As filed with the Securities and Exchange
Commission on December 22, 2011
Registration
No. 333-177172
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Glori Energy Inc.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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1389
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02-0759864
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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4315 South Drive
Houston, Texas 77053
Telephone:
(713) 237-8880
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Stuart M. Page
President and
Chief Executive Officer
Glori Energy Inc.
4315 South Drive
Houston, Texas 77053
Telephone:
(713) 237-8880
(Name, Address, Including Zip
Code, and Telephone Number, Including Area Code, of Agent for
Service)
Copies to:
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Brian P. Fenske
Charles D. Powell
Fulbright & Jaworski L.L.P.
Fulbright Tower
1301 McKinney, Suite 5100
Houston, Texas 77010
(713) 651-5557
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Kris F. Heinzelman
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and
smaller reporting company in
Rule 12b-2
of the Exchange Act. (check one):
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Large
accelerated
filer o,
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Accelerated
filer o,
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Non-accelerated
filer þ,
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED DECEMBER 22, 2011
Shares
Glori
Energy Inc.
Common
Stock
We are
selling shares
of our common stock.
Prior to this
offering, there has been no public market for our common stock.
The initial public offering price of our common stock is
expected to be between $ and
$ per share. We have applied to
list our common stock on The Nasdaq Global Market under the
symbol GLRI.
The underwriters
have an option to purchase a maximum
of
additional shares to cover
over-allotment
of shares.
Investing in our
common stock involves risks. See Risk Factors
beginning on page 10.
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Public
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Commissions
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the
Company
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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Delivery of the
shares of common stock will be made on or
about ,
2011.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Credit
Suisse
UBS
Investment Bank
Piper
Jaffray
Baird
The date of this
prospectus
is ,
2011.
TABLE OF
CONTENTS
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F-1
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EX-23.1 |
EX-23.2 |
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document is
accurate only as of the date on the front cover of this
document, or such other dates as are stated in this document,
regardless of the time of delivery of this document or of any
sale of our common stock.
Dealer
Prospectus Delivery Obligation
Until ,
2012 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider in making your investment decision. Before
investing in our common stock, you should carefully read this
entire prospectus, including our consolidated financial
statements included elsewhere in this prospectus and the
information set forth under the headings Risk
Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
For convenience in this prospectus, Glori Energy,
the Company, we, us and
our refer to Glori Energy Inc. and its subsidiaries,
taken as a whole, unless otherwise noted.
Our
Company
We are a clean-technology company that uses biotechnology
designed to release potentially large quantities of oil that
remain trapped in oil reservoirs after implementation of
conventional oilfield technologies. Only about one-third of the
oil discovered in a typical reservoir is recoverable using
conventional oil production technology, leaving the remaining
two-thirds trapped in the reservoir rock. Our
AEROtm
System (Activated Environment for the Recovery of Oil)
technology stimulates the native microorganisms that reside in
the reservoir to improve the recoverability of this trapped oil.
Our AERO System incorporates a dedicated field deployment unit
designed to work with the customers existing waterflood
operations. Waterflooding is a commonly used process of
injecting water into the reservoir in order to increase oil
recovery. Our AERO System does not have any significant new
impact on the environment because it utilizes existing
production equipment and infrastructure and does not change the
nature of the customers oil production operations.
Implementation of our AERO System does not require the drilling
of new wells nor does it require other significant new capital
investment.
Our AERO System economically increases the oil production rate
and the ultimate quantity of oil recovered over the life of the
oil field, and extends the life of the field by integrating
sophisticated biotechnology with traditional oil production
techniques. We believe that traditional enhanced oil recovery
techniques, consisting of the injection of gas, steam or
chemicals into the reservoir, introduce new environmental risks
and are more expensive. Results from the first commercial field
deployment of our AERO System, which were derived from one oil
producing well, indicate that it may recover up to 20% of the
oil that would otherwise be left behind at the end of the
economic life of the well. This project also demonstrates a 60%
to 100% improvement in total production rate, and we estimate
that our cost for this project, excluding minimum upfront
capital costs, will be approximately $5 per incremental barrel
of oil. We expect that the costs for future full scale
commercial implementations of our technology would not be higher
than $5 per barrel, particularly if the size of the project is
larger than our first AERO System commercial field deployment.
We anticipate growing our business primarily by working with
exploration and production, or E&P, companies to deploy
AERO System technology in appropriate oil fields around the
globe.
We have performed extensive laboratory and field testing to
validate, integrate and develop technology transferred from
three different scientific groups that collectively represents
decades of funded research and development. Our technology is
protected by several patents and patent applications. We and our
technology partners, Statoil Petroleum AS, or Statoil, in
Norway, The Energy and Resources Institute, or TERI, in India,
and Bio Topics S.A., or Biotopics, in Argentina, have applied
our predecessor technologies and the AERO System in more than
100 wells throughout the world. For more information about our
technology partners, see Prospectus Summary
Our History. We estimate that these predecessor
technologies have recovered over 6 million barrels of oil
that would not have otherwise been recovered. We estimate that
the first commercial application of our AERO System, starting in
May 2010, has already produced more than 26,000 incremental
barrels of oil. We have executed commercial contracts with
several international and domestic E&P companies and
anticipate continuing to demonstrate results with AERO System
technology and expanding our customer base.
Our
Proprietary Technology
While oil is initially produced due to existing reservoir
pressure, over time the pressure decreases and oil production
declines. Once the decline has reached certain levels, the most
common method of extracting
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additional oil from a reservoir is to waterflood by injecting
water into the reservoir through water injection wells and
recover that water along with additional oil through existing
production wells. Over time the waterflood also becomes less
effective and production continues to decline. Conventional oil
recovery operations, including waterflood, are commonly
understood to extract only around one-third of the original oil
in place in a reservoir, leaving large quantities behind at the
end of life of an oil field.
Microbes have lived in the water present in subsurface oil
deposits for millions of years, and a mixture of aerobic and
anaerobic microbes already exists in the water being used in
waterflooding operations. Our technology adds nutrients to the
water being injected into waterflood reservoirs. These nutrients
facilitate and support the growth and viability of native
microbes that proliferate at the interface between the oil and
water in the reservoir. We do not introduce specific microbes
selected for purpose, nor do we rely upon genetically-engineered
microorganisms. Our technology does not change crude oil from
its native form.
Our AERO System improves the production of oil from the
reservoir in two ways. First, the stimulated microbes reduce the
interfacial tension between the oil and the water, making the
oil more mobile through the reservoir rock. Second, the
stimulated microbes change the flow path of water within the
reservoir rock by creating temporary biomasses that block
existing water passages, thereby forcing the water to find
alternative routes through the reservoir rock. The biomass is
short lived and breaks up after the nutrients are consumed, thus
reopening the plugged water passages. The constant building up
and breaking down of these barriers to create new pathways,
coupled with the increased mobility of the oil, causes the
waterflood to recover more oil from the reservoir.
Our AERO System is implemented in three steps, which we refer to
as S3:
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Sample: The identification and assessment of
underground environments where conditions are suitable for
microbial life activation.
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Simulate: The performance of laboratory and
field tests to assess microbial activation and to identify
customized nutrient formulations that will cause the microbes to
grow.
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Stimulate: The implementation of our AERO
System by circulating nutrient formulations in the reservoir to
target indigenous microbes and support their growth and allow
the recovery of more oil.
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The duration of the Sample and Simulate phases is typically an
aggregate of four months. Based on results from the field and
the laboratory, oil production improvement begins to occur
between one to four months after initiation of the Stimulate
phase. We expect that our customers will typically continue to
observe these results for an additional three to six months to
validate those initial results of our AERO System. After this
validation is completed, we expect to enter into longer term
contracts with our customers to continue the use of our AERO
System. We believe that oil production improvement from our AERO
System may remain at a level that exceeds that predicted by the
original engineering forecast for many years. Based on the
results of our pilot implementation, we anticipate that
production will continue at an enhanced rate for the rest of the
life of the producing oil field, provided that our AERO System
is kept active in the reservoir.
Fees for the Sample and Simulate phases are generally quoted as
a single fixed amount for the services, while fees for the
Stimulate phase are usually quoted as a fixed fee per month
based upon the scope of the project until field validation of
the laboratory results is obtained. After the initial field
validation is complete, we would expect to enter into longer
term contracts for fees that are higher than those for the
initial Stimulate field validation phase.
Our
Competitive Strengths
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Disruptive and proven technology: We believe
that our AERO System is a transformative and disruptive
innovation that manipulates the existing reservoir microbial
communities to improve the recovery of oil in waterflood oil
fields. Our technology has broad applicability. We believe our
AERO System is applicable in more oil fields than traditional
enhanced oil recovery technologies because the large scale
operations or significant costs of thermal injection, gas
injection and chemical injection operations make them
inappropriate for offshore production platforms and
cost-effective only in larger
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reservoirs. See Our Company Competition
Traditional Enhanced Oil Recovery Technologies. For an oil
reservoir to be suitable for our AERO System, the reservoir must
be subject to waterflooding as a secondary oil recovery
mechanism, must be composed of sandstone, must have a
permeability range greater than 25 milli-darcies and must have a
suitable water source. We believe that approximately 50% of the
oil recovered in the United States has come from reservoirs
suitable for our AERO System, and although we do not have any
studies of the global characteristics of reservoirs, based on
our knowledge, we believe that a comparable percentage of
reservoirs outside the United States will be suitable for our
AERO System. We have not only demonstrated the commercial
efficacy of our technology but have passed the significant
milestone of one million incremental gallons of oil produced via
our AERO System. As of December 19, 2011, we had 13
customers in various stages of deployment of our AERO System.
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Established commercial contracts: Our
customers include international oil companies and independent
oil and gas companies in North America. As of December 19,
2011, we had ongoing projects with Shell International
Exploration and Production, Inc., Husky Oil Operations Limited,
Merit Energy Company, Hilcorp Energy Company, Cenovus Energy
Inc., Citation Oil and Gas Corp., Plains Exploration and
Production Company, Riyam Engineering & Services LLC (for
provision of services to Petroleum Development Oman L.L.C.),
T-C Oil
Company, Denbury Resources Inc., DCOR, LLC, ConocoPhillips
Company, Warren Resources, Inc., Enerplus Corporation and
Petróleo Brasileiro S.A.
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Profitable stand-alone economics: Our first
commercial application of our AERO System is profitable on a
project-level basis. We estimate that our cost per barrel,
excluding minimal upfront capital costs, over the life of our
first commercial application will be approximately $5 per
incremental barrel of oil. Successful commercialization of our
AERO System does not depend on the availability of government
subsidies or mandates.
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Capital-light technology: Implementing our
system does not require a substantial capital investment. Our
AERO System is applied to a reservoir by utilizing our field
deployment module, which requires relatively minor capital
investment, alongside our customers existing wells. We
believe our technology has the potential to create a continuing
source of additional economic oil production that will extend
the lives of oil fields and related infrastructure for many
years.
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Clean alternative to traditional enhanced oil
recovery: Our AERO System increases the oil
recoverable from an existing field using infrastructure already
built and in place. No new wells are drilled, no new pipelines
are laid, no new significant energy input is required and there
is no new disruption to the environment. Furthermore, because
the activity is biological and occurs in the reservoir, there is
minimal consequent carbon dioxide or other greenhouse gas
footprint. Once the application of our AERO System ends, the
microbes in the reservoir are no longer supplied with nutrients
and the reservoir will return to its pre-treatment status. By
way of comparison, we believe that traditional enhanced oil
recovery techniques require significant energy input, for
example in the case of thermal injection, or significant
additional infrastructure to implement, for example in the case
of gas injection. In addition, we believe that traditional
enhanced oil recovery techniques, in particular gas injection
and chemical injection techniques, introduce new environmental
impacts, which result in a sizable carbon dioxide or other
greenhouse gas footprint or the addition of a large quantity of
chemicals or polymers into the reservoir. See Our Company
Competition Traditional Enhanced Oil Recovery
Technologies.
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Strong intellectual property position: Our
intellectual property, consisting of substantial know-how and
trade secrets, is the result of decades of research and
development by us, Statoil, TERI and Biotopics. We also have
multiple patents and patent applications. We believe our
intellectual property and decades of research provide us with a
strong competitive advantage.
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Experienced management and technical team: Our
management and technical teams expertise includes
microbiology, chemistry and biochemistry, microbial genomics,
engineering, geosciences and traditional E&P, and in their
respective careers our team members played key roles in the
commercialization of dozens of successful large-scale industrial
biotechnology and traditional oilfield acquisition and
development projects.
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Technological
and Commercialization Milestones
Since our inception, we have achieved significant technological
and commercial milestones, starting with our determination that
oil reservoirs contain microbes that are capable of utilizing
oil to grow and, in doing so, create biomass. Over the past five
years, our application of technology progressed from small,
discreet applications at producing wells to full scale
applications at injection wells. In 2010, we implemented our
first commercial application of our AERO System in a
customers field. We have also acquired an oil property in
Kansas, which we refer to as the Etzold field, for the purpose
of further demonstrating the application of our AERO System in a
controlled environment and accelerating customer adoption of our
technology.
Our initial results indicate that our AERO System may recover up
to 9-12% of the original oil in place in a reservoir. The
diagram below illustrates the percentages of oil in reservoirs
that are unrecoverable and recoverable using conventional oil
recovery operations and our AERO System.
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For illustrative purposes, assumes a 10% recovery of original
oil in place due to our AERO System. |
Our
Commercialization Strategy
Our mission is to use microbiology to efficiently recover large
quantities of oil currently trapped in reservoirs using existing
oil wells. To achieve this we intend to:
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Expand our project portfolio: As of
December 19, 2011, we had initiated Stimulate phase
projects at three of our customers oil fields and were in
the Sample and Simulate phases on an additional 16 projects for
our customers. We expect to add a growing number of projects
that are currently in various stages of evaluation. As we
continue to develop our customer base, we expect our revenue
opportunities to grow significantly.
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Accelerate customer adoption through strategic oil field
purchases: In October 2010, we acquired the
Etzold field to demonstrate the application of our AERO System.
To accelerate adoption of our AERO System, we plan to
strategically acquire and develop additional non-producing
end-of-life
oil fields and low-producing oil fields in geographies that we
expect will improve our portfolio of field successes. We believe
that the application of our AERO System to these oil fields will
demonstrate the effectiveness of our technology. Once our AERO
System is more widely adopted, we expect to discontinue the
acquisition of oil fields.
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Optimize our performance and expand the applicability of our
AERO System: While we are already active on a
commercial scale, we intend to continue to improve the
performance of our AERO System
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using our Etzold field laboratory as well as assets we acquire
via the strategic purchases described above. We are researching
additional capabilities to expand the types of fields to which
we can apply our technology. For instance, our AERO System is
currently applicable only to sandstone reservoirs. Expanding
applicability to include carbonate reservoirs would cover the
vast majority of conventional oilfield geologies.
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Accelerate execution by leveraging additional strategic
partnerships: Commercialization of our technology
could be further accelerated and expanded through additional
strategic partnerships. We currently have collaboration
arrangements with Statoil and TERI. We are currently exploring
collaboration opportunities with a number of major oil companies
and other potential partners.
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Our
Market Opportunity
Our market consists of domestic and international oil production
waterflood sites. According to a 2011 report from the
U.S. Energy Information Administration, or EIA, demand for
oil globally is projected to grow from 85.7 million barrels
per day in 2008 to 112.2 million barrels per day in 2035.
As oil trades on a global market, the price of oil is not
significantly sensitive to local demand and supply fluctuations.
While global demand for oil is forecasted to grow, there is an
increasing gap between new discoveries and production,
decreasing the worlds oil reserves, as it is becoming
harder and more expensive to find new oil reservoirs. As a
result, enhanced oil recovery technology to improve oil
production at mature fields is increasingly important to offset
declining reserves.
The global enhanced oil recovery market value is forecasted to
grow at a compounded annual rate of 63% from 2009 through 2015
according to the SBI Energy April 1, 2010 report entitled
EOR Enhanced Oil Recovery Worldwide, or the SBI Report. By 2015,
the annual enhanced oil recovery market is forecasted to
increase to over $1.3 trillion according to the SBI Report.
According to the International Energy Agency, or IEA, May 2011
Oil Market Report, the United States produced approximately
7.9 million barrels of oil per day in April 2011 and,
according to the U.S. Department of Energy Idaho National
Laboratory, waterflooding accounts for more than one-half of the
United States domestic oil production, or approximately
4 million barrels of oil per day. Assuming one-half of
those waterfloods are suitable for application of our AERO
System, we estimate the annual incremental production
opportunity for oil producers using our AERO System to be
greater than $10 billion in the United States based on
an assumed price of $80.00 per barrel and a total production
rate increase from the application of our AERO System of only
30% (compared to the approximate increase of 60% to 100% in the
total production rate from May 2010 through July 2011 at our
first commercial application of our AERO System). As the
United States accounted for approximately 9% of the
worlds oil production in April 2011 according to the IEA
May 2011 Oil Market Report, the potential annual international
market is substantially larger.
We anticipate our primary competition for this sizable market
will come from traditional enhanced oil recovery technologies,
such as thermal injection, gas injection and chemical injection,
as well as from other microbial enhanced oil recovery methods.
We believe that our AERO System is superior to traditional
enhanced oil recovery technologies both economically and
environmentally. Our AERO System is able to recover oil that
traditional enhanced oil recovery methods may not be able to
recover on a cost-effective basis. We also believe our AERO
System has a lower capital expenditure profile than any
traditional enhanced oil recovery technology since it requires
no new meaningful infrastructure investment. Because our AERO
System works with naturally occurring microbes in the reservoir,
we believe its processes do not cause any damage to the
environment.
Our
History
We were founded in November 2005. In 2006, we obtained
technology and intellectual property from TERI, a research
organization based in India, and implemented several field
projects. In 2008, we acquired know-how of Biotopics, an
Argentine company working on related microbial technology in the
enhanced oil recovery industry, through a technology development
agreement and retained their key employees. In 2009, we entered
into a technology cooperation agreement with Statoil, which has
been replaced by an updated 2011 agreement, to incorporate
intellectual property and know-how that Statoil has been
developing for many years. Our scientists and engineers have
been able to further develop and expand the intellectual
property and know-how obtained from these three technology
partners to create our AERO System.
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We have tested the concepts and functionality of our AERO System
in the field as well as in the laboratory. We have collected and
tested samples from, and applied our technology to, reservoirs
across the United States and Canada. This work has resulted
in a comprehensive library of microbes that can be stimulated in
the presence of oil and our proprietary custom nutrient
formulations. From these samples, the genes and pathways
responsible for the biochemistry of interactions between
microbes and oil can be identified by microbial genomics
methods. We believe that the substantial body of proprietary
data, including our intellectual property, and experience
obtained from this effort, combined with the advancement of our
technology as compared with other biology based oil recovery
technology companies, represents a significant competitive
advantage.
Risks
Associated with Our Business
An investment in our common stock involves a high degree of
risk. You should carefully consider all of the information set
forth in this prospectus and, in particular, evaluate the
specific factors set forth under Risk Factors in
deciding whether to invest in our common stock. Those risk
factors include the following:
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Our business is difficult to evaluate due to our limited
operating history.
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We have incurred substantial losses to date, anticipate
continuing to incur losses in the future and may never achieve
or sustain profitability.
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Our AERO System has only been applied to a limited number of
reservoirs, and the viability of our AERO System in a broader
range of reservoirs is still unproven.
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We may have difficulties gaining market acceptance and
successfully marketing our AERO System to our potential
customers.
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Our revenue to date has been derived from a small number of
customers, and the loss of any of these customers would likely
materially harm our business, financial condition and results of
operations.
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Oil prices are volatile, and a decline in the price of oil could
harm our business, financial condition and results of operations.
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Oil fields, once acquired, may not be appropriate for our
purposes or may have environmental or other liabilities
associated with them that may negatively affect our business,
financial condition and results of operations.
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Corporate
Information
Our principal executive offices are located at 4315 South Drive,
Houston, Texas 77053 and our telephone number is
(713) 237-8880.
Our corporate website address is www.glorienergy.com.
We do not incorporate the information contained on, or
accessible through, our corporate website into this prospectus,
and you should not consider it part of this prospectus.
Our logos and
AEROtm
and other trademarks or service marks of Glori Energy Inc.
appearing in this prospectus are the property of Glori Energy
Inc. This prospectus contains additional trade names, trademarks
and service marks of other companies. We do not intend our use
or display of other companies trade names, trademarks or
service marks to imply relationships with, or endorsement or
sponsorship of us by, these other companies.
6
The
Offering
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Common stock offered by us |
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shares |
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Common stock outstanding after this offering
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shares |
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Use of proceeds |
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We have no current specific plans for the use of the net
proceeds from this offering. We may use the net proceeds from
this offering for working capital and other general corporate
purposes, which may include the acquisition, restoration and
operation of additional non-producing
end-of-life
oil fields and low-producing oil fields, capital expenditures
associated with our AERO System and expenditures relating to
further research and development efforts. We do not, however,
have agreements or commitments for any specific property
acquisitions at this time. See Use of Proceeds. |
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Risk factors |
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See Risk Factors for a discussion of factors that
you should consider carefully before deciding whether to
purchase shares of our common stock. |
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Proposed Nasdaq Global Market symbol
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GLRI |
The number of shares of our common stock to be outstanding after
this offering is based on the number of shares outstanding as of
September 30, 2011. Such number of shares excludes:
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4,231,539 shares of our common stock issuable upon the
exercise of options outstanding as of September 30, 2011
with a weighted average exercise price of $0.12 per share;
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[ ] shares
of our common stock reserved for future issuance under our 2011
Omnibus Incentive Plan;
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1,020,222 shares of our common stock issuable upon the
exercise of warrants outstanding as of September 30, 2011
with a weighted exercise price of $1.06 per share; and
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up to 153,940 shares of our common stock issuable upon the
exercise of a warrant to be granted by us to TERI on or before
December 31, 2011 in consideration of services performed by
TERI.
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Unless otherwise indicated, the information in this prospectus
reflects and assumes:
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the conversion, which will occur upon the closing of this
offering, of all of our outstanding shares of preferred stock
and accrued and unpaid dividends on our preferred stock into an
aggregate of 43,734,720 shares of our common stock, subject
to additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
unpaid dividends on our preferred stock and the quarterly
compounding of such dividends, which dividends accrue at the
rate of 4% for our series A preferred stock and 8% for our
series B preferred stock;
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the conversion, which will occur upon the closing of this
offering, by Energy Technology Ventures, LLC, or ETV, of the
$1.5 million convertible promissory note, or the ETV Note,
into 631,274 shares of our common stock, subject to
additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
interest;
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the
[ ]-to-one
reverse split of our common stock on
[ ,
2011]; and
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no exercise by the underwriters of their option to purchase up
to an
additional shares
of our common stock from us to cover over-allotments.
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7
Summary
Consolidated Financial Data
The following table sets forth a summary of our consolidated
statements of loss, balance sheets and other data for the
periods indicated. The summary consolidated statements of loss
for the years ended December 31, 2008, 2009 and 2010 have
been derived from our audited consolidated financial statements
included elsewhere in this prospectus. The summary consolidated
statements of loss for the nine months ended September 30,
2010 and 2011 and the other data for the nine months ended
September 30, 2011 have been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. The summary consolidated balance sheet data as of
September 30, 2011 has been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. You should read this information together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements included elsewhere in this prospectus.
We have presented the summary balance sheet data as of
September 30, 2011, and the net loss applicable to common
stockholders, the net loss per common share and the weighted
average common shares outstanding on a pro forma basis to give
effect to:
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the conversion, which will occur upon the closing of this
offering, of all outstanding shares of our preferred stock and
accrued and unpaid dividends on our preferred stock into an
aggregate of 43,734,720 shares of our common stock, subject
to additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
unpaid dividends on our preferred stock and the quarterly
compounding of such dividends, which dividends accrue at the
rate of 4% for our series A preferred stock and 8% for our
series B preferred stock;
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the issuance of 631,274 shares of our common stock, subject
to additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
interest, in connection with the conversion of the ETV Note,
which will occur upon the closing of this offering; and
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the sale by us
of
shares of common stock in this offering at an assumed initial
public offering price of $ per
share, the midpoint of the range set forth on the cover page of
this prospectus, and our receipt of the estimated net proceeds
from that sale after deducting the estimated underwriting
discounts and commissions and estimated offering expenses
payable by us.
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8
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Nine Months Ended
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Year Ended December 31,
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September 30,
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2008
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2009
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2010
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2010
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2011
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(Unaudited)
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(In thousands, except per share data)
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Consolidated Statements of Loss Data:
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Revenues
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$
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459
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$
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858
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$
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131
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$
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37
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$
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1,119
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Expenses:
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|
|
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|
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Operations
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1,080
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1,277
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|
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1,163
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769
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|
|
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1,966
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Research and development
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|
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1,188
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|
|
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1,021
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1,546
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1,061
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1,173
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Selling, general and administrative
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1,531
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827
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1,679
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1,080
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1,946
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Depreciation, depletion and amortization
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|
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378
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|
|
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390
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|
|
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442
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316
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|
|
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436
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|
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|
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|
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Total expenses
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4,177
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3,515
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4,830
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3,226
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5,521
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|
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Loss from operations
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(3,718
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)
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(2,657
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)
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(4,699
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)
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(3,189
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)
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|
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(4,402
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)
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Other income (expense), net
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53
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(64
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)
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1
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(74
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)
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|
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Net loss
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(3,665
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)
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(2,721
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)
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(4,698
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)
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(3,189
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)
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(4,476
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)
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Less unpaid dividends on Series A and B cumulative
convertible preferred stock
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(440
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)
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(605
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)
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(1,314
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)
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(896
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)
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(1,358
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)
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|
|
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|
|
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Net loss applicable to common stockholders
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$
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(4,105
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)
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$
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(3,326
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)
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$
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(6,012
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)
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$
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(4,085
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)
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$
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(5,834
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)
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Net loss per common share, basic and diluted
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$
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(1.44
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)
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$
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(1.16
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)
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$
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(2.10
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)
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$
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(1.43
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)
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$
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(2.00
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)
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Weighted average common shares outstanding
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2,844
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2,863
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2,866
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2,865
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2,911
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|
|
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|
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Other Data:
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|
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Net cash used by operating activities
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|
|
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|
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|
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$
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3,499
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Net cash used by investing activities
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|
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1,625
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Net cash provided by financing activities
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|
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|
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|
|
|
|
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2,977
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Pro forma net loss applicable to common stockholders
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Pro forma net loss per common share, basic and diluted
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|
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|
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|
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Pro forma weighted average common shares outstanding
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|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
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|
September 30, 2011
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|
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Actual
|
|
Pro Forma
|
|
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(In thousands)
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|
Consolidated Balance Sheet Data:
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|
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Cash and cash equivalents
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$
|
4,995
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$
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Total assets
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|
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8,566
|
|
|
|
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Long term debt
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|
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1,500
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|
|
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Total stockholders equity
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|
|
5,133
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9
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below
before deciding to invest in our common stock. Our business,
prospects, financial condition or operating results could be
materially adversely affected by any of these risks, as well as
other risks not currently known to us or that we currently
consider immaterial. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part
of your investment. In assessing the risks described below, you
should also refer to the other information contained in this
prospectus, including our consolidated financial statements,
before deciding to purchase any of our common stock.
Risks
Related to Our Business
Our
business is difficult to evaluate due to our limited operating
history.
Since our inception in November 2005, the majority of our
resources have been dedicated to our research and development
efforts, and we have only recently begun to transition into the
early stages of commercializing our AERO System. We do not have
a stable operating history that you can rely on in connection
with your evaluation of our current business or our future
business prospects. Our business and prospects must be carefully
considered in light of the limited history of our AERO System
and the many business risks, uncertainties and difficulties that
are typically encountered by companies that have sporadic
revenues and are committed to focusing on research, development
and technology testing for an indeterminate period of time.
Because of our limited operating history and our relatively
recent transition into the commercial deployment of our AERO
System that we are relying on to become our core revenue
generator, we have limited insight into trends and conditions
that may exist or might emerge and affect our business. Our
proposed business strategies described in this prospectus
incorporate our managements current analysis of potential
markets, opportunities and difficulties that we face. Our
underlying assumptions may not accurately reflect current trends
and conditions in our industry, and our AERO System may not be
successful. Our business strategies may change substantially
from time to time or may be abandoned as our management
reassesses our opportunities and reallocates our resources. If
we are unable to develop or implement these strategies, or if
our AERO System becomes not economically viable, we may never
realize material sales or achieve profitability. Even if we do
achieve profitability, we cannot predict the level of such
profitability, and it may not be sustainable.
We
have incurred substantial losses to date, anticipate continuing
to incur losses in the future and may never achieve or sustain
profitability.
We have incurred substantial net losses since our inception,
including net losses of $1.8 million, $3.8 million,
$3.7 million, $2.7 million and $4.7 million for
the years ended December 31, 2006, 2007, 2008, 2009 and
2010, respectively, and $4.5 million for the nine months
ended September 30, 2011, and we expect these losses to
continue. As of September 30, 2011, we had an accumulated
deficit of $21.1 million. We expect to incur additional
costs and expenses related to the continued development and
expansion of our business, including our research and
development operations, the commercialization of our AERO System
and the acquisition, restoration and operation of additional
non-producing
end-of-life
oil fields and low-producing oil fields. As a result, we may
never achieve profitability.
Our
AERO System has only been applied to a limited number of
reservoirs, and the viability of our AERO System in a broader
range of reservoirs is still unproven.
Our AERO System has only been applied in a limited number of
sandstone reservoirs to date. The future success of our business
depends on our ability to demonstrate that our AERO System has
the ability to increase oil recovery on a more widespread basis
and on a larger scale. Reservoir characteristics differ and,
consequently, certain elements of our services are specifically
engineered for each reservoir. As a result, we may not be able
to achieve results in other reservoirs consistent with those we
have thus far achieved in the reservoirs where our AERO System
has been applied. In addition, our data with respect to the
commercial application of our AERO System is derived from the
one oil producing well in our first commercial
10
implementation of our technology. See Our
Company Case Study: A Review of our AERO
Systems Field Performance. Subsequent
implementations of our AERO System could yield less favorable
oil production rates and overall oil recovery results than those
observed during that first implementation. Any inability to
commercialize our AERO System applications effectively or to
realize sufficiently favorable oil recovery results in a
significant number of other reservoirs will limit the commercial
acceptance and viability of our AERO System, which would
materially harm our business, financial condition and results of
operations.
The
success of our AERO System is dependent upon the information we
receive from our customers.
The success of an application of our AERO System to a particular
reservoir is dependent upon information that we receive from our
customers regarding the reservoir characteristics and geology.
If this information is inaccurate, we may not be able to achieve
results in such a reservoir consistent with those we have thus
far achieved in the reservoirs where our AERO System has been
applied successfully. For example, on a recent project one of
the customers injector wells was subsequently determined
to be outside of the sand-body structure and therefore not
directly connected to the reservoir, so any waterflooding or
application of our AERO System could not be effective for the
production wells associated with that injector well since water
could not flow from the injection well to the production well.
We may
have difficulties gaining market acceptance and successfully
marketing our AERO System.
A key component of our business strategy is to market our AERO
System to oil producers. To gain market acceptance and
successfully market our AERO System to oil producers, we must
effectively demonstrate the commercial advantages of using our
AERO System as an alternative to, or in addition to, other
enhanced oil recovery methods. We must prove that our AERO
System significantly increases the amount of oil that can be
recovered from a reservoir cost effectively. If we are unable to
demonstrate this to oil producers, we will not be able to
penetrate this market, generate new business or retain existing
customers.
Our
revenue to date has been derived from a small number of
customers, and the loss of any of these customers would likely
materially harm our business, financial condition and results of
operations.
We only have a small number of customers. For the year ended
December 31, 2010, all of our revenue was generated from
five customers. For the nine months ended September 30,
2011, all of our revenue was generated from three customers. Our
service contracts generally contain provisions that allow for
cancellation by our customers upon short notice. If any of these
customers terminates or significantly reduces its business with
us or if we fail to generate new business, our business,
financial condition and results of operations would be
materially harmed.
Oil
prices are volatile, and a decline in the price of oil could
harm our business, financial condition and results of
operations.
Our results of operations and future growth will depend on the
level of activity for oil development and production. Demand for
our AERO System depends on our customers willingness to
make operating and capital expenditures for waterflooding
procedures and our AERO System. Our business will suffer if
these expenditures decline. Declining oil prices, or the
perception of a future decline in oil prices, would adversely
affect the prices we can obtain from our customers or prevent us
from obtaining new customers for our services. Our
customers willingness to develop and produce oil using
waterflooding and our AERO System is highly dependent on
prevailing market conditions and oil prices that are influenced
by numerous factors over which we have no control, including:
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changes in the supply of or the demand for oil;
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|
the condition of the United States and worldwide economies;
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|
market uncertainty;
|
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|
|
the level of consumer product demand;
|
11
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the actions taken by foreign oil producing nations;
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|
domestic and foreign governmental regulation and taxes;
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|
political conditions or hostilities in oil producing nations;
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|
the price and availability of alternate fuel sources;
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terrorism; and
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|
the availability of pipeline or other takeaway capacity.
|
Oil prices have historically been volatile and cyclical. A
prolonged reduction in the price of oil will likely affect oil
production levels and therefore affect demand for our services.
In addition, a prolonged significant reduction in the price of
oil could make it more difficult for us to collect outstanding
account receivables from our customers. A material decline in
oil prices or oil development or production activity levels
could materially harm our business, financial condition and
results of operations.
Oil
fields, once acquired, may not be appropriate for our purposes
or may have environmental or other liabilities associated with
them that may negatively affect our business, financial
condition and results of operations.
Oil fields we acquire may not result in commercially viable
projects. The potential of a given property to continue to
produce oil or resume production of oil and to be adaptable to
our AERO System cannot be determined with a high level of
precision prior to our acquisition of the property. Our due
diligence reviews of the properties we acquire are inherently
incomplete and cannot assure us of the quality of the oil fields
or of the likelihood of success of our AERO System in enhancing
their production of oil. It is generally not possible for us to
test a property or conduct an in-depth review of its related
records as part of its acquisition. Even if we are able to
complete an in-depth review and sampling of these properties,
such a review may not reveal existing or potential problems or
permit us to become sufficiently familiar with the properties to
fully assess their potential for successful application of our
AERO System.
Even when problems are identified, it may be necessary for us to
assume known or unknown environmental and other risks and
liabilities to complete the acquisition of such properties. In
addition, since the properties we are targeting are
non-producing
end-of-life
oil fields and low-producing oil fields, their existing
infrastructure may be out of date, damaged, in need of repair or
removal, and we could incur unanticipated costs to repair or
replace this infrastructure. The discovery of any unanticipated
material liabilities or remediation costs or the incurrence of
any unanticipated costs associated with our oilfield
acquisitions could harm our results of operations and financial
condition.
If the
injection water used in an oil field is not suitable for our
AERO System, our AERO System may not work correctly or will
require additional costs either to clean the water or substitute
suitable water and, therefore, may not be a viable option for
some oil fields.
Our AERO System requires that the water injected into the
injection wells not be inhibitory to microbial growth and not
contain substrates that will allow biofilm to grow in the
injection pipeline. If suitable water is not being used, our
AERO System will not work unless additional costs are expended
to clean the water or to utilize an alternate source of water.
These additional costs may make our AERO System less cost
effective or not a viable option for some oil fields. For
example, in a recent implementation of our AERO System, the
salinity of the produced water used in the waterflood operations
was very high, making it hostile to most microbes. The solution
was to use water from an existing nearby water well to provide a
better environment for the microbes which made our AERO System
more effective. We may not be able to provide suitable water to
some projects, eliminating these oil fields as candidates for
our AERO System.
12
Our
AERO System is currently useable only in oil reservoirs with
specific characteristics, which limits the potential market for
our services.
For an oil reservoir to be suitable for our AERO System, the
reservoir must be waterflooded, must be composed of sandstone,
must have a permeability range greater than 25 milli-darcies and
must have a suitable water source. We believe that these
requirements mean that approximately 50% of the worlds oil
recovery comes from reservoirs that are not suitable for our
AERO System as currently developed and that the market for our
services is correspondingly limited.
The
loss of key personnel or the failure to attract and retain
highly qualified personnel could compromise our ability to
effectively manage our business and pursue our growth
strategy.
Our future performance depends on the continued service of our
key technical, development, sales, services and management
personnel. In particular, we are heavily dependent on the
following key employees: Stuart M. Page, our President and Chief
Executive Officer, Thomas Ishoey, our Chief Technology Officer,
and William M. Bierhaus II, our Senior Vice President of
Business Development. The loss of key employees could result in
significant disruptions to our business, and the integration of
replacement personnel could be costly and time consuming, could
cause additional disruptions to our business and could be
unsuccessful. We do not carry key person life insurance covering
any of our employees.
Our future success also depends on our continued ability to
attract and retain highly qualified technical, development,
sales, services and management personnel. A significant increase
in the wages paid by competing employers could reduce our
skilled labor force and increase the wages that we must pay to
motivate, retain or recruit skilled employees.
In addition, wage inflation and the cost of retaining our key
personnel in the face of competition for such personnel may
increase our costs faster than we can offset these costs with
increased prices or increased sales of our AERO System.
We may
require substantial additional financing to achieve our goals
and to make future acquisitions, and a failure to obtain this
capital when needed or on acceptable terms could force us to
delay, limit, reduce or terminate our research and development
and commercialization efforts.
Since our inception, most of our resources have been dedicated
towards research and development, as well as demonstrating the
effectiveness of our AERO System in our labs and in the field.
We intend to expend substantial resources for the foreseeable
future on further developing our AERO System. Also, we
anticipate that we will expend significant resources on the
acquisition and operation of additional non-producing or
low-producing oil fields to continue to test and demonstrate our
AERO System in reservoirs with a variety of characteristics.
Debt or equity financing may not be available or sufficient to
meet our requirements. For example, a decline in the trading
price of our common stock from the price at which it is sold in
this offering could limit our ability to raise equity financing
in the future. Our inability to access sufficient amounts of
capital on acceptable terms, or at all, for our operations could
materially harm our business, financial condition and results of
operations.
Raising
additional capital may cause dilution to our existing
stockholders, restrict our operations or require us to
relinquish rights to our technology.
We may seek additional capital through a combination of public
and private equity offerings, debt financings, strategic
partnerships and licensing arrangements. To the extent that we
raise additional capital through the sale or issuance of equity,
warrants or other convertible securities, ownership interests of
our stockholders will be diluted, and the terms of those
securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. If we
raise capital through debt financing, such debt financing may
involve agreements that include covenants limiting or
restricting our ability to take certain actions, such as
incurring additional debt, making capital expenditures,
declaring dividends or purchasing our common stock. If we raise
additional funds through strategic partnerships and licensing
agreements with third parties, we may have to relinquish
valuable rights to our technology or grant licenses on terms
that are not
13
favorable to us. If we are unable to raise additional funds when
needed, we may be required to delay, limit, reduce or terminate
our commercialization efforts.
Our
quarterly operating results may fluctuate in the
future.
Our financial condition and operating results have varied
significantly in the past and may continue to fluctuate from
quarter to quarter and year to year in the future due to a
variety of factors, many of which are beyond our control.
Factors relating to our business that may contribute to these
fluctuations are described elsewhere in this prospectus.
Accordingly, the results of any prior quarterly or annual
periods should not be relied upon as indications of our future
operating performance.
Our
industry is highly competitive, and if we do not compete
successfully, our business, financial condition and results of
operations will be harmed.
The enhanced oil recovery industry is large and intensely
competitive. Our competition comes mainly from other methods of
enhanced oil recovery, such as thermal injection (for example,
steam), gas injection (for example, carbon dioxide) and chemical
injection (for example, surfactants) into producing properties.
There are also other companies developing or planning to
commercialize microbial technology that is similar to our AERO
System or other emerging enhanced oil recovery technologies,
including TIORCO, Geo Fossil Fuels, LLC, Titan Oil Recovery,
Inc. and Micro-Bac International, Inc. Some of our competitors
have longer operating histories, greater recognition in the
industry and substantially greater financial and other resources
for developing new technologies as well as for recruiting and
retaining qualified personnel than we do. Their greater
financial resources may also make them better able to withstand
downturns in the market, expand into new areas more aggressively
or operate in developing markets without immediate financial
returns. Strong competition and significant investments by
competitors to develop new and better technology may make it
difficult for us to maintain and expand our customer base, force
us to reduce our prices or increase our costs to develop new
technology.
Our success will depend on our ability to adapt to these
competitive forces, to adapt to technological advances and to
educate potential customers about the benefits of using our
technology rather than our competitors technology. Our
failure to respond successfully to these competitive challenges
could harm our business, financial condition and results of
operations.
Our
industry is characterized by technological change, and if we
fail to keep up with these changes, our business, financial
condition and results of operations will be
harmed.
The enhanced oil recovery industry is characterized by changes
in technology, evolving methods of oil recovery and emerging
competition. Our future business prospects largely depend on our
ability to anticipate and respond to technological changes and
to develop competitive products. If other enhanced oil recovery
methods yield better results or are less expensive than our
method, our business will suffer. We may not be able to respond
successfully to new technological developments and challenges or
identify and respond to new market opportunities, services or
products offered by competitors. In addition, our efforts to
respond to new methods of oil recovery and competition may
require significant capital investments and resources, and we
may not have the necessary resources to respond to these
challenges. Failure to keep up with future technological changes
could harm our business, financial condition and results of
operations.
If we
engage in any acquisitions, we will incur a variety of costs and
could face numerous risks that would adversely affect our
business and operations.
If appropriate opportunities become available, we may acquire
businesses, assets, technologies or products to enhance our
business in the future. In connection with any future
acquisitions, we could:
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issue additional equity securities which would dilute our
current stockholders;
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incur substantial debt to fund the acquisitions; or
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assume significant liabilities.
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Acquisitions involve numerous risks, including problems
integrating the purchased operations, technologies or products,
unanticipated costs and other liabilities, diversion of
managements attention from our core business, adverse
effects on existing business relationships with current
and/or
prospective partners, customers
and/or
suppliers, risks associated with entering markets in which we
have no or limited prior experience and potential loss of key
employees. We may not be able to successfully integrate any
businesses, assets, products, technologies or personnel that we
might acquire in the future without a significant expenditure of
operating, financial and management resources, if at all. The
integration process could divert management time from focusing
on operating our business, result in a decline in employee
morale and cause retention issues to arise from changes in
compensation, reporting relationships, future prospects or the
direction of the business. Acquisitions may also require us to
record goodwill,
non-amortizable
intangible assets that will be subject to impairment testing on
a regular basis and potential periodic impairment charges, incur
amortization expenses related to certain intangible assets and
incur large and immediate write-offs and restructuring and other
related expenses, all of which could harm our operating results
and financial condition. In addition, we may acquire companies
that have insufficient internal financial controls, which could
impair our ability to integrate the acquired company and
adversely impact our financial reporting. If we fail in our
integration efforts with respect to any of our acquisitions and
are unable to efficiently operate as a combined organization,
our business, financial condition and results of operations may
be materially harmed.
If we
fail to manage future growth effectively, our business could be
harmed.
If our AERO System becomes commercially accepted, we may
experience rapid growth. Any such growth would likely place
significant demands on our management and on our operational and
financial infrastructure. To manage growth effectively, we would
need to, among other things, improve and enhance our managerial,
operational and financial controls, hire sufficient numbers of
capable employees and upgrade our infrastructure. We would also
need to manage an increasing number of relationships with our
customers, suppliers, business partners and other third parties.
These activities would require significant expenditures and
allocation of valuable management resources. If we fail to
maintain the efficiency of our organization as we grow, our
revenues and profitability may be harmed, and we might be unable
to achieve our business objectives.
Many
of our contracts will be governed by
non-U.S.
law, which may make them more difficult or expensive to enforce
than contracts governed by United States law.
We expect that many of our customer contracts will be governed
by
non-U.S. law,
which may create both legal and practical difficulties in case
of a dispute or conflict. We plan to establish operations in
regions where the ability to protect contractual and other legal
rights may be limited compared to regions with
better-established legal systems. In addition, having to pursue
litigation in a
non-U.S. country
may be more difficult or expensive than pursuing litigation in
the United States.
Our
business operations in countries outside the United States
are subject to a number of United States federal laws and
regulations, including restrictions imposed by the Foreign
Corrupt Practices Act as well as trade sanctions administered by
the Office of Foreign Assets Control of the United States
Department of Treasury and the United States Department of
Commerce, which could adversely affect our operations if
violated.
We must comply with all applicable export control laws and
regulations of the United States and other countries. We
cannot provide services to certain countries subject to
United States trade sanctions administered by the Office of
Foreign Asset Control of the United States Department of
the Treasury or the United States Department of Commerce
unless we first obtain the necessary authorizations. In
addition, we are subject to the Foreign Corrupt Practices Act,
which generally prohibits bribes or unreasonable gifts to
non-U.S. governments
or officials. Violations of these laws or regulations could
result in significant additional sanctions including fines, more
onerous compliance requirements, more extensive debarments from
export privileges or loss of authorizations needed to conduct
aspects of our international business. In certain countries, we
may engage third party agents or intermediaries to act on our
behalf in dealings with government officials, such as customs
15
agents, and if these third party agents or intermediaries
violate applicable laws, their actions may result in penalties
or sanctions being assessed against us.
Our
international operations are subject to additional or different
risks than our United States operations.
We intend to expand our operations into a number of countries
outside the United States. There are many risks inherent in
conducting business internationally that are in addition to or
different than those affecting our United States
operations, including:
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sometimes vague and confusing regulatory requirements that can
be subject to unexpected changes or interpretations;
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import and export restrictions;
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tariffs and other trade barriers;
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difficulty in staffing and managing geographically dispersed
operations and culturally diverse work forces and increased
travel, infrastructure and legal compliance costs associated
with multiple international locations;
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differences in employment laws and practices among different
countries, including restrictions on terminating employees;
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differing technology standards;
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fluctuations in currency exchange rates;
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imposition of currency exchange controls;
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potential political and economic instability in some regions;
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legal and cultural differences in the conduct of business;
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less due process and sometimes arbitrary application of laws and
sanctions, including criminal charges and arrests;
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difficulties in raising awareness of applicable
United States laws to our agents and third party
intermediaries;
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potentially adverse tax consequences;
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difficulties in enforcing contracts and collecting receivables;
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difficulties and expense of maintaining international sales
distribution channels; and
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difficulties in maintaining and protecting our intellectual
property.
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Operating internationally exposes our business to increased
regulatory and political risks in some
non-U.S. jurisdictions
where we operate. In addition to different laws and regulations,
changes in governments or changes in governmental policies in
these jurisdictions may alter current interpretation of laws and
regulations affecting our business. We also face increased risk
of incidents such as war or other international conflict and
nationalization.
Many of the countries in which we plan to operate have legal
systems that are less developed and less predictable than legal
systems in the United States. It may be difficult for us to
obtain effective legal redress in the courts of some
jurisdictions, whether in respect of a breach of law or
regulation, or in an ownership dispute because of: (i) a
high degree of discretion on the part of governmental
authorities, which results in less predictability; (ii) a
lack of judicial or administrative guidance on interpreting
applicable rules and regulations; (iii) inconsistencies or
conflicts between or within various laws, regulations, decrees,
orders and resolutions; (iv) the relative inexperience of
the judiciary and courts in such matters or (v) a
predisposition in favor of local claimants against
United States companies. In certain jurisdictions, the
commitment of local business people, government officials and
agencies and the judicial system to abide by legal requirements
and
16
negotiated agreements may be unreliable. In particular,
agreements may be susceptible to revision or cancellation and
legal redress may be uncertain or time-consuming. Actions of
governmental authorities or officers may adversely affect joint
ventures, licenses, license applications or other legal
arrangements, and such arrangements in these jurisdictions may
not be effective or enforced.
The authorities in the countries where we operate, or plan to
operate, may introduce additional regulations for the oil
industry with respect to, but not limited to, various laws
governing prospecting, development, production, taxes, price
controls, export controls, currency remittance, expropriation of
property, foreign investment, maintenance of claims,
environmental legislation, land use, land claims of local
people, water use, labor standards, occupational health network
access and other matters. New rules and regulations may be
enacted or existing rules and regulations may be applied or
interpreted in a manner which could limit our ability to provide
our technology. Amendments to current laws and regulations
governing operations and activities in the oil and gas industry
could harm our operations and financial results.
Compliance with and changes in tax laws or adverse positions
taken by taxing authorities could be costly and could affect our
operating results. Compliance related tax issues could also
limit our ability to do business in certain countries. Changes
in tax laws or tax rates, the resolution of tax assessments or
audits by various taxing authorities, disagreements with taxing
authorities over our tax positions and the ability to fully
utilize our tax loss carry-forwards and tax credits could have a
significant financial impact on our future operations and the
way we conduct, or if we conduct, business in the affected
countries.
Our
ability to use our net operating loss carryforwards to offset
future taxable income may be subject to certain
limitations.
As of September 30, 2011, we had net operating loss
carryforwards, or NOLs, of approximately $19.8 million. In
general, under Section 382 of the U.S. Internal
Revenue Code of 1986, as amended, a corporation that undergoes
an ownership change is subject to limitations on its
ability to utilize its NOLs to offset future taxable income. We
believe that our issuance of series B preferred stock on
October 15, 2009 resulted in a Section 382 ownership
change limitation. We estimate that approximately
$5.4 million of our NOLs will expire unused due to
Section 382 ownership change limitations. In addition, if
we undergo an ownership change in connection with or after this
public offering, our ability to utilize NOLs could be limited
further by Section 382. Future changes in our stock
ownership, some of which are outside of our control, could
result in an ownership change under Section 382.
Furthermore, our ability to utilize NOLs of companies that we
may acquire in the future may be subject to limitations.
Any
material weaknesses in our internal controls may impede our
ability to produce timely and accurate financial statements,
which could cause us to fail to file our periodic reports
timely, result in inaccurate financial reporting or restatements
of our financial statements, subject our stock to delisting and
materially harm our business reputation and stock
price.
As a public company, we will be required to file annual and
quarterly periodic reports containing our financial statements
with the Securities and Exchange Commission, or the SEC, within
prescribed time periods. As part of The Nasdaq Global Market
listing requirements, we are also required to provide our
periodic reports, or make them available, to our shareholders
within prescribed time periods. We may not be able to produce
reliable financial statements or to file these financial
statements as part of a periodic report in a timely manner with
the SEC and to comply with The Nasdaq Global Market listing
requirements. In addition, we could make errors in our financial
statements that could require us to restate our financial
statements in the future. If we are required to restate our
financial statements in the future, any specific adjustment may
be adverse and may cause our operating results and financial
condition, as restated, on an overall basis to be materially and
adversely impacted. As a result, we or members of our management
could be the subject of adverse publicity, investigations and
sanctions by such regulatory authorities as the SEC and be
subject to shareholder lawsuits. Any of the above consequences
could cause our stock price to decline materially and could
impose significant unanticipated costs on us.
17
As of each year end beginning with the year ending
December 31, 2012, our management will be required to
evaluate our internal control over financial reporting and to
provide in our
Form 10-K
its assessment of our internal controls to our shareholders. At
the same time, our registered independent public accounting firm
will be required to evaluate and report on our internal control
over financial reporting in the event we become an accelerated
filer or large accelerated filer. To the extent we find material
weaknesses or other deficiencies in our internal controls, we
may determine that we have ineffective internal controls as of
December 31, 2012, or any subsequent year end, and we may
receive an adverse assessment of our internal controls from our
auditors. Moreover, any material weaknesses or other
deficiencies in our internal controls may delay the conclusion
of an annual audit, including the 2011 audit, or a review of our
quarterly financial results.
If we are not able to issue our financial statements in a timely
manner, or if we are not able to obtain the required audit or
review of our financial statements by our registered independent
public accounting firm in a timely manner, we will not be able
to comply with the periodic reporting requirements of the SEC
and the listing requirements of The Nasdaq Global Market. If
these events occur, our common stock listing on The Nasdaq
Global Market could be suspended or terminated and our stock
price could materially suffer. In addition, we or members of our
management could be subject to investigation and sanction by the
SEC and other regulatory authorities and to shareholder
lawsuits, which could impose significant additional costs on us,
divert management attention and materially harm our operating
results, financial condition, business reputation and stock
price.
Risks
Related to Our Intellectual Property
We may
not be able to protect our proprietary information or technology
adequately.
Our success depends on our proprietary information and
technology. Our pending and future patent applications may not
issue as patents or, if issued, may not issue in a form that
will provide us with any meaningful protection or any
competitive advantage. Existing or future patents may be
challenged, including with respect to the development and
ownership thereof, or narrowed, invalidated or circumvented,
which could limit our ability to stop competitors from
developing and marketing similar technology or limit the length
of terms of patent protection we may have for our technology. In
addition, any such challenge could be costly and become a
significant diversion of our managements time and
resources. Further, other companies may design around technology
we have patented, licensed or developed and, therefore, diminish
any competitive advantage we may have from our technology. Also,
changes in patent laws or their interpretation in the
United States and other countries could diminish the value
of our intellectual property or narrow the scope of our patent
protection.
These concerns apply equally to patents we have licensed or may
in the future license, which may likewise be challenged,
invalidated or circumvented. In addition, we generally do not
control the patent prosecution and maintenance of subject matter
that we license from others. Generally, the licensors are
primarily or wholly responsible for the patent prosecution and
maintenance activities pertaining to the patent applications and
patents we license, while we may only be afforded opportunities
to comment on such activities. Accordingly, we are unable to
exercise the same degree of control over licensed intellectual
property as we exercise over our own intellectual property, and
we face the risk that our licensors will not prosecute or
maintain it as effectively as we would like.
Third parties may infringe or misappropriate our patents or
other intellectual property rights, which could adversely affect
our business, financial condition and results of operations.
Litigation may be necessary to enforce our intellectual property
rights, protect our trade secrets or determine the validity and
scope of the proprietary rights of others. In order to protect
or enforce our intellectual property rights, we may initiate
litigation against third parties, such as infringement suits or
interference proceedings. Such litigation may be costly and may
not be successful. Litigation may be necessary to:
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assert claims of infringement;
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enforce our patents;
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enforce our licenses;
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protect our trade secrets or know-how; or
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determine the enforceability, scope and validity of the
proprietary rights of others.
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The steps we have taken to deter misappropriation of our
proprietary information and technology may be insufficient to
protect us, and we may be unable to prevent infringement of our
intellectual property rights or misappropriation of our
proprietary information. Any infringement or misappropriation
could harm any competitive advantage we currently derive or may
derive in the future from our proprietary rights. In addition,
if we operate in foreign jurisdictions in the future, we may not
be able to protect our intellectual property in the foreign
jurisdictions in which we operate. The legal systems of certain
countries do not favor the aggressive enforcement of
intellectual property and the laws of certain foreign countries
may not protect our rights to the same extent as the laws of the
United States. Any actions taken in those countries may
have results that are different than if such actions were taken
under the laws of the United States. Patent litigation and
other challenges to our patents are costly and unpredictable and
represent a significant diversion of our managements time
and resources. Our intellectual property may also fall into the
public domain. If we are unable to protect our proprietary
rights, we may be at a disadvantage to others who did not incur
the substantial time and expense we have incurred to create our
technology.
Confidentiality
agreements with employees and others may not adequately prevent
disclosures of trade secrets and other proprietary
information.
We rely in part on trade secret protection to protect our
confidential and proprietary information and processes. However,
trade secrets are difficult to protect. The measures we have
taken to protect our trade secrets and proprietary information
may not be effective. We require new employees and consultants
to execute confidentiality agreements upon the commencement of
an employment or consulting arrangement with us. These
agreements generally require that all confidential information
developed by the individual or made known to the individual by
us during the course of the individuals relationship with
us be kept confidential and not disclosed to third parties.
These agreements also generally provide that know-how and
inventions conceived by the individual in the course of
rendering services to us are our exclusive property.
Nevertheless, these agreements may be breached or may not be
enforceable, our proprietary information may be disclosed, and
others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to our trade secrets, and we may not have adequate remedies for
any resulting losses. Costly and time-consuming litigation could
be necessary to enforce and determine the scope of our
proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive
business position.
Our
technology may infringe upon the intellectual property rights of
others. Intellectual property infringement claims would be time
consuming and expensive to defend and may result in limitations
on our ability to use the intellectual property subject to these
claims.
Claims asserting that we have violated or infringed upon third
party intellectual property rights may be brought against us in
the future. We may be unaware of intellectual property rights of
others that may cover some of our technology or third parties
may have or eventually be issued patents on which our current
and future technology may infringe. The complexity of the
technology involved and the uncertainty of intellectual property
litigation increase these risks. Any claims and any resulting
litigation could subject us to significant liability for
damages, cause us to incur significant expenses and divert
management time. A court could enter orders temporarily,
preliminarily or permanently enjoining us from making, using,
selling or importing any current and future technology or could
enter an order mandating that we undertake certain remedial
activities. An adverse determination in any litigation of this
type could require us to design around a third partys
patent or license alternative technology from another third
party, which may not be available on acceptable terms or at all.
If we could not do these things on a timely and cost-effective
basis, our revenues may decrease substantially and we could be
exposed to significant liability. In addition, litigation is
time-consuming and
19
expensive to defend and could result in limitations on our
ability to use the intellectual property subject to these claims.
Environmental
and Regulatory Risks
We are
subject to complex laws and regulations, including environmental
regulations, which can adversely affect the cost, manner or
feasibility of our business.
Our operations are subject to federal, state and local laws and
regulations, including environmental and health and safety laws
and regulations governing, among other things, the generation,
storage, handling, emission, use, transportation and discharge
of hazardous substances and other materials into the
environment, the integrity of groundwater aquifers and the
health and safety of our employees. These laws and regulations
can adversely affect the cost, manner or feasibility of doing
business. We incur, and expect to continue to incur, capital and
operating costs to comply with environmental laws and
regulations. Many laws and regulations require permits for the
operation of various facilities, and these permits are subject
to revocation, modification and renewal. Governmental
authorities have the power to enforce compliance with their
regulations, and violations could subject us to fines,
injunctions or both.
We could be held liable for contamination at or from our current
or former properties and any sites we acquire in the future, as
well as for contamination at or from third party sites where we
have operated or have disposed of waste, regardless of our
fault. We could also be subject to claims from landowners
alleging property damage as a result of our operations. Further,
we could be held liable for any and all consequences arising out
of human exposure to hazardous substances or other environmental
damage. In addition, if we are named in an environmental lawsuit
alleging contamination at any such site, even if we are not at
fault, any such lawsuit could harm our reputation and be costly
and become a significant diversion of our managements time
and resources.
Environmental laws are complex, change frequently and have
tended to become more stringent over time. Changes in, or
additions to, environmental and health and safety laws and
regulations could lead to increased operating and compliance
costs. Therefore, our costs of complying with current and future
environmental and health and safety laws, and our liabilities
arising from past or future releases of, or exposure to,
hazardous substances or other materials may materially harm our
business, financial condition and results of operations.
We
rely on oil producers to obtain the appropriate permits to
operate their wells and waterflood systems, and if they fail to
obtain proper permits they could be subject to fines or
penalties, and that could harm our business.
In the typical application of our AERO System to a reservoir,
the well operator will be responsible for having all applicable
permits for operating its wells and waterflood systems. If the
well operator fails to have such permits, it could be subject to
fines or penalties, which could, in turn, harm our business.
Climate
change legislation and regulatory initiatives could result in
increased operating costs and decreased demand for our products
and services.
Changes in environmental requirements may negatively impact
demand for our services. For example, oil exploration and
production may decline as a result of environmental requirements
(including land use policies responsive to environmental
concerns). State, national, and international governments and
agencies have been evaluating climate-related legislation and
other regulatory initiatives that would restrict emissions of
greenhouse gases in areas in which we conduct business. Because
our business depends on the level of activity in the oil
industry, existing or future laws, regulations, treaties or
international agreements related to greenhouse gases and climate
change, including incentives to conserve energy or use
alternative energy sources, could have a negative impact on our
business if such laws, regulations, treaties, or international
agreements reduce the worldwide demand for oil. Likewise, such
restrictions may result in additional compliance obligations
with respect to the release, capture and use of greenhouse gases
such as carbon dioxide that could adversely affect our business,
financial condition and results of operations.
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The
adoption of any future federal or state laws or implementing
regulations imposing restrictions on hydraulic fracturing, if
extended to oil recovery operations, could materially harm our
business, financial condition and results of
operations.
The Environmental Protection Agency, or EPA, has recently
focused on concerns about the risk of water contamination and
public health problems from drilling and hydraulic fracturing
activities. The EPA is conducting a comprehensive research study
on the potential adverse effects that hydraulic fracturing may
have on water quality and public health. While our technology is
unrelated to hydraulic fracturing, it is possible that any
federal, state and local laws and regulations that might be
imposed on fracturing activities could also apply to oil
recovery operations. We cannot predict the outcome of the
EPAs study or whether any new legislation or regulations
would impact our business. Any such future laws and regulations
could result in increased compliance costs or additional
operating restrictions, which, in turn, could materially harm
our financial position, results of operations and cash flows.
Risks
Related to This Offering
Some
of our stockholders could together exert control over us after
completion of this offering.
As of September 30, 2011, our six largest stockholders,
consisting of GTI Glori Oil Fund I L.P. and its related
funds, or GTI, KPCB Holdings, Inc., or KPCB, Oxford Bioscience
Partners V L.P. and its related funds, or Oxford, Rawoz
Technology Company Ltd., or Rawoz, Malaysian Life Sciences
Capital Fund Ltd., or MLSCF, and ETV owned in the aggregate
shares representing approximately 94% of our outstanding voting
power. After the completion of this offering, these stockholders
will own in the aggregate shares representing
approximately % of our outstanding
voting power, or approximately % if
the underwriters exercise their over-allotment option in full.
After completion of this offering, these stockholders, if they
act together, would be able to significantly influence all
matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other
business combination transactions. The interests of this group
of stockholders may not always coincide with the interests of
other stockholders, and they may act in a manner that advances
their best interests and not necessarily those of other
stockholders. Similarly, this concentration of ownership may
have the effect of delaying or preventing a change in control of
our company otherwise favored by our other stockholders. This
concentration of ownership could therefore depress our stock
price.
If
securities analysts do not publish research or reports about our
business or if they publish negative evaluations of our stock,
the price of our stock could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or financial analysts
publish about us or our business. We do not currently have and
may never obtain research coverage by industry or financial
analysts. If no or few analysts commence coverage of us, the
trading price of our stock would likely be adversely affected.
Even if we do obtain analyst coverage, if one or more of the
analysts covering our business downgrade their evaluations of,
or recommendations regarding, our stock, cease providing
research coverage on our stock or provide more favorable
relative recommendations about our competitors, the trading
price of our stock could be adversely affected.
We
have broad discretion in the use of net proceeds from this
offering and may not use them effectively.
We will have broad discretion in the application of the net
proceeds and may apply them in ways with which you and other
investors in this offering may not agree. Our failure to apply
these net proceeds effectively could affect our ability to yield
a significant return, if any, on any investment of these net
proceeds.
21
The
market price for our common stock may be highly volatile and you
may be unable to sell all of your shares at or above the
offering price.
The initial public offering price for our shares will be
determined by negotiations between us and representatives of the
underwriters and may not be indicative of prices that will
prevail in the trading market after this offering. The market
price of shares of our common stock could be subject to wide
fluctuations in response to the risks described in this section
and others beyond our control, including:
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actual or anticipated fluctuations in our financial condition
and operating results;
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liquidity;
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sales of common stock by stockholders;
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actual or anticipated growth rate relative to our competitors;
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announcements of technological innovations by us or our
competitors;
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successful implementation of our technology in new areas;
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announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
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publication of research reports about us or the industry
generally;
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changes in applicable laws or regulations, court rulings and
enforcement and legal actions;
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adverse market reaction to any indebtedness we incur in the
future;
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additions or departures of key management or scientific
personnel;
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competition from existing technologies or new technologies that
may emerge;
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commencement of, or involvement in, litigation, including
disputes or other developments related to proprietary rights,
including patents and our ability to obtain patent protection
for our technology;
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speculation in the press or investment community regarding our
business;
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share price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
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general market and economic conditions; and
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domestic and international economic, legal and regulatory
factors unrelated to our performance.
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Financial markets from time to time experience significant price
and volume fluctuations that affect the market prices of equity
securities of companies and that may, in many cases, be
unrelated to the operating performance, underlying asset values
or prospects of such companies. These broad market and industry
fluctuations, as well as general economic, political and market
conditions, such as recessions, interest rate changes or
international currency fluctuations, may negatively impact the
trading price of our common stock. If the trading price of our
common stock after this offering does not exceed the initial
public offering price, you may not realize any return on your
investment in us and may lose some or all of your investment. In
the past, companies that have experienced volatility in the
market price of their stock have been subject to securities
class action litigation, and we may be the target of this type
of litigation in the future. Securities litigation against us
could result in substantial costs and divert our
managements attention from other business concerns,
possibly causing serious harm to our business.
22
No
public market for our common stock currently exists and an
active trading market may not develop or be sustained following
this offering.
Prior to this offering, there has been no public market for our
common stock. An active trading market may not develop following
the completion of this offering or, if developed, may not be
sustained. The lack of an active market may impair your ability
to sell your shares at the time you desire or at the price you
desire. The inability to sell your shares in a declining market
because of such illiquidity or at a price you desire may
substantially increase your risk of loss. Furthermore, an
inactive trading market may impair our ability to raise capital
to continue to fund our operations by selling shares and may
also impair our ability to make acquisitions of other companies
by using our shares as consideration.
Sales
of outstanding shares of our common stock into the market in the
future could cause the market price of our common stock to drop
significantly, even if our business is doing well.
If our existing stockholders sell or indicate an intention to
sell substantial amounts of our common stock in the public
market, the trading price of our common stock could decline
substantially. After this offering,
approximately million shares
of our common stock will be outstanding if the underwriters do
not exercise their over-allotment option. Of these
shares, million shares of our
common stock sold in this offering will be freely tradable,
without restriction, in the public market and the remaining
outstanding shares are subject to
180-day
contractual
lock-up
agreements with our underwriters. Credit Suisse Securities (USA)
LLC may, in its discretion, permit our directors, officers,
employees and current stockholders who are subject to these
contractual
lock-ups to
sell shares prior to the expiration of the
lock-up
agreements. These
lock-ups are
subject to extension for up to an additional 34 days under
some circumstances. See Shares Eligible for Future
Sale
Lock-Up
Agreements.
After the
lock-up
agreements pertaining to this offering expire, up to an
additional
approximately million shares
will be eligible for sale in the public market,
approximately million of
which are held by directors and executive officers and our other
affiliates and will be subject to volume limitations under
Rule 144 under the Securities Act of 1933, as amended, or
the Securities Act. In addition, the
approximately million shares
underlying options that are either subject to the terms of our
equity compensation plans or reserved for future issuance under
our equity compensation plans and warrants will become eligible
for sale in the public market to the extent permitted by the
provisions of various option agreements, warrants and
Rules 144 and 701 under the Securities Act. For additional
information, see Shares Eligible for Future
Sale.
You
will experience immediate and substantial dilution in your
investment.
The offering price of the common stock is substantially higher
than the net tangible book value per share of our common stock,
which on a pro forma basis was $
per share of common stock as of September 30, 2011. See
Dilution. As a result, you will experience immediate
and substantial dilution in net tangible book value when you buy
common stock in this offering. This means that you will pay a
higher price per share than the amount of our total tangible
assets, less our total liabilities, divided by the number of
shares of common stock outstanding. Holders of our common stock
will experience further dilution if the underwriters
over-allotment option to purchase additional shares of common
stock from us pursuant to this offering is exercised, if options
or other rights to purchase our common stock that are
outstanding or that we may issue in the future are exercised or
converted, or if we issue additional shares of our common stock
at prices lower than our net tangible book value at such time.
Provisions
in our organizational documents and in the Delaware General
Corporation Law may discourage or prevent takeover attempts that
could be beneficial to our stockholders.
Certain provisions of our post-offering organizational documents
and Delaware law could discourage potential acquisition
proposals, delay or prevent a change in control of us or limit
the price that investors may
23
be willing to pay in the future for shares of our common stock.
For example, our post-offering certificate of incorporation and
post-offering bylaws will:
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authorize the issuance of preferred stock that can be created
and issued by our board of directors without prior stockholder
approval, commonly referred to as blank check
preferred stock, with rights senior to those of our common stock;
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limit the persons who can call special stockholder meetings;
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establish advance notice requirements to nominate persons for
election to our board of directors or to propose matters that
can be acted on by stockholders at stockholder meetings;
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not provide for cumulative voting in the election of
directors; and
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provide for the filling of vacancies on our board of directors
by action of a majority of the directors and not by the
stockholders.
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These and other provisions in our organizational documents could
allow our board of directors to affect your rights as a
stockholder in a number of ways, including making it more
difficult for stockholders to replace members of the board of
directors. Because our board of directors is responsible for
approving the appointment of members of our management team,
these provisions could in turn affect any attempt to replace the
current management team. These provisions could also limit the
price that investors would be willing to pay in the future for
shares of our common stock.
Section 203 of the Delaware General Corporation Law also
imposes certain restrictions on mergers and other business
combinations between us and any holder of 15% or more of our
common stock. See Description of Capital Stock
Anti-Takeover Effects of Delaware Law and Our Certificate of
Incorporation and Bylaws.
We do
not plan to pay dividends on our common stock and, consequently,
the only opportunity to achieve a return on an investment in our
common stock is if the price of our common stock
appreciates.
We do not plan to pay dividends on our common stock for the
foreseeable future. The only opportunity to achieve a positive
return on an investment in our common stock for the foreseeable
future may be if the market price of our common stock
appreciates.
24
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Our
Company, contains forward-looking statements. We may, in
some cases, use words such as project,
believe, anticipate, plan,
expect, estimate, intend,
should, would, could,
potentially, or may, or other words that
convey uncertainty of future events or outcomes to identify
these forward-looking statements. Forward-looking statements in
this prospectus include statements about:
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the increase in oil production rate and ultimate quantity of oil
recovered using our AERO System;
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the percentage of the worlds reservoirs that are suitable
for our AERO System;
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our ability to prove our technology and develop and maintain
positive relationships with our customers and prospective
customers;
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competition and competitive factors in the markets in which we
operate;
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demand for our AERO System and our expectations regarding future
projects;
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adaptability of our AERO System and our development of
additional capabilities that will expand the types of oil fields
to which we can apply our technology;
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our plans to acquire and develop additional non-producing
end-of-life
oil fields and low-producing oil fields;
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the expected cost of recovering oil using our AERO System in our
projects;
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our ability to compete with other enhanced oil recovery methods;
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our spending of the proceeds from this offering;
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our cash needs and expectations regarding cash flow from
operations;
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our ability to manage and grow our business and execution of our
business strategy;
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our financial performance; and
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the costs associated with being a public company.
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Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
There are a number of important factors that could cause actual
results to differ materially from the results anticipated by
these forward-looking statements, which apply only as of the
date of this prospectus. These important factors include those
that we discuss in this prospectus under the caption Risk
Factors and elsewhere. You should read these factors and
the other cautionary statements made in this prospectus as being
applicable to all related forward-looking statements wherever
they appear in this prospectus. If one or more of these factors
materialize, or if any underlying assumptions prove incorrect,
our actual results, performance or achievements may vary
materially from any future results, performance or achievements
expressed or implied by these forward-looking statements. We
undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as required by law.
25
MARKET,
INDUSTRY AND OTHER DATA
Unless otherwise indicated, information contained in this
prospectus concerning our industry and the markets in which we
operate, including our general expectations and market position,
market opportunity and market size, is based on information from
various sources, on assumptions that we have made that are based
on that information and other similar sources and on our
knowledge of the markets for our services. That information
involves a number of assumptions and limitations, and you are
cautioned not to give undue weight to such estimates. While we
believe that information from third-party sources used in this
prospectus is generally reliable, we have not independently
verified the accuracy or completeness of this information. In
addition, projections, assumptions and estimates of our future
performance and the future performance of the industry in which
we operate is necessarily subject to a high degree of
uncertainty and risk due to a variety of factors, including
those described in Risk Factors and elsewhere in
this prospectus. These and other factors could cause results to
differ materially from those expressed in the estimates made by
the independent parties and by us.
26
USE OF
PROCEEDS
We estimate that the net proceeds we will receive from this
offering will be approximately
$ million (or approximately
$ million if the underwriters
exercise their option to purchase additional shares of common
stock in full), based on the assumed initial public offering
price of $ per share, which is the
midpoint of the range included on the cover page of this
prospectus, and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses
payable by us. A $1.00 increase or decrease in the assumed
initial public offering price of $
per share would increase or decrease the net proceeds we receive
from this offering by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same.
We have no current specific plans for the use of the net
proceeds from this offering. We may use the net proceeds from
this offering for working capital and other general corporate
purposes, which may include the acquisition, restoration and
operation of additional non-producing
end-of-life
oil fields and low-producing oil fields, capital expenditures
associated with our AERO System and expenditures relating to
further research and development efforts. We do not, however,
have agreements or commitments for any specific property
acquisitions at this time. We will have broad discretion in the
way we use the net proceeds.
Pending use of the net proceeds from this offering described
above, we intend to invest the net proceeds in short- and
intermediate-term interest-bearing obligations, investment-grade
instruments, certificates of deposit or direct or guaranteed
obligations of the United States government.
The primary purposes of this offering are to raise additional
capital, create a public market for our common stock, allow us
quicker access to the public markets should we need more capital
in the future, increase our profile with existing and possible
future customers, vendors and strategic partners and make our
stock more attractive to our employees and potential employees
for compensation purposes.
DIVIDEND
POLICY
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain all available funds and any
future earnings to finance the growth and development of our
business. Accordingly, we do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to
declare cash dividends will be made at the discretion of our
board of directors and will depend on our financial condition,
operating results, capital requirements, general business
conditions and other factors that our board of directors may
deem relevant.
27
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of September 30, 2011:
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on an actual basis; and
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on a pro forma basis after giving effect to (i) the
conversion upon the closing of this offering of all outstanding
shares of our preferred stock and accrued and unpaid dividends
on our preferred stock into an aggregate of
43,734,720 shares of our common stock, subject to
additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
unpaid dividends on our preferred stock and the quarterly
compounding of such dividends, which dividends accrue at the
rate of 4% for our series A preferred stock and 8% for our
series B preferred stock, (ii) the issuance of
631,724 shares of our common stock, subject to additional
shares of our common stock being issuable for each day after
September 30, 2011 for the daily accrual of interest, in
connection with the conversion of the ETV Note, which will occur
upon the closing of this offering, (iii) our filing of our
post-offering certificate of incorporation, and (iv) the
sale by us
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus, and our receipt of the estimated net proceeds from
that sale after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
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You should read the following table in conjunction with the
sections titled Selected Consolidated Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
financial statements included elsewhere in this prospectus.
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September 30, 2011
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Pro
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Actual
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Forma
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(in thousands,
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except share data)
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Cash and cash equivalents
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$
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4,995
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$
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Long-term debt
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$
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1,500
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$
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Series A Preferred Stock, $0.0001 par value; 521,852
and zero shares authorized actual and pro forma, 475,541 and
zero issued and outstanding actual and pro forma(1)
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1
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Series B Preferred Stock, $0.0001 par value; 2,901,052
and zero shares authorized actual and pro forma, 2,901,052 and
zero issued and outstanding actual and pro forma(2)
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1
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Preferred Stock, $0.0001 par value; zero
and shares
authorized actual and pro forma; zero and zero shares issued and
outstanding actual and pro forma
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Stockholders Equity
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Common stock, $0.0001 par value; 100,000,000
and shares
authorized actual and pro forma; 2,866,160
and shares
issued and outstanding actual and pro forma
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1
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Additional paid-in capital
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26,297
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Accumulated deficit
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(21,167
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)
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Total Glori Energy Inc. stockholders equity
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5,133
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Total capitalization
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$
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6,633
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$
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(1) |
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Between November 2006 and September 2008, we sold an aggregate
of 47,554,100 shares of series A preferred stock at a
price of $0.2208 per share for gross proceeds of approximately
$10.5 million. On October 15, 2009, we effected a 100
to 1 reverse stock split on our series A preferred stock. |
28
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(2) |
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Between October 2009 and May 2011, we sold an aggregate of
2,901,052 shares of series B preferred stock at a
price of $5.5216 per share for gross proceeds of approximately
$16.0 million. |
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus, would increase or decrease the amount of cash and
cash equivalents, additional paid-in capital, total
stockholders equity and total capitalization by
approximately $ million,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same, and after
deducting the estimated underwriting discounts and commissions
and estimated expenses payable by us.
This table excludes the following shares:
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4,231,539 shares of our common stock issuable upon the
exercise of options outstanding as of September 30, 2011
with a weighted average exercise price of $0.12 per share;
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[ ]shares
of our common stock reserved for future issuance under our 2011
Omnibus Incentive Plan; and
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1,020,222 shares of our common stock issuable upon the
exercise of warrants outstanding as of September 30, 2011
with a weighted average exercise price of $1.06 per
share; and
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up to 153,940 shares of our common stock issuable upon the
exercise of a warrant to be granted by us to TERI on or before
December 31, 2011 in consideration of services performed by
TERI.
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29
DILUTION
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the initial
public offering price per share of our common stock in this
offering and the pro forma net tangible book value per share of
our common stock after this offering.
Our net tangible book value as of September 30, 2011 was
$5.1 million, or $1.71 per share of common stock. Net
tangible book value per share represents the amount of our total
tangible assets less total liabilities, divided by the number of
shares of our common stock outstanding. On a pro forma basis,
after giving effect to (i) the automatic conversion of all
outstanding shares of our preferred stock and accrued and unpaid
dividends on our preferred stock into an aggregate of
43,734,720 shares of our common stock, subject to
additional shares of our common stock being issuable for each
day after September 30, 2011 for the daily accrual of
unpaid dividends on our preferred stock and the quarterly
compounding of such dividends, which dividends accrue at the
rate of 4% for our series A preferred stock and 8% for our
series B preferred stock, (ii) the issuance of
631,724 shares of our common stock in connection with the
conversion of the ETV Note, subject to additional shares of our
common stock being issuable for each day after
September 30, 2011 for the daily accrual of interest, and
(iii) our issuance and sale
of shares
of common stock in this offering, less the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, based upon an assumed initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus, our pro forma net tangible book value as of
September 30, 2011 would have been
$ million, or
$ per share of common stock. This
represents an immediate increase in net tangible book value per
share of $ to existing
stockholders and an immediate dilution of
$ per share to new investors.
Dilution per share to new investors is determined by subtracting
pro forma net tangible book value per share after this offering
from the initial public offering price per share paid by a new
investor. The following table illustrates the per share dilution:
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Initial public offering price per share of common stock
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$
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Net tangible book value per share as of September 30, 2011
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$
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Decrease per share attributable to conversion of preferred stock
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Pro forma net tangible book value per share as of
September 30, 2011
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Increase per share attributable to new investors
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Pro forma net tangible book value per share after this offering
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Dilution per share to new investors
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$
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If the underwriters exercise their option to purchase additional
shares of our common stock from us in full in this offering, the
pro forma net tangible book value per share after the offering
would be $ per share, the increase
in pro forma net tangible book value per share to existing
stockholders would be $ per share
and the dilution to new investors purchasing shares in this
offering would be $ per share.
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share,
which is the midpoint of the range set forth on the cover page
of this prospectus, would increase or decrease our pro forma net
tangible book value as of September 30, 2011 by
approximately $ million, the
pro forma net tangible book value per share after this offering
by $ per share and the dilution in
pro forma net tangible book value per share to new investors in
this offering by $ per share,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
30
The following table summarizes, as of September 30, 2011,
on the pro forma basis described above, the number of shares of
our common stock purchased from us, the total consideration paid
to us, and the average price per share paid to us by existing
stockholders and to be paid by new investors purchasing shares
of our common stock in this offering.
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Total
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Shares Purchased
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Consideration
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Average Price
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Number
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Percent
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Amount
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Percent
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per Share
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Existing stockholders
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%
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$
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%
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$
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New investors
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$
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Total
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100
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%
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$
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100
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%
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|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share,
which is the midpoint of the range set forth on the cover page
of this prospectus, would increase or decrease total
consideration paid to us by investors participating in this
offering by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
As of September 30, 2011, there were options and warrants
outstanding to purchase a total of 5,251,761 shares of
common stock at a weighted average exercise price of $0.30 per
share. The above discussion and table assumes no exercise of
options and warrants outstanding as of September 30, 2011
or of any later issued options or warrants. If all of these
options and warrants were exercised, our existing stockholders,
including the holders of these options and warrants, would
own % of the total number of shares
of common stock outstanding upon the closing of this offering
and our new investors would own %
of the total number of shares of our common stock upon the
closing of this offering.
31
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated
statements of loss, consolidated balance sheets and other data
for the periods indicated. The selected consolidated statements
of loss data for the years ended December 31, 2008, 2009
and 2010, and the consolidated balance sheets data as of
December 31, 2009 and 2010 have been derived from our
audited consolidated financial statements included elsewhere in
this prospectus. The selected consolidated balance sheet data as
of December 31, 2007 and 2008 have been derived from our
audited consolidated financial statements not included in this
prospectus. The selected consolidated statements of loss data
for the years ended December 31, 2006 and 2007 and the
selected consolidated balance sheet data as of December 31,
2006 have been derived from our unaudited consolidated financial
statements that are not included in this prospectus. Our
unaudited consolidated financial statements as of
September 30, 2010 and 2011 and for the nine months ended
September 30, 2010 and 2011 have been prepared on the same
basis as our annual consolidated financial statements and
include all adjustments, which include only normal recurring
adjustments, necessary in the opinion of management for the fair
presentation of this data in all material respects. Our selected
consolidated financial data as of September 30, 2011 and
for the nine months ended September 30, 2010 and 2011 have
been derived from our unaudited consolidated financial
statements included elsewhere in this prospectus. This
information should be read in conjunction with
Capitalization, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements
contained elsewhere in this prospectus. Our historical results
for any prior period are not necessarily indicative of results
to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited, except 2007 Consolidated Balance Sheet Data)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Loss Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
459
|
|
|
$
|
858
|
|
|
$
|
131
|
|
|
$
|
37
|
|
|
$
|
1,119
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
360
|
|
|
|
792
|
|
|
|
1,080
|
|
|
|
1,277
|
|
|
|
1,163
|
|
|
|
769
|
|
|
|
1,966
|
|
Research and development
|
|
|
170
|
|
|
|
1,382
|
|
|
|
1,188
|
|
|
|
1,021
|
|
|
|
1,546
|
|
|
|
1,061
|
|
|
|
1,173
|
|
Selling, general and administrative
|
|
|
1,247
|
|
|
|
1,559
|
|
|
|
1,531
|
|
|
|
827
|
|
|
|
1,679
|
|
|
|
1,080
|
|
|
|
1,946
|
|
Depreciation, depletion and amortization
|
|
|
19
|
|
|
|
211
|
|
|
|
378
|
|
|
|
390
|
|
|
|
442
|
|
|
|
316
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,796
|
|
|
|
3,944
|
|
|
|
4,177
|
|
|
|
3,515
|
|
|
|
4,830
|
|
|
|
3,226
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,796
|
)
|
|
|
(3,944
|
)
|
|
|
(3,718
|
)
|
|
|
(2,657
|
)
|
|
|
(4,699
|
)
|
|
|
(3,189
|
)
|
|
|
(4,402
|
)
|
Other income (expense), net
|
|
|
3
|
|
|
|
140
|
|
|
|
53
|
|
|
|
(64
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,793
|
)
|
|
|
(3,804
|
)
|
|
|
(3,665
|
)
|
|
|
(2,721
|
)
|
|
|
(4,698
|
)
|
|
|
(3,189
|
)
|
|
|
(4,476
|
)
|
Less unpaid dividends on Series A and B cumulative
convertible preferred stock
|
|
|
(18
|
)
|
|
|
(320
|
)
|
|
|
(440
|
)
|
|
|
(605
|
)
|
|
|
(1,314
|
)
|
|
|
(896
|
)
|
|
|
(1,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(1,811
|
)
|
|
$
|
(4,124
|
)
|
|
$
|
(4,105
|
)
|
|
$
|
(3,326
|
)
|
|
$
|
(6,012
|
)
|
|
$
|
(4,085
|
)
|
|
$
|
(5,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(1.16
|
)
|
|
$
|
(2.10
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(2.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,044
|
|
|
|
2,797
|
|
|
|
2,844
|
|
|
|
2,863
|
|
|
|
2,866
|
|
|
|
2,865
|
|
|
|
2,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
201
|
|
|
$
|
3,528
|
|
|
$
|
827
|
|
|
$
|
6,236
|
|
|
$
|
7,142
|
|
|
$
|
2,845
|
|
|
$
|
4,995
|
|
Total assets
|
|
|
415
|
|
|
|
5,567
|
|
|
|
2,554
|
|
|
|
7,454
|
|
|
|
8,990
|
|
|
|
4,123
|
|
|
|
8,566
|
|
Long term debt, including current maturities
|
|
|
|
|
|
|
421
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Total stockholders equity
|
|
|
(78
|
)
|
|
|
4,771
|
|
|
|
1,111
|
|
|
|
6,959
|
|
|
|
8,087
|
|
|
|
3,802
|
|
|
|
5,133
|
|
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion together with our
consolidated financial statements included elsewhere in this
prospectus. This discussion contains forward-looking statements
about our business and operations. Our actual results may differ
materially from those we currently anticipate as a result of the
factors we describe under Risk Factors and elsewhere
in this prospectus.
Overview
We work with oil producers to integrate our AERO System into
existing production infrastructure to increase oil recovery. Our
mission is to use microbiology to efficiently recover large
quantities of oil currently trapped in reservoirs using existing
oil wells.
Conventional oil recovery technology is commonly understood to
only extract a cumulative total of one-third of all discovered
oil, leaving significant crude oil underground. We focus our
proprietary AERO System on increasing the amount of oil that can
be recovered by stimulating a waterflood reservoirs
naturally occurring microbes. Based on the results of our first
commercial application of our AERO System, our technology
extends the life and economic viability of mature oil fields.
Our
Operations
Our AERO System is designed, tested and developed to be unique
to a specific reservoir. Our AERO System is customized for our
customers through the three step S3 process:
|
|
|
|
|
Sample: The identification and assessment of
underground environments where the existing conditions are
suitable for microbial life activation.
|
|
|
|
Simulate: The performance of laboratory and
field tests to assess microbial activation and to identify
customized nutrient formulations that will cause the microbes to
grow.
|
|
|
|
Stimulate: The implementation of our AERO
System by circulating nutrient formulations in the reservoir to
target indigenous microbes and support their growth and allow
the recovery of more oil.
|
Because we deploy our AERO System only within reservoirs with
existing waterflood production and utilize the existing
infrastructure of that waterflood, the capital costs of
implementation are minimized.
Our business plan is to provide services primarily under master
service agreements with our customers, with services for
specific projects being provided through separate contracts
under a master service agreement. Fees for the Sample and
Simulate phases are generally quoted as a single fixed amount
for services, while fees for the Stimulate phase are usually
quoted as a fixed fee per month based upon the scope of the
project. Our customers often view the initial Stimulate phase
services as a field validation of laboratory results and
accordingly the contracted initial stimulation period may be six
to twelve months. After the initial field validation is
complete, we expect to enter into a longer term contract with
our customer for a fee that is higher than the initial Stimulate
field validation phase to continue the use of our AERO System to
the end of life of the field. Post-validation fees for the
Stimulate phase are targeted to reflect the value we create for
our customers based on our internal estimates of incremental
production from our AERO System.
In April 2011, we initiated oil production from our Etzold field
in Kansas, where we revitalized an oil field that had not been
in production for several years. This project provides our
scientists and engineers with a working oil field to demonstrate
our AERO System technology and accelerate customer adoption. We
plan to strategically acquire and develop additional
non-producing
end-of-life
oil fields and low-producing oil fields in geographies that we
expect will improve our portfolio of demonstration projects and
accelerate customer adoption of our technology. We expect that
any oil that is produced in the future from the Etzold field or
any other oil field that we acquire will be sold by us for
profit. We will record revenue from the sale of oil when
delivery to the buyer has occurred.
33
Based upon our preliminary screening of reservoirs best suited
for our technology, we are initially focusing our marketing
efforts in Texas, Kansas, Oklahoma, Louisiana and California,
and in the Canadian provinces of Alberta and Saskatchewan. We
have opened sales and field offices in Calgary, Alberta,
Bakersfield, California, Liberal, Kansas and Hazlett,
Saskatchewan, and have contracts for our services for oil fields
in Kansas, Oklahoma, California and Saskatchewan.
Operating expenses consist primarily of the cost of materials
used in our nutrient formulations, including blending,
transportation to the injection site, injection and warehousing.
Cost of revenues also includes field personnel engaged in
periodic visits to injection sites for repair and maintenance,
well monitoring and sampling as indicated by production results.
Research and development expenses consist primarily of the
compensation paid to scientists, engineers and research
assistants working in our Houston, Texas laboratory, consulting
fees for research assistance, third party laboratory testing and
supplies and materials consumed in the research process.
Selling, general and administrative expenses consist primarily
of the compensation paid to administrative officers and
employees and sales personnel, professional fees, travel, and
direct office support expenses.
Depreciation, depletion and amortization consists primarily of
depreciation on our leasehold improvements, our laboratory
equipment in Houston, the skid-mounted injection equipment used
in our AERO System applications and depletion of intangible
drilling costs and surface equipment at our Etzold field.
We have relatively few customers, we have not generated
substantial revenues from operations, and our costs are largely
fixed. As we continue to establish ourselves as a low cost
technology service provider, we anticipate generating additional
revenues with relatively modest increases in fixed costs, except
for the increased costs of being a public company.
Critical
Accounting Policies
The discussion of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with United States
generally accepted accounting principles. The preparation of
these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues, costs and expenses. On an ongoing basis,
we evaluate our estimates and assumptions, including those
related to revenue, bad debts, long-lived assets, income taxes
and stock-based compensation. These estimates are based on
historical experience and on various other assumptions that we
believe are reasonable under the circumstances. The results of
our analysis form the basis for making assumptions about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates, and the impact of such differences may be
material to our consolidated financial statements.
Critical accounting policies are those policies that, in
managements view, are most important in the portrayal of
our financial condition and results of operations. The footnotes
to our consolidated financial statements also include disclosure
of significant accounting policies. The methods, estimates and
judgments that we use in applying our accounting policies have a
significant impact on the results that we report in our
financial statements. These critical accounting policies require
us to make difficult and subjective judgments, often as a result
of the need to make estimates regarding matters that are
inherently uncertain. Those critical accounting policies and
estimates that require the most significant judgment are
discussed below.
Revenue
Recognition
Revenue is recognized when all services are concluded, and there
is evidence that the customer has accepted the services, which
generally coincides with invoicing. For contracts which have
multiple deliverable arrangements, including those contracts
lacking objective and reliable evidence regarding the fair value
of the undelivered items, revenue recognition is deferred in
accordance with Accounting Standards Codification
(ASC) 605, Revenue Recognition: Multiple-element
Arrangements.
34
In this regard, our contracts have historically fallen into
three categories and each category receives distinct application
of revenue recognition based upon managements assessment
of its contractual elements:
|
|
|
|
|
Contracts that are only for research-related services in the
Sample and Simulate phases. Revenues for services delivered
under such contracts are deferred until the conclusion of the
service and acceptance by the customer, usually denoted by the
presentation by us of a written report to the customer.
|
|
|
|
Contracts that are only for field-related services in the
Stimulate phase. Revenues are recognized ratably over the term
of the field-related services.
|
|
|
|
Contracts containing both research-related services and
field-related services. Revenues are recognized for the research
related services and the field-related services as described
above, if the customer has the unilateral right to proceed to
field-related services after completion of the research-related
services. If the field-related services will be delivered under
the contract terms without the customers unilateral right
to proceed, revenue for the research-related services are
deferred and recognized ratably over the term of the
field-related services.
|
Oil
and Gas Activities
Successful Efforts Method. We intend to use
the successful efforts method of accounting for oil producing
activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find
proved reserves, and to drill and equip development wells will
be capitalized.
Revenue Recognition. We intend to follow the
sales method of accounting for crude oil revenue.
Under this method, we will recognize revenue on production as it
is taken and delivered to its purchasers.
Depletion. The estimates of crude oil reserves
utilized in the calculation of depletion will be estimated in
accordance with guidelines established by the Society of
Petroleum Engineers, the SEC and the Financial Accounting
Standards Board, which require that reserve estimates be
prepared under existing economic and operating conditions with
no provision for price and cost escalations except by
contractual arrangements. We emphasize that reserve estimates
are inherently imprecise. Accordingly, the estimates are
expected to change as more current information becomes
available. Our policy will be to amortize capitalized crude oil
costs on the unit of production method, based upon these reserve
estimates.
We intend to assess our proved properties for possible
impairment on an annual basis as a minimum, or as circumstances
warrant, based on geological trend analysis, changes in proved
reserves or relinquishment of acreage. When impairment occurs,
the adjustment is recorded to accumulated depletion.
Asset Retirement Obligation. In October 2010,
we acquired the Etzold field in exchange for nominal
consideration, our agreement to indemnify the seller for certain
environmental matters and the assumption of liabilities relating
to the leasehold interest, including the asset retirement
obligation (plugging and abandonment) for the existing wells on
the leasehold. We account for our asset retirement obligation,
or ARO, in accordance with ASC 410, Asset Retirement and
Environmental Obligations. The fair value of a liability for
an ARO is required to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made, and
the associated retirement costs are capitalized as part of the
carrying amount of the long-lived asset. We determine our ARO by
calculating the present value of the estimated cash flows
related to the liability based upon estimates derived from
management and external consultants familiar with the
requirements of the retirement and our ARO is reflected in the
accompanying consolidated balance sheet as a noncurrent
liability. We have not funded nor dedicated any assets to this
retirement obligation. The liability is periodically adjusted to
reflect (1) new liabilities incurred; (2) liabilities
settled during the period; (3) accretion expense; and
(4) revisions to estimated future plugging and abandonment
costs.
Property
and Equipment
Property and equipment are recorded at cost. Expenditures for
major additions and improvements are capitalized and depreciated
over the remaining estimated useful lives of the associated
assets, and repairs and maintenance costs are charged to expense
as incurred. When property and equipment are retired or
otherwise
35
disposed, the cost and accumulated depreciation are removed from
the accounts, and any resulting gain or loss is included in the
results of operations for the respective period.
Depreciation and amortization for long lived assets are
recognized over the estimated useful lives of the respective
assets by the straight line method.
Stock-Based
Compensation
Prior to the adoption of our 2011 Omnibus Incentive Plan, we had
one stock-based compensation plan, the Glori Oil Limited Amended
and Restated 2006 Stock Option and Grant Plan, or the 2006 Plan.
All equity instruments granted under the 2006 Plan are settled
in stock. Since the adoption of our 2006 Plan, we have recorded
all share based payment expenses in accordance with the
provisions of ASC 718, Compensation- Stock Compensation.
The following table summarizes the stock options granted in
2009 and 2010 with their exercise prices and the fair value of
the underlying common stock per share. No stock options have
been granted after October 15, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
Fair Value
|
|
|
Number of
|
|
Price
|
|
per Underlying
|
Date of Issuance
|
|
Options
|
|
per Share
|
|
Share
|
|
October 15, 2009
|
|
|
1,709,604
|
|
|
$
|
0.078
|
|
|
$
|
0.078
|
|
January 1, 2010
|
|
|
45,537
|
|
|
|
0.078
|
|
|
|
0.078
|
|
January 4, 2010
|
|
|
36,056
|
|
|
|
0.078
|
|
|
|
0.078
|
|
February 3, 2010
|
|
|
22,796
|
|
|
|
0.078
|
|
|
|
0.078
|
|
April 1, 2010
|
|
|
383,105
|
|
|
|
0.078
|
|
|
|
0.078
|
|
September 1, 2010
|
|
|
22,711
|
|
|
|
0.078
|
|
|
|
0.078
|
|
September 22, 2010
|
|
|
450,712
|
|
|
|
0.078
|
|
|
|
0.078
|
|
October 15, 2010
|
|
|
1,258,600
|
|
|
|
0.078
|
|
|
|
0.078
|
|
In the absence of a public market for our common stock, prior to
2009, the fair value of our common stock underlying stock
options has historically been determined by our board of
directors based upon pre-money valuations of equity offerings.
In connection with making these determinations in 2009 and 2010,
we engaged a third-party valuation advisor to provide a
valuation of our stock as of October 15, 2009, coincident
with the conclusion of our series B preferred stock
transaction. Our board of directors considered the
October 15, 2009 valuation in making its fair value
determination as of October 15, 2009. The board of
directors continued to utilize the October 15, 2009 common
stock valuation to establish the exercise price for the stock
options granted throughout 2010, as it was the most recent
valuation of our common stock, and our board of directors
determined that no material developments had occurred in our
business to change that valuation materially.
We recognize expense for stock-based compensation using the
calculated fair value of options on the grant date of the
awards. We did not issue fractional shares nor pay cash in lieu
of fractional shares and currently do not have any awards
accounted for as a liability.
Our policy is to recognize compensation expense for
service-based awards on a straight-line basis over the requisite
service period for the entire award. Stock-based compensation
expense is based on awards ultimately expected to vest.
The fair value of each option award was estimated on the grant
date using a Black-Scholes option valuation model, which uses
certain assumptions as of the date of grant:
|
|
|
|
|
Risk-free interest rate risk-free rate, for
periods within the contractual terms of the options, is based on
the U.S. Treasury yield curve in effect at the time of grant
|
|
|
|
Expected volatility based on peer group price
volatility for periods equivalent to the expected term of the
options
|
|
|
|
Expected dividend yield expected dividends
based on our expected dividend rate at the date of grant
|
36
|
|
|
|
|
Expected life (in years) expected life
adjusted based on managements best estimate for the
effects of non-transferability, exercise restriction and
behavioral considerations
|
|
|
|
Expected forfeiture rate expected forfeiture
rate based on historical and expected employee turnover
|
We have computed the fair value of all options granted during
the years ended December 2009 and 2010, using the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
Expected volatility
|
|
|
80.0
|
%
|
|
|
80.0
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected life (in years)
|
|
|
3.21
|
|
|
|
3.21
|
|
Expected forfeiture rate
|
|
|
|
|
|
|
|
|
Taxes
We account for income taxes using the asset and liability method
wherein deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and to net operating loss carry forwards, measured by enacted
tax rates for years in which taxes are expected to be paid,
recovered or settled. A valuation allowance is established to
reduce deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
We follow ASC 740, Income Taxes (ASC 740), which
creates a single model to address accounting for the uncertainty
in income tax positions and prescribes a minimum recognition
threshold a tax position must meet before recognition in the
consolidated financial statements. We do not have a tax position
meeting the criteria of ASC 740.
Our ability to use our net operating loss carryforwards to
offset future taxable income may be subject to certain
limitations. In general, under Section 382 of the
U.S. Internal Revenue Code of 1986, as amended, a
corporation that undergoes an ownership change is
subject to limitations on its ability to utilize its pre-change
net operating loss carryforwards, or NOLs, to offset future
taxable income. We believe that our issuance of series B
preferred stock on October 15, 2009 resulted in a
Section 382 ownership change limitation. We estimate that
approximately $5.4 million of our $19.8 million NOLs
at September 30, 2011 will expire unused due to
Section 382 ownership change limitations. In addition, if
we undergo an ownership change in connection with or after this
public offering, our ability to utilize NOLs could be limited
further by Section 382. Future changes in our stock
ownership, some of which are outside of our control, could
result in an ownership change under Section 382.
Furthermore, our ability to utilize NOLs of companies that we
may acquire in the future may be subject to limitations.
New
Accounting Pronouncements
See our audited and unaudited consolidated financial statements
included elsewhere in this prospectus for details regarding our
implementation and assessment of new accounting standards. Our
management has assessed other accounting standards not adopted
and determined that, at this time, there will be no material
impact to us from these other accounting standards.
37
Results
of Operations
The following table sets forth selected financial data for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
459
|
|
|
$
|
858
|
|
|
$
|
131
|
|
|
$
|
37
|
|
|
$
|
1,119
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
1,080
|
|
|
|
1,277
|
|
|
|
1,163
|
|
|
|
769
|
|
|
|
1,966
|
|
Research and development
|
|
|
1,188
|
|
|
|
1,021
|
|
|
|
1,546
|
|
|
|
1,061
|
|
|
|
1,173
|
|
Selling, general and administrative
|
|
|
1,531
|
|
|
|
827
|
|
|
|
1,679
|
|
|
|
1,080
|
|
|
|
1,946
|
|
Depreciation, depletion and amortization
|
|
|
378
|
|
|
|
390
|
|
|
|
442
|
|
|
|
316
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,177
|
|
|
|
3,515
|
|
|
|
4,830
|
|
|
|
3,226
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,718
|
)
|
|
|
(2,657
|
)
|
|
|
(4,699
|
)
|
|
|
(3,189
|
)
|
|
|
(4,402
|
)
|
Total other income (expense), net
|
|
|
53
|
|
|
|
(64
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,665
|
)
|
|
$
|
(2,721
|
)
|
|
$
|
(4,698
|
)
|
|
$
|
(3,189
|
)
|
|
$
|
(4,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2011 and 2010
Revenue. Revenue increased to
$1.1 million for the nine months ended September 30,
2011 from $37,000 for the nine months ended September 30,
2010. The increase in revenue was primarily attributable to
revenues from a pilot program commenced in May 2010 in the
amount of $210,000, the continuation of services for this
customer in the amount of $397,000 and commencement of services
to a new customer totaling $366,000. The service contracts for
these customers contain short-term cancellation provisions, so
the historical revenue from those contracts may not be
indicative of future revenue derived from those contracts.
Operations. Operations expenses increased by
$1.2 million, or 155.7%, to $2.0 million for the nine
months ended September 30, 2011 from $769,000 for the nine
months ended September 30, 2010. The increase was primarily
due to $274,000 of operating expenses related to our Etzold
field, increased labor costs due to more employees working in
this area in the amount of $121,000, expenses relating to the
commencement of operations in Canada and California in the
amount of $423,000 and recruiting expenses in the amount of
$91,000.
Research and development. Research and
development expenses increased by $112,000, or 10.6%, to
$1.2 million for the nine months ended September 30,
2011 from $1.1 million for the nine months ended
September 30, 2010, primarily due to severance compensation
paid to a former employee in the amount of $105,000.
Selling, general and administrative. Selling,
general and administrative expenses increased by $866,000, or
80.2%, to $1.9 million for the nine months ended
September 30, 2011 from $1.1 million for the nine
months ended September 30, 2010. The increase was primarily
due to $192,000 in executive recruiting fees, professional fees
incurred due to the incorporation and management of subsidiaries
in the amount of $146,000, increased expenses for business
development personnel and a new sales office in Canada totaling
$255,000 and the addition of administrative personnel in the
amount of $218,000.
Depreciation, depletion and
amortization. Depreciation, depletion and
amortization increased by $120,000, or 38.0%, to $436,000 for
the nine months ended September 30, 2011 from $316,000 for
the nine months ended September 30, 2010. The increase was
primarily due to depletion of $50,000 recognized on the
companys Etzold field and additions to property and
equipment.
38
Other income (expense). Other net expense of
$74,000 for the nine months ended September 30, 2011 was
primarily due to the loss of $34,000 on abandonment of
laboratory equipment related to the termination of operations in
Argentina and $40,000 of interest expense from the promissory
note issued May 31, 2011.
Years
Ended December 31, 2010 and 2009
Revenue. Revenue decreased by $727,000, or
84.7%, to $131,000 for the year ended December 31, 2010
from $858,000 for the year ended December 31, 2009. The
decrease in revenue was primarily attributable to the conclusion
of a laboratory research project and the conclusion of a field
project performed in Wyoming which contributed $238,000 and
$395,000, respectively, to revenues for the year ended
December 31, 2009. Our pilot project that started in May
2010 did not start generating material revenue until 2011.
Operations. Operations expenses decreased by
$114,000, or 8.9%, to $1.2 million for the year ended
December 31, 2010. The decrease was primarily the result of
decreased material costs totaling $72,000 attributable to the
substantial reduction in services provided to customers and
decreased recruiting expenses of $19,000.
Research and development. Research and
development expenses increased by $525,000, or 51.4%, to
$1.5 million for the year ended December 31, 2010 from
$1.0 million for the year ended December 31, 2009,
primarily due to the significant addition of research scientists
to support our technical development in the amount of $288,000
and the related consumption of materials, supplies and
supporting expenses used in the research process totalling
$229,000.
Selling, general and administrative. Selling,
general and administrative expenses increased by $852,000, or
103.0%, to $1.6 million for the year ended
December 31, 2010 from $827,000 for the year ended
December 31, 2009. The increase was primarily due to
additional salary expense of $130,000, increased bonus
compensation expense of $41,000, increased travel expense of
$151,000, expenses related to the hiring of two full time sales
personnel during the year of $296,000 and increased marketing
expenses, including opening a sales office in Alberta for
$43,000.
Depreciation, depletion and
amortization. Depreciation, depletion and
amortization increased by $52,000, or 13.3%, to $442,000 for the
year ended December 31, 2010 from $390,000 for the year
ended December 31, 2009. The increase was primarily due to
the addition of property and equipment including the purchase of
the Etzold field in October 2010.
Other income (expense). Other expense in 2009
was comprised primarily of interest expense on a term loan that
was repaid with proceeds we received from the issuance of our
series B preferred stock to investors.
Years
Ended December 31, 2009 and 2008
Revenue. Revenue increased by $399,000, or
86.9%, to $858,000 for the year ended December 31, 2009
from $459,000 for the year ended December 31, 2008. The
increase in revenue was primarily attributable to a laboratory
research project totalling $238,000 and a field project in
Wyoming totalling $395,000 offset by reduced commercial
activities relating to a prior generation of our technology.
Operations. Operating expenses increased by
$197,000, or 18.2%, to $1.2 million for the year ended
December 31, 2009 from $1.0 million for the year ended
December 31, 2008. The increase was primarily the result of
increased expenses for materials and direct services as a result
of the increase in our revenue.
Research and development. Research and
development decreased by $167,000, or 14.1%, to
$1.0 million for the year ended December 31, 2009 from
$1.2 million for the year ended December 31, 2008,
primarily due to the reduction of contract personnel of $167,000.
Selling, general and administrative. Selling,
general and administrative expenses decreased by $704,000, or
46.0%, to $827,000 for the year ended December 31, 2009
from $1.5 million for the year ended December 31,
2008. The decrease was primarily due to reduced professional
fees of $64,000, no dedicated sales personnel for 2009 resulting
in $157,000 of reduced expenses and the conclusion of our
business development initiative to acquire producing oil
properties, which reduced expenses in 2009 by $482,000.
39
Depreciation, depletion and
amortization. Depreciation, depletion and
amortization increased by $22,000, or 3.2%, to $390,000 for the
year ended December 31, 2009 from $378,000 for the year
ended December 31, 2008. The increase was primarily due to
nominal asset additions.
Other income (expense). Other expense (net) in
2008 was comprised primarily of interest income. In 2009, we
incurred interest expense from a term loan.
Liquidity
and Capital Resources
Our primary sources of liquidity and capital since our formation
have been proceeds from equity issuances. To date, our primary
use of capital has been to fund our research and development
activities and our operations. Through September 30, 2011,
we raised approximately $25.7 million of net proceeds
through private offerings of our common and preferred stock.
At September 30, 2011, we had working capital of
$3.6 million, including cash and cash equivalents of
$5.0 million, accounts receivable of $148,000 and other
current assets of $146,000, offset by $992,000 in accounts
payable, $483,000 in deferred revenue and $191,000 in accrued
expenses.
At December 31, 2010, we had working capital of
$6.8 million, including cash and cash equivalents of
$7.1 million, accounts receivable of $164,000 and other
current assets of $187,000, offset by $395,000 in accounts
payable, $125,000 in deferred revenue, and $131,000 in accrued
expenses.
Since 2008, we have spent $2.0 million on capital
expenditures, principally to revitalize our Etzold field, for
field and laboratory equipment and to construct our AERO System
deployment modules and related equipment.
During the twelve months after completion of this offering, we
expect our principal sources of liquidity to be the net proceeds
from this offering and revenues from operating activities. In
forecasting our cash flows we have considered factors including
the expenses of maintaining a publicly traded corporation, the
increased personnel required to implement our business strategy
and the capital expenditures required for the acquisition of oil
properties to accelerate the adoption of our technical services.
As of December 19, 2011, we did not have any commitments
for the acquisition of oil properties or any other significant
capital commitments.
During the nine months ended September 30, 2011, we
expended $1.6 million on capital expenditures, primarily to
redevelop our Etzold field and construct and transport equipment
used with our AERO System process. Our capital expenditures were
funded from available working capital and private equity
issuances. We expect that the net proceeds from this offering
and cash flows from operations will fully fund our capital
expenditure requirements and working capital needs for at least
the next twelve months.
Although we believe that we will have sufficient liquidity and
capital resources to meet our operating requirements and
expansion plans for the next twelve months, we may want to
pursue additional expansion opportunities which could require
additional financing, either debt or equity. If we are unable to
secure additional financing at favorable terms in order to
pursue such additional expansion opportunities, our ability to
maintain our desired level of revenue growth could be materially
adversely affected.
The following table sets forth the major sources and uses of
cash for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended December 31,
|
|
September 30,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
Net cash used in operating activities
|
|
$
|
(3,131
|
)
|
|
$
|
(2,033
|
)
|
|
$
|
(4,263
|
)
|
|
$
|
(3,155
|
)
|
|
$
|
(3,499
|
)
|
Net cash used in investing activities
|
|
|
(231
|
)
|
|
|
(49
|
)
|
|
|
(615
|
)
|
|
|
(236
|
)
|
|
|
(1,625
|
)
|
Net cash provided by financing activities
|
|
|
661
|
|
|
|
7,491
|
|
|
|
5,784
|
|
|
|
|
|
|
|
2,977
|
|
40
Operating
Activities
During the nine months ended September 30, 2011, our
operating activities used $3.5 million in cash. Our net
loss for the nine months ended September 30, 2011 was
$4.5 million. Non-cash expenses totaled $533,000,
consisting of $436,000 of depreciation and amortization, $45,000
for stock-based compensation expense, $37,000 loss on
disposition of equipment and $15,000 accretion of the asset
retirement obligation. Accounts payable increased by $597,000,
deferred revenue increased by $358,000, accrued expenses
increased by $60,000, inventory decreased by $20,000, accounts
receivable decreased by $16,000, prepaid expenses decreased by
$21,000 and deferred offering costs increased by $628,000. The
increase in deferred revenue relates to additional contracts,
with the revenue for some contracts being deferred because they
contained multiple deliverable elements. The increase in the
accounts payable resulted from the deferred offering costs.
During the nine months ended September 30, 2010, our
operating activities used $3.2 million in cash. Our net
loss for the nine months ended September 30, 2010 was
$3.2 million. Non-cash expenses totaled $348,000,
consisting of $316,000 of depreciation and $32,000 for
stock-based compensation expense. Prepaid expenses increased by
$149,000, accrued expenses decreased by $184,000, inventory
increased by $15,000 and accounts payable decreased by $10,000,
all partially offset by a decrease in accounts receivable of
$24,000.
During the year ended December 31, 2010, our operating
activities used $4.3 million in cash. Our net loss for the
year ended December 31, 2010 was $4.7 million.
Non-cash expenses totaled $487,000, consisting of $442,000 of
depreciation and amortization and $45,000 for stock-based
compensation expense and loss on the disposal of assets.
Accounts receivable increased $140,000, accrued expenses
decreased $109,000 and prepaid expenses increased $86,000,
offset in part by an increase in accounts payables of $140,000,
an increase in deferred revenue of $125,000 and a decrease in
inventory of $18,000. The increase in accounts receivable
resulted from the reimbursement of certain research costs not
collected until after year end, while the increase in prepaid
expenses is related to increased prepaid insurance premiums and
deposits on laboratory equipment. The increase in accounts
payable was due to obligations incurred in the evaluation of the
Etzold property that were settled after year end, and the
increase in deferred revenue is related to a prepayment on a
research contract that was not completed until after year end.
Our cash flow from operations is subject to many variables, the
most significant of which is the adoption rate of our technology
and the demand for our services, which can also be impacted by
the level of oil prices and the capital expenditure budgets of
our customers and potential customers. Our future cash flow from
operations will depend on our ability to increase our contracted
services through our sales and marketing efforts.
Investing
Activities
Our capital expenditures were $1.6 million for the nine
months ended September 30, 2011 compared to $236,000 for
the nine months ended September 30, 2010. Capital
expenditures for the first nine months of 2011 consisted
primarily of expenditures in connection with redeveloping our
Etzold field for $877,000 and the construction of skid-mounted
injection equipment used in our AERO System process totalling
$616,000. Capital expenditures were $615,000 for the year ended
December 31, 2010 compared to $49,000 for the year ended
December 31, 2009, consisting primarily of equipment and
expenditures related to the Etzold field.
Financing
Activities
During the nine months ended September 30, 2011, cash
provided by financing activities was approximately
$3.0 million, primarily due to the net proceeds of
approximately $2.9 million from our sale of series B
preferred stock to ETV and the sale to ETV of the ETV Note,
which is a convertible promissory note in the principal amount
of $1.5 million maturing in November 2012, subject to
extension and bearing interest at 8%. Upon the closing of this
offering and in payment of the ETV Note, ETV may elect to
(i) receive payment from us of an amount in cash equal to
the principal outstanding under the ETV Note, plus all accrued
and unpaid interest thereon or (ii) convert the ETV Note
into a number of shares of our common stock equal to the
quotient obtained by dividing the principal outstanding under
the ETV Note, plus all accrued and unpaid interest thereon, by a
price per share that is currently estimated at $2.44.
41
During the year ended December 31, 2010, cash provided by
financing activities was $5.8 million resulting from the
net proceeds from our sale of series B preferred stock.
During the year ended December 31, 2009, cash provided by
financing activities was $7.5 million, primarily due to net
proceeds of approximately $8.6 million from our initial
sale of series B preferred stock, offset in part by the
repayment of $1.1 million, net, under our secured long-term
debt arrangement.
During the year ended December 31, 2008, cash provided by
financing activities was $661,000, primarily due to a net
borrowing of $656,000 under our secured long-term debt
arrangement.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements, except for
operating lease obligations presented in the table below.
Contractual
Obligations and Commercial Commitments
At December 31, 2010, we had contractual obligations and
commercial commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
Less Than 1
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating Lease Obligations(1)
|
|
$
|
167
|
|
|
$
|
128
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
|
|
Asset Retirement Obligation(2)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
419
|
|
|
$
|
128
|
|
|
$
|
39
|
|
|
$
|
252
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our commitments for operating leases relate to the lease of our
office and warehouse facilities in Houston, Texas, Calgary,
Alberta, and Mendoza, Argentina. After December 31, 2010,
we also entered into additional operating leases for warehouse
facilities in Bakersfield, California and Hazlett, Saskatchewan.
In April 2011, we terminated the lease in Mendoza, Argentina. In
September 2011, we extended the Houston lease through May 2014. |
|
(2) |
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Relates to the Etzold field. |
In conjunction with the sale of series B preferred stock to
ETV in May 2011, we sold to ETV the ETV Note, which is a
convertible promissory note in the principal sum of
$1.5 million maturing in November 2012, subject to
extension, bearing interest at a fixed rate of 8%.
Quantitative
and Qualitative Disclosures about Market Risk
Interest
rate risk
We had unrestricted cash and cash equivalents totaling
approximately $6.2 million, $7.1 million and
$5.0 million at December 31, 2009, December 31,
2010 and September 30, 2011, respectively. These amounts
were invested primarily in demand deposit savings accounts and
are held for working capital purposes. The primary objective of
our investment activities is to preserve our capital for the
purpose of funding our operations.
Foreign
currency risk
Historically, substantially all of our contracts have been
denominated in United States dollars, though management
anticipates that certain foreign markets will present
opportunities in the future resulting in foreign currency
denominated contracts. Should this occur, we will be subject to
a variety of risks, including foreign currency exchange rate
fluctuations relating to foreign operations and certain
purchases from foreign vendors. In the normal course of
business, we shall assess these risks and have established
policies and procedures to manage our exposure to fluctuations
in foreign currency values.
42
OUR
COMPANY
Our
Company
We are a clean-technology company that uses biotechnology
designed to release potentially large quantities of oil that
remain trapped in oil reservoirs after implementation of
conventional oilfield technologies. Only about one-third of the
oil discovered in a typical reservoir is recoverable using
conventional oil production technology, leaving the remaining
two-thirds trapped in the reservoir rock. Our AERO System
technology stimulates the native microorganisms that reside in
the reservoir to improve the recoverability of this trapped oil.
Our AERO System incorporates a dedicated field deployment unit
designed to work with the customers existing waterflood
operations. Waterflooding is a commonly used process of
injecting water into the reservoir in order to increase oil
recovery. Our AERO System does not have any significant new
impact on the environment because it utilizes existing
production equipment and infrastructure and does not change the
nature of the customers oil production operations.
Implementation of our AERO System does not require the drilling
of new wells nor does it require other significant new capital
investment.
Our AERO System economically increases the oil production rate
and the ultimate quantity of oil recovered over the life of the
oil field, and extends the life of the field by integrating
sophisticated biotechnology with traditional oil production
techniques. We believe that traditional enhanced oil recovery
techniques, consisting of the injection of gas, steam or
chemicals into the reservoir, introduce new environmental risks
and are more expensive. Results from the first commercial field
deployment of our AERO System, which were derived from one oil
producing well, indicate that it may recover up to 20% of the
oil that would otherwise be left behind at the end of the
economic life of the well. This project also demonstrates a 60%
to 100% improvement in total production rate, and we estimate
that our cost for this project, excluding minimum upfront
capital costs, will be approximately $5 per incremental barrel
of oil. We expect that the costs for future full scale
commercial implementations of our technology would not be higher
than $5 per barrel, particularly if the size of the project is
larger than our first AERO System commercial field deployment.
We anticipate growing our business primarily by working with
E&P companies to deploy AERO System technology in
appropriate oil fields around the globe.
We have performed extensive laboratory and field testing to
validate, integrate and develop technology transferred from
three different scientific groups that collectively represents
decades of funded research and development. Our technology is
protected by several patents and patent applications. We and our
technology partners, Statoil, TERI and Biotopics, have applied
our predecessor technologies and the AERO System in more than
100 wells throughout the world. For more information about
our technology partners, see Our Company
Technology Research and Development. We
estimate that these predecessor technologies have recovered over
6 million barrels of oil that would not have otherwise been
recovered. We have developed our AERO System technology based
upon a philosophy of continual improvement and research and
development both internally and with the assistance of our
technology partners and their prior research and development.
Our AERO System is an advancement of those predecessor
technologies.
We estimate that the first commercial application of our AERO
System, starting in May 2010, has already produced more than
26,000 incremental barrels of oil. We have executed commercial
contracts with several international and domestic E&P
companies and anticipate continuing to demonstrate results with
AERO System technology and expanding our customer base.
We were incorporated as Glori Oil Limited, a Delaware
corporation, in November 2005 and changed our name to Glori
Energy Inc. in May 2011. In addition to the initial funding by
our founders, we have successfully concluded a series of venture
capital and private equity offerings between 2007 and 2011
totaling approximately $26 million. Our principal
stockholders include the following stockholders and some of
their affiliates: GTI Group, Kleiner Perkins
Caufield & Byers, Oxford Bioscience Partners, Rawoz
Technology Company Ltd., Malaysian Life Sciences Capital
Fund Ltd. and Energy Technology Ventures, LLC, which is a
joint venture of General Electric, ConocoPhillips and NRG Energy.
43
Our
Market Opportunity
Our market consists of domestic and international oil production
waterflood sites. According to a 2011 report from the EIA,
demand for oil globally is projected to grow from
85.7 million barrels per day in 2008 to 112.2 million
barrels per day in 2035. As oil trades on a global market, the
price of oil is not significantly sensitive to local demand and
supply fluctuations. While global demand for oil is forecasted
to grow, there is an increasing gap between new discoveries and
production, decreasing the worlds oil reserves, as it is
becoming harder and more expensive to find new oil reservoirs.
As a result, enhanced oil recovery technology to improve oil
production at mature fields is increasingly important to offset
declining reserves.
According to a 2008 Shell Technology publication entitled
Enhanced Oil Recovery, 4% of global production (approximately
3 million barrels per day) in 2008 came from traditional
oil recovery techniques of thermal injection, gas injection and
chemical injection. According to that same publication, 14% of
United States production (649,000 barrels per day) in 2008
was produced through these methods. The global enhanced oil
recovery market value is forecasted to grow at a compounded
annual rate of 63% from 2009 through 2015 according to the SBI
Report. By 2015, the annual enhanced oil recovery market is
forecasted to increase to over $1.3 trillion according to the
SBI Report.
Conventional oil recovery operations, including waterflood, are
commonly believed to only extract around one-third of the
original oil in place in a reservoir, leaving large quantities
behind at the end of life of an oil field. According to the
Oil & Gas Journal, Global Oil Reserves-2:
Recovery factors leave EOR plenty of room for growth,
Volume 105, Issue 42, dated November 12, 2007, a one
percent increase in the efficiency of global hydrocarbon
recovery would expand conventional oil reserves by
88 billion barrels, which would be enough to replace three
years of world production at the 2007 rate of 27 billion
barrels per year. Worldwide, recovery from existing oil fields
averages only about one-third of the oil in place, leaving a
large target for application of our AERO System technology in
suitable oil fields.
According to the IEA May 2011 Oil Market Report, the United
States produced approximately 7.9 million barrels of oil
per day in April 2011 and, according to the U.S. Department
of Energy Idaho National Laboratory, waterflooding accounts for
more than one-half of the United States domestic oil production,
or approximately 4 million barrels of oil per day. Assuming
one-half of those waterfloods are suitable for application of
our AERO System, we estimate the annual incremental production
opportunity for oil producers using our AERO System to be
greater than $10 billion in the United States based on an
assumed price of $80.00 per barrel and a total production rate
increase from the application of our AERO System of only 30%
(compared to the approximate increase of 60% to 100% in the
total production rate from May 2010 through July 2011 at our
first commercial application of our AERO System). As the United
States accounted for approximately 9% of the worlds oil
production in April 2011 according to the IEA May 2011 Oil
Market Report, the potential annual international market is
substantially larger.
We anticipate our primary competition for this sizable market
will come from traditional enhanced oil recovery technologies,
such as thermal injection, gas injection and chemical injection,
as well as from other microbial enhanced oil recovery methods.
We believe that our AERO System is superior to traditional
enhanced oil recovery technologies both economically and
environmentally. Our AERO System is able to recover oil that
traditional enhanced oil recovery methods may not be able to
recover on a cost effective basis. We also believe our AERO
System has a lower capital expenditure profile than any
traditional enhanced oil recovery technology since it requires
no new meaningful infrastructure investment. Because our AERO
System utilizes naturally occurring microbes in the reservoir,
we believe its processes do not cause any damage to the
environment.
According to a November 2007 Oil & Gas Journal
article, about 50% of the worlds oil lies in small to
medium sized reservoirs, which are generally untouched by
traditional enhanced oil recovery processes. Our AERO System is
well suited for smaller and medium sized reservoirs because our
technology does not require large scale operations to be
economical, unlike thermal injection, gas injection and chemical
injection.
We are focused on the United States and Canada as initial target
markets and are also pursuing opportunities to develop projects
in the Middle East, initially in Oman, and South America,
initially in Brazil.
44
According to the EPAs website, updated October 20,
2011, approximately 144,000 wells were being used for
waterflooding of oil reservoirs in the United States. Our AERO
System is currently designed for sandstone reservoirs with a
permeability range greater than 25 milli-darcies. According to
2008 data obtained from Nehring Associates, Inc. on
September 28, 2011, approximately 70% of the oil recovered
in the United States has come from sandstone reservoirs, and at
least 80% of that oil came from sandstone reservoirs having a
permeability range greater than 25 milli-darcies.
In addition to these producing oil fields, we believe there are
many oil fields under temporary abandonment status that are not
producing oil. We believe that the competition to acquire such
oil fields is low and that we will be able to acquire sufficient
oil fields in order to execute our strategy of acquiring such
oil fields for research purposes and to showcase our technology
for oil producers in the area.
45
Technology
Traditional
Oil Production
Traditional oil production is carried out through primary or
pressure-driven mechanisms followed by water injection, also
known as waterflood, which increases reservoir pressure and
displaces some of the oil remaining in the reservoir. However,
two-thirds of the original oil in place typically remains
trapped in the oil reservoir even after waterflooding.
Our
Technology
Microbes residing in oil reservoirs have the natural ability to
use oil as a food source to facilitate growth given the right
conditions. Growth of microbes on the oil is a fundamental
requirement for AERO System functionality. Since the oil acts as
a food source, the bulk of ingredients to fuel the AERO System
are already in the reservoir, limiting the externally added
components to the specific nutrients we introduce and water, and
the microbial growth and action occur only where the oil is
trapped. This process is complex and depends on several distinct
groups of microbes performing specialized tasks in the chain of
biological reactions. The complexity of the process makes it
vulnerable to disruption from external changes in the
surrounding environment. We leverage our knowledge of how to
establish a consistent environment with the right
characteristics for mobilization of trapped oil in our AERO
System. We do not introduce specific microbes selected for
purpose, nor do we rely upon genetically-engineered
microorganisms. Instead we add customized nutrients to the
reservoir to grow the existing indigenous microbes in that
reservoir.
When the analysis and process development for the candidate
field have been completed, the project moves into the deployment
phase. We have designed our deployment systems to integrate with
current oilfield waterflood equipment to simplify installation.
This has resulted in modular field units that can be customized
for continuous input of nutrients to the reservoir. Furthermore,
our field units are equipped with sensors to monitor performance
remotely, which allows us to service oil fields efficiently in
remote locations. Deployment of our AERO System is accomplished
by integrating our AERO System with the existing infrastructure
in the oil field. The oil that is produced from the utilization
of our AERO System is delivered to market using the existing
wells and pipelines that are already available to the oil
producer. The additional oil that is captured by our AERO System
is not altered in the process. We have verified this by
continuous operation of an oil field pilot project for more than
one year during which no significant change in the
n-alkane
distribution, a measure often used for the characterization of
crude oil, could be detected. Depending on the amount of oil
trapped in the reservoir, we believe the production benefits
from AERO System deployment will be sustained over many years
until up to an additional 20% of the remaining oil has been
produced. While we currently apply the technology to mature
waterfloods, we anticipate further performance improvements when
our AERO System process is initiated at an earlier stage of oil
recovery.
As part of the implementation of our AERO System process, we
analyze the injection water and water treatment system at the
candidate oil field to determine if the water quality is
compatible with AERO System requirements. We do not need potable
water for our AERO System to be successful, but we do need the
water to be able to support microbial life.
46
Our initial results indicate that our AERO System may recover up
to 9-12% of the original oil in place in a reservoir. The
diagram below illustrates the percentages of oil in reservoirs
that are unrecoverable and recoverable using conventional oil
recovery operations and our AERO System.
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(1) |
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For illustrative purposes, assumes a 10% recovery of original
oil in place due to our AERO System. |
Research
and Development
Our research and development strategy seeks to extend the reach
and effectiveness of our AERO System by focusing on the
fundamental mechanisms of microbe-oil interactions. We have made
significant investments in the development of our AERO System
and will continue to fund further technology development in the
future. Deployment of our AERO System enables and activates key
microbial functionalities within an oil reservoir. These
functionalities mobilize otherwise trapped oil resulting in
increased production of oil. The functionalities required for
successful deployment of our AERO System will be analogous
between different reservoir conditions, but the microbes
performing them and the nutrients required to best stimulate
their growth may be different. To understand this complex system
of diverse microbes and their interactions requires
understanding the molecular mechanisms at work. As our knowledge
of the biochemistry of oil mobilization by our AERO System
develops, we expect to have the ability to both improve current
deployment strategies and deploy our AERO System in a greater
range of reservoir conditions. To this end, our research and
development team is pursuing five initiatives:
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Molecular characterization of microbe-oil interactions to deepen
our understanding of the process of oil mobilization and key
effector molecules
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Functional genomics to link the genetic potential of reservoir
microbial populations to specific stimulation strategies
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Geophysical characterization of microbial oil mobilization to
advance simulation and modeling
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Formulations for delivering essential and supplemental nutrients
that promote growth of microbes with specific functions across a
broad range of reservoir conditions (salinity, temperature,
acidity)
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Microbial activation strategies for mobilizing heavy oils
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Combined, these research and development programs are designed
to drive down costs per incremental barrel of oil produced by
increasing oil yield and production rates as well as by
increasing both the number of candidate oil fields and the scale
of deployment.
47
In 2006, we obtained technology and intellectual property from
TERI, a research organization based in India, and implemented
several field projects. In 2008, we acquired know-how of
Biotopics, an Argentine company working on related microbial
technology in the enhanced oil recovery industry, through a
technology development agreement and retained their key
employees. In 2009, we entered into a technology cooperation
agreement with Statoil, which has been replaced by an updated
2011 agreement, to incorporate intellectual property and
know-how that Statoil has been developing for many years. Our
scientists and engineers have been able to further develop and
expand the intellectual property and know-how obtained from
these three technology partners to create our AERO System.
Our
Competitive Strengths
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Disruptive and proven technology: We believe
that our AERO System is a transformative and disruptive
innovation that manipulates the existing reservoir microbial
communities to improve the recovery of oil in waterflood oil
fields. Our technology has broad applicability. We believe our
AERO System is applicable in more oil fields than traditional
enhanced oil recovery technologies because the large scale
operations or significant costs of thermal injection, gas
injection and chemical injection operations make them
inappropriate for offshore production platforms and
cost-effective only in larger reservoirs. For an oil reservoir
to be suitable for our AERO System, the reservoir must be
subject to waterflooding as a secondary oil recovery mechanism,
must be composed of sandstone, must have a permeability range
greater than 25 milli-darcies and must have a suitable water
source. We believe that approximately 50% of the oil recovered
in the United States has come from reservoirs suitable for our
AERO System, and although we do not have any studies of the
global characteristics of reservoirs, based on our knowledge, we
believe that a comparable percentage of reservoirs outside the
United States will be suitable for our AERO System. We have not
only demonstrated the commercial efficacy of our technology but
have passed the significant milestone of one million incremental
gallons of oil produced via our AERO System. As of
December 19, 2011, we had 13 customers in various stages of
deployment of our AERO System.
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Established commercial contracts: Our
customers include international oil companies and independent
oil and gas companies in North America. As of December 19,
2011, we had ongoing projects with Shell International
Exploration and Production, Inc., Husky Oil Operations Limited,
Merit Energy Company, Hilcorp Energy Company, Cenovus Energy
Inc., Citation Oil and Gas Corp., Plains Exploration and
Production Company, Riyam Engineering & Services LLC (for
provision of services to Petroleum Development Oman L.L.C.),
T-C Oil
Company, Denbury Resources Inc., DCOR, LLC, ConocoPhillips
Company, Warren Resources, Inc., Enerplus Corporation and
Petróleo Brasileiro S.A.
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Profitable stand-alone economics: Our first
commercial application of our AERO System is profitable on a
project-level basis. We estimate that our cost per barrel,
excluding minimal upfront capital costs, over the life of our
first commercial application, will be approximately $5 per
incremental barrel of oil. Successful commercialization of our
AERO System does not depend on the availability of government
subsidies or mandates.
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Capital-light technology: Implementing our
system does not require a substantial capital investment. Our
AERO System is applied to a reservoir by utilizing our field
deployment module, which requires relatively minor capital
investment, alongside our customers existing wells. We
believe our technology has the potential to create a continuing
source of additional economic oil production that will extend
the lives of oil fields and related infrastructure for many
years.
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Clean alternative to traditional enhanced oil
recovery: Our AERO System increases the oil
recoverable from an existing field using infrastructure already
built and in place. No new wells are drilled, no new pipelines
are laid, no new significant energy input is required and there
is no new disruption to the environment. Furthermore, because
the activity is biological and occurs in the reservoir, there is
minimal consequent carbon dioxide or other greenhouse gas
footprint. Once the application of our AERO System ends, the
microbes in the reservoir are no longer supplied with nutrients
and the reservoir will return to its pre-treatment status. By
way of comparison, we believe that traditional enhanced oil
recovery techniques require significant energy input, for
example in the case of thermal injection, or significant
additional infrastructure to implement, for example in the case
of gas injection. In addition, we believe that traditional
enhanced oil recovery techniques, particular gas injection and
chemical injection techniques, introduce new environmental
impacts, which result in a sizable carbon
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48
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dioxide or other greenhouse gas footprint or the addition of a
large quantity of chemicals or polymers into the reservoir.
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Strong intellectual property position: Our
intellectual property, consisting of substantial know-how and
trade secrets, is the result of decades of research and
development by us, Statoil in Norway, TERI in India, and
Biotopics in Argentina. We also have multiple patents and patent
applications. We believe our intellectual property and decades
of research provide us with a strong competitive advantage.
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Experienced management and technical team: Our
management and technical teams expertise includes
microbiology, chemistry and biochemistry, microbial genomics,
engineering, geosciences and traditional E&P, and in their
respective careers our team members played key roles in the
commercialization of dozens of successful large-scale industrial
biotechnology and traditional oilfield acquisition and
development projects.
|
Milestones
and Commercialization Strategy
Technology
Milestones
Confirmation of microbial activity: We have
determined through field sampling and laboratory testing that
hydrocarbon bearing reservoirs contain microbes that are capable
of utilizing the residual hydrocarbon to grow and, in doing so,
create biomass as biofilms. We are continuously refining our
methodologies to grow these microbes and our criteria for
selection of nutrients to facilitate certain functionalities in
the process.
Improvement in oil recovery factors: Over the
past five years, we have achieved a number of significant
advances in our research and development effort. Our application
of technology progressed from small, discreet application at
producing wells under a huff and puff process
(whereby the nutrient mix is injected into a producer well which
is then shut-in for a period of days to allow the microbes to
grow before the well is re-opened to production), to full scale
application at injection wells under a continuous injection
process. In addition, we added microbial genomics and
bioinformatics capabilities in our laboratory facilities to
further advance our understanding of the microbial processes
involved in oil mobilization.
Development of our AERO System technology: In
2010, we implemented our pilot commercial AERO System project in
the field. In April 2011, we applied for patent protection of
this technology. This application is still pending with the
United States Patent and Trademark Office.
Commercialization
Milestones
Demonstration of commercial
application: Between 2007 and 2009, we
demonstrated that proprietary nutrient formulations delivered
through our huff and puff process could accelerate
the production of oil through improvement of flow conditions in
the near wellbore environment of a production well. Thereafter,
we applied our AERO System technology at the water injector well
continuously and demonstrated improved recovery rates at
economically attractive costs. The AERO System implementation
builds on predecessor technology implementations that
collectively account for over 100 treatments in different wells
in multiple locations around the world including the United
States, Argentina, the North Sea and India.
Property acquisition: In the fourth quarter of
2010, we acquired the Etzold field, an oilfield property in
Kansas. The oil field consisted of 12 shut-in wells which had
been stripped of wellbore tubulars, artificial lift equipment
and the associated oil and water processing and storage
facilities. In the first quarter of 2011, we refurbished half of
these wells to create three oil producing wells and three water
injection wells. Today we are producing approximately
20 barrels of oil per day prior to implementing our AERO
System. This production is not included in our calculations of
incremental oil developed by our AERO System appearing elsewhere
in this prospectus. This oil field will serve as a controlled
environment to implement revisions in technology and surface
systems to accelerate development and adoption of our AERO
System technology.
49
Commercialization
Strategy
Our mission is to use microbiology to efficiently recover large
quantities of oil currently trapped in reservoirs using existing
oil wells. To achieve this we intend to:
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Expand our project portfolio: As of
December 19, 2011, we had initiated Stimulate phase
projects at three of our customers oil fields and were in
the Sample and Simulate phases on an additional 16 projects for
our customers. We expect to add a growing number of projects
that are currently in various stages of evaluation. As we
continue to develop our customer base, we expect our revenue
opportunities to grow significantly.
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Accelerate customer adoption through strategic oil field
purchases: In October 2010, we acquired the
Etzold field to demonstrate the application of our AERO System.
To accelerate adoption of our AERO System, we plan to
strategically acquire and develop additional non-producing
end-of-life
oil fields and low-producing oil fields in geographies that we
expect will improve our portfolio of field successes. We believe
that the application of our AERO System to these oil fields will
demonstrate the effectiveness of our technology. Once our AERO
System is more widely adopted, we expect to discontinue the
acquisition of oil fields.
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Optimize our performance and expand the applicability of our
AERO System: While we are already active on a
commercial scale, we intend to continue to improve the
performance of our AERO System using our Etzold field laboratory
as well as assets we acquire via the strategic purchases
described above. We are researching additional capabilities to
expand the types of fields to which we can apply our technology.
For instance, our AERO System is currently applicable only to
sandstone reservoirs. Expanding applicability to include
carbonate reservoirs would cover the vast majority of
conventional oilfield geologies.
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Accelerate execution by leveraging additional strategic
partnerships: Commercialization of our technology
could be further accelerated and expanded through additional
strategic partnerships. We currently have collaboration
arrangements with Statoil and TERI. We are currently exploring
collaboration opportunities with a number of major oil companies
and other potential partners.
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Service
Offering
We employ a three step process called S3 to engage
with a customer that has suitable waterflood projects. The S3
process ensures a systematic, engineered and customized approach
to technology deployment in each reservoir.
Sample: We obtain representative oil and water
samples from the reservoir as part of our screening process to
evaluate AERO System potential. Samples are taken to our Houston
laboratory where detailed geochemical analysis is performed. The
heart of the Sample phase deals with microbiological activities
where the indigenous formation microbes are analyzed for
functionality. The general activities for the Sample phase are:
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Review field characteristics data;
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Collect samples from targeted wells;
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Conduct geochemical characterization of oil and water; and
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Determine the indigenous microbes present in the reservoir
fluids.
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At the end of the Sample phase, we review findings and
performance expectations with the customer before moving forward
to the Simulate phase.
Simulate: Advanced and customized AERO System
nutrient packages are designed and optimized. The initial
Simulate phase activities are:
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Incubate and study indigenous microbes; and
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Develop an optimal nutrient package for field application
including any needed modifications to the field injection water.
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50
Tests are performed at our Houston laboratory using microbes
from the reservoir and nutrient media with the customers
formation water, oil and core samples, if available, to verify
AERO System performance under simulated reservoir conditions.
Several iterations of tests are often performed to optimize the
system compositions to achieve the optimal AERO System activity.
At the end of the Simulate phase, we review the coreflood and
modeling results with the customer. If economical oil recovery
can be demonstrated, the project then moves forward to the
Stimulate phase. The Sample and Simulate phases typically take
an aggregate of four months to complete. As of December 19,
2011, we had 16 active customer projects in the Sample and
Simulate phases.
Stimulate: Once the viability of our AERO
System is demonstrated in the Simulate phase coreflood, a
detailed project development plan is finalized, and the project
proceeds to the Stimulate phase where our AERO System is
initiated in the customers oil field to stimulate the
indigenous microbes in the oil bearing reservoir.
We deliver skid-mounted injection equipment to the
customers oilfield location. This equipment has been
specially designed, tested and manufactured by us at our Houston
facility, and it is continuously monitored and operated remotely
from our project command center in Houston. The equipment
remains on the customers lease throughout the duration of
AERO System activities. The equipment is usually installed near
the customers waterflood produced water injection plant
where our nutrients are injected into the suction side of the
customers existing waterflood pump for delivery to the
reservoir.
Once initiated, we and our customer continually evaluate the
technical, operational and economic results of the Stimulate
phase activity. Assuming the project meets the desired criteria,
we work with the customer to prepare a project expansion plan,
up to and including full-field deployment of our AERO System.
Typically we start the Stimulate phase as an initial field
validation in a small section of a customers producing
field. We typically start seeing results from our AERO System
within one to four months after we initiate the Stimulate phase,
and our customers typically continue to observe these results
for an additional three to six months. After the initial
Stimulate phase field validation is complete, we expect to enter
into a longer term contract with our customer to continue the
use of our AERO System. As of December 19, 2011, we had two
customer projects in the initial field validation phase of
Stimulate and one project subject to a long term contract for
the continued use of our AERO System.
Case
Study: A Review of our AERO Systems Field
Performance
In May 2010, we implemented our first commercial application of
our AERO System to an oil field owned by Merit Energy Company.
The oil field is a waterflooded sandstone reservoir with average
permeability in excess of 25 milli-darcies, which made it a
candidate for our AERO System technology. The waterflood in this
oil field had been ongoing for five years prior to our
implementation and had achieved a well-established decline of
production over time. The project was executed following the S3
protocol described elsewhere in this prospectus. A detailed
account of the activities at each S3 stage in this pilot project
follows.
Sample: Water and oil produced from the
reservoir and the water to be injected into the reservoir were
sampled for testing. We established that the system contained
microbes suitable for our AERO System, although the injection
water salinity was in excess of 8%. For optimal performance of
our AERO System, it was determined that the salinity had to be
lower in the injection water and a customized nutrient
formulation was developed by us to accommodate these conditions.
Prior to the implementation of our AERO System, the injection
water comprised produced water (recycled from the producing
wells) and source water (from a nearby water well). In
connection with the implementation of our AERO System, water
salinity was reduced to a more suitable level by converting the
waterflood to use only source water. This water substitution
required surface pipe reconfiguration and the installation of an
additional injection pump for the project area. The installation
of an additional injection pump and surface pipe reconfiguration
was only necessary because our pilot project only involved a
portion of the field. Our customer continued to use the water
recycled from the producing wells in its other injector wells.
If our project included all of the injector wells in the field,
the additional pump installation and surface pipe
reconfiguration would not have been required because the pumps
and surface pipe already being used for the
51
full field would be applied to the source water. Our customer
incurred the costs for this water substitution. We estimate that
our customer spent less than $100,000 to add this pump and
reconfigure the surface pipe.
We believe that most fields will have a water source with
salinity levels suitable for our AERO System. Based upon the
Produced Waters Database released in May 2002 by the U.S.
Geological Survey, 33,196 well tests in the United States out of
a total sample of 58,706 well tests, or approximately 56% of the
wells surveyed, had a salinity of 8% or less, which is the
salinity level that is currently preferred for application of
our AERO System. For those waterflooded fields that have
salinity in excess of the level preferred for our AERO System,
we would need to substitute some or all of the water source as
we did in our pilot project to reduce the salinity. The costs
associated with any such water substitution will vary from
project to project and will depend upon factors such as whether
water needs to be piped in from an alternate water source, the
proximity of an alternate suitable water source to the project
well sites, the terrain surrounding the project site and
alternate water source and the size of the project. Due to our
limited operating history, we cannot estimate the costs that
might be incurred by us or our customers for future projects
that involve high salinity. These additional costs may make our
AERO System not a viable option for some oil fields using water
that is not suitable for our AERO System and for which no
suitable cost effective strategy for water system replacement is
identified.
Simulate: Additional research and development
was performed at our Houston laboratory at reservoir
temperatures to measure modification of the oil water interface
using reservoir fluids and microbiology. A coreflood test was
performed to demonstrate incremental oil recovery in a
simulation of the reservoir.
Stimulate: The AERO System field module was
installed adjacent to our customers water injection
system. The control unit of our field module was set to inject a
continuous flow of the customized nutrient formulations into the
water stream going to two injector wells. At the initiation of
the nutrient injection, a protocol for quantifying changes in
production was devised with the customer to ensure frequent
performance monitoring of the producing wells that were
potential targets for improvement.
Discussion
and Results
The production increase in the affected pilot area was
determined in two ways. First, the total field production was
measured at point of sale and therefore represents a definitive
metric of the production. The customer had prepared engineering
projections of production rate decline for potentially affected
wells taking the field decline rate into account. This provided
a point of comparison enabling the effect of our AERO System to
be determined for the affected well. Second, the individual
wells were tested periodically for oil and water production and
compared with the historical tests for the well impacted by our
AERO System.
The pilot project initially comprised two injector wells and six
associated producer wells. No production rate change was
observed in the production wells relative to the second injector
well, which was subsequently determined to be outside the
sand-body structure and therefore not directly connected to the
reservoir and not contributing to flow. This injector was
eliminated from the test. Further evaluation of data revealed
that five of the six producer wells were not supported by the
remaining injector well, so any waterflooding or application of
our AERO System to the remaining injector well could not be
effective for these five producer wells. Approximately one month
after the initiation of our nutrient injection, the remaining
producer well experienced fluctuations in fluid production
before a new steady-state was established for it. The oil
production rate of that producer well was observed to increase
by between 60% and 100%. The fluid production rate of this well
remained relatively unchanged as the oil portion of the fluid
increased.
The following figure demonstrates the change in production rate
in the producer well associated with the injector that remained
subject to our pilot project as our AERO System became
established at the affected producer well in the pilot area. The
figure was created by plotting production rate against
cumulative production and shows a discontinuity where our AERO
System becomes functional. This type of analysis is typically
used to project ultimate recovery from the oil well by
extrapolating trend lines. According to a paper we published
with Merit Energy Company and Statoil and presented at a July
2011 Society of Petroleum Engineers conference discussing the
Stirrup field pilot, which is the same pilot project described
in this prospectus, approximately 17,600 barrels of
incremental oil had been produced from this well by
December 31,
52
2010. The paper also states that, due to the AERO System
implementation, the daily production rate of oil increased 60%
to 100% from the initial rate for this well and predicts that
the ultimate cumulative oil that is produced in the well will
increase by an additional 9-12% of original oil in place, or
OOIP, in the pilot area of the field, or approximately 40,000
incremental barrels of oil over the remaining economic life of
the well. Daily production rate data obtained from the end of
2010 through September 2011 from the pilot area producer well is
consistent with the 60% to 100% daily production rate increase
described in the paper, which was calculated based on data
obtained from the inception of the pilot project in May 2010
through the end of 2010.
We believe that our pilot project results are a valid
representation of potential production rate increases and yield
recovery to be expected from the application of our AERO System
in other potential sites. These results are reinforced by our
laboratory data from core floods, which test recovery processes
under simulated reservoir conditions using a plug, or core of
reservoir rock from the project area, and historical
implementations of predecessor technologies by us.
Sales and
Marketing
We use a direct sales channel to market our technology. As of
September 30, 2011, the business development group
comprised two people, based in Houston and Calgary. We expect to
expand our sales team by introducing regional sales managers in
basins of interest in the United States, Canada and
internationally.
Because of the uniqueness of our technology and the early stage
of our development, we must educate potential customers on our
technology in order to generate business. Customers generally
introduce us to their operations on a limited scope and
generally in their lowest-priority oil field in order to test
the technology. Although this approach is suboptimal, we believe
will generate additional opportunities to expand our
relationship with the customer once our technology is proven to
them.
Customers
We have signed master service agreements that define our
contractual relationships with oil producers. The scope of work
and commercial terms for a particular project are defined in a
separate document specific to that project. Most of our
contracts are for a pilot implementation of our AERO System and
incorporate a
53
fee for service for the Sample and Simulate phases and a monthly
charge for initial Stimulate phase field validation. After
completion of the initial Stimulate phase field validation, we
anticipate that successful field validation performance will
lead to negotiated evergreen contracts for continued Stimulate
phase activities.
Our customer base comprises international oil companies and
independent oil and gas companies in North America. For the year
ended December 31 2010, our customers were: Shell International
Exploration and Production Inc., Merit Energy Company, Hilcorp
Energy Company, Citation Oil and Gas Corp., Occidental of Elk
Hills, Inc., a subsidiary of Occidental Petroleum Corporation,
and PlusPetrol S.A. During 2010, Shell International Exploration
and Production Inc., Merit Energy Company, and Occidental of Elk
Hills, Inc. accounted for 18%, 27% and 38%, respectively, of our
total revenues for that year.
In 2011, we added contracts with Husky Oil Operations Limited,
Cenovus Energy Inc., Plains Exploration and Production Company,
ConocoPhillips Company and Petróleo Brasileiro S.A.
Suppliers
We have preferred suppliers of nutrient chemicals. However, our
raw material ingredients are widely available, and we are not
dependent upon any one company for supplies needed for our
business. Also, there are no geographical limitations on the
availability of these materials. Currently we blend our formula
in our Houston, Texas and Hazlett, Saskatchewan facilities, with
the raw materials delivered directly to those locations. We
anticipate expanding this strategy to each geographical region,
utilizing local suppliers to minimize logistical costs.
Competition
We compete for projects with other microbial technology enhanced
oil recovery companies, emerging enhanced oil recovery
technologies and traditional enhanced oil recovery technologies.
Other
Microbial Enhanced Oil Recovery Companies
There are other companies developing or planning to
commercialize microbial technology that is similar to our AERO
System. These companies include Titan Oil Recovery, Inc., Geo
Fossil Fuels, LLC and Micro-Bac International, Inc. We believe
that the enhanced oil recovery market is large enough to support
multiple competitors if the technology of these companies proves
to be competitive with ours.
Emerging
Enhanced Oil Recovery Technologies
We are aware of other companies developing or planning to
commercialize different technologies for enhanced oil recovery.
These technologies include low salinity water, polymer and wave
vibration. TIORCO (a Nalco Company) is the biggest of the
companies of which we are aware that is involved in deployment
of any of these technologies.
We believe that the economics of our AERO System are more
attractive than those of these other technologies due to, among
other things, a lower capital investment and a lower operating
cost.
Traditional
Enhanced Oil Recovery Technologies
Traditional enhanced oil recovery technologies include thermal
injection (for example, steam), gas injection (for example,
carbon dioxide) and chemical injection (for example,
surfactants). Thermal injection is used to heat the oil to make
it flow more easily through the reservoir. Gas injection is used
to increase pressure in the reservoir and increase the viscosity
of the oil. Chemical injection is used to reduce surface tension
of the oil to allow it to flow better through the reservoir.
According to a November 2007 Oil & Gas Journal
article, about 50% of the worlds oil lies in small to
medium sized reservoirs, which are generally untouched by
traditional enhanced oil recovery processes. Our AERO System is
well suited for smaller and medium sized reservoirs because our
technology does not require large scale operations to be
economical.
54
We believe that the economics of our AERO System are more
attractive than those of these other technologies due to, among
other things, lower capital investment and a lower operating
cost. Additionally, we believe that our AERO System has a lower
environmental impact since our process uses infrastructure that
is already in place and nutrients that are not harmful to the
environment.
Thermal Injection (for example,
steam). High pressure superheated steam is
pumped into an oil well to increase the temperature and lower
the viscosity of the oil making it easier to displace from the
sand. The cost of the steam generation equipment and pressure
pumps is significant and implementing this process requires
large amounts of energy.
Gas Injection (for example, carbon
dioxide). Carbon dioxide is sourced generally
from underground deposits. The injection process requires that a
structure is drilled to access the carbon dioxide, which is then
piped to the oil production site. The capital cost for this
process and its infrastructure is significant. This process
introduces new environmental impacts through the additional
infrastructure needed to implement the process as well as the
carbon dioxide that is inevitably released into the atmosphere
during the process. Once the carbon dioxide has reached the
producing well, it must be extracted, cleaned and then
re-injected or disposed of. This process is expensive and
results in a sizable carbon dioxide or other greenhouse gas
footprint.
Chemical injection (for example,
surfactants). Large quantities of chemicals
must be manufactured and then transported to the wellsite where
they are blended with the water to be injected into the
reservoir. The chemical injection process results in a large
quantity of non-native chemicals or polymers being injected into
the reservoir. The surfactants and polymers can be considered
environmentally aggressive and the process to manufacture them
and deliver them to the reservoir in bulk is expensive.
Government
Regulation
Environmental
Regulation
We are subject to numerous environmental, legal, and regulatory
requirements related to our operations worldwide. In the United
States, these laws and regulations include, among others:
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the Comprehensive Environmental Response, Compensation, and
Liability Act;
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the Resource Conservation and Recovery Act;
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the Clean Air Act;
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the Federal Water Pollution Control Act;
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the Safe Drinking Water Act; and
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the Toxic Substances Control Act.
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In addition to federal laws and regulations, states and other
countries where we do business often have numerous
environmental, legal and regulatory requirements by which we
must abide.
Environmental laws and regulations are complex and subject to
frequent change. In some cases, they can impose liability for
the entire cost of cleanup on any responsible party, without
regard to negligence or fault, and can impose liability on us
for the conduct of others or conditions others have caused, or
for our acts that complied with all applicable requirements when
we performed them. We may also be exposed to environmental or
other liabilities originating from businesses and assets that we
purchased from others. Compliance with applicable environmental
laws and regulations has not, to date, materially affected our
capital expenditures, earnings or competitive position. We do
not expect to incur material capital expenditures in our next
fiscal year in order to comply with current environment control
regulations. However, our compliance with amended, new or more
stringent requirements, stricter interpretations of existing
requirements or the future discovery of contamination may
require us to make material expenditures or subject us to
liabilities that we currently do not anticipate. In addition,
because our technology is new, regulatory agencies may not be
sure how to apply
55
existing rules to our AERO System or may have concerns that
could delay or restrict use of our AERO System in some wells.
Any such delays or restrictions could harm our business.
Greenhouse
Gas Regulation
There are a variety of regulatory developments, proposals or
requirements and legislative initiatives that have been
introduced in the United States and international regions in
which we conduct business that are focused on restricting the
emission of carbon dioxide, methane and other greenhouse gases.
Among these developments are the United Nations Framework
Convention on Climate Change, also known as the Kyoto
Protocol, the Regional Greenhouse Gas Initiative or
RGGI in the Northeastern United States, AB 32 in
California, which calls for a
cap-and-trade
system for greenhouse gas emissions, and the Western Regional
Climate Action Initiative in the Western United States.
The U.S. Congress has been actively considering legislation
to reduce emissions of greenhouse gases, primarily through the
development of greenhouse gas
cap-and-trade
programs. In addition, more than one-third of the states already
have begun implementing legal measures to reduce emissions of
greenhouse gases.
In 2007, the United States Supreme Court in Massachusetts, et
al. v. EPA, held that carbon dioxide may be regulated
as an air pollutant under the federal Clean Air Act.
In the wake of the U.S. Supreme Courts decision in
Massachusetts, et al. v. EPA, the
U.S. Environmental Protection Agency, or EPA, has begun to
regulate carbon dioxide and other greenhouse gas emissions, even
though Congress has yet to adopt new legislation specifically
addressing emissions of greenhouse gases. In late 2009, the EPA
issued a Mandatory Reporting of Greenhouse Gases
final rule, which was amended in December 2010, establishing a
new comprehensive regulation and reporting scheme for operators
of stationary sources emitting certain levels of greenhouse
gases, and a Final Rule finding that certain current and
projected levels of greenhouse gases in the atmosphere threaten
public health and welfare of current and future generations. In
late 2010, the EPA finalized new greenhouse gas reporting
requirements for upstream petroleum and natural gas systems,
which will be added to EPAs greenhouse gas reporting rule.
Many of these regulations are subject to pending legal
challenges.
Although it is not possible to predict whether proposed
legislation or regulations will be adopted as initially written,
if at all, or how legislation or new regulations that may be
adopted to address greenhouse gas emissions would impact our
business, any such future laws and regulations could result in
increased compliance costs or additional operating restrictions.
Any additional costs or operating restrictions associated with
legislation or regulations regarding greenhouse gas emissions
could have a material adverse effect on our operating results
and cash flows. In addition, changes in environmental
requirements may negatively impact demand for our services. For
example, oil exploration and production may decline as a result
of environmental requirements (including land use policies
responsive to environmental concerns). State, national, and
international governments and agencies have been evaluating
climate-related legislation and other regulatory initiatives
that would restrict emissions of greenhouse gases in areas in
which we conduct business. Because our business depends on the
level of activity in the oil industry, existing or future laws,
regulations, treaties or international agreements related to
greenhouse gases and climate change, including incentives to
conserve energy or use alternative energy sources, could have a
negative impact on our business if such laws, regulations,
treaties, or international agreements reduce the worldwide
demand for oil.
Hydraulic Fracturing The EPA has recently
focused on concerns about the risk of water contamination and
public health problems from drilling and hydraulic fracturing
activities. The EPA is conducting a comprehensive research study
on the potential adverse effects that hydraulic fracturing may
have on water quality and public health. While our technology is
unrelated to hydraulic fracturing, it is possible that any
federal, state and local laws and regulations that might be
imposed on fracturing activities could also apply to oil
recovery operations. Although it is not possible to predict the
final outcome of the EPAs study or whether new legislation
or regulations that might be adopted would impact our business,
any such future laws and regulations could result in increased
compliance costs or additional operating restrictions, which, in
turn, could adversely affect our financial position, results of
operations and cash flows.
56
Employees
As of December 19, 2011, we had a total of
19 employees consisting of eight employees engaged in
research and development, five employees in operations and six
employees in management and administrative positions. We believe
our employee relations are satisfactory.
Facilities
Our headquarters are located in Houston, Texas. We lease our
headquarters facility, which comprises approximately
17,000 square feet of warehouse, laboratory and office
space. The term of this lease runs through May 2014. We have
regional offices in Calgary, Alberta, Hazlett, Saskatchewan,
Liberal, Kansas and Bakersfield, California. We believe our
current facilities are adequate for our current needs and for
the foreseeable future.
Legal
Proceedings
We are not currently involved in any material legal proceedings.
57
MANAGEMENT
Executive
Officers and Directors
The following table provides information regarding our executive
officers, directors and director nominees (ages as of
September 30, 2011):
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Name
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Age
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Position
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Stuart M. Page(1)
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48
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President and Chief Executive Officer and Director
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Victor M. Perez
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58
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Chief Financial Officer
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Thomas Ishoey
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38
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Chief Technology Officer
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William M. Bierhaus II
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52
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Senior Vice President of Business Development
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Jonathan Schulhof(2)
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37
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Chairman of the Board
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Matthew Gibbs(1)(3)(4)
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42
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Director
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John Clarke(2)
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Director
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Ganesh Kishore(1)(3)(4)
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58
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Director
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Jasbir Singh(2)(3)(4)
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70
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Director
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Michael Schulhof(3)(4)
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68
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Director
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Mark Puckett(1)(2)
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60
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Director
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(1) |
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Member of our risk committee |
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(2) |
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Member of our audit committee |
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(3) |
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Member of our compensation committee |
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(4) |
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Member of our corporate governance and nominating committee |
Stuart M. Page has served as our Chief Executive Officer
since March 2007. In June 2011, he assumed the additional title
of President. Mr. Page has also served as a member of our
board of directors since March 2007. Prior to joining us,
Mr. Page was Vice President of IHS Energy, Inc., an
information delivery services company, from February 2005 to
March 2007 where he was responsible for the companys
mergers and acquisitions activity. He holds a bachelors
and masters degree in engineering science from Oxford
University, England, and an M.B.A. from Harvard Business School.
Mr. Page brings an intimate knowledge of our business and
our industry to our board.
Victor M. Perez has served as our Chief Financial Officer
since August 2011. Prior to joining us, Mr. Perez was Chief
Financial Officer of Allis-Chalmers Energy Inc., an oilfield
services company, from August 2004 to July 2011. From July 2003
to July 2004, Mr. Perez was a private consultant engaged in
corporate and international finance advisory. From February 1995
to June 2003, Mr. Perez was Vice President and Chief
Financial Officer of Trico Marine Services, Inc., a marine
transportation company serving the offshore energy industry.
Trico Marine Services, Inc. filed a petition under the federal
bankruptcy laws in December 2004. Mr. Perez was Vice
President of Corporate Finance with Offshore Pipelines, Inc., an
oilfield marine construction company, from October 1990 to
January 1995. Mr. Perez also has 15 years of
international and energy banking experience. Mr Perez has an
M.B.A, from University of Texas at Arlington and a
bachelors degree in economics from Virginia Tech.
Thomas Ishoey has served as our Chief Technology Officer
since September 2010. Prior to joining us, Dr. Ishoey held
various positions at Synthetic Genomics Inc., a privately held
biotechnology company, from 2008 to September 2010. He held the
position of Vice President Subsurface Hydrocarbons
from December 2009 to September 2010, Senior Director from
September 2009 to December 2009, Director from July 2009 to
September 2009 and Senior Scientist from May 2008 to July 2009.
Prior to that, Dr. Ishoey was a scientist at the J. Craig
Venter Institute, a non-profit research institute, from February
2006 to May 2008, and a senior research associate at the Center
for Genomic Sciences from June 2005 to February 2006.
Dr. Ishoey holds a masters degree in chemical
engineering and a Ph.D. in biotechnology, both from the
Technical University of Denmark.
58
William M. Bierhaus II has served as our Senior Vice
President of Business Development since March 2010. Prior to
joining us, Mr. Bierhaus spent 28 years with
Halliburton Energy Services, Inc, a provider of various products
and services to the energy industry for the exploration,
development, and production of oil and natural gas worldwide,
where he held various field operational, engineering and
management positions throughout the United States and Middle
East. His most recent Halliburton position was Global Manager of
Business Development and Marketing-Cementing with responsibility
for business development activities in over 70 countries.
Mr. Bierhaus holds a B.S. in civil engineering from Purdue
University.
Matthew Gibbs has served as a member of our board of
directors since October 2009. Mr. Gibbs is a General
Partner of Oxford Bioscience Partners, a venture capital firm
that has invested over one billion dollars in life science,
clean-energy, and healthcare technologies. Mr. Gibbs has
17 years of experience in financing venture backed
technology companies. Mr. Gibbs joined Oxford in 1997,
became a General Partner in January 2005 and leads the
clean-energy initiative at Oxford with investments in microbial
generated natural gas and biotechnology enhanced oil recovery.
Mr. Gibbs was with MedVest, Inc., a venture capital
syndicated fund, Johnson & Johnson Development Corp.
and Oak Investment Partners, from 1994 to 1996. He holds a B.A.
from the University of Colorado Boulder. In the last
five years, Mr. Gibbs has served on the board of directors
of Luca Technologies Inc. (December 2008 to Present). Luca
Technologies uses biotechnology to create and produce natural
gas by stimulating native microorganisms that reside in
subsurface hydrocarbon deposits, such as coal, oil and
organic-rich shales. Mr. Gibbs brings extensive experience
in business and the building of companies from early stage to
commercial scale to our board of directors.
John Clarke has served as a member of our board of
directors since April 2011. Since May 2011, Mr. Clarke has
been a Partner with Turnbridge Capital, LLC, a private equity
investment firm focused on energy related investments.
Mr. Clarke has served as President of Concept Capital
Group, Inc., a financial and strategic consulting firm founded
by him in 1995, since November 2009. From December 2004 until
its sale in November 2009, Mr. Clarke served as Chairman
and Chief Executive Officer of NATCO Group Inc., an oil services
company. Previously, Mr. Clarke served as Managing Director
of SCF Partners, a private equity investment firm, Executive
Vice President and Chief Financial Officer of Dynegy, Inc., an
energy trading company, Managing Director of Simmons &
Co. International, an energy investment banking firm, and
Executive Vice President and Chief Financial and Administrative
Officer of Cabot Oil & Gas Corporation, an oil and gas
exploration and production company. Mr. Clarke holds an
M.B.A. from Southern Methodist University and a B.A. in
economics from the University of Texas at Austin. In the last
five years, Mr. Clarke has served on the boards of
directors of Penn Virginia Corporation (December 2009 to
Present), Tesco Corporation (August 2011 to Present), Harvest
Natural Resources, Inc. (October 2000 to May 2008), The Houston
Exploration Company (December 2003 to June 2007) and NATCO
Group Inc. (February 2000 to November 2009). Mr. Clarke
brings a wealth of public company board experience and knowledge
of the energy industry to our board.
Ganesh Kishore has served as a member of our board of
directors since October 2009. Since April 2007, he has served as
Chief Executive Officer of Malaysian Life Sciences Capital
Fund Ltd., where he oversees fund management, investment
portfolio management and governance of companies in which
Malaysian Life Sciences Capital Fund Ltd. has made
investments. Since January 2009, he has also served as President
and Chief Executive Officer of K Life Sciences, LLC where he
provides advisory services to life science businesses. Between
April 2007 and December 2008, Dr. Kishore served as a
Managing Director of Burrill & Company, where his
responsibilities included fund management, fund raising and
governance of companies in which Burrill & Company
invested. Prior to joining Burrill & Company,
Dr. Kishore served as Chief Biotechnology Officer at E. I.
du Pont de Nemours and Company from March 2005 to April 2007,
where he was responsible for overall biotechnology leadership
for DuPonts life science businesses. Dr. Kishore
holds a Ph.D. in biochemistry from the Indian Institute of
Science, an M.S. in biochemistry from the University of Mysore
and a B.S. in physics and chemistry from the University of
Mysore. In the last five years, Dr. Kishore has served on
the board of directors of Gevo, Inc. (May 2008 to Present) and
Embrex, Inc. (January 2002 to January 2007). Dr. Kishore
brings extensive knowledge of the biotechnology industry and
experience in advising and managing startup companies to our
board.
59
Jasbir Singh has served as a member of our board of
directors since October 2009. Mr. Singh is the Executive
Director New Technologies of Omar Zawawi
Establishment (OMZEST) Group, an entity owned by the same
stockholders that own Rawoz. The group has varied activities
from manufacturing to trading, financing to insurance and
energy-related investments. Mr. Singh has been with OMZEST
Group since 1985. Prior to joining OMZEST Group, Mr. Singh
worked as Sales Development Manager for Larsen &
Toubro (L&T), one of the largest engineering companies in
India. Before joining L&T, Mr. Singh worked for seven
years at Indias national oil company, Oil &
Natural Gas Commission, where he held a variety of technical
engineering positions. Mr. Singh is a graduate petroleum
engineer from the Indian School of Mines, Dhanbhad, India.
Mr. Singh brings extensive knowledge of the energy industry
to our board.
Jonathan Schulhof has served as Chairman of our board of
directors since our inception. Mr. Schulhof is a founder
and managing partner of GTI Capital Group, a New York and India
based firm that specializes in private equity investments, as
well as advisory services in the aerospace, healthcare, energy
and media sectors. Mr. Schulhof maintains oversight over
day to day operations of GTI Capital Group and has led the
purchase and sale of several U.S. and Indian companies and
has supervised the launch of several startup businesses. Prior
to joining GTI Capital Group in 2010, Mr. Schulhof had been
a managing partner of GTI Companies since 2002. Prior to joining
GTI Companies, Mr. Schulhof was a Director of Business
Development at Tellme Networks, Inc., where he developed company
strategy and business plans, and executed strategic sales. Prior
to joining Tellme Networks, Inc., Mr. Schulhof was a
corporate associate at Schulte Roth & Zabel LLP, a law
firm specializing in mergers and acquisitions, bankruptcy,
securities, structured finance, and investment management
services. Mr. Schulhof holds a B.A. from Dartmouth College
and a J.D. from Stanford Law School, and is a member of the New
York State Bar. Mr. Schulhof brings a wealth of knowledge
in advising and managing startup companies to our board.
Michael Schulhof has served as a member of our board of
directors since our inception. Since 1998, Mr. Schulhof has
been a managing director of GTI Capital Group, a New York and
India based firm that specializes in private equity investments,
as well as advisory services in the aerospace, healthcare,
energy and media sectors. From 1993 to 1996, he was President
and Chief Executive Officer of Sony Corporation of America.
Mr. Schulhof holds a B.A. from Grinnell College, Master of
Science from Cornell University and Ph.D. from Brandeis
University. Mr. Schulhof also received an Honorary Degree
as Doctor of Physics from Grinnell College. In the last five
years, Mr. Schulhof has served on the board of directors of
j2 Global Communications, Inc. (1997 to Present).
Mr. Schulhof brings extensive experience with global
business operations and finance to our board.
Mark Puckett has served as a member of our board of
directors since April 2011. Mr. Puckett began his career at
Chevron Corporation, a company engaging in petroleum, chemicals,
mining, power generation, and energy operations worldwide, in
1973 and retired in May 2008. During his tenure at Chevron,
Mr. Puckett held a variety of positions of increasing
responsibility in Chevrons upstream operations before
ultimately retiring as the President of Chevrons Energy
Technology Company, where he was responsible for managing the
companys technology resources across all business
segments. In addition, Mr. Puckett served on Chevrons
management committee from 1997 until his retirement and served
on Chevrons upstream and gas leadership team from 2001
until his retirement. Since his retirement, Mr. Puckett has
been involved in private investments. He is a member of the
Society of Petroleum Engineers and the Deans Advisory
Council, College of Engineering at Texas A&M University.
Mr. Puckett holds a bachelors degree in civil
engineering from Texas A&M University. In the last five
years, Mr. Puckett has served on the board of directors of
Concho Resources Inc. (November 2009 to Present).
Mr. Puckett brings extensive knowledge of the energy
industry to our board, including in the areas of primary,
secondary and enhanced oil recovery.
Our executive officers are appointed by our board of directors
and serve until their successors have been duly elected and
qualified. There are no family relationships among any of our
directors or executive officers other than that Michael Schulhof
is the father of Jonathan Schulhof.
60
Code of
Ethics
We have adopted a code of business conduct and ethics applicable
to our principal executive, financial and accounting officers
and all persons performing similar functions. A copy of that
code will be available on our corporate website at
www.glorienergy.com upon completion of this offering.
Composition
of the Board of Directors
Our board of directors currently consists of eight members, all
of whom are non-employee members other than our chief executive
officer. Each director holds office until the election and
qualification of his or her successor, or his or her earlier
death, resignation or removal. Our post-offering bylaws permit
our board of directors to establish by resolution the authorized
number of directors.
Pursuant to the terms of our existing stockholders agreement,
our existing current directors were elected as follows:
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The holders of our series A preferred stock elected two
members of our board of directors: one individual designated by
GTI Glori Oil Fund I L.P., Jonathan Schulhof: and one
individual designated by KPCB Holdings, Inc., Michael Schulhof;
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The holders of our series B preferred stock elected three
members of our board of directors: one individual designated by
Oxford Bioscience Partners, Matthew Gibbs; one individual
designated by Rawoz Technology Company Limited, Jasbir Singh;
and one individual designated by Malaysian Life Sciences Capital
Fund Ltd., Ganesh Kishore;
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The holders of our series B preferred stock elected one
independent member of our board of directors, subject to the
approval of the holders of a majority of our outstanding shares
of series A preferred stock and common stock: John Clarke;
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The holders of our series A preferred stock, series B
preferred stock and our common stock elected one member of our
board of directors: Mark Puckett; and
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Our chief executive officer is designated as a director: Stuart
M. Page.
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Upon the closing of this offering, all of our preferred stock
will be automatically converted into our common stock and all of
the contractual rights to appoint directors will be
automatically terminated. All of our existing directors intend
to remain directors upon completion of this offering. Commencing
with our first annual meeting of stockholders after the
completion of this offering, all of our director positions will
be up for re-election.
Our post-offering certificate of incorporation provides that the
number of authorized directors will be determined from time to
time by resolution of the board of directors and that a director
may only be removed outside of the normal election process for
cause or by the affirmative vote of the holders of a majority of
the shares then entitled to vote at an election of our directors.
Director
Independence
In
[ ,
2011,] our board of directors undertook a review of the
independence of each post-offering director and considered
whether any post-offering director had a material relationship
with us that could compromise his or her ability to exercise
independent judgment in carrying out his or her
responsibilities. As a result of this review, our board of
directors determined that all of our post-offering directors,
other than our President and Chief Executive Officer, Stuart M.
Page, were independent directors and met the
independence requirements under the listing standards of The
Nasdaq Global Market.
Committees
of the Board of Directors
Our board of directors has established an audit committee, a
compensation committee, a corporate governance and nominating
committee and a risk committee.
61
Audit
Committee
Our audit committee consists of John Clarke, Jonathan Schulhof,
Mark Puckett and Jasbir Singh, each of whom is a non-employee
member of our board of directors. Mr. Clarke is the
chairperson of our audit committee. Our board of directors has
determined that each member of our audit committee meets the
requirements of financial literacy under the requirements of The
Nasdaq Global Market and SEC rules and regulations.
Mr. Clarke serves as our audit committee financial expert,
as defined under SEC rules, and possesses financial
sophistication as required by The Nasdaq Global Market.
Mr. Clarke and Mr. Puckett are independent as such
term is defined in
Rule 10A-3(b)(1)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Mr. Schulhof is not independent within the
meaning of
Rule 10A-3(b)(1)
because of his affiliation with GTI and the present level of
stock ownership of our company by funds and investors affiliated
with GTI. Mr. Singh is not independent within the meaning
of
Rule 10A-3(b)(1)
because of his affiliation with Rawoz and the present level of
stock ownership of our company by funds and investors affiliated
with Rawoz. The test for independence under
Rule 10A-3(b)(1)
for the audit committee is different than the general test for
independence of board and committee members. In accordance with
Rule 10A-3(b)(1)
and the listing standards of The Nasdaq Global Market, we plan
to modify the composition of the audit committee within
12 months after the effectiveness of our registration
statement relating to this offering, if necessary, so that all
of our audit committee members will be independent as such term
is defined in
Rule 10A-3(b)(1)
and under the listing standards of The Nasdaq Global Market.
Our audit committee is responsible for, among other things:
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selecting and hiring our independent auditors, and approving the
audit and non-audit services to be performed by our independent
auditors;
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evaluating the qualifications, performance and independence of
our independent auditors;
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monitoring the integrity of our financial statements and our
compliance with legal and regulatory requirements as they relate
to financial statements or accounting matters;
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reviewing the adequacy and effectiveness of our internal control
policies and procedures;
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discussing the scope and results of the audit with the
independent auditors and reviewing with management and the
independent auditors our interim and year-end operating
results; and
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preparing the audit committee report that the SEC requires in
our annual proxy statement.
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Our board of directors has adopted a written charter for the
audit committee, which will be available on our website upon the
completion of this offering.
Compensation
Committee
Our compensation committee consists of Michael Schulhof, Matthew
Gibbs, Ganesh Kishore and Jasbir Singh, each of whom is a
non-employee member of our board of directors. Mr. Gibbs is
the chairman of our compensation committee. Our board of
directors has determined that each member of our compensation
committee meets the requirements for independence under the
requirements of The Nasdaq Global Market. Our compensation
committee is responsible for, among other things:
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reviewing and approving compensation of our executive officers
including annual base salary, annual incentive bonuses, specific
goals, equity compensation, employment agreements, severance and
change in control arrangements, and any other benefits,
compensations or arrangements;
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reviewing and recommending compensation goals, bonus and option
compensation criteria for our employees;
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reviewing and discussing annually with management our
Compensation Discussion and Analysis disclosure
required by SEC rules;
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62
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preparing the compensation committee report required by the SEC
to be included in our annual proxy statement; and
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administering, reviewing and making recommendations with respect
to our equity compensation plans.
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Corporate
Governance and Nominating Committee
Our corporate governance and nominating committee will initially
consist of Michael Schulhof, Matthew Gibbs, Ganesh Kishore and
Jasbir Singh. Mr. Gibbs is the chairman of this committee.
Our board of directors has determined that each member of our
corporate governance and nominating committee satisfies the
requirements for independence under The Nasdaq Global Market
rules.
Our corporate governance and nominating committee is responsible
for, among other things:
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assisting our board of directors in identifying prospective
director nominees and recommending nominees for each annual
meeting of stockholders to the board of directors;
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reviewing developments in corporate governance practices and
developing and recommending governance principles applicable to
our board of directors;
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reviewing succession planning for our executive officers;
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overseeing the evaluation of our board of directors and
management;
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determining the compensation of our directors; and
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recommending members for each board committee of our board of
directors.
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Risk
Committee
Our risk committee will initially consist of Matthew Gibbs,
Stuart M. Page, Mark Puckett and Ganesh Kishore.
Mr. Kishore will be the chairman of this committee. Our
risk committee charter provides that the members of the
committee will include at least one member of our audit
committee and one member of our compensation committee.
Our risk committee is responsible for, among other things:
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reviewing and evaluating managements identification,
evaluation and monitoring of risks inherent in our business and
operations, including risks related to our assets, properties,
liabilities, obligations, business, operations, financial
condition, results of operations and prospects, and their
relative weight;
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assessing the adequacy and effectiveness of managements
risk assessment, its plans for risk control, management and
mitigation, and the disclosure of the risks to our board of
directors and our risk committee;
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reviewing, assessing, and discussing with our chief executive
officer and outside counsel and independent auditors, as the
committee deems appropriate, managements framework for
risk control and management; any significant business,
financial, regulatory, legal or other risks and exposures and
risk trends; actions management has taken to identify, assess,
monitor, control, measure, manage and report such risks and
exposures; and our underlying policies with respect to risk
identification, assessment and management;
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reviewing and assessing our risk tolerance in the context of our
business strategy, financial resources and performance;
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reviewing and assessing our compensation structure in relation
to risk management; and
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reviewing and assessing our organizational governance approach
to risk management and our methods for identifying and managing
risks.
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63
Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer
or employee of our company. None of our executive officers
currently serves, or in the past year has served, as a member of
the board of directors or compensation committee of any entity
that has one or more executive officers serving on our board of
directors or compensation committee.
Director
Compensation for the Year Ended December 31, 2010
We did not compensate our directors in 2010 for services they
performed. We did not grant any options or other equity
compensation to any member of our board of directors in 2010.
All directors were entitled to reimbursement for reasonable
travel and other business expenses incurred in connection with
attending meetings of the board of directors and committees of
the board of directors.
Effective upon the closing of this offering, directors who are
our employees or who are associated with investors in our
company, including each of Stuart M. Page, Matthew Gibbs, Ganesh
Kishore, Jasbir Singh, Jonathan Schulhof and Michael Schulhof,
will not be compensated for their service on our board of
directors. Each of our directors who are not employed by the
company and not associated with an investor in our company, such
as John Clarke and Mark Puckett, will receive the following
compensation for board and committee services:
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an annual retainer paid in cash in an amount equal to $12,500
per quarter; and
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a onetime option award to acquire 113,000 shares of our
common stock upon joining our board of directors.
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Mr. Clarke and Mr. Puckett have not yet received their
option awards for joining our board of directors.
All directors will continue to be entitled to reimbursement for
reasonable travel and other business expenses incurred in
connection with attending meetings of the board of directors and
committees of the board of directors.
64
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
The compensation committee of our board of directors has overall
responsibility for the compensation program for our executive
officers. Members of the compensation committee are appointed by
the board. Currently, the compensation committee consists of
four members of the board, none of whom are executive officers
of our company.
Our executive compensation program is designed to encourage our
executives to focus on building stockholder value and maximizing
rational growth and bottom line results.
Our objective is to provide a competitive total compensation
package to attract and retain key personnel and drive effective
results. To achieve this objective, the compensation committee
has implemented and maintains a compensation plan that includes
a significant equity-based pay component, thereby aligning the
interests of our executive officers with those of our company.
Our executive compensation program provides for the following
elements:
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base salaries, which are designed to allow us to attract and
retain qualified candidates in a highly competitive market;
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variable compensation in the form of discretionary bonuses which
provides additional cash compensation and is designed to reward
individuals based on merit, individual and team performance and
additional criteria selected by our compensation committee;
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equity compensation, principally in the form of options, which
are granted to incentivize executive behavior that results in
increased stockholder value; and
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a benefits package that is available to all of our employees.
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A detailed description of these components is provided below.
Elements
of Our Executive Compensation Program
Base Salary. We utilize base salary as the
primary means of providing compensation for performing the
essential elements of an executives job. We attempt to set
our base salaries at levels that allow us to attract and retain
executives in competitive markets.
Variable Pay. Our variable pay compensation,
in the form of an annual discretionary cash bonus, is intended
to incentivize our executives to meet our corporate objectives
and compensate them for achieving these objectives. In addition,
our variable pay compensation is intended to reward and
incentivize our executives for individual and team performance
and additional criteria selected by our compensation committee
from time to time.
Equity-Based Compensation. Our equity-based
compensation is intended to enhance our ability to retain talent
over the long-term, to reward longer-term efforts that enhance
future value and to provide executives with a form of reward
that aligns their interests with those of our stockholders.
Executives whose skills and results we deem to be critical to
our long-term success are eligible to receive higher levels of
equity-based compensation. Executives typically receive an
equity award upon commencement of their employment in the form
of an option that vests over a period of time. Thereafter, they
may receive additional awards from time to time as the
compensation committee determines consistent with the objectives
described above.
Benefits. Our benefits, such as our basic
health benefits, 401(k) plan and life insurance, are intended to
provide a stable array of support to executives and their
families throughout various stages of their careers, and these
core benefits are provided to all executives regardless of their
individual performance levels. The 401(k) plan allows
participants to defer an amount of their annual compensation up
to the cap set by the
65
Internal Revenue Code. The executives elective deferrals
are immediately vested and nonforfeitable upon contribution to
the 401(k) plan.
Taxes. Our compensation committee does not
have any particular policies concerning the payment of tax
obligations on behalf of our employees. We are required by law
to withhold a portion of every compensation payment we make to
our employees. In the case of noncash compensation, such as
restricted stock awards, that means that either we withhold a
portion of the noncash compensation payment and pay cash to the
appropriate tax authorities or that the employees make a direct
cash payment to us in lieu of our withholding a portion of the
noncash compensation. All payments to or on behalf of our
employees, including tax payments, are considered compensation
and are evaluated by our compensation committee as part of our
overall compensation packages. In the future, our compensation
committee will consider all possible forms of compensation,
including payment of tax obligations on behalf of our employees,
in determining how best to compensate our employees to achieve
the overall objectives of our compensation program.
Determining
the Amount of Each Element of Compensation
Overview. The amount of each element of our
compensation program is determined by our compensation committee
on an annual basis taking into consideration the results of our
operations, long and short-term goals, individual goals, the
competitive market for our executives, the experience of our
compensation committee members with similar companies and
general economic factors.
Our chief executive officer provides input to the compensation
committee on the performance and compensation levels of our
executives, other than himself, as well as information regarding
promotions and assumption of additional duties, but he does not
have a vote on the compensation committee. Other than for
himself, he recommends the base salaries for his direct reports,
subject to compensation committee and board approval. Once the
level of compensation is set for the year, the compensation
committee may revisit its decisions and approvals if there are
material developments during the year, such as promotions, that
may warrant a change in compensation. After the year is over,
the compensation committee reviews the performance of the
executive officers and key employees to assess the overall
functioning of our compensation plans against our goals.
Base Salary. Our compensation committee
reviews our executives base salaries on an annual basis
taking into consideration the factors described above as well as
changes in position or responsibilities. In the event of
material changes in position, responsibilities or other factors,
the compensation committee may consider modifying an
executives base pay during the course of the year.
In January 2010, our compensation committee increased the base
salary for our chief executive officer by $25,000, making his
annual base salary $300,000 per year, in connection with the
compensation committees annual review of base salaries.
This increase for our chief executive officer was made on a
discretionary basis to compensate him for his execution of our
business plan in 2009 and the anticipated growth in his duties
in 2010. The base salaries for each of Messrs. Babcock and
Soni did not increase in 2010. Each of Messrs. Friske and
Bierhaus joined the company in 2010. The 2010 base salaries
reflected below for Messrs. Friske and Bierhaus were agreed
upon with us on an arms-length basis as part of each
executives employment agreement with us. We summarize the
changes in base salary of our named executive officers for 2010
in the table below:
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2009
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2010
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Dollar
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Percentage
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Name
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Base Salary
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Base Salary
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Increase
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Increase
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Stuart M. Page
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$
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275,000
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$
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300,000
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$
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25,000
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9.01
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%
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John A. Babcock
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200,000
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200,000
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Harry Friske
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81,000
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(1)
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Bhupendra Soni
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195,000
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195,000
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William M. Bierhaus II
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220,000
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Effective August 1, 2010, our compensation committee
increased Mr. Friskes base salary to $120,000 based
upon his greater time commitment to the company. |
66
Variable Pay. Our variable pay compensation,
in the form of an annual discretionary cash bonus, is intended
to incentivize our executives to meet our corporate objectives
and compensate them for achieving these objectives. In addition,
our variable pay compensation is intended to reward and
incentivize our executives for individual and team performance
and additional criteria selected by our compensation committee
from time to time. In determining the 2010 discretionary cash
bonuses (other than for Mr. Page), the compensation committee
considered the recommendations of our chief executive officer in
addition to their own evaluations when determining the extent of
each named executive officers discretionary bonus. Each of
Messrs. Page, Babcock and Soni earned a discretionary bonus
for 2010. Mr. Page earned a 2010 discretionary bonus of
$100,000 based upon his recruitment of highly regarded executive
personnel and the completion of our milestone financing in
October 2010. Mr. Babcock earned a 2010 discretionary bonus
of $40,000 based upon his performance in the acquisition of the
Etzold field in Kansas. Mr. Soni earned a 2010
discretionary bonus of $11,500 based upon his increased research
efforts and recruitment of additional scientists and research
assistants. Our remaining named executive officers did not earn
a 2010 discretionary bonus because their employment commenced in
2010.
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2010
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Percentage of
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2010
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Discretionary
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2010 Base
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Name
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Base Salary
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Bonus
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Salary
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Stuart M. Page
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$
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300,000
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$
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100,000
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33.3
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%
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John A. Babcock
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200,000
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40,000
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20.0
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Harry Friske
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81,000
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Bhupendra Soni
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195,000
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11,500
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5.9
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William M. Bierhaus II
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220,000
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Allocation
of Equity Compensation Awards
In 2010, we granted the following stock options to our named
executive officers:
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Number of Shares
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Name
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Underlying Options
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Stuart M. Page
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664,892
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John A. Babcock
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357,032
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Harry Friske
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91,074
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Bhupendra Soni
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William M. Bierhaus II
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338,034
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The grants of options to Messrs. Page and Babcock and the
grant to Mr. Friske of an option to purchase
45,537 shares of our common stock were made on
October 15, 2010 as part of our compensation
committees normal annual review of equity grants to
increase their interest in the long-term success of our company.
Our compensation committee granted to Mr. Friske an
additional option to purchase 45,537 shares of our common
stock in January 2010 as part of his initial compensation
package. Our compensation committee granted options to
Mr. Bierhaus in April 2010 as part of his initial
compensation package. None of these rewards were based on any
paid compensation studies.
The options granted to our named executive officers (other than
Mr. Page) in 2010 vest over a period of four years, with
25% of the shares vesting on the first anniversary of the grant
date and an additional 1/36th of the shares vesting on the last
day of each of the first 36 calendar months after the first
anniversary. Mr. Pages options vest ratably with
1/36th of the shares vesting on the last day of each of the
first 36 calendar months after the grant date. All of the
options listed in the table above are subject to earlier
termination in the event of termination of employment. Our
compensation committee does not apply a rigid formula in
allocating options to executives as a group or to any particular
executive. Instead, our compensation committee exercises its
judgment and discretion and considers, among other things, the
role and responsibility of the executive, competitive factors,
the amount of stock-based equity compensation already held by
the executive, the non-equity compensation received by the
executive and the total number of options to be granted to all
participants during the year.
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Timing
of Equity Awards
Our compensation committee generally grants options to
executives and current employees at the time they begin their
employment with us. In addition, we also review equity holdings
and potential grants on an annual basis, and we have
historically also made additional grants in connection with
major events such as third party financings. We do not have any
program, plan or practice to time option grants in coordination
with the release of material non-public information. As a
privately held company, our compensation committee has
historically determined the exercise price of options based on
valuations determined by the board of directors, but will switch
to the trading price of our common stock on the date of grant
upon completion of this offering.
Executive
Equity Ownership
We encourage our executives to hold a significant equity
interest in our company. However, we do not have specific share
retention and ownership guidelines for our executives. We have a
policy that, once we become a publicly traded company following
this offering, we will not permit our executives to sell our
stock short, will prohibit our executives from holding our stock
in a margin account and will prohibit the purchase and sale of
puts, calls or other derivative securities or exchange-traded
options on our stock by our executives.
Type
of Equity Awards
Historically, we have only issued stock options and restricted
stock. However, our 2011 Omnibus Incentive Plan permits us to
issue stock options, restricted stock units, restricted stock,
stock appreciation rights, performance units and performance
stock.
Severance
and Change in Control Arrangements
See Employment Arrangements with Named
Executive Officers and Payments Upon
Termination or Upon Change in Control below for a
description of the severance and change in control arrangements
we have with our named executive officers. The compensation
committee believed that these arrangements were necessary to
attract and retain our named executive officers. The terms of
these arrangements were determined in negotiation with the
applicable named executive officer and were not based on any set
formula. These arrangements were structured to provide an
incentive to our named executive officers to remain with our
company.
Effect
of Accounting and Tax Treatment on Compensation
Decisions
In the review and establishment of our compensation programs, we
consider the anticipated accounting and tax implications to us
and our executives. In this regard, following the completion of
this offering, we may begin utilizing restricted stock and
restricted stock units as additional forms of equity
compensation incentives. While we consider the applicable
accounting and tax treatment of alternative forms of equity
compensation, these factors alone are not dispositive, and we
also consider the cash and non-cash impact of the programs and
whether a program is consistent with our overall compensation
philosophy and objectives.
After we become a public company, Section 162(m) of the
Internal Revenue Code and related guidance from the Internal
Revenue Service will generally impose a limit on the amount of
compensation that we may deduct in any one year with respect to
our chief executive officer and each of our next three most
highly compensated executive officers, unless specific and
detailed criteria are satisfied. Performance-based compensation,
as defined in the Internal Revenue Code, is fully deductible if
the plan under which the compensation is paid is approved by
stockholders and meets other requirements. In addition, certain
compensation paid under our plans that existed before we became
a public company are not subject to the limitations imposed by
Section 162(m) of the Internal Revenue Code. We believe
that certain grants of equity awards under our option plans that
existed before we became a public company will not be subject to
the limitations imposed by Section 162(m) of the Internal
Revenue Code, thereby permitting us to receive a federal income
tax deduction in connection with such awards. In general, we
have determined that we will not seek to limit executive
compensation so that it is deductible under Section 162(m).
However, from time to time, we will monitor
68
whether it might be in our interests to structure our
compensation programs to satisfy the requirements of
Section 162(m). We seek to maintain flexibility in
compensating our executives in a manner designed to promote our
corporate goals, and therefore our compensation committee has
not adopted a policy requiring all compensation to be
deductible. Our compensation committee will continue to assess
the impact of Section 162(m) on our compensation practices
and determine what further action, if any, is appropriate.
Role
of Executives in Executive Compensation Decisions
Our compensation committee generally seeks input from our chief
executive officer, Stuart M. Page, when discussing the
performance of and compensation levels for executives other than
himself. The compensation committee also works with
Mr. Page in evaluating the financial, accounting, tax and
retention implications of our various compensation programs.
Neither Mr. Page nor any of our other executives
participates in deliberations relating to his or her own
compensation.
Summary
Compensation Table
The following table provides information regarding the
compensation of our chief executive officer, chief financial
officer and each of our other three most highly compensated
executive officers during 2010. We refer to these executive
officers as our named executive officers.
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Stock
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Option
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus
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Awards(1)
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Awards(1)
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Compensation
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Total
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Stuart M. Page
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2010
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$
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298,958
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$
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100,000
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$
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$
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27,925
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$
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$
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426,883
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President and Chief Executive Officer
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John A. Babcock
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2010
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200,000
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40,000
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14,995
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254,995
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Former Senior Vice President of Operations (2)
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Harry Friske
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2010
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99,612
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3,826
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103,438
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Former Chief Financial Officer; Controller (3)
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Bhupendra Soni
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2010
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195,000
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11,500
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206,500
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Former Chief Technology Officer (4)
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William M. Bierhaus II
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2010
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171,769
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14,197
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185,966
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Senior Vice President of Business Development
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(1) |
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Amounts in this column represent the aggregate grant date fair
value of stock awards and option awards calculated in accordance
with Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Stock Compensation, or FASB ASC Topic
718. The assumptions we used in valuing options are described in
Note K Stock Based Compensation to our
consolidated financial statements included elsewhere in this
prospectus. |
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(2) |
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On December 9, 2011, Mr. Babcocks employment with us
terminated. |
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(3) |
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Mr. Friske served as our Chief Financial Officer until
Victor M. Perez was named Chief Financial Officer on
August 22, 2011. Mr. Friske currently serves as our
Controller. |
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(4) |
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Effective July 1, 2011, Mr. Sonis employment
with us terminated. Thomas Ishoey currently serves as our Chief
Technology Officer. |
69
Grants of
Plan-Based Awards in 2010
The following table sets forth each grant of plan-based awards
to our named executive officers during 2010:
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All Other
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All Other Stock
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Option
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Awards:
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Awards:
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Exercise
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Grant Date
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Number of
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Number of
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Price of
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Fair Value of
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Shares of
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Securities
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Option
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Stock and
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Grant
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Stock
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Underlying
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Awards
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Option
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Name
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Date
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or Units (#)
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Options (#)(1)
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($/SH)(2)
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Awards($)(3)
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Stuart M. Page
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10/15/2010
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664,892
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$
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0.078
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$
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27,925
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John A. Babcock
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10/15/2010
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357,032
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0.078
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14,995
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Harry Friske
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10/15/2010
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45,537
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0.078
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1,913
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01/01/2010
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45,537
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0.078
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1,913
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William M. Bierhaus II
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04/01/2010
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338,034
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0.078
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14,197
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(1) |
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Except for Mr. Pages options, the options reflected
in the table above vest over a period of four years, with 25% of
the shares vesting on the first anniversary of the grant date
and an additional 1/36th of the shares vesting on the last day
of each of the first 36 calendar months after the first
anniversary. Mr. Pages options reflected in the table
above vest over a three year period with 1/36th of the shares
vesting on the last day of each of the 36 calendar months after
the grant date. |
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(2) |
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For a discussion of our methodology for determining the fair
value of our common stock, see the Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies. |
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(3) |
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Valuation of these stock and option awards is based on the
aggregate dollar amount of stock-based compensation recognized
for financial statement reporting purposes computed in
accordance with FASB ASC Topic 718 over the term of these
awards, excluding the impact of estimated forfeitures related to
service-based vesting conditions. The assumptions used by us
with respect to the valuation of stock and option awards are set
forth in Note K Stock Based Compensation to our
consolidated financial statements included elsewhere in this
prospectus. |
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table lists all outstanding equity awards held by
our named executive officers as of December 31, 2010:
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Option Awards
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Stock Awards
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Market Value
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Number of
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of Shares
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Shares or
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or Units
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Units of
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of Stock
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Number of Securities Underlying
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Stock That
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That Have
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Unexercised Options
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Option
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Option
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Have Not
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Not Vested
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Exercisable(1)
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Unexercisable(1)
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Exercise Price
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Exercise Date
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Vested (#)
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($)
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Stuart M. Page
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289,840
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(2)
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$
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0.407
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03/01/2017
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$
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426,133
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|
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596,585
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(3)
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0.078
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|
|
10/15/2019
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55,408
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609,484
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(4)
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0.078
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10/15/2020
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John A. Babcock
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152,820
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50,940
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(5)
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0.407
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01/21/2017
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85,922
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189,027
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(3)
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0.078
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10/15/2019
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357,032
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(6)
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0.078
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10/15/2020
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Harry Friske
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45,537
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(7)
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0.078
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|
|
01/01/2020
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45,537
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(6)
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0.078
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10/15/2020
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Bhupendra Soni
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62,020
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(8)
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0.407
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12/02/2016
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51,008
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112,219
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(3)
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0.078
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10/15/2019
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William M. Bierhaus II
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338,034
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(9)
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0.078
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4/1/2020
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70
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(1) |
|
Except as otherwise noted, the options reflected in the table
above vest over a period of four years, with 25% of the shares
vesting on the first anniversary of the grant date and an
additional 1/36th of the shares vesting on the last day of each
of the first 36 calendar months after the first anniversary. |
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(2) |
|
The date of award was March 1, 2007. These options vested
over a three year period with 1/36th of the shares vesting on
the last day of each of the 36 calendar months after the grant
date. |
|
(3) |
|
The date of award was October 15, 2009. These options vest
over a three year period with 1/36th of the shares vesting on
the last day of each of the 36 calendar months after the grant
date. |
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(4) |
|
The date of award was October 15, 2010. These options vest
over a three year period with 1/36th of the shares vesting on
the last day of each of the 36 calendar months after the grant
date. |
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(5) |
|
The date of award was January 21, 2007. |
|
(6) |
|
The date of award was October 15, 2010. |
|
(7) |
|
The date of award was January 1, 2010. |
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(8) |
|
The date of award was December 2, 2006. |
|
(9) |
|
The date of award was April 1, 2010. |
Option
Exercises and Stock Vested
The following table sets forth certain information regarding
stock options and restricted stock awards exercised and vested,
respectively, during 2010:
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|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
|
Acquired on
|
|
Realized on
|
|
Acquired on
|
|
Realized on
|
|
|
Exercise
|
|
Exercise
|
|
Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)(2)
|
|
Stuart M. Page
|
|
|
|
|
|
$
|
|
|
|
|
14,720
|
(1)
|
|
$
|
1,148
|
|
John A. Babcock
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|
|
|
|
|
|
|
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|
12,424
|
(3)
|
|
|
969
|
|
Harry Friske
|
|
|
|
|
|
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|
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|
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|
|
|
|
Bhupendra Soni
|
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|
William M. Bierhaus II
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(1) |
|
Vesting occurred on February 28, 2010. |
|
(2) |
|
Represents the value of the shares based upon an
October 15, 2009 third party valuation of $0.078 per share
of our common stock, which was the latest valuation prior to the
date of vesting. |
|
(3) |
|
Vesting occurred on December 19, 2010. |
Pension
Benefits
None of our named executive officers participates in or has
account balances in qualified or non-qualified defined benefit
plans sponsored by us.
Nonqualified
Deferred Compensation
None of our named executive officers participates in or has
account balances in non-qualified defined contribution plans or
other deferred compensation plans maintained by us.
Employment
Arrangements with Named Executive Officers
Stuart
M. Page
We are party to an employment agreement with our chief executive
officer, Stuart M. Page, dated March 1, 2007.
Mr. Pages initial annual base salary was set at
$275,004, subject to increase from time to
71
time. The employment agreement also provided for certain initial
option and restricted stock awards, all of which have since
vested.
If we terminate Mr. Pages employment without
cause or Mr. Page terminates his employment
with us for good reason, he is entitled to
(i) continued base salary payments for twelve months,
(ii) continued medical benefits for twelve months and
(iii) continued vesting of any unvested shares and options
granted to him at the time he became an employee for an
additional six month period after his termination. If we
terminate Mr. Pages employment for cause
or if Mr. Page terminates his employment with us without
good reason, Mr. Page will not be entitled to
receive any payment from us other than the portion of his base
salary that is earned but unpaid.
For this purpose, cause is defined as any of the
following: (i) the commission of any act of fraud or
embezzlement by Mr. Page; (ii) any unauthorized use or
disclosure by Mr. Page of any of our material confidential
information or trade secrets; (iii) Mr. Pages
indictment for, conviction of, or plea of no contest with
respect to any felony violation or any crime of moral turpitude
or dishonesty; (iv) Mr. Pages unauthorized
absence from work for reasons other than illness or legally
protected leave of absence; (v) Mr. Pages
substance abuse or other misconduct that in any manner
materially interferes with the performance of his duties on
behalf of us; (vi) any failure or refusal by Mr. Page
to perform his duties in an acceptable manner or to follow the
lawful and proper directives of our board of directors that are
within the scope of his duties in each case after a reasonable
notice and cure period not less than 15 days; or
(vii) any other misconduct by Mr. Page that adversely
affects our business or affairs after a reasonable notice and
cure period not less than 15 days.
For this purpose, good reason is defined as
Mr. Pages voluntary resignation within six months
following: (i) a change in his position with us that
materially reduces his duties and responsibilities; (ii) a
reduction in Mr. Pages base salary by more than 5%,
other than a reduction that, by resolution of our board of
directors including Mr. Pages consent, is applicable
to all of our executive officers generally; or (iii) a
relocation of his principal place of employment by more than
seventy-five miles without his consent; provided and only if any
such change, reduction or relocation is effected by us without
Mr. Pages consent.
If an acceleration event occurs, options granted to
Mr. Page at the time of the commencement of his employment
and in connection with prior third party financings will
accelerate and vest in full. As of December 31, 2010, there
were outstanding 1,206,069 unvested options held by
Mr. Page that would be subject to acceleration upon the
occurrence of an acceleration event. For this
purpose, acceleration event is defined as
(i) the sale of all or substantially all of our assets on a
consolidated basis to an unrelated person or entity or
(ii) a merger, reorganization or consolidation in which the
outstanding shares of our stock are converted into or exchanged
for securities of the successor entity and the holders of our
outstanding voting power immediately prior to such transaction
do not own at least a majority of the outstanding voting power
of the successor entity immediately upon completion of such
transaction.
If Mr. Pages employment is terminated for any reason,
he is subject to: ongoing confidentiality and non-disclosure
obligations; restrictive covenants of non-solicitation of
employees for a period of two years from his termination date
and non-solicitation of customers for a period of one year from
his termination date; and restrictive covenants of
non-competition for a period of nine months from his termination
date if Mr. Page resigns or is terminated for cause or six
months from his termination date following our termination of
his employment for any other reason.
John
A. Babcock
Mr. Babcocks employment with us terminated on December 9,
2011. We are party to an employment agreement with
Mr. Babcock dated December 5, 2005.
Mr. Babcocks initial annual base salary was set at
$170,000, subject to increase from time to time. The employment
agreement also provided for certain initial restricted stock
awards, all of which have since vested.
If we terminate Mr. Babcocks employment without
cause or Mr. Babcock terminates his employment
with us for good reason, he is entitled to continue
to vest in any unvested restricted stock awards initially
72
awarded to him at the time of his employment for an additional
six month period. As of December 31, 2010, all such
restricted stock awards have vested. If we terminate
Mr. Babcocks employment for cause or if
Mr. Babcock terminates his employment with us without
good reason, Mr. Babcock will not be entitled
to receive any payment from us other than the portion of his
base salary that is earned but unpaid.
For this purpose, cause has the same definition as
in Mr. Pages employment agreement. For this purpose,
good reason is defined as Mr. Babcocks
voluntary resignation within six months following: (i) a
change in his position with us that materially reduces his
duties and responsibilities; (ii) a reduction in
Mr. Babcocks base salary by more than 20%, other than
a reduction that is applicable to all of our executive officers
generally; or (iii) a relocation of his principal place of
employment by more than seventy-five miles without his consent;
provided and only if any such change, reduction or relocation is
effected by us without Mr. Babcocks consent. Before
Mr. Babcock resigns for good reason he is
required to give us at least fifteen days notice of his intent
to resign and an opportunity for us to cure the basis for the
claim of good reason.
Mr. Babcock is subject to: ongoing confidentiality and
non-disclosure obligations; and restrictive covenants of
non-solicitation of employees for a period of two years from his
termination date and non-solicitation of customers for a period
of one year from his termination date.
Harry
Friske
We are party to an employment agreement with Mr. Friske
dated December 10, 2009, which was superseded by an
agreement dated August 12, 2011. In his 2009 agreement,
Mr. Friskes initial annual base salary was set at
$81,000, subject to increase from time to time. In his 2011
agreement, Mr. Friskes initial annual base salary was
set at $200,000.
Mr. Friskes 2011 agreement provides that he is
entitled to a $15,000 performance bonus for his contribution to
our initial public offering process upon the first to occur of
February 12, 2012, the successful completion of this
offering or termination without cause.
If we terminate Mr. Friskes employment without
cause, he is entitled to an amount equal to one-half
of six months salary to be paid over a six month period on
regular payroll dates and the extension of all benefits during
that six month period. If we terminate Mr. Friskes
employment for cause, Mr. Friske will not be
entitled to receive any payment from us other than the portion
of his base salary that is earned but unpaid. For this purpose,
cause has the same definition as in
Mr. Pages employment agreement.
If Mr. Friskes employment is terminated for any
reason, he is subject to: ongoing confidentiality and
non-disclosure obligations; restrictive covenants of
non-solicitation of employees for a period of two years from his
termination date and non-solicitation of customers for a period
of nine months from his termination date if Mr. Friske
resigns or is terminated for cause or six months from his
termination date following our termination of his employment for
any reason other than cause; and restrictive covenants of
non-competition for a period of nine months from his termination
date if Mr. Friske resigns or is terminated for cause or
six months from his termination date following our termination
of his employment for any other reason.
Bhupendra
Soni
Mr. Sonis employment with us terminated effective
July 1, 2011. Prior to June 30, 2011, we were party to
an employment agreement with Mr. Soni dated
November 21, 2006. This agreement was replaced by a release
and severance agreement which governed Mr. Sonis
employment with us from January 7, 2011 through the date of
his termination.
In the 2006 employment agreement, Mr. Sonis initial
annual base salary was set at $195,000, subject to increase from
time to time. The employment agreement also provided for certain
initial option awards. At the time of Mr. Sonis
employment termination, he had a total of 225,247 options
outstanding. Effective July 5, 2011, Mr. Soni
exercised 133,432 of those options and the remaining options
were forfeited.
Mr. Sonis 2006 employment agreement provided that a
termination of his employment without cause or if he
terminated his employment with us for good reason,
he was entitled to continued base salary
73
payments for three months, to be paid on regular payroll date.
If we terminated Mr. Sonis employment for
cause or if Mr. Soni terminated his employment
with us without good reason, Mr. Soni would not
have been entitled to receive any payment from us other than the
portion of his base salary that is earned but unpaid.
For this purpose, cause had a similar definition as
in Mr. Pages employment agreement. For this purpose,
good reason was defined as Mr. Sonis
voluntary resignation within six months following: (i) a
reduction in Mr. Sonis base salary by more than 20%,
other than a reduction that is applicable to all of our
executive officers generally; or (ii) a relocation of his
principal place of employment by more than one hundred miles
without his consent; provided and only if any such reduction or
relocation is effected by us without Mr. Sonis
consent.
Pursuant to the terms of Mr. Sonis release and
severance agreement, we agreed to pay him $8,125 per month
through June 30, 2011, plus an additional $1,000 for
executing a general release and waiver. Mr. Soni agreed to
work for us from January 7, 2011 through June 30, 2011
on a part-time basis. We agreed to continue to provide
Mr. Soni with continued medical benefits and benefits
generally available to our employees through his termination
date. Mr. Soni also retained his employee status under our
2006 Plan through the date of his termination.
Mr. Soni is subject to: ongoing confidentiality and
non-disclosure obligations; restrictive covenants of
non-solicitation of employees for a period of two years from his
termination date and non-solicitation of customers for a period
of one year from his termination date; and restrictive covenants
of non-competition for a period of six months from his
termination date.
William
M. Bierhaus II
We are party to an employment agreement with Mr. Bierhaus
dated March 5, 2010. Mr. Bierhaus initial annual
base salary was set at $220,000, subject to increase from time
to time. The employment agreement also provides that
Mr. Bierhaus would receive a 10% commission from all sales
during his first year of employment. This commission rate will
be reviewed by us annually and has since been lowered to 6% of
sales generally and 8% of sales for some existing customers. The
employment agreement also provides for an initial grant of
338,034 options to Mr. Bierhaus which were granted on
April 1, 2010.
If we terminate Mr. Bierhaus employment without
cause, he is entitled to continued base salary
payments for six months, to be paid on regular payroll dates. If
we terminate Mr. Bierhaus employment for
cause, Mr. Bierhaus will not be entitled to
receive any payment from us other than the portion of his base
salary that is earned but unpaid. For this purpose,
cause has the same definition as in
Mr. Pages employment agreement.
If Mr. Bierhaus employment is terminated for any
reason, he is subject to: ongoing confidentiality and
non-disclosure obligations; restrictive covenants of
non-solicitation of employees for a period of two years from his
termination date and non-solicitation of customers for a period
of nine months from his termination date if Mr. Bierhaus
resigns or is terminated for cause or six months from his
termination date following our termination of his employment for
any reason other than cause; and restrictive covenants of
non-competition for a period of nine months from his termination
date if Mr. Bierhaus resigns or is terminated for cause or
six months from his termination date following our termination
of his employement for any other reason.
Payments
Upon Termination or Upon Change in Control
The following table sets forth information concerning the
payments that would be received by each of our named executive
officers upon a termination of their employment without cause or
for good reason. The table assumes the termination occurred on
December 31, 2010 and uses the fair value of $0.078 for
each share of our common stock as of that date. The table only
shows additional amounts that the named executive officers
74
would be entitled to receive upon termination and does not show
other items of compensation that may be earned and payable at
such time such as earned but unpaid base salary.
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Severance Payment
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and Benefits
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Continuation Upon
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Accelerated
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Termination Without
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Vesting of Options
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Cause or for Good
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Upon a
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Name
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Reason
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Change of Control
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Stuart M. Page
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$
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306,420
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(1)
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$
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(5)
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John A. Babcock
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Harry Friske
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53,210
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(2)
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Bhupendra Soni
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48,750
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(3)
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William M. Bierhaus II
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110,000
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(4)
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(1) |
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Consists of one year of base salary and one year of continued
medical benefits. |
|
(2) |
|
Only in the case of termination of his employment without cause,
consists of one-half of six months of base salary to be paid
over a six-month period and six months of continued employee
benefits. |
|
(3) |
|
Consists of three months of base salary. For a description of
the amounts actually paid to Mr. Soni upon his termination
on June 30, 2011, see above under Employment
Arrangements with Named Executive Officers Bhupendra
Soni. |
|
(4) |
|
Only in the case of termination of his employment without cause,
consists of six months of base salary. |
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(5) |
|
Outstanding options as of December 31, 2010 are set forth
above under Outstanding Equity Awards at
2010 Year-End. As of December 31, 2010, the fair
market value of our common stock was equal to or less than the
exercise price of Mr. Pages options that are subject
to acceleration upon a change of control. |
Employee
Benefit Plans
2011
Omnibus Incentive Plan
Our board of directors has adopted, subject to the approval of
such adoption by our stockholders, the Glori Energy, Inc. 2011
Omnibus Incentive Plan, or our 2011 Plan, effective
[ ,
2011]. Our 2011 Plan provides for the grant of options to
purchase our common stock, both incentive options that are
intended to satisfy the requirements of Section 422 of the
Internal Revenue Code and nonqualified options that are not
intended to satisfy such requirements, stock appreciation
rights, restricted stock, restricted stock units, performance
stock, performance units, other stock-based awards and certain
cash awards.
We have reserved for issuance under our 2011 Plan
[ ] shares
of our common stock.
Our employees are eligible to receive awards under our 2011
Plan. In addition, (1) the non-employee directors of our
company, (2) the consultants, agents, representatives,
advisors and independent contractors who render services to our
company and its affiliates that are not in connection with the
offer and sale of our companys securities in a capital
raising transaction and do not directly or indirectly promote or
maintain a market for our companys securities and
(3) other persons designated by our board of directors,
will be eligible to receive awards settled in shares of our
common stock, other than incentive stock options, under our 2011
Plan.
Our board of directors will administer our 2011 Plan with
respect to awards to non-employee directors, and our
compensation committee will administer our 2011 Plan with
respect to awards to employees and other non-employee service
providers other than non-employee directors. In administering
awards under our 2011 Plan, our board of directors or the
compensation committee, as applicable (the
committee), has the power to determine the terms of
the awards granted under our 2011 Plan, including the exercise
price, the number of shares subject to each award and the
exercisability of the awards. The committee also has full power
to determine the persons to whom and the time or times at which
awards will be made and to make all other determinations and
take all other actions advisable for the administration of the
plan.
75
Under our 2011 Plan, the committee may grant:
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options to acquire our common stock. The exercise price of
options granted under our 2011 Plan must at least be equal to
the fair market value of our common stock on the date of grant
and the term of an option may not exceed ten years, except that
with respect to an incentive option granted to any employee who
owns more than 10% of the voting power of all classes of our
outstanding stock as of the grant date, the term must not exceed
five years and the exercise price must equal at least 110% of
the fair market value on the grant date;
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stock appreciation rights, or SARs, which allow the recipient to
receive the appreciation in the fair market value of our common
stock between the exercise date and the date of grant. The
amount payable under the stock appreciation right may be paid in
cash or with shares of our common stock, or a combination
thereof, as determined by the committee;
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restricted stock, which are awards of our shares of common stock
that vest in accordance with terms and conditions established by
the committee; and
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restricted stock units, which are awards that are based on the
value of our common stock and may be paid in cash or in shares
of our common stock.
|
Under our 2011 Plan, the committee may also grant performance
stock, performance unit and annual cash incentive awards.
Performance stock and performance units are awards that will
result in a payment to a participant only if performance goals
established by the committee are achieved or the awards
otherwise vest. It is intended that our 2011 Plan will conform
with the standards of Section 162(m) of the Internal
Revenue Code with respect to individuals who are classified as
covered employees under Section 162(m). The
committee will establish organizational or individual
performance goals which, depending on the extent to which they
are met, will determine the number and the value of performance
stock, performance units and annual cash incentive awards to be
paid out to participants. Payment under performance unit awards
may be made in cash or in shares of our common stock with
equivalent value, or some combination of the two, as determined
by the committee.
The amount of, the vesting and the transferability restrictions
applicable to any performance stock or performance unit award
will be based upon the attainment of such performance goals as
the committee may determine. A performance goal will be based on
one or more of the following business criteria: earnings per
share, earnings per share growth, total stockholder return,
economic value added, cash return on capitalization, increased
revenue, revenue ratios, per employee or per customer, net
income, stock price, market share, return on equity, return on
assets, return on capital, return on capital compared to cost of
capital, return on capital employed, return on invested capital,
stockholder value, net cash flow, operating income, earnings
before interest and taxes, cash flow, cash flow from operations,
cost reductions, cost ratios, per employee or per customer,
proceeds from dispositions, project completion time and budget
goals, net cash flow before financing activities, customer
growth and total market value.
Awards may be granted under our 2011 Plan in substitution for
stock options and other awards held by employees of other
corporations who are about to become employees of our company or
any of our subsidiaries. The terms and conditions of the
substitute awards granted may vary from the terms and conditions
set forth in our 2011 Plan to the extent our board of directors
may deem appropriate.
The existence of outstanding awards will not affect in any way
the right or power of our company to make any adjustments,
recapitalizations, reorganizations or other changes in our
companys capital structure or its business. If our company
shall effect a capital readjustment or any increase or reduction
of the number of shares of our common stock outstanding, without
receiving compensation therefor in money, services or property,
then the number and per share price of our common stock subject
to outstanding awards under our 2011 Plan shall be appropriately
adjusted.
76
If we are not the surviving entity in any merger, consolidation
or other reorganization; if we sell, lease or exchange or agree
to sell, lease or exchange all or substantially all of our
assets; if we are to be dissolved; or if we are a party to any
other corporate transaction, then the committee may:
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accelerate the time at which some or all of the awards then
outstanding may be exercised, after which all such awards that
remain unexercised shall terminate;
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require the mandatory surrender to our company of some or all of
the then outstanding options and stock appreciation rights as of
a date, in which event the committee will then cancel such award
and our company will pay to each such holder an amount of cash
per share equal to the excess, if any, of the per share price
offered to stockholders of our company in connection with such
transaction over the exercise or grant price under such award
for such shares;
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have some or all outstanding awards assumed or have a new award
of a similar nature substituted for some or all of the then
outstanding awards;
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provide that the number of our shares of common stock covered by
an award will be adjusted so that such award when exercised will
then cover the number and class or series of our common stock or
other securities or property to which the holder of such award
would have been entitled pursuant to the terms of the agreement
or plan relating to such transaction if the holder of such award
had been the holder of record of the number of shares of our
common stock then covered by such award; or
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make such adjustments to awards then outstanding as the
committee deems appropriate to reflect such transaction.
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After a merger involving our company, each holder of a
restricted stock award granted under our 2011 Plan shall be
entitled to have his or her restricted stock appropriately
adjusted based on the manner in which the shares of our common
stock were adjusted under the terms of the agreement of merger.
Awards under our 2011 Plan will be designed, granted and
administered in such a manner that they are either exempt from,
or comply with, the requirements of Section 409A of the
Internal Revenue Code.
Our board of directors may alter, amend or terminate our 2011
Plan, and the committee may alter, amend or terminate any award
agreement in whole or in part; however, no termination,
amendment or modification shall adversely affect in any material
way any award previously granted, without the written consent of
the holder.
No awards may be granted under our 2011 Plan on or after the
tenth anniversary of the effective date of our 2011 Plan, unless
our 2011 Plan is subsequently amended, with the approval of
stockholders, to extend the termination date.
2006
Stock Option and Grant Plan
Our board of directors adopted, and our stockholders approved,
the Glori Oil Limited Amended and Restated 2006 Stock Option and
Grant Plan, or our 2006 Plan. In December 2010, our 2006 Plan
was amended to increase the maximum number of shares reserved
for issuance under the 2006 Plan by 900,000. Our 2006 Plan
allows for the grant of options to purchase our common stock,
both incentive options that are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code
and nonqualified options, restricted stock awards and
unrestricted stock awards. Awards under our 2006 Plan may be
granted to our officers, employees, directors and other key
persons (including consultants and prospective employees). Our
compensation committee administers our 2006 Plan and makes all
awards under the plan, which awards are then confirmed by our
board of directors.
We will not issue any new awards under our 2006 Plan after the
completion of this offering. The terms of our 2006 Plan, and the
applicable award agreements, will continue to govern any
outstanding awards issued under the plan. No awards have been
issued under our 2006 Plan other than options to purchase our
common stock and restricted stock. We do not intend to issue any
new awards under our 2006 Plan prior to the completion of this
offering other than additional options to purchase our common
stock.
77
We have reserved for issuance under our 2006 Plan
5,453,740 shares of our common stock. As of
September 30, 2011, options to purchase a total of
4,231,539 shares of our common stock were issued and
outstanding under our 2006 Plan, and a total of
158,932 shares of our common stock had been issued upon the
exercise of options granted under our 2006 Plan that had not
been repurchased by us.
Our board of directors has the authority to determine the terms
and conditions of the awards granted under our 2006 Plan.
Our 2006 Plan provides that in the event of a sale
event, which term includes a sale of substantially all of
our assets, an acquisition of a controlling amount of our
outstanding shares and our dissolution or liquidation, the 2006
Plan and all options issued thereunder will be terminated at the
effective time of the sale event, unless provision is made in
connection with the sale event in the sole discretion of the
parties to the sale event for the assumption or continuation of
the options by the successor entity or the substitution of the
options with new options of the successor entity. In the event
of the termination of the 2006 Plan and the options, each holder
of options shall be permitted, within a specified period of time
prior to the consummation of the sale event as determined by our
board of directors, to exercise all options which are then
exercisable or will become exercisable as of the effective time
of the sale event. In addition, in the event of a sale event
pursuant to which our stockholders would receive a cash payment
for shares surrendered in the sale event, we will have the right
but not the obligation to make or provide for a cash payment to
a holder of an option in exchange for the cancellation of such
option an amount equal to the difference between the amount
payable to a holder of a share of our common stock as a result
of the sale event and the exercise price to acquire a share
under the option.
The price at which shares of our common stock may be purchased
under an option shall be determined by our board of directors,
but such price may not be less than the fair market value of the
shares on the date the option is granted or 110 percent of
the fair market value of the shares on the date the option is
granted if an employee owns (by reason of the attribution rules
of Section 424(d) of the Internal Revenue Code) more than
ten percent of the combined voting power of all classes of our
stock and an incentive stock option is granted to such employee.
Options granted under the 2006 Plan vest and become exercisable
as determined by our board of directors and provided in the
applicable award agreement. An option issued under our 2006 Plan
generally expires on the tenth anniversary of the date the
option is granted, unless terminated earlier.
After termination of a grantees service to us and our
affiliates, he or she may exercise the vested portion of his or
her option for the period of time stated in the option agreement.
A grantee shall not have any rights as a stockholder with
respect to our common stock covered by an option until the date
a stock certificate for such common stock is issued by us.
Limitation
on Liability and Indemnification Matters
Our post-offering certificate of incorporation contains
provisions that limit the liability of our directors for
monetary damages to the fullest extent permitted by Delaware
law. Consequently, our directors will not be personally liable
to us or our stockholders for monetary damages for any breach of
fiduciary duties as directors, except liability for:
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any breach of the directors duty of loyalty to us or our
stockholders;
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any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
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any transaction from which the director derived an improper
personal benefit.
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Our post-offering certificate of incorporation and post-offering
bylaws provide that we are required to indemnify our directors
and officers, in each case to the fullest extent permitted by
Delaware law. Our post-
78
offering bylaws also provide that we are obligated to advance
expenses incurred by a director or officer in advance of the
final disposition of any action or proceeding, and permit us to
secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions
in that capacity regardless of whether we would otherwise be
permitted to indemnify him or her under the provisions of
Delaware law. We have entered or expect to enter into agreements
to indemnify our directors, executive officers and other
employees as determined by our board of directors. With
specified exceptions, these agreements provide for
indemnification for related expenses including, among other
things, attorneys fees, judgments, fines and settlement
amounts incurred by any of these individuals in any action or
proceeding. We believe that these bylaw provisions and
indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. We also maintain
directors and officers liability insurance.
The limitation of liability and indemnification provisions in
our post-offering certificate of incorporation and our
post-offering bylaws may discourage stockholders from bringing a
lawsuit against our directors and officers for breach of their
fiduciary duty. They may also reduce the likelihood of
derivative litigation against our directors and officers, even
though an action, if successful, might benefit us and other
stockholders. Further, a stockholders investment may be
adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is
sought, and we are not aware of any threatened litigation that
may result in claims for indemnification.
79
RELATED
PARTY TRANSACTIONS
Since January 1, 2008, there has not been, nor is there
currently proposed, any transaction or series of similar
transactions to which we were or are a party in which the amount
involved exceeded or exceeds $120,000 and in which any of our
directors, executive officers, holders of more than 5% of any
class of our voting securities or any member of the immediate
family of any of the foregoing persons had or will have a direct
or indirect material interest, other than compensation
arrangements with directors and executive officers, which are
described under Management and Executive
Compensation and the transactions described below.
Preferred
Stock Issuances
Issuance
of Series A Preferred Stock
Between November 2006 and September 2008, we sold an aggregate
of 47,554,100 shares of series A preferred stock at a
price of $0.2208 per share for gross proceeds of approximately
$10.5 million. On October 15, 2009, we effected a 100
to 1 reverse stock split on our series A preferred stock.
The table below sets forth the number of shares of series A
preferred stock sold to our directors, executive officers and 5%
stockholders and their affiliates, after giving effect to such
reverse stock split:
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Number of Shares of
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Aggregate
|
Investor
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Series A Preferred Stock
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Purchase Price
|
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GTI Glori Oil Fund I L.P.(1)
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271,738
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$
|
6,000,000
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KPCB Holdings, Inc.
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181,159
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4,000,000
|
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|
(1) |
|
269,474 shares of series A preferred stock were sold
to GTI Glori Oil Fund I L.P. 2,264 shares of
series A preferred stock were sold to GTI Ventures LLC,
which is the general partner of GTI Co-Investment L.P., which is
the general partner of GTI Glori Oil Fund I L.P. Michael
Schulhof, one of our directors, is a managing director of GTI
Capital Group, and Jonathan Schulhof, our chairman of the board,
is a managing partner of GTI Capital Group. GTI Capital Group is
managed by GTI Holdings LLC and three other partners. GTI
Holdings LLC is owned by Michael Schulhof and Jonathan Schulhof
and GTI Holdings LLC is the managing member of GTI Ventures LLC. |
Issuance
of Series B Preferred Stock
Between October 2009 and May 2011, we sold an aggregate of
2,901,052 shares of series B preferred stock at a
price of $5.5216 per share for gross proceeds of approximately
$16.0 million. The table below sets forth the number of
shares of series B preferred stock sold to our directors,
executive officers and 5% stockholders and their affiliates:
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Number of Shares of
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Aggregate
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Investor
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Series B Preferred Stock
|
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Purchase Price
|
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Oxford Bioscience Partners V L.P.(1)
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770,539
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$
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4,254,621
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Rawoz Technology Company Ltd.(2)
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769,703
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4,250,000
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Malaysian Life Sciences Capital Fund Ltd.(3)
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543,320
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3,000,000
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KPCB Holdings, Inc.
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363,553
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2,007,397
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Energy Technology Ventures, LLC
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271,660
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1,499,997
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GTI Glori Oil Fund I L.P.(4)
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182,277
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1,006,473
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(1) |
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753,557 and 16,982 shares of series B preferred stock
were sold to Oxford Bioscience Partners V L.P. and mRNA
Fund V L.P., respectively. Matthew Gibbs is one of our
directors and is the general partner of OBP Management V L.P.,
which is the general partner of Oxford Bioscience Partners V
L.P. and mRNA Fund V L.P. |
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(2) |
|
Jasbir Singh is one of our directors and is an executive
director of Omar Zawawi Establishment (OMZEST) Group, an entity
owned by the same stockholders that own Rawoz Technology Company
Ltd. |
80
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(3) |
|
Ganesh Kishore is one of our directors and is the chief
executive officer of Malaysian Life Sciences Capital
Fund Ltd. |
|
(4) |
|
180,759 shares of series B preferred stock were sold
to GTI Glori Oil Fund I L.P. 1,518 shares of
series B preferred stock were sold to GTI Ventures LLC,
which is the general partner of GTI Co-Investment L.P., which is
the general partner of GTI Glori Oil Fund I L.P. Michael
Schulhof, one of our directors, is a managing director of GTI
Capital Group, and Jonathan Schulhof, our chairman of the board,
is a managing partner of GTI Capital Group. GTI Capital Group is
managed by GTI Holdings LLC and three other partners. GTI
Holdings LLC is owned by Michael Schulhof and Jonathan Schulhof
and GTI Holdings LLC is the managing member of GTI Ventures LLC. |
Convertible
Promissory Note
In conjunction with the sale of series B preferred stock to
ETV in May 2011, we sold to ETV the ETV Note, which is a
convertible promissory note in the principal sum of
$1.5 million maturing in November 2012, subject to
extension, bearing interest at a fixed rate of 8%. Upon the
closing of this offering and in payment of the ETV Note, ETV may
elect to (i) receive payment from us of an amount in cash
equal to the principal outstanding under the ETV Note, plus all
accrued and unpaid interest thereon or (ii) convert the ETV
Note into a number of shares of our common stock equal to the
quotient obtained by dividing the principal outstanding under
the ETV Note, plus all accrued and unpaid interest thereon, by a
price per share that is currently estimated at $2.44.
Board of
Directors
Prior to the completion of this offering, the holders of our
preferred stock have contractual rights to appoint six members
of our board of directors as described under
Management Composition of the Board of
Directors. This right terminates upon completion of this
offering. Some of these appointees will remain on our board
following this offering as described under
Management, but there will not be any contractual
obligation to retain these appointees as directors following
this offering.
Registration
Rights
Some of our existing stockholders, including entities with which
certain of our directors are affiliated, have registration
rights with respect to stock that they hold beginning
180 days after the date of this prospectus. For a
description of these registration rights, see Description
of Capital Stock Registration Rights.
Stock and
Stock Options Granted to and Employment Arrangements with
Directors and Executive Officers
For a description of the grant of stock and stock options to
directors and executive officers and employment arrangements
with our executive officers, see Management
Director Compensation for the Year Ended December 31,
2010 and Executive Compensation.
Indemnification
Agreements
We have entered or expect to enter into indemnification
agreements with each of our current directors and executive
officers. These agreements require us to indemnify these
individuals to the fullest extent permitted under Delaware law
against liabilities that may arise by reason of their service to
us and to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
We also intend to enter into similar indemnification
arrangements with our future directors and executive officers.
Principal
Stockholders
We are currently controlled by Oxford, Rawoz, GTI, KPCB, MLSCF
and ETV. As of September 30, 2011, excluding beneficial
ownership of warrants, GTI owned 20.1% of our outstanding voting
power, Oxford owned 18.3%, Rawoz owned 18.2%, KPCB owned 17.8%,
MLSCF owned 12.9% and ETV owned 6.4%.
81
Effective upon the completion of this offering, all of our
outstanding shares of preferred stock of all classes and accrued
and unpaid dividends on our series A and series B
preferred stock will automatically convert into shares of our
common stock. There will be no shares of preferred stock of any
class outstanding upon completion of this offering. The
following table sets forth as of September 30, 2011 the
number of shares of our common stock that each of our principal
stockholders will receive in connection with this offering:
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Shares of Our
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Common Stock
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Received in Connection
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Principal Stockholder
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with the Offering(1)
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Oxford
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8,730,900
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Rawoz
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8,721,135
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GTI
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8,472,551
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KPCB
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8,339,605
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MLSCF
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6,156,098
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ETV
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3,420,875
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(2)
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(1) |
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Represents the number of shares of our common stock issuable
upon the conversion of all of our outstanding shares of
preferred stock held by the principal stockholder and accrued
and unpaid dividends on such preferred stock, subject to
additional shares of our common stock being issuable for each
day after September 30, 2011 and before this offering
is completed for the daily accrual of unpaid dividends on our
preferred stock and the quarterly compounding of such dividends,
which dividends accrue at the rate of 4% for our series A
preferred stock and 8% for our series B preferred stock. |
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(2) |
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Also includes 631,274 shares of our common stock issuable
upon conversion of the ETV Note, subject to additional shares of
our common stock being issuable for each day after
September 30, 2011 for the daily accrual of interest. |
Procedures
for Related Party Transactions
Under our code of business conduct and ethics, our employees,
officers and directors are discouraged from entering into any
transaction that may cause a conflict of interest for us. In
addition, they must report any potential conflict of interest,
including related party transactions, to our chief executive
officer or chief financial officer who then is required to
review and summarize the proposed transaction for our board of
directors. Pursuant to its charter, our audit committee must
approve any related-party transactions, including those
transactions involving our directors. In approving or rejecting
such proposed transactions, the audit committee is charged with
considering the relevant facts and circumstances available and
deemed relevant to the audit committee, including the material
terms of the transactions, risks, benefits, costs, availability
of other comparable services or products and, if applicable, the
impact on a directors independence. Our audit committee
will approve only those transactions that, in light of known
circumstances, are in, or are not inconsistent with, our best
interests, as our audit committee determines in the good faith
exercise of its discretion. A copy of our code of business
conduct and ethics and audit committee charter may be found at
our corporate website www.glorienergy.com upon the
completion of this offering.
82
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of our common stock as of
September 30, 2011 by:
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each person who beneficially owns more than 5% of the
outstanding shares of our common stock;
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each of our executive officers named in the Summary Compensation
Table;
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each of our directors; and
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all directors and executive officers as a group.
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Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to the shares. Common stock subject to options that are
currently exercisable or exercisable within 60 days of
September 30, 2011 are deemed to be outstanding and
beneficially owned by the person holding the options. These
shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of any other person.
Percentage of shares outstanding is based on
[ ] shares
of our common stock, which comprises and assumes the following:
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2,999,592 shares of our common stock outstanding as of
September 30, 2011;
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the conversion, which will occur upon the closing of this
offering, of all of our outstanding shares of preferred stock
and accrued and unpaid dividends on our preferred stock into an
aggregate of 43,734,720 shares of our common stock, subject
to additional shares of our common stock being issuable for each
day after September 30, 2011 and before this offering is
completed for the daily accrual of unpaid dividends on our
preferred stock and the quarterly compounding of such dividends,
which dividends accrue at the rate of 4% for our series A
preferred stock and 8% for our series B preferred stock;
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the conversion, which will occur upon the closing of this
offering, of the ETV Note into 631,274 shares of our common
stock, subject to additional shares of our common stock being
issuable for each day after September 30, 2011 for the
daily accrual of interest; and
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the
[ ]-to-one
reverse split of our common stock on
[ ,
2011].
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83
Unless otherwise indicated to our knowledge, all persons named
in the table have sole voting and investment power with respect
to their shares of common stock, except to the extent authority
is shared by spouses under applicable law. Unless otherwise
indicated, the address for each listed stockholder is
c/o Glori Energy
Inc., 4315 South Drive, Houston, Texas 77053.
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Number of Shares Beneficially Owned
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Percentage of Shares Outstanding
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After Offering
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After Offering
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After Offering
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After Offering
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Assuming No
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Assuming Full
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Assuming No
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Assuming Full
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Exercise of
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Exercise of
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Exercise of
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Exercise of
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Over-
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Over-
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Over-
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Over-
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Before
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Allotment
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Allotment
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Before
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Allotment
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Allotment
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Name of Beneficial Owner
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Offering
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Option
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Option
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Offering
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Option
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Option
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5% Stockholders
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GTI Glori Oil Fund I L.P.
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10,282,664
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(1)
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21.3
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%
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%
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Oxford Bioscience Partners V L.P.
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8,730,900
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(2)
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18.4
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Rawoz Technology Company Ltd.
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8,721,135
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(3)
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18.4
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KPCB Holdings, Inc.
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8,339,605
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(4)
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17.6
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Malaysian Life Sciences Capital Fund Ltd.
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6,156,098
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(5)
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13.0
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Energy Technology Ventures, LLC
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3,420,875
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(6)
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7.2
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Named Executive Officers:
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Stuart M. Page
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1,523,560
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(7)
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3.1
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John A. Babcock
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505,779
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(8)
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1.1
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Harry Friske
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33,204
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(9)
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*
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William M. Bierhaus II
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133,805
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(10)
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*
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Bhupendra Soni
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133,432
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*
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Non-Employee Directors:
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John Clarke
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*
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Matthew Gibbs
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8,730,900
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(11)
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18.4
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Ganesh Kishore
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6,156,098
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(12)
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13.0
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Mark Puckett
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*
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Jonathan Schulhof
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10,282,664
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(13)
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21.3
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Michael Schulhof
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10,282,664
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(14)
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21.3
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Jasbir Singh
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8,721,135
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(15)
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18.4
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All of our directors and executive officers as a group
(12 persons)
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36,185,398
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(16)
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71.9
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* |
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Indicates beneficial ownership of less than 1% of the total
outstanding common stock. |
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(1) |
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GTI Glori Oil Fund I L.P. owns 8,401,968 of the referenced
shares. GTI Ventures LLC, which owns 908,453 of the referenced
shares is the general partner of GTI Co-Investment L.P., which
is the general partner of GTI Glori Oil Fund I L.P. GTI
Holdings LLC is owned by Michael Schulhof and Jonathan Schulhof,
who exercise voting and investment control over the referenced
shares, and GTI Holdings LLC is the managing member of GTI
Ventures LLC. All such entities, Michael Schulhof and Jonathan
Schulhof disclaim beneficial ownership of such shares except to
the extent of their pecuniary interests in such shares. Includes
972,243 shares of common stock subject to a warrant held by
GTI Glori Oil Fund I L.P., which was exercisable within
60 days of September 30, 2011. |
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(2) |
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OBP Management V L.P. is the general partner of Oxford
Bioscience Partners V L.P. and mRNA Fund V L.P. Oxford
Bioscience Partners V L.P. owns 8,538,479 of the referenced
shares and mRNA Fund V L.P. owns 192,421 of the referenced
shares. Matthew Gibbs and Jonathan Fleming are the general
partners of OBP Management V L.P. All such entities,
Mr. Gibbs and Mr. Fleming disclaim beneficial ownership of
such shares except to the extent of their pecuniary interests in
such shares. |
|
(3) |
|
Rawoz Technology Company Ltd. owns the shares. Dr. Omar
Abdul Muniem Al Zawawi has the controlling interest in Rawoz
Technology Company Ltd. and has voting and investment power with
respect to |
84
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such shares. Jasbir Singh is one of our directors and is an
executive director of Omar Zawawi Establishment (OMZEST) Group,
an entity owned by the same stockholders that own Rawoz
Technology Company Ltd. Each of Mr. Singh and Mr. Al Zawawi
disclaim beneficial ownership of the shares owned by Rawoz
Technology Company Ltd. except to the extent of his pecuniary
interest. |
|
(4) |
|
Kleiner Perkins Caufield & Byers XII, LLC owns
7,441,983 of the referenced shares and KPCB XII Founders Fund,
LLC owns 118,706 of the referenced shares. The managing member
of Kleiner Perkins Caufield & Byers XII, LLC and KPCB
XII Founders Fund, LLC is KPCB XII Associates, LLC, which is
affiliated with Kleiner Perkins Caufield & Byers, a
venture capital firm. Brook Byers, John Doerr, Joseph Lacob,
Raymond Lane and Ted Schlein are the managers of KPCB XII
Associates, LLC and exercise shared voting and dispositive
control over the shares held by Kleiner Perkins
Caufield & Byers XII, LLC and KPCB XII Founders Fund,
LLC. Each manager of KPCB XII disclaims beneficial ownership of
such shares except to the extent of the managers pecuniary
interests in such shares. These 7,560,689 shares are held
for convenience in the name of KPCB Holdings, Inc.,
which also holds an additional 778,916 shares for the
accounts of such managers and other individuals and entities
that exercise their own voting and dispositive control over the
shares for their respective accounts. KPCB Holdings, Inc. has no
voting or dispositive power or pecuniary interest in any of such
778,916 shares. |
|
(5) |
|
Malaysian Life Sciences Capital Fund Ltd. owns the shares.
Malaysian Life Sciences Capital Fund Management Company
Ltd. is the manager of Malaysian Life Sciences Capital
Fund Ltd. The following individuals comprise an investment
committee of Malaysian Life Sciences Capital Fund Ltd.:
Steven Burrill, Dr. Roger Wyse, Dr. John Hamer,
Dr. Ganesh Kishore, Norhalim Yunus, Mariamah Daud and
Rashidan Shah Abdul Rahim. The members of the investment
committee exercise shared voting and dispositive control over
the shares held by Malaysian Life Sciences Capital
Fund Ltd. Mr. Kishore is also the chief executive
officer of Malaysian Life Sciences Capital Fund Ltd. Each
member of the investment committee disclaims beneficial
ownership of the shares owned by Malaysian Life Sciences Capital
Fund Ltd. except to the extent of the members
pecuniary interest. |
|
(6) |
|
Energy Technology Ventures, LLC is a joint venture between three
members: General Electric Capital Corporation, NRG Cleantech
Investments, LLC (a subsidiary of NRG Energy, Inc.) and
ConocoPhillips Company. Pursuant to the limited liability
company agreement governing the joint venture, the power to
direct the voting of the referenced shares and the dispositive
power with respect to the referenced shares rests with each of
the members. Each member or, in the case of NRG Cleantech
Investments, LLC, its parent company is a public company
ultimately controlled by its board of directors, the names and
identities of which are publicly available. Includes
631,274 shares of common stock reflecting the conversion of
the ETV Note by ETV into shares of our common stock upon the
closing of this offering. |
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(7) |
|
Includes 1,258,630 shares of common stock subject to
options which were exercisable on or within 60 days of
September 30, 2011. |
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(8) |
|
Includes 443,659 shares of common stock subject to options
which were exercisable on or within 60 days of
September 30, 2011. |
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(9) |
|
Consists of 33,204 shares of common stock subject to
options which were exercisable on or within 60 days of
September 30, 2011. |
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(10) |
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Consists of 133,805 shares of common stock subject to
options which were exercisable on or within 60 days of
September 30, 2011. |
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(11) |
|
Consists of 8,730,900 shares held by Oxford Bioscience
Partners V L.P. and mRNA Fund V L.P. as reflected in
footnote 3 above. Mr. Gibbs disclaims beneficial ownership
of such shares except to the extent of his pecuniary interests
in such shares. |
|
(12) |
|
Consists of 6,156,098 shares held by Malaysian Life
Sciences Capital Fund Ltd. as reflected in footnote 5
above. Mr. Kishore disclaims beneficial ownership of such
shares except to the extent of his pecuniary interests in such
shares. |
|
(13) |
|
Consists of 10,282,664 shares beneficially held by GTI
Glori Oil Fund I L.P. and GTI Ventures LLC as reflected in
footnote 1 above. Mr. J. Schulhof disclaims beneficial
ownership of such shares except to the extent of his pecuniary
interests in such shares. |
85
|
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(14) |
|
Consists of 10,282,664 shares beneficially held by GTI
Glori Oil Fund I L.P. and GTI Ventures LLC as reflected in
footnote 1 above. Mr. M. Schulhof disclaims beneficial
ownership of such shares except to the extent of his pecuniary
interests in such shares. |
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(15) |
|
Consists of 8,721,135 shares held by Rawoz Technology
Company Ltd. as reflected in footnote 4 above. Mr. Singh
disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests in such shares. |
|
(16) |
|
Includes the shares reflected in footnotes (7), (8),
(10) and (11) through (15). Also includes shares
beneficially owned by Thomas Ishoey, our chief technology
officer. |
86
DESCRIPTION
OF CAPITAL STOCK
General
The following is a summary of our capital stock and material
provisions of our post-offering certificate of incorporation and
post-offering bylaws relating to our capital stock. Copies of
our post-offering certificate of incorporation and post-offering
bylaws have been filed as exhibits to the registration statement
of which this prospectus is a part.
Following the closing of this offering, our authorized capital
stock will consist of
[ ] shares
of common stock, $0.0001 par value per share, and
[ ] shares
of undesignated preferred stock, $0.0001 par value per
share. As of September 30, 2011, we had outstanding
2,999,592 shares of common stock. Following the closing of
this offering, our outstanding common stock will include
(i) 43,734,720 shares of common stock that will be
outstanding as of the completion of this offering as a result of
the automatic conversion of each of our outstanding shares of
preferred stock of all series and accrued and unpaid dividends
on our preferred stock into 43,734,720 shares of our common
stock, subject to additional shares of our common stock being
issuable for each day after September 30, 2011 for the
daily accrual of unpaid dividends on our preferred stock and the
quarterly compounding of such dividends, which dividends accrue
at the rate of 4% for our series A preferred stock and 8%
for our series B preferred stock, and
(ii) 631,274 shares of our common stock that will be
outstanding as a result of the completion of this offering as a
result of the conversion of the ETV Note, into
631,274 shares of our common stock, subject to additional
shares of our common stock being issuable for each day after
September 30, 2011 for the daily accrual of interest. As of
September 30, 2011, we had 13 common stockholders of record.
Common
Stock
Dividend
Rights
Subject to preferences that may apply to shares of preferred
stock outstanding at the time, the holders of outstanding shares
of our common stock are entitled to receive dividends out of
assets legally available at the times and in the amounts that
our board of directors may determine from time to time.
Voting
Rights
Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of
stockholders. We have not provided for cumulative voting for the
election of directors in our post-offering certificate of
incorporation. This means that the holders of a majority of the
shares voted can elect all of the directors then standing for
election.
No
Preemptive, Conversion, Redemption or Sinking
Fund Rights
Our common stock is not entitled to preemptive rights and is not
subject to conversion or redemption or any sinking fund
provisions.
Right
to Receive Liquidation Distributions
Upon our liquidation, dissolution or
winding-up,
the holders of our common stock are entitled to share in all
assets remaining after payment of all liabilities and the
liquidation preferences of any outstanding preferred stock. Each
outstanding share of common stock is, and all shares of common
stock to be issued in this offering when they are paid for will
be, fully paid and nonassessable.
Preferred
Stock
Following the closing of this offering, our board of directors
will be authorized, subject to limitations imposed by Delaware
law, to issue up to a total of
[ ] shares
of preferred stock in one or more series, without stockholder
approval. Our board is authorized to establish from time to time
the number of shares to be included in each series of preferred
stock, and to fix the rights, preferences and privileges of the
shares of
87
each series of preferred stock and any of its qualifications,
limitations or restrictions. Our board can also increase or
decrease the number of shares of any series of preferred stock,
but not below the number of shares of that series of preferred
stock then outstanding, without any further vote or action by
the stockholders.
Registration
Rights
According to the terms of our Second Amended and Restated
Investors Rights Agreement, as amended, or the
Investors Rights Agreement, the stockholders named
therein, which include entities with which certain of our
directors are affiliated, are entitled to the demand, piggyback
and
Form S-3
registration rights described below.
Demand
Registration Rights
At any time following 180 days after the effective date of
the registration statement to which this prospectus relates,
holders of at least 30% of our series B preferred stock (or
shares of our common stock or other registrable securities
issuable upon conversion of our series B preferred stock),
have the right, under our Investors Rights Agreement, to
require that we register at least 20% of the shares of common
stock into which the series B preferred stock shall
convert. We are not required to effect more than two
registrations requested by these stockholders on
Form S-1
or any demand registration during any period that is
60 days before our good faith estimate of the date of
filing of, and ending on a date 180 days following the
effective date of, a registration statement initiated by us. In
addition, if it would be materially detrimental to us and our
stockholders for us to effect a registration on
Form S-1
because such action would (i) materially interfere with a
significant acquisition, corporate reorganization or similar
transaction, (ii) require premature disclosure of material
information that we have a bona fide business purpose for
preserving as confidential or (iii) render us unable to
comply with requirements under the Securities Act or Exchange
Act, then we may defer effecting a registration on
Form S-1
for a period of not more than 120 days. The other
stockholders who are a party to the Investors Rights
Agreement may also include their shares in such registration.
The underwriters of any underwritten offering have the right to
limit the number of shares to be included in a registration
statement filed in response to the exercise of these demand
registration rights. We must pay all expenses, except for
underwriters discounts and commissions, incurred in
connection with these demand registration rights.
Piggyback
Registration Rights
Each stockholder who is a party to the Investors Rights
Agreement has the right, in connection with the registration of
common stock registered hereby and in connection with any future
registration of any securities by us for public sale, to include
their shares in such registration, subject to specified
exceptions. The underwriters of any underwritten offering have
the right to limit the number of shares registered by these
holders. We must pay all expenses, except for underwriters
discounts and commissions, incurred in connection with these
piggyback registration rights.
Form S-3
Registration Rights
Holders of at least 30% of the registrable securities, which
consists of common stock issuable or issued upon conversion of
our preferred stock, any common stock, or any common stock
issued or issuable upon conversion
and/or
exercise of any other of our securities held by the investors
party to the Investors Rights Agreement and any common
stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a
dividend or other distribution with respect to, or in exchange
for or in replacement of, such shares, have the right, under our
Investors Rights Agreement, to require that we register
all or a portion of their shares of common stock on
Form S-3
if we are eligible to file a registration statement on that form
and the expected net proceeds of such offering are at least
$3,000,000, net of underwriters discounts and commissions.
We are not required to effect more than two registrations on
Form S-3
in any twelve-month period, or any demand registration during
any period that is 30 days before our good faith estimate
of the date of filing of, and ending on a date 90 days
following the effective date of, a registration statement
pertaining to an underwritten public offering of securities for
our own account. In addition, if it would be materially
detrimental to us and our stockholders for us to effect a
registration on
Form S-3
because
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such action would (i) materially interfere with a
significant acquisition, corporate reorganization or similar
transaction, (ii) require premature disclosure of material
information that we have a bona fide business purpose for
preserving as confidential or (iii) render us unable to
comply with requirements under the Securities Act or Exchange
Act, then we may defer effecting a registration on
Form S-3
for a period of not more than 90 days. The other
stockholders who are a party to the Investors Rights
Agreement may also include their shares in such registration.
The underwriters of any underwritten offering have the right to
limit the number of shares to be included in a registration
statement filed in response to the exercise of these demand
registration rights. We must pay all expenses, except for
underwriters discounts and commissions, for all
registrations on
Form S-3.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
Provisions of Delaware law and our post-offering certificate of
incorporation and post-offering bylaws may have the effect of
delaying, deferring or discouraging another party from acquiring
control of our company in a coercive manner as described below.
These provisions, summarized below, are designed to encourage
persons seeking to acquire control of our company to first
negotiate with our board of directors. They are also intended to
provide our management with the flexibility to enhance the
likelihood of continuity and stability if our board of directors
determines that a takeover is not in our best interests or the
best interests of our stockholders. These provisions, however,
could have the effect of discouraging attempts to acquire us,
which could deprive our stockholders of opportunities to sell
their shares of common stock at prices higher than prevailing
market prices. We believe that the benefits of these provisions,
including increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure our company, outweigh the
disadvantages of discouraging takeover proposals, because
negotiation of takeover proposals could result in an improvement
of their terms.
Delaware
Law
We will be subject to the provisions of Section 203 of the
Delaware General Corporation Law regulating corporate takeovers.
In general, those provisions prohibit a Delaware corporation
from engaging in any business combination with any interested
stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
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the transaction is approved by the board before the date the
interested stockholder attained that status;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction
commenced; or
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the business combination is approved by the board and authorized
at a meeting of stockholders by at least two-thirds of the
outstanding shares of voting stock that are not owned by the
interested stockholder.
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Section 203 defines business combination to include the
following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to specific exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any of
these entities or persons.
Certificate
of Incorporation and Bylaws
Following the completion of this offering, our certificate of
incorporation and bylaws will provide for:
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Election and Removal of Directors. Our
certificate of incorporation and our bylaws contain provisions
that establish specific procedures for appointing and removing
members of the board of directors. Our directors are elected by
plurality vote. Vacancies and newly created directorships on our
board of directors may be filled only by a majority of the
directors then serving on the board.
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Special Stockholder Meetings. Under our
bylaws, only a majority of the entire number of our directors
may call special meetings of stockholders.
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Requirements for Advance Notification of Stockholder
Nominations and Proposals. Our bylaws establish
advance notice procedures with respect to stockholder proposals
and the nomination of candidates for election as directors.
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Elimination of Stockholder Action by Written
Consent. Our certificate of incorporation
eliminates the right of stockholders to act by written consent
without a meeting.
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No Cumulative Voting. Our certificate of
incorporation and bylaws do not provide for cumulative voting in
the election of directors. Cumulative voting allows a minority
stockholder to vote a portion or all of its shares for one or
more candidates for seats on the board of directors. Without
cumulative voting, a minority stockholder will not be able to
gain as many seats on our board of directors based on the number
of shares of our common stock the stockholder holds as the
stockholder would be able to gain if cumulative voting were
permitted. The absence of cumulative voting makes it more
difficult for a minority stockholder to gain a seat on our board
of directors to influence our board of directors decision
regarding a takeover.
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Undesignated Preferred Stock. The
authorization of undesignated preferred stock makes it possible
for our board of directors to issue preferred stock with voting
or other rights or preferences that could impede the success of
any attempt to change control of our company.
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Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company, LLC.
Listing
We have applied to have our common stock listed on The Nasdaq
Global Market under the trading symbol GLRI.
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MATERIAL
U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
TO NON-U.S.
HOLDERS
The following discussion summarizes the material
U.S. federal income and estate tax consequences of the
purchase, ownership and disposition of shares of our common
stock by certain
non-U.S. holders
(as defined below). This discussion only applies to
non-U.S. holders
who purchase and hold shares of our common stock as capital
assets for U.S. federal income tax purposes (generally
property held for investment). This discussion does not describe
all of the tax consequences that may be relevant to a
non-U.S. holder
in light of its particular circumstances.
For purposes of this discussion, a
non-U.S. holder
means a beneficial owner of shares of our common stock who or
that is not for U.S. federal income tax purposes any of the
following:
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an entity or arrangement treated as a partnership;
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an individual citizen or resident of the United States
(including certain former citizens and former long-term
residents of the United States;
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a corporation (or any other entity treated as a corporation)
created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if (i) it is subject to the primary supervision of
a court within the United States and one or more United
States persons as defined under the Code (as defined
below) have the authority to control all substantial decisions
of the trust, or (ii) it has a valid election in effect
under applicable Treasury regulations to be treated as a United
States person.
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This discussion is based upon provisions of the Internal Revenue
Code of 1986, as amended (the Code), and Treasury
regulations, rulings and judicial decisions as of the date
hereof. These authorities may change, perhaps retroactively,
which could result in U.S. federal income and estate tax
consequences different from those summarized below. This
discussion does not address all aspects of U.S. federal
income and estate taxes and does not describe any foreign,
state, local or other tax considerations that may be relevant to
non-U.S. holders
in light of their particular circumstances. In addition, this
discussion does not describe the U.S. federal income and
estate tax consequences applicable to a
non-U.S. holder
who is subject to special treatment under U.S. federal
income tax laws (including a bank or financial institution, a
broker, a dealer in securities, a United States expatriate, a
controlled foreign corporation, a passive
foreign investment company, a corporation that accumulates
earnings to avoid U.S. federal income tax, a pass-through
entity for U.S. federal income tax purposes or an investor
in a pass-through entity for U.S. federal income tax
purposes, a tax-exempt organization, or an insurance company).
We cannot assure you that a change in law will not significantly
alter the tax considerations that we describe in this discussion.
If a partnership (or any other entity or arrangement treated as
a partnership for U.S. federal income tax purposes) holds
shares of our common stock, the U.S. federal income tax
treatment of a partner of that partnership will generally depend
upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding
shares of our common stock, you should consult your tax advisors.
THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND
DOES NOT CONSTITUTE LEGAL ADVICE TO ANY PROSPECTIVE PURCHASER OF
SHARES OF OUR COMMON STOCK. IF YOU ARE CONSIDERING THE
PURCHASE OF SHARES OF OUR COMMON STOCK, YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
AND ESTATE TAX CONSEQUENCES OF PURCHASING, OWNING, AND DISPOSING
OF SHARES OF OUR COMMON STOCK IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF
APPLICABLE STATE, LOCAL, OR FOREIGN TAXING JURISDICTIONS.
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Distributions
on Shares of Our Common Stock
As discussed above under Dividend Policy, we do not
currently anticipate paying cash dividends with respect to
shares of our common stock. In the event that we do make a
distribution to
non-U.S. holders
with respect to shares of our common stock, such distributions
will generally be treated as dividends to the extent of our
current and accumulated earnings and profits as determined under
the Code, and will be subject to withholding as discussed in the
next paragraph below. Any portion of a distribution that exceeds
our current and accumulated earnings and profits will first be
applied to reduce such
non-U.S. holders
basis in its shares of our common stock and, to the extent such
portion exceeds such
non-U.S. holders
basis, the excess will be treated as gain from the disposition
of its shares of our common stock, the tax treatment of which is
discussed below under Dispositions of Shares of Our Common
Stock. Any distribution described in this paragraph would
also be subject to the discussion below under Additional
Withholding and Reporting Requirements under Recently Enacted
Legislation.
Dividends paid to a
non-U.S. holder
with respect to shares of our common stock will generally be
subject to U.S. withholding tax at a 30% rate, or such
lower rate as may be specified by an applicable income tax
treaty. However, dividends that are effectively connected with
the conduct of a trade or business by such
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, are attributable to a permanent establishment
maintained by such
non-U.S. holder
in the United States) will not be subject to
U.S. withholding tax, provided certain certification and
disclosure requirements are satisfied. Instead, such dividends
will generally be subject to U.S. federal income tax on a
net income basis in the same manner as if such
non-U.S. holder
were a United States person, unless an applicable income tax
treaty provides otherwise. Any such effectively connected
dividends received by a
non-U.S. holder
that is treated as a corporation for U.S. federal income
tax purposes may also be subject to an additional branch profits
tax at a 30% rate, or such lower rate as may be specified by an
applicable income tax treaty.
A
non-U.S. holder
who wishes to claim the benefit of an applicable treaty rate for
dividends will be required to (a) complete Internal Revenue
Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such
non-U.S. holder
is not a United States person and is eligible for treaty
benefits, or (b) if such
non-U.S. holders
shares of our common stock are held through certain foreign
intermediaries, satisfy the relevant certification requirements
of applicable Treasury regulations.
A
non-U.S. holder
who is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service.
Disposition
of Shares of Our Common Stock
Any gain realized by a
non-U.S. holder
on the disposition of shares of our common stock will generally
not be subject to U.S. federal income or withholding tax
unless:
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the gain is effectively connected with a trade or business of
such
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a permanent establishment
maintained by such
non-U.S. holder
in the United States);
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such
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation as such term is defined in Section 897(c)
of the Code (a USRPHC), at any time within the
shorter of the five year period preceding the disposition and
such
non-U.S. holders
holding period with respect to the applicable shares of our
common stock (the relevant period), and in the case
that shares of our common stock are regularly traded on an
established securities market (within the meaning of
Section 897(c)(3) of the Code), such
non-U.S. holder
owns directly or is deemed to own pursuant to attribution rules
more than 5% of shares of our common stock at any time during
the relevant period. We believe that we are not currently a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our U.S. real
property interests relative to the fair market value of our
other business assets, there can be no assurance that we will
not become a USRPHC in the future. Generally,
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a corporation is a USRPHC only if the fair market value of its
U.S. real property interests equals or exceeds 50% of the
sum of the fair market value of its worldwide property interests
plus certain other assets used or held for use in a trade or
business.
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A
non-U.S. holder
described in the first bullet point above will be subject to tax
on the net gain derived from the disposition under regular
graduated U.S. federal income tax rates; and if such
non-U.S. holder
is treated as a corporation for U.S. federal income tax
purposes, it may also be subject to an additional branch profits
tax at a rate of 30% on its effectively connected earnings and
profits, or such lower rate as may be specified by an applicable
income tax treaty. An individual
non-U.S. holder
described in the second bullet point above will be subject to a
flat 30% tax on the gain derived from the disposition, which may
be offset by U.S. source capital losses, even though such
individual is not considered a resident of the United States. A
non-U.S. holder
described in the third bullet point above will be subject to
U.S. federal income tax under regular graduated
U.S. federal income tax rates with respect to the gain
recognized, except that the branch profits tax will not apply.
U.S.
Federal Estate Tax
Shares of our common stock held by an individual who is not a
citizen or resident of the United States (as defined for
U.S. federal estate tax purposes) at the time of death will
be included in such individuals gross estate for
U.S. federal estate tax purposes, unless an applicable
treaty provides otherwise.
Information
Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such
non-U.S. holder
and the tax withheld with respect to such dividends, regardless
of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which
such
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
non-U.S. holder
with respect to shares of our common stock unless such
non-U.S. holder
certifies under penalty of perjury that it is not a United
States person (and the payor does not have actual knowledge or
reason to know that such
non-U.S. holder
is a United States person), or such
non-U.S. holder
otherwise establishes an exemption.
Depending on the circumstances, information reporting and backup
withholding may apply to the proceeds received by a
non-U.S. holder
from a disposition of shares of our common stock, unless such
non-U.S. holder
certifies under penalty of perjury that it is not a United
States person (and the payor does not have actual knowledge or
reason to know that such
non-U.S. holder
is a United States person), or such
non-U.S. holder
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
U.S. federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
Additional
Withholding and Reporting Requirements under Recently Enacted
Legislation
The Foreign Account Tax Compliance Act, or FATCA, was enacted in
2010 as part of the Hiring Incentives to Restore Employment Act.
Subject to certain exceptions, FATCA generally imposes a
withholding tax of 30% on dividends paid with respect to shares
of our common stock, and the gross proceeds from the disposition
of shares of our common stock paid, to a foreign financial
institution (as specifically defined under these rules)
after December 31, 2012 (regardless of whether the foreign
financial institution holds such shares of our common stock for
its own account or as an intermediary), unless such institution
enters into an agreement with the U.S. government to comply
with certain obligations with respect to each account it
maintains including the obligations to collect and provide to
the U.S. tax authorities information regarding
U.S. account holders of such institution (which would
include certain equity and debt holders of such institution, as
well as certain account holders that are foreign entities with
U.S. owners). In addition, subject to
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certain exceptions, FATCA also generally imposes a withholding
tax of 30% on dividends paid with respect to shares of our
common stock, and the gross proceeds from the disposition of
shares of our common stock paid, to a non-financial foreign
entity after December 31, 2012, unless such entity provides
the withholding agent with a certification that it does not have
any substantial U.S. owners or provides information to the
withholding agent identifying the substantial U.S. owners
of the entity. Under certain circumstances, a
non-U.S. holder
might be eligible for refunds or credits of such withholding
taxes.
Non-U.S. holders
are encouraged to consult with their own tax advisors regarding
the possible implications of FATCA on their investment in shares
of our common stock.
In recently issued guidance, the Internal Revenue Service has
indicated that under future Treasury regulations the FATCA
withholding tax of 30% will not apply to dividends paid on
shares of our common stock until after December 31, 2013,
and to gross proceeds from the disposition of shares of our
common stock until after December 31, 2014.
94
SHARES ELIGIBLE
FOR FUTURE SALE
Before this offering, there has not been a public market for our
common stock. As described below, only a limited number of
shares currently outstanding will be available for sale
immediately after this offering due to contractual and legal
restrictions on resale. Nevertheless, future sales of
substantial amounts of our common stock, including shares issued
upon exercise of outstanding options and warrants, in the public
market after the restrictions lapse, or the possibility of such
sales, could adversely impact the trading price of our common
stock or impair our ability to raise equity capital in the
future.
Upon completion of this offering, we will have
outstanding shares
of our common stock, after giving effect to the conversion of
all of our outstanding preferred stock of all classes and
accrued and unpaid dividends on our preferred stock into an
aggregate of
[ ] shares
of our common stock, the conversion of the ETV Note into
[ ] shares
of our common stock and assuming that there are no exercises of
outstanding options after September 30, 2011 and assuming
an offering completion date
of ,
2011. Of these shares, all of
the shares
sold in this offering will be freely tradable in the public
market without restriction or further registration under the
Securities Act, unless these shares are held by our affiliates,
as that term is defined in Rule 144 under the Securities
Act. Shares purchased by our affiliates may not be resold except
pursuant to an effective registration statement or an exemption
from registration, including the exemption under Rule 144
of the Securities Act described below.
After this offering, and assuming no exercise of the
underwriters over-allotment
option, shares
of our common stock held by existing stockholders will be
restricted securities, as that term is defined in Rule 144
under the Securities Act. These restricted securities may be
sold without restriction only if they are registered or if they
qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, which exemptions are
summarized below. All of these restricted securities are also
subject to the
lock-up
agreements described below.
Lock-Up
Agreements
In connection with this offering, officers, directors, employees
and stockholders, who together represent more than
[ ]% of the outstanding shares of
our common stock, have agreed, subject to limited exceptions for
transfers to family members or trusts, bona fide gifts,
transfers to affiliates and distributions to equity holders, not
to directly or indirectly sell or dispose of any shares of our
common stock or any securities convertible into or exchangeable
or exercisable for shares of our common stock for a period of
180 days after the date of this prospectus, and in specific
circumstances, up to an additional 34 days, without the
prior written consent of Credit Suisse Securities (USA) LLC. As
of the date of this prospectus, there are no intentions or any
agreements, tacit or explicit, regarding the early release of
locked-up shares. For additional information, see
Underwriting.
Rule 144
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person who is not our affiliate
and has not been our affiliate at any time during the preceding
three months will be entitled to sell any shares of our common
stock that such person has beneficially owned for at least six
months, including the holding period of any prior owner other
than one of our affiliates, without regard to volume
limitations. Sales of our common stock by any such person would
be subject to the availability of current public information
about us if the shares to be sold were beneficially owned by
such person for less than one year.
In addition, under Rule 144, a person may sell shares of
our common stock acquired from us immediately upon the closing
of this offering, without regard to volume limitations or the
availability of public information about us, if:
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the person is not our affiliate and has not been our affiliate
at any time during the preceding three months; and
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the person has beneficially owned the shares to be sold for at
least one year, including the holding period of any prior owner
other than one of our affiliates.
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Beginning 90 days after the date of this prospectus, our
affiliates who have beneficially owned shares of our common
stock for at least six months, including the holding period of
any prior owner other than one of our affiliates, would be
entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after the completion of this offering; and
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the average weekly trading volume in our common stock on The
Nasdaq Global Market during the four calendar weeks preceding
the date of filing of a Notice of Proposed Sale of Securities
Pursuant to Rule 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
Any of our employees, officers, directors or consultants to our
company who purchased or received shares of our common stock
under a written compensatory plan or contract may be entitled to
sell them in reliance on Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides
that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public
information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this
prospectus before selling those shares.
Share
Plans
We plan on filing a registration statement on
Form S-8
under the Securities Act covering the shares of our common stock
issuable upon exercise of outstanding options under our 2006
Plan or 2011 Plan. We expect to file this registration statement
as soon as practicable after the completion of this offering.
However, no resale of these registered shares shall occur until
after the
180-day
lock-up
period.
Registration
Rights
At any time after 180 days following this offering, holders
of 30% of our then outstanding shares of series B preferred
stock, including shares of our common stock issuable upon the
conversion of our series B preferred stock in connection
with this offering, may demand that we register their shares
under the Securities Act or, if we file another registration
statement under the Securities Act other than a
Form S-8
covering securities issuable under our stock plans or on a
Form S-4
covering securities issuable in exchange for the common stock
sold pursuant to this offering, may elect to include their
shares in such registration. If these shares are registered,
they will be freely tradable without restriction under the
Securities Act. See Description of Capital
Stock Registration Rights.
We have agreed not to file any registration statements during
the 180-day
period after the date of this prospectus with respect to the
registration of any common stock or any securities convertible
into or exercisable or exchangeable into common stock, other
than one or more registration statements on
Form S-8
covering securities issuable under our stock plans, without the
prior written consent of Credit Suisse Securities (USA) LLC. See
Underwriting.
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UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated
[ ],
we have agreed to sell to the underwriters named below, for whom
Credit Suisse Securities (USA) LLC, UBS Securities LLC and Piper
Jaffray & Co. are acting as representatives, the
following respective numbers of shares of our common stock:
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Number of
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Underwriter
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Shares
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Credit Suisse Securities (USA) LLC
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UBS Securities LLC
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Piper Jaffray & Co.
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Robert W. Baird & Co. Incorporated
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Total
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The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in this
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
We have granted to the underwriters a
30-day
option to purchase on a pro rata basis up
to additional
shares at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per share.
The underwriters and selling group members may allow a discount
of $ per share on sales to other
broker/dealers. After the initial public offering the
representatives may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated
expenses we will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Underwriting Discounts and Commissions paid by us
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$
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$
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$
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$
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Expenses payable by us
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$
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$
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$
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$
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The representatives have informed us that they do not expect
sales to accounts over which the underwriters have discretionary
authority to exceed 5% of the shares of common stock being
offered.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Credit Suisse Securities (USA) LLC for a period of 180 days
after the date of this prospectus, except issuances
pursuant to the exercise of employee stock options outstanding
on the date hereof. However, in the event that either
(1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
97
Our officers, directors and existing shareholders and
optionholders who represent more than
[ ]% of our outstanding shares of
our common stock have agreed, subject to limited exceptions for
transfers to family members or trusts, bona fide gifts,
transfers to affiliates and distribution to equity holders, that
they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in
cash or otherwise, or publicly disclose the intention to make
any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent of Credit Suisse Securities
(USA) LLC for a period of 180 days after the date of this
prospectus. However, in the event that either (1) during
the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension. As of the date of this prospectus,
there are no intentions or any agreements, tacit or explicit,
regarding the early release of locked-up shares.
We have agreed to indemnify the underwriters against liabilities
under the Securities Act, or contribute to payments that the
underwriters may be required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq
Global Market under the symbol GLRI.
Prior to the offering, there has been no public market for our
common stock. The initial public offering price will be
determined by negotiation between us and the representatives.
The principal factors that will be considered in determining the
initial public offering price will include:
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the information presented in this prospectus and otherwise
available to the underwriters;
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the history of, and prospects for, the industry in which we will
compete;
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the ability of our management;
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the prospects for our future earnings;
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the present state of our development and our current financial
condition;
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the general condition of the securities markets at the time of
the offering; and
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the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
|
We cannot assure you that the initial public offering price will
correspond to the price at which the common stock will trade in
the public market subsequent to this offering or that an active
trading market for the common stock will develop and continue
after this offering.
Certain of the underwriters and their respective affiliates have
in the past performed, and may in the future perform, various
financial advisory, investment banking and other services for
us, our affiliates and our officers in the ordinary course of
business, for which they received and may receive customary fees
and reimbursement of expenses.
In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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98
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
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Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
|
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The Nasdaq Global Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
The underwriters have reserved for sale at the initial public
offering price up to
[ ] shares of the common stock
for employees, directors and other persons associated with us
who have expressed an interest in purchasing common stock in the
offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
Notice to
Investors in the European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date), shares of our common stock will not
be offered to the public in that Relevant Member State prior to
the publication of a prospectus in relation to the common stock
which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in
that Relevant Member State, all in accordance with the
Prospectus Directive, except that, with effect from and
including the Relevant Implementation Date, an offer of common
stock may be made to the public in that Relevant Member State at
any time:
(a) to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined
99
in the Prospectus Directive), as permitted under the Prospectus
Directive, subject to obtaining the prior consent of the manager
for any such offer; or
(c) in any other circumstances which do not require the
publication by us of a prospectus pursuant to Article 3(2)
of the Prospectus Directive.
For the purposes of this provision, the expression of an
offer of common stock to the public in relation to
any shares in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the shares to be offered so as to enable
an investor to decide to purchase or subscribe the shares of
common stock, as the same may be varied in that Relevant Member
State by any measure implementing the Prospectus Directive in
that Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC (and amendments
thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State), and includes any
relevant implementing measure in each Relevant Member State and
the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
Notice to
Investors in the United Kingdom
Our common stock may not be offered or sold and will not be
offered or sold to any persons in the United Kingdom other than
persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
as agent) for the purposes of their businesses and in compliance
with all applicable provisions of the Financial Services and
Markets Act 2000 (FSMA) with respect to anything
done in relation to our shares of common stock in, from or
otherwise involving the United Kingdom.
In addition, each underwriter:
(a) has only communicated or caused to be communicated and
will only communicate or cause to be communicated an invitation
or inducement to engage in investment activity (within the
meaning of section 21 of FSMA) to persons who have
professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of FSMA does not apply to
the company; and
(b) has complied with, and will comply with all applicable
provisions of FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
Notice to
Investors in Switzerland
The prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (CO) and the shares will not be listed on the SIX
Swiss Exchange. Therefore, the prospectus may not comply with
the disclosure standards of the CO and/or the listing rules
(including any prospectus schemes) of the SIX Swiss Exchange.
Accordingly, the shares may not be offered to the public in or
from Switzerland, but only to a selected and limited circle of
investors, which do not subscribe to the shares with a view to
distribution.
100
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we prepare and file a prospectus with the securities
regulatory authorities in each province where trades of common
stock are made. Any resale of the common stock in Canada must be
made under applicable securities laws which may vary depending
on the relevant jurisdiction, and which may require resales to
be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the common stock.
Representations
of Purchasers
By purchasing common stock in Canada and accepting delivery of a
purchase confirmation, a purchaser is representing to us and the
dealer from whom the purchase confirmation is received that:
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the purchaser is entitled under applicable provincial securities
laws to purchase the common stock without the benefit of a
prospectus qualified under those securities laws,
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where required by law, the purchaser is purchasing as principal
and not as agent,
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the purchaser has reviewed the text above under Resale
Restrictions, and
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the purchaser acknowledges and consents to the provision of
specified information concerning the purchase of the common
stock to the regulatory authority that by law is entitled to
collect the information, including certain personal information.
|
Rights of
Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the common stock, for
rescission against us in the event that this prospectus contains
a misrepresentation without regard to whether the purchaser
relied on the misrepresentation. The right of action for damages
is exercisable not later than the earlier of 180 days from
the date the purchaser first had knowledge of the facts giving
rise to the cause of action and three years from the date on
which payment is made for the common stock. The right of action
for rescission is exercisable not later than 180 days from
the date on which payment is made for the common stock. If a
purchaser elects to exercise the right of action for rescission,
the purchaser will have no right of action for damages against
us. In no case will the amount recoverable in any action exceed
the price at which the common stock were offered to the
purchaser and if the purchaser is shown to have purchased the
securities with knowledge of the misrepresentation, we will have
no liability. In the case of an action for damages, we will not
be liable for all or any portion of the damages that are proven
to not represent the depreciation in value of the common stock
as a result of the misrepresentation relied upon. These rights
are in addition to, and without derogation from, any other
rights or remedies available at law to an Ontario purchaser. The
foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text
of the relevant statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of
process within Canada upon us or those persons. All or a
substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against us or those
persons in Canada or to enforce a judgment obtained in Canadian
courts against us or those persons outside of Canada.
Taxation
and Eligibility for Investment
Canadian purchasers of common stock should consult their own
legal and tax advisors with respect to the tax consequences of
an investment in the common stock in their particular
circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
101
LEGAL
MATTERS
Fulbright & Jaworski L.L.P., Houston, Texas, will pass
upon the validity of the issuance of the common stock offered by
this prospectus. Cravath, Swaine & Moore LLP has
represented the underwriters in this offering.
EXPERTS
The consolidated financial statements of Glori Energy Inc.
included in this prospectus and elsewhere in the registration
statement relating to this offering have been so included in
reliance upon the report of Grant Thornton LLP, independent
registered public accountants, upon the authority of said firm
as experts in accounting and auditing in giving said report.
The consolidated financial statements of Glori Energy Inc. and
subsidiaries for the year ended December 31, 2008 included
in this prospectus have been audited by UHY LLP, an independent
registered public accounting firm, as stated in their report
appearing herein in the registration statement. Such
consolidated financial statements are included in reliance upon
the report of such firm given upon its authority as an expert in
accounting and auditing.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1,
including exhibits, under the Securities Act with respect to the
common stock to be sold in this offering. This prospectus, which
constitutes a part of the registration statement, does not
contain all of the information in the registration statement or
the exhibits. Statements made in this prospectus regarding the
contents of any contract, agreement or other document are only
summaries. With respect to each contract, agreement or other
document filed as an exhibit to the registration statement, we
refer you to the exhibit for a more complete description of the
matter involved.
We are not currently subject to the informational requirements
of the Exchange Act. As a result of the offering of the shares
of our common stock, we will become subject to the informational
requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the SEC. You may
read and copy all or any portion of the registration statement
or any reports, statements or other information in the files at
the public reference room of the SEC located at
100 F Street, N.E., Washington, D.C. 20549.
You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at
1-800-SEC-0330
for further information on the operation of its public reference
room. Our filings, including the registration statement, will
also be available to you on the web site maintained by the SEC
at
http://www.sec.gov.
We intend to furnish our stockholders with annual reports
containing consolidated financial statements audited by our
independent auditors, and to make available to our stockholders
quarterly reports for the first three quarters of each year
containing unaudited interim consolidated financial statements.
CHANGE IN
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On March 22, 2010, our board of directors terminated the
engagement of UHY LLP as our independent registered public
accounting firm. UHY LLP performed an audit of our consolidated
financial statements for the fiscal year ended December 31,
2008. UHY LLPs report did not contain an adverse opinion
or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
During the year ended December 31, 2008, there were no
disagreements between us and UHY LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of UHY LLP, would have caused it to
make reference thereto in its reports on our consolidated
financial statements for such year. During the year ended
December 31, 2008, there were no reportable events as
defined in Item 304(a)(1)(v) of the SECs
Regulation S-K.
UHY LLP has been provided with a copy of this disclosure and has
furnished to us a letter addressed to the SEC stating that they
agree with the statements about such firm contained herein.
On April 5, 2010, with the approval of our board of
directors, we engaged Grant Thornton LLP to be our independent
registered public accounting firm. During the year ended
December 31, 2008, we did not consult with Grant Thornton
LLP on any financial or accounting reporting matters described
in Item 304(a)(2)(i) and Item 304(a)(2)(ii) of the
SECs
Regulation S-K.
102
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Glori Energy Inc.
We have audited the accompanying consolidated balance sheets of
Glori Energy Inc. (a Delaware corporation) and subsidiaries (the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the two
years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys 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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Glori Energy Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Grant Thornton LLP
Houston, Texas
October 4, 2011
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Glori Energy Inc.
We have audited the accompanying consolidated statements of
operations, stockholders equity, and cash flows of Glori
Energy Inc. (a Delaware corporation) and subsidiaries for the
year ended December 31, 2008. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated results of operations and cash flows of Glori
Energy Inc. and subsidiaries for the year ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
/s/ UHY LLP
Houston, Texas
December 4, 2009
F-3
GLORI
ENERGY INC. AND SUBSIDIARIES
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As of
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|
|
|
|
|
December 31,
|
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|
As of
|
|
|
|
2009
|
|
|
2010
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,236
|
|
|
$
|
7,142
|
|
|
$
|
4,995
|
|
Accounts receivable
|
|
|
24
|
|
|
|
164
|
|
|
|
148
|
|
Prepaid expenses and other current assets
|
|
|
43
|
|
|
|
129
|
|
|
|
108
|
|
Inventory
|
|
|
76
|
|
|
|
58
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
6,379
|
|
|
|
7,493
|
|
|
|
5,289
|
|
Property And Equipment, at cost, net of accumulated
depreciation, depletion and amortization
|
|
|
1,075
|
|
|
|
1,497
|
|
|
|
2,649
|
|
Deferred Offering Costs
|
|
|
|
|
|
|
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,454
|
|
|
$
|
8,990
|
|
|
$
|
8,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY
|
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|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
255
|
|
|
$
|
395
|
|
|
$
|
992
|
|
Deferred revenue
|
|
|
|
|
|
|
125
|
|
|
|
483
|
|
Accrued expenses
|
|
|
240
|
|
|
|
131
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
495
|
|
|
|
651
|
|
|
|
1,666
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Asset Retirement Obligation
|
|
|
|
|
|
|
252
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
495
|
|
|
|
903
|
|
|
|
3,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments And Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A cumulative convertible preferred stock,
$.0001 par value, 521,852 shares authorized;
475,541 shares issued and outstanding (See Note G for
Liquidation Preference)
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Series B cumulative convertible preferred stock,
$.0001 par value, 2,629,392 shares authorized as of
December 31, 2009 and 2010 and 2,901,052 shares
authorized as of September 30, 2011 (unaudited); 1,578,976
and 2,629,392 shares issued and outstanding at
December 31, 2009 and 2010, respectively, and
2,901,052 shares issued and outstanding at
September 30, 2011 (unaudited) (See Note G for
Liquidation Preference)
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Common stock, $.0001 par value, 100,000,000 shares
authorized; 2,835,596 shares issued and outstanding at
December 31, 2009 and 2,866,160 shares issued and
outstanding at December 31, 2010 and 2,999,592 shares
issued and outstanding at September 30, 2011 (unaudited)
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
18,949
|
|
|
|
24,775
|
|
|
|
26,297
|
|
Accumulated deficit
|
|
|
(11,993
|
)
|
|
|
(16,691
|
)
|
|
|
(21,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
6,959
|
|
|
|
8,087
|
|
|
|
5,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities And Stockholders Equity
|
|
$
|
7,454
|
|
|
$
|
8,990
|
|
|
$
|
8,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
GLORI
ENERGY INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
459
|
|
|
$
|
858
|
|
|
$
|
131
|
|
|
$
|
37
|
|
|
$
|
1,119
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
1,080
|
|
|
|
1,277
|
|
|
|
1,163
|
|
|
|
769
|
|
|
|
1,966
|
|
Research and development
|
|
|
1,188
|
|
|
|
1,021
|
|
|
|
1,546
|
|
|
|
1,061
|
|
|
|
1,173
|
|
Selling, general and administrative
|
|
|
1,531
|
|
|
|
827
|
|
|
|
1,679
|
|
|
|
1,080
|
|
|
|
1,946
|
|
Depreciation, depletion and amortization
|
|
|
378
|
|
|
|
390
|
|
|
|
442
|
|
|
|
316
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
4,177
|
|
|
|
3,515
|
|
|
|
4,830
|
|
|
|
3,226
|
|
|
|
5,521
|
|
Loss From Operations
|
|
|
(3,718
|
)
|
|
|
(2,657
|
)
|
|
|
(4,699
|
)
|
|
|
(3,189
|
)
|
|
|
(4,402
|
)
|
Other Income (Expense), Net
|
|
|
53
|
|
|
|
(64
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Taxes On Income
|
|
|
(3,665
|
)
|
|
|
(2,721
|
)
|
|
|
(4,698
|
)
|
|
|
(3,189
|
)
|
|
|
(4,476
|
)
|
Taxes On Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(3,665
|
)
|
|
|
(2,721
|
)
|
|
|
(4,698
|
)
|
|
|
(3,189
|
)
|
|
|
(4,476
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid dividends on Series A and B cumulative convertible
preferred stock
|
|
|
(440
|
)
|
|
|
(605
|
)
|
|
|
(1,314
|
)
|
|
|
(896
|
)
|
|
|
(1,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Applicable To Common Stockholders
|
|
$
|
(4,105
|
)
|
|
$
|
(3,326
|
)
|
|
$
|
(6,012
|
)
|
|
$
|
(4,085
|
)
|
|
$
|
(5,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share, basic and diluted
|
|
$
|
(1.44
|
)
|
|
$
|
(1.16
|
)
|
|
$
|
(2.10
|
)
|
|
$
|
(1.43
|
)
|
|
$
|
(2.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding, basic and
diluted
|
|
|
2,844
|
|
|
|
2,863
|
|
|
|
2,866
|
|
|
|
2,865
|
|
|
|
2,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
GLORI
ENERGY INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Series A Preferred
|
|
|
Series B Preferred
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balances, January 1, 2008
|
|
|
473,277
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
|
|
|
|
2,612,048
|
|
|
$
|
1
|
|
|
$
|
10,326
|
|
|
$
|
(5,607
|
)
|
|
$
|
4,721
|
|
Vesting of restricted common share award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance
|
|
|
2,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Exercise of common share options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,080
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,665
|
)
|
|
|
(3,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
475,541
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2,734,862
|
|
|
|
1
|
|
|
|
10,381
|
|
|
|
(9,272
|
)
|
|
|
1,111
|
|
Share issuance
|
|
|
|
|
|
|
|
|
|
|
1,578,976
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
8,568
|
|
|
|
|
|
|
|
8,569
|
|
Vesting of restricted common share award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,721
|
)
|
|
|
(2,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
475,541
|
|
|
|
1
|
|
|
|
1,578,976
|
|
|
|
1
|
|
|
|
2,835,596
|
|
|
|
1
|
|
|
|
18,949
|
|
|
|
(11,993
|
)
|
|
|
6,959
|
|
Vesting of restricted common share award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common share options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance
|
|
|
|
|
|
|
|
|
|
|
1,050,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,784
|
|
|
|
|
|
|
|
5,784
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,698
|
)
|
|
|
(4,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
|
475,541
|
|
|
|
1
|
|
|
|
2,629,392
|
|
|
|
1
|
|
|
|
2,866,160
|
|
|
|
1
|
|
|
|
24,775
|
|
|
|
(16,691
|
)
|
|
|
8,087
|
|
Stock based compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
Share issuance (unaudited)
|
|
|
|
|
|
|
|
|
|
|
271,660
|
|
|
|
|
|
|
|
133,432
|
|
|
|
|
|
|
|
1,477
|
|
|
|
|
|
|
|
1,477
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,476
|
)
|
|
|
(4,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2011 (unaudited)
|
|
|
475,541
|
|
|
$
|
1
|
|
|
|
2,901,052
|
|
|
$
|
1
|
|
|
|
2,999,592
|
|
|
$
|
1
|
|
|
$
|
26,297
|
|
|
$
|
(21,167
|
)
|
|
$
|
5,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
GLORI
ENERGY INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,665
|
)
|
|
$
|
(2,721
|
)
|
|
$
|
(4,698
|
)
|
|
$
|
(3,189
|
)
|
|
$
|
(4,476
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
378
|
|
|
|
390
|
|
|
|
442
|
|
|
|
316
|
|
|
|
436
|
|
Accretion of asset retirement obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Loss on disposal of property and equipment
|
|
|
1
|
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
|
|
37
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
32
|
|
|
|
45
|
|
Research expenses funded by long-term liability
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(135
|
)
|
|
|
111
|
|
|
|
(140
|
)
|
|
|
24
|
|
|
|
16
|
|
Prepaid expenses
|
|
|
7
|
|
|
|
13
|
|
|
|
(86
|
)
|
|
|
(149
|
)
|
|
|
21
|
|
Inventory
|
|
|
(90
|
)
|
|
|
39
|
|
|
|
18
|
|
|
|
(15
|
)
|
|
|
20
|
|
Deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(628
|
)
|
Accounts payable
|
|
|
7
|
|
|
|
157
|
|
|
|
140
|
|
|
|
(10
|
)
|
|
|
597
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
358
|
|
Accrued expenses
|
|
|
(136
|
)
|
|
|
(28
|
)
|
|
|
(109
|
)
|
|
|
(184
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Operating Activities
|
|
|
(3,131
|
)
|
|
|
(2,033
|
)
|
|
|
(4,263
|
)
|
|
|
(3,155
|
)
|
|
|
(3,499
|
)
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(231
|
)
|
|
|
(49
|
)
|
|
|
(615
|
)
|
|
|
(236
|
)
|
|
|
(1,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
(231
|
)
|
|
|
(49
|
)
|
|
|
(615
|
)
|
|
|
(236
|
)
|
|
|
1,625
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common and preferred stock
|
|
|
5
|
|
|
|
8,569
|
|
|
|
5,784
|
|
|
|
|
|
|
|
1,477
|
|
Issuance of long-term debt
|
|
|
750
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Payments of long-term debt
|
|
|
(94
|
)
|
|
|
(2,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities
|
|
|
661
|
|
|
|
7,491
|
|
|
|
5,784
|
|
|
|
|
|
|
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash And Cash Equivalents
|
|
|
(2,701
|
)
|
|
|
5,409
|
|
|
|
906
|
|
|
|
(3,391
|
)
|
|
|
(2,147
|
)
|
Cash And Cash Equivalents, beginning of period
|
|
|
3,528
|
|
|
|
827
|
|
|
|
6,236
|
|
|
|
6,236
|
|
|
|
7,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash And Cash Equivalents, end of period
|
|
$
|
827
|
|
|
$
|
6,236
|
|
|
$
|
7,142
|
|
|
$
|
2,845
|
|
|
$
|
4,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing And Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of accrued liabilities to long-term liability
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term liability for non-cash property acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
252
|
|
|
$
|
|
|
|
$
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
30
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
F-7
GLORI
ENERGY INC. AND SUBSIDIARIES
DECEMBER
31, 2008, 2009 and 2010 and September 30, 2010 and 2011
(Unaudited)
|
|
NOTE A
|
ORGANIZATION,
NATURE OF BUSINESS AND LIQUIDITY
|
Glori Energy Inc., a Delaware corporation (formerly Glori Oil
Limited), was incorporated in November 2005 (as successor in
interest to Glori Oil LLC) to improve and increase recovery
from mature oil wells using state of the art biotechnology
solutions. The Company was in the development stage through
December 31, 2010 and exited in 2011 because its principal
operations had commenced.
In October 2007, the company formed Glori Oil (Argentina)
Limited, a Delaware corporation, as a wholly-owned subsidiary,
to provide its solutions to South America.
In April and May 2008, the Company entered into a transaction
with a privately-held company in Argentina (the Technology
Partner) and its principal (Principal) to
expand its development of microbial enhanced oil recovery. This
transaction consisted of the formation of a wholly-owned
subsidiary domiciled in Argentina, Glori Oil S.R.L. (S.R.L.),
which is owned by Glori Oil (Argentina) Limited (97%) and Glori
Oil Limited (3%), the execution of a Management Agreement by
which the Principal became the General Manager of S.R.L., the
execution of a Technology Agreement which calls for the
Technology Partner to provide various specified services for
fees, and the execution of non-compete agreements with the
Technology Partner and Principal which are enforceable for
periods of two years and one year, respectively, from the
termination of the business relationship. In the first quarter
of 2011, management determined that the continuation of the
Technology Agreement and Management Agreement and maintenance of
the Argentina workforce were no longer required to execute the
Companys business plan (see Note J).
In September 2010, the Company incorporated Glori Canada Ltd.
(formerly Glori Oil Ltd.) in the province of Alberta, Canada,
with registration in the province of Saskatchewan, as a
wholly-owned subsidiary, to conduct the Companys business
in Canada.
In October 2010, the Company activated a previously dormant
wholly-owned subsidiary, Glori Holdings Company (formerly Glori
Oil Holdings Company), to acquire a 100% working interest in a
leasehold in Kansas (the Etzold field), in exchange
for the assumption of the asset retirement obligation (plugging
and abandoning) of the existing wells on the leasehold.
In February 2011, the Company incorporated Glori California Inc.
(formerly Glori Oil California Limited) to conduct its
operations in the state of California.
Glori Energy Inc., Glori Holdings Company, Glori Canada Ltd.,
Glori Oil (Argentina) Limited and Glori Oil S.R.L. are
collectively referred to as the Company in the
consolidated financial statements.
In October 2010, the Company issued a second tranche of its
Series B Preferred Stock for net proceeds of approximately
$5,784,000 (see Note G); and in May 2011, the Company
consummated an additional financing transaction for net proceeds
of approximately $3,000,000 of debt and equity (see Notes E and
G). As a result of these financings, management believes it has
sufficient liquidity to enable the continued improvement of its
biotechnology and progress towards a sustainable revenue base.
Since inception, the Company has devoted its efforts to
improving the commercial viability of its bio-technology
solutions, including the construction of laboratory and
manufacturing facilities suitable for this purpose, and the
recruitment of management and employees to identify customers
and deliver these solutions to the field.
|
|
NOTE B
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation: The
accompanying consolidated financial statements include the
accounts of Glori Energy Inc. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
F-8
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basis of Presentation of Condensed Unaudited Interim
Consolidated Financial Statements: The
accompanying condensed unaudited interim consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
Certain information and note disclosures normally included in
annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to these rules
and regulations. In the opinion of the Company, these financial
statements contain all adjustments necessary to present fairly
its financial position as of September 30, 2011, the
results of its operations and changes in cash flows for the nine
months ending September 30, 2010 and 2011 and changes in
stockholders equity for the nine months ended
September 30, 2011. All such adjustments represent normal
recurring items. These condensed consolidated financial
statements should be read in conjunction with the financial
statements as of and for the year ended December 31, 2010
and the notes thereto. Interim results are not necessarily
indicative of results for the full year ending December 31,
2011.
Use of Estimates: The preparation of
the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
Cash and Cash Equivalents: The Company
considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents.
Concentrations of Credit Risk: The
Company maintains its cash in bank deposits with financial
institutions. These deposits, at times, exceed federally insured
limits. In July 2010, the Federal Deposit Insurance Corporation
increased its insurance from $100,000 to $250,000 per depositor
through 2013. The Company monitors the financial condition of
the financial institutions and has not experienced any losses on
such accounts. The Company is not party to any financial
instruments which would have off-balance sheet credit or
interest rate risk.
The Company derived revenue from three customers during 2008 and
2009, five customers during 2010 and three customers during the
nine months ended September 30, 2011 (unaudited). Of the
total revenue recognized, two, three, three and three
(unaudited) customers exceeded 10% of total revenues recognized
in those periods, respectively. Management believes these
customers do not constitute a significant credit risk.
Accounts Receivable: Accounts
receivable consists of amounts due in the ordinary course of
business, primarily from companies engaged in the exploration of
oil and gas. The Company performs ongoing credit evaluation of
its customers and generally does not require collateral.
Specific allowances are maintained for potential credit issues,
and the Company has not incurred credit losses since inception.
Inventory: Inventory is stated at
average cost and consists primarily of raw materials used in the
formulation of nutrients used in the Companys
biotechnology solutions.
Property and Equipment: Property and
equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized and depreciated over the
remaining useful lives of the associated assets, and repairs and
maintenance costs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed, the
cost and accumulated depreciation are removed from the accounts,
and any resulting gain or loss is included in the results of
operations for the respective period.
F-9
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation and amortization for long lived assets are
recognized over the estimated useful lives of the respective
assets by the straight line method as follows:
|
|
|
Laboratory and manufacturing facility
|
|
5 years or the remaining term of the lease, whichever is
shorter
|
Laboratory and manufacturing equipment, office equipment and
trucks
|
|
5 years
|
Computer equipment
|
|
3 years
|
Impairment of Long-Lived Assets: The
Company reviews the recoverability of its long-lived assets,
such as property and equipment, when events or changes in
circumstances occur that indicate the carrying value of the
asset or asset group may not be recoverable. The assessment of
possible impairment is based on the Companys ability to
recover the carrying value of the asset or asset group from the
expected future pre-tax cash flows (undiscounted) of the related
operations. If these cash flows are less than the carrying value
of such asset, an impairment loss is recognized for the
difference between estimated fair value and carrying value. No
impairment losses have been recognized during 2008, 2009 or 2010
or the nine months ended September 30, 2011 (unaudited).
Oil
and Gas Activities
Successful Efforts Method: We intend to
use the successful efforts method of accounting for oil
producing activities. Costs to acquire mineral interests in oil
and gas properties, to drill and equip exploratory wells that
find proved reserves, and to drill and equip development wells
will be capitalized.
Revenue Recognition: We intend to
follow the sales method of accounting for crude oil
revenue. Under this method, we will recognize revenue on
production as it is taken and delivered to its purchasers.
Depletion: The estimates of crude oil
reserves utilized in the calculation of depletion will be
estimated in accordance with guidelines established by the
Society of Petroleum Engineers, the SEC and the Financial
Accounting Standards Board, which require that reserve estimates
be prepared under existing economic and operating conditions
with no provision for price and cost escalations except by
contractual arrangements. We emphasize that reserve estimates
are inherently imprecise. Accordingly, the estimates are
expected to change as more current information becomes
available. Our policy will be to amortize capitalized crude oil
costs on the unit of production method, based upon these reserve
estimates.
We intend to assess our proved properties for possible
impairment on an annual basis as a minimum, or as circumstances
warrant, based on geological trend analysis, changes in proved
reserves or relinquishment of acreage. When impairment occurs,
the adjustment is recorded to accumulated depletion.
Unproved Properties: All properties
that are not producing are considered unproved properties and,
thus, the costs associated with such properties are not subject
to depletion. Once a property is classified as proven or begins
production, all associated acreage and drilling costs are
subject to depletion. We assess the viability of the unproved
properties quarterly and record an impairment for any property
that is deemed to be unrecognizable. As of December 31,
2010 and September 30, 2011 we do not believe any property is
impaired.
Asset Retirement Obligation: In October
2010, the Company acquired the Etzold field, a 100% working
interest (80% revenue interest) in a leasehold in Kansas, in
exchange for the assumption of the asset retirement obligation
(plugging and abandonment) for the existing wells on the
leasehold. The Company accounts for its asset retirement
obligation (ARO) in accordance with ASC 410,
Asset Retirement and Environmental Obligations. The fair
value of a liability for an ARO is required to be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made and the associated retirement costs can
be capitalized as part of the carrying amount of the long-lived
asset. The Company determined its ARO by
F-10
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
calculating the present value of the estimated cash flows
related to the liability based upon estimates derived from
management and external consultants familiar with the
requirements of the retirement, and the ARO is reflected in the
accompanying consolidated balance sheet as a noncurrent
liability. The Company has not funded nor dedicated any assets
to the retirement obligation. The liability is periodically
adjusted to reflect (1) new liabilities incurred;
(2) liabilities settled during the period;
(3) accretion expense; and (4) revisions to estimated
future plugging and abandonment costs. The following is a
reconciliation of the liability at December 31, 2009 and
2010 and September 30, 2010 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance at the beginning of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
252
|
|
Liabilities acquired during the period
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
|
|
|
$
|
252
|
|
|
$
|
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments: Financial
instruments consist of cash and cash equivalents, accounts
receivable and accounts payables. The carrying values of cash
and cash equivalents and accounts receivable and payables
approximate fair value due to their short-term nature.
Net Loss Per Share: Basic net loss per
common share is computed under the two-class method per guidance
in Accounting Standards Codification (ASC) 260, Earnings per
Share. The two-class method is an earnings allocation
formula that determines earnings per share for each class of
common stock and participating security according to dividends
declared (or accumulated) and participation rights in
undistributed earnings. Under the two-class method, basic
earnings (loss) per common share is computed by dividing net
earnings (loss) attributable to common shares after allocation
of earnings to participating securities by the weighted-average
number of common shares outstanding during the year. Diluted
earnings (loss) per common share is computed using the two-class
method or the if-converted method, whichever is more dilutive,
including restricted shares awarded to two employees.
Diluted net loss per share is the same as basic net loss per
share for all periods presented because any potential dilutive
common shares were anti-dilutive. Such potentially dilutive
shares are excluded from the computation of diluted net loss per
share when the effect would be to reduce net loss per share.
Therefore, in periods when a loss is reported, the calculation
of basic and dilutive loss per share results in the same value.
Service Revenue Recognition: Revenue is
recognized when all services are concluded and there is evidence
that the customer has accepted the services, which generally
coincides with invoicing. For contracts which have multiple
deliverable arrangements, revenue is recognized in accordance
with ASC 605, Revenue Recognition: Multiple-element
Arrangements.
The general terms and conditions of research related contracts
require us to sample from specific reservoirs and perform
simulations to determine the suitability of our technology to
enhance oil recovery from those reservoirs. The contracts cannot
be canceled and require us to deliver a report, generally in
writing, stating the results of our efforts. Payment terms vary
from 50% down and 50% upon delivery of the report, to specified
monthly amounts over the term of the research effort. Because
(1) we have yet to establish a history of providing this
service, including the expenses to be incurred and (2) customer
acceptance can only occur upon the presentation of our report,
revenue recognition is deferred until the presentation of that
report because the consideration is contingent on our future
performance.
The general terms and conditions of contracts for field related
services require us to provide stimulation services to specified
wells/fields, over a specified period of time, for a specified
fixed monthly fee. At the end
F-11
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the initial contract term, we may and generally will agree to
continue to provide services for the same fee. On occasion, the
customer has the right to cancel the contract with appropriate
notice. Revenue under such contracts is recognized in the month
of service, which is the month of invoicing, because the amount
of revenue is fixed, collectability is reasonably assured and
the service has been delivered.
When contracts contain both research related and field related
services, we determine if each service qualifies as a separate
unit of accounting. The significant criterion to determine if
the units are separated is the customers ability to cancel
the contract after the research related services are delivered,
or whether continuation to field related services will proceed
uninterrupted. If the former, the deliverable is considered to
qualify as a separate accounting unit, and revenue will be
recognized in accordance with the contract value of the research
related service. If the latter, the contract value of the
research related service is combined with that of the field
related service and recognized ratably over the term of the
field related service.
As of December 31, 2008, 2009 and 2010, the Company had
deferred approximately $0, $0, and $125,000, respectively,
pursuant to a contract requiring substantial future performance,
and at September 30, 2010 and 2011 the Company had deferred
$0 (unaudited) and approximately $483 (unaudited) pursuant to
contracts requiring substantial future performance.
Research and Development: The Company
expenses all research and development cost as incurred.
Income Taxes: The Company accounts for
income taxes using the asset and liability method wherein
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and to net
operating loss carry forwards, measured by enacted tax rates for
years in which taxes are expected to be paid, recovered or
settled. A valuation allowance is established to reduce deferred
tax assets if, based on the weight of available evidence, it is
not more likely than not that some portion or all of the
deferred tax assets will be realized.
The Company follows ASC 740, Income Taxes, which
creates a single model to address accounting for the uncertainty
in income tax positions and prescribes a minimum recognition
threshold a tax position must meet before recognition in the
consolidated financial statements. The Company does not have a
tax position meeting the criteria of ASC 740.
The Companys tax years 2005 through 2010 remain open and
subject to examination by the Internal Revenue Service
(IRS) and are technically open for examination until
the expiration of statute of limitations under the relevant IRS
Codes. The Companys franchise tax returns in the state of
Texas are open for examination for the years 2007-2010.
Stock-Based Compensation: Since the
initiation of the Glori Oil Limited Amended and Restated 2006
Stock Option and Grant Plan, the Company has recorded all
share-based payment expense associated with option awards in
accordance with ASC 718, Compensation Stock
Compensation. Accordingly, the Company selected the
Black-Scholes option-pricing model as the most appropriate
method to value option awards and recognizes compensation cost
on a straight-line basis over the option awards vesting
periods.
Recently
Adopted Accounting
Standards:
In July 2009, the FASB issued ASU
2009-13,
Multiple-Deliverable Revenue Arrangements a
consensus of the FASB Emerging Issues Task Force, to amend
ASC 605-25, Revenue Recognition, Multiple-Element
Arrangements (formerly EITF Issue
00-21,
Revenue Arrangements with Multiple Deliverables). The
amendments are effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010 (January 1, 2011 for a calendar
year-end entity), with early application permitted. An entity
may elect to apply the amended guidance in
ASC 605-25
on a retrospective basis to all revenue arrangements in all
periods presented. This amended guidance will significantly
impact the
F-12
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accounting, including the criteria to separate elements in a
multiple-element arrangement, requires the use of the relative
selling price method and prohibits the use of the residual
method to allocate arrangement consideration among units of
accounting and expands the disclosures for the Companys
multiple-element arrangements for the year ending
December 31, 2011. As a result of this amended guidance,
the Company deferred an additional $358 of revenue for the nine
months ended September 30, 2011 (unaudited).
In January 2010, the Financial Accounting Standards Board
(FASB) issued an amendment to an accounting
standard, which requires new disclosures for fair value measures
and provides clarification for existing disclosure requirements.
Specifically, this amendment requires an entity to disclose
separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and to
describe the reasons for the transfers; and to disclose
separately information about purchases, sales, issuances and
settlements in the reconciliation for fair value measurements
using significant unobservable inputs, or Level 3 inputs.
This amendment clarifies existing disclosure requirements for
the level of disaggregation used for classes of assets and
liabilities measured at fair value and requires disclosure about
the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements
using Level 2 and Level 3 inputs. The adoption of this
amendment did not have a material impact on the Companys
consolidated financial statements.
In January 2010, the FASB issued an Accounting Standards Update
(ASU)
2010-03,
Extractive Activities Oil and Gas (Topic 932):
Oil and Gas Reserve Estimation and Disclosure. This ASU
amends the FASB accounting standards to align the reserve
calculation and disclosure requirements with the requirements in
the recently adopted SEC rule, Modernization of Oil and Gas
Reporting Requirements. The ASU is effective for reporting
periods ending on or after December 31, 2009. The Company
adopted ASC 932 effective December 31, 2009 and is now
using the successful efforts method of accounting.
There have been no other recent accounting pronouncements or
changes in accounting pronouncements that the Company expects to
have a material impact on its financial statements, nor does the
Company believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have
a material effect on its financial statements.
|
|
NOTE C
|
PROPERTY
AND EQUIPMENT
|
At December 31, 2009 and 2010 and September 30, 2011,
property and equipment consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Laboratory and manufacturing facility
|
|
$
|
536
|
|
|
$
|
591
|
|
|
$
|
591
|
|
Laboratory and manufacturing equipment
|
|
|
1,218
|
|
|
|
1,544
|
|
|
|
1,870
|
|
Office and computer equipment
|
|
|
126
|
|
|
|
185
|
|
|
|
196
|
|
Trucks and other
|
|
|
58
|
|
|
|
89
|
|
|
|
93
|
|
Investment in oil and gas property
|
|
|
|
|
|
|
385
|
|
|
|
1,262
|
|
Construction in progress
|
|
|
132
|
|
|
|
139
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,070
|
|
|
|
2,933
|
|
|
|
4,503
|
|
Less: accumulated depreciation, depletion and amortization
|
|
|
(995
|
)
|
|
|
(1,436
|
)
|
|
|
(1,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,075
|
|
|
$
|
1,497
|
|
|
$
|
2,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization expense was $378,000,
$390,000 and $442,000 for the years ended December 31,
2008, 2009, and 2010, respectively, and $316,000 (unaudited) and
$436,000 (unaudited) for the nine months ended
September 30, 2010 and 2011, respectively.
F-13
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE D
|
ACCRUED
EXPENSES
|
At December 31, 2009 and 2010 and September 30, 2011,
the significant components of accrued expenses reported in the
accompanying consolidated balance sheets are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Compensation related
|
|
$
|
109
|
|
|
$
|
92
|
|
|
$
|
56
|
|
Legal and professional fees
|
|
|
129
|
|
|
|
12
|
|
|
|
53
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Other
|
|
|
2
|
|
|
|
27
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240
|
|
|
$
|
131
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 31, 2011, the Company received $1.5 million in
exchange for a convertible promissory note issued to Energy
Technology Ventures, LLC (the ETV Note) bearing
interest at 8%. Interest on the unpaid principal accrues daily
at the stated rated, compounded quarterly, and is due in full
with the principal balance on November 30, 2012, provided
the Company does not sign a term sheet for a qualified
financing, as defined in the ETV Note, on or before
November 25, 2012, at which time the maturity date would be
extended to the earlier of the date such term sheet is
terminated or May 31, 2013. The ETV Note is convertible
into the security or securities issued by the Company in a
qualified financing upon the occurrence of a qualified financing
at the aggregate amount of principal plus accrued interest.
Management believes that the convertible promissory note is a
conventional debt instrument and does not have beneficial
conversion features nor any other derivative aspect.
Upon the closing of a qualified underwritten public offering,
such as the offering being described in this prospectus, the
holder of the ETV Note may elect to (i) receive payment
from the Company of an amount in cash equal to the principal
under the ETV Note, plus all accrued and unpaid interest
thereon, or (ii) convert the ETV Note into a number of
shares of the Companys common stock equal to the quotient
obtained by dividing the principal outstanding under the ETV
Note, plus all accrued and unpaid interest thereon, by a price
per share that is currently estimated at $2.44.
|
|
NOTE F
|
EARNINGS
PER SHARE
|
The Company follows current guidance for share-based payments
which are considered as participating securities. Share-based
payment awards that contain non-forfeitable rights to dividends,
whether paid or unpaid, are designated as participating
securities and are included in the computation of basic earnings
per share.
F-14
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,665
|
)
|
|
$
|
(2,721
|
)
|
|
$
|
(4,698
|
)
|
|
$
|
(3,189
|
)
|
|
$
|
(4,476
|
)
|
Less: Series B and A cumulative convertible preferred stock
dividends
|
|
|
(440
|
)
|
|
|
(605
|
)
|
|
|
(1,314
|
)
|
|
|
(896
|
)
|
|
|
(1,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders basic and
diluted
|
|
$
|
(4,105
|
)
|
|
$
|
(3,326
|
)
|
|
$
|
(6,012
|
)
|
|
$
|
(4,085
|
)
|
|
$
|
(5,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding basic
|
|
|
2,844
|
|
|
|
2,863
|
|
|
|
2,866
|
|
|
|
2,865
|
|
|
|
2,911
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares diluted
|
|
|
2,844
|
|
|
|
2,863
|
|
|
|
2,866
|
|
|
|
2,865
|
|
|
|
2,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(1.44
|
)
|
|
$
|
(1.16
|
)
|
|
$
|
(2.10
|
)
|
|
$
|
(1.43
|
)
|
|
$
|
(2.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following securities were not included in the calculation of
diluted shares outstanding as they would have been anti-dilutive
(in thousands of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Series B cumulative, convertible preferred stock
|
|
|
|
|
|
|
1,579
|
|
|
|
2,629
|
|
|
|
2,629
|
|
|
|
2,901
|
|
Series A cumulative, convertible preferred stock
|
|
|
476
|
|
|
|
476
|
|
|
|
476
|
|
|
|
476
|
|
|
|
476
|
|
Series A Preferred Stock warrants
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
Common stock warrants
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
Common stock options
|
|
|
632
|
|
|
|
2,338
|
|
|
|
4,554
|
|
|
|
3,295
|
|
|
|
4,232
|
|
|
|
NOTE G
|
STOCKHOLDERS
EQUITY
|
Series B
Cumulative Convertible Preferred Stock
In October 2009, the Company entered into an agreement for the
sale of its Series B Preferred Stock for gross proceeds of
approximately $14,500,000, of which approximately $3,000,000 was
committed by two holders of Series A Preferred Stock. Of
the total issue, 60 percent of the proceeds, or
approximately $8,569,000 net of issue costs, was received
in October 2009. Under the agreement, the balance of
approximately $5,784,000 was due in one year, subject to certain
performance milestones or waiver of those milestones by holders
of at least
662/3
percent of the then outstanding Series B Preferred Stock.
These milestones were achieved and, accordingly, these funds
were received in October 2010.
In connection with the Series B Preferred Stock
transaction, the Company executed a
1-for-100
reverse stock split of its outstanding Series A Preferred
Stock and Common Stock, and amended the number of shares
authorized for issuance. In May 2010, the Company executed a
10-for-1
stock split of its Common Stock and amended the number of shares
authorized for issuance. The net effect of these transactions
has been reflected in the accompanying consolidated financial
statements for all periods presented.
F-15
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Series B Preferred Stock has cumulative dividend rights
which are accrued at the per share rate of 8% and are payable
if, as and when declared by the Board of Directors or upon
certain events (the Accruing Dividends) based upon
the original issue price of $5.52 per share. No dividends have
been declared as of December 31, 2008, 2009, and 2010 and
September 30, 2011 (unaudited). Dividends in arrears as of
December 31, 2008, 2009, and 2010 are approximately $0,
$150,000, and $990,000, respectively, and are approximately
$688,000 (unaudited) and $1,973,000 (unaudited) as of
September 30, 2010 and 2011, respectively. In the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation (a Liquidating Event), the
holders of shares of Series B Preferred Stock then
outstanding shall be entitled to receive, before any payment to
the holders of Series A Preferred Stock and Common Stock,
an amount per share equal to the greater of (i) two times
the Series B Preferred Stock original issue price, plus any
Series B Accruing Dividends unpaid thereon, or
(ii) the amount per share of the Series B Preferred
Stock which such holder of Series B Preferred Stock would
receive if such holder had converted such shares of
Series B Preferred Stock into Common Stock immediately
prior to such event. If upon such event the assets available for
distribution shall be insufficient to pay the holders of the
shares of Series B Preferred Stock the full amount to which
they shall be entitled, the holders of the shares of
Series B Preferred Stock shall share ratably in any
distribution of the assets available for distribution in
proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full (a Ratable
Participation).
Series A
Cumulative Convertible Preferred Stock
The Series A Preferred Stock has Accruing Dividends at the
rate of 4%, based upon the original issue price of $2.208 per
share. No dividends have been declared as of December 31,
2008, 2009, and 2010 and September 30, 2011 (unaudited).
Dividends in arrears as of December 31, 2008, 2009, and
2010 are approximately $778,000, $1,233,000, and $1,707,000,
respectively, and as of September 30, 2010 and 2011 are
approximately $1,591,000 (unaudited) and $2,082,000 (unaudited),
respectively. Upon a Liquidating Event, holders of the
Series A Preferred Stock, before any payment shall be made
to the holders of Common Stock, will receive the greater of
(i) the Series A original issue price plus any
Accruing Dividends unpaid thereon or (ii) the amount per
share of the Series A Preferred Stock which such holder of
Series A Preferred Stock would receive if such holder had
converted such shares of Series A Preferred Stock into
Common Stock immediately prior to such event. If upon such event
the assets available for distribution shall be insufficient to
pay the holders of the shares of Series A Preferred Stock
the full amount to which they shall be entitled, the holders of
the shares of Series A Preferred Stock will have a Ratable
Participation.
Each share of Series A Preferred Stock and Series B
Preferred Stock may be converted into Common Stock by dividing
the Series A original issue price or Series B original
issue price, as the case may be, for each share, plus any
accrued and unpaid dividends on each share, by the Series A
conversion price or Series B conversion price, as the case
may be. At December 31, 2010 and September 30, 2011
(unaudited), the conversion price of the Series A Preferred
Stock was $2.208, and the conversion price of the Series B
Preferred Stock was $0.552.
The conversion prices for the Series A Preferred Stock, the
Series B Preferred Stock and the Series A Preferred
Stock underlying the Series A Preferred Warrants described
below are subject to downward adjustment of the stated
conversion price based upon subsequent dilutive issuances of
Common Stock or securities convertible into or exercisable for
Common Stock at a per share price which is less than that of the
stated conversion price. Accordingly, the Series A
Preferred Stock conversion price, as a result of the issuance of
the Series B Preferred shares, has been adjusted downward
to $1.028 per share. The conversion prices are also subject to
adjustment for stock splits and for certain dividends or other
distributions payable on the Common Stock in additional shares
of Common Stock.
F-16
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of the total shares of Series A Preferred Stock issued and
outstanding, 452,897 were issued for cash. In October 2007, the
Company issued 22,644 Series A Preferred Stock to a company
that is also a common stockholder in satisfaction of a research
and development services contract that began in October 2006 and
expired in December 2008. This contract was subsequently
extended to December 31, 2011. The fair value of the work
product received under this research and development services
contract was $500,000, pursuant to the terms of such contract.
Series A
Preferred Warrants
At December 31, 2009 and 2010, the Company had outstanding
warrants which entitle holders to purchase an aggregate of
46,311 shares of Series A Preferred Stock at an
exercise price of approximately $22.08 per share. Of the total,
45,289 were issued in November 2006 and 1,022 were issued August
2008. The exercise price was based upon the per share price of
previous sales of Series A Preferred Stock.
Common
Stock Warrants
The Company has issued to a vendor a warrant to purchase
26,040 shares of the Companys Common Stock for $2.208
per share through March 2012. Management has determined the
value of the service rendered to be nominal and no expense has
been recorded as of December 31, 2008, 2009, 2010 or
September 30, 2011 (unaudited) within the consolidated
statements of operations.
At December 31, 2010 and September 30, 2011, the
Company has net operating loss carry forwards for federal income
tax reporting purposes of approximately $15.8 million and
$19.8 million (unaudited), respectively, which will begin
to expire in the year 2025, and tax credits of approximately
$176,000 and $231,000 (unaudited) which will begin to expire in
2027. Management estimates that approximately $5.4 million
of the loss carryforwards will expire unused due to limitations
from changes in control.
The effective income tax rates for the years presented differ
from the U.S. Federal statutory income tax rate due to the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Income taxes at Federal statutory rate
|
|
$
|
(1,246
|
)
|
|
$
|
(925
|
)
|
|
$
|
(1,597
|
)
|
|
$
|
(1,007
|
)
|
|
$
|
(1,408
|
)
|
R&D credits
|
|
|
(36
|
)
|
|
|
(31
|
)
|
|
|
(60
|
)
|
|
|
(42
|
)
|
|
|
(55
|
)
|
Other permanent items
|
|
|
5
|
|
|
|
2
|
|
|
|
20
|
|
|
|
4
|
|
|
|
20
|
|
Estimated Section 382 limitation
|
|
|
|
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
1,277
|
|
|
|
(897
|
)
|
|
|
1,637
|
|
|
|
1,045
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
significant portions of the Companys net deferred tax
assets at December 31, 2009 and 2010 and September 30,
2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards and credits
|
|
$
|
2,305
|
|
|
$
|
3,905
|
|
|
$
|
5,288
|
|
Property and equipment
|
|
|
|
|
|
|
55
|
|
|
|
68
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,305
|
|
|
|
3,960
|
|
|
|
5,373
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
7
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
2,293
|
|
|
|
3,930
|
|
|
|
5,373
|
|
Less: valuation allowance
|
|
|
(2,293
|
)
|
|
|
(3,930
|
)
|
|
|
(5,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net operating loss carryforwards result in deferred tax
assets for which a full valuation allowance has been established
for financial reporting purposes because realization of a future
tax deduction is deemed not more likely than not. Accordingly,
no net deferred tax asset has been recorded in the accompanying
consolidated balance sheets. Internal Revenue Code
Section 382 places a limitation (the Section 382
Limitation) on the amount of taxable income that can be offset
by net operating loss (NOL) after a change in
control (generally, a greater than 50% change in ownership) of a
loss corporation. Generally, after a control change, loss
corporations cannot deduct NOL carryforwards in excess of the
Section 382 Limitation. Due to these change in
ownership provisions, utilization of the NOL carryforwards
may be subject to an annual limitation regarding their
utilization against taxable income in future periods.
Management believes that the issuance of Series B Preferred
Stock on October 15, 2009 has resulted in a change in
control under Section 382, and thereby the Federal net
operating loss carryforwards have been reduced by the estimated
effect of approximately $1.9 million; however, management
believes that the shares of Common Stock to be offered pursuant
to an offering of common stock would not result in another
change in ownership.
As a result of the implementation of the uncertain tax position
guidance on January 1, 2009, management of the Company
determined that the aggregate exposure had no impact on its
consolidated financial statements as of and for the years ended
December 31, 2009 and 2010 and for the nine months ended
September 30, 2011 (unaudited). Therefore, the Company did
not record an adjustment to its consolidated financial
statements related to the adoption of the uncertain tax position
guidance on January 1, 2009. The Company does not expect a
material change to the consolidated financial statements related
to uncertain tax positions in the next 12 months. The
Companys policy is to recognize interest and penalties
accrued related to unrecognized tax benefits in income tax
expense for all periods presented.
At December 31, 2010, the Company has net operating losses
in Argentina and Canada of approximately $352,000 and $167,000,
respectively, and at September 30, 2011 the Company has net
operating losses in Argentina and Canada of approximately
$514,000 (unaudited) and $339,000 (unaudited), respectively.
These losses will begin to expire in the years 2013 and 2030,
respectively.
F-18
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE I
|
EMPLOYEE
RETIREMENT SAVINGS PLAN
|
The Company sponsors an employee retirement saving plan (the
401(k) Plan) that is intended to qualify under
Section 401(k) of the Internal Revenue Code. The 401(k)
Plan is designed to provide eligible employees with an
opportunity to make regular voluntary contributions into a
long-term investment and saving program. There is no minimum age
or service requirement to participate, and the Company may make
discretionary matching contributions. For the years ended
December 31, 2008, 2009, and 2010 and for the nine months
ended September 30 2010 and 2011 (unaudited), the Company made
no discretionary matching contributions.
|
|
NOTE J
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
From time to time, the Company may be subject to legal
proceedings and claims that arise in the ordinary course of
business. The Company is not a party to any material litigation
or proceedings and is not aware of any material litigation or
proceedings, pending or threatened against it.
Operating
Leases
The Company leases its Houston office and laboratory and
manufacturing facility under an operating lease which expires in
April 2012, subject to a 36 month extension, its office
space in Calgary, Alberta, Canada under an operating lease that
expired in April 2011, and its office and laboratory facility in
Mendoza, Argentina under an operating lease with a related party
which expired in April 2011.
Approximate minimum future rental payments under these
noncancellable operating leases as of December 31, 2010 and
September 30, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
|
|
December 31
|
|
|
September 30
|
|
|
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
$
|
129
|
|
|
$
|
117
|
|
2012
|
|
|
127
|
|
|
|
126
|
|
2013
|
|
|
127
|
|
|
|
127
|
|
2014
|
|
|
53
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
436
|
|
|
$
|
455
|
|
|
|
|
|
|
|
|
|
|
Total rent expense for the years ended December 31, 2008,
2009 and 2010 was approximately $129,000, $136,000 and $125,000,
respectively, and for the nine months ended September 30,
2010 and 2011 total rent expense was approximately $136,000
(unaudited) and $152,000 (unaudited), respectively.
In March and April 2011, the Company executed leases for
warehouse space in Saskatchewan and Bakersfield, California,
respectively. The former requires monthly payments of
approximately $1,000 and is cancellable with 30 days
notice, and the latter requires monthly payments of $2,500 for
1 year.
In September 2011, the Company executed a second amendment to
the lease for its Houston facilities. The second amendment
extends the Companys commitment through May 2014, at the
rate of $10,586 per month, commencing on the Adjusted
Commencement Date (expected to be November 1, 2011), which
may be extended for an additional 36 months. The revised
lease payments have been reflected in the lease commitments
table presented above under Operating Leases.
F-19
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Discontinuance
of Operations in Argentina
In the first quarter of 2011, management determined that the
continuation of the Technology Agreement with the Technology
Partner and Principal and the related Management Agreement and
the maintenance of the Argentina workforce were no longer
significant to the Companys business plan. Accordingly, in
January 2011 the Company terminated the Technology Agreement and
the Management Agreement, and in March 2011, the Company
eliminated its workforce in Argentina. There was no additional
compensation required to terminate the Technology Agreement and
the Management Agreement, and the total compensation to settle
the termination of the workforce was approximately $45,000. As
part of the decision to discontinue operations in Argentina, the
Company did not renew the Mendoza, Argentina lease upon its
expiration in April 2011.
The net assets and results of operations of this operation were
not material to the Companys consolidated financial
position or results of operations. Management expects that any
failure to realize the net assets will not have a material
adverse effect on the Companys consolidated operations,
and that these terminations will not have a detrimental effect
on the Companys ability to expand its development of
microbial enhanced oil recovery in any geography.
Investing
and Financing Activities
In February 2011, the Companys Board of Directors
authorized the expenditure of approximately $866,000 to return
one half of the recently acquired Etzold field to production. In
April 2011, the Company achieved initial production from the
Etzold field.
Research
and Development Agreement
The Company has executed a research and development agreement
with a stockholder whereby it will receive research and
development services through 2011. The total value of services
received under this agreement is limited to $1 million, and
the Company has committed to issue a warrant to acquire common
shares on a post converted basis at a variable price based upon
two times the original issuance price per share of Preferred
Stock sold by the Company in its most recent bona fide financing
transaction which closes on or before December 31, 2011,
the proceeds of which will be used to liquidate the
Companys obligations under such agreement.
During the years ended December 31, 2009 and 2010 and the
nine months ended September 30, 2011 (unaudited), the
Company did not receive any services nor incur any expense
pursuant to this agreement. The total liability due under this
agreement at December 31, 2009 and 2010 and
September 30, 2011 (unaudited) is approximately $170,000
and is included as Accounts Payable in the accompanying
consolidated balance sheets.
|
|
NOTE K
|
STOCK
BASED COMPENSATION
|
Stock
Incentive Plan
In November 2010, the Compensation Committee of the Board of
Directors authorized the reservation and issuance of an
additional 900,000 shares of Common Stock pursuant to the
Glori Oil Limited Amended and Restated 2006 Stock Option and
Grant Plan (the Plan), increasing the total Common
Stock available for issuance under the Plan to 5,453,740 as of
December 31, 2010. These shares of Common Stock are
available for issuance to officers, directors, employees and
consultants of the Company. Options were issued at the exercise
price equal to the fair market value of the Companys
Common Stock at the grant date, as determined by the Board of
Directors based upon pre-money valuations of equity offerings
for issuances prior to 2009 and based upon a third-party
valuation for issuances in 2009 and 2010. Generally, the options
vest 25 percent after 1 year, and thereafter ratably
by month over the next 36 months, and may be exercised for
a period of 10 years subject to vesting. At
December 31, 2010, the Company had 4,553,781 options to
purchase shares outstanding under the Plan, of which 1,296,422
were exercisable; and at September 30, 2011, the Company
had 4,231,539 (unaudited) options to purchase shares outstanding
under the Plan, of which 2,046,074 (unaudited) were exercisable.
F-20
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has computed the fair value of all options granted
during the years ended December 31, 2008, 2009 and 2010 and
the nine months ended September 30, 2010, using the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year Ended
|
|
Ended
|
|
|
December 31,
|
|
September 30,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Risk-free interest rate
|
|
|
3.17
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
80
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life (in years)
|
|
|
7
|
|
|
|
3.21
|
|
|
|
3.21
|
|
|
|
3.21
|
|
Expected forfeiture rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There have never been significant forfeitures of the options to
purchase shares.
The following tables summarize the activity of the
Companys Plan related to stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Price
|
|
|
Contractual
|
|
|
|
Options
|
|
|
per Share
|
|
|
Term (Years)
|
|
|
Outstanding January 1, 2008
|
|
|
779,830
|
|
|
$
|
0.41
|
|
|
|
|
|
Granted
|
|
|
71,000
|
|
|
$
|
0.61
|
|
|
|
|
|
Exercised
|
|
|
(22,080
|
)
|
|
$
|
0.22
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(197,090
|
)
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2009
|
|
|
631,660
|
|
|
$
|
0.40
|
|
|
|
|
|
Granted
|
|
|
1,709,604
|
|
|
$
|
0.08
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(3,000
|
)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2010
|
|
|
2,338,264
|
|
|
$
|
0.16
|
|
|
|
|
|
Granted
|
|
|
2,219,517
|
|
|
$
|
0.08
|
|
|
|
|
|
Exercised
|
|
|
(3,420
|
)
|
|
$
|
0.22
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(580
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2010
|
|
|
4,553,781
|
|
|
$
|
0.12
|
|
|
|
8.9
|
|
Exercised
|
|
|
(133,432
|
)
|
|
$
|
0.23
|
|
|
|
|
|
Forfeited or Expired (unaudited)
|
|
|
(188,810
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2011 (unaudited)
|
|
|
4,231,539
|
|
|
$
|
0.12
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2010
|
|
|
1,296,422
|
|
|
$
|
0.22
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2011 (unaudited)
|
|
|
2,046,074
|
|
|
$
|
0.17
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised in the years
ended December 31 2008, 2009, and 2010 and for the nine months
ended September 30, 2010 (unaudited) was $0 for each
respective period as the exercise price for each option was
greater than the prevailing market value of the Companys
stock (unaudited as to September 30, 2010). During the nine
months ended September 30, 2011, 133,432 options with an
intrinsic value of approximately $295,000 were exercised. The
aggregate intrinsic value of options outstanding and exercisable
as of December 31, 2010 and September 30, 2011 is zero
and $4.6 million, respectively.
F-21
GLORI
ENERGY INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-based compensation expense included in general and
administrative expense was $0, $0 and approximately $42,000 for
the years ended December 31, 2008, 2009 and 2010,
respectively, and approximately $32,000 (unaudited) and $45,000
(unaudited) for the nine months ended September 30, 2010
and 2011, respectively. The Company has future unrecognized
compensation expense for nonvested shares at December 31,
2010 and September 30, 2011 of $123,000 and $90,000
(unaudited), respectively, which will be recognized over the
next two years.
Restricted Common Stock: In 2006 and
2007, the Company granted to two employees approximately 62,000
and 265,000 shares of restricted common stock,
respectively, which vest ratably over 5 and 3 years,
respectively. As of December 31, 2008, 2009, and 2010 and
September 30, 2011, the number of nonvested restricted
shares outstanding was approximately 129,000, 28,000, 0 and 0
(unaudited), respectively. Management has determined that the
compensation expense related to this award was nominal and,
accordingly, no compensation expense was recorded in the
consolidated financial statements for the years ended
December 31, 2008, 2009, and 2010 and the nine months ended
September 30, 2011. There is no unrecognized cost as of
December 31, 2010 or September 30, 2011 (unaudited).
The following table summarizes the activity of the
Companys restricted common stock:
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Unvested at January 1, 2008
|
|
|
228,612
|
|
Vested
|
|
|
(100,734
|
)
|
|
|
|
|
|
Unvested at January 1, 2009
|
|
|
128,878
|
|
Vested
|
|
|
(100,734
|
)
|
|
|
|
|
|
Unvested at January 1, 2010
|
|
|
27,144
|
|
Vested
|
|
|
(27,144
|
)
|
|
|
|
|
|
Unvested at December 31, 2010 and September 30, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
NOTE L
|
SUBSEQUENT
EVENTS
|
Management has evaluated subsequent events through
November 18, 2011.
F-22
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution
|
The following table sets forth the expenses, other than the
underwriting discounts and commissions, all of which are payable
by the Registrant in connection with the sale and distribution
of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission
registration fee, FINRA filing fee and the initial Nasdaq Global
Market listing fee.
|
|
|
|
|
|
|
Amount
|
|
|
|
to be paid
|
|
|
SEC registration fee
|
|
$
|
13,179
|
|
FINRA filing fee
|
|
|
12,000
|
|
Initial Nasdaq Global Market listing fee
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous expenses
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
We are incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers under
certain circumstances and subject to certain limitations. The
terms of Section 145 of the Delaware General Corporation
Law are sufficiently broad to permit indemnification under some
circumstances for liabilities, including reimbursement of
expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, our
post-offering certificate of incorporation includes a provision
that eliminates the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director,
except for liability:
|
|
|
|
|
for any breach of the directors duty of loyalty to the
Registrant or its stockholders;
|
|
|
|
for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
|
|
|
|
under Section 174 of the Delaware General Corporation Law
regarding unlawful dividends, stock purchases and
redemptions; or
|
|
|
|
for any transaction from which the director derived an improper
personal benefit.
|
As permitted by the Delaware General Corporation Law, our
post-offering bylaws, which will become effective upon the
closing of this offering, provide that:
|
|
|
|
|
we are required to indemnify our directors and officers to the
fullest extent permitted by the Delaware General Corporation
Law, subject to limited exceptions where indemnification is not
permitted by applicable law;
|
|
|
|
we are required to advance expenses, as incurred, to our
directors and officers in connection with a legal proceeding to
the fullest extent permitted by the Delaware General Corporation
Law; and
|
|
|
|
the rights conferred in the our post-offering bylaws are not
exclusive.
|
II-1
In addition, we have entered or expect to enter into indemnity
agreements with each of our current directors and executive
officers. These agreements provide for the indemnification of
our executive officers and directors for all expenses and
liabilities incurred in connection with any action or proceeding
brought against them by reason of the fact that they are or were
our agents. At present, there is no pending litigation or
proceeding involving one of our directors, executive officers or
employees regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
We maintain directors and officers insurance to
cover our directors and executive officers for specific
liabilities, including coverage for public securities matters.
The indemnification provisions in our post-offering certificate
of incorporation and post-offering bylaws and the indemnity
agreements entered into between us and each of our directors and
executive officers may be sufficiently broad to permit
indemnification of our directors and executive officers for
liabilities arising under the Securities Act.
Reference is also made to
section
of the underwriting agreement in Exhibit 1.1 hereto, which
provides for the indemnification by the underwriters of us and
our executive officers, directors and controlling persons
against certain liabilities, including liabilities arising under
the Securities Act, in connection with matters specifically
provided for in writing by the underwriters for inclusion in
this Registration Statement.
See also the undertakings set out in response to Item 17 of
this Registration Statement.
Reference is made to the following documents filed as exhibits
to this Registration Statement regarding relevant
indemnification provisions described above and elsewhere herein:
|
|
|
|
|
Exhibit Document
|
|
Number
|
|
Form of Underwriting Agreement
|
|
|
1.1
|
|
Form of Certificate of Incorporation to be effective upon the
closing of the offering
|
|
|
3.2
|
|
Form of Bylaws to be effective upon the closing of the offering
|
|
|
3.4
|
|
Form of Indemnification Agreement entered into among us and our
directors and executive officers
|
|
|
10.6
|
|
|
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
In the three years preceding the filing of this Registration
Statement, we have issued the following securities that were not
registered under the Securities Act:
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On August 5, 2008, we issued a warrant to one purchaser to
purchase an aggregate of up to 1,022 shares of our
series A preferred stock.
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On October 15, 2009, we issued and sold
1,578,976 shares of series B preferred stock to seven
purchasers at a price of $5.5216 per share, for aggregate
consideration of approximately $8.7 million, including
cancellation of certain indebtedness.
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On October 7, 2010, we issued and sold
1,050,416 shares of series B preferred stock to seven
purchasers at a price of $5.5216 per share, for aggregate
consideration of approximately $5.8 million.
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On May 31, 2011, we issued and sold 271,660 shares of
series B preferred stock to one purchaser at a price of
$5.5216 per share, for consideration of approximately
$1.5 million. In conjunction with this financing, on
May 31, 2011, we issued and sold the ETV Note to ETV, which
is a convertible promissory note in the principal sum of
$1.5 million maturing in November 2012, subject to
extension, bearing interest at a fixed rate of 8%. Upon the
closing of this offering and in payment of the ETV Note, ETV may
elect to (i) receive payment from us of an amount in cash
equal to the principal outstanding under the ETV Note, plus all
accrued and unpaid interest thereon or (ii) convert the ETV
Note into a number of shares of our common stock equal to the
quotient obtained by dividing the principal outstanding under
the ETV Note, plus all accrued and unpaid interest thereon, by a
price per share that is currently estimated at $2.44.
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II-2
The sales and issuances of securities above were determined to
be exempt from registration under Section 4(2) of the
Securities Act or Regulation D thereunder as transactions
by an issuer not involving a public offering. The purchasers in
such transactions were all accredited investors and represented
their intention to acquire the securities for investment only
and not with a view to or for resale in connection with any
distribution thereof, and appropriate legends were affixed to
the stock certificates and other instruments issued in such
transactions. The sales of these securities were made without
general solicitation or advertising, and there were no
underwriters used in connection with the sale of these
securities. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.
From time to time we have granted common stock, restricted
common stock, options and common stock upon the exercise of
options to employees, directors and consultants in compliance
with Rule 701. These grants are as follows:
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On January 21, 2008, we issued options to purchase
3,000 shares of common stock to an employee under our 2006
Plan with an exercise price of $0.6105 per share;
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On February 7, 2008, we issued options to purchase
65,000 shares of common stock to an employee under our 2006
Plan with an exercise price of $0.6105 per share;
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On May 19, 2008, we issued options to purchase
3,000 shares of common stock to an employee under our 2006
Plan with an exercise price of $0.6105 per share;
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On October 15, 2009, we issued options to purchase
1,709,604 shares of common stock to employees and a
consultant under our 2006 Plan with an exercise price of $0.078
per share;
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On January 1, 2010, we issued options to purchase
45,537 shares of common stock to an employee under our 2006
Plan with an exercise price of $0.078 per share;
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On January 4, 2010, we issued options to purchase
36,056 shares of common stock to two employees under our
2006 Plan with an exercise price of $0.078 per share;
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On February 3, 2010, we issued options to purchase
22,796 shares of common stock to an employee under our 2006
Plan with an exercise price of $0.078 per share;
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On April 1, 2010, we issued options to purchase
383,105 shares of common stock to an employee and a
consultant under our 2006 Plan with an exercise price of $0.078
per share;
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On September 1, 2010, we issued options to purchase
22,711 shares of common stock to a consultant under our
2006 Plan with an exercise price of $0.078 per share;
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On September 22, 2010, we issued options to purchase
450,712 shares of common stock to an employee under our
2006 Plan with an exercise price of $0.078 per share; and
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On October 15, 2010, we issued options to purchase
1,258,600 shares of common stock to employees under our
2006 Plan with an exercise price of $0.078 per share.
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Since January 1, 2008 through September 30, 2011,
options have been exercised to acquire 158,932 shares of
common stock at a weighted average exercise price of $0.23 per
share.
The sales and issuances of securities listed above were deemed
to be exempt from registration under the Securities Act by
virtue of Rule 701 promulgated under Section 3(b) of
the Securities Act as transactions pursuant to compensation
benefits plans and contracts relating to compensation. All of
the foregoing securities are deemed restricted securities for
the purposes of the Securities Act.
II-3
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Item 16.
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Exhibits
and Financial Statement Schedules
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Index to Exhibits
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1
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.1*
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Form of Underwriting Agreement
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1
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.2*
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Form of Lock-up Agreement (filed as an attachment to Exhibit 1.1)
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3
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.1*
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Amended and Restated Certificate of Incorporation dated as of
October 15, 2009, as amended and currently in effect
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3
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.2*
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Amended and Restated Certificate of Incorporation, to be
effective upon the closing of the offering
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3
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.3*
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Bylaws, as currently in effect
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3
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.4*
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Amended and Restated Bylaws, to be effective upon the closing of
the offering
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4
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.1*
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Specimen certificate evidencing common stock
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4
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.2*
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Second Amended and Restated Investors Rights Agreement,
dated as of October 15, 2009, among the Registrant and the
holders of our capital party thereto
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4
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.3*
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First Amendment to the Second Amended and Restated
Investors Rights Agreement, dated as of May 31, 2011,
among the Registrant and the holders of our capital party thereto
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4
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.4**
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Warrant issued to Silicon Valley Bank dated August 5, 2008
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4
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.5**
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Warrant issued to GTI Glori Oil Fund I L.P. dated
November 30, 2006
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4
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.6**
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Warrant issued to Korn Ferry International dated March 1,
2007
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4
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.7**
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Form of Warrant to be issued to The Energy and Resources
Institute on or before December 31, 2011
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5
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.1*
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Opinion of Fulbright & Jaworski L.L.P.
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10
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.1+**
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Glori Oil Limited Amended and Restated 2006 Long-Term Incentive
Plan
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10
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.2+*
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Glori Energy, Inc. 2011 Omnibus Incentive Plan
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10
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.3+**
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Form of Option Award Agreement under the 2006 Plan
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10
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.4+*
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Form of Incentive Stock Option Award Agreement under the 2011
Plan
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10
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.5+*
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Form of Nonqualified Stock Option Award Agreement under the 2011
Plan
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10
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.6*
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Form of Indemnification Agreement entered into with each
director and executive officer
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10
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.7+**
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Employment Agreement between the Registrant and Stuart M. Page,
dated March 1, 2007
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10
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.8+**
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Employment Agreement between the Registrant and Harry Friske,
dated August 12, 2011
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10
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.9+**
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Employment Agreement between the Registrant and John A. Babcock,
dated December 5, 2005
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10
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.10+**
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Employment Agreement between the Registrant and William M.
Bierhaus II, dated March 5, 2010
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10
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.11+**
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Employment Agreement between the Registrant and Bhupendra Soni,
dated November 21, 2006
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10
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.12+**
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Employment Agreement between the Registrant and Thomas Ishoey,
dated August 10, 2010
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10
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.13+**
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Employment Agreement between the Registrant and Victor M. Perez,
dated as of July 26, 2011
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10
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.14+**
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Release and Severance Agreement between the Registrant and
Bhupendra Soni, dated January 15, 2011
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16
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.1**
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Letter from UHY LLP regarding change in certifying accountant
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21
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.1**
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Subsidiaries of the Registrant
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23
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.1
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Consent of Grant Thornton LLP, independent registered public
accounting firm
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23
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.2
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Consent of UHY LLP, independent registered public accounting firm
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23
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.3*
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Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1)
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24
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.1**
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Power of Attorney (included on signature page of this
Registration Statement)
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99
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.1**
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Consent of Nehring Associates, Inc. dated September 28,
2011
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* |
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To be filed by Amendment. |
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** |
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Previously filed. |
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+ |
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Indicates management contract or compensatory plan. |
II-4
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(B)
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Financial
Statement Schedule
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All schedules have been omitted because the information required
to be presented in them is not applicable or is shown in the
financial statements or related notes.
The undersigned hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names
as required by the underwriters to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the DGCL, our Certificate of
Incorporation or our Bylaws, the underwriting agreement or
otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by us of expenses incurred or paid by one of our directors,
officers, or controlling persons in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered hereunder, we will, unless in the opinion of
our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
We hereby undertake that:
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For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by us
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
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For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Houston, Texas, on
December 22, 2011.
Glori Energy Inc.
Stuart M. Page
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ STUART
M. PAGE
Stuart
M. Page
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Chief Executive Officer
(Principal Executive Officer) and Director
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December 22, 2011
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/s/ VICTOR
M. PEREZ
Victor
M. Perez
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Chief Financial Officer
(Principal Financial Officer)
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December 22, 2011
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/s/ HARRY
FRISKE
Harry
Friske
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Controller
(Principal Accounting Officer)
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December 22, 2011
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/s/ JONATHAN
SCHULHOF
Jonathan
Schulhof
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Chairman of the Board
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December 22, 2011
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/s/ MATTHEW
GIBBS
Matthew
Gibbs
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Director
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December 22, 2011
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/s/ JOHN
CLARKE
John
Clarke
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Director
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December 22, 2011
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/s/ GANESH
KISHORE
Ganesh
Kishore
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Director
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December 22, 2011
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*
Jasbir
Singh
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Director
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December 22, 2011
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/s/ MICHAEL
SCHULHOF
Michael
Schulhof
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Director
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December 22, 2011
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/s/ MARK
PUCKETT
Mark
Puckett
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Director
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December 22, 2011
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*By:
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/s/ STUART
M. PAGE
As
Attorney-in-Fact
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II-6
Index to
Exhibits
|
|
|
|
|
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1
|
.1*
|
|
Form of Underwriting Agreement
|
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1
|
.2*
|
|
Form of Lock-up Agreement (filed as an attachment to Exhibit 1.1)
|
|
3
|
.1*
|
|
Amended and Restated Certificate of Incorporation dated as of
October 15, 2009, as amended and currently in effect
|
|
3
|
.2*
|
|
Amended and Restated Certificate of Incorporation, to be
effective upon the closing of the offering
|
|
3
|
.3*
|
|
Bylaws, as currently in effect
|
|
3
|
.4*
|
|
Amended and Restated Bylaws, to be effective upon the closing of
the offering
|
|
4
|
.1*
|
|
Specimen certificate evidencing common stock
|
|
4
|
.2*
|
|
Second Amended and Restated Investors Rights Agreement,
dated as of October 15, 2009, among the Registrant and the
holders of our capital party thereto
|
|
4
|
.3*
|
|
First Amendment to the Second Amended and Restated
Investors Rights Agreement, dated as of May 31, 2011,
among the Registrant and the holders of our capital party thereto
|
|
4
|
.4**
|
|
Warrant issued to Silicon Valley Bank dated August 5, 2008
|
|
4
|
.5**
|
|
Warrant issued to GTI Glori Oil Fund I L.P. dated
November 30, 2006
|
|
4
|
.6**
|
|
Warrant issued to Korn Ferry International dated March 1,
2007
|
|
4
|
.7**
|
|
Form of Warrant to be issued to The Energy and Resources
Institute on or before December 31, 2011
|
|
5
|
.1*
|
|
Opinion of Fulbright & Jaworski L.L.P.
|
|
10
|
.1+**
|
|
Glori Oil Limited Amended and Restated 2006 Long-Term Incentive
Plan
|
|
10
|
.2+*
|
|
Glori Energy, Inc. 2011 Omnibus Incentive Plan
|
|
10
|
.3+**
|
|
Form of Option Award Agreement under the 2006 Plan
|
|
10
|
.4+*
|
|
Form of Incentive Stock Option Award Agreement under the 2011
Plan
|
|
10
|
.5+*
|
|
Form of Nonqualified Stock Option Award Agreement under the 2011
Plan
|
|
10
|
.6*
|
|
Form of Indemnification Agreement entered into with each
director and executive officer
|
|
10
|
.7+**
|
|
Employment Agreement between the Registrant and Stuart M. Page,
dated March 1, 2007
|
|
10
|
.8+**
|
|
Employment Agreement between the Registrant and Harry Friske,
dated August 12, 2011
|
|
10
|
.9+**
|
|
Employment Agreement between the Registrant and John A. Babcock,
dated December 5, 2005
|
|
10
|
.10+**
|
|
Employment Agreement between the Registrant and William M.
Bierhaus II, dated March 5, 2010
|
|
10
|
.11+**
|
|
Employment Agreement between the Registrant and Bhupendra Soni,
dated November 21, 2006
|
|
10
|
.12+**
|
|
Employment Agreement between the Registrant and Thomas Ishoey,
dated August 10, 2010
|
|
10
|
.13+**
|
|
Employment Agreement between the Registrant and Victor M. Perez,
dated as of July 26, 2011
|
|
10
|
.14+**
|
|
Release and Severance Agreement between the Registrant and
Bhupendra Soni, dated January 15, 2011
|
|
16
|
.1**
|
|
Letter from UHY LLP regarding change in certifying accountant
|
|
21
|
.1**
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, independent registered public
accounting firm
|
|
23
|
.2
|
|
Consent of UHY LLP, independent registered public accounting firm
|
|
23
|
.3*
|
|
Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1)
|
|
24
|
.1**
|
|
Power of Attorney (included on signature page of this
Registration Statement)
|
|
99
|
.1**
|
|
Consent of Nehring Associates, Inc. dated September 28,
2011
|
|
|
|
* |
|
To be filed by Amendment. |
|
** |
|
Previously filed. |
|
+ |
|
Indicates management contract or compensatory plan. |