Business Plan s10

Business Plan

THE “SEADOG™” PUMP

FEBRUARY 2004

A Primary, Renewable Resource Competitive with Coal & Gas

INRI Independent Natural Resources, Inc. 7466 Washington Avenue South Eden Prairie, MN 55344 Tel: (952) 920-8035 or (877) INRIUSA Fax: 952-697-3058

Email: [email protected]

February 2004 CONFIDENTIAL INRI

TABLE OF CONTENTS

A. The Company...... 1

B. The Product...... 3

1. The SEADOG™ Pump...... 3 2. Energy Output of the SEADOG™ Pump...... 3 3. Independent Verification of the SEADOG™ Pump...... 4 4. SEADOG™ System Level Concept...... 6 5. Summary of Significant Benefits...... 7

C. Energy Production of the SEADOG System...... 8

D. Phase I - SEADOG Development: 16-Pump System...... 9

E. Phase II - SEADOG Commercial Feasibility: 200-Pump System (6.7 MW)...... 11

F. Phase III – Full-Scale SEADOG Commercialization: 755 MW Facility...... 13

G. Summary of INRI/Sublicensee Returns...... 14

ATTACHMENT 1: SEADOG PROPOSALS FOR INSTALLATION SITE...... 15

ATTACHMENT 2: PRESS RELEASES REGARDING SEADOG...... 19

ATTACHMENT 3: TEXAS A&M PHYSICAL MODEL TEST REPORT...... 25

ATTACHMENT 4: INRI WORKING CAPITAL – 2004...... 31

ATTACHMENT 5: WORLDWIDE MARKET SUMMARY...... 32

February 2004 i CONFIDENTIAL INRI

A. The Company

Independent Natural Resources, Inc. (“INRI”) is an energy technology company that develops products for generating electricity from clean, renewable and environmentally friendly sources of power.

In the renewable energy sector, development has focused primarily on wind and solar technologies, and nothing significant on hydroelectric energy1. However, both wind and solar technologies have limitations in scalability because of their intermittent nature, leading to low capacity factors. “Capacity Factor” is defined as the ratio of actual energy output compared to the amount of energy produced if operating at full-rated power 24 hours a day over a given period of time. At best, wind can reach capacity factors of about 38% while solar can only generate energy during daylight hours and is very costly to produce. Without an adequate solution to the problem of energy storage, these two technologies can only serve as “secondary” sources of power.

To provide a viable solution to the intermittent nature of renewable energy sources, INRI has developed two innovative products, the A/WERD™ product, which recovers lost energy from the existing natural gas distribution system, and the SEADOG™ pump, which captures ocean wave energy. This Business Plan describes the SEADOG™ pump, which is capable of achieving primary source power generation as it captures the renewable energy of our oceans with a capacity factor exceeding 90% while competing in price with that of the depleting fuels – coal, oil and gas.

1. Current situation

INRI has built and tested a laboratory prototype of the SEADOG™ pump and filed patent applications covering the SEADOG™ pump and pump systems as described more fully in Section B. This prototype pumped water at a rate and pressure capable of generating substantial electrical energy as set forth in Section C. INRI then built a 1/32-scale prototype that was tested by Texas A&M University to independently verify the energy production capability of the lab model. Texas A&M test results exceeded expectations as recently announced in the press igniting interest at all levels around the world to fund and develop an installation site for a small field of SEADOG™ pumps (See Attachment 1).

INRI now desires to raise $4,000,000 to fund Phase I of a program to further develop, test and commercialize the SEADOG™ pump. Phase I will include the construction and operation of a 16-pump SEADOG™ pilot plant that generates 750KW. (See Section D) Energy production by this site will prove the viability of the SEADOG™ technology and provide the basis for full- scale construction of a 6.7-megawatt hydroelectric plant “fueled” by SEADOG™ pumps (See Section E – Phase II). Economical green energy from this site will be sold in the California or the European power market, probably Spain, and “scaled up” by adding two additional 6.7 MW plants to form a 600-Pump, 20.10 MW System (See Section F – Phase III). Ultimately, we

1 S-14 and HR-6 are the first bills that have been introduced and passed to appropriate money for the development of ocean wave technology. The Conference Committee did not combine them into a single bill before Congress adjourned at the end of the year.

February 2004 1 CONFIDENTIAL INRI contemplate the construction of a “square-mile” facility generating between 242 and 755 MW as wave heights vary from 5 to 9 feet depending on the site (See Section G). Some more aggressive supporters are interested in moving directly to the one-square mile facility after Phase I. Currently, we are focusing on the development of the 16-pump SEADOG™ facility that will offer our investors the following:

a. What does INRI offer investors in Phase I?

 Participation in a high risk/high reward venture.  Up to 1,600,000 shares of INRI’s common stock (a 7.36% equity interest).  First right to participate in subsequent investments in the full-scale commercialization of the SEADOG™ technology (See Sections E and F).

b. Exit strategies can be “sell equity” or “cash flow”:

 Sell equity to NewCo after successful demonstration of the 16-pump pilot system (January 2005).  Sell equity of local participation to other institutional investors(s).  Sell equity to industrial partners after successful demonstration of the 16- pump hydroelectric plant “fueled” by SEADOG™ pumps (December 2005).  Cash flow from sales of power generated from the full-size commercial SEADOG™ power plant.  Cash flow from licensing fees generated from licensing plants to operators.

2. Phase I Project for development of the 16-pump SEADOG™ Pilot Plant.

 Design and engineering of full-scale SEADOG™ pump.  Design and engineering of the grid and commercial system.  Build the SEADOG™ pumps and the connecting infrastructure.  Install and run commercial 16-pump system.

Period: March 1, 2004 until December 31, 2004 (See Section D for more detail).

3. Patent Applications filed to cover the SEADOG™ Pumps and Systems

Patent applications have been filed to cover the SEADOG™ pumps, which are shrouded in the secrecy of the United States Patent and Trademark office and only disclosed for review under a confidentiality agreement, to preserve the Company’s proprietary position. These patent applications included multiple embodiments of the SEADOG™ pump, including the prototype and systems utilizing an array, or “field,” of SEADOG™ pumps for full-scale commercial generation or electrical energy and a variety of methodologies for configuring and deploying buoyancy pumps.

February 2004 2 CONFIDENTIAL INRI

B. The Product

1. The SEADOG™ Pump

The SEADOG™ pump is a “point absorbing” wave energy converter that primarily uses buoyancy as a means of converting wave energy to mechanical energy by utilizing a moving volume of water to pump gas, liquid and combinations thereof. The mechanical energy generated by the pump can be converted to electricity or used for purposes of providing potable water, aquaculture habitats, and pressurized air for multiple applications such as cooling and running turbines or equipment.

The main components of the SEADOG™ pump include a buoyancy chamber, buoyancy block, piston assembly, piston shaft, piston cylinder and intake and exhaust valves. (See Figure 1) As the SEADOG™ pump is positioned in the water, the buoyancy block (filled with air) floats within the buoyancy chamber, moving up and down in relation to ocean waves and tides. The buoyancy block is connected to the piston shaft, which in turn moves the piston assembly through the piston cylinder. As the buoyancy block floats down in the trough of a wave, it draws the piston downward through the piston cylinder.

This downward movement draws water or air (depending on the type of application a particular SEADOG™ pump site is designed for) into the piston cylinder through the intake valve. (For purposes of this explanation we will continue using water being drawn into the piston cylinder as our medium.) Water drawn through the intake valve fills the piston cylinder chamber. As the next wave lifts the buoyancy block, the water is compressed within the piston cylinder and expelled through the exhaust valve. One cycle of the buoyancy block rising and falling to draw in and expel water is called a “stroke”. Each stroke of the piston causes the water to be pumped from the piston cylinder in a regular manner. As the SEADOG™ pump continues to pump in tandem with other SEADOG™ pumps, a predictable flow of water can be expected. Ultimately, water is pumped to an elevated reservoir (see Section B.4), and then released to flow down from the elevated reservoir to drive a turbine that generates electrical power.

2. Energy Output of the SEADOG™ Pump

This predictable flow of water, based on average wave heights and speeds at each plant site, generates horsepower which can be converted to a corresponding amount of electrical power produced by the total number of SEADOG™ pumps. Based on actual wave data from the National Data Buoy Center (Buoy 029 off the coast of Point Reyes, California) and the SEADOG™ pump prototype, we originally estimated that each pump would generate over 35 kilowatts/pump and confirmed these numbers with our original SEADOG™ model that we built and operated at our facility. We also estimated that when a single SEADOG™ pump is connected to a grid of pumps, it would deliver about 33 KW capable of supplying electricity to about 38 homes. We realized, however, that we needed to conduct an independent study of a larger SEADOG™ prototype configured more to scale for operation in a wave tank to confirm our findings.

Figure 1 – SEADOG™ PUMP

3. Independent Verification of the SEADOG™ Pump

After testing the original SEADOG™ model, INRI constructed a 1/32-scale prototype that was tested in the wave tank of Texas A&M University as shown in Figure 2 below. The tests confirmed our original estimates as announced this past December (See Attachment 2 – Independent Verification of SEADOG™, announcement entitled “New Wave-Pump Technology Successfully Captures Energy from Waves”). This was followed by an article in the February issue of the “Chemical Engineering Process Magazine” (See Attachment 2). The team at Texas A&M University’s Offshore Technology Research Center (OTRC) has recently completed a detailed report on the results (See Cover letter from Richard Mercier dated February 24, 2004; Attachment 3). In comparison with the original SEADOG™ model, the results of the test not only confirms that the SEADOG™ pump works, but also that it generates 95% of the power originally estimated as indicated below Figure 2:

Figure 2 - SEADOG™ PUMP at Texas A&M

Original Model 1/32-Scale Prototype

Energy Production 35.31 KW2 33.55 KW

Total Energy/Year (7,008 hrs/yr)3 247,452 KWh/yr 235,118 KWh/yr

Homes Supplied/Year 4 38 homes 36 homes

The Texas A&M results using the 1/32-scale SEADOG™ Prototype were significantly better than expected which makes a system or field of SEADOG™ pumps even more attractive and competitive with oil and gas.

2 Did not consider losses due to pipes connecting pump to system.

3 This assumes more conservatively a Capacity Factor of 80% rather than 90% (see Section A).

4 Average home in California consumes about 6,500 KWh/year.

4. SEADOG™ System Level Concept

As noted earlier, the SEADOG™ pump is a “point absorbing” wave energy converter. It is designed to extract a small amount of energy from a portion of the wavefront as the wave passes by, as opposed to other wave energy designs that attempt to extract large amounts of energy but may terminate or significantly reduce the wave in the process. In a 1999 report, “A Brief Review of Wave Energy”, prepared for The UK Department of Trade and Industry, researchers note that:

“ one of the most significant developments since the earlier review is the evolution of small-scale floating devices, which have the potential to capture energy from a wave front that is larger than their physical dimensions (i.e. a high capture efficiency).”

The SEADOG™ pump maximizes its efficiency by working collectively with other SEADOG™ pumps deployed in groupings or arrays. This is just one concept that allows the SEADOG™ pump to gain a competitive advantage over other devices that are attempting to extract wave energy.

Figure 3 below illustrates the concept of a 200-pump SEADOG™ hydroelectric site. The arrangement of the pumps will depend on wave height, speed and directional considerations for each selected site. As each SEADOG™ pump operates independently, each one pumps water into the pipe system, moving it toward shore. The pressure that is generated by the SEADOG™ pumps moves the water to a reservoir on the top of a cliff, embankment or tower. From the reservoir, water flows continuously out of the reservoir and drops back down the side of the cliff, creating the required head pressure to run hydroelectric dam turbines and generate electricity.

Figure 3 – SEADOG™ System Concept

Essentially, a “shoreline dam” capable of producing large amounts of renewable energy is created without the negative environmental impacts of river dams (blocking major rivers and changing the surrounding habitat) and at a fraction of the cost. Hydroelectric dam power is already accepted as a highly efficient, cost-effective method for energy production. INRI and the SEADOG™ pump have now made it possible to transform thousands of coastline miles in the U.S., Canada, Europe and other countries around the world into substantial hydroelectric power production at a fraction of the cost for a river dam.

It should be noted that SEADOG™ systems have several competitive advantages, including the fact that there is very little “system” downtime due to maintenance and repairs. Unlike large wave conversion devices, the loss of one SEADOG™ pump, or even several pumps, does not substantially influence the system’s generating capacity. In addition, revenues can be realized during the site installation process to help offset some of the initial capital investment. Power can be generated in phases as the SEADOGS are being installed. Fundamentally, the SEADOG™ System is scaleable depending on the regional demand.

5. Summary of Significant Benefits

The SEADOG™ pump system offers significant benefits compared to coal, gas and oil- fueled power production, that are not offered by other renewable sources.

• First, the system has no fuel costs, the resource is renewable as long as the wind blows and the moon creates tidal motion.

• Second, ocean waves are a consistent, renewable resource with a capacity factor of 90+% making it the only primary, renewable resource unlike the other renewable sources.

• Third, the capacity of the reservoir is designed to match historical wavedata with local demand to satisfy peak demand requirements by continuous pumping during low demand periods.

• Fourth, the system sits on the ocean floor without negative environmental impact and pumps water and/or air which creates no pollution.

• Fifth, the system competes head to head with coal and gas in cost to produce and, therefore, is cost competitive as well. Our estimated cost to produce using a one-square-mile system is about 2¢ per KWh. Coal, gas, and oil-fueled sources cost roughly 3¢ per KWh to produce as will be discussed in more detail below.

BOTTOM LINE: NO other primary, renewable resource exists today, let alone one that can compete head-on with coal and gas.

C. Energy Production of the SEADOG System

The preeminent locations for our SEADOG™ systems in the U.S. are the Northern Coast of California, Oregon, Washington, Alaska, Hawaii, and the New England coast. These areas also currently pay the highest consumer costs for electricity. The western coast of Europe is also a prime wave resource location, one of the candidates being Spain. The following energy computations are based on California consumption as footnoted.

 Single Pump:

Energy Production = 33.55 KW (avg. “system-connected” output)

Total Energy/Year = (33.55 KW) (7,008 hrs/yr) = 235,118 KWh/year

Homes/Year = (235,118 KWh/year)/6,500 KWh5 ≈ 36 homes

 16-Pump System:

Energy Production = 536.8 KW (avg. output) ≈ 537 KW System

Total Energy/Year = (536.8 KW) (7,008 hrs/yr) = 3,761,894 KWh/year

Homes/Year = (3,761,894 KWh/year)/(6,500 KWh/home) 5 ≈ 580 homes

 200-Pump System:

Energy Production = 6,710 KW (avg. output) ≈ 6.7 MW System

Total Energy/Year = (6,710 KW) (8,760 hrs/yr) = 47,023,680 KWh/year

Homes/Year = (47,603,680 KWh/year)/(6,500 KWh/home) 5 ≈ 7,235 homes

D. Phase I – SEADOG Development: 16-Pump System

5 Average home in California consumes about 6,500 KWh/year.

This is a development phase consisting of two projects (Projects IA and 1B) set forth in more detail below. During this phase, INRI will redesign the SEADOG™ prototype and construct a 16-pump pilot plant system to prove the SEADOG™ technology, assess the costs of constructing and operating a multi-pump system, and to demonstrate the commercial viability of the 200- pump hydroelectric plant system contemplated by Phase II (Section E).

Project 1A: Prototype Redesign and Feasibility Study

During this project, the results of wave tank testing will be examined to determine what improvements (if any) should be made to the design of the SEADOG™ pump to improve its operation or make it more economical to install, operate, and maintain. Patent filings will be prepared to protect the unique technology used in such improvements. Once the SEADOG™ has been redesigned, an engineering firm will be engaged to prepare blueprints and cost estimates of multi-pump systems. In addition, SDC will begin the process of obtaining the necessary governmental permits and real property rights to install the 16-pump pilot plant system and erect a temporary reservoir. This project will cost $270,000 and will take an estimated 3-4 months to complete.

Goals:

 Improve the SEADOG™ design based on results of the wave tank tests at Texas A&M.  Design and engineering of full-size SEADOG™ pump.  Build commercial prototype design of the full-size SEADOG™ pump.  Document the material and engineering aspects of the SEADOG™ pump so that pumps can be mass-produced.  Determine the costs of manufacturing and installing a multi-SEADOG™ pump system.

Costs:

Prepare Engineering Drawings $15,000 Prepare Cost Estimates for Manufacturing 15,000 Site Layout for 16 Pumps offshore northern California 25,000 Build a full-size SEADOG™ pump 50,000 Engineering Review and Certificate of Output 25,000 Accounting Verification 20,000 Site Location and Permission 25,000 File Patent Application on Improved Pump 65,000 Project Review and Presentations 30,000 Total Project Cost $270,000

Project 1B: Install 16-pump pilot plant system

During this project, a 16-pump pilot plant system will be constructed and installed offshore in northern California to demonstrate the SEADOG™ pump’s ability to pump seawater into a reservoir at a sufficient elevation and in sufficient quantity to supply a hydroelectric plant. Based on the results of this field test, further improvements may be made to the design of the SEADOG™ pump to improve its operation or make it more economical to install, operate, and maintain. Patent filings will be prepared to protect the unique technology used in such improvements. This project will cost $3,000,000 and will take an estimated 4-8 months to complete.

Goals:

 Field-test a 16-pump pilot plant system to prove economic viability of SEADOG™ technology.  Determine whether further improvements to the SEADOG™ pump are warranted prior to commercial installation.

Costs:

Manufacture 16 Pumps $ 636,441 Obtain Formal Site Permits 25,000 Install 16-Pump System and pipe grid 968,256 Build Reservoir for Water from System 35,510 Install Turbine system for Generating Power 713,663 Grid tie output energy system 496,130 Monitor Results and Prepare Reports 25,000 Engineering Review and Certification 25,000 File Patent Application on System 55,000 Project Review and Demonstration 20,000 Total Project Cost $3,000,000

Total Costs for Projects 1A and 1B:

Project 1A $ 270,000 Project 1B 3,000,000 Working Capital6: Salaries $ 180,000 Consultants 72,200 Legal Fees 161,000 General Office Expenses 177,800 Potential Finders’ Fees 135,000 730,000 Total Budgeted Cost: $4,000,000

6 See Attachment 4 for detail.

E. Phase II – SEADOG Commercial Feasibility: 200 Pump System (6.7MW)

1. Revenue Projections: After successfully demonstrating the 16-pump SEADOG™ system in Phase I, we plan to expand that site into a 200-pump system to demonstrate the commercial feasibility of a field of SEADOG™ pumps. As illustrated above in Section B.4., the arrangement of pumps will depend on the wave height, speed and directional considerations for that particular site. As the SEADOG™ pumps force water into the reservoir which releases water into the turbines, electrical energy is generated and distributed to the consumers. The following computations indicate the energy production from each system and how it might be distributed to consumers to generate revenue:

 Single Pump:

Energy Production = 33.55 KW (avg. “system-connected” output)

Total Energy/Year = (33.55 KW) (7,008 hrs/yr) = 235,118.40 KWh/year = 235,118.40 KWh/year

Revenue/Year = (95,466 KWh/year) ($0.0616/KWh)7 ≈ $14,483/year

 16-Pump System:

Energy Production = 536.80 KW (avg. output) ≈ 537 KW System

Total Energy/Year = (536.80 KW) (7,008 hrs/yr) = 3,761,894 KWh/year

Revenue/Year = (3,761,894 KWh/year) ($0.0616/KWh) 7 ≈ $231,733/year

 200-Pump System:

Energy Production = 6,710.00 KW (avg. output) ≈ 6.71 MW System (6.71 MW Plant)

Total Energy/Year = (6,710.00 KW) (7,008 hrs/yr) = 47,023,680 KWh/year

Revenue/Year = (47,023,680 KWh/year) ($0.0616/KWh) ≈ $2,896,659/year 2. Cost Projections for 200-Pump Hydroelectric Plant:

a. Cost to Build:

7 Green Rate for consumers in California including tax incentives.

Total Cost 1. Manufacture 184 Pumps $6,480,984 2. Site Layout for 184 Pumps offshore northern California 1,150,596 3. Site Acquisition and Permission 973,840 4. Install 184-Pump System 1,398,720 5. Build Reservoir for Water from Pump System 1,036,035 6. Construct Hydroelectric Generation Facility 1,997,500 7. Architectural/Engineering Review and Certification 500,000 8. Obtain rights for transmission lines 376,629 9. Build transmission facilities to connect to CA power grid 1,988,576 Total Cost: $15,902,880

Actual Investment – 20% (finance 80%)*: $ 3,180,576

Cost/KW Installed: $3,180,576/6.71 MW = $474/KW

b. Annual Costs: 1. Amortize 80% of Total Cost (30 years @ 5%)* $ 827,604 2. Maintenance Costs (2.5% Cost to Build) 397,572 3. Operational Costs (2.5% Cost to Build) 397,572 Total Cost: $ 1,622,748

Cost/KWh for operating: $1,622,748/47,023,680 KWh per year = 3.45¢/KWh

3. Return Projected for Building and Operating 200-pump Hydroelectric Plant (6.7 MW):

Total Investment to build Plant (assume 20% of total cost): $3,180,576 ($474/KW to build prototype plant)

Gross Revenue/year (using 0.0616¢/KWh) $2,896,657 Annual Cost (3.45¢/KWh) 1,622,748 Net Income (before taxes and Sublicense Return) $1,273,909

Expected Return for Sublicensee (@ 11.2% return)8 - 324,426 Expected Sublicense Fees paid to INRI $ 949,483

Return on Investment (after Sublicense Return) 29.85% [$949,483 / $3,180,576]

F. Phase III – Full-Scale SEADOG Commercialization

1. 20.10 MW Facility. Return Projected for 600-Pump Hydroelectric Plant using Estimated Production Costs: Existing 6.71 MW facility is expanded by adding two 200-

8 The Sublicensee operates the plant and expects a return in excess of the industry standard return for a new power plant which is 11.2% of the Gross Revenue.

pump grids to the system for $10 million each with “improved” SEADOG™ pumps to generate 20.10MW.

Total Investment to build Plant (assume 20% of total cost $7,180,576 of 600 pumps; $357/KW to build plant)

Gross Revenue/year (using 0.616¢/KWh rate) $8,677,025 Annual Cost (2.08¢/KWh) 3,645,394 Net Income (before taxes and Sublicense Return) $5,031,631

Return on Investment (before Sublicense Return) 70.07% [$5,031,631 / $7,180,576]

Net Income (before taxes and Sublicense Return) $5,031,631 Expected Return for Sublicensee (@ 11.2% return) - 971,827 Expected Sublicense Fees paid to INRI $4,059.804

Return on Investment after Sublicensee Return 56.54%

2. 242/755 MW Facility: Return Projected for 1 Square Mile Commercial SEADOG Hydroelectric Plant using Estimated Production Costs (assume a 755 MW facility):

Total Investment to build Plant (assume 20% of total cost $217,141,104 23,638 pumps; 274/KW to build plant)

Gross Revenue/year (using .0616¢/KWh rate) $325,928,064 Annual Cost (2.08¢/KWh) 110,236,975 Net Income (before taxes and Sublicense Return) $215,691,089

Return on Investment (before Sublicense Return) 99.33% [$215,691,089 / $217,141,104]

Net Income (before taxes and Sublicense Return) $215,691,089 Expected Return for Sublicensee @ 11.2% return) - 24,157,402 Expected Sublicense Fees paid to INRI $ 191,533,687

Return on Investment after Sublicensee Return 88.21%

G. Summary of INRI/Sublicensee Returns

Phase I: Develop 16-Pump Subsystem

Working Capital: 12 mos. $ 730,000

Project 1A: 3-4 mos. 270,000

Project 1B: 4-8 mos. 3,000,000

TOTAL 1 year $4,000,000

Capital Investment Annual Operation of Facility

Projected Stages: Time Amount (20%) Cost/KW Revenue Income Return (Cost/KWh) (Rate) Phase II: Commercial Feasibility (200 pump)

Add 184 Pumps 6-9 mos. $ 3,180,576 $474 $2,896,657 $1,273,909 $ 949,483 (200)/6.71 MW (3.45¢)9 29.85%

Phase III (1): Commercialization (600 pump) Add 400 Pumps 18 mos. $ 7,180,576 $357 $8,677,025 $4,617,221 $4,059,804 20.10 MW (2.08¢) 56.54%

Phase III (2): Commercialization (23,638 pump) (755 MW) $217 Million $274 $325 Million $135 Million $191.5 Million (2.08¢) (88.21%)

9 Total Operating Cost / Total KWh produced (e.g., 47,023,680 KWh/200-pump hydroelectric plant).

Attachment 1

SEADOG PROPOSALS FOR INSTALLATION SITE

1. California: Region Economic Development Commission

2. Hawaii: available upon request

3. East Coast: available upon request

4. Spain: available upon request

CHRISTOPHER K. H. GUAY EARTH SCIENCES DIVISION ERNEST ORLANDO LAWRENCE BERKELEY NATIONAL LABORATORY ONE CYCLOTRON ROAD, MAILSTOP 90-1116 BERKELEY, CALIFORNIA 94720 USA Tel: 510-486-5245 • Fax: 510-486-5686 • E-mail: [email protected]

February 2, 2004

Mark A. Thomas, CEO Independent Natural Resources, Inc. 5250 Villa Way #335 Edina, MN 55436

Dear Mark,

I am writing to summarize some of the items we have been discussing over the past several weeks. I am very excited by the potential of the SEADOG pump system for generating renewable power in California, and I am looking forward to working with you to establish a trial installation on the northern California coast. I believe that my experience with ocean renewable energy research and my familiarity with the California regulatory and permitting process will help to launch this project in a timely and expedient manner.

Regarding a site for the SEADOG pump installation, I feel that Humboldt County offers a particularly attractive location. The wave spectrum along the Humboldt coast is highly energetic, there is a strong interest in renewable energy among the local population and government, and the local business community and government are aggressively courting new industries in order to offset the decline of the logging industry. In addition, there is a source of technical expertise in renewable energy available at the Schatz Energy Research Center of Humboldt State University (whose projects include a solar hydrogen facility that powers the air compressors for the aquaria at the university’s Telonicher Marine Laboratory in the coastal town of Trinidad).

I have spoken with Tom Hofweber, who is a senior supervisor in the Humboldt County Planning Division (and, as such, would be directly involved in issuing the permits required for the construction and operation of the test installation). Mr. Hofweber expressed interest in the project and identified prospective sites in Humboldt County that would be appropriate for the project. The currently most promising site is Table Bluff, which is situated on the southern end of Humboldt Bay approximately 8 miles southwest of the City of Eureka. This site has the advantages of high coastal bluffs, absence of environmentally sensitive rocky intertidal habitat offshore, and proximity to power transmission lines and the county’s largest population center. Other possible sites include Trinidad Head and the Highway 101 overlook outside McKinleyville. Mr. Hofweber is looking further into the regulations governing these specific sites and will contact me presently with further details.

I have also spoken with Bob Merrill, the District Manager of the North Coast District Office of the California Coastal Commission. Mr. Merrill has worked on coastal regulatory issues with the

Coastal Commission for many years, and he would likely be directly involved with the permitting process for the SEADOG project. We discussed aspects of the project design that will expedite the permit application process and maximize the chances of a successful outcome, such as exclusively employing temporary structures that can be completely removed upon completion of the test period (e.g., using cement slabs to anchor the pumps instead of driving pilings into the seafloor). We plan to have another telephone conference after he has had some more time to think about issues relating to the specific proposed project sites on the Humboldt County coast.

Upon consideration of all the information I have obtained thus far, I am very optimistic about the feasibility of carrying out the SEADOG project in Humboldt County. It is my opinion that the project will receive a considerable amount of support from local agencies and individuals, and I believe that it will be possible to select an optimal installation site and complete the entire permitting process (Federal, State and local) within 6-12 months. I look forward to our further collaboration in planning and implementing this project.

Sincerely,

Dr. Christopher K. H. Guay

Attachment 2

PRESS RELEASES REGARDING SEADOG TEST RESULTS

FOR IMMEDIATE RELEASE

CONTACT: Mark Thomas Paul Omodt Independent Natural Resources Inc. Padilla Speer Beardsley Inc. 952-920-8035 612-455-1732 [email protected] [email protected]

New Wave-Pump Technology Successfully Captures Energy from Waves With strong wave-tank trial results, company now seeks test sites for new hydroelectric system

MINNEAPOLIS (Dec. 11, 2003) – Minnesota-based energy technology company Independent Natural Resources Inc. (INRI) today announced it has successfully tested its new system for transferring ocean-wave power into renewable energy. Conducted in a wave tank at Texas A&M University’s Offshore Technology Research Center, INRI’s tests validate the results of several years of concepts and planning, showing the company’s “SEADOG” wave-pump technology has the potential to serve as a viable source of renewable power – harvesting renewable power from ocean waves. To further prove the wave pump’s viability, INRI is now looking to create a “wave farm” test field in a coastal area capable of providing consistent ocean swells – a concept similar to electricity-generating “wind farms.” “Our tests at Texas A&M last month exceeded our expectations and we’re confident that our engineers have developed a new proprietary technology that can serve as a safe, efficient system for gathering renewable energy from ocean waves,” said Mark A. Thomas, chief executive officer, INRI. “Going forward, we’re seeking actual ocean environments where we can place a wave-farm test field involving either 14 or 200 SEADOG™ wave pumps. If the wave pump continues to perform as well as our tests have shown, we believe it has the potential to be a breakthrough for global energy production.”

INRI’s SEADOG™ ocean-wave pump captures energy from ocean swells or waves to pump seawater to a land-based reservoir or water tower, where the water can be returned to the ocean through hydroelectric turbines, thereby producing inexpensive, renewable electricity. Tests on a scale SEADOG™ prototype proved that a full-size version of the pump can consistently pump water 275 feet uphill at a pre-determined flow rate. “Our technology avoids many of the problems other ocean-based power-generating technologies are struggling with today, because the SEADOG™ doesn’t involve any electrical components that can be damaged by sea water,” said Doug Sandberg, vice president, INRI. “And, because our device pumps water to a reservoir, it can store potential energy and generate power on demand, even when waves are too low to generate power. These two factors represent key advantages for our product.” According to INRI calculations, the company’s wave-pump technology is potentially capable of generating 755 megawatts of hydroelectric energy for every one-square-mile pump field, assuming ocean swells averaging at least nine-feet. With swells of at least five-feet, a one- square mile pump field could generate approximately 242 megawatts. “Coastal locations offering consistent wave heights of five-feet or greater aren’t that uncommon,” Thomas said. “For example, Point Reyes, off the coast of northern California, features more than 50-miles of coastline with wave heights regularly reaching five to 21 feet.” To access online photos of INRI wave-pump technology tests at Texas A&M’s Offshore Technology Research Center, visit www.inri.us/pages/5/index.htm.

About Independent Natural Resources Inc. Based in Edina, Minn., Independent Natural Resources Inc. (INRI) is an energy technology company that develops innovative products used to generate power from renewable sources in a clean, environmentally friendly manner. The company currently holds the rights to a patented product that can generate power from the excess pressure released by natural gas pipeline systems and the SEADOG™ pump system, a patent-pending product that captures energy from ocean waves. To learn more, visit the company’s Web site at www.inri.us.

Press Release Source: Independent Natural Resources Inc.

New Wave-Pump Technology Successfully Captures Energy from Waves Thursday December 11, 12:29 pm ET

With strong wave-tank trial results, company now seeks test sites for new hydroelectric system

MINNEAPOLIS, Dec. 11 /PRNewswire/ -- Minnesota-based energy technology company Independent Natural Resources Inc. (INRI) today announced it has successfully tested its new system for transferring ocean-wave power into renewable energy. Conducted in a wave tank at Texas A&M University's Offshore Technology Research Center, INRI's tests validate the results of several years of concepts and planning, showing the company's "SEADOG" wave-pump technology has the potential to serve as a viable source of renewable power -- harvesting renewable power from ocean waves. To further prove the wave pump's viability, INRI is now looking to create a "wave farm" test field in a coastal area capable of providing consistent ocean swells -- a concept similar to electricity-generating "wind farms."

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