the "Company") on Form 10-KSB for the year ending October 31, 2004
(the "Report"), as filed with the Securities and Exchange Commission on the date
hereof, I, Alan Springer, President and Chief Executive Officer of the Company,
hereby certify, to such officer's knowledge, that pursuant to 18 U.S.C. Sec.
1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
By: /s/ Alan B. Springer November __, 2005
--------------------------------------------------
Alan B. Springer
Chairman, President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Imperial Petroleum Recovery
Corporation; (the "Company") on Form 10-KSB for the year ending October 31, 2004
(the "Report"), as filed with the Securities and Exchange Commission on the date
hereof, I, Edward C. Gaiennie, Chief Financial Officer and Principal Accounting
Officer, hereby certify, to such officer's knowledge, that pursuant to 18 U.S.C.
Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
By: /s/ Edward C. Gaiennie November __, 2005
--------------------------------------------------
Edward C. Gaiennie
CFO, Secretary-Treasurer and Principal Accounting Officer
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