F-1 1 a2205299zf-1.htm F-1

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As filed with the U.S. Securities and Exchange Commission on February 3, 2012

Registration No. 333-              

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM F-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Enerkem Inc.
(Exact name of Registrant as specified in its charter)



Canada
(State or other jurisdiction of
incorporation or organization)
  2860
(Primary Standard Industrial
Classification Code Number)
  98-1016649
(I.R.S. Employer
Identification Number)

1010, Sherbrooke Street West, Suite 1610
Montreal, Quebec H3A 2R7
Canada
(514) 875-0284
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



The Delaware Corporation Agency, Inc.
222 Delaware Avenue, 9th Floor
Wilmington, Delaware 19801
(302) 429-9550
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Babak Yaghmaie
John T. McKenna
Stephane Levy
Cooley LLP
1114 Avenue of the Americas
New York, NY 10036-7798
(212) 479-6000
  Steeve Robitaille
Gayle Noble
Stikeman Elliott LLP
1155 René-Lévesque Blvd. West, Suite 4000
Montreal, Quebec H3B 3V2
(514) 397-3000
  Vincent Pagano
Ryan Bekkerus
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
(212) 455-2000
  Patrick Boucher
Philippe Fortier
McCarthy Tétrault LLP
1000 De La Gauchetière Street West
Suite 2500
Montreal, Quebec H3B 0A2
(514) 397-4100



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, 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



CALCULATION OF REGISTRATION FEE



       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)

 

Common shares, no par value per share

  $125,000,000   $14,325

 

(1)
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of additional shares that the underwriters have the option to purchase.

(2)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price of the securities registered hereunder to be sold by the Registrant.



              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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.


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The information in this preliminary 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 preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated February 3, 2012

PRELIMINARY PROSPECTUS

                     Shares

LOGO

Common Shares



          This is an initial public offering of common shares of Enerkem Inc.

          We are offering                          common shares to be sold in this offering. Prior to this offering, there has been no public market for our common shares.

          It is currently estimated that the initial public offering price per share will be between $             and $             . We have applied to list our common shares on the NASDAQ Global Market under the symbol "NRKM" and on the Toronto Stock Exchange under the symbol "NKM."

          See "Risk Factors" on page 11 to read about factors you should consider before buying our common shares.

          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 
Per Share
 
Total
 

Initial public offering price

  $                  $                 

Underwriting discounts

  $                  $                 

Proceeds, before expenses, to Enerkem

  $                  $                 

          To the extent that the underwriters sell more than                          common shares, the underwriters have the option to purchase up to an additional                          common shares from Enerkem at the initial public offering price less the underwriting discounts.



          The underwriters expect to deliver the shares against payment in New York, New York on                          , 2012.

Goldman, Sachs & Co.   Credit Suisse   BMO Capital Markets

Prospectus dated                          , 2012.




GRAPHIC


GRAPHIC


GRAPHIC


TABLE OF CONTENTS



 
 
Page

Prospectus Summary

  1

Risk Factors

  11

Special Note Regarding Forward-Looking Statements

  44

Use of Proceeds

  46

Dividend Policy

  46

Capitalization

  47

Dilution

  51

Selected Consolidated Financial Data

  53

Management's Discussion and Analysis of Financial Condition and Results of Operations

  55

Business

  82

Management

  116

Executive Compensation

  126

Certain Relationships and Related Person Transactions

  147

Principal Shareholders

  150

Description of Share Capital

  153

Shares Eligible for Future Sale

  168

United States and Canadian Income Tax Considerations

  171

Underwriting

  180

Expenses Relating to this Offering

  185

Legal Matters

  186

Experts

  186

Change in Accountants

  186

Enforceability of Civil Liabilities

  186

Where You Can Find More Information

  188

Index to Consolidated Financial Statements

  F-1



          You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We and the underwriters are offering to sell, and seeking offers to buy, our common shares only in jurisdictions where offers and sales are permitted.

          For investors outside the United States and Canada: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States and Canada. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

          Our consolidated financial statements are presented in Canadian dollars. All references in this prospectus to "$," "US$," "U.S.$," "U.S. dollars," "dollars" and "USD" mean U.S. dollars and all references to "C$," "Canadian dollars," "CAD" and "CDN$" mean Canadian dollars, unless otherwise noted. All references to "$" in our consolidated financial statements mean Canadian dollars.

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CURRENCY TRANSLATION

          The following table presents, for each period presented, the high and low exchange rates, the exchange rates at the end of the period and the average of the exchange rates on the last day of each month during the period indicated for one Canadian dollar, expressed in U.S. dollars, based on the inverse of the noon buying rate in New York City for cable transfers in U.S. dollars as certified for customs purposes by the Federal Reserve Bank of New York (the "noon buying rate").

 
  Month Ended  
 
 
July 31,
2011
 
August 31,
2011
 
September 30,
2011
 
October 31,
2011
 
November 30,
2011
 
December 31,
2011
 

High

  $ 1.0584   $ 1.0442   $ 1.0255   $ 1.0068   $ 0.9877   $ 0.9895  

Low

    1.0344     1.0092     0.9626     0.9430     0.9536     0.9613  

End of Period

    1.0483     1.0222     0.9626     1.0068     0.9805     0.9835  

Average

    1.0468     1.0186     0.9975     0.9806     0.9758     0.9770  

 

 
  Year Ended December 31,   Nine Months
Ended September 30,
 
 
 
2007
 
2008
 
2009
 
2010
 
2011
 
2010
 
2011
 

High

  $ 1.0908   $ 1.0291   $ 0.9719   $ 1.0040     1.0584   $ 1.0040   $ 1.0584  

Low

    0.8437     0.7710     0.7695     0.9280     0.9430     0.9280     0.9626  

End of Period

    1.0120     0.8170     0.9559     0.9991     0.9835     0.9715     0.9626  

Average

    0.9316     0.9381     0.8763     0.9711     1.0114     0.9660     1.0227  

          On January 27, 2012, the inverse of the noon buying rate was C$1.00 = US$0.9986. Unless otherwise specified herein, all U.S. dollar amounts have been converted to Canadian dollar amounts based on the noon buying rate on January 27, 2012, which was US$1.00 = C$1.0014.


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 estimates, is based on information from independent industry analysts, third-party sources and management estimates. Management estimates are derived from publicly-available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us based on such data and our knowledge of such industry and market, which we believe to be reasonable. In addition, while we believe the market opportunity information included in this prospectus is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors."

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PROSPECTUS SUMMARY

          This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our common shares and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially "Risk Factors," "Business" and our financial statements and the related notes, before deciding to buy our common shares. Unless the context otherwise requires, any reference to "Enerkem," "we," "our" and "us" in this prospectus refers to Enerkem Inc. and our subsidiaries.


Enerkem Inc.

Overview

          We develop renewable biofuels and chemicals from waste using our proprietary thermochemical technology platform.

          We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to use as feedstock, to profitably produce cellulosic ethanol, a second-generation biofuel. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and greenhouse gas, or GHG, emissions.

          Our proprietary technology platform converts MSW and other heterogeneous waste feedstocks, consisting of mixed textiles, plastics, fibers, wood and various other forms of waste, into a pure, chemical-grade synthesis gas, or syngas. This syngas is then converted into biofuels and chemicals through well-established catalytic reactions. We believe that our technology platform provides a key competitive advantage as compared to other thermochemical technologies because it utilizes a low-severity gasification process that significantly reduces operating and capital costs due to lower temperature, pressure and energy requirements to break down heterogeneous waste feedstock.

          We are a development stage company and we have not yet generated any revenue from the sale of our products. While our primary focus is the commercial production of cellulosic ethanol, we also intend to expand to multiple products beyond ethanol by taking advantage of our ability to produce a pure, chemical-grade syngas that serves as a key intermediate for the production of renewable chemicals.

          We have validated our technology over a period of 10 years using MSW from numerous municipalities, as well as a broad variety of other feedstock, such as wood and agricultural residues. Our pilot facility in Sherbrooke, Canada has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day. Throughput capacity refers to the volume of feedstock that can be processed by a facility. We have successfully increased, or scaled-up, our throughput capacity tenfold, or 10x, to 48 metric tons per day in our commercial demonstration facility in Westbury, Canada. The Westbury facility has a production capacity of 1.3 million gallons per year, or MMGPY. We believe that the Westbury facility is one of the largest thermochemical facilities to process heterogeneous waste material as feedstock. Our first standard 10MMGPY commercial facility is currently under construction in Edmonton, Canada. The Edmonton facility will entail a further 7x scale-up in throughput capacity from our Westbury facility with only an approximate 2x increase in gasification and gas conditioning equipment size. We believe this scale-up is the lowest to full commercial capacity to date by any cellulosic ethanol producer. We also believe the Edmonton facility is the first collaboration between a waste-to-biofuels company and a metropolitan center to address its waste disposal challenges.


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          The U.S. Renewable Fuel Standards Program, or RFS2, mandates that 16 billion gallons per year of cellulosic biofuels, which include cellulosic ethanol, be blended in the national transportation fuel supply by 2022. While we expect to benefit from demand and regulatory incentives under RFS2 and the Canadian renewable fuels mandated market, we expect to maintain a more competitive production cost structure, before incentives, than existing ethanol producers. We believe that we can produce cellulosic ethanol in the United States at operating costs, before depreciation and amortization, of $1.50 to $1.70 per gallon in a standard commercial facility producing 10MMGPY. We estimate that we can reduce our operating costs in the United States, before depreciation and amortization, to approximately $1.05 to $1.25 per gallon by building larger 40MMGPY facilities, composed of four of our standard 10MMGPY modules. In addition, we expect to generate revenues from payments, commonly referred to as tipping fees, which we expect to receive from municipalities and waste managers for taking MSW feedstock. According to the Waste Business Journal, an industry publication, average tipping fees for landfills in the United States were $47 per metric ton in 2009. We believe that every $10.00 dollars per metric ton of tipping fees that we receive will generate revenue of approximately $0.12 per gallon. We believe these production cost economics will facilitate the deployment of our technology platform.

          We have initiated our commercial roll-out with several identified projects. Our first standard 10MMGPY commercial facility is currently under construction in Edmonton. We have secured a 25-year MSW feedstock supply agreement with the City of Edmonton for that facility. We expect to ready our Edmonton facility for methanol production in the first quarter of 2013 and ethanol production in the second half of 2013. We have secured a five-year offtake agreement with Methanex Corporation, a global leader in methanol production and marketing, for the methanol to be produced at the Edmonton facility. In addition to the Edmonton facility, we are currently developing two additional projects in Pontotoc, Mississippi and Varennes, Canada, where we also intend to build our standard 10MMGPY commercial facilities. Beyond these active projects, we have prioritized additional potential sites in the United States for development.

          In addition to facilities that we will build, own and operate, we intend to capitalize on opportunities to sell systems utilizing our proprietary technology platform to select strategic partners. To this end, we have entered into non-binding arrangements, and we are currently negotiating definitive commercial development agreements, relating to commercial project pipeline arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation, which is an affiliate of Waste Management Inc., North America's largest waste management company, and Valero Energy Corporation, one of the largest independent refiners in the world and one of the largest retailers and producers of ethanol in the United States. Under these non-binding arrangements, we intend to sell our proprietary systems to Waste Management and Valero, who, in turn, may build and own multiple additional production facilities in the United States. We expect to have an option to own up to 49.5% or 50% of these facilities. We believe that these strategic relationships will enable us to capitalize on the growing demand for our waste-based biofuel solutions and accelerate our market penetration.

          We have developed a modular, copy-exact and scalable approach for equipment production and installation that we anticipate will allow us to have our systems manufactured by third parties as pre-fabricated, replicable modules under fixed-price contracts. We have entered into various such fixed-price contracts with third-party manufacturers for components of the 10MMGPY module to be installed at our Edmonton facility. As a result of this approach, we expect to be able to more rapidly convert our pipeline into commercial facilities and reduce our capital costs by enabling the manufacturing of multiple modules simultaneously and to readily increase the size of our facilities by installing additional standard 10MMGPY modules side by side.

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Our Solution

          We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable biofuels, while also addressing the challenges associated with waste disposal and GHG emissions. Our technology platform and waste-based cellulosic biofuels provide significant benefits, including the following:

    Cellulosic biofuels produced with our systems will provide a secure source of domestic, non-petroleum-based renewable fuel that will help reduce dependence on foreign oil and reduce carbon dioxide, or CO2, emissions from the petroleum fuels we displace.

    The use of MSW as feedstock avoids the need for expensive homogeneous feedstock and generates transportation costs savings by taking advantage of the waste industry's existing collection, distribution and logistics infrastructure.

    Biofuels produced from waste do not compete for food supply sources and have no land use or soil degradation impact.

    By reducing the volume of MSW in landfills, our platform can help reduce the need for new landfills.

    Our thermochemical gasification and syngas conversion processes do not rely on biologic or complex enzymatic reactions, and therefore, we believe are easier to commercially deploy and have lower scale-up requirements.

    Based on independent GHG lifecycle analyses, we believe we can reduce GHG emissions by more than 60% compared to gasoline.

Our Strengths

          Our business benefits from a number of competitive strengths, including the following:

          Our proprietary technology platform enables us to convert heterogeneous waste to biofuels and chemicals.    We believe that we are the first company to produce a pure, chemical-grade syngas using heterogeneous waste in a commercial demonstration facility. Since 2003, we have tested and validated our technology with MSW from numerous municipalities, as well as a broad variety of other feedstock, at both our pilot and demonstration facilities. We believe that our technology platform significantly reduces operating and capital costs as compared with other thermochemical technologies due to lower temperature, pressure and energy requirements to break down heterogeneous waste feedstock.

          We believe we have the lowest scale-up among cellulosic ethanol producers.    The scale-up from our commercial demonstration facility in Westbury to our planned standard 10MMGPY commercial facilities represents approximately a 2x scale-up in gasification and gas conditioning equipment size and approximately a 7x scale-up in throughput capacity.

          Our business model benefits from large market opportunities and an attractive cost structure.    Our primary product focus is cellulosic ethanol, a significant market opportunity that is driven by a rapidly growing market demand for renewable biofuels, and is further bolstered by government mandates and incentives. In addition, we believe our cost structure benefits from the ability to locate our compact facilities on or near landfill sites, the abundant supply of negative cost MSW feedstock and our competitive production costs.

          We have a tangible commercial pipeline with visible growth opportunities supported by our modular manufacturing approach.    In addition to our first standard 10MMGPY commercial facility under construction in Edmonton, we have two 10MMGPY commercial facilities under development in Pontotoc and Varennes. Beyond these projects, we have prioritized, based on specific selection criteria, 68 landfills in the United States as additional potential sites for development by us or our strategic partners, representing a potential production of 2 billion gallons

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of ethanol per year using 200 of our standard 10MMGPY modules. We have developed a modular, copy-exact and scalable approach for equipment production and installation that we expect will enable us to cost-effectively convert this pipeline into commercial facilities.

          We have established key strategic relationships with industry-leading partners.    We have established commercial relationships with affiliates of both Waste Management and Valero. Our relationships with these strategic partners will enhance our production and distribution reach with both access to feedstock and offtake capacity. We have entered into a non-binding arrangement with an affiliate of Waste Management to sell systems using our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY. With Valero, we have entered into a non-binding term sheet to sell systems using our proprietary technology platform for the development of up to six stand-alone sites with a combined ethanol production capacity of 80-250MMGPY and additional facilities to be co-located with existing Valero facilities.

          We have an experienced and hands-on management team.    Our executives and senior managers have built our business from the ground up and have extensive experience in research and development, business development, project financing, procurement and plant operations. We believe that the experience of our management team, coupled with our strong strategic relationships with industry leaders, will accelerate our project development cycle and enhance our ability to grow our business in North America and expand into international markets.

Our Strategy

          Our objective is to leverage our proprietary technology platform to be a leading provider of cellulosic biofuels while building a portfolio of renewable chemicals. Key elements of our strategy include the following:

          We plan to build, own and operate new facilities.    We intend to build, own and operate new commercial facilities in addition to the 10MMGPY commercial facility we have under construction in Edmonton, and the additional projects we are actively developing. We have selected several additional landfills in the United States for potential development using key identification criteria that are focused on the most attractive economics and speed to market. Our site selection process is designed to prioritize landfill sites that offer (1) sufficient long-term volumes of sorted MSW feedstock, (2) rapid permitting cycles, (3) limited remaining landfill capacity, (4) high tipping fees, and (5) proximity to blenders and refiners.

          We intend to pursue development opportunities with select industry-leading companies.    In order to accelerate our market penetration, we have pursued strategic relationships with affiliates of industry-leading companies, such as Waste Management and Valero, who may build and own additional facilities utilizing our proprietary technology platform. We intend to pursue and establish additional strategic relationships on a selective basis with other industry-leading companies to capitalize on the expertise and core competencies that they can provide in order to increase our market penetration.

          We will continue to focus on reducing our costs.    We intend to continue to take advantage of our technical expertise to enhance our proprietary technology platform in order to maximize our process efficiency and reduce our production costs. As we expand the capacities of selected facilities beyond a single, standard 10MMGPY module through the addition of more modules, we expect to achieve economies of scale through shared utilities and equipment infrastructure as well as improved manufacturing efficiencies.

          We intend to expand internationally.    We have engaged in initial project and feedstock identification activities in order to expand internationally over time to markets that provide us with the greatest opportunities. We are in the early stages of discussions with a number of select

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potential partners in both the waste management and the fuels industries in Europe and Asia. We initially intend to penetrate international markets by selling our proprietary systems to partners with strong local and regional relationships.

          We plan to continue to innovate and develop new products.    The chemical-grade syngas we currently produce is a key intermediate product which can act as a building block for various renewable chemicals. We are currently focusing our product development efforts on producing certain renewable chemicals which can be used to make a variety of consumer products.

Risks Related to Our Business

          Investing in our common shares involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common shares. There are several risks related to our business that are described under "Risk Factors" elsewhere in this prospectus. Among these important risks are the following:

    we are a development and growth stage company and we have not yet generated any revenue from the sale of renewable biofuels or chemicals or systems utilizing our proprietary technology platform;

    we have only produced ethanol at our pilot facility in limited quantities and the conversion of methanol into ethanol in commercial volumes may prove to be more challenging than we anticipate;

    we have not yet completed the manufacturing of our first prefabricated module or system utilizing our proprietary thermochemical technology platform;

    we have no experience producing renewable biofuels and chemicals at the scale needed for the development of our business or in building commercial scale facilities necessary for such production;

    we may incur substantial construction delays and the actual cost of constructing, operating and maintaining facilities may be significantly higher than we anticipate;

    we may fail to obtain adequate supplies of feedstock, including MSW, or secure tipping fees;

    many of the arrangements regarding our planned facilities remain under negotiation and may take longer than expected to finalize or may not be finalized at all;

    we may fail to satisfy certain technical, commercial and production requirements, including product specifications, for our renewable biofuels and chemicals; and

    changes in government regulations, including mandates, tax credits, subsidies and other incentives, could have a material adverse effect on our business and results of operations.

Recent Developments

Lighthouse Capital Partners

          In February 2012, we drew down the remaining $12.0 million of the $15.0 million debt facility with Lighthouse Capital Partners VI, L.P. We have issued to Lighthouse a warrant for 11,648 Series 1 Class B preferred shares which, following the offering, will be exercisable for             of our common shares.

U.S. Department of Agriculture Loan Guarantee

          In January 2012, we entered into a conditional commitment letter with the USDA providing for an $80.0 million loan guarantee. The conditional commitment letter provides for a guarantee for 80% of loans related to our Pontotoc facility. For more information, see "Management's Discussion

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and Analysis of Financial Condition and Results of Operations — Our Commercial Deployment Plan — Pontotoc, Mississippi."

Edmonton, Canada

          In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the Edmonton facility. Upon completion of the agreed upon capital contributions (including a contribution of C$29.6 million by us), which we expect will be completed in the first quarter of 2013, we will own 71% of the facility and Waste Management of Canada Corporation and EB Investments ULC will each own 14.5% of the facility.

Acquisition of Afina Energy Inc.

          In December 2011, we entered into an agreement with certain of our existing shareholders to purchase all of the issued and outstanding shares of Afina Energy Inc., or Afina. We expect the closing for the acquisition of Afina to occur immediately following the closing of this offering for a purchase price equal to C$2.5 million, payable through the issuance of our common shares valued at the initial public offering price as set forth on the cover page of this prospectus. For more information, see the section titled "Certain Relationships and Related Person Transactions — Acquisition of Afina Energy Inc."

Corporate Information

          We were incorporated under the Canada Business Corporations Act, or CBCA, on December 24, 2007 under the name Enerkem Inc. as part of an internal corporate reorganization completed on December 31, 2007, through which we became the successor to the operations of the biofuels division initiated by Enerkem Technologies Inc. Enerkem Technologies Inc. was incorporated under the Companies Act (Quebec) on December 8, 1997 and was involved in the development and commercialization of renewable energy technologies. Following the 2007 corporate reorganization, Enerkem Technologies Inc. changed its name to Afina Energy Inc. For more information, see "Business — Corporate Structure and Head and Registered Office."

          Our principal executive office and registered office is at 1010, Sherbrooke Street West, Suite 1610, Montreal (Quebec) H3A 2R7, Canada. Our telephone number is (514) 875-0284 and our facsimile number is (514) 875-0835. We also maintain a web site at www.enerkem.com. The reference to our website is an inactive textual reference only and the information contained in, or that can be accessed through, our web site is not a part of this prospectus.

          Enerkem, the Enerkem logo and other trademarks or service marks of Enerkem appearing in this prospectus are the property of Enerkem. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders.

          This prospectus contains references to metric tons, short tons, gallons and liters. The following are the conversion rates for these four units of measure.

    1 metric ton = 1.10231 short tons

    1 gallon = 3.78541 liters

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The Offering

Common shares offered by us                shares (or             shares if the underwriters exercise their option to purchase additional shares in full)

Common shares to be outstanding immediately after this offering

 

             shares (or             shares if the underwriters exercise their option to purchase additional shares in full)

Use of proceeds

 

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses payable by us, will be approximately $              million (or approximately $              million if the underwriters exercise their option to purchase additional shares in full) assuming an initial public offering price of $          per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus.

 

 

We intend to use the net proceeds from this offering for the construction and development of our planned facilities, as well as research and development activities, working capital requirements and other general corporate purposes. See "Use of Proceeds" for more information.

Proposed NASDAQ Global Market symbol

 

"NRKM"

Proposed Toronto Stock Exchange symbol

 

"NKM"

          The number of common shares to be outstanding after this offering is based on                  of our common shares outstanding as of September 30, 2011 after giving effect to the automatic conversion of all of our outstanding preferred shares into                  Class A common shares, the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares and the redesignation of our Class A common shares as common shares immediately prior to the closing of this offering, and excludes:

    152,513 common shares issuable upon the exercise of options outstanding as of September 30, 2011 pursuant to our stock option plan, at a weighted-average exercise price of C$5.69 per share;

    612,225 common shares available for future issuance under our equity incentive plan, which will become effective as of the date that the registration statement, of which this prospectus forms a part, is declared effective (of which options to purchase 100,264 common shares will be granted to our directors, executive officers and non-executive employees, on the date that the registration statement, of which this prospectus forms a part, is declared effective);

    common shares issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weighted-average exercise price of C$         per common share (assuming a conversion ratio equal to             Class A common shares for each Series 1

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      Class B preferred share based on an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus); and

    common shares (assuming an initial public offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus) to be issued in connection with the acquisition of Afina Energy Inc., which we expect to occur immediately following the closing of this offering. For a description of this transaction, see "Certain Relationships and Related Person Transactions."

          Except as otherwise noted, all information in this prospectus:

    gives effect to a             -for-1 forward split of all of our common shares and preferred shares, which will take place prior to the closing of this offering;

    gives effect to the exercise of a warrant to purchase 1,793 Class C common shares at an exercise price equal to C$35.00 per share immediately prior to the closing of this offering;

    gives effect to the automatic conversion of all our outstanding Class A preferred shares into 1,543,408 of our Class A common shares and the conversion of all our outstanding Class B and Class C common shares into 17,471 Class A common shares, in each case on a 1-for-1 basis, immediately prior to the closing of this offering;

    gives effect to the automatic conversion of all our outstanding Series 1 Class B preferred shares into              of our Class A common shares (assuming a conversion ratio equal to             Class A common shares for each Series 1 Class B preferred share based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus), immediately prior to the closing of this offering; see the section titled "Capitalization — Conversion of Our Series 1 Class B Preferred Shares" for conversion ratio adjustments to our Series 1 Class B preferred shares applicable in connection with the closing of this offering;

    gives effect to the redesignation of our Class A common shares as common shares immediately prior to the closing of this offering;

    assumes the amendment of our articles of incorporation and the amendment and restatement of our by-laws in connection with the closing of this offering; and

    assumes no exercise by the underwriters of their option to purchase additional common shares.

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SUMMARY CONSOLIDATED FINANCIAL DATA

          The following table is a summary of our historical consolidated financial data for the periods, and as of the dates, indicated. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

          We derived the consolidated statements of comprehensive operations data for the years ended December 31, 2008, 2009 and 2010 and for the nine months ended September 30, 2011, and the consolidated statements of financial position data as of September 30, 2011 from our audited consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. We derived the consolidated statements of comprehensive operations data for the nine months ended September 30, 2010 from our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited consolidated financial statements. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future and our interim results are not necessarily indicative of the results that should be expected for the full year.

          You should read this summary consolidated financial data together with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus and the information under the sections titled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Year Ended December 31,   Nine Months Ended
September 30,
 
 
 
2008
 
2009
 
2010
 
2010
 
2011
 
 
  (In thousands, except share and per share data)
 

Consolidated Statements of Comprehensive Operations Data:

                               

Revenue

  C$   C$ 691   C$ 443   C$ 443   C$  

Other income

    2,872     5,030     2,358     1,363     887  
                       
 

Total

    2,872     5,721     2,801     1,806     887  

Expenses:

                               
 

Operating and administrative

    5,083     6,112     11,519     7,565     15,526  
 

Research and development

    3,828     2,950     2,614     1,832     3,179  
 

Finance costs

    93     482     763     649     1,817  
 

Finance income

    (170 )   (85 )   (224 )   (177 )   (494 )
                       

Net loss

  C$ (5,962 ) C$ (3,738 ) C$ (11,871 ) C$ (8,063 ) C$ (19,141 )
                       

Net loss per share, basic and diluted

 
C$

(39.61

)

C$

(21.76

)

C$

(41.47

)

C$

(28.62

)

C$

(63.82

)
                       

Weighted average common shares outstanding, basic and diluted

   
150,515
   
171,791
   
286,268
   
281,674
   
299,915
 
                       

Pro forma net loss per share, basic and diluted(1) (unaudited)

             
C$

    
       
C$

    
 
                             

Pro forma weighted-average common shares used to compute pro forma net loss per share, basic and diluted(1) (unaudited)

                               
                             

(1)
See the section titled "Selected Consolidated Financial Data" for a discussion of the pro forma weighted-average common shares and pro forma net loss used to compute pro forma net loss per share.

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  As of September 30, 2011  
 
 
Actual
 
Pro
Forma(1)
(Unaudited)
 
Pro Forma
As Adjusted(1)(2)(3)
(Unaudited)
 
 
  (In thousands, except share data)
 

Consolidated Statement of Financial Position Data:

                   

Cash and cash equivalents

  C$ 55,554   C$ 55,617        

Property, plant and equipment, net

    50,526     50,526        

Working capital(4)

    55,703     55,766        

Total assets

    122,745     122,808        

Long-term debt (including current portion)

    3,422     3,422        

Deferred credits

    11,608     11,608        

Convertible preferred shares

    135,955            

Total shareholders' (deficit) equity

    (40,529 )   95,488        

(1)
The pro forma statement of financial position data gives effect to the automatic conversion of all of our outstanding preferred shares into              Class A common shares (assuming a conversion ratio equal to             Class A common shares for each Series 1 Class B preferred share based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus) and the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares, in each case on a 1-for-1 basis, and the redesignation of our Class A common shares as common shares immediately prior to the closing of this offering. See the section titled "Capitalization — Conversion of Our Series 1 Class B Preferred Shares" for conversion ratio adjustments to our Series 1 Class B preferred shares applicable in connection with the closing of this offering.

(2)
The pro forma as adjusted gives effect to the sale by us of                  common shares in this offering at an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us.

(3)
Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total shareholders' equity by approximately $          million (or approximately C$              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 underwriting discounts. Similarly, each increase (decrease) of 1,000,000 shares in the number of common shares offered by us would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total shareholders' equity by approximately $          million (or approximately C$              million), assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts. The pro forma and pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

(4)
Working capital equals current assets less current liabilities.

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RISK FACTORS

          Investing in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase our common shares. If any of the following risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our common shares could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We are a development stage company and have not generated any revenue from the sale of renewable biofuels or chemicals or our proprietary technology platform and systems, and our business will not succeed if we are unable to successfully build commercial-scale production facilities or commercialize our products.

          We are a development stage company with a limited operating history. We have not yet completed the construction of any of our planned standard 10MMGPY commercial facilities or sold our proprietary technology platform and systems to third parties for the purposes of building and operating facilities using our technology. As a result, we have not generated any revenue from the sale of our products. We are subject to the substantial risk of failure facing businesses seeking to develop and commercialize new products and technologies. Certain factors that could, alone or in combination, affect our ability to successfully commercialize our renewable biofuels and chemicals, as well as our proprietary systems, include:

    our ability to achieve production of our products at our targeted scale on a cost-effective basis and in the time frame we anticipate;

    technical challenges developing our commercial production processes or systems that we are unable to overcome;

    reliance on third-party manufacturers for fabricating and assembling significant parts of our production processes, equipment, systems and facilities;

    our ability to finance commercial scale facilities, including through private or public debt and/or equity financing, project financing and/or federal, provincial, state and local government incentives;

    our ability to secure access to sufficient municipal solid waste, or MSW, or other feedstock, on favorable terms, including our ability to collect tipping fees payable to us for taking MSW as feedstock;

    our ability to meet our potential customers' requirements or specifications;

    our ability to secure and maintain all necessary regulatory approvals and to comply with applicable laws and regulations for the construction and operation of our facilities and the production, distribution and sale of the renewable biofuels and chemicals that we intend to produce at these facilities;

    our ability to establish new relationships, or maintain and expand our existing relationships, with strategic partners, including strategic partners that will build new production facilities utilizing our proprietary systems and technology platform;

    our ability to secure offtake agreements and to develop and maintain other cost-effective distribution channels, either directly or with our strategic partners; and

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    actions of direct and indirect competitors that may seek to enter the renewable biofuels and chemicals markets in competition with us or that may seek to compete with us for access to feedstock, particularly MSW.

We have a history of substantial net losses and negative cash flows from operations, and we expect significant increases in our costs and expenses to result in continuing losses as we seek to commercialize our renewable biofuels and chemical products and systems utilizing our proprietary technology platform, and we may never reach profitability.

          We have incurred substantial net losses since our inception, including net losses of C$6.0 million, C$3.7 million and C$11.9 million for the years ended December 31, 2008, 2009 and 2010, respectively, and C$19.1 million for the nine months ended September 30, 2011. Similarly, we have incurred substantial negative cash flows from operations since our inception, including negative cash flows from operations of C$10.6 million, C$0.1 million and C$9.7 million for the years ended December 31, 2008, 2009 and 2010, respectively, and C$14.0 million for the nine months ended September 30, 2011. We expect these losses and negative cash flows from operations to continue. As of September 30, 2011, we had an accumulated deficit of C$44.7 million. We expect to incur significant additional costs and expenses related to the continued development and expansion of our business, including engineering, design and project management work related to the construction of our planned commercial production facilities, research and development expenses, and continued testing and development at our pilot and demonstration facilities. As a result, our annual operating losses will likely continue to increase in the short term. We have not yet completed construction of any of our standard 10MMGPY production facilities, nor commercialized or generated revenue from the sale of our renewable biofuels and chemicals or our proprietary systems. We may not achieve or sustain profitability on a quarterly or annual basis.

We have not produced ethanol at a scale needed for the development of our business or built the facilities needed for such production. Furthermore, the conversion of methanol into ethanol in large commercial volumes may prove to be more challenging than we anticipate and may not initially be possible in a cost-effective manner.

          Our primary focus is the commercial production of cellulosic ethanol. To date, we have only produced limited quantities of ethanol from methanol in our pilot facility. We have not built any commercial scale facilities for the production of ethanol and have not yet produced ethanol at a commercial scale. Our ethanol production process incorporates a variety of industrially-used reactions and sub-processes that have not previously been deployed commercially into an integrated production sequence. Producing ethanol from methanol in commercial volumes may prove to be more challenging than we anticipate. Moreover, we may encounter unexpected process, system or facilities requirements that may impede or delay our ability to produce ethanol, as planned. As a result, we may be unable to produce commercial volumes of ethanol from methanol in sufficient quantities, or produce such large volumes in an economically viable and timely manner.

The renewable biofuels and chemicals we plan to produce will be subject to the satisfaction of certain technical, commercial and production requirements, including product specifications. If we fail to meet these requirements, we may not be able to develop economically viable products, which will adversely affect our commercialization efforts.

          Our offtake agreements for the sale and purchase of the renewable biofuels and chemicals to be produced at our facilities will be subject to the satisfaction of certain technical, commercial and production requirements, such as ASTM International, Canadian General Standards Board or other standards, as well as various specifications typically required by offtakers. For example, our agreement with GreenField Ethanol requires that we satisfy certain ethanol volume and technical

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quality requirements. In addition, these agreements contain other important conditions that must be satisfied before any such purchases are made. We have not yet ensured, and the parties to our offtake agreements have not yet confirmed, that any of our products, including the ethanol and methanol that we anticipate producing, will satisfy applicable standards. We may not be successful in satisfying these product specifications in a cost-effective manner, or at all. If we do not satisfy these contractual requirements and if we subsequently are unable to renegotiate such terms, our counterparties may terminate the agreements and our commercialization plan could be delayed or harmed.

We have no experience producing renewable biofuels and chemicals at the scale needed for the development of our business or in building commercial scale facilities necessary for such production, and we will not succeed if we cannot effectively scale our proprietary technology platform and systems.

          We must demonstrate our ability to apply our proprietary technology platform on a commercial scale to convert MSW and other feedstock into renewable biofuels and chemicals on an economically viable basis. Such production will require that our systems be scaled-up from our commercial demonstration facility in Westbury to full-scale commercial production facilities. We have not yet completed construction of, or operated, our first standard 10MMGPY commercial facility, and our technology platform and systems may not perform as expected when applied at the scale at which we plan to operate. We also may encounter operational challenges for which we are unable to devise a solution. In particular, we believe our commercial facility under construction in Edmonton to be a first-of-kind project and may not be completed on the schedule that we intend, or at all. If and when completed, our first commercial facility in Edmonton may not process MSW and other feedstock at desired or sufficient levels or produce our renewable biofuels and chemicals at acceptable volumes or yields. As a result, if one or more of these risks materialize, we may be unable to profitably sell our renewable biofuels and chemicals in a timely manner, or at all.

We may not be able to implement our commercial deployment plans without substantial delays and the actual cost of constructing, operating and maintaining the facilities necessary to produce our renewable biofuels and chemicals in commercial volumes may be significantly higher than we plan or anticipate.

          The production of large commercial volumes of renewable biofuels and chemicals will require the construction of multiple commercial facilities. The construction of these new facilities will require the expenditure of significant amounts of capital, which may exceed our estimates, and dedication of management and other resources. We may be unable to complete these facilities at the planned costs, on schedule, or at all. The construction, operation and maintenance of new facilities may be impacted by:

    our ability to secure services or products from contractors, engineering and construction firms and equipment suppliers on a timely basis or on acceptable terms, if at all;

    the inaccuracy of our assumptions with respect to the cost of and schedule for completing construction;

    difficulty, delays or inability to obtain financing for a project on acceptable terms;

    delays in deliveries of, or increases in the costs of, equipment and materials;

    the unavailability of sufficient quantities of MSW or other production feedstock for a particular facility on favorable terms;

    operational hazards, such as computer systems and equipment failures, explosions, abnormal pressures, spills, blowouts, pipeline ruptures, or transportation accidents or delays;

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    labor shortages, delays, costs, disputes and work stoppages;

    unforeseen engineering and environmental problems; and

    weather interferences, inflation, catastrophic events including fires, explosions, earthquakes, acts of terrorism or other factors that are beyond our control.

          In addition, the construction and operation of our facilities will be subject to the receipt of approvals and permits from various regulatory agencies. Those agencies may not approve the projects in a timely manner or may impose restrictions or conditions on a production facility that could potentially prevent construction from proceeding, lengthen its expected completion schedule and/or increase its anticipated cost. Each significant discretionary permit issued by a regulatory agency to authorize various aspects of the construction and/or operation of a facility will be subject to an administrative and judicial review period during which interested persons may file written and/or submit oral objections to the permit. In some cases, the regulatory agency or reviewing court may stay the effectiveness of the underlying permit while these objections, if any, are addressed, which may contribute to a delay in the construction schedule for a facility or the timeframe required to start producing commercial quantities of biofuels or chemicals.

If our planned facilities are not completed on time or if we are not able to obtain the planned volume of feedstock, we run a risk of being in default under our feedstock or offtake agreements, which could expose us to various damages, as well as termination.

          Our current feedstock agreement with the City of Edmonton requires that our facility in Edmonton guarantee the acceptance of prescribed minimum volumes of MSW as feedstock and, as such, the facility must maintain the appropriate capacity for storage and processing of such feedstock. Other feedstock agreements currently under negotiation for future facilities may also contain similar obligations. Moreover, such agreements may contain certain milestone requirements for the commencement of the production of biofuels or chemicals on a commercial scale. If our facilities are not completed on time or if our facilities are not capable of accepting the minimum volume of supplied feedstock, we may be exposed to damages under our feedstock or offtake agreements, which may include termination of such agreements.

We have not yet completed the manufacturing of our first standard 10MMGPY prefabricated module and design defects may occur in our equipment and/or modules, which may adversely affect our business and financial results.

          Our technology platform and processes have been engineered as a standardized modular design that can be implemented in various locations as new commercial facilities. However, we have not yet completed the manufacturing of our first standard 10MMGPY prefabricated module at our Edmonton facility. Accordingly, systems utilizing our technology platform may not perform as intended, particularly when implemented on a commercial scale. If defects are discovered in the design of our core equipment, such as our gasifier or our syngas cleaning, conditioning and conversion equipment, or in the design of our modules, we may incur expensive re-engineering, change and retrofit costs. Moreover, we may not be able to correct such defects in a timely manner, or at all. Correcting design defects could require significant capital investment or may increase our expenses and lower our revenues due to lower production volumes and/or contract cancellations. Such defects and any ensuing delays could also result in a potential breach of our contractual delivery and performance obligations. In addition to any costs we may incur in connection with performance warranties in connection with the sale of systems utilizing our technology platform, contract performance or required remedial action, such design flaws may result in lawsuits by customers or strategic partners. Such defects may also have a significant adverse effect on our reputation and could limit our ability to secure new relationships. Our insurance may not be sufficient to cover claims that are successfully asserted against us or our contract suppliers and

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manufacturers. Any difficulties encountered in our production process as a result of design defects could adversely affect our ability to produce our renewable biofuels and chemicals, secure additional financing or capital which we may require in the future, sell systems utilizing our proprietary technology platform or build new facilities, which may adversely affect our business and financial results.

We will rely on long term relationships with a limited number of manufacturers, suppliers and customers which may expose us to heightened financial and operational risk.

          We currently rely on a limited number of manufacturers, suppliers and customers. For example, we rely on a single assembly manufacturer for our standard 10MMGPY prefabricated module that we will use at our Edmonton facility and may rely on the same manufacturer for other planned facilities. In addition, we rely on a limited number of suppliers to provide fuel, equipment, water, energy and other services and production inputs required to operate a facility. For example, our process requires a large volume of water for cooling and we have proposed to use wastewater from the City of Pontotoc's publicly-owned treatment works as the primary source of cooling water at our Pontotoc facility. Moreover, we may rely on a single customer or a small group of customers to purchase all or a significant portion of a facility's production of biofuels and chemicals. In most cases, we will seek to establish long-term relationships with such manufacturers, suppliers and customers in order to mitigate any interruption in:

    the manufacturing of our pre-fabricated modules;

    the supply of key production inputs; or

    offtake of our renewable biofuels and chemicals.

          Our financial and operational performance will depend on such manufacturers, customers and suppliers continuing to perform their obligations under the agreements we have with them. Our business may be materially and adversely affected if any of our manufacturers, customers or suppliers fail to fulfill their contractual obligations and we are unable to secure other manufacturers, customers or suppliers on terms that are favorable to us.

Our projects and development agreements for future facilities may expose us to liability for failure to meet performance guarantees.

          Our failure to complete the construction of one of our facilities or to deliver our standard prefabricated modules to our strategic partners within a prescribed timeframe and in conformity to specifications may expose us to penalties and/or liabilities under the terms of our arrangements. Our reliance on third parties as suppliers, subcontractors and manufacturers for our equipment and standard prefabricated modules and other portions of our projects exposes us to potential delays that may be beyond our control. Should any of our suppliers, subcontractors and manufacturers fail to deliver supplies or equipment or fail to perform services according to contractual terms, we may be unable to meet our delivery requirements. Moreover, if we experience a deterioration in the quality of the supplies, equipment or services, our ability to complete a project or meet the stringent performance standards that apply to our systems may subject us to penalties and/or liabilities under the terms of our arrangements with strategic and other commercial partners.

Our, or any of our partners', inability to obtain an adequate supply of MSW may adversely affect our business and financial results.

          Our facilities, and our partners' facilities that will have systems utilizing our proprietary technology platform, will depend on a consistent supply of feedstock, including MSW. We generally expect, and our partners may expect, to be paid tipping fees for taking MSW as feedstock. However, at some locations, the availability of MSW, as well as tipping fees, may be subject to

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competition from a number of sources such as energy-from-waste facilities, landfills and transfer stations. In addition, we and our partners may need to obtain MSW on a competitive basis upon expiration of long-term feedstock supply contracts. There has been consolidation, and there may be further consolidation, in the solid waste industry. Such consolidation would reduce the number of solid waste collectors or haulers that are competing for disposal facilities and enable such collectors or haulers to use their purchasing power to negotiate favorable, below-market disposal rates. Moreover, consolidation in the solid waste industry has resulted in companies with a broad range of integrated collection, sorting and transportation services, as well as disposal facilities. The breadth of services offered by these companies creates certain competitive advantages and economies of scale for such competitors, as well as the ability to use disposal capacity at facilities owned by such companies or their affiliates. These activities can reduce the availability of MSW feedstock to us, or our partners, and reduce the revenue we, or our partners, may generate from tipping fees.

We, or our partners, may be unable to secure access to desirable locations for production facilities near abundant sources of MSW and adequate infrastructure, which may affect our, or our partners', ability to produce renewable biofuels and chemicals cost-effectively and to sell our systems using our technology platform.

          Our business model and the successful commercialization of our renewable biofuels and chemicals will depend on our, or our partners', ability to locate commercial production facilities in or near landfills or other waste depositories which meet our criteria. We, or our partners, may be unable to secure access to such locations on acceptable terms, or at all, due to, among other things:

    pre-existing agreements between municipalities and landfill operators that may prevent municipalities from diverting MSW to our or our partners' facilities;

    the failure to obtain necessary permits and other regulatory issues, including license revocation and changes in legal requirements;

    our relationship with Waste Management, which may affect our ability to effectively develop relationships with other landfill operators who compete with Waste Management; and

    competition from solid waste companies, landfill operators or other waste-to-energy companies, such as incinerators.

          If we, or our partners, are unable to locate facilities at sites that allow economical production and transport of our products, our ability to sell systems using our proprietary technology platform to produce renewable biofuels and chemicals cost-effectively may be adversely affected.

Our plan to rely on third parties to manufacture our modules may not generate the cost advantages that we anticipate and may adversely affect our ability to deliver our modules at fixed prices.

          We rely on third parties to manufacture various components of our modules. While arrangements with third parties to manufacture our standard prefabricated modules may generate cost savings, they also reduce our direct control over manufacturing of our replicable modules. This diminished control may adversely affect our ability to deliver our standard prefabricated modules to our partners as anticipated. To the extent that we are forced to incur unanticipated costs in order to meet our obligations to our customers, fixed price agreements for the delivery of our standard modules may not enable us to recover these increased costs. This would adversely affect our results of operations.

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Our dependence on suppliers of feedstock that meet specific requirements exposes our business to risk.

          A critical component of our business is access to feedstock, including MSW, that meets specific requirements and that is available in sufficient quantities. In addition, we generally will only have a limited number of suppliers of MSW feedstock for any one of our facilities. In the event that one of our feedstock suppliers fails to supply sufficient volumes of feedstock to one of our facilities, or if the feedstock that is supplied does not satisfy our specifications, we may be forced to identify other sources of feedstock. We may not be able to procure alternative feedstock supplies in a timely manner, on terms that are favorable to us, or at all. Any interruption in the supply of our feedstock could:

    adversely affect our ability to produce our renewable biofuels and chemicals on a cost-efficient basis;

    harm our relationships with our strategic partners, collaborators or customers; and

    adversely affect our revenues and operating results.

Our strategic partners, Waste Management and Valero, may have significant influence over our management and affairs and the commercialization of our products and technology.

          We have entered into non-binding commercial arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation and Valero, which contemplate the development and construction of commercial-scale facilities utilizing our technology platform. Furthermore, Waste Management and Valero, through affiliates, have made significant equity investments in our company. Moreover, Waste Management, through an affiliate, has invested C$7.5 million in our Edmonton facility and Valero will be given the right to invest at least 33% in one of our projects to be developed in the United States. As a result, Waste Management and Valero may have significant influence over our business.

          We have entered into a supply rights agreement with an affiliate of Waste Management pursuant to which it has a right of first offer to supply MSW at market rates to certain of our projects under various circumstances. We are currently in negotiations with an affiliate of Waste Management with respect to a commercial development agreement where, among other things, such right of first offer may be replaced with a right of first refusal. In addition, the non-binding term sheet we have entered into with Valero contains the general terms of an ethanol offtake arrangement under which Valero would be granted a right of first refusal to purchase ethanol from certain of our plants to be located in various parts of the United States and a right of first offer to purchase ethanol produced at our facilities located in any other U.S. location. Moreover, in the situation where Valero is an investor in one of our development projects, it will market all ethanol produced by the project.

          The success of these commercial development projects will affect our reputation and ability to establish similar relationships in the future with other strategic partners. Our relationship with Waste Management and Valero, however, may inhibit other potential strategic partners or potential customers from entering into negotiations with us about future business opportunities. Further, these arrangements are complex and cover a range of future activities, and disputes may arise between us and Waste Management or Valero that could delay the projects on which we are collaborating.

The price of cellulosic biofuel RINs or cellulosic waiver credits are subject to fluctuations that can affect our revenues.

          Under the U.S. Renewable Fuel Standards Program, or RFS2, obligated parties can obtain Renewable Identification Numbers, or RINs, by buying renewable fuel from producers or by buying

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a separated RIN which becomes tradable when biofuels are physically blended with gasoline or diesel to create a blended product. These separated RINs may be traded to other parties or may be banked, under certain conditions, to satisfy future RFS2 requirements. The trading prices of RINs may fluctuate due to certain factors, including:

    the transportation costs associated with renewable fuels;

    the mandated level of renewable fuel use for a specific year;

    the possibility and price of cellulosic waiver credits; and

    the expected supply of renewable fuel products.

          Fluctuations in the price of RINs could adversely affect our business and revenues.

Changes in government regulations, including mandates, tax credits, subsidies and other incentives, could have a material adverse effect on our business and results of operations.

          The market for renewable fuels is heavily influenced by foreign, federal, provincial, state and local government regulations and policies. For example, RFS2 currently calls for 15.2 billion gallons of liquid transportation fuels sold in 2012 to come from renewable fuels, a mandate that grows to 36 billion gallons by 2022. Of this amount, 16 billion gallons of renewable fuels used annually by 2022 must be cellulosic biofuel. Similarly, in Canada, a renewable fuel content of 5% in gasoline and 2% in diesel fuel and heating oil is required under the Renewable Fuels Regulations adopted under the Canadian Environmental Protection Act, or CEPA. If current or anticipated government renewable biofuels mandates or incentives are reduced significantly or eliminated, demand for our renewable biofuels may decline. Such a decline could adversely affect our future results of operations. Our ability to successfully commercialize our biofuels and to effectively compete without the benefit of government mandates or incentives will depend on our ability to produce our products in a manner that is cost-competitive with other fuels. We may not succeed in producing our products cost-effectively.

          In the United States, Canada and in a number of other countries, regulations and policies like RFS2 and the Renewable Fuels Regulations have been modified in the past and may be modified again in the future. Moreover, such regulations may simply be repealed. In the United States, multiple lawsuits are pending in federal courts, challenging various aspects of the EPA's implementation of RFS2.

          In addition, the Administrator of the EPA, in consultation with the Secretary of Energy and the Secretary of Agriculture, may waive certain renewable fuels standards, on his or her own motion or in response to a petition requesting such waiver, to avert economic harm or in response to inadequate supply. The Administrator of the EPA is also required to reduce the mandate for cellulosic biofuel use if projected supply for a given year falls below a minimum threshold for that year. Any reduction in, or waiver of, mandated requirements for fuel alternatives and additives to gasoline may cause demand for renewable biofuels to decline and deter investment in the commercialization of renewable fuels. The Administrator could also revise qualification standards for renewable fuels in ways that increase our expenses by limiting or modifying the eligibility of our feedstock, imposing extensive tracking and sourcing requirements, or prevent our process from qualifying as a renewable fuel under RFS2.

          In Canada, pursuant to the CEPA, a comprehensive review of the environmental and economic aspects of biofuel production in Canada is undertaken every two years by a governmental committee, which issues a report and recommendations to Parliament in respect of biofuel production in Canada. A change in regulations and policy may result from such recommendations.

          In addition, the U.S. Congress has passed legislation that provides tax credits for, among other things, the production of certain renewable fuel products. However, this or any other favorable

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tax treatment or statutory incentive may not remain in place. Any reduction in or phasing out or elimination of existing tax credits, subsidies and other incentives in the United States, Canada and foreign markets for renewable fuels, or any inability by us or our prospective customers to access such credits, subsidies and other incentives, may adversely affect demand for, decrease our revenues, or increase the overall cost of our renewable biofuels and chemicals, which would adversely affect our business. In addition, market uncertainty regarding future policies may also affect our ability to develop new renewable biofuels and chemicals and to sell products to our potential customers. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our business, financial condition and results of operations.

Infrastructure constraints pose uncertain market barriers for ethanol.

          In order to be sold in the United States as a transportation fuel, ethanol must be blended with gasoline. Current U.S. Environmental Protection Agency, or EPA, regulations limit the amount of ethanol that may be blended into gasoline. Under current regulations, gasoline may be blended with up to 10 percent ethanol, or E10. In October 2010 and in January 2011, the EPA granted two partial waivers that, taken together, allow but do not require the introduction into commerce of gasoline that contains greater than 10 volume percent ethanol and up to 15 volume percent ethanol, or E15, for use in model year 2001 and newer light-duty motor vehicles, subject to certain conditions. Under these new regulations, once registered with EPA, E15 will become legal for distribution or sale as a transportation fuel, but only for use in model year 2001 or newer cars, light-duty trucks, and medium-duty passenger vehicles, as well as flex-fueled vehicles. Motorcycles, heavy-duty vehicles, off-road vehicles, off-road equipment, and vehicles from model year 2000 or older may not use blends higher than 10 percent ethanol, or E10. Ethanol may also be sold as an 85 percent blend, or E85, but only for use in flex-fuel vehicles. At this time, there is no widespread production or purchase of E85 or flex-fuel vehicles in the United States or Canada. Because ethanol can only be sold as E85 or in blends up to E15, there is a risk that the mandated levels of renewable fuels will result in ethanol production in excess of the market's capacity to absorb it. This so-called blend wall imposes a market barrier for ethanol to be integrated into the existing transportation fuel infrastructure that is designed for gasoline. It is uncertain if or when this blend wall will be hit, what the impacts of this barrier may be on near- and long-term ethanol demand, supply and pricings and therefore, on the demand for volumes beyond such blend wall.

We may need substantial additional capital in the future in order to expand our business.

          We may require substantial additional capital to grow our business, particularly as we continue to design, engineer and construct our commercial facilities and pursue our research and development initiatives. Future financings that involve the issuance of equity securities would cause our existing shareholders to suffer dilution. In addition, debt financing sources may be unavailable to us and any debt financing may subject us to restrictive covenants that limit our ability to conduct our business. We may be unable to raise sufficient additional funds on acceptable terms, or at all.

          In addition, we are reliant on various sources of governmental financial support to partially fund our current projects, and are subject to the potential risk of adverse policy changes towards the public funding of innovative alternative fuels technologies that could result in termination of programs under which we currently receive such funding. Although multi-year funding agreements may be planned and awarded, funds are generally appropriated on a fiscal year basis even though a program or a contract may continue for several years. Consequently, programs or contracts are often partially funded at the outset and additional funds may become committed only as appropriations are reauthorized in the annual budgeting process. Therefore, even if we may be awarded a multi-year contract, the contract may not be fully funded. In addition, such government funding is generally subject to termination in the event that we fail to satisfy our obligations under

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the funding agreement and associated complex U.S. and Canadian laws and regulations. For example, our government funding arrangements are often subject to us obtaining additional funding for the funded project from non-governmental sources. Also, we may be required to provide a significant contingency or performance bond for the construction of a funded project. Failure to secure such additional funding may result in the termination of the funding arrangement. We intend to continue to satisfy these obligations but we may not be able to continue to do so in the future.

          If we are unable to raise sufficient funds or to maintain existing or obtain new governmental financial support, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to:

    delay the construction of commercial facilities;

    delay, scale back or terminate research and development programs or the commercialization of our products; or

    curtail or cease operations or obtain funds through strategic and licensing arrangements that may require us to relinquish commercial rights or grant licenses on terms that are unfavorable to us.

Many of the arrangements with our strategic partners regarding our planned facilities remain under negotiation and are not subject to binding agreements and may take longer than expected to finalize or may not be finalized at all, which may adversely affect our business.

          Many arrangements related to our current facilities and future facilities in development, including development agreements, feedstock supply agreements and offtake agreements, remain in the planning phases and are not yet subject to binding agreements. For example, we have not yet entered into binding agreements with Waste Management or Valero for the development and construction of commercial facilities with systems utilizing our proprietary technology platform. Entering into definitive agreements related to the matters currently being negotiated may:

    take longer than expected;

    result in substantially different terms than those that are currently reflected in our non-binding letters of intent or memorandums of understanding; or

    may not materialize into binding agreements at all.

          If we experience any such delays, or fail to identify viable alternatives in the event that we are unable to finalize our pending arrangements, it may adversely affect our business.

If we fail to maintain and successfully manage our existing, or enter into new, strategic partnerships, we may not be able to effectively develop and commercialize our products and achieve or sustain profitability, which may adversely affect our business.

          Our ability to enter into, maintain and manage strategic partnerships in our markets is fundamental to our success. We are discussing commercial development arrangements with various strategic partners, including both Waste Management and Valero, in order to accelerate the commercial deployment and market penetration of facilities utilizing our technology platform and our renewable biofuels and chemicals and the growth of our business. We intend to enter into other similar strategic partnerships. However, we may not be successful in entering into such arrangements on favorable terms, or at all, which could delay or hinder our ability to develop and commercialize our renewable biofuels and chemicals or our technology platform and could increase our cost of development and commercialization.

          Furthermore, we have limited or no control over the amount or timing of resources that a partner is able or willing to allocate to the development and construction of facilities or the

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manufacture, marketing or sale of products that are contemplated by our arrangements. In addition to being indirectly exposed to certain risks faced by our partners, which are similar to those that we face as we build, own and operate our own facilities, entering into such arrangements will expose us to additional risks, including:

    the potential requirement to grant important rights to our partners, including intellectual property rights, certain development rights due to exclusivity clauses, marketing and distribution rights;

    possible disputes with respect to the ownership of intellectual property developed jointly by us and our partners;

    lower revenue potential as compared to development projects that we own and operate ourselves; and

    challenges related to managing multiple simultaneous partnerships or collaborations.

          Moreover, disagreements with a partner could develop and any conflict with a partner could reduce our ability to enter into future strategic partnership arrangements and negatively impact our relationships with one or more existing partners. If any of these events occur, or if we fail to maintain our agreements with our partners, we may not be able to commercialize our existing and potential products, grow our business or generate sufficient revenues to support our operations.

          Additionally, our business could be negatively impacted if any of our partners undergoes a change of control or otherwise assigns the rights or obligations under any of our agreements to one of our competitors or to a third party who is not willing to work with us on the same terms or commit the same resources as a current partner.

Our partners may not adequately operate the systems utilizing our proprietary technology platform or safeguard our intellectual property and confidential information, which may adversely affect our business.

          We intend to establish new strategic relationships in the waste management, biofuels and chemicals industries. Such relationships may include arrangements whereby we will sell systems utilizing our proprietary technology to the primary site developer, similar to our arrangements under negotiation with affiliates of Waste Management and Valero, as opposed to owning and operating a facility. While we may take minority positions in such projects, we may not be responsible for operating and maintaining these facilities on a day-to-day basis, for which our partners will be primarily responsible. We may not be able to influence material decisions relating to such facilities and may have restrictions affecting our ability to dispose of interests in facilities in which we have a minority interest. Moreover, in such situations, we may have little control over the use of our systems and technology platform. Furthermore, we will share or make available certain elements of our intellectual property to our partners, which may adversely affect our ability to adequately protect our proprietary information and intellectual property. The potential failure, or perceived failure, of our systems at sites operated by our partners may adversely affect our business and damage our reputation in the industry, which in turn may adversely impact our ability to enter into new strategic relationships.

Adverse public opinions concerning new biofuels and chemicals could harm our business.

          The general public's acceptance of renewable biofuels and chemicals is uncertain. For example, public acceptance of cellulosic ethanol as a reliable, high-quality alternative to gasoline may be limited or slowed by negative public concerns, including that:

    ethanol produced from MSW is a lower-quality fuel;

    the use of ethanol will require engine modifications and large-scale infrastructure adoption;

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    ethanol may be perceived as damaging to engines or as yielding lower mileage per gallon than gasoline;

    many forms of ethanol are derived from sources that compete with food production or other important resources;

    ethanol production produces more air pollution than conventional fuel production;

    ethanol is more expensive; and

    the energy required to produce a gallon of ethanol is greater than the energy derived from a gallon of ethanol.

          Such public perceptions or concerns, whether substantiated or not, may materially adversely affect the demand for our renewable biofuels and chemicals and may materially adversely affect our financial condition, results of operations and cash flows.

We may be unable to obtain regulatory approval for our products under applicable regulatory requirements. The denial or delay of any of such approvals could delay our commercialization efforts and adversely impact our potential customer relationships, business and results of operations and cash flows.

          In order for our biofuels to qualify under RFS2, the EPA requires that each facility be registered and, in so doing, indicate that it will produce a renewable fuel using a feedstock meeting the regulatory definition of "renewable biomass." Registration for MSW-to-fuel plants includes a requirement that a waste separation plan be submitted to the EPA for each facility showing that recyclable materials will be "separated to the extent reasonably practicable." The EPA may not complete its assessment of our separation plans in a timely manner. The EPA has not issued any bright-line guidance on required levels of separation of recyclable materials. The EPA could conclude that our separation plan does not demonstrate that recyclable materials will be separated to the extent reasonably practicable and thus require additional investment in materials recovery equipment or personnel to achieve higher separation levels; this could delay or increase the costs of the commercialization of our products and systems utilizing our proprietary technology platform. In addition, under RFS2, only the biogenic portion of separated MSW qualifies for RIN generation. The level of non-biogenic residue remaining in our separated-MSW feedstock could impact the amount of cellulosic biofuel RINs we can generate with an equivalent volume of ethanol produced.

          Similarly, in Canada, should our biofuels not qualify as a renewable fuel because our MSW does not meet the regulatory requirements pertaining to the qualification of MSW, demand for our products and systems utilizing our proprietary technology platform would diminish significantly, which would materially and adversely affect our business.

          Our renewable chemicals also will be subject to government regulation in our target markets. In the U.S., the EPA administers the Toxic Substances Control Act, or TSCA, which regulates the commercial registration, distribution and use of chemicals. Before we can manufacture or distribute significant volumes of a chemical, we need to determine whether that chemical is listed in the TSCA inventory. If the substance is listed, then its manufacturing or distribution can commence immediately. If not, then a pre-manufacture notice must be filed with the EPA for a review period of up to 90 days, including extensions. Likewise, in Canada, under the CEPA, a Domestic Substances List, or DSL, and Non-Domestic Substances List, or NDSL, are kept. Substances not appearing on the DSL are considered to be new to Canada and are subject to notification prior to import or manufacture. Substances listed on the NDSL are also subject to notification but with reduced information requirements. A similar program exists in the European Union, called REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances). To the extent we sell any of our products in Europe, we will be required to register some of our products with the

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European Commission, and this process could cause delays or cause the company to incur significant additional costs.

          Changes in regulatory requirements, laws and policies, or evolving interpretations of existing regulatory requirements, laws and policies, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business or financial results.

          We expect to encounter regulations in most if not all of the countries in which we may seek to sell our renewable biofuels and chemicals. We may not be able to obtain necessary approvals in a timely manner, or at all. The various regulatory schemes applicable to our renewable biofuels and chemicals will continue to apply. Monitoring regulatory changes and ensuring our ongoing compliance with applicable requirements will be time-consuming and may affect our results of operations. If we fail to comply with such requirements on an ongoing basis, we may be subject to fines or other penalties.

Growth in the sale and distribution of our renewable biofuels and chemicals is dependent on development and expansion of related infrastructure that may not occur on a timely basis, if at all.

          Substantial development and expansion of infrastructure will be required to facilitate the growth of the North American renewable biofuels market. Areas requiring development and expansion include, but are not limited to:

    rail capacity;

    storage facilities;

    truck fleets capable of transporting products within localized markets;

    refining and blending facilities to handle renewable biofuels and chemicals;

    service stations equipped to handle renewable biofuels and chemicals; and

    the adoption and prevalence of vehicles capable of using such fuels and the attendant infrastructure and logistical support to support such use.

          Substantial investments required for this infrastructure and expansion may not be made or they may not be made on a timely basis. The required infrastructure and logistical support may not be available at all times, or at all, and may be subject to disruptions. Any delay or failure in development or expansion of such infrastructure could:

    significantly hamper the growth of our target markets;

    lessen the demand for, or reduce the price of, our biofuel products;

    impede the production and delivery of our biofuel products; and

    impose additional costs on us.

          Our business is also likely to depend on third-party rail and road distribution infrastructure and on third-party transportation companies to transport MSW and other feedstock to our production facilities and to distribute our renewable biofuels and chemicals to our customers. These transportation companies are subject to risks that are largely out of their and our control, including:

    weather;

    terrorism;

    natural disasters;

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    limitations on capacity in the transportation industry;

    security measures such as the Hazmat Threat Assessment Program under the USA Patriot Act, and the Training Certificate and other safety requirements under the Canada Transportation of Dangerous Goods Act, 1992;

    fuel prices;

    taxes;

    license and registration fees; and

    insurance premiums.

          It is currently impracticable to transport the biofuel and chemical products that we intend to produce by pipeline and we may have limited storage capacity at our plants. Therefore, any unexpected delay in transportation of our products could result in significant disruption to our operations.

Our business will be subject to fluctuations in commodity prices.

          Our results of operations will depend substantially on the prices of various commodities, particularly ethanol, methanol, acetates, natural gas, unleaded gasoline and crude oil. The prices of these commodities, including the price of the chemicals and catalysts used in our process, are volatile, and this volatility may cause our results to fluctuate substantially. We may experience periods during which the prices of our products decline and the costs of our supplies increase.

          Recently, petroleum-based fuel prices have been extremely volatile. We believe that some of the present and projected demand for renewable fuels results from relatively recent increases in the cost of petroleum. We intend to market our renewable biofuels as a supplement to petroleum-based fuels. If the price of petroleum-based fuels declines, we may be unable to market our renewable biofuels as cost-effective supplements to petroleum-based fuels. Declining oil prices, or the perception of a future decline in oil prices, would adversely affect the prices we can obtain from our potential customers or prevent us from entering into agreements with potential customers for our products. Lower petroleum-based fuel prices over extended periods of time may change the perceptions in government and the private sector that cheaper, more readily available energy alternatives should be promoted, developed and produced. If petroleum-based fuel prices were to decline from present levels and remain at lower levels for extended periods of time, the demand for renewable fuels could be reduced, and our results of operations and financial condition may be adversely affected.

          In addition, our commercial production facilities may use significant amounts of energy and industrial gases derived from coal, natural gas or hydro-electric plants to operate. Accordingly, our business may depend on electricity supplied by third parties. An increase in the price of electricity could adversely affect our results of operations and financial condition.

Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that compete with ours or may use their greater resources to gain market share at our expense.

          Our ability to compete successfully will depend on our ability to develop and commercialize our technology platform and produce renewable biofuels and chemicals in large volumes and at costs below the prevailing market prices for competitive products. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. In addition, certain of our competitors may also benefit from local government programs and incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more

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aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered uneconomical or otherwise obsolete by technological advances or entirely different approaches developed by one or more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may adversely impact our products or potential products increases, which could lead to litigation or our inability to compete effectively.

          In addition, various governments have recently announced a number of spending programs or other incentives focused on the development of clean technologies, including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs or other incentives could lead to increased funding or other economic advantages for our competitors, as well as an increase in the number of competitors within those markets. Conversely, any limitations or curtailment of such spending programs or other incentives could significantly increase competition for access to such programs. If we are unable to effectively compete for such programs, our business will be harmed.

          Finally, certain fuels and chemicals industries may consolidate in the future. Such consolidation could lead to price reductions in renewable biofuels and chemicals as combined entities take advantage of improved efficiencies and economies of scale. Continued industry consolidation may also lead to lower prices or adversely affect customer perceptions of the viability of smaller and even medium-sized companies and, consequently, customer willingness to purchase products from companies like ours.

          Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position, and prevent us from achieving or maintaining profitability.

Our continued growth and expansion will place significant demands on our management and our infrastructure and failure to effectively manage our growth will adversely affect our business and operations.

          Our growth has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. Our growth strategy includes developing a pipeline of new products, including waste-based biofuels and renewable chemicals, and expanding internationally. We have little experience managing such growth, which will include developing, producing and commercializing across multiple product lines and geographic locations and forging new relationships with various customers, partners, suppliers and other third parties across several product categories and markets. Managing our growth will require significant expenditures and proper allocation of our limited financial and managerial resources which will require us to prioritize our resources as we pursue particular development efforts, expand the capabilities of our administrative and operational resources and attract, train, manage and retain qualified management, technicians, scientists and other personnel. We may not allocate our limited resources optimally. If we do not allocate our limited resources optimally or fail to achieve the necessary level of efficiency in our organization as we grow, our business, results of operations and financial condition would be harmed.

We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.

          We are subject to a wide range of environmental, health and safety laws, regulations and permitting requirements administered by the EPA, Environment Canada, and the states and provinces where our facilities are and may be located, including those requiring governmental authorities to provide for public consultation with respect to potential environmental impacts that

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relate to certain projects, such as the Canadian Environmental Assessment Act (CEAA) or the National Environmental Policy Act (NEPA). This process has the potential to cause significant delays or even halt our projects. We are also subject to laws, regulations and permitting requirements relating to the discharge of pollutants to water, solid and hazardous waste management and disposal and air emissions, such as the Clean Air Act, or CAA, the Clean Water Act, or CWA, and the CEPA. In addition to costs that we expect to incur to achieve and maintain compliance with these laws and regulations, new or more stringent CAA, CWA or CEPA standards or other environmental requirements in the future also may limit our operating flexibility or require the installation of new controls at our facilities. The production of renewable fuels involves the emission of various airborne pollutants. As a result, we anticipate that our facilities will be subject to limitations on the quantity or concentration of specific air pollutant emissions that will be allowed, which may affect our ability, or the process required, to make changes to our operations. These laws and regulations also will require that certain types of air pollutant control technologies and practices be implemented at our facilities.

          We also use, transport and produce hazardous chemicals and materials in our business and are subject to a variety of federal, state, provincial and local laws and regulations governing the transportation, use, generation, manufacture, storage, handling and disposal of these materials. Our safety procedures for handling, transporting and disposing of these materials and waste products, may be incapable of eliminating the risk of accidental injury or contamination from the use, storage, transportation, handling or disposal of hazardous materials. In the event of contamination or injury, we could be required to undertake actions to address the contamination or injury, held liable for any resulting damages, and any liability could exceed our insurance coverage. We may not be insured against all environmental accidents that might occur, some of which may result in toxic tort claims by third parties alleging personal injury or property damage due to exposure to toxic substances.

          There can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present or future laws could result in the imposition of fines, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault, meaning a party could be obligated to pay for more than its proportionate share. Moreover, potential environmental liabilities related to our facilities located on landfills may be allocated to us in accordance with these arrangements, and disputes may arise in the event of an environmental accident, which could potentially delay a project and/or involve significant costs. Environmental laws have tended to become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. The continuation of this trend could impair our research, development or production efforts and harm our business. Later-enacted federal, state, provincial or local governmental requirements may substantially increase our costs or delay or prevent the construction and operation of our facilities, which could have a material adverse effect on our business, financial condition and result of operations. Consequently, considerable resources may be required to comply with future environmental regulations.

We may be adversely affected by existing or future federal, state, provincial or local laws and regulations affecting our operations.

          Our operations are subject to the laws and regulations of the U.S. and Canadian federal governments and of various state, provincial and local government entities. Some of these laws and regulations require our facilities to operate under permits that are subject to periodic renewal or modification. In addition, the construction of our facilities may be subject to the receipt of approvals

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and permits from various regulatory agencies. The agencies responsible for the issuance of such permits may not grant approval for the projects in a timely manner or may impose restrictions or conditions on a production facility that could potentially prevent construction from proceeding, lengthen our expected completion schedule and/or increase our anticipated cost. Once issued, certain of these permits are subject to administrative and judicial review periods during which interested parties may file written or submit oral objections to the issuance of the final permit or aspects of the permit. In some cases, the effectiveness of the final permit may be suspended temporarily, referred to generally as a stay, pending resolution of these types of objections. This appeals process, therefore, may delay the issuance of permits or result in the imposition of additional compliance obligations. A violation of these laws and regulations or a failure to obtain or renew the necessary permits can result in public or private lawsuits against us, substantial fines, damages, cleanup or remedial obligations, criminal sanctions, permit revocations and/or facility shutdowns.

          For example, in recent years, the U.S. Congress has been considering legislation to restrict or regulate emissions of GHGs. Similar regulatory initiatives are also under way in Canadian jurisdictions that are designed to limit, or create economic disincentives for, GHG emissions, including potential carbon taxes and cap and trade regimes. In addition, almost half of U.S. states, either individually or through multi-state regional initiatives, have begun to address GHG emissions. Independent of Congress, the EPA has adopted regulations controlling GHG emissions under its existing CAA authority. In June 2010, the EPA issued a final rule, known as the "Tailoring Rule", that makes certain large stationary sources and modification projects subject to permitting requirements for GHG emissions under the CAA. Furthermore, the EPA has issued a delay until July 2014 in the application of the GHG permitting requirements to carbon dioxide emissions from bioenergy and other biogenic stationary sources.

          The EPA may also promulgate additional standards or permitting requirements related to air emissions, discharges into waters, or wastewater treatment that could impact the Pontotoc facility or any future facilities that we may develop in the United States, including new ozone standards, particulate matter standards, new requirements for boilers and cooling water intakes, and related environmental regulations. Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing GHG, other air emissions, or water use and treatment would impact our business, any future federal, state and provincial laws or implementing regulations that may be adopted with respect to pollution concerns could require us to incur increased operating costs. The potential increase in the costs of our operations resulting from any legislation or regulation to restrict pollutant emissions could include new or increased costs to:

    operate and maintain our facilities;

    install new emission controls on our facilities;

    acquire allowances to authorize our emissions; and

    administer and manage new emissions control or reporting programs.

          We cannot predict with any certainty at this time how these possibilities may affect our operations.

Loss of key personnel, including key management personnel and key technical personnel, or failure to attract and retain additional personnel, could delay our product development programs and harm our research and development efforts and our ability to meet our business objectives.

          Our business requires a management team and employee workforce that is knowledgeable in the technological and commercial areas in which we operate. The loss of any key member of our

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management or key technical and operational employees, or the failure to attract, train or retain such employees could prevent us from developing and commercializing our products and executing our business strategy. We may be unable to attract or retain qualified employees in the future due to the intense competition for qualified personnel among catalyst, refining, alternative and renewable fuel businesses, or due to the unavailability of personnel with the qualifications or experience necessary for our business. In particular, our ability to improve and fully utilize our proprietary technology and to undertake our research and development efforts depends on our success in attracting and retaining highly skilled technical and operational personnel with particular experience and backgrounds. Competition for such personnel from numerous companies and academic and other research institutions may limit our ability to hire individuals with the necessary experience and skills on acceptable terms. In addition, we expect that the execution of our strategy of constructing multiple commercial facilities to bring our renewable biofuels and chemicals to market will require the expertise of individuals experienced and skilled in managing complex, first-of-kind capital development projects.

          If we are unable to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to:

    commercialize our renewable biofuels and chemicals;

    meet the demands of our potential customers in a timely fashion; or

    support our internal research and development programs.

          The occurrence of any of these events could impair our ability to meet our business objectives and adversely affect our results of operations and financial condition. In addition, non-competition covenants with our key employees may be unenforceable. Therefore, in the event of a departure of a key employee, if we are unable to enforce a non-competition covenant, our business may be adversely affected.

Accidents and disasters may significantly affect our results of operations and financial condition.

          We do not have a comprehensive disaster recovery plan. Our facilities may be subject to many risks, including:

    the possibility of fire, explosions, mechanical failure, pressure or irregularities in formation;

    spills;

    contamination;

    adverse weather conditions and natural disasters; and

    other occurrences or accidents.

          These events may result in personal injury, health risks or loss of life, severe damage to or destruction of our property and equipment, environmental damage and a loss of critical information which may lead to the imposition of civil or criminal penalties, and damage to our reputation and revenues. Our insurance may not be adequate to fully cover the potential hazards described above or we may not be able to renew our insurance on commercially reasonable terms or at all. For example, we are not insured against environmental pollution resulting from environmental accidents that occur on a sudden and accidental basis, some of which may result in toxic tort claims. Therefore, any losses or damages could have a material adverse effect on our business and cash flows.

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We may be subject to product liability claims and other claims of our potential customers.

          The design, development, production and sale of our systems and renewable biofuels and chemicals involve an inherent risk of product liability claims and the associated adverse publicity. We may be named in product liability suits. These claims could be brought by various parties, including potential customers who are purchasing our products directly from us or other users who purchase our products from our strategic partners or other customers.

          In addition, our potential customers may bring suits against us alleging damages for the failure of our renewable biofuels and chemicals to meet specifications or other requirements. Any such suits, even if unsuccessful, could be costly and disrupt the attention of our management and damage our negotiations with other potential customers.

          Although we seek to limit our product liability in contracts with our potential customers, such limits may not be enforceable or may be subject to exceptions. Our insurance coverage may be inadequate to cover all potential liability claims. Insurance coverage is expensive and may be difficult to obtain. Also, insurance coverage may not be available in the future on acceptable terms and may not be sufficient to cover potential claims. Our potential customers may not have adequate insurance coverage to cover against potential claims. If we experience a large insured loss, it might exceed our coverage limits, or our insurance carrier may decline to further cover us or may raise our insurance rates to unacceptable levels, any of which could impair our financial position.

Our quarterly and annual operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors, which could cause our share price to decline.

          Our financial condition and operating results may vary significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this prospectus:

    our ability to achieve or maintain profitability;

    the feasibility of producing and distributing our renewable biofuels and chemical products on a commercial scale;

    fluctuations in foreign currency exchange rates;

    our ability to manage our growth;

    our ability to construct our production facilities within planned delays and costs;

    our ability to operate and manage our production facilities in compliance with arrangements with third parties;

    fluctuations in the price of and demand for petroleum-and ethanol-based products;

    the availability of cost-effective renewable feedstock sources and fluctuations in the composition of MSW feedstock;

    the continued availability of catalysts which are compatible with our proprietary technology platform;

    the existence of government programs and incentives or regulation;

    potential issues related to our ability to report accurately our financial results in a timely manner;

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    our dependence on, and the need to attract and retain, key management and other personnel;

    our ability to secure locations for the future development of production facilities;

    the effects of competitive pricing pressures, including decreases in average selling prices of our products;

    unanticipated expenses associated with changes in governmental regulations and environmental, health and safety requirements;

    our ability to obtain, protect and enforce our intellectual property rights;

    potential advantages that our competitors and potential competitors may have in securing funding or developing projects;

    our ability to obtain additional capital that may be necessary to expand our business;

    business interruptions such as hurricanes, natural disasters and accidents;

    risks associated with the international aspects of our business;

    our ability to comply with laws and regulations;

    our ability to properly handle and dispose of hazardous materials used in our business; and

    our ability to use our net operating loss carryforwards to offset future taxable income.

          Due to the various factors mentioned above, and other factors described in this prospectus, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

International expansion is one of our growth strategies, and international operations will expose us to additional risks that we do not face in the United States and Canada.

          We expect to focus our initial business and operations in the United States and Canada; however, further international expansion is one of our growth strategies. If and when we expand outside the United States and Canada, our business and operations will be subject to a variety of risks that we do not currently face, including:

    building and managing overseas operations and overseeing and ensuring the performance of foreign subcontractors;

    increased travel, infrastructure, legal and compliance costs associated with multiple international locations;

    additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or investment;

    imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from those in the United States and Canada;

    increased exposure to foreign currency exchange rate risk;

    longer payment cycles for sales in some foreign countries and potential difficulties in enforcing contracts and collecting accounts receivable;

    laws that do not adequately protect intellectual property;

    the existence of adverse intellectual property rights in foreign jurisdictions, including foreign patents with no corresponding Canadian or U.S. equivalent;

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    difficulties in repatriating overseas earnings;

    general economic conditions in the countries in which we operate; and

    political unrest, war, incidents of terrorism or responses to such events.

          Our overall success in international markets will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We intend to comply, and to require our local partners and those with whom we do business to comply, with all applicable laws, including anti-bribery laws. Our reputation may be adversely affected if our local partners were reported to be associated with corrupt practices or failed to comply with such laws.

          We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks related to international expansion in each country where we do business. Our failure to manage these risks successfully could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our business, financial condition and operating results.

We are exposed to foreign currency exchange rate fluctuations and changes in interest rates.

          We incur some of our expenses and expect to derive revenues in currencies other than the Canadian dollar. Moreover, substantially all of our debt is denominated in U.S. dollars. As a result, we are exposed to foreign currency exchange risk. We also purchase property, plant and equipment in U.S. dollars and in Euros. We currently do not use derivative financial instruments to reduce our foreign exchange exposure. Going forward we anticipate that our sales and expenses will be denominated in the local currency of the country in which they occur. As a result, while our revenue and operating expenses are mostly economically hedged on a transactional basis, the translation of our operating results into Canadian dollars may be adversely affected by a strengthening Canadian currency once non-Canadian facilities are in operation. Any fluctuation in the exchange rate between foreign currencies and the Canadian dollar could materially adversely affect our financial condition, results of operations and cash flows.

          We also are exposed to changes in interest rates with respect to our borrowing activities. We intend to take the necessary measures to manage these risks but these measures may not be successful. If we fail to implement adequate measures to manage our exposure to currency exchange and interest rate fluctuations, our results of operations will be adversely affected.

There is a substantial risk that we will be classified as a passive foreign investment company, or PFIC, for 2012 for U.S. federal income tax purposes, which could subject U.S. holders of our common shares to adverse tax consequences.

          If our passive income, or our assets that produce passive income, which includes the cash proceeds from this offering, exceed certain levels provided by U.S. tax law for any taxable year, we could be deemed to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. If we are a PFIC for any taxable year, U.S. holders of our common shares in any such year would be subject to a disadvantageous U.S. federal income tax regime with respect to distributions on our common shares and gain derived from the sale or disposition of our common shares unless such holders make a mark-to-market election or a qualified electing fund, or QEF, election. Based on the projected income and the projected value of our assets, there is a substantial risk that we will be classified as a PFIC for U.S. federal income tax purposes for the current taxable year. With respect to the 2013 taxable year and foreseeable future taxable years, we presently do not anticipate that we will be a PFIC based upon the expected value of our assets, including goodwill, and the expected composition of our income and assets. However, we may be a PFIC for the 2013 taxable year or any future taxable years due to changes in our asset or income

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composition, including if our market capitalization is less than anticipated or subsequently declines. In addition, if we are classified as a PFIC for any taxable year during which a U.S. holder holds our common shares, the PFIC tax rules will apply for such taxable year and will apply in future years even if we cease to be a PFIC. If we are a PFIC, we intend to notify the U.S. holders of our common shares through our website and provide such holders with the information required to allow them to make and maintain a QEF election. For more information, see the section titled "United States and Canadian Income Tax Considerations — U.S. Federal Income Tax Information for U.S. Holders."

Our financial results may be materially affected by unanticipated tax liabilities.

          We are subject to income taxes in jurisdictions where we operate our business, and changes in tax laws and unanticipated tax liabilities could materially adversely affect our effective income tax rate. Furthermore, any internal restructuring initiatives we may implement from time to time can have a material impact on our effective income tax rate. In addition, we may be subject to tax examinations or audits from time to time. Such examinations are often complex as tax authorities may disagree with the treatment of items reported by us, the result of which could have a material adverse effect on our financial condition and results of operations. Although we believe our estimates are reasonable, the ultimate outcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements, and this difference may materially affect our financial results in the period or periods for which such determination is made.

Our deductions and credits in respect of scientific research and experimental development expenditures may be challenged by the Canadian tax authorities.

          The Canadian taxation authorities may not necessarily agree with our determinations of the expenses and tax credits claimed by us, including research and development expenses and related tax credits. If the Canadian taxation authorities successfully challenge such expenses or the correctness of such income tax credits claimed, our operating results could be materially adversely affected. Furthermore, if the Canadian taxation authorities reduce the tax credit either by reducing the rate of the credit or the eligibility of some research and development expenses in the future, our operating results will be materially adversely affected.

Transfer pricing rules may adversely affect our income tax expense.

          Many of the jurisdictions in which we will conduct business have detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm's length pricing principles. Contemporaneous documentation must exist to support this pricing. The taxation authorities in these jurisdictions could challenge our arm's length related party transfer pricing policies. International transfer pricing is an area of taxation that depends heavily on the underlying facts and circumstances and generally involves a significant degree of judgment. If any of these taxation authorities are successful in challenging our transfer pricing policies, our income tax expense may be adversely affected and we could also be subjected to interest and penalty charges. Any increase in our income tax expense and related interest and penalties could have a significant impact on our future earnings and future cash flows.

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. Similarly, where control of a corporation has been acquired by a person or group of persons,

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subsection 111(5) of the Canada's Income Tax Act, or Canadian Tax Act, and equivalent provincial income tax legislation restrict the corporation's ability to carry forward non-capital losses from preceding taxation years. We have not performed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code or an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act has occurred after each of our previous issuances of common shares, preferred shares and convertible debt. In addition, if we undergo an ownership change or acquisition of control in connection with or after this public offering, our ability to utilize NOLs and non-capital losses could be limited by Section 382 of the Internal Revenue Code and subsection 111(5) of the Canadian Tax Act. Future changes in our share ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code or an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act. Furthermore, our ability to utilize NOLs and non-capital losses of companies that we may acquire in the future may be subject to limitations.

We may be unable to protect our intellectual property.

          We rely on the availability of protection for the proprietary aspects of our technology and information. Our future success depends, in part, on our ability to defend and enforce our issued patents and other intellectual property rights, obtain additional patents or other intellectual property protection where warranted, and pursue adequate and meaningful protection of the proprietary aspects of our technology and information. We hold issued patents and patent applications and we currently intend to file additional patent applications in Canada, the United States, and through the Patent Cooperation Treaty for selected Asian, European, and Latin American countries, which we believe are appropriate to protect our interests in our existing technology and information. Our existing patent applications or any applications filed in the future may not be allowed, and our failure to secure these patents may limit our ability to protect the intellectual property rights these applications were intended to cover. We may not develop additional technology and information that is patentable. Any issued patents may be challenged, invalidated or circumvented to avoid infringement liability. Any of our patents, issued or pending, may not provide us with any competitive advantage or may be challenged by third parties.

          The failure to obtain or maintain adequate protection for our intellectual property rights will materially adversely affect our financial condition, results of operation and cash flows.

Many of our competitors have developed, and are developing, technologies in the renewable biofuels and chemicals market, and other parties may have intellectual property rights which could limit our ability to operate freely.

          Our commercial success depends in part on our ability to operate without infringing the patents and proprietary rights of other parties and without breaching any of our material agreements with other parties. We are aware of other parties researching, developing and applying various technologies to make renewable biofuels and chemicals from biomass. We are also aware of a significant number of patents and patent applications relating to aspects of our technologies issued to, and filed by, third parties. We cannot determine with certainty whether the patent rights of other parties may materially affect our ability to conduct our business. There may currently be pending applications, known and unknown to us, which may result in issued patents that cover aspects of our technologies or product candidates. The existence of third-party patent applications and patents could preclude or significantly reduce the scope of coverage of any patents granted to us and limit our ability to obtain meaningful patent protection in the future.

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          If a third party asserts that we infringe upon its patents or other proprietary rights, we may need to obtain a license, if available, or redesign our systems, technology or processes. We could also face a number of other issues that could seriously harm our competitive position, including:

    infringement and other intellectual property claims, which could be costly and time consuming to litigate, whether or not the claims have merit, and which could delay getting our products to market and divert management's attention from our business;

    substantial damages or accounting for profits relating to past infringement, which we may have to pay if a court determines that our products or technologies infringe upon a competitor's patent or other proprietary rights;

    a court prohibition from selling or licensing our technologies or future products unless the patent holder licenses the patent or other proprietary rights to us, which it would not be required to do; and

    if a license is available from a third party, an obligation to pay substantial royalties or grant cross licenses to our patents or proprietary rights.

          In addition, we may be subject to claims that our employees or contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or of other third parties. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel and be enjoined from engaging in certain activities. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.

Our patent applications may not result in issued patents, which may allow competitors to more easily exploit technology similar to ours.

          Part of our expected market advantage depends in part on our ability to maintain adequate protection of our intellectual property and, we have adopted a strategy of seeking patent protection in the United States, Canada and in select foreign countries. Our pending patent claims cover different aspects of our systems, technology and processes, and many of them are included in applications that have been or will be filed both in the United States and Canada, and in various foreign jurisdictions. These patent applications, as well as our granted patents, include those that are directed to aspects of our technology and/or to aspects of our products that support our business. However, we cannot be certain that the patent applications that we file will result in patents being issued, or that our existing patents and any patents that may be issued to us will cover our technology or the methods or products that support our business, or afford meaningful protection against our competitors. Moreover, third parties might challenge the validity, scope or enforceability of any of our issued patents. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of Canada and the United States, and thus we cannot be certain that foreign patent applications will be granted even if Canadian and U.S. patents are issued.

Our ability to compete may decline if we are required to enforce or defend our intellectual property rights through costly litigation or administrative proceedings.

          Unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Identifying unauthorized use of our intellectual property is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where enforcement of intellectual property rights is more difficult than in Canada

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and the United States. Third parties may assert or prosecute infringement claims against us in connection with our technology, and we may or may not be able to successfully defend these claims. Should we be found liable for infringement, we may be required to enter into licensing agreements, if available on acceptable terms, or to pay damages and to cease certain activities. Moreover, we may need to redesign some of our systems or processes to avoid future infringement liability. Proceedings to enforce or defend our intellectual property rights through litigation or administrative proceedings could result in substantial costs and could divert both funds and other resources from our business objectives. If the outcome of any such proceedings is unfavorable and competitors are able to use our technology without payment to us, our ability to compete effectively could be harmed. However, we are not currently engaged in any intellectual property litigation, nor are there any intellectual property claims pending either by or against us.

          Furthermore, the nature of any protection against foreign competition that may be afforded by any patents we may have is often difficult to predict and varies from country to country. Moreover, others may independently develop and obtain patents for technologies that are similar or superior to our technologies. If that happens, we may need to license these technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could harm our business.

We rely in part on trade secrets to protect our technology, and our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

          We rely in part on trade secret protection to protect our confidential and proprietary information. We continue to develop and refine the technology and processes used to produce our renewable biofuels and chemicals and believe that we have developed, and will continue to develop, know-how related to these technologies and processes. However, we may not be able to maintain the secrecy of this know-how. Competitors may develop or acquire equally or more valuable know-how related to the production of those products. Our strategy for scale-up of commercial production requires us to share confidential and proprietary information with our strategic partners and other third parties. Any efforts by us to protect our trade secrets through litigation may be expensive, time consuming and with an uncertain outcome, as courts in certain jurisdictions vary in their willingness to protect trade secrets.

Confidentiality agreements with employees and others may not adequately prevent disclosures of information that we consider proprietary.

          We have taken reasonable measures to protect information that we consider proprietary, but these measures 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. Nevertheless, should our confidential information be disclosed, third parties could reverse-engineer our processes/and or use such information to independently develop and potentially patent substantially equivalent or derived technology and techniques. Costly and time-consuming litigation could be necessary to enforce our proprietary rights, and any failure to obtain or maintain trade secret protection could adversely affect our business.

We have received funding from government agencies which could negatively affect our intellectual property rights.

          Some of our research has been funded by grants or contributions from government agencies. When new technologies are developed with government funding, the government may obtain certain rights in any resulting patents and technical data, including, in some cases, a non-exclusive license authorizing the government to use the invention or technical data for non-commercial purposes. We may have to disclose government funding in resulting patent applications and our rights in such inventions will normally be subject to government license rights, periodic progress

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reporting, foreign manufacturing restrictions and march-in rights. March-in rights refer to the right of the U.S. government to require us to grant a license to the technology to a responsible applicant or, if we refuse, the government may grant the license itself. Although march-in rights have been exercised in very limited instances, the U.S. government may exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of any technology developed under contract with the government or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. The U.S. government may also have the right to disclose to third parties confidential and proprietary information provided by us. In addition, if we breach the terms of our grants, the government agency may gain rights to the intellectual property developed in the funded project. Such rights in our intellectual property may lessen its commercial value, which could adversely affect our performance.

Our contracts, grants or cooperative agreements with government agencies may subject us to audits, criminal penalties, sanctions and other expenses and fines.

          U.S. government agencies, including the Defense Contract Audit Agency and the Department of Labor, routinely audit government contractors and recipients of federal grants and financial assistance awards. As such, we fall within the scope of a "government contractor." These agencies review a contractor's compliance with contract terms and conditions, performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The U.S. government also may review the adequacy of the contractor's systems and policies, including the contractor's purchasing, property, estimating, billing, accounting, compensation and management information systems. Any costs found to be overcharged or improperly allocated to a specific contract or any amounts improperly billed or charged for products or services will be subject to reimbursement to the government. As a government contractor, we are required to disclose credible evidence of certain violations of law and contract overpayments to the U.S. government. If we are found to have participated in improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. Any negative publicity related to such contracts, regardless of the accuracy of such publicity, may adversely affect our business or reputation.

          Canadian government agencies may also similarly audit recipients of grants and financial assistance awards.

The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain qualified board members.

          As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We will also become obligated to file with the Canadian securities regulators similar reports pursuant to securities laws and regulations applicable in all the provinces and territories of Canada in which we will be a reporting issuer. In addition, we will become subject to other reporting and corporate governance requirements, including certain requirements of the NASDAQ Global Market, or NASDAQ, and the Toronto Stock Exchange, or TSX, certain provisions of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, the Dodd-Frank Act, and rules and guidelines of the Canadian securities regulators, which will impose significant compliance obligations upon us. We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all applicable reporting requirements on a timely basis. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act and Canadian securities laws

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and regulations require, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Sarbanes-Oxley, as well as rules subsequently implemented by the SEC, the Canadian securities regulators, the NASDAQ and the TSX, have imposed increased regulation and disclosure and require enhanced corporate governance practices of public companies. Our efforts to comply with evolving corporate governance laws, regulations and standards are likely to result in increased administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

          We may not be successful in implementing these requirements and implementing them could materially adversely affect our business. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigations by regulatory authorities, such as the SEC, the Canadian securities regulators, the NASDAQ or the TSX. Any such action could harm our reputation and the confidence of investors, customers and other third parties with which we do business, and could materially adversely affect our business and cause the trading price of our shares to fall.

          In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

          We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common shares.

          We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for our second annual report filed after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our

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internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on our management's assessment of our internal controls.

          We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 and comparable requirements of Canadian securities laws. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

          If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common shares to decline.

Risks Related to This Offering

No public market for our common shares currently exists, and an active public trading market may not develop or be sustained following this offering.

          Prior to this offering, there has been no public market for our common shares. Although we have applied to list our common shares on the NASDAQ and the TSX, an active trading market may not develop following the closing 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 wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Our share price may be volatile and you may be unable to sell your shares at or above the initial public offering price.

          The initial public offering price for our shares sold in this offering 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 following this offering. The market price of our common shares could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

    actual or anticipated fluctuations in our financial condition and operating results;

    the position of our cash, cash equivalents and marketable securities;

    actual or anticipated changes in our growth rate relative to our competitors;

    actual or anticipated fluctuations in our competitors' operating results or changes in their growth rate;

    announcements of technological innovations by us, our collaborators or our competitors;

    announcements by us, our customers, strategic partners, including Waste Management and Valero, or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

    the entry into, modification or termination of customer contracts;

    additions or losses of customers;

    additions or departures of key management, scientific or other personnel;

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    competition from existing technologies and products or new technologies and products that may emerge;

    issuance of new or updated research reports by securities or industry analysts;

    fluctuations in the valuation of companies perceived by investors to be comparable to us;

    disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

    changes in existing laws, regulations and policies applicable to our business and products and whether or not GHG emissions regulations are adopted in the jurisdictions in which we operate;

    announcement or expectation of additional financing efforts;

    sales of our common shares by us, our insiders or our other shareholders;

    share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

    market conditions in our industry; and

    economic and market conditions generally, including the recent financial crisis.

          Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those 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 market price of our common shares. If the market price of our common shares 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 shares have been subject to securities class action litigation. 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 management's attention from other business concerns, which could harm our business.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

          The trading market for our common shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If securities analysts do not cover our common shares after the closing of this offering, the lack of research coverage may cause the market price of our common shares to decline. If one or more of the analysts who may cover us change their recommendation regarding our shares adversely, or provide more favorable relative recommendations about our competitors, our common share price would likely decline. If one or more analysts who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common share price or trading volume to decline. In addition, rules mandated by the Sarbanes-Oxley Act and a global settlement reached in 2003 between the SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent

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financial analysts that will cover our common shares. This could have a negative effect on the market price of our common shares.

Investors based in the United States may be unable to bring actions or enforce judgments against us, certain of our directors and officers or certain of the experts named in this prospectus under U.S. federal securities laws.

          We are incorporated under the laws of Canada, and our principal executive offices are located in Canada. A majority of our directors and officers and certain of the experts named in this prospectus reside principally in Canada and a substantial portion of our assets and all or a substantial portion of the assets of these persons are located outside the United States. Consequently, it may not be possible for our U.S. based shareholders to effect service of process within the United States upon us or those persons. Furthermore, it may not be possible for our U.S. based shareholders to enforce judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States against us or those persons. There is doubt as to the enforceability in original actions in Canadian courts of liabilities based upon the U.S. federal securities laws, and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws.

As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information which would be publicly available to our shareholders.

          As a foreign private issuer, we are not required to comply with all the periodic disclosure requirements of the Exchange Act, and therefore, there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual meetings will be governed by Canadian requirements.

Our charter documents and certain Canadian legislation could delay or deter a change of control, limit attempts by our shareholders to replace or remove our current management and limit the market price of our common shares.

          Our authorized preferred shares are available for issuance from time to time at the discretion of our board of directors, without shareholder approval. Our articles grant our board of directors the authority, subject to the Canada Business Corporations Act, or CBCA, to determine the special rights and restrictions granted to or imposed on any unissued series of preferred shares, and those rights may be superior to those of our common shares.

          Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities to our shareholders to sell their shares.

          In addition, provisions in the CBCA and in our articles of incorporation and by-laws, as amended and/or restated in connection with this offering, may have the effect of delaying or preventing changes in our management, including provisions that:

    require that any action to be taken by our shareholders be effected at a duly called annual or special meeting and not by written consent;

    establish an advance notice procedure for shareholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

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    prohibit cumulative voting in the election of directors; and

    require the approval of our board of directors or the holders of a supermajority of our outstanding share capital to amend our bylaws and certain provisions of our articles of incorporation.

          These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

Limitations on the ability to acquire and hold our common shares may be imposed under the Hart-Scott Rodino Act, the Competition Act (Canada) and other applicable antitrust legislation.

          Limitations on the ability to acquire and hold our common shares may be imposed under the Hart-Scott Rodino Act, the Competition Act (Canada) and other applicable antitrust legislation. Such legislation generally permits the relevant governmental authority review any acquisition of control over or of significant interest in us, and grants the authority to challenge or prevent an acquisition on the basis that it would, or would be likely to, result in a substantial prevention or lessening of competition. In addition, the Investment Canada Act subjects an "acquisition of control" of a "Canadian business" (as those terms are defined therein) by a non-Canadian to governmental review if the book value of the Canadian business' assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be of net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive our shareholders of the opportunity to sell their common shares at a control premium.

We have broad discretion in the use of net proceeds from this offering and may not use them effectively.

          Although we currently intend to use the net proceeds from this offering in the manner described in "Use of Proceeds," we will have broad discretion in the application of the net proceeds. Shareholders may not agree with such uses and the net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce income or that lose value. Our failure to apply these net proceeds effectively could affect our ability to continue to develop and sell our products and grow our business, which could cause the value of your investment to decline.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

          The initial public offering price will be substantially higher than the tangible book value per share of our common shares based on the total value of our tangible assets less our total liabilities immediately following this offering. Therefore, if you purchase our common shares in this offering, you will experience immediate and substantial dilution of approximately $             per share in the price you pay for our common shares as compared to its tangible book value, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus. To the extent outstanding options and warrants to purchase common shares are exercised, there will be further dilution. For further information on this calculation, please read "Dilution" elsewhere in this prospectus.

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Our directors, officers and principal shareholders have significant voting power and may take actions that may not be in the best interests of our other shareholders.

          As of January 31, 2012, our executive officers, directors and principal shareholders and their affiliates collectively controlled approximately 78.7% of our outstanding common shares. After this offering, assuming no exercise of the underwriters' option to purchase additional shares, our officers, directors and principal shareholders and their affiliates collectively will control approximately         % of our outstanding common shares. As a result, these shareholders, if they act together, will be able to control the management and affairs of our company and most matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common shares. This concentration of ownership may not be in the best interests of our other shareholders.

          In addition, we do business with certain companies that are related parties. For example, we have entered into commercial arrangements with affiliates of Waste Management, one of our principal shareholders, which currently has its nominee serving as one of our directors. In addition, Bruce Aitken, who serves as one of our directors, is also a director and executive officer of Methanex Corporation, with whom we have entered into an offtake agreement to purchase the entire methanol production from our facility in Edmonton. Although our directors owe fiduciary duties, including the duties of loyalty and confidentiality, to us, our directors that serve as directors, officers, partners or employees of companies that we do business with also owe fiduciary duties or other obligations to such other companies and their shareholders. The duties owed to us could conflict with the duties such directors owe to these other companies and their shareholders.

Future sales of our common shares in the public market could cause our share price to decline and impair our ability to raise future capital through the sale of our equity securities.

          Sales of a substantial number of our common shares in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of our outstanding common shares as of September 30, 2011, upon the closing of this offering, we will have                          common shares outstanding, assuming no exercise of our outstanding options and warrants.

          All of the common shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or Securities Act, and under Canadian securities laws. The remaining                          common shares outstanding after this offering, based on shares outstanding as of September 30, 2011, will be restricted as a result of securities laws, lock-up agreements, the company's current registration rights agreement or other contractual restrictions that restrict transfers after the date of this prospectus, subject to certain extensions.

          After this offering, the holders of                   common shares will be entitled to rights with respect to registration of these shares under the Securities Act pursuant to a registration rights agreement. See the section titled "Description of Share Capital — Registration Rights." If we wish to undertake a public offering of shares for the purposes of raising capital and are required to include shares held by these holders pursuant to their registration rights, our ability to raise capital may be impaired. We intend to file a registration statement on Form S-8 under the Securities Act to register up to approximately                           million of our common shares for issuance under our stock option plan and our equity incentive plan. Once we register these shares, they can be freely sold in the public market in the United States upon issuance and once vested, subject to a lock-up

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period and other restrictions provided under the terms of the applicable plan and/or the option agreements entered into with option holders.

We do not intend to pay cash dividends in the foreseeable future, and as a result your ability to achieve a return on your investment will depend on appreciation in the price of our common shares.

          We have never declared or paid any cash dividends on our common shares or any other securities and do not intend to pay any cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, for use in the expansion and operation of our business and for general corporate purposes. Any future determination relating to our dividend policy will be at the discretion of our board of directors based upon our financial condition, results of operations, contractual restrictions, capital requirements, business prospectus and other factors our board of directors may deem relevant. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus, including the sections titled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect" or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

    our ability to build commercial-scale facilities;

    expected production costs for our products;

    our ability to produce ethanol from methanol in commercial volumes;

    the timing for production of ethanol, methanol or other products;

    the provision of any financial assistance by the DOE or loan guarantee by the USDA;

    the accuracy of our estimates regarding future expenses, revenue and capital requirements;

    the timing of the construction and commencement of operations at our planned commercial production facilities;

    our ability to enter into binding commercial agreements, including for the development of facilities by our strategic partners, for securing MSW feedstock and for the offtake of our products;

    achievement of advances in our technology platform and process design, including improvements to our yield;

    meeting prescribed specifications for our products;

    government regulatory certification, including certification of biofuels utilizing MSW as feedstock as cellulosic biofuels under RFS2;

    government policymaking and incentives relating to renewable fuels;

    our ability to hire and retain skilled employees; and

    our ability to obtain and maintain intellectual property protection for our products and technology platform.

          The foregoing list should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements included in this prospectus, including under "Risk Factors."

          These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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          You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Our forward-looking statements in this prospectus represent our views only as of the date of this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

          You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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USE OF PROCEEDS

          We estimate that we will receive net proceeds from this offering of approximately $            million (or approximately C$            million), or approximately $            million (or approximately C$            million) if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $           per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us.

          A $1.00 increase (decrease) in the assumed initial public offering price of $           per share would increase (decrease) the net proceeds to us from this offering by approximately $           million (or approximately C$            million), assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts. An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold in this offering, assuming no change in the assumed initial public offering price per share, would increase (decrease) our net proceeds from this offering by approximately $            million (or approximately C$            million).

          We intend to use up to approximately $56.0 million or approximately C$56.0 million, of the net proceeds from this offering for the completion of the construction of our planned first standard commercial facility in Edmonton, Canada and to fund the manufacturing and installation of ethanol production equipment for that facility. The remaining net proceeds will be used, along with existing cash and cash equivalents, to fund capital expenditures for future facilities, including our planned facilities in Pontotoc, Mississippi and Varennes, Canada, as well as research and development activities, working capital requirements and other general corporate purposes. We may also use a portion of the net proceeds to in-license, acquire or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.

          Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.


DIVIDEND POLICY

          We have never declared or paid any dividends on our common shares. We currently intend to retain our future earnings, if any, for use in the expansion and operation of our business, and therefore, do not anticipate declaring or paying cash dividends on our common shares in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on a number of factors, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, restrictions imposed by applicable law and other factors our board of directors may deem relevant.

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CAPITALIZATION

          The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2011:

    on an actual basis derived from our audited consolidated financial statements and related notes appearing elsewhere in this prospectus;

    on a pro forma basis to give effect upon the closing of this offering to (1) the automatic conversion of all of our outstanding preferred shares into                  Class A common shares and the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares; (2) the redesignation of our Class A common shares as common shares; and (3) the recording of a non-recurring, non-cash charge of approximately C$40.8 million to the consolidated statement of comprehensive operations (reflected as a pro forma increase in common shares and deficit in connection with the conversion of our preferred shares into common shares), assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus (see footnote (1) to the table set forth in the section titled "Selected Consolidated Financial Data" for more information); and

    on a pro forma as adjusted basis to give effect to the sale by us of                     common shares in this offering at an assumed initial public offering price of $           per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us.

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          You should read the information in this table together with our financial statements and accompanying notes, "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.

 
  As of September 30, 2011  
 
 
Actual
 
Pro Forma
 
Pro Forma
As Adjusted(1)
 
 
   
  (Unaudited)
  (Unaudited)
 
 
  (In thousands, except share data)
 

Cash and cash equivalents

  C$ 55,554   C$ 55,617   C$    
               

Non-current liabilities:

                   
 

Long-term debt

  C$ 2,959   C$ 2,959   C$ 2,959  
 

Warrants

    1,413     1,413     1,413  
 

Deferred credits

    11,608     11,608     11,608  
 

Convertible preferred shares, no par value, an unlimited number of shares authorized, 2,135,741 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    135,955          

Shareholders' (deficit) equity:

                   
 

Preferred shares, no par value, an unlimited number of shares authorized, no shares issued and outstanding, actual, pro forma and pro forma as adjusted

             
 

Common shares, no par value, an unlimited number of shares authorized, 299,915 shares issued and outstanding, actual; an unlimited number of shares authorized,              shares issued and outstanding, pro forma,              shares issued and outstanding, pro forma as adjusted

    3,137     179,942        
 

Contributed surplus

    1,009     1,008        
 

Deficit

    (44,675 )   (85,462 )      
               
     

Total shareholders' (deficit) equity

    (40,529 )   95,488        
               

Total capitalization

  C$ 111,406   C$ 111,468   C$    
               

(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $           per share would increase (decrease) each of cash and cash equivalents, common shares, total shareholders' equity and total capitalization by approximately $            million (or approximately C$            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 underwriting discounts. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, common shares, total shareholders' equity and total capitalization by approximately $            million (or approximately C$            million), assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts. The pro forma and pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

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          The pro forma and pro forma as adjusted outstanding share information in the table above is based on             of our common shares outstanding as of September 30, 2011 after giving effect to the automatic conversion of all of our outstanding preferred shares into           Class A common shares, the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares and the redesignation of our Class A common shares as common shares immediately prior to the closing of this offering, and excludes:

    152,513 common shares issuable upon the exercise of options outstanding as of September 30, 2011 pursuant to our stock option plan, at a weighted-average exercise price of C$5.69 per share;

    612,225 common shares available for future issuance under our equity incentive plan, which will become effective as of the date the registration statement, of which this prospectus forms a part, is declared effective (of which options to purchase 100,264 common shares will be granted to our directors, executive officers and non-executive employees, on the date the registration statement, of which this prospectus forms a part, is declared effective);

    common shares issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weighted-average exercise price of C$             per common share; and

    common shares to be issued in connection with the acquisition of Afina Energy Inc., which we expect to occur immediately following the closing of this offering. For a description of this transaction, see "Certain Relationships and Related Person Transactions."

          The table above does not include the impact of the following events that have occured subsequent to September 30, 2011:

    The December 2011 investment, by each of Waste Management of Canada Corporation and EB Investments ULC, of C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the Edmonton facility. Upon completion of the agreed upon capital contributions, which we expect to be completed in the first quarter of 2013, we will own 71% of the facility and Waste Management of Canada Corporation and EB Investments ULC will each own 14.5% of the facility.

    The February 2012 Lighthouse Capital Partners VI, L.P. draw down of the remaining $12.0 million of the $15.0 million debt facility. As a result of this drawdown, the July 2011 warrant issued to Lighthouse became exercisable for 11,648 Series 1 Class B preferred shares. Following the closing of the offering, the warrant will be exercisable for           common shares.

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Conversion of Our Series 1 Class B Preferred Shares

          Upon closing of this offering, all of our outstanding Class A preferred shares and Series 1 Class B preferred shares will convert automatically into Class A common shares. Our Class A preferred shares will convert into Class A common shares on a 1-for-1 basis. Assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, our Series 1 Class B preferred shares will automatically convert into Class A common shares at a conversion ratio that is equal to             Class A common shares for each Series 1 Class B preferred share.

          Our Series 1 Class B preferred shares are convertible into the number of Class A common shares determined by dividing the original issue price of the Series 1 Class B preferred shares of C$124.17 per share by the conversion price of the Series 1 Class B preferred shares in effect at the time of conversion. The initial conversion price for the Series 1 Class B preferred shares is C$124.17, resulting in an initial conversion ratio that is one Class A common share for each Series 1 Class B preferred share. The conversion price of the Series 1 Class B preferred shares is subject to adjustment immediately prior to the closing of this offering. The adjustment to the conversion ratio will be determined by multiplying the initial conversion price for the Series 1 Class B preferred shares, or C$124.17, by a fraction, the numerator of which is the initial public offering price per share and the denominator of which is 1.5 times the original issue price for the Series 1 Class B preferred shares, or $186.26.

          The following table shows the effect of various initial public offering prices within the price range set forth on the cover page of this prospectus, on the Series 1 Class B preferred share conversion ratio and on our capitalization following the closing of this offering on a pro forma basis to reflect the applicable conversion ratio adjustments and other assumptions set forth in the capitalization table above. The initial public offering prices shown below are hypothetical and illustrative.

Assumed initial public offering price ($) (A)
  Series 1 Class B
preferred shares
conversion price
(B)=C$124.17*(A)/C$186.26
  Series 1 Class B
preferred share
into Class A
common share
conversion ratio
(C)=C$124.17/(B)
  Class A
common shares
issuable upon
conversion of
Series 1 Class B
preferred shares
  Total common
shares outstanding
after this
offering
 

                         

                         

                         

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DILUTION

          If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common shares and the pro forma as adjusted net tangible book value per share of our common shares immediately after this offering. The historical net tangible book value of our common shares as of September 30, 2011 was (C$44.8 million), or (C$149.23) per share. The negative amount is attributable to our preferred shares being classified as a liability. Historical net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding common shares.

          After giving effect to (a) the automatic conversion of all of our outstanding preferred shares into                  Class A common shares, (b) the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares and (c) the redesignation of our Class A common shares as common shares, our pro forma net tangible book value as of September 30, 2011 would have been approximately C$          million, or C$           per share.

          After giving further effect to the receipt of the net proceeds from our sale of                  common shares at an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2011 would have been approximately C$              million, or C$             per share. This represents an immediate increase in pro forma as adjusted net tangible book value of C$             per share to our existing shareholders and an immediate dilution of C$             per share to investors purchasing common shares in this offering.

          The following table illustrates this dilution on a per share basis to new investors:

Assumed initial public offering price per share(1)

        C$    
 

Pro forma net tangible book value per share as of September 30, 2011

  C$          
 

Increase in pro forma as adjusted net tangible book value per share attributed to new investors purchasing shares in this offering

             
             

Pro forma as adjusted net tangible book value per share after giving effect to this offering

             
             

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering

        C$    
             

(1)
Based on an assumed initial public offering price per share of $        after conversion into Canadian dollars.

          Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the pro forma as adjusted net tangible book value by C$             per share and the dilution to new investors by C$             per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts. Similarly, each increase (decrease) of 1,000,000 shares in the number of common shares offered by us would increase (decrease) the pro forma as adjusted net tangible book value by approximately C$             per share and the dilution to new investors by C$             per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts. If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share would be C$             per share, and the dilution in pro forma as adjusted net tangible book value per share to investors in this offering would be C$             per share.

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          The table below summarizes as of September 30, 2011, on a pro forma as adjusted basis described above, the number of our common shares, the total consideration and the average price per share (i) paid to us by our existing shareholders and (ii) to be paid by new investors purchasing our common shares in this offering at an assumed initial public offering price of $             per share (or C$             per share), the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration  
Average
Price Per
Share
 
 
 
Number
 
Percent
 
Amount
 
Percent
 
 
   
   
  (In thousands)
   
 

Existing shareholders

            % C$         % $    

New investors

                               
                         
 

Total

          100.0 %         100.0 %      
                         

          The above discussion and tables are based on             of our common shares outstanding as of September 30, 2011 after giving effect to (a) the automatic conversion of all of our outstanding preferred shares into                  Class A common shares, (b) the automatic conversion of all of our outstanding Class B and Class C common shares into 17,471 Class A common shares and (c) the redesignation of our Class A common shares as common shares immediately prior to the closing of this offering and exclude:

    152,513 common shares issuable upon the exercise of outstanding options as of September 30, 2011 pursuant to our stock option plan, at a weighted-average exercise price of C$5.69 per share;

    612,225 common shares available for future issuance under our equity incentive plan (of which options to purchase 100,264 common shares will be granted to our directors, executive officers and non-executive employees on the date that the registration statement, of which this prospectus forms a part, is declared effective);

    common shares issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weighted-average exercise price of C$           per common share; and

    common shares to be issued in connection with the acquisition of Afina Energy Inc. expected to occur immediately following the closing of this offering. For a description of this transaction, see "Certain Relationships and Related Person Transactions."

          To the extent that any outstanding options or warrants are exercised, new options are issued under our equity incentive plan or we issue additional common shares in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our stock option plan, equity incentive plan and warrants as of September 30, 2011 were exercised, then our existing shareholders, including the holders of these options and warrants, would own         %, and our new investors would own         %, of the total number of our common shares outstanding upon the closing of this offering. In such event, the total consideration paid by our existing shareholders, including the holders of these options and warrants, would be approximately C$              million, or         %, the total consideration paid by our new investors would be C$              million, or         %, the average price per share paid by our existing shareholders would be C$             and the average price per share paid by our new investors would be C$             .

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SELECTED CONSOLIDATED FINANCIAL DATA

          The following table sets forth our selected consolidated financial data for the periods, and as of the dates, indicated. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB. The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, which are included elsewhere in this prospectus. The consolidated statements of comprehensive operations data for the years ended December 31, 2008, 2009 and 2010 and for the nine months ended September 30, 2011 as well as the consolidated statements of financial position data as of December 31, 2009 and 2010 and September 30, 2011 are derived from the audited consolidated financial statements and the related notes thereto that are included elsewhere in this prospectus. The consolidated statement of position data as of December 31, 2008 is derived from our consolidated financial statements that are not included in this prospectus. The consolidated statements of comprehensive operations data for the nine months ended September 30, 2010 have been derived from our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited consolidated financial statements. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year.

          Financial data for the years ended December 31, 2006 and 2007 have been omitted as we adopted IFRS with a transition date of January 1, 2008, and therefore, do not have IFRS data for periods prior to January 1, 2008.

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  Year Ended December 31,   Nine Months Ended
September 30,
 
 
 
2008
 
2009
 
2010
 
2010
 
2011
 
 
  (In thousands, except share and per share data)
 

Consolidated Statements of Comprehensive Operations Data:

                               

Revenue

  C$   C$ 691   C$ 443   C$ 443   C$  

Other income

    2,872     5,030     2,358     1,363     887  
                       
   

Total

    2,872     5,721     2,801     1,806     887  

Expenses:

                               
   

Operating and administrative

    5,083     6,112     11,519     7,565     15,526  
   

Research and development

    3,828     2,950     2,614     1,832     3,179  
   

Finance costs

    93     482     763     649     1,817  
   

Finance income

    (170 )   (85 )   (224 )   (177 )   (494 )
                       

Net loss

  C$ (5,962 ) C$ (3,738 ) C$ (11,871 ) C$ (8,063 ) C$ (19,141 )
                       

Net loss per share, basic and diluted

  C$ (39.61 ) C$ (21.76 ) C$ (41.47 ) C$ (28.62 ) C$ (63.82 )
                       

Weighted-average common shares outstanding, basic and diluted

    150,515     171,791     286,268     281,674     299,915  
                       

Pro forma net loss per share, basic and diluted(1) (unaudited)

             
C$

(        

)
     
C$

(        

)
                             

Pro forma weighted-average common shares used to compute pro forma net loss per share, basic and diluted(1) (unaudited)

                               
                             

(1)
Pro forma basic and diluted net loss per share have been computed to give retrospective effect to the conversion of all of our outstanding preferred shares to common shares (assuming a conversion ratio equal to                  Class A common shares for each Series 1 Class B preferred share based on an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus) and a 1-for-1 conversion ratio for our other preferred shares, using the if-converted method, for the year ended December 31, 2010 and the nine months ended September 30, 2011, respectively, as if the conversion had occurred as of January 1, 2010, or the original issue date of the preferred shares if later. This data is presented for informational purposes only and does not purport to indicate our loss per share as of any future date and will change based on the actual conversion ratio of our preferred shares into Class A common shares to take place immediately prior to the closing of this offering. For more information, see the section titled "Capitalization — Conversion of Our Series 1 Class B Preferred Shares".

Refer to Note 14 "Loss Per Share" of the consolidated financial statement for further information. If the price per common share offered in connection with this offering is less than C$186.26 per common share, a non-recurring, non-cash charge of approximately C$40.8 million will be recorded to the consolidated statement of comprehensive operations in the period in which the conversion takes place. This charge (1) is not reflected in the pro forma basic and diluted net loss per share as set forth above; and (2) would not impact total shareholders' equity as the resulting increase in common shares would have a corresponding increase in the deficit.


 
  As of December 31,  
As of
September 30,
2011
 
 
 
2008
 
2009
 
2010
 
 
  (In thousands, except share data)
 

Consolidated Statements of Financial Position Data:

                         

Cash and cash equivalents

  C$ 4,168   C$ 4,769   C$ 18,220   C$ 55,554  

Property, plant and equipment, net

    17,261     20,098     33,430     50,526  

Working capital(1)

    (8,091 )   (7,026 )   21,752     55,703  

Total assets

    28,182     34,940     62,191     122,745  

Long-term debt (including current portion)

    40     5,104     3,263     3,422  

Deferred credits

    4,151     8,073     10,952     11,608  

Convertible preferred shares

    12,744     12,809     66,039     135,955  

Total shareholders' (deficit)

    (7,326 )   (10,897 )   (21,874 )   (40,529 )

(1)
Working capital equals current assets less current liabilities.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          You should read the following discussion of our financial condition and results of operations in conjunction with the "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical information, the following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."

          The audited consolidated financial statements for the years ended December 31, 2008, 2009 and 2010 and the nine month period ended September 30, 2011 and the unaudited interim consolidated financial statements for the nine months ended September 30, 2010 are prepared pursuant to International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As permitted by the rules of the SEC for foreign private issuers, we do not reconcile our financial statements to U.S. generally accepted accounting principles.

          Our functional currency is CDN dollars and our reporting currency is CDN dollars. All amounts included herein are unaudited unless otherwise indicated.

Overview

          We develop renewable biofuels and chemicals from waste using our proprietary thermochemical technology platform.

          We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to take and use as feedstock, to produce profitable, second-generation biofuels that provide a sustainable alternative to landfilling and incineration. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and greenhouse gas, or GHG, emissions. Our primary focus is on the commercial production of cellulosic ethanol. We further intend to expand to multiple products beyond ethanol by taking advantage of our ability to produce a chemical-grade syngas that will serve as a key intermediate for the production of renewable chemicals.

          We designed, built and operate a commercial demonstration facility in Westbury, Canada as part of a comprehensive program to scale-up our technology. We believe that the Westbury facility, which is designed to operate on a continuous basis and to produce commercial products, is one of the largest thermochemical facilities to process heterogeneous waste material as feedstock.

          We have initiated our commercial roll-out with several identified projects in Canada and the United States, and with our first standard 10 million gallons per year, or MMGPY, commercial facility currently under construction in Edmonton, Canada. We intend to build, own and operate certain of our facilities. We also intend to capitalize on additional opportunities to sell systems utilizing our proprietary technology platform to select strategic partners.

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Recent Developments

Lighthouse Capital Partners

          In February 2012, we drew the remaining $12.0 million of the $15.0 million debt facility with Lighthouse Capital Partners VI, L.P. In connection with the draw down, the warrant previously issued to Lighthouse Capital Partners VI, L.P. became exercisable for 11,648 Series 1 Class B preferred shares. Following the closing of this offering, the warrant will be exercisable for             common shares.

U.S. Department of Agriculture Loan Guarantee

          In January 2012, we entered into a conditional commitment letter with the USDA providing for an $80.0 million loan guarantee. The conditional commitment letter provides for a guarantee for 80% of loans related to our Pontotoc facility. For more information, see "— Our Commercial Deployment Plan — Pontotoc, Mississippi."

Edmonton, Canada

          In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the Edmonton facility. Upon completion of the agreed upon capital contributions, which we expect will be completed in the first quarter of 2013 (including a contribution of C$29.6 million by us), we will own 71% of the facility and Waste Management of Canada Corporation and EB Investments ULC will each own 14.5% of the facility.

Acquisition of Afina Energy Inc.

          In December 2011, we entered into an agreement with certain of our existing shareholders to purchase all of the issued and outstanding shares of Afina Energy Inc., or Afina. We expect the closing for the acquisition of Afina to occur immediately following the closing of this offering for a purchase price equal to C$2.5 million, payable through the issuance of our common shares valued at the initial public offering price as set forth on the cover page of this prospectus. For more information, see "Certain Relationships and Related Person Transactions — Acquisition of Afina Energy Inc."

Our Commercial Deployment Plan

Westbury, Canada

          We built our Westbury commercial demonstration facility in multiple phases. We completed the initial phase of the construction in 2009, at which point the facility began converting waste material into syngas, which is a key intermediate for the production of various chemicals, including methanol. We completed the installation of methanol production equipment in Westbury in 2011, and the facility commenced production of methanol in June 2011. We intend to add ethanol production equipment to the Westbury facility in 2012 to enable a production capacity of 1.3MMGPY. We have an offtake agreement with GreenField Ethanol for the purchase of all the ethanol to be produced at this facility.

Edmonton, Canada

          In 2010, we commenced construction of our first standard 10MMGPY commercial facility in Edmonton. We intend to build, own and operate this facility, which is located on a municipal landfill

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to provide us proximity to feedstock. We have secured a 25 year MSW feedstock supply agreement with the City of Edmonton. We expect to ready our Edmonton facility for methanol production in the first quarter of 2013. We will sell the methanol produced by the Edmonton facility to Methanex Corporation, a global leader in methanol production and marketing, under an offtake agreement. As of September 30, 2011, we have invested C$14.7 million in the construction of the facility and have entered into commitments of C$24.1 million, primarily under fixed-price contracts for equipment purchases.

          We estimate the initial construction costs to ready the facility for methanol production to be approximately C$80.0 million, plus finance costs. We expect to finance the development of the facility with C$23.4 million in government financial assistance, of which C$7.2 million has been received as of September 30, 2011, an aggregate of C$15.0 million in equity investments received from Waste Management of Canada Corporation and EB Investments ULC and the balance from our available cash and net proceeds from this offering. We currently have an ownership interest of 33% in the facility. Upon completion of the agreed upon capital contributions, which we expect will be completed in the first quarter of 2013, we will have an ownership interest of 71% in the facility and Waste Management of Canada Corporation and EB Investments ULC will each have an ownership interest of 14.5% in the facility.

          We estimate the additional costs to ready the facility for ethanol production to be approximately C$25.0 million, plus finance costs. The Edmonton facility will entail a 7x scale-up in throughput capacity from our Westbury facility with only an approximate 2x increase in gasification and gas conditioning equipment size. We believe this facility represents the first collaboration between a waste-to-biofuels company and a metropolitan center to address its waste disposal challenges.

Pontotoc, Mississippi

          We plan to commence construction of an additional 10MMGPY commercial facility in Pontotoc in the fourth quarter of 2012. The Pontotoc facility will be located on a landfill site and will be constructed by our wholly-owned subsidiary Enerkem Mississippi Biofuels LLC. We estimate that it will take approximately 18 months to build the facility.

          In December 2009, we were awarded U.S. Department of Energy, or DOE, conditional financial assistance of $50.0 million under the American Recovery and Reinvestment Act of 2009 — Demonstration of Integrated Biorefinery Operations Program, for the development of the Pontotoc facility. Our receipt of this financial assistance from the DOE is contingent on us satisfying various conditions, including: (1) funding at least one half of the project ourselves under a cost-sharing arrangement with the DOE; (2) providing a contingency amount in available funds; (3) submitting an environmental evaluation report addressing any National Environmental Policy Act issues; (4) obtaining necessary permits; and (5) complying with applicable federal, state and municipal laws, codes and regulations for work performed. This contingency amount will equal 25% of the eligible project costs, including certain capital expenditures and operating expenses, net of expenses incurred during the planning and engineering phase of the project. As of September 30, 2011, we have received $2.6 million (or C$2.6 million) from the DOE. In January 2012, we also obtained a conditional commitment for an $80.0 million loan guarantee by the U.S. Department of Agriculture, or USDA. The conditional commitment letter provides for a guarantee for 80% of loans related to the project and is contingent on us satisfying various conditions, including: (1) receiving confirmation from the DOE that we are satisfying the conditions to continue receiving financial assistance; (2) applying our available cash towards at least 20% of eligible project costs; (3) satisfying certain financial covenants including a debt coverage ratio of 1.0 or higher, a debt-to-tangible net worth ratio of 4:1 or lower and a loan-to-value ratio of no more than 1.0; and (4)

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establishing and maintaining a debt service reserve account which covers principal and interest payments for 12 months.

          We plan to initiate the construction of the Pontotoc facility once we have achieved the following key milestones: (1) satisfy the DOE conditions to proceed to the second phase of the DOE financial assistance agreement; (2) enter into a ground lease and a definitive MSW feedstock supply agreement with the municipal landfill agency; (3) enter into a definitive loan guarantee agreement with the USDA and raise the underlying project-level debt; and (4) complete the permitting process.

          As of September 30, 2011, we have incurred C$2.2 million in pre-construction capital expenditures, and C$3.1 million was deposited with local state power suppliers for the installation of electricity supply. We expect the initial construction costs to be approximately C$90.0 million to C$100.0 million, plus finance costs. In addition, the local landfill agency plans to construct an MSW pre-treatment facility. We are currently in discussions to provide financing assistance to this agency. We expect to finance these facilities with the DOE conditional financial assistance, project-level debt guaranteed by the USDA and project-level equity.

Varennes, Canada

          We also plan to commence construction of a 10MMGPY commercial facility in Varennes as early as the first quarter of 2013. We estimate that it will take approximately 18 months after commencement of construction to build the facility. This facility will be constructed by Varennes Cellulosic Ethanol L.P., a 50/50 joint venture with GreenField Ethanol Inc., one of the largest ethanol producers in Canada. The Varennes facility will be located on the site of GreenField's grain ethanol facility in Varennes and we anticipate converting commercial waste and construction and demolition debris into cellulosic ethanol. We believe the integration with GreenField's first-generation ethanol facility will allow us to take advantage of certain existing infrastructure improvements at the site. The Quebec government has conditionally approved C$18.0 million in financial assistance and a C$9.0 million loan for the construction of the Varennes facility. We are currently in discussions with the Quebec government to finalize the contractual arrangements for this financial support. The C$18.0 million of financial assistance under negotiation will be contingent on satisfying certain conditions, including that: (1) the funds be used in the manner defined in the grant documentation; (2) all unused funds be reimbursed on the expiration of the agreement; and (3) an annual audited report be submitted detailing the expenses incurred and used by the grant and other sources of financial contribution. The financial assistance of C$9.0 million under negotiation will be contingent on satisfying various conditions, including: (1) securing a financial contribution by the Canadian government at least equivalent to the Quebec government's contribution; (2) evidencing the partners' own capital contributions to the project; and (3) satisfying certain financial covenants. In October 2010, the partnership applied for an interest-free loan for up to C$33.0 million from Sustainable Development Technology Canada, or SDTC, under its NextGen Biofuels Fund, in part, to secure the financial contribution by the Canadian government that is required in order to obtain the Quebec government's C$9.0 million in financial assistance. We expect that the construction of the Varennes facility will be financed with the Quebec financial assistance and loan, the NextGen interest-free loan and project-level equity from us and GreenField Ethanol.

          In order to initiate the construction of the Varennes facility we must achieve the following key milestones: (1) complete the permitting process; (2) enter into a ground lease and a definitive feedstock supply agreement; (3) obtain the NextGen loan; and (4) finalize the funding with the Quebec Government.

          As of September 30, 2011, we have not incurred any material expenses in connection with the construction of the Varennes facility. We estimate that initial construction costs for the Varennes facility will be approximately C$90.0 million to C$100.0 million, plus finance costs.

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Waste Management and Valero

          In addition to projects that we build, own and operate, we intend to capitalize on additional opportunities to sell systems utilizing our proprietary technology platform to select strategic partners. To this end, we have entered into non-binding arrangements, and we are currently negotiating definitive commercial development agreements, relating to commercial arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation, which is an affiliate of Waste Management, and Valero. Our term sheet with an affiliate of Waste Management contemplates the sale of systems utilizing our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY. With Valero, we have entered into a non-binding term sheet to sell our systems for the development of up to six stand-alone facilities with a combined ethanol production capacity of 80-250MMGPY and additional facilities to be co-located with existing Valero facilities. We expect that our arrangements with Waste Management and Valero would also provide us with an option to own up to 49.5% or 50.0% of these facilities, respectively. Our relationships with these strategic partners will enhance our production and distribution reach with access to feedstock supply and offtake and distribution channels. We intend to pursue additional strategic relationships in order to take advantage of the growing demand for our waste-based biofuels solutions and to increase the market penetration of our proprietary technology platform.

Other Projects and Considerations

          We have prioritized, based on specific selection criteria, 68 landfills in the United States as potential sites for development by us or our strategic partners. These locations represent a combined waste inflow of 40 million metric tons of unsorted MSW, which represents a potential production of 2 billion gallons of ethanol per year using approximately 200 of our standard 10MMGPY modules.

          Our largest expenditures are expected to be the capital costs associated with the construction of our 10MMGPY commercial production facilities. The costs are comprised of site preparation, utilities, permitting, facility construction, equipment, start-up and related financing costs. In the near term we expect to hire additional employees as well as incur contract-related expenses as we continue to invest in scaling our engineering, project management, supply chain and research and development.

          Successful commercial deployment of systems utilizing our proprietary technology platform and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing and successfully completing our development activities.

Factors Affecting our Future Financial Results

Revenue

          As part of our business strategy, we intend to build, own and operate commercial production facilities. Although we have not generated revenue from operating commercial production facilities to date, we expect to generate revenue from future sales of methanol, ethanol and chemicals from our Westbury facility and our other planned commercial production facilities.

          We also expect to receive payments, commonly referred to as tipping fees, from municipalities and waste managers for taking MSW as feedstock. We believe that every $10.00 per metric ton of tipping fees that we receive is the equivalent of approximately $0.12 per gallon. In addition, we intend to capitalize on additional opportunities to sell systems utilizing our proprietary technology platform to select strategic partners. We expect revenue from the sale of our systems to consist of licensing fees, royalty fees and revenue from the supply of equipment.

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          We, together with one or more of our strategic shareholders, may form joint ventures, partnerships or other arrangements, or we may make equity investments in other entities, to develop and construct commercial facilities using our proprietary technology platform. We will consolidate the results of entities we control. To the extent we own minority interests in any entity over which we have significant influence or an investment in a joint venture, we will account for these interests using the equity method, and as a result, we will not recognize revenue from the sale of ethanol and other products produced from such facilities. We will, however, recognize our proportionate share of the facilities' net income or losses. We expect to recognize our share of the assets, liabilities, revenue and expenses of joint operations. The accounting will depend on the specific facts and circumstances related to our investment in the entity.

          The amount of revenue we generate will primarily depend on:

    our production levels;

    commodity prices;

    cellulosic ethanol pricing dynamics under RFS2;

    Canadian government production incentives; and

    foreign exchange rates.

Cost of Revenue

          We expect our cost of revenue to consist of:

    Facility-related variable costs, which are expected to include oxygen, electricity, catalysts, chemicals, consumables, waste disposal and water treatment related costs. In certain facilities, we may also incur costs to procure, sort and transport feedstock to the facility.

    Facility-related fixed costs, which are expected to include maintenance, testing, environmental, and administrative and facility personnel. Other fixed costs primarily include maintenance materials and services, energy, depreciation, insurance and property taxes. Depreciation expense will be derived mainly from our production facility assets which are expected to have estimated useful lives ranging from 20 to 30 years.

          In our standard commercial facility producing 10MMGPY, we believe that our operating costs, before depreciation and amortization, will be $1.50 to $1.70 per gallon in the United States, and C$1.50 to C$1.70 per gallon in Canada (or $1.87 to $2.07 per gallon in the United States, and C$1.87 to C$2.07 per gallon in Canada, after depreciation and amortization). We estimate that we can reduce our operating costs before depreciation and amortization, to approximately $1.05 to $1.25 per gallon in the United States, and to approximately C$1.05 to C$1.25 per gallon in Canada, (or $1.24 to $1.44 per gallon in the United States, and C$1.24 to C$1.44 per gallon in Canada, after depreciation and amortization) by building larger facilities composed of four of our standard 10MMGPY modules producing 40MMGPY.

          Our preventive maintenance program will be similar to standard programs in the chemical and petroleum industry. We are planning to run an annual maintenance program of approximately 22 to 26 days of shutdown including 2 shutdowns of approximately 5 days each. In addition, we plan to perform a major overhaul every 7 to 10 years, which may add up to 10 days of shutdown to our standard annual maintenance program.

Operating Expenses

          Our operating expenses consist primarily of operating, administrative and research and development expenses. Operating expenses are recognized as they are incurred. Personnel-related

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costs are the most significant component of each of these expense categories. Personnel-related costs include employee wages, benefits and share-based compensation expense. We expect to continue to hire new employees in order to support our anticipated growth and status as a publicly-traded company. In any particular period, the timing of additional hires could materially affect our operating expenses. We anticipate that our operating expenses will continue to increase for the foreseeable future as our company continues to grow.

Other Drivers of our Future Financial Results

          We expect the principal drivers of our future financial results to consist of:

          Economies of Scale.    We expect to realize cost saving benefits as we increase the scale-up of our facilities from a one module facility with 10MMGPY commercial production capacity to a four module facility with 40MMGPY commercial production capacity. We expect our 40MMGPY facilities to benefit from lower variable and fixed costs on a per gallon basis due to economies of scale on key processing costs, improved energy efficiency, as well as the lower ratio of personnel to production capacity. We expect such cost savings to lower our unit production costs and improve our margins.

          Learning curve efficiencies.    As we continue the development, construction and operation of our planned commercial production facilities, we expect to identify cost and time savings that we can employ in subsequent projects to reduce our overall capital investment per unit over time.

          Equipment cost reduction.    Equipment procurement and fabrication remains a large component of our capital expenditures. In order to reduce these costs, we are continuing to diversify our supply chain and grow our strategic sourcing functions in order to optimize our access to reliable international equipment manufacturers.

Historical Components of Revenue and Expense

          We have generated limited revenue to date and have funded our research and development activities and construction of our facilities primarily through government financial assistance, investment tax credits, debt and equity issuances. We have incurred significant expenses in developing our technology, facilities and corporate infrastructure. Our cash expenditures have consisted primarily of construction and project management costs relating to the construction of these facilities, operating and administrative expenses, professional and consulting costs, research and development expenses relating to the development of our technologies, and finance expenses.

          To date, we have focused on the construction of our Edmonton facility, the installation of methanol production equipment at our Westbury facility and building our corporate infrastructure. Expenditures for property, plant and equipment, as well as personnel and consulting costs, have represented our most significant use of funds.

Revenue

          Revenue to date consists of licensing fees and facility testing fees.

          Licensing Fees.    Licensing fees consist of third-party licenses to our technology. Licensing fees are recognized as earned once the technology has been transferred, collectability is reasonably assured, and we have no remaining obligations to perform. To date, we have entered into one licensing fee arrangement.

          Facility Testing Fees.    Facility testing fees consist of fees earned from feedstock suppliers and partners for testing waste feedstock in order to determine the level of production of fuel and chemicals that can be produced from such waste. Facility testing fees are recognized once

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feedstock is processed, collectability is reasonably assured, related costs can be measured reliably and the testing report is issued.

Other Income

          Other income consists of (1) government financial assistance; (2) investment tax credits on research and development; and (3) a development fee.

          Government Financial Assistance.    We consistently seek to obtain new Canadian and U.S. federal, state, provincial and local government financial assistance. Government financial assistance is recorded when there is reasonable assurance that we will comply with the relevant conditions and the financial assistance will be received. Financial assistance relating to property, plant and equipment is presented as a deferred credit and is amortized over the useful life of the underlying asset commencing upon the use of the asset in commercial production. Financial assistance relating to operating expenses are recognized as other income as such expenses are incurred. Regulating authorities routinely examine and approve documentation supporting investments in property, plant and equipment and operating expenses and upon examination may determine to adjust the amount of financial assistance income we receive.

          Investment Tax Credits on Research and Development Expenses.    We are reimbursed by Canadian tax authorities for a portion of our qualifying research and development expenses. Investment tax credits on eligible operating expenditures are recognized as other income in the period in which the expense is incurred. Investment tax credits are recorded as other income when there is reasonable assurance that we will comply with the relevant conditions and payment will be received. Regulating authorities routinely examine and approve documentation supporting research and development expenses and upon examination may determine to reimburse us for an amount that is different than the amount of investment tax credits we had recognized as other income.

          Development Fee.    The development fee relates to financial assistance we received for operating expenses incurred at our Edmonton facility.

Operating Expenses

          Our operating expenses consist primarily of operating, administrative and research and development expenses, and are recognized as they are incurred. Personnel-related costs, which include employee wages, benefits and share-based compensation expense, are the most significant component of each of these expense categories.

          Operating and Administrative.    Operating and administrative expenses consist primarily of personnel-related costs, which include employee wages, benefits and share-based compensation expense, engineering, supply chain, corporate administration, professional and legal services, third-party contract manufacturing and facility overhead expenses. Professional services consist primarily of consulting, external legal, accounting and temporary services. In addition, these costs include the cost of operating our commercial demonstration facility in Westbury.

          Research and Development.    Research and development expenses include costs incurred in the development of internal projects and consist primarily of salaries and benefits for our research and development personnel, including professional fees and third-party contract manufacturing, facility and overhead costs and laboratory materials and supplies. Research and development expenses also include the costs of laboratory research, process and prototype development and operations. In addition, the costs of construction, alterations and upgrades to our commercial demonstration facility are capitalized to the cost of the facility.

          Finance Costs.    Finance costs consist of interest and financing fees on long-term debt and convertible debentures, amortization of preferred share issuance fees, foreign exchange losses, losses arising from changes in the fair value of liability classified warrants, net of borrowing costs capitalized to property, plant and equipment. In accordance with IFRS, we capitalize our long-term borrowing costs to property, plant and equipment as our debt is directly related to the construction of our plants and the financing of equipment required for their operation.

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          Finance Income.    Finance income consists of income from our cash, cash equivalents and term deposits, foreign exchange gains and gains arising from changes in fair value of liability classified warrants.

Income Taxes

          We are subject to Canadian federal and provincial taxes and United States federal and state taxes on our taxable income. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Due to our history of losses, we have not recorded any deferred tax assets.

Results of Operations

          The following table sets forth our consolidated results of operations for the periods shown:

 
  Years Ended December 31,   Nine Months Ended
September 30,
 
 
 
2008
 
2009
 
2010
 
2010
 
2011
 
 
  (In thousands)
 

Revenue

  C$   C$ 691   C$ 443   C$ 443   C$  

Other income

    2,872     5,030     2,358     1,363     887  
                       
 

Total

    2,872     5,721     2,801     1,806     887  

Expenses:

                               
 

Operating and administrative

    5,083     6,112     11,519     7,565     15,526  
 

Research and development

    3,828     2,950     2,614     1,832     3,179  
 

Finance costs

    93     482     763     649     1,817  
 

Finance income

    (170 )   (85 )   (224 )   (177 )   (494 )
                       
 

Net loss

  C$ (5,962 ) C$ (3,738 ) C$ (11,871 ) C$ (8,063 ) C$ (19,141 )
                       

Nine Months Ended September 30, 2010 compared to the Nine Months Ended September 30, 2011

 
  Nine Months Ended
September 30,
   
 
 
 
2010
 
2011
 
Change
 
 
  (In thousands)
 

Revenue

  C$ 443   C$   C$ (443 )

Other income

    1,363     887     (476 )
               
   

Total

    1,806     887     (919 )

Expenses:

                   
 

Operating and administrative

    7,565     15,526     7,961  
 

Research and development

    1,832     3,179     1,347  
 

Finance costs

    649     1,817     1,168  
 

Finance income

    (177 )   (494 )   (317 )

          Revenue.    Revenue decreased C$0.4 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011 as we had no revenue from licensing or facility testing agreements. During the nine months ended September 30, 2011, we focused on our internal operations, installing methanol production equipment and performing the related tests at our Westbury commercial demonstration facility, and as such, we did not perform any feedstock testing for third parties.

          Other Income.    Other income decreased by C$0.5 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, mainly due to a C$0.3 million

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adjustment to the refundable tax credits on research and development expenses claimed in previous years.

          Operating and Administrative.    Operating and administrative expenses increased C$8.0 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, primarily due to a C$3.0 million increase in personnel-related expenses and a C$1.0 million increase in human resources and recruitment costs. We incurred an increase of C$1.9 and C$0.3 million in operating costs and depreciation, respectively, in Westbury as the facility began operations in the third quarter of 2011. We also incurred an increase of C$0.6 million in professional fees related to our preparations to become a public company, including fees related to internal control development and testing, accounting assistance related to the conversion of our financial statements to IFRS, and additional legal and communication expenses.

          Research and Development.    Research and development expenses increased C$1.3 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011 primarily due to a C$1.3 million increase in salaries, supplies and materials relating to various projects underway during the first nine months of 2011.

          Finance Costs.    Finance costs increased C$1.2 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, primarily due to a C$0.8 million increase in the value of preferred share warrants which are measured at fair value, with changes therein recognized through profit or loss and C$0.4 million increase in amortization of preferred share issuance costs.

          Finance Income.    Finance income increased C$0.3 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, primarily due to foreign exchange gains realized on net assets denominated in U.S. dollars and increased interest income on higher cash balances in 2011 resulting from the proceeds of capital raising activities during the nine months ended September 30, 2011.

Year Ended December 31, 2009 compared to Year Ended December 31, 2010

 
  Years Ended December 31,  
 
 
2009
 
2010
 
Change
 
 
  (In thousands)
 

Revenue

  C$ 691   C$ 443   C$ (248 )

Other income

    5,030     2,358     (2,672 )
               
   

Total

    5,721     2,801     (2,920 )

Expenses:

                   
 

Operating and administrative

    6,112     11,519     5,407  
 

Research and development

    2,950     2,614     (336 )
 

Finance costs

    482     763     281  
 

Finance income

    (85 )   (224 )   (139 )

          Revenue.    Revenue decreased C$0.2 million from 2009 to 2010 due to a decrease in facility testing fees. In 2009, we signed facility testing fee agreements with various parties allowing them to temporarily use our commercial demonstration facility for feedstock testing with a view to developing future commercial relationships. In 2009, revenue from these agreements was C$0.7 million compared to C$0.2 million in 2010. The decrease was offset by a C$0.3 million increase in licensing revenue.

          Other Income.    Other income decreased C$2.7 million from 2009 to 2010 as a result of a one-time development fee of C$3.5 million received in 2009 for expenses incurred in prior years related to the development of our Edmonton facility. In addition, we recorded C$1.2 million in reimbursable investment tax credits related to research and development performed in 2009. We

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did not record investment tax credits in 2010 primarily due to the allocation of project costs towards government financial assistance income. These items were offset by an increase of C$2.0 million in government financial assistance.

          Operating and Administrative.    Operating and administrative expenses increased C$5.4 million from 2009 to 2010 primarily due to a C$1.9 million increase in personnel-related costs related to higher headcount as we commenced commercial deployment activities. We also recorded an equipment impairment charge of C$1.0 million. In addition, in 2009 we were able to recuperate C$1.0 million in salaries from the Alberta government related to the Edmonton research and development center. In 2009, we employed internal personnel on this project and billed the government for their salaries. In 2010, we retained third-party consultants due to the different nature of the work, and as such did not recover internal salary costs. We also incurred a C$0.7 million increase in recruiting costs and general and administrative expenses.

          Research and Development.    Research and development expenses decreased C$0.3 million from 2009 to 2010 primarily as a result of lower third-party contractor and material costs related to the various projects that were underway during 2010.

          Finance Costs.    Finance costs increased C$0.3 million from 2009 to 2010 due to higher preferred share issue amortization costs resulting from the issuance of C$54.9 million of Series 4 Class A preferred shares in 2010. In 2009, we capitalized C$1.5 million in borrowing costs to our capital assets versus C$0.5 million in 2010 due to higher interest expense in 2009 from the convertible debentures which were converted in January 2010.

          Finance Income.    Finance income increased C$0.1 million from 2009 to 2010 as a result of interest from higher cash and cash equivalents balances in 2010.

Year Ended December 31, 2008 compared to Year Ended December 31, 2009

 
  Years Ended
December 31,
 
 
 
2008
 
2009
 
Change
 
 
  (In thousands)
 

Revenue

  C$  —   C$ 691   C$ 691  

Other income

    2,872     5,030     2,158  
               
   

Total

    2,872     5,721     2,849  

Expenses:

                   
 

Operating and administrative

    5,083     6,112     1,029  
 

Research and development

    3,828     2,950     (878 )
 

Finance costs

    93     482     389  
 

Finance income

    (170 )   (85 )   85  

          Revenue.    Revenue increased C$0.7 million from 2008 to 2009 due to facility testing fees resulting from agreements signed in 2009 permitting third parties to use our commercial demonstration facility for feedstock testing with a view to developing future commercial relationships. We did not have any such agreements in 2008.

          Other Income.    Other income increased C$2.2 million from 2008 to 2009 as a result of a development fee of C$3.5 million received in 2009 related to expenses incurred in prior years for the development of our Edmonton facility. This increase was offset by a decrease of C$1.3 million in government financial assistance.

          Operating and Administrative.    Operating and administrative expenses increased C$1.0 million from 2008 to 2009 due primarily to a C$1.2 million increase in personnel-related expenses.

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          Research and Development.    Research and development expenses decreased C$0.9 million from 2008 to 2009, primarily as a result of lower third-party contractor costs of C$1.8 million, as the majority of the technology development costs at our Westbury facility were incurred in 2008. These costs were not eligible for capitalization. This decrease was offset by a C$0.4 million increase in personnel-related expenses as we hired additional personnel and a C$0.5 million increase in materials related to various projects.

          Finance Costs.    Finance costs increased C$0.4 million from 2008 to 2009 due to an increase in interest expense due to higher balances of long term debt during 2009. In 2009, we capitalized C$1.5 million in borrowing costs to our capital assets versus C$0.3 million in 2010 due to higher interest expense in 2009 from the convertible debentures.

          Finance Income.    Finance income decreased C$0.1 million from 2008 to 2009 as a result of lower interest income on reduced cash and cash equivalents balances during 2009.

Liquidity and Capital Resources

          As of September 30, 2011, we had cash and cash equivalents of C$55.6 million, C$0.6 million in term deposits and C$2.8 million in restricted cash for total cash resources of C$59.0 million.

          In January 2010, we issued 828,667 Series 4 Class A preferred shares for net cash consideration of C$35.9 million. In addition, C$16.8 million of convertible debentures, including accrued interest, were converted into 365,804 Series 4 Class A preferred shares. The proceeds were used to finance our development activities, including the installation of methanol production equipment at the Westbury commercial demonstration facility, construction costs at the Edmonton facility and funding of our operating and administrative costs. In April 2011 and July 2011, we raised net proceeds of C$55.8 million and C$13.4 million, respectively, from the issuance of Series 1 Class B preferred shares. The proceeds were used to finance our development activities, notably construction costs at the Edmonton facility, and our operating and administrative costs.

          We expect to incur operating losses for the foreseeable future as we seek to commercialize our proprietary systems. We believe that the proceeds from this offering, combined with our current cash and cash equivalents, term deposits, debt facilities, existing government support, and existing financial commitments from our project investors are sufficient to fund our planned operations for at least the next 12 months. Our commercial deployment efforts will require significant capital expenditures and related financing. If we are unable to obtain sufficient additional financing, we may have to delay, scale back or eliminate construction plans for future facilities, any of which could harm our business, financial condition and results of operations. We rely on existing cash resources, debt, equity capital markets and government financial support to satisfy our financing requirements. Any impediments to our ability to continue to meet the terms and conditions contained in our debt facilities and our government financial assistance, as well as our ability to access debt and equity capital markets, or an adverse perception in capital markets of our financial condition or prospects, could have a material impact on our financing capability. In addition, our access to debt financing at reasonable interest rates will be influenced by the economic and credit market environment.

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Contractual Obligations and Commitments

          The following is a summary of our contractual obligations and commitments as of September 30, 2011:

 
  Payments Due by Period  
 
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
 
  (In thousands)
 

Long-term debt, including interest payments(1)

  C$ 4,801   C$ 787   C$ 2,941   C$ 950   C$ 123  

Operating leases

    1,357     460     682     215      

Purchase obligations(2)

    24,109     24,109              
                       
 

Total

  C$ 30,267   C$ 25,356   C$ 3,623   C$ 1,165   C$ 123  
                       

(1)
Please refer to the section below titled "— Debt Facilities" for further information regarding our long-term debt.

(2)
Represents purchase orders for equipment and materials for the construction of our Edmonton facility.

          Subsequent to September 30, 2011 and not reflected in the above table, the following transactions occurred:

    In February 2012, we drew an additional $12.0 million under the Lighthouse loan facility. Additional monthly payments of capital and interest of $0.4 million will commence in July 2012. Prior to that date, we will make interest payments only.

    We signed a lease in January 2012 for a period of five years ending on January 31, 2017. Additional annual lease payments amount to C$0.4 million.

    In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is developing and which will own and operate the Edmonton facility. As a result of these investments, an amount of C$15.0 million will be recorded as other financial liabilities as each of Waste Management of Canada Corporation and EB Investments ULC were granted a put option in respect of their interest in the partnership exercisable in the event we undergo a change of control.

          The following is a summary of our contractual obligations and commitments as of December 31, 2010:

 
  Payments Due by Period  
 
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
 
  (In thousands)
 

Long-term debt, including interest payments(1)

  C$ 3,686   C$ 2,213   C$ 1,454   C$ 19   C$  

Operating leases

    1,724     494     838     392      

Purchase obligations(2)

    26,705     26,705              
                       
 

Total

  C$ 32,115   C$ 29,412   C$ 2,292   C$ 411   C$  
                       

(1)
Please refer to the section below titled "— Debt Facilities" for further information regarding our long-term debt.

(2)
Represents purchase orders for equipment and materials for the construction of our Edmonton facility.

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          These tables do not reflect the potential redemption amounts of our convertible preferred shares and preferred shares issuable upon exercise of outstanding warrants or deferred credits, as neither of these obligations represent fixed contractual obligations. Please see the notes to the consolidated financial statements included elsewhere in this prospectus for further information.

Debt Facilities

          The following table summarizes our long-term debt, including the current portion:

 
  As of December 31,   As of September 30,  
 
 
2008
 
2009
 
2010
 
2011
 
 
  (In thousands)
 

Loans

  C$ 40   C$ 5,104   C$ 3,263   C$ 3,234  

Finance lease(1)

                188  
                   
 

Total long-term debt

  C$ 40   C$ 5,104   C$ 3,263   C$ 3,422  
                   

(1)
For equipment at our Westbury facility.

          In February 2012, we drew an additional $12.0 million under the Lighthouse loan facility. Additional monthly payments of capital and interest of $0.4 million will commence in July 2012. Prior to that date, we will make interest payments only.


Loans

    Multi-Mécanique du Bâtiment

          In March 2009, we entered into a business loan agreement with Multi-Mécanique du Bâtiment in the aggregate principal amount of C$1.0 million. The funds were used for the construction of, and equipment for, the Westbury facility. The loan is secured by real property at our Westbury facility and carries interest at 6.0% per annum, payable in monthly installments of approximately C$19,000 in principal and interest and matures in January 2014. As of September 30, 2011, the outstanding balance under this loan was C$0.5 million.

    Lighthouse Capital Partners

          In July 2011, we entered into a $15.0 million debt facility with Lighthouse Capital Partners VI, L.P. The loan has a term of 4 years and bears interest at 9.0% per annum. In the first year, payments are interest only and the remaining payments will include an amortization of principal and interest. In addition to the remaining principal amount due at maturity, there is an additional payment at maturity equal to 8.0% of the amount drawn under the facility. Pursuant to the terms of the loan, we were required to draw $3.0 million from the facility in July 2011 and we had until the earlier of the closing of this offering and March 2012 to draw the remaining $12.0 million, which was drawn in February 2012. In connection with entering into this facility, we issued to Lighthouse Capital Partners VI, L.P. a warrant to purchase up to 11,648 Series 1 Class B preferred shares at C$124.17 per share. The warrant expires on the earlier of June 30, 2019 or the second anniversary of the closing of an initial public offering. Upon the closing of this offering, the warrant will be exercisable for             common shares.

          The debt facility contains restrictions relating to cash balances that can be maintained by certain of our subsidiaries and other customary covenants and obligations.

          Our obligations under the debt facility are secured by liens on all our movable personal property, other than our intellectual property, and by a pledge of the shares of all our subsidiaries. In addition, Enerkem Corporation, our wholly-owned subsidiary, has guaranteed our obligations under the facility and also granted Lighthouse Capital Partners VI, L.P. a security interest in its movable personal property, other than its intellectual property.

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Government Financing Awards

          We rely on various sources of governmental financial support to partially fund our current projects, and are subject to the potential risk of adverse policy changes towards the public funding of innovative alternative fuels technologies that could result in the termination of programs under which we currently receive such funding. Although multi-year funding agreements may be planned and awarded, funds are generally appropriated on a fiscal year basis even when a program or a contract may continue for several years. Consequently, programs or contracts are often partially funded at the outset and additional funds may become committed only as appropriations are reauthorized in the annual budgeting process. Therefore, even if we are awarded a multi-year contract, the contract may not be fully funded. In addition, such government funding is generally subject to termination in the event that we fail to satisfy our obligations under the funding agreement and associated complex U.S. and Canadian laws and regulations. If we are unable to raise sufficient funds or to maintain existing or obtain new governmental financial support, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited.

          We have received the following government financing awards:

    City of Edmonton and Alberta Innovates — Energy and Environment Solutions

          In May 2009, the City of Edmonton and Alberta Innovates — Energy and Environment Solutions agreed to contribute C$20.0 million to the Edmonton facility for its design, construction and operation. This financial contribution is part of the agreement we entered into with the City of Edmonton, which provides that the funds are to be disbursed in installments, upon the achievement of mutually agreed project milestones. As at September 30, 2011, we have received C$6.6 million from such financial assistance.

    United States Department of Energy

          In December 2009, we were awarded $50.0 million of financial assistance by the DOE under the American Recovery and Reinvestment Act of 2009 — Demonstration of Integrated Biorefinery Operations Program for the development and construction of the Pontotoc facility. Under this award, the DOE will reimburse a certain percentage of admissible project costs incurred by us, up to $50.0 million. Such funds are available for reimbursement until September 30, 2015. The financial assistance is divided into two sub-awards, referred to as budget periods. Budget period 1 covers project planning and basic design activities and budget period 2 comprises detailed facility design, construction and operations. The commencement of each budget period is subject to the submission of required documentation, such as a project management plan, project execution plan, detailed budget justification, cost-share commitment and proof of required contingency. We are currently under budget period 1, which will extend until May 31, 2012, unless modified by common agreement between us and the DOE. As of September 30, 2011, we have received $2.6 million from the DOE pursuant to this award.

    Biorefining Commercialization and Market Development Program

          In March 2010, we were awarded C$3.4 million in financial assistance for the Edmonton facility from Alberta Energy under the Biorefining Commercialization and Market Development Program. We received the funds in exchange for a letter of credit in favor of the Government of Alberta in the same amount. As we incur costs that are eligible for reimbursement under this financial assistance, the Government of Alberta instructs the financial institution which issued the letter of credit to release the funds to us and concurrently reduces the balance of the letter of credit by the same amount. This process will continue until we have incurred the eligible costs to be entitled for the full amount of the financial assistance to be awarded. We have invested the restricted cash in a term

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deposit that yields 1%, maturing on various dates until March 31, 2012. As of September 30, 2011, we have received C$0.6 million from the Government of Alberta pursuant to this program.

Government Financing Awards Currently Under Negotiation

          We are pursuing additional government financial support. We may not successfully complete the application process or negotiations with these government entities. If we are unable to raise sufficient funds or to maintain existing or obtain new governmental financial support, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited.

          We are awaiting final decisions from government authorities with respect to the following:

    United States Department of Agriculture

          In January 2012, we entered into a conditional commitment letter with USDA for a $80.0 million loan guarantee for the construction of our Pontotoc facility. The conditional commitment provides for a guarantee on 80% of loans related to the project.

    Quebec Provincial Government — Le Ministère des Ressources Naturelles et de la Faune

          Le Ministère des Ressources naturelles et de la Faune has approved in principle an C$18.0 million financial assistance for the construction of our Varennes facility. The funds from this financial assistance would be paid based on milestones that have yet to be determined.

    Quebec Provincial Government — Investissement Québec

          Investissement Québec has approved in principle a C$9.0 million loan for the construction of our Varennes facility. The loan would be interest-free for a period of eight years and repayable in annual instalments after that period.

    Canadian Federal Government — Sustainable Development Technology Canada

          In April 2011, we applied for a C$33.0 million interest-free loan from Sustainable Development Technology Canada under its NextGen Biofuels Fund. The NextGen Biofuels Fund supports the establishment of first-of-kind large demonstration-scale facilities for the production of next-generation renewable fuels. Sustainable Development Technology Canada is currently in the final phase of due diligence. If awarded, the proceeds would be used for the construction of our Varennes facility.

Cash Flows

 
  Years Ended December 31,   Nine Months Ended
September 30,
 
 
 
2008
 
2009
 
2010
 
2010
 
2011
 
 
  (In thousands)
 

Consolidated Statements of Cash Flows Data:

                               

Cash flows used in operating activities

  C$ (10,643 ) C$ (63 ) C$ (9,732 ) C$ (5,980 ) C$ (13,982 )

Cash flows provided by financing activities

    22,792     11,923     36,967     37,750     67,687  

Cash flows used in investing activities

    (10,117 )   (10,893 )   (13,744 )   (5,136 )   (16,515 )

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Operating Activities

          Net cash used in operating activities was C$14.0 million for the nine months ended September 30, 2011 primarily resulting from a C$19.1 million net loss. This amount was offset by C$3.2 million in net changes in operating assets and liabilities, C$0.9 million in non-cash financial expenses, C$0.6 in depreciation and C$0.5 million in share-based compensation.

          Net cash used in operating activities was C$6.0 million for the nine months ended September 30, 2010, primarily resulting from a C$8.1 million net loss. This amount was offset by C$1.8 million in net changes to non-cash working capital items over the prior period.

          Net cash used in operating activities for 2010 was C$9.7 million, primarily resulting from a C$11.9 million net loss. This amount was offset by a C$1.0 million impairment charge on equipment at the Westbury facility and a C$0.5 million net change in non-cash working capital items over the prior period.

          Net cash used in operating activities for 2009 was C$0.1 million, primarily resulting from a C$3.7 million net loss. This amount was offset by a C$3.4 million net change in non-cash working capital items, over the prior period.

          Net cash used in operating activities for 2008 was C$10.6 million, primarily resulting from a C$6.0 million net loss and C$5.0 million in net changes in working capital items over the prior period, particularly an increase in trade and other receivables.

Financing Activities

          Net cash provided by financing activities was C$67.7 million for the nine months ended September 30, 2011 due to C$69.2 million in net proceeds from the issuance of Series 1 Class B preferred shares, C$2.9 million in additional debt and C$0.8 million in proceeds from government financial assistance. This amount was offset by C$2.8 million in long-term debt repayment and C$2.4 million of deferred costs incurred in connection with our proposed initial public offering.

          Net cash provided by financing activities was C$37.7 million for the nine months ended September 30, 2010 due to C$35.9 million in net proceeds from the issuance of Series 4 Class A preferred shares and C$3.1 million in government financial assistance. This amount was offset by C$1.2 million in long-term debt repayment.

          Net cash provided by financing activities was C$37.0 million for 2010 of which C$35.9 million related to the net proceeds from the sale of Series 4 Class A preferred shares and C$2.9 million from proceeds from government financial assistance, partially offset by the repayment of C$1.9 million of long-term debt.

          Net cash provided by financing activities was C$11.9 million for 2009, which was due to C$4.7 million from the issuance of convertible debentures, C$4.6 million from the issuance of long-term debt and C$3.9 million from government financial assistance, partially offset by the repayment of C$1.3 million of long-term debt.

          Net cash provided by financing activities was C$22.8 million for 2008, which was due to C$11.0 million from the issuance of convertible debentures, C$8.0 million from the issuance of preferred shares and C$3.7 million from government financial assistance.

Investing Activities

          Net cash used in investing activities for the nine months ended September 30, 2011 was C$16.5 million, of which C$13.9 million was related to the purchase of property, plant and equipment, C$1.8 million in long term deposits made to local state power suppliers for the Pontotoc

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project and C$1.6 million in tangible assets related to the research and development facility in Edmonton. This amount was offset by C$0.6 million which was released from restricted cash and which related to financial assistance for the construction of the Edmonton facility.

          Net cash used in investing activities for the nine months ended September 30, 2010 was C$5.1 million, which related principally to purchases of property, plant and equipment.

          Net cash used in investing activities for 2010 was C$13.7 million and included C$13.4 million in purchases of equipment for our Westbury and Edmonton facilities, C$1.1 million in long term deposits made to local state power suppliers for the Pontotoc project and C$3.4 million of restricted cash invested in term deposits. These amounts were offset by C$4.0 million from the sale of term deposits.

          Net cash used in investing activities for 2009 was C$10.9 million and was comprised of C$6.9 million in equipment purchases, and C$4.0 million in purchases of term deposits.

          Net cash used in investing activities for 2008 was C$10.1 million and was comprised of C$9.6 million in equipment purchases related to the Westbury facility and C$0.6 million in term deposit purchases.

Off-Balance Sheet Arrangements

          During 2008, 2009 and 2010 and the nine months ended September 30, 2011, we did not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosure about Market Risk

          We are exposed to financial market risks, primarily changes in interest rates, currency exchange rates, and commodity prices.

Interest Rate Fluctuation Risk

          Our exposure to market changes in interest rates relates primarily to our short-term investment portfolio. We invest our cash in investments with short-term maturities or with frequent interest reset terms. As a result, our interest income fluctuates with short-term market conditions. As of December 31, 2010 and September 30, 2011, our short term-term investment portfolio consisted of primarily fixed term deposits held for future capital expenditures and general corporate purposes. We are investing our short-term liquidities based on the guidelines included in our cash investment policy as approved by our board of directors. The primary objectives of our cash investment policy are preservation of capital, liquidity and investment return. Due to the short-term nature of these instruments, we do not believe that a change in interest rates would have a significant negative impact on our consolidated position or result of operations.

          As we have fixed rate debt, we are not subject to interest rate risk on our cash flows but the fair value of our debt may vary as a function of variations in market rates.

Foreign Currency Exchange Risk

          The majority of our cash flows, financial assets and liabilities are denominated in Canadian dollars, which is our functional and reporting currency. We are exposed to financial risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is limited to the proportion of our business transactions denominated in currencies other than the Canadian dollar, primarily for capital expenditures, debt and various operating expenses such as salaries and professional fees. As of today, substantially all of our debt is denominated in U.S. dollars, which exposes us to foreign currency exchange risk. We also purchase property, plant and

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equipment in U.S. dollars. We do not currently use derivative financial instruments to reduce our foreign exchange exposure and management does not believe our exposure to currency risk to be significant. Going forward we anticipate that our sales and expenses will be denominated in the local currency of the country in which they occur. As a result, while our revenue and operating expenses are mostly economically hedged on a transactional basis, the translation of our operating results into Canadian dollars may be adversely affected by a strengthening Canadian currency once non-Canadian facilities are in operation. We may decide to manage our exposure to this risk by hedging our foreign currency exposure, principally through derivative contracts.

          Based on our foreign currency exposures to the U.S. dollar, varying the U.S. dollar exchange rate to reflect a 5.0% strengthening of the Canadian dollar would have decreased the net loss by approximately C$0.1 million at September 30, 2011, assuming that all other variables remained constant. An assumed 5.0% weakening of the Canadian dollar would have had an equal but opposite effect on the amount shown above, assuming that all other variables remained constant.

Commodity Price Risk

          Our current exposure to market risk for changes in commodity prices is minimal as we are not in commercial production. In the future, we will be exposed to the volatility of the price of methanol, ethanol and other products we manufacture. See "Risk Factors — Risks Related to our Business and Industry — Our business will be subject to fluctuations in commodity prices" for more information. It is unlikely that we will be able to enter into fixed-price contracts with purchasers for the sale of such products. However, we may decide to manage our exposure to this risk by hedging the price volatility of such products, principally through futures contracts.

Critical Accounting Policies and Estimates

          The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with IFRS as issued by the IASB.

          The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. The results of our analysis provide the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may vary from these estimates under different assumptions or conditions. We evaluate our estimates, judgments and assumptions on an on-going basis. We believe the following critical accounting policies involve significant areas of judgment and estimates.

Financial Assistance Recognition

    Government Financial Assistance

          For the majority of the government financial assistance we receive, we must purchase the equipment or incur the expense before we receive the funds. In most cases, we must complete and submit documentation to the regulating authorities who must clear our documentation before disbursing the funds to us. As a result, the risk that we will have to repay any of the government financial assistance we receive is significantly reduced. To date, we have not been required to repay any government financial assistance after we have received the funds.

          The clearance process described above is an on-going process. We currently have financial assistance receivable and deferred credits for which the clearance process may not be complete or for which the process is complete but for which we have not yet received the funds. There is, therefore, a risk that we may not receive funds for these receivables. We only recognize

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government financial assistance for financial statement purposes when we are reasonably assured that we have complied with the significant terms and conditions of the program.

          Deferred credits relate to cash proceeds from government financial assistance for various on-going projects. Financial assistance relating to property, plant and equipment is recorded as a deferred credit and is amortized over the useful life of the assets once the asset is available for its intended use. Financial assistance relating to operating expenses is recognized as other income in the period in which the related expense is incurred.

          Government financial assistance receivables are recorded when we are reasonably assured they will be received.

    Investment Tax Credits on Research and Development

          Reimbursable investment tax credits related to research and development expenses are recognized as other income in the period in which the related expenses are incurred. Investment tax credits must be examined and approved by regulating authorities and therefore the amounts of financial assistance may differ from those recorded. In general, our investment tax credit claims for eligible research and development expenses are examined by regulatory authorities prior to the disbursement of any funds to us. As a result, we believe the risk of repayment of these amounts is low. As of December 31, 2010 and September 30, 2011, C$1.2 million and C$0.9 million, respectively, was receivable from reimbursable tax credits.

          In January 2010, our status as a company changed from a Canadian Controlled Private Corporation as we became a U.S. controlled company, as defined by Canada Revenue Agency. As a result, the rates at which our research and development expenses are refunded by the Quebec Provincial Government were reduced. In addition, we are no longer eligible for cash refunds on our research and development expenses from the Canadian Federal Government, but instead receive tax credits which can be used against future income taxes payable.

Convertible Debentures

          In 2008 and 2009, we issued convertible debentures in the aggregate principal amount of C$15.7 million. In addition, we issued warrants which entitled the holders to acquire a variable number of our common shares based on the price of a future equity issuance or a fixed number of common shares upon the occurrence of a material event. The exercise price of the warrants was C$0.01 per share. All convertible debentures were converted to 365,804 Series 4 Class A preferred shares at an exercise price of C$46.00 per share and all related warrants were exercised for an aggregate of 100,757 Class A common shares in January 2010.

          The convertible debentures were hybrid instruments containing both a debt and equity component and an embedded derivative liability. In addition, the warrants were considered to be derivatives as the number of shares to be delivered upon exercise did not result in the delivery of a fixed number of shares for a fixed amount of cash.

          Upon initial recognition we determined the fair value of the embedded derivative and the warrants and allocated the residual proceeds received to the debt component of the convertible debenture. Subsequently, the debt component was measured at amortized cost using the effective interest rate method, and the embedded derivative and warrants were measured at fair value each period with changes in fair value recorded to profit and loss. The fair value of the embedded derivative and the warrants was calculated using valuation models primarily using inputs that are based on unobservable market data that are subjective in nature, including the volatility input and the current value of our underlying shares.

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Long-term Debt Warrant Liability

          In connection with a loan by Atel Ventures, Inc. in March 2009, we issued warrants to our lender to purchase 9,682 Series 3 Class A preferred shares at a price of C$46.00 per share. The warrants expire at the earlier of: (1) March 13, 2016; (2) the fifth anniversary of the closing of an initial public offering; or (3) a change of control. The warrants are treated as a derivative liability and accounted for at fair value through profit or loss because the holder has the possibility to net settle the warrants in shares. Upon initial recognition, the fair value of the warrants was C$0.3 million and we allocated the residual of the proceeds received to the carrying amount of the loan. The loan is measured at amortized cost using the effective interest rate method.

          In connection with a loan by Lighthouse Capital Partners VI, L.P., we issued a share purchase warrant for which the lender is entitled to purchase a maximum of 11,648 Series 1 Class B preferred shares at a price of C$124.17 per share. The warrant expires on the earlier of: (1) June 30, 2019; or (2) the second anniversary of an initial public offering. At inception, 5,824 preferred shares were immediately available for purchase under the warrant. The warrant is treated as a derivative liability and accounted for at fair value through profit or loss because the holder has the possibility to net settle the instrument in shares. Upon initial recognition, the warrant's fair value for 5,824 preferred shares was C$428,879. The loan is measured at amortized cost using the effective interest rate method.

          The fair value of the warrants was calculated using a Black-Scholes pricing model using primarily inputs that are based on unobservable market data that are subjective in nature, including the volatility input and the current value of our underlying preferred shares.

          In connection with drawing down the remaining $12.0 million under the loan from Lighthouse Capital Partners VI, L.P. in February 2012, we will record an additional warrant liability in the fourth quarter of 2011 based on the fair value of the additional 5,824 preferred shares issuable upon exercise of the warrant.

Preferred Shares

          Pursuant to our articles of incorporation, both our Class A and Class B preferred shares contain a contingent settlement provision based upon the occurrence of a change of control whereby holders participating in such a change of control are entitled to receive a variable number of common shares with a value equal to their liquidation preference. The liquidation preference of each series of Class A preferred shares is equal to the original issue price plus the value of one common share per preferred share on an as converted basis. The liquidation preference of the Series 1 Class B preferred shares is equal to the original issue price plus the value of one common share per preferred share on an as converted basis, or C$186.26 per preferred share, at the choice of the holders of a majority of the Class B preferred shares. As we do not have an unconditional right to avoid settling the obligation in a variable number of common shares which value equals the value of the obligation, the preferred shares are treated as liability instruments. The preferred share liability is accounted for at amortized cost using the effective interest rate method for a variable rate instrument. No amounts have been recorded to profit or loss since the issuance date other than from the accretion of transaction costs. At issuance, we estimated the life of the preferred shares to be five years and the transaction costs are expensed over such expected life. The expected life determination is subject to significant judgment.

          The conversion of the Class B preferred shares into Class A common shares will take place immediately prior to the closing of this offering at a conversion ratio based upon the initial public offering price (see the section titled "Capitalization — Conversion of Our Series 1 Class B Preferred Shares"). If the price per common share offered in connection with this offering is less than C$186.26 per common share, a non-recurring, non-cash charge of approximately C$40.8 million will

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be recorded to the consolidated statement of comprehensive operations in the period in which the conversion takes place. This charge would not impact total shareholders' equity as the resulting increase in common shares would have a corresponding increase in the deficit.

Share-based Compensation

          We record share-based compensation related to employee share option awards using the fair value method estimated using the Black-Scholes model. Under this method, compensation cost is measured at fair value at the date of grant and expensed, as employee benefits, over the period in which employees provide the service for the award. The amount recognized as an expense is adjusted to reflect the number of awards for which related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

          The valuations of our common shares were determined in accordance with the Practice Standard of the Canadian Institute of Chartered Business Valuators. Our board of directors considered numerous objective and subjective factors to determine its best estimate of the fair value of our common shares as of each grant date, including but not limited to, the following factors:

    our stage of development;

    recent issuances of preferred shares, as well as the rights, preferences and privileges of our outstanding preferred shares;

    independent third-party valuations of our common shares;

    our performance and operating results;

    the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions;

    the market performance of comparable companies; and

    U.S., Canadian and global capital market conditions.

          We recorded share-based compensation expense of C$0.3 million, C$0.2 million, C$0.3 million and C$0.5 million during 2008, 2009, 2010 and the nine months ended September 30, 2011, respectively. We expect share-based compensation expense to increase significantly in future periods as a result of share-based compensation to be recognized on outstanding options, as such options continue to vest over their term, and as we issue additional equity awards to new and existing employees and consultants.

          The Black-Scholes option pricing model requires several inputs, as presented in the table below. Our expected dividend yield was assumed to be zero, as we have not paid, nor do we anticipate paying, cash dividends on our common shares. Our risk-free interest rate is based on Government of Canada bonds with maturities similar to the option's expected term. We calculate our expected volatility rate from the historical volatilities of comparable public companies within our industry over a period equal to the expected term of our options because we do not have any trading history to use for calculating the volatility of our own common shares. The expected terms of the equity awards are 5 to 10 years.

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          The fair value of share options was estimated using the following weighted-average assumptions:

 
 
Year Ended
December 31, 2010
 
Nine Months Ended
September 30, 2011

Expected dividend yield

  0%   0%

Risk-free interest rate

  2.5% - 2.65%   2.5%

Expected volatility

  75%   70%

Expected term in years

  5 to 10 years   10 years

Common share valuation at grant date

  C$6.00   C$60.00

          We will continue to use judgment in evaluating the expected volatility related to our share-based compensation on a prospective basis and incorporating these factors into the Black-Scholes pricing model. As we obtain our own public share price history, we expect to use our own volatility once sufficient history exists, in combination with other volatility measures such as the volatility of peer companies as we use today, as an input to determine the fair value of equity awards. Eventually we expect to use solely the volatility of our common shares, but only after a longer history has been established. The change in approach towards determining volatility over time could significantly change the fair value calculated for our future equity awards. Higher volatility would result in an increase to share-based compensation determined at the date of the grant.

    Significant Factors, Assumptions and Methodologies Used in Estimating Fair Value of Underlying Common Shares

          We obtained a retrospective independent third-party valuation as of December 31, 2009 and a contemporaneous independent third-party valuation as of May 31, 2011.

          The valuations considered numerous objective and subjective factors at each valuation date, including but not limited to:

    the price of preferred shares issued by us to third-party investors in arm's-length transactions;

    the rights and privileges of the preferred shares relative to the common shares;

    our performance and the status of research and development efforts;

    our stage of development and business strategy; and

    the likelihood of achieving a liquidity event such as an initial public offering or sale of our company, given then-prevailing market conditions.

          As recommended by the American Institute of Certified Public Accountants, the valuations used the probability-weighted expected return method to estimate the fair value of the common shares under various scenarios such as an initial public offering, a sale or merger, liquidation and remaining private. Three generally accepted approaches were considered in estimating the equity values of potential scenarios: (i) the asset based approach, (ii) the market approach and (iii) the discounted cash flow approach. The asset based approach measures the value of a company based on tangible assets and calculates the fair market value of assets less the fair market value of liabilities. The market approach measures the value of a company through an analysis of recent offerings of comparable companies. Finally, the discounted cash flow approach measures the value of a company based on the present value of expected future cash flows.

          For each valuation, we prepared financial forecasts that took into account our past experience and future expectations. There is an inherent uncertainty in these estimates because the assumptions used are highly subjective and subject to change as a result of new operating data

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and economic and other considerations that impact our business. The uncertainty associated with achieving the forecasts was factored in through the selection of a discount rate.

          The enterprise value was allocated to the common shares and various classes of our equity securities. The aggregate value of our common shares was then divided by the number of common shares outstanding to arrive at the value per share.

          The following table summarizes our equity awards from January 1, 2010 to September 30, 2011:

 
 
Number of
Options Granted
 
Exercise Price
per Share
 
Estimated
Fair Value per
Common Share
 

2010

                   

January

    95,991 (1) C$ 6.00   C$ 6.00  

March

    10,818   C$ 6.00   C$ 6.00  

November

    10,818   C$ 6.00   C$ 6.00  

2011

                   

June

    18,062   C$ 6.00   C$ 60.00  

(1)
Does not include 6,420 options to purchase common shares that were repriced in January 2010. In January 2010, the board of directors approved a reduction in the exercise price of these options from C$35.00 per share to C$6.00 per share, the board of director's determination of the then-current fair market value of the common shares.

          Based upon the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of options outstanding as of September 30, 2011 was C$              million, of which C$              million related to vested options and C$              million related to unvested options.

    January 2010

          In January 2010, our board of directors granted 95,991 options and determined that the fair value of our common shares was C$6.00 per share. In reaching this decision, the board of directors considered our financing in January 2010, where we issued 828,667 Series 4 Class A preferred shares for cash consideration of C$35.9 million. In addition, C$16.8 million of convertible debentures, including accrued interest, were converted in January 2010 into 365,804 Series 4 Class A preferred shares upon the closing of the financing. The financing was comprised primarily of existing investors.

          In July 2011, we obtained a retrospective independent third-party valuation as at December 31, 2009 to support the fair value of our common shares, as determined by our board of directors. The valuation analysis estimated the fair value of our common shares to be between C$6.00 and C$7.00 per share and used a discount rate of 32% and a scenario weight of 5% for an initial public offering, 20% for a sale or merger, 30% for liquidation and 45% for remaining private. The discount rate takes into account the specific business risks associated with our company, our potential for growth, the operational and financial risks that an acquirer would have to assume and prevailing market rates of return on alternative investment opportunities.

    March 2010

          In March 2010, our board of directors granted 10,818 options and determined that the fair value of our common shares remained C$6.00 per share. In reaching this decision, the board of directors considered that there were no significant changes in our equity structure or any significant business milestones that impacted the fair value of our common shares since the prior grant date.

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    November 2010

          In November 2010, our board of directors granted 10,818 options and determined that the fair value of our common shares remained C$6.00 per share. In reaching this decision, the board of directors considered that there were no significant changes in our equity structure or any significant business milestones that impacted the fair value of our common shares since the prior grant date. In addition, by the fourth quarter of 2010, we had begun seeking additional financing in a difficult capital raising environment. As of September 30, 2010, we had a working capital balance of C$27.2 million, which would have funded less than six months of operations.

    June 2011

          In June 2011, our board of directors granted 18,062 options at an exercise price of C$6.00 per share. The options were granted to employees who had commenced employment in early 2011 pursuant to offer letters which obligated us to issue the options with an exercise price of C$6.00. For financial reporting purposes, we determined that the fair value of our common shares was C$60.00 per share in June 2011. We specifically considered that in April 2011, we raised C$55.8 million from the issuance of Series 1 Class B preferred shares, at C$124.17 per share, and anticipated raising an additional C$13.4 million from the sale of Series 1 Class B preferred shares in July 2011. The significant increase in fair value during 2011 was attributable to a number of factors, including:

    the initial award of a conditional commitment of a $80.0 million loan guarantee from the USDA related to the Pontotoc facility in January 2011;

    the commencement of methanol production at our Westbury facility in June 2011;

    the execution of a non-binding arrangement for a commercial development agreement with an affiliate of Waste Management, in April 2011; and

    the execution of a letter of understanding for a commercial development agreement with Diamond Alternative Energy, LLC, an affiliate of Valero, in April 2011.

          In addition, U.S. and global capital markets had steadily improved in 2011, increasing the likelihood of potential initial public offering in the next 12 to 18 months.

          We obtained a contemporaneous independent third-party valuation to support the fair value of our common shares. The Board of Directors considered and relied, in part, on this analysis. The valuation analysis estimated the fair value of our common shares to be between C$54.00 and C$66.00 per share and used a discount rate of 24% and a scenario weight of 30% for remaining private, 30% for an initial public offering, 30% for a sale or merger and 10% for liquidation.

Performance Warrants

          In July 2010, we issued to Vincent Chornet, our Chief Executive Officer and a member of our board of directors, and Dr. Esteban Chornet, our Chief Technology Officer and a member of our board of directors, performance warrants to purchase 24,625 and 10,835 Class A common shares, respectively, at a price of C$46.00 per share, upon the achievement of certain corporate targets. The warrants will expire on the earlier of July 13, 2015 and one year following the closing of an initial public offering.

          The fair value of the performance warrants was C$0.40 per share and was measured at the date of the grant by using a valuation pricing model and probability weighted models.

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Capitalization of Development Expenditures

          Recognition and measurement.    Items of property, plant and equipment are recognized at cost less accumulated depreciation. Cost includes expenditures directly attributed to bringing the asset to a working condition for its intended use, the costs of dismantling and removing the item and restoring the site on which it is located, if any, and borrowing costs on qualifying assets.

          When parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in profit or loss.

          Subsequent costs.    The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to us and can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

          Construction in progress.    Construction in progress refers to property, plant and equipment currently under construction. Construction in progress assets are recognized at cost and are not depreciated as the assets are not yet available for their intended use.

Recent Accounting Pronouncements

          A number of new standards, and amendments to standards and interpretations, are not yet effective for 2010, and were not applied in preparing our consolidated financial statements. These include:

IFRS 9 Financial Instruments

          IFRS 9 replaces the guidance in IAS 39, Financial Instruments — Recognition and Measurement, on the classification and measurement of financial instruments and is effective for annual periods beginning on or after January 1, 2015 with early adoption permitted. The extent of the impact of adoption of IFRS 9 has not yet been determined.

Amendments to IFRS 7 Disclosures — Transfers of Financial Assets

          The amendments to IFRS 7 which are effective for annual periods beginning on or after January 1, 2012 require disclosure of information that enables users of financial statements, to understand the relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities; and to evaluate the nature of, and risks associated with, the entity's continuing involvement in derecognized financial assets.

          We do not expect the amendments to have a material impact on the financial statements, because of the nature of our operations and the types of financial asset we hold.

IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities, IAS 27, Separate Financial Statements, IFRS 13, Fair Value Measurement and amended IAS 28, Investment in Associates and Joint Ventures

          Each of these new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. We have not yet begun the process of assessing what impact

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the new and amended standards may have on our financial statements or whether or not to early adopt any of the new requirements. The following is a brief summary of these new standards:

Consolidation

          IFRS 10, Consolidated Financial Statements, requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC 12, Consolidation — Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements.

Joint Arrangements

          IFRS 11, Joint Arrangements, requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operations. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities — Non-monetary Contributions by Venturers.

Disclosure of Interests in Other Entities

          IFRS 12, Disclosure of Interests in Other Entities, establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity's interests in other entities.

Fair Value Measurement

          IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

Amendments to Other Standards

          There have been amendments to existing standards, including IAS 27, Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 - 12 as explained above.

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BUSINESS

Overview

          We develop renewable biofuels and chemicals from waste using our proprietary thermochemical technology platform.

          We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to use as feedstock, to produce profitable, second-generation biofuels that provide a sustainable alternative to landfilling and incineration. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and GHG emissions. Our primary focus is the commercial production of cellulosic ethanol. We also intend to expand to multiple products beyond ethanol by taking advantage of our ability to produce a chemical-grade syngas that will serve as a key intermediate for the production of renewable chemicals.

          Our proprietary technology platform converts heterogeneous waste feedstocks, which consist of mixed textiles, plastics and fibers, and other forms of biomass feedstock, such as construction and demolition wood, into pure, chemical-grade syngas. This syngas is then further converted into biofuels and chemicals through well-established catalytic reactions. We believe that our technology platform provides a key competitive advantage, as compared to other thermochemical technologies, because it utilizes a low-severity gasification process that significantly reduces operating and capital costs due to lower temperature, pressure and energy requirements to break down waste feedstock. Moreover, we believe that our highly-sophisticated gas conditioning processes enable us to produce a pure, chemical-grade syngas that is a key intermediate for the production of a variety of end products without the need for homogeneous or highly-processed waste as feedstock.

          We have validated our technology over a period of 10 years using MSW from numerous municipalities, as well as a broad variety of other feedstock, such as wood and agricultural residues. Our pilot facility in Sherbrooke has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day. Throughput capacity refers to the volume of feedstock that can be processed by a facility. We have successfully increased, or scaled-up, our throughput capacity by tenfold, or 10x, to 48 metric tons per day in our commercial demonstration facility in Westbury. The Westbury facility has a production capacity of 1.3 million gallons per year, or MMGPY. We believe that the Westbury facility is one of the largest thermochemical facilities to process heterogeneous waste material as feedstock. Our first standard 10MMGPY commercial facility is currently under construction in Edmonton. The Edmonton facility will entail a further 7x scale-up in throughput capacity from our Westbury facility with only an approximate 2x increase in gasification and gas conditioning equipment size. We believe this scale-up is the lowest scale-up to full commercial capacity to date by any cellulosic ethanol producer. We also believe our Edmonton facility represents the first collaboration between a waste-to-biofuels company and a metropolitan center to address its waste disposal challenges.

          The U.S. Renewable Fuel Standards Program, or RFS2, mandates that 16 billion gallons per year of cellulosic biofuels be blended in the national transportation fuel supply by 2022. While we expect to benefit from the demand and regulatory incentives under RFS2 and from the Canadian renewable fuels mandated market, we expect to maintain a more competitive production cost structure, before incentives, than existing ethanol producers. We believe that we can produce cellulosic ethanol in the United States in our standard commercial facility producing 10MMGPY at operating costs, before depreciation and amortization, of $1.50 to $1.70 per gallon. We estimate that we can reduce our operating cost in the United States, before depreciation and amortization, to approximately $1.05 to $1.25 per gallon by building larger facilities composed of four of our standard 10MMGPY modules producing 40MMGPY. In addition, we expect to generate revenues

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from payments, commonly referred to as tipping fees, which we expect to receive from municipalities and waste managers for taking MSW feedstock. According to the Waste Business Journal, average tipping fees for landfills in the United States were equal to $47.03 per metric ton in 2009. We believe that every $10.00 per metric ton of tipping fees that we receive is the equivalent of approximately $0.12 per gallon. We believe these production cost economics, combined with our ability to produce a second generation of biofuels that also addresses the challenges associated with waste disposal and GHG emissions, will facilitate the commercial deployment of our technology platform.

          We have initiated our commercial deployment with several identified projects. Our first standard 10MMGPY commercial facility is currently under construction in Edmonton, Canada. We were selected by the City of Edmonton after a highly competitive technology review and qualification process in which the city evaluated more than 100 competing waste diversion solutions. As a result of our selection, we have secured a 25 year MSW feedstock supply agreement with the City of Edmonton for that facility. We expect to ready our Edmonton facility for methanol production in the first quarter of 2013 and ethanol production in the second half of 2013. In addition to the Edmonton facility, we have two additional projects under development in Pontotoc, Mississippi and Varennes, Canada, where we intend to build our standard 10MMGPY commercial facilities. We have developed strong relationships with a number of government agencies in the United States and Canada that have provided, or announced commitments to provide, us with more than $181.0 million in funding grants, a loan and a conditional loan guarantee to date for the development of these projects. We anticipate that these funds, together with the proceeds from this offering and our anticipated operating cash flows, will fully fund the commercial deployment of our planned facilities.

          In addition to projects that we will build, own and operate, we intend to capitalize on additional opportunities to sell systems utilizing our proprietary technology platform to select strategic partners globally. To this end, we have entered into non-binding arrangements, and we are negotiating definitive commercial development agreements, relating to commercial project pipeline arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation, which is an affiliate of Waste Management, North America's largest waste management company, and Valero, one of the largest independent refiners in the world. Under these proposed arrangements, we intend to sell our proprietary systems to affiliates of Waste Management and Valero, who, in turn, may build and own multiple additional production facilities in the United States. As contemplated under our non-binding arrangement with an affiliate of Waste Management, we intend to sell systems utilizing our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY. The proposed Valero arrangement contemplates the construction of six stand-alone, commercial facilities utilizing our proprietary systems with a combined ethanol production capacity of 80-250 MMGPY, along with the potential for additional facilities to be co-located with existing Valero refining facilities. Under these arrangements with Valero, we will have an option to invest in each project to acquire an ownership stake of up to approximately 50%. Our relationships with these strategic partners will enhance our production and distribution reach with access to both feedstock supply, which we refer to as upstream capacity, and offtake and distribution channels, which we refer to as downstream capacity. We believe that these strategic relationships will enable us to capitalize on the growing demand for our waste-based biofuel and chemical solutions and accelerate our market penetration by taking advantage of our industry-leading partners' desires to deploy new commercial facilities in which we may elect to take a non-controlling ownership interest.

          We have developed a modular, copy-exact and scalable approach for equipment production and installation. We anticipate that this approach will allow us to have our systems manufactured by third parties as prefabricated, replicable modules under fixed-price contracts. We have entered into

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various such fixed-price contracts with third-party manufacturers for components of the 10MMGPY module to be installed at our Edmonton facility. As a result of this approach, we expect to be able to more rapidly take advantage of our pipeline of opportunities, and reduce our capital costs by enabling the manufacturing of multiple modules simultaneously. We believe we can minimize construction delays by commencing the manufacturing of modules concurrently with the preparation of the site for installation. Our standard 10MMGPY module has a very compact footprint, which typically consists of approximately 200,000 square feet. This results in streamlined project development and construction cycles compared to traditionally larger renewable fuel projects. Moreover, our modular approach is designed to enable us to readily build larger production facilities by installing additional standard 10MMGPY modules side by side. For example, a 10MMGPY production facility with a footprint of approximately 200,000 square feet can readily be expanded to a 40MMGPY production capacity with a footprint of approximately 800,000 square feet by adding three additional 10MMGPY prefabricated modules to the existing facility.

Industry Overview and Market Opportunity

The Traditional Oil Industry

          Petroleum has historically been used as the primary building block for the production of many transportation fuels, chemicals and a variety of every day products. According to the Energy Information Administration, or EIA, global crude oil and liquid fuel consumption of approximately 87 million barrels per day, or bbl/day, equates to approximately a $2.5 trillion market in 2010, at an average price of approximately $79 per barrel. The rapid population and economic growth rates in emerging markets has resulted in sharp projected increases in the absolute level of demand for petroleum. The EIA projects that worldwide oil and liquid fuel consumption will grow by 1.4 and 1.6 million bbl/day in 2011 and 2012, respectively, resulting in world consumption of approximately 90 million bbl/day in 2012. In 2010, according to the EIA, transportation fuels accounted for 72% of U.S. petroleum consumption. As increased world oil consumption further depletes this non-renewable resource, exploration and extraction processes have become more difficult and more expensive.

          Political, economic, and environmental concerns have motivated governments and the private sector to actively develop and support alternatives to petroleum-based fuels. Increased public attention to natural disasters affecting access to oil, climate change, dependence on politically unstable oil producing countries, and oil rig accidents and spills, have further contributed to public support for alternative fuels. To address these challenges, there has been significant interest in developing and commercializing sustainable alternatives to petroleum.

The Regulatory Framework Accelerating the Renewable Fuel Market's Growth

          The renewable fuels industry benefits from government policies, regulations, programs and incentives that are intended to promote the development and commercialization of renewable fuels technologies by stimulating both the supply and the demand for lower carbon fuels. Renewable fuels standards stimulate the demand for these new fuels while grants, tax incentives, loans and loan guarantees stimulate the commercial deployment of these technologies. In the United States and Canada, there are policies at the federal, as well as the state, provincial and local levels.

          The U.S. Congress passed the Energy Independence and Security Act of 2007, or EISA, which sought to move the United States toward greater energy independence, to improve national security and to increase the production of clean renewable fuels. Among other things, EISA amended the 2005 Renewable Fuel Standard programs to increase the total volume of renewable fuel required to be used as transportation fuel, and set volume requirements for different renewable fuel categories. These amendments, commonly referred to as RFS2, were fully implemented

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through a federal rulemaking that took effect on July 1, 2010. The four categories of biofuels mandated by RFS2 are as follows:

    Renewable Fuels:  A fuel produced from renewable biomass, including corn ethanol, that replaces or reduces the quantity of fossil fuel present in transportation fuel, heating oil or jet fuel. A renewable biofuel must reduce lifecycle GHG emissions by at least 20% compared to a 2005 baseline for the gasoline or diesel fuel it supplants.

    Advanced Biofuels:  A renewable fuel, other than corn ethanol, that is produced from renewable biomass and reduces lifecycle GHG emissions by at least 50%, compared to a 2005 baseline for the gasoline or diesel fuel it supplants. Advanced biofuels are a subset of renewable fuels.

    Biomass-based Diesel:  A renewable fuel meeting the definition of either biodiesel or non-ester renewable diesel that is produced from renewable biomass and reduces lifecycle GHG emissions by at least 50%, compared to a 2005 baseline for the gasoline or diesel fuel it supplants. Biomass-based diesel is a subset of advanced biofuels and cannot be co-processed with petroleum.

    Cellulosic Biofuels:  A renewable fuel derived from any cellulose, hemicellulose or lignin that reduces lifecycle GHG emissions by at least 60%, compared to a 2005 baseline for the gasoline or diesel fuel it supplants. Cellulosic biofuels are a subset of advanced biofuels.

          The following chart shows the RFS2 mandate for each category of renewable fuels, including next-generation biofuels. Under the RFS2 mandate, cellulosic biofuels, which include cellulosic ethanol, are set to grow to 16 billion gallons by 2022.


U.S. RFS2 mandate for biofuels

CHART

           Source: U.S. Department of Energy.

          To qualify for RFS2, cellulosic biofuels must be made from qualified renewable biomass, which do not compete for farm land. MSW qualifies as a renewable biomass used for the production of cellulosic ethanol.

          Cellulosic ethanol, which is a key component of second-generation biofuels, is chemically identical to corn or sugar-derived ethanol, but is produced from a variety of non-food biomass. The mechanism for compliance with the RFS2 mandate is in the form of a Renewable Identification Number, or RIN, which are attached to renewable biofuels. Obligated parties, which consist of

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refiners and importers of petroleum, must acquire a sufficient number of RINs to satisfy their Renewable Volume Obligations, or RVOs, which are based on each obligated party's pro rata share of the United States fuel market. Obligated parties can obtain RINs by buying biofuels from producers or by buying a detached RIN from other parties who have quantities in excess of their required volumes. The RINs become tradable when biofuels are physically blended with gasoline or diesel. During years where the U.S. Environmental Protection Agency, or EPA, determines in advance that projected cellulosic biofuel capacity is insufficient to meet the mandate, the EPA, in addition to reducing the mandate for a specific year, creates cellulosic biofuel waiver credits, or CWCs, for purchase for that year. The CWCs to be made available for sale to obligated parties will be for a price, indexed annually, that is the higher of (1) the amount by which $3.22 per gallon (in 2011 prices) exceeds the average wholesale price of a gallon of gasoline in the United States or (2) $0.27 per gallon (in 2011 prices).

          A summary of the major U.S. and Canadian regulatory support for renewable biofuels is outlined below.

 
 
United States
 
Canada
Demand Support   Mandated blending of minimum volumes of biofuels into the national gasoline supply, including:   Federally mandated requirement of at least 5% renewable fuel in gasoline as of December 2010

 

•       36 billion gallons of total renewable fuels by 2022

 

Several provinces also have blend obligations

 

•       16 billion gallons of cellulosic biofuels, including cellulosic ethanol, by 2022

   

Regulatory Incentives

 

CWCs provide price support for $3.22 per gallon

 


Grants and Loans

 

Grants and loan guarantees from the DOE and USDA as well as other agencies

 

Grants and loans through various federal and provincial government programs

Production/Tax Credits

 

Cellulosic Biofuel Producer Tax Credit of $1.01 per gallon, which is currently set to expire at the end of 2012

 

Federal producer incentive offers up to C$0.26 per gallon
        The provinces of Alberta and Quebec have additional incentives of up to C$0.53 and C$0.57 per gallon, respectively

          Beyond North America, mandates exist in Europe and other countries with varying incentives and volume requirements for renewable fuels. Moreover, we believe that the global demand for alternative renewable fuels is likely to continue to grow as large markets in Asia and South America, including China and Brazil, continue to require and consume an increasing amount of the world's energy resources.

The Biofuels Industry and the Ethanol Market

          While there has been significant progress made in developing alternatives to petroleum-based fuels, there are also several challenges associated with existing processes for producing ethanol. The use of corn for the production of ethanol is believed to have contributed to rising world grain prices. The price of a bushel of corn has risen from an average of $1.78 per bushel in April 2005 to

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a closing price of $6.05 per bushel on January 26, 2012. According to the DOE, about 38% of the corn grain produced in 2010 was used in ethanol production, up from 23% in 2007.

          In addition to placing increasing demands on the availability of corn as a food, corn-based ethanol achieves only modest reductions in GHG emissions. According to the DOE and the Greenhouse Gases, Regulated Emissions and Energy use in Transportation, or GREET, model, the average lifecycle GHG emissions from corn ethanol is 18% to 28% less than gasoline. In addition, expanding the land area dedicated to the large-scale production of first generation biofuel crops, such as corn, would likely result in a loss of biodiversity and land degradation. Even with increasing yields, expanding food crop and forest-based transportation fuels would require changes in existing land uses, with scalable production likely to be far from population dense areas, requiring transportation from decentralized locations to fuel production facilities, which further diminish the value of any GHG emissions reductions. As a result, there is increasing governmental resistance to further expansion of first generation corn and wheat biofuels. For example, the U.S. ethanol tax credit for first generation corn ethanol ($0.45 per gallon blenders' credit) expired at the end of 2011.

          The largest use of ethanol is by petroleum refiners, blenders and marketers as a blending agent for gasoline. Such gasoline is sold to bulk end-users such as ground transportation companies, as well as to distributors and to retail consumers of transportation fuel. The price of a gallon of ethanol in North America was $2.19 on January 26, 2012. Over the last five years, a gallon of ethanol in North America sold for a low of $1.49 and a high of $3.00, with an average price over that period of $2.06 per gallon.


Ethanol Historical Pricing

GRAPHIC

          Source: Chicago Board of Trade

          After the United States, Brazil ranks second in the world in ethanol production with 6.9 billion gallons of ethanol produced in 2010, according to the Renewable Fuels Association, an American trade association. Ethanol demand in Brazil has been further supported by an 18% to 20% ethanol blend mandate into gasoline, and the rapid growth of flex fuel vehicles, which can run on gasoline, ethanol, or a mixture of the two. As a result, despite growing capacity, Brazil has been unable to meet its own rising demand for ethanol. In addition, recent high sugar prices have made sugar production more economically attractive than ethanol production. As a result, Brazil imported approximately 290.5 million gallons of ethanol in 2011 according to Brazil's Secretary of Foreign Commerce, up from approximately 18.5 million gallons of ethanol in 2010, according to the U.S. Department of Commerce. According to CONAB, the agency responsible for managing the supply

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and agricultural policies of the Brazilian ministry of agriculture, the Brazilian sugarcane industry will require significant investment to meet projected demand for ethanol. Brazilian state-run energy sector research institution, EPE, projects 2019 total domestic Brazilian ethanol consumption to be approximately 14 billion gallons, an increase from approximately 9 billion gallons estimated in 2011.

Second Generation Biofuels and Renewable Chemicals

          Second Generation Biofuels.    Second generation biofuel production, particularly cellulosic biofuel and biomass-based diesel, can address some of the challenges associated with first generation biofuels, because it does not compete with food sources and can produce greater energy and GHG emissions reduction benefits.

          Most second generation biofuel technologies involve complex, multiple-step biological processes to extract sugars from feedstock, such as corn stover and wood chips, and use these extracted sugars to produce alcohol by fermentation. These biological processes, unlike thermochemical processes, typically require specific, consistent and homogeneous feedstock, purpose-bred enzymes and bacteria working in concert and significant water treatment requirements. As a result, the existing biological processes used to produce biofuels remain expensive. The EPA projects the production of cellulosic biofuels using these existing processes in the United States in 2012 to be 8.65 million gallons, falling below the 500 million gallon target set by the RFS2 mandate.

          Even if existing second generation biofuels produced from biological processes overcome these challenges and become cost competitive, there are still significant logistical issues associated with the collection, transport, and storage of the derivative forest or agriculture feedstock, like corn stover and wood trimmings, that these processes use as feedstock. Therefore, existing second generation biofuels made from biological processes are expected to require more time in order to achieve commercially-viable production volumes and to have a meaningful impact on the market demand for renewable biofuels.

          Renewable Chemicals.    Chemicals are used in a broad range of industrial and consumer applications. Chemicals are generally produced through the conversion of a feedstock into a higher-value product through a series of chemical reactions. To date, chemicals have traditionally been derived from fossil fuels, such as petroleum. According to the EIA, in 2010, approximately 171 million barrels of petroleum were used as petrochemical feedstock. Supplies of many chemicals are influenced in part by the broader supply and demand dynamics of fossil-based feedstock and, we believe, are subject to many of the same political, economic and environmental challenges faced by petroleum-based fuels. Given the non-renewable nature, and volatile prices of most fossil-based feedstocks, We believe that chemical companies and manufacturers are increasingly seeking alternative chemicals derived from renewable, non-fossil feedstock sources for use in a broad range of products.

          According to MarketsandMarkets, a market research and consulting company, the global renewable chemicals market is estimated to reach approximately $76 billion in 2015 from approximately $37 billion in 2009. The renewable chemicals market includes all chemicals obtained from renewable feedstock. We believe that the development of this market is in part driven by the fact that the growth in the renewable chemicals is not dependent on the access to finite and depleting fossil-based sources of energy such as petroleum. The growth in demand for renewable chemicals is principally driven by the food packaging industry, biodegradable and compostable plastics, and other consumer products. Methanol can act as a building block for secondary chemicals which include, among others, acrylic acid, which we estimate has a market size of $3.1 billion in North America and $10.9 billion globally, n-Propanol, which we estimate has a market

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size of approximately $1.5 billion in North America and $3.0 billion globally and n-Butanol, which we estimate has a market size of approximately $2.4 billion in North America and $7.5 billion globally.

The Waste Management Industry

          According to the Waste Business Journal, the United States generated 435 million metric tons of MSW in 2009, of which approximately 289 million metric tons, or 66% was landfilled, and the remainder was recycled, composted or incinerated. We estimate that approximately 140 million metric tons of the annual landfilled MSW is suitable for ethanol production through gasification. This MSW volume could theoretically be converted into approximately 14 billion gallons of ethanol annually utilizing our proprietary technology platform. In addition, we estimate that the United States generated approximately 104 million metric tons of construction and demolition waste in 2009, a portion of which could theoretically be converted into additional ethanol volumes using our technology.

          The waste management industry has developed a sophisticated logistics infrastructure for collecting, transporting, sorting and aggregating MSW. MSW is typically collected from local neighborhoods and transported to transfer stations where waste from several municipalities and locations are aggregated. At transfer stations, the waste might be further processed at material recovery facilities where recyclable and other valuable materials are separated and collected. The residual MSW stream is then transferred to a landfill or a waste disposal facility. According to the Waste Business Journal, the collection, processing and disposal of this waste generated $54 billion dollars in annual revenues for the waste industry in 2009.

          With approximately 66% of MSW ending up in landfills, capacity is becoming limited. According to data from the Waste Business Journal, the remaining landfill capacity for MSW in the United States as of 2009 was approximately 5.5 billion metric tons. This equates to approximately 19 years of remaining life at 2009 MSW disposal rates, which has decreased from a high of 26 years in 1995. According to Statistics Canada, in 2000, 30% of Canadian landfills reported having an expected remaining life of fewer than ten years.


Average remaining life of U.S. landfills by State (2010)

CHART

    Source: Waste Business Journal (2011). Average remaining life of landfills by state is calculated by dividing remaining MSW landfill capacity in 2010 by the average MSW landfilled per year from 2000 to 2010.

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          In addition, according to the Waste Business Journal, the number of operating landfills in the United States has dramatically decreased from 5,175 in 1991 to 2,549 in 2008. Between 1996 and 1998, a great number of small municipal landfills closed, mostly because they could not afford to comply with design, operating, close and post-closure requirements of the federal regulations. Siting and permitting new landfills has become increasingly difficult and certain states have adopted, or are considering, moratoriums on the construction of new landfills. Between 2006 and 2010, only 13 new landfills commenced operations in the United States, according to the Waste Business Journal.


New landfills opened in the U.S. (1981-2010)

CHART

           Source: Waste Business Journal (2011).

          As new U.S. landfills become harder to permit, more waste must be transported interstate, further increasing waste disposal costs and tipping fees. In addition, we believe that new landfills are required to comply with increasingly stringent environmental regulations, which results in higher costs for municipalities and private waste managers. According to the Waste Business Journal, average tipping fees for landfills in the United States reached an all-time high of $47.03 per metric ton in 2009. Tipping fees for landfilling vary by region and were as high as $107.76 per metric ton in 2009.


Historical MSW landfill tipping fees (December 2009)

CHART

           Source: Waste Business Journal (2011).

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          In addition, there are significant local and global environmental implications of increasing landfill capacity, including the loss of land resources, potential air and groundwater pollution, and increased methane emissions. Methane gas is a product of the anaerobic decomposition of organic waste in landfills, and, according to the EPA, has more than 20 times the global warming potential of carbon dioxide. According to the EPA, landfills are the third-largest source of human-related methane emissions in the United States, accounting for 17% of such emissions in 2009.

          The main alternative to landfilling is incineration. MSW incinerators typically generate a variety of pollutants that are perceived to have negative environmental and human health impacts. Furthermore, according to the Waste Business Journal, incinerators have significantly higher operating and capital costs than landfills. According to Waste Management Journal, a journal produced and edited by the International Waste Working Group, a not-for-profit organization, there have been no new incinerators that were permitted between 1996 and 2007 in the United States.

          Accordingly, we believe that disposing of MSW in an economic and environmentally friendly manner has become a serious issue that will require innovative solutions, not only in North America, but also across the globe and in many emerging markets that are experiencing both significant economic and population growth.

Our Solution

          We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable biofuels, while also addressing the challenges associated with waste disposal and GHG emissions. We have developed a proprietary, thermochemical technology platform that operates at low-severity conditions, utilizing well-established catalytic reactions, and proprietary gas conditioning processes to convert heterogeneous waste into pure, chemical-grade syngas, which can be used to produce renewable biofuels and chemicals.

          Our technology platform and waste-based cellulosic biofuels provide significant benefits, including the following:

    Cellulosic biofuels produced with our systems will provide a secure source of domestic, non-petroleum-based renewable fuel that will help reduce dependence on foreign oil and reduce carbon dioxide, or CO2, emissions from the petroleum fuels we displace.

    The use of MSW as feedstock will avoid the need for expensive homogeneous feedstock while taking advantage of the waste management industry's existing collection, distribution and logistics infrastructure, which generates significant savings in transportation costs.

    Biofuels produced from waste do not compete for food supply sources and have no land use or soil degradation impact.

    By reducing the volume of MSW in landfills, our platform addresses the challenges associated with waste disposal and can help reduce the need for new landfills. Additionally, by diverting waste from landfills, our facilities help diminish landfill methane gas emissions, which, according to the EPA, are significantly more powerful at warming the atmosphere than CO2.

    Our thermochemical gasification and syngas conversion processes do not rely on biologic or complex enzymatic reactions, and therefore, we believe are easier to commercially deploy and have lower scale-up requirements.

    The GHG emissions reductions achieved from waste-based biofuels, such as ours, are significantly greater than traditional, first-generation biofuels. Based on independent GHG lifecycle analyses, we believe that our facilities can reduce GHG emissions by more than 60% compared to gasoline.

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Our Strengths

          Our business benefits from a number of competitive strengths, including the following:

          Our proprietary technology platform enables us to convert heterogeneous waste to biofuels and chemicals.    We believe that we are the first company to produce a chemical-grade syngas using heterogeneous waste in a commercial demonstration facility. We have developed a technology platform that utilizes a proprietary, low-severity thermochemical gasification and gas conditioning process to produce a chemical-grade syngas that can be used for the production of cellulosic ethanol and other chemicals. We believe that our technology platform provides a key competitive advantage, as compared to other thermochemical technologies, by significantly reducing operating and capital costs due to lower temperature, pressure and energy requirements to break down MSW feedstock. Since 2003, we have tested and validated our technology with MSW from numerous municipalities, as well as a broad variety of other feedstock, at both our pilot and demonstration facilities. Several aspects of our technology and intellectual property are covered by patents and pending patent applications in various jurisdictions. We own 3 issued U.S. patents and 5 issued international patents in Canada, Spain and the United Kingdom. In addition, we have 36 patent applications pending in the United States and several other countries.

          We believe we have the lowest process scale-up among cellulosic ethanol producers.    We have built both a pilot facility in Sherbrooke and a commercial demonstration facility in Westbury. The scale-up from our commercial demonstration facility in Westbury to our planned 10MMGPY commercial facilities represents approximately a 2x scale-up in gasification and gas conditioning equipment size and approximately a 7x scale-up in throughput capacity. As a result, we believe that we have the lowest scale-up requirement to full-scale commercial operation to date by any cellulosic ethanol producer. Additionally, our Westbury facility's industrial size and commercial capability allows us to further test and analyze new products in commercial volumes prior to full-scale commercial deployment.

          Our business model benefits from large market opportunities and an attractive cost structure.    Our primary product focus is cellulosic ethanol, a significant market opportunity that is driven by a rapidly growing market demand for eco-friendly, renewable biofuels. This market is further bolstered by government mandates and incentives that provide a pricing advantage over first generation ethanol.

          In addition, we believe our business model will generate the following advantages over existing ethanol producers:

    Compact facilities.  Our compact facility size allows us, or our partners, to locate our facilities on or near landfill sites, which have the required level of MSW feedstock available at close proximity. In addition, we can build such facilities with lower capital expenditure requirements than the traditionally larger projects required for existing ethanol production technologies.

    Abundant supply of negative cost feedstock and available existing infrastructure.  Unlike other ethanol producers that must incur costs to purchase or grow their own feedstock, we generally expect to receive tipping fees for using MSW as feedstock. Furthermore, our ability to build our facilities in, on or near landfill sites enables us to leverage the existing transport, logistics and support infrastructure for the collection, sorting and aggregation of MSW feedstock. Other ethanol producers generally need to incur additional costs to transport their feedstock long distances.

    Attractive production costs.  We expect our business model and technology platform to generate competitive production cost economics. In addition, we believe that, as a result of

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      our modular approach, we can further reduce our operating and capital costs as we build larger facilities and benefit from economies of scale and increased energy efficiency.

          We have a tangible commercial pipeline with visible growth opportunities supported by our modular manufacturing approach.    We have commenced construction in Edmonton of our first standard 10MMGPY commercial facility, which we believe is a first-of-kind collaboration between a metropolitan center and a waste-to-biofuels company. In addition to the Edmonton facility, we have two other active projects under development in Pontotoc and Varennes, where we intend to build 10MMGPY commercial facilities. We believe that our near-term pipeline of projects differentiates us from many competing biofuel companies. Beyond these active projects, we have prioritized, based on specific selection criteria, 68 landfills in the United States for additional potential sites for development by us or our strategic partners. These locations represent a combined waste inflow of 40 million metric tons per year of unsorted MSW, which represents a potential production of 2 billion gallons of ethanol per year using approximately 200 of our standard 10MMGPY modules. In addition to these 68 landfills, we believe there is a significant number of additional landfills on which we, or our strategic partners, can develop new facilities. We have developed a modular, copy-exact and scalable approach for equipment production and installation that we expect to be put into practice at our Edmonton facility in the near future. We anticipate that this approach will allow us to have our systems manufactured by third parties as prefabricated, replicable modules under fixed-price contracts. As a result of this approach, we expect to be able to rapidly convert our pipeline of project opportunities into commercial facilities. Moreover, our modular approach is designed to enable us to readily build larger production facilities by installing additional standard 10MMGPY prefabricated modules side by side.

          We have established key strategic relationships with industry-leading partners.    We have entered into non-binding arrangements concerning commercial arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation and Valero. Our relationship with these strategic partners will enhance our production and distribution reach with both upstream and downstream capacity. Our arrangement with an affiliate of Waste Management contemplates the sale of systems utilizing our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY. With Valero, our goal is to sell our systems for the development of up to six stand-alone facilities with a combined ethanol production capacity of 80-250MMGPY and additional facilities to be co-located with existing Valero facilities. Pursuant to non-binding term sheets, our strategic partners expect to build and own the new commercial facilities, while providing us with an option to take a non-controlling ownership interest in these projects. We expect that these relationships will enable us to take advantage of the growing demand for our waste-based biofuels solutions and to increase the market penetration of our proprietary technology platform. In addition, we have a 50-50 joint venture arrangement with GreenField Ethanol, one of Canada's largest ethanol producers, for the development of a facility utilizing our proprietary systems in Varennes, at an existing GreenField Ethanol grain facility site. We believe that the facility in Varennes will be one of the first facilities to integrate the production of second generation biofuels with an existing, traditional ethanol facility. There can be no assurance that binding agreements will be entered into as proposed or at all. See "Risk Factors — Risks Related to Our Business and Industry — Many of the arrangements with our strategic partners regarding our planned facilities remain under negotiation and are not subject to binding agreements and may take longer than expected to finalize or may not be finalized at all, which may adversely affect our business."

          We have an experienced and hands-on management team.    Our executives and senior managers have built our business from the ground up and have extensive experience in research and development, business development, project financing, procurement and plant operations. Our scientific foundation, which is based on 40 years of research by one of the industry's foremost

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thought leaders, our co-founder and Chief Technology Officer, Dr. Esteban Chornet, positions us well for expansion into new proprietary products and markets. We believe that the experience of our management team, coupled with our strong strategic relationships with industry leaders, will accelerate our project development cycle and enhance our ability to grow our business in North America and expand into international markets.

Our Strategy

          Our objective is to leverage our proprietary technology platform to be a leading provider of cellulosic biofuels while also building a portfolio of renewable chemicals. Key elements of our strategy include the following:

          We plan to build, own and operate new facilities.    We intend to build, own and operate new commercial facilities. We have already commenced construction of a 10MMGPY commercial facility in Edmonton, Canada, and have several additional projects in various active stages of development. We have carefully selected a number of additional landfills in the United States for penetration using key identification criteria that are focused on the most attractive economics and speed to market. Our site selection process is designed to ensure rapid penetration by prioritizing landfill sites that offer (1) sufficient long-term volumes of sorted MSW feedstock, (2) rapid permitting cycles, (3) limited remaining landfill capacity, (4) high tipping fees and (5) proximity to offtakers.

          We intend to pursue development opportunities with select industry-leading companies.    In order to accelerate our market penetration, we have entered into strategic relationships with industry-leading companies, such as Waste Management and Valero, who may build and own additional facilities utilizing our proprietary technology platform. We will have an option to take a non-controlling equity position in such projects, as currently contemplated in our proposed commercial arrangements. We intend to pursue and establish additional strategic relationships on a selective basis with other industry-leading companies to capitalize on the expertise and core competencies that they can provide in order to increase our market penetration.

          We will continue to focus on reducing our costs.    We intend to continue to take advantage of our technical expertise to enhance our proprietary technology in order to maximize our process efficiency and reduce our production costs. As we expand the capacities of selected facilities beyond a single, standard 10MMGPY module through the addition of more modules, we expect to achieve economies of scale through shared utilities and equipment infrastructure and improved manufacturing efficiencies. We are also currently deploying an international supply chain strategy in order to expand our access to lower-cost process equipment manufacturers and to reduce our capital expenditures.

          We intend to expand internationally.    We have engaged in initial project and feedstock identification activities in order to expand internationally over time to markets that provide us with the greatest opportunities. We are in the early stages of discussions with a number of select potential partners in both the waste management industry and the fuels industry in Europe and Asia. We initially intend to penetrate international markets by supplying our proprietary systems to partners with strong local and regional relationships.

          We plan to continue to innovate and develop new products.    The chemical-grade syngas we currently produce is a key intermediate product which can act as a building block for various renewable chemicals. One focus of our research and development efforts is on producing certain renewable chemicals which can be used to make a variety of consumer products including hairspray, paint and primer, soap and shampoo, plastics and textiles. We intend to pursue commercialization of such renewable chemicals in the future with select industry partners.

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Our Technology

          Our proprietary technology platform converts heterogeneous waste feedstocks, which consist of mixed textiles, plastics and fibers, and other forms of biomass feedstock, such as construction and demolition wood, into a chemical-grade syngas. This syngas is then further converted into biofuels and chemicals through well-established catalytic reactions. We have validated our technology over a period of 10 years using MSW from numerous municipalities, as well as a broad variety of other biomass feedstock.

          The following diagram illustrates our proprietary process:

GRAPHIC

          Our waste-to-biofuels conversion process consists of the following four discrete components:

    feedstock preparation;

    gasification;

    cleaning and conditioning; and

    catalytic conversion into final products.

          Feedstock preparation.    The MSW we plan to use as feedstock is first sorted, using equipment and processes used in existing sorting and recycling facilities in order to remove recyclable materials such as glass, metals, paper and certain plastics, as well as inert materials such as ceramic, stones, concrete and sand. This process is typically carried out by the landfill operator or a third-party recycling group. However, under certain circumstances, we may elect to install our own dedicated sorting equipment. During this process, typically approximately 40% of the MSW is removed from the waste stream and approximately 60% of the MSW is shredded to be used as feedstock.

          Gasification through our bubbling fluidized bed.    Our proprietary bubbling fluidized bed gasification reactor breaks down the feedstock into its constituent parts or molecules, a process that is called thermal cracking. A bubbling fluidized bed gasification reactor is a reactor that evenly distributes air or gas upward through a bed of solid particles, such as sand, and utilizes air or gas

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velocity to create turbulence, coupled with rapid mixing, that exhibits the appearance of a boiling liquid. In the same reactor, these broken-down molecules are then blended with steam to produce syngas. This process takes approximately 10 seconds. We believe we are the first company to develop a technology capable of breaking down waste materials that are chemically and structurally dissimilar and converting them into a pure, chemical-grade, stable and homogeneous syngas through a process operating at low-severity conditions using temperatures under 1400oF and pressures below 5 atmospheres, or atm. The resulting syngas is rich in hydrogen and carbon monoxide, which are key building-block molecules used in modern refining processes. We believe that many competing gasification technologies, some of which depend on homogeneous and/or highly refined and processed feedstock, can only achieve similar conversions through high-severity cracking which requires both higher temperatures and pressures, resulting in greater capital and operating costs.

          Syngas cleaning and conditioning.    Our bubbling fluidized bed gasification process yields a crude syngas that is fed into our proprietary syngas cleaning and conditioning process. This process upgrades the crude syngas to a chemical-grade syngas that can be refined into liquid fuels and chemicals. Some of the steps that make up the cleaning and conditioning process include using cyclones to remove fine particulates in the syngas, staged thermal reformers to increase carbon conversion and scrubbing and absorption equipment to remove impurities. It is through the combination of our bubbling fluidized bed gasification reactor and our proprietary syngas cleaning and conditioning process that we are able to control the purity of the syngas and its composition to the desired hydrogen and carbon monoxide balance, which are the two building-block molecules that are then used to produce liquid fuels and chemicals. Proper mixing of the syngas is also carried throughout the process to ensure the optimal syngas homogeneity. Our bubbling fluidized bed gasification reactor and syngas cleaning and conditioning process typically leave 15% solid residues that are mainly composed of inert materials, which are removed from the gasifier and from the syngas-cleaning cyclones on a continuous basis as the equipment operates. These solid residues can be used as aggregates or as construction materials such as concrete filler. Waste water, which is a byproduct of the cleaning and conditioning process, is removed and undergoes a standard waste water treatment process before being disposed of in accordance with environmental and applicable municipal laws and regulations.

          Catalytic conversion into final products.    The last component of our proprietary process is the conversion of the pure chemical grade syngas into renewable biofuels and chemicals. Our syngas is composed of carbon monoxide and hydrogen molecules, which we use as chemical building blocks by adding various catalysts, which we believe are widely available from multiple sources, under specific conditions to produce a wide range of molecules, which we either use as in-process intermediates or end-products. We typically start by reacting a portion of our syngas with a commercially available catalyst to produce methanol, which we can either sell as an end-product or use as an intermediate to make other products. To produce ethanol, we react methanol with carbon monoxide from our syngas with a commercially available catalyst to produce methyl acetate. The final conversion step in our ethanol production process entails splitting the methyl acetate by inserting a hydrogen molecule that is extracted from the produced syngas. The resulting ethanol is then distilled in a final refining step to improve product quality. Further, a combination of in-process controls and quality analysis are used to confirm that all our products, including ethanol, consistently meet the required specifications.

          We have validated our technology over a period of 10 years. Following initial research at the University of Sherbrooke, which began in 1999, we built our pilot facility in Sherbrooke in 2003, where we tested MSW from several municipalities, as well as a broad variety of other feedstocks, for over 4,000 hours. In 2009, we constructed a 1.3MMGPY commercial demonstration facility in Westbury, which represented a 10x scale-up in throughput capacity and approximately a 2x

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scale-up in gasification and gas conditioning equipment size compared to our pilot facility in Sherbrooke. We designed this facility to operate on a continuous basis and to produce commercial products.

          The following diagram illustrates the scale-up from our pilot facility in Sherbrooke to our commercial demonstration facility in Westbury and from our commercial demonstration facility in Westbury to our planned standard 10MMGPY commercial facility that is currently under construction in Edmonton.

LOGO


(1)
Input represents the feedstock throughput capacity in metric tons per day.

(2)
Output represents the expected ethanol production capacity in MMGPY, assuming necessary scheduled maintenance down time.

Research and Development

          Our research and development activities are focused on efforts towards further improving our production costs, as well as developing a pipeline of renewable chemicals using our pure chemical-grade syngas and methanol as key chemical building-blocks. The focus of our cost reduction efforts is on enhanced feedstock preparation, gasifier performance, gas separation and energy integration. Our product development effort is based on effecting different catalytic reactions on the chemical-grade syngas production process we have developed. Using chemical-grade syngas as a starting point significantly enhances our ability to cost-effectively develop new products in a timely

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manner. We are focusing our research and development efforts on producing certain renewable chemicals. Some of the future product lines we are targeting are illustrated in the following diagram:

GRAPHIC

          We currently have a research and development pilot facility located in Sherbrooke. The Sherbrooke research and development facility has been operational since 2003 and has a throughput capacity of 4.8 metric tons per day. In 2011, we completed the construction of a research and development facility in Edmonton located adjacent to our commercial facility currently under construction. This 8.3 metric tons per day facility is owned by the City of Edmonton and operated in partnership with the government of Alberta. We have been granted the right to use half of this research and development facility's available time until January 21, 2023. We expect the Edmonton research and development facility to be operational in the first half of 2012.

          Our Sherbrooke and Edmonton research and development facilities will be part of an integrated research development effort which is led and managed by our research team. Our Sherbrooke facility focuses on cost improvement and certain new products. Our Edmonton facility will focus on pilot testing of strategies generated in Sherbrooke. In furtherance of our research and development efforts, we have collaborations with, among others, the University of Sherbrooke, the U.S. National Renewable Energy Laboratory, Alberta Innovates and Natural Resources Canada, and intend to continue to build a network of outside government and institutional research collaborators in the United States and Canada.

          We intend to produce new products at our Westbury commercial demonstration facility after they have been successfully developed in our research and development facilities. As our Westbury facility is of an industrial size, it is highly suitable for further testing the commercial production of new products after they have been developed in our research facilities and prior to full commercial rollout. We believe this provides us with a unique advantage over many of our competitors because our Westbury facility's industrial size and commercial capability allows us to further test and analyze new products in commercial volumes prior to full-scale commercial deployment.

          During 2008, 2009 and 2010 and for the nine month period ended September 30, 2011, we incurred research and development expenses of C$3.8 million, C$2.9 million, C$2.6 million and C$3.2 million, respectively.

Our Existing Facilities

          Our corporate headquarters are located in Montreal where we lease approximately 10,000 square feet of space. Our lease expires on August 31, 2015. We have an option to extend the lease for an additional five-year term.

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          We own and operate or, in the case of our Edmonton facility, plan to own and operate, the following facilities for the conversion of MSW and other feedstock, and the production of renewable biofuels and chemicals:

 
 
Sherbrooke, Canada
 
Westbury, Canada
 
Edmonton, Canada

Type

  Pilot   Commercial demonstration   Commercial

Timing

 

Operational since 2003

 

Operational since 2009(1)

 

Under construction; ready for methanol production expected in the first quarter of 2013

Feedstock

 

Tested with MSW from numerous municipalities and more than 25 different feedstocks

 

Treated wood such as decommissioned electricity poles and railway ties, wood waste and MSW

 

Sorted MSW

Expected Commercial Production Capacity

 

N/A

 

1.3MMGPY

 

10MMGPY

Hours of Operation to Date

 

4,500

 

4,300

 

N/A

Throughput Capacity (metric tons/day)

 

4.8

 

48

 

350

Ownership

 

100%

 

100%

 

71%(2)


(1)
The Westbury facility produced syngas from 2009 until June 2011 and commenced the start-up phase of producing methanol in June 2011.

(2)
In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the facility. Upon completion of the agreed upon capital contributions, which we expect to be completed in the first quarter of 2013 (including a contribution of C$29.6 million by us), we will have an ownership interest of 71% in the Edmonton facility and Waste Management of Canada Corporation and EB Investments ULC will each have an ownership interest of 14.5% in the facility.

Sherbrooke, Canada

          In 2003, we built a pilot facility in Sherbrooke that is designed to process 4.8 metric tons per day of feedstock, including MSW.

          Through the development and operation of our pilot facility, we acquired extensive knowledge of gasification, gas cleaning and conditioning, and catalytic processes. We have produced methanol, acetates and cellulosic ethanol at the Sherbrooke facility.

          We have extensively tested more than 25 feedstock materials at our Sherbrooke facility, including:

    MSW from various municipalities;

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    forest biomass, as well as construction and demolition wood;

    agriculture biomass such as wheat straw and corn stovers;

    plastics, which include various forms of pelletized, shredded and mixed plastics;

    glycerine;

    industrial waste biosolids; and

    petroleum coke.

          We lease approximately 16,500 square feet for the Sherbrooke facility. Our lease expires on October 31, 2013 and we have an option to renew the lease for additional one-year terms. In addition, we have an option to purchase up to 30,000 square feet of land that is adjacent to our facility.

Westbury, Canada

          Our commercial demonstration facility in Westbury is designed to operate on a continuous basis and to produce commercial products. The facility is adjacent to a sawmill that processes treated wood from discarded telephone poles and railway ties. The resulting sawmill residues are used by the Westbury facility as its principal feedstock, with the remaining feedstock consisting of MSW. We completed the initial phase of the construction in 2009, at which point the facility was converting waste into syngas. Our Westbury facility has a throughput capacity of 48 metric tons per day, which represents a 10x scale-up in throughput capacity compared to our pilot facility in Sherbrooke. We completed the installation of methanol production equipment in Westbury in 2011, and the facility commenced production of methanol in June 2011. We intend to add ethanol production equipment to the facility in 2012 to enable an initial production capacity of 1.3MMGPY. We have entered into an offtake agreement with GreenField Ethanol for the purchase of all the ethanol to be produced at our Westbury facility.

          We managed the Westbury project from initial development through construction and commissioning. We provided the design and process engineering for the facility and supervised site preparation and civil work, permitting, installation, mechanical and electrical work, instrumentation, control, piping and commissioning. Through this experience, we have developed relationships with suppliers for some of our core equipment and enhanced our ability to manage and control capital costs as we undertake construction of our future facilities.

          In October 2011, we acquired the land on which the Westbury facility is located in connection with a renegotiation of a commercial relationship with the owner of the land, which operates the adjacent sawmill and is also our feedstock supplier for the Westbury facility.

Edmonton, Canada

          We believe that our commercial 10MMGPY facility under construction in Edmonton represents the world's first major collaboration between a metropolitan center and a waste-to-biofuels company. The Edmonton facility is designed to accommodate a second standard 10MMGPY module. The City of Edmonton is widely recognized as a leader in the development of advanced municipal waste disposal solutions. Our relationship with the City of Edmonton began in 2004, and following a highly competitive technology review and qualification process in which the city evaluated more than 100 waste diversion technologies, the city decided to adopt our proprietary technology platform as one of its principal municipal waste management solutions.

          We estimate the initial construction costs to prepare the facility for methanol production to be approximately C$80.0 million, plus finance costs. We estimate the additional capital costs to ready

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the facility for ethanol production to be approximately C$25.0 million, plus finance costs. We expect to finance the facility with C$23.4 million in government financial assistance from the City of Edmonton and the government of the province of Alberta, C$15.0 million in equity from a Waste Management affiliate and EB Investments ULC, as described below, and the balance from our available cash and the net proceeds from this offering.

          In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the Edmonton facility. Upon completion of the agreed upon capital contributions (including a contribution of C$29.6 million by us), which we expect to be completed in the first quarter of 2013, we will have an ownership interest of 71% in the facility and Waste Management of Canada Corporation and EB Investments ULC will each have an ownership interest of 14.5% in the facility. Contemporaneously with these investments, we entered into (i) a Services Agreement with Enerkem Alberta Biofuels LP whereby we will perform, or cause to be performed, until the start-up of the facility, all work required for the design, engineering, procurement, installation, construction, start-up and commissioning of the facility during the development and construction phases and will manage the provision of all materials, equipment, machinery, tools, personnel and other services required in connection therewith, (ii) a Technology License Agreement with Enerkem Alberta Biofuels LP whereby we have granted, until the facility ceases operations as a going concern, a license to use our technology, and (iii) a Right of First Offer Agreement whereby we and Enerkem Alberta Biofuels G.P. Inc. agree to grant a right to each of Waste Management of Canada Corporation and EB Investments ULC to provide at least one-third of the investment and financing opportunities to develop biorefinery projects in the greater Edmonton metropolitan area, prior to us making or seeking from a third party any investment in relation to such facility.

          Under the Biofuels Facility Operating Agreement entered into on May 20, 2009, the City of Edmonton has agreed to provide our Edmonton facility with 100,000 dry, prepared and sorted metric tons of MSW for a tipping fee of C$45 per metric ton for a 25-year period, to be adjusted annually in accordance with the Canadian Price Index. The City of Edmonton estimates that it will increase the level of waste that is diverted from landfilling from 60% to 90% once our facility is fully operational.

          We expect to ready our Edmonton facility for methanol production in the first quarter of 2013 and ethanol production in the second half of 2013. We have entered into an offtake agreement with Methanex Corporation, a global leader in methanol production and marketing, for the sale of methanol produced at the Edmonton facility. The term of the contract is five years, with an option for us to shift from methanol production to ethanol production and suspend the application of the offtake agreement upon 13 months prior notice, and an option for either party to terminate the agreement five years after such shift to ethanol production. Pursuant to the offtake agreement, we have a "put or pay" obligation and Methanex has a "take or pay" obligation and a right of first refusal should the production capacity of the Edmonton facility be increased or should methanol be produced at new facilities within the State of Alaska or the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, and the Yukon Territory, Northwest Territories and Nunavut. We are currently exploring a variety of other offtake arrangements with other parties for the ethanol to be produced at the Edmonton facility.

          We have co-located our Edmonton facility with the Edmonton waste management center and lease the land on which we are building our facility for a nominal amount from the City of Edmonton. Our lease expires on the date that our Biofuels Facility Operating Agreement with the City of Edmonton expires.

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Our Future Facilities in Development

          We are currently developing two additional commercial facilities, one located in Pontotoc and one in Varennes.

 
 
Pontotoc, Mississippi
 
Varennes, Canada

Type

  Commercial   Commercial

Timing

 

Expected construction start in the fourth quarter of 2012

 

Expected construction start as early as the first quarter of 2013

Feedstock

 

Sorted MSW from Three Rivers Landfill

 

Sorted industrial, commercial and institutional waste

Anticipated Products

 

Cellulosic ethanol

 

Cellulosic ethanol

Expected Production Capacity

 

10MMGPY

 

10MMGPY

Throughput Capacity (metric tons/day)

 

350

 

350

Ownership

 

100%

 

50%

Pontotoc, Mississippi

          We signed a memorandum of intent with Three Rivers Solid Waste Management Authority on February 23, 2009, which was extended on September 13, 2011, to develop a commercial facility in Pontotoc. We will build this facility within the permitted area of a working landfill using the same modular design as the Edmonton facility. We anticipate producing 10MMGPY of ethanol from sorted MSW at this facility. We expect to start construction in the fourth quarter of 2012 and we estimate that it will take approximately 18 months to build the facility. We expect the initial construction costs to be approximately C$90.0 million to C$100.0 million, plus finance costs. In addition, an MSW pre-treatment facility is planned to be constructed near the site. We are currently in discussions to provide financing assistance for the construction of this MSW pre-treatment facility. We expect to finance these facilities with the DOE conditional financial assistance, project-level debt guaranteed by the USDA and project-level equity.

          We currently have an option to lease 20 acres of land from the Three Rivers Solid Waste Management Authority for an initial term of 20 years with two renewal options of 10 years each. We also have an option to purchase an adjacent 12-acre land parcel from The Three Rivers Solid Waste Management Authority. Our options expire on March 31, 2012.

          Following a competitive process, the DOE has agreed to provide financial assistance for the development of the facility in Pontotoc for a maximum amount of $50 million under the American Recovery and Reinvestment Act of 2009. The DOE's assessment process included a detailed technical review, and its financial contribution remains subject to us complying with various customary conditions and covenants, including completing the project-level financing for the development of the facility. The project has also obtained a conditional commitment for an $80 million loan guarantee by the USDA. The conditional commitment letter entered into in January 2012 provides for a guarantee on 80% of loans related to the project.

          Our project development and project management teams are in the process of negotiating a long-term supply agreement with the Pontotoc municipality to supply MSW feedstock for the facility. MSW feedstock for the facility can be supplemented with other sources, including abundant locally available low-cost wood residues, both from industrial and forest sources, if necessary. Our teams

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are also finalizing agreements with local stakeholders and preparing for future procurement and construction activities. We have completed a Federal National Environmental Policy Act review in 2010, and have made substantial progress toward applying for obtaining the required federal and state-level permits required to build and operate the facility.

          We plan to initiate the construction of the Pontotoc facility once we have achieved the following key milestones: (1) satisfy the DOE conditions to proceed to the second phase of the DOE financial assistance agreement; (2) enter into a ground lease and a definitive MSW feedstock supply agreement with the municipal landfill agency; (3) enter into a definitive loan guarantee agreement with the USDA and raise the underlying project-level debt; and (4) complete the permitting process.

Varennes, Canada

          We plan to build an additional commercial facility in Varennes, located near Montreal, through a 50-50 joint venture with GreenField Ethanol Inc., one of the largest ethanol producers in Canada. The proposed 10MMGPY cellulosic ethanol facility will be located on the site of GreenField's grain ethanol facility in Varennes and is anticipated to convert commercial waste and construction and demolition debris into cellulosic ethanol.

          Together with GreenField, we have initiated project development and permitting activities. We expect construction of the 10MMGPY facility to begin as early as the first quarter of 2013. The site also offers opportunities for expansion through the addition of 10MMGPY modules. Along with contributing 50% of the funds required to develop the Varennes facility, GreenField will contribute technical and manufacturing support to the joint venture. This support will include the detailed design, construction and operation of the facility and the sales of products generated by the facility. We expect that GreenField will enter into an offtake agreement pursuant to which it will purchase all of the cellulosic ethanol to be produced by the facility.

          The Quebec provincial government has conditionally approved C$18.0 million in financial assistance and a C$9.0 million loan for the construction of the Varennes facility. We are currently in discussions with the Quebec government to finalize the contractual arrangements for this financial support. In October 2010, we applied for a C$33.0 million interest-free loan from Sustainable Development Technology Canada under its NextGen Biofuels Fund. We expect to finance the Varennes facility with the Quebec grant and loan, the NextGen interest-free loan and equity investments from us and GreenField pursuant to our joint venture arrangement.

          We expect integrations between first and second-generation ethanol facilities to continue as many traditional corn-based biofuel producers seek to leverage existing facilities to produce second generation biofuels. The integration with a first-generation ethanol production facility will allow us to take advantage of certain of the existing infrastructure at the site, such as site roads, utilities and ethanol handling facilities.

          In addition, GreenField has undertaken to provide a lease for the land on which the Varennes facility will be built.

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          In order to initiate the construction of the Varennes facility we must achieve the following key milestones: (1) complete the permitting process; (2) enter into a ground lease and a definitive feedstock supply agreement; (3) obtain the NextGen loan; and (4) finalize the funding with the Quebec Government.

Project Management, Engineering, Supply Chain Management and Construction

          We have developed a modular, copy-exact and scalable approach to our technology platform to deploy our standard 10MMGPY modules. We anticipate that this approach will allow us to manufacture our systems as prefabricated, replicable modules under fixed-price contracts and will help us reduce our capital costs by enabling the manufacturing and assembly of multiple prefabricated modules in parallel. We have entered into various such fixed-price contracts with third-party manufacturers for components of the 10MMGPY module to be installed at our Edmonton facility. Moreover, we expect that this approach will allow us to cost-effectively increase the throughput and production capacity of existing facilities by placing additional prefabricated modules side-by-side.

          Modularization is the process of engineering, integrating, fabricating and assembling construction projects into shippable modules that are manufactured in a factory or yard. The modules are then assembled at the project site using a just-in-time process. Traditionally used in shipbuilding, off-site modularization is increasingly used in the construction of power plants, train and airplane assembly, as well as mining operations.

          A key benefit of using a modular approach is that modules can be fabricated and assembled by third parties in a controlled environment and in parallel with the preparation of the selected site for the facility. As a result, weather and site labor issues have a smaller impact on overall project performance and delivery. Moreover, logistics, quality assurance, and cost control aspects of the project can be carried out with a greater degree of control. Since preparation of the facility site and civil work can occur in parallel with off-site fabrication and pre-assembly, the overall project schedule can be significantly accelerated.

          We divide our facilities into two discrete components for project execution purposes. The first component is comprised of the core process units and equipment that integrate our proprietary technology, such as our bubbling fluidized bed gasifier, syngas cleaning and conditioning and syngas conversion equipment. The second component is comprised of the remaining peripheral area of our facilities that includes the supporting systems and equipment, such as gas and liquids storage equipment, utilities tie-ins, interconnection systems and other infrastructure that includes site-specific civil works, such as roads and fire protection. While the peripheral area of our facilities comprises equipment that is essential to the overall operation of a facility, it is, for the most part, composed of services and standard off-the-shelf equipment that can be sourced from multiple local suppliers. While the modularization approach described above is principally beneficial to core process units and equipment, the peripheral area elements, such as pipe racks, water treatment and gas separation equipment, may also be modularized efficiently. As a result, on-site construction crews for our facilities will increasingly be utilized solely to carry-out site-specific civil work, install the peripheral area components that have not been modularized and assemble the shop-fabricated process modules together.

          Our projects are delivered by two teams that work side-by-side. The first team is responsible for the sourcing, procurement and delivery of all process modules company-wide. This team ensures that our prefabricated modules satisfy our technical specifications and quality standards and are delivered to each project site on schedule. As manager of the supply chain for the process modules, this team is in charge of the identification and qualification of equipment suppliers, modules fabricators and integrators to ensure parallel, multiple-source procurement of all systems, while maintaining a focus on generating cost efficiencies, addressing and minimizing purchasing, supply and delivery risks, and increasing overall capacity. The second team is a project-specific

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project management team that acts as our in-house general contractor for the project, in those instances where we decide not to utilize a third party general contractor. When compared to the scope typically assigned to an engineering, procurement and construction, or EPC, contractor in industrial construction projects, the scope of work for our project management team, or external general contractor when we decide to use one, is much narrower due to the fact that it only includes the delivery of the peripheral area of the project and the installation of the process modules.

Our Relationships

          We intend to continue to enter into strategic relationships with select partners to capitalize on the expertise and core competencies that our partners can provide in order to increase our market penetration. Our criteria for entering into collaborations in both the waste management industry and the fuels industry include:

    the ability of a partner to facilitate access to feedstock or product offtake and distribution;

    the leadership position our potential partner enjoys in its market; and

    the ability of a partner to assist us in expanding our international market reach and brand awareness.

          We have entered into non-binding arrangements, and we are currently negotiating definitive commercial development agreements, relating to commercial arrangements with affiliates of our two strategic shareholders, Waste Management of Canada Corporation and Valero, to build and own new commercial facilities using our proprietary technology platform. We anticipate that these relationships will shorten our time-to-market and enable us to take advantage of the growing demand for our waste-based biofuels, while providing us with an option to take a non-controlling ownership interest in such projects. We have also established a partnership with GreenField Ethanol Inc. to develop a standard 10MMGPY commercial facility in Varennes. As part of this arrangement, we expect that GreenField will enter into an offtake agreement pursuant to which it would purchase all of the ethanol to be produced by the facility.

Waste Management

          Waste Management is the leading provider of waste management services in North America. The company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. We expect our commercial arrangements with Waste Management to provide us with an attractive opportunity to potentially develop sites with access to secure and abundant feedstock supplies.

          The following is a summary of the material aspects of our relationship with Waste Management.

          Commercial Development Agreement.    In April 2011, we entered into a non-binding arrangement with WM Organic Growth,  Inc., an affiliate of Waste Management, for the potential development and construction of up to six commercial production facilities representing a minimum aggregate output capacity of 100-120MMGPY. We anticipate that these facilities will consist of approximately 10 to 12 of our standard prefabricated 10MMGPY modules and that this agreement may significantly accelerate the commercial deployment and market penetration of our systems and proprietary technology platform throughout North America.

          Under the terms of the proposed arrangement, we expect to grant a technology license to each project in consideration of an upfront license fee, recurring royalty fee based on gross revenue and a right to supply our proprietary systems. While the agreement will not require us to make any project-level investments, we expect to have the right to invest up to 49.5% of the equity in each project on the same terms as Waste Management.

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          Supply Rights Agreement.    In January 2010, we entered into a supply rights agreement with an affiliate of Waste Management for the supply of MSW for facilities that we are developing, excluding Edmonton and Pontotoc. Under the agreement, Waste Management has a right of first offer to supply MSW to our facilities and will pay tipping fees at local market rates for a 36-month term commencing on the first commercial sale of products from our first standard 10MMGPY commercial facility or 24 months after the date of the agreement. Pursuant to the non-binding arrangement with WM Organic Growth described above, this right of first offer is to be converted into a right of first refusal and will not apply to projects: (1) outside of a 75-mile radius of a Waste Management facility that can provide sufficient feedstock volume for a minimum of two standard 10MMGPY modules (increasing to a 150-mile radius if the Waste Management facility is accessible by rail or barge); (2) developed on landfills owned and managed by a municipality or other similar authority; or (3) developed by a third party group that owns at least 20% of the equity of such project.

          Edmonton facility.    In December 2011, Waste Management of Canada Corporation, an affiliate of Waste Management, invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. Such affiliate of Waste Management currently holds approximately 33% of Enerkem Alberta Biofuels LP, which ownership interest will decrease to approximately 14.5%, as we complete our capital commitments to Enerkem Alberta Biofuels LP, which we expect to be completed in the first quarter of 2013.

Valero

          Valero is one of the largest independent refiners in the world and one of the largest retailers and producers of ethanol in the United States. Valero owns 15 petroleum refineries located across United States, Canada, the United Kingdom and Aruba.

          The following is a summary of the material aspects of our relationship with Valero.

          Commercial Development Agreement.    In April 2011, we entered into a non-binding letter of intent with Diamond Alternative Energy, LLC, an affiliate of Valero, for the initial development and delivery in the United States of up to six ethanol production sites to be non co-located with existing Valero facilities, representing an aggregate output capacity of 80-250MMGPY, and other projects to be co-located with existing Valero facilities. We intend to commence discussions with respect to the terms of a final non-exclusive agreement. This proposed agreement is also expected to significantly accelerate the commercial deployment and market penetration of our proprietary technology throughout the United States.

          Under the terms of the proposed agreement, we will grant a technology license to each project in consideration of a license fee and a right to supply our proprietary systems. However, for projects larger than 20MMGPY, Valero may determine the most economical design basis for such projects and will be entitled, subject to certain conditions, to seek competitive bids for equipment and construction.

          Valero will be the facility operator for each of the projects they develop. While the proposed agreement will not require us to make any project-level investments, we will have the right to invest up to 50% of the equity in projects not co-located with Valero facilities and that use MSW as feedstock, and up to 49% of the equity in projects that use feedstock from other sources or in projects that are co-located with Valero facilities. Valero, in turn, will have the right to acquire an ownership interest equal to at least 33% in one of our projects to be developed in the United States. The initial term of the proposed agreement will be for 4.5 years, which will automatically extend to 9 years if Valero orders at least one of our 10MMGPY systems, or if Valero exercises its investment option in one of our projects prior to the expiration of the initial term.

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          Finally, Valero would be restricted from bidding for MSW feedstock without our consent or using MSW within 50 miles of any of our projects, or any of our other partners' projects. Similarly, we would be restricted from using MSW within 50 miles of any of Valero's projects.

          Offtake Agreements.    The letter of intent with Valero contains the proposed terms of an ethanol offtake agreement under which Valero will be granted a right of first refusal to purchase ethanol at market rates, with a marketing discount, from any future facilities that we develop in California, Iowa, Nebraska, South Dakota, Minnesota, Wisconsin, Indiana, Ohio, Texas, Louisiana, Mississippi, Alabama and Florida, and a right of first offer for the ethanol produced at our facilities located in any other location in the United States. In the case where Valero is an investor in our projects, it has agreed to market all ethanol produced by such project.

GreenField Ethanol

          GreenField Ethanol Inc. is one of the largest ethanol producers in Canada. We are in the planning phases with GreenField for the development of the 10MMGPY commercial facility in Varennes.

          In addition to our planned facility in Varennes, the following are certain other key aspects of our relationship with GreenField.

          Development Rights Agreement.    In September 2008, we entered into a development rights agreement with GreenField which would allow GreenField to develop facilities utilizing our technology platform in the provinces of Ontario and Quebec and the States of New York, Michigan and California. While this development rights agreement, as amended in April 2009, will expire on March 31, 2012, we are currently negotiating an extension of the term of the agreement with GreenField. Under the agreement, GreenField will offer us the first opportunity to invest in all qualified projects it develops in Québec, Ontario, New York, Michigan and California at the same ownership level as GreenField and we will offer GreenField the first opportunity to invest in all qualified projects we develop in Québec and Ontario at the same ownership level as ours.

          Offtake Agreement.    We have entered into an agreement with GreenField to purchase all of the ethanol that will be produced at our Westbury facility. In addition, we expect that GreenField will enter into an offtake agreement pursuant to which it would purchase all of the cellulosic ethanol produced at the Varennes facility.

City of Edmonton and Alberta Government

          The City of Edmonton is widely recognized as a leader in the development of advanced municipal waste management solutions. Our relationship with the City of Edmonton began in 2004 following a highly competitive technology review and qualification process in which the city evaluated more than 100 competing waste disposal technologies pursuant to which the City decided to adopt our technology as one of its principal municipal waste management solutions.

          We are currently in the process of constructing a first standard 10MMGPY commercial facility in partnership with the City of Edmonton. We expect to ready our Edmonton facility for methanol production in the first quarter of 2013 and ethanol production in the second half of 2013. We believe this facility represents the first collaboration between a waste-to-biofuels company and a metropolitan center to address its waste disposal challenges. It will also be possible to add a second 10MMGPY prefabricated module to increase the facility's production capacity. We also built a research and development facility located adjacent to our commercial facility, which is owned by the City of Edmonton and operated in partnership with the government of Alberta. We expect this facility to be operational in the first half of 2012. See "Business — Research and Development" above.

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Intellectual Property

          Our success depends in part on our ability to maintain our competitive advantage through the protection and development of our proprietary technology and intellectual property. To accomplish this, we rely on a combination of patent and trade secret protection under U.S., Canadian and foreign laws, as well as through employee and third party agreements.

          Several aspects of our technology and intellectual property are covered by patents and pending patent applications in various jurisdictions. We own 3 issued U.S. patents and 5 issued patents in Canada, Spain and the United Kingdom. The 3 U.S. patents were issued in 1997, 2002 and 2011 and will expire in 2015, 2020 and 2028. The U.S. patent expiring in 2015 covers a steam reforming catalyst and a method of preparing the catalyst, the U.S. patent expiring in 2020 covers a mobile granular bed filtration apparatus for hot gas conditioning and the U.S. patent expiring in 2028 covers the production of ethanol from methanol. In addition, we have 36 patent applications pending in the United States and several other countries. Our patent applications cover various aspects of our gasification and gas conditioning technologies, as well as for converting syngas into various chemicals and fuels such as methanol, ethanol and acetates. We intend to continue to file patent applications to protect our technology, as we are continuously reviewing innovations developed by our research and development and technology development groups and assessing them for patentability. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Our management of these filings is focused on maximizing the likelihood of acquiring strong patent protection.

          We have submitted applications to register trademarks for the Enerkem name and logo in the United States and Canada.

          We rely on, among other things, contractual agreements to protect our proprietary know-how and other trade secrets. Our employees and consultants have entered into non-disclosure and proprietary information and invention assignment agreements with us. The vast majority of these agreements address intellectual property protection and confidentiality issues and require our employees and consultants to:

    assign to us all of the inventions, designs and technologies they develop during the course of their employment or consulting engagement with us;

    maintain the confidentiality of all confidential information acquired or developed in the course of their employment or consulting engagement with us; and

    refrain from using such confidential information for any purpose that is not connected with their employment or consulting engagement with us.

          We also protect our sensitive information by limiting access to certain employees and consultants, and require certain third parties to enter into non-disclosure agreements with us. If these agreements are breached, we may not have adequate remedies for such breach. However, third parties may independently develop equivalent proprietary information or gain access to our trade secrets and other intellectual property. In the future, we intend to enter into contractual agreements with parties to whom we will sell systems utilizing our proprietary technology platform that will include extended confidentiality, intellectual property and trade secrets protection, as well as extend our visitation and audit rights to ensure that our intellectual property and proprietary information are adequately protected.

Competition

          Competition for renewable biofuels and chemicals that we produce and for MSW feedstock from desirable landfills is intense in all markets in which we conduct or intend to conduct business, and our business is subject to a variety of competitive, regulatory and market factors, many of which are beyond our control.

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          We believe that the primary competitive factors in our markets are:

    reliable and abundant feedstock supply;

    price of feedstock and cost of its production;

    product performance and quality;

    experience in scaling-up and operating commercial-scale facilities;

    flexible cost structure;

    existing relationships with waste owners and/or operators;

    access to capital;

    ability to process MSW and produce biofuels and chemicals at meaningful volumes; and

    qualification of fuels under U.S. and Canadian standards and the requirements of RFS2 with respect to our renewable biofuels.

          Renewable biofuels and chemicals.    In the near term, we expect that the renewable biofuels that we produce will compete with other cellulosic biofuels developed by both established and new companies that seek to produce these fuels to satisfy the RFS2 mandate and similar Canadian fuel content requirements. There are many companies active in the area of producing biofuels from fermentable sugars, as well as a limited number of companies who are focused on developing thermochemical processes for converting biomass into fuels. While we believe that only a limited number of companies in this field have currently advanced their technologies to the stage where they are producing cellulosic biofuels on a commercial scale, we expect that several of these companies will progress and begin commercial production of renewable biofuels in the near term. In the longer term, other potential competitors for our renewable biofuels and chemicals may include integrated oil companies, independent refiners, large chemical companies and agricultural products companies, many of which are much larger than we are, have well-developed distribution systems and networks for their products, have historical relationships with the potential customers we are seeking to serve and have sales and marketing programs in place to promote their products.

          Given the size of the markets in which we compete and the developing stage of alternative fuels markets, we do not believe that the success of other renewable products will necessarily prevent our renewable biofuels and chemicals from being successful. However, with the wide range of renewable biofuels and chemicals under development, we must be successful in reaching potential customers and convincing them that our products are effective and reliable alternatives.

          Waste management solutions.    We expect to compete for access to MSW feedstock with existing and emerging waste management companies. While we believe that the traditional solid waste industry in North America is facing challenges that will gradually render landfilling and incineration less attractive as a solution for waste disposal, we expect to face competition from traditional waste management companies for access to MSW feedstock from landfills.

          We also anticipate facing competition for MSW feedstock and access to desirable landfills from companies with emerging waste conversion technologies such as waste-to-energy and other waste-to-renewable products. While we believe that only a limited number of companies in this field have advanced their technologies to the stage where they are commencing construction activities on a commercial scale, some of our competitors have been active in this area for many years and have secured long-term arrangements for access to MSW feedstock.

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Regulations Affecting Our Industry

RFS2, RINS, and Waiver Credits

          The rulemaking to implement RFS2, which was completed in March 2010, took effect in July 2010 and will govern implementation through 2022. The mandate requires that petroleum refiners and importers use a minimum volume of renewable fuel in the United States transportation market each year, set to reach 36 billion gallons by 2022. The statute includes a particular mandate for cellulosic biofuels, beginning at 100 million gallons in 2010 and increasing to 1 billion gallons by 2013 and 16 billion gallons by 2022. However, should there be an undersupply of cellulosic biofuels in the market, the EPA is required to reduce the mandate by regulation to the expected actual production for a specific year. This was the case in 2010, 2011 and 2012, with EPA reducing the mandate to 6.5 million gallons, 6.6 million gallons and 8.65 million gallons, respectively. Cellulosic ethanol, which is a key component of second-generation biofuels, is chemically identical to corn or sugar-derived ethanol, but is produced from a large base of non-food biomass and waste feedstock which do not compete for farm land.

          To qualify for RFS2, cellulosic biofuels must be made from qualified renewable biomass, which includes certain types of MSW. EISA defines renewable biomass as including separated yard and food waste. EPA, by rule, has determined that post-sorted MSW may be included in the category of "separated yard and food waste." Registration for MSW-to-fuel plants includes a requirement that a waste separation plan be submitted to the EPA for each facility showing that recyclable materials will be "separated to the extent reasonably practicable."

          The mechanism for compliance with the mandate is in the form of a Renewable Identification Number, or RIN, which are attached to renewable biofuels. Obligated parties, which consist of refiners and importers, must acquire a sufficient number of RINs to satisfy their Renewable Volume Obligations, or RVOs, which are based on each obligated party's pro rata share of the United States fuel market. The RINs may be separated and traded when biofuels are physically blended with gasoline or diesel. Obligated parties can obtain RINs by buying biofuels from producers or by buying a detached separated RIN from other obligated parties that have blended quantities in excess of their required volumes. Cellulosic ethanol made from MSW earns, for each gallon of ethanol, one cellulosic RIN multiplied by the biogenic component contained in the ethanol. The non-biogenic component of ethanol made from MSW typically results from plastics, synthetic textiles and materials and rubber contained in the MSW.

          During years where the EPA determines in advance that projected cellulosic biofuel capacity is insufficient to meet the mandate, the EPA, in addition to reducing the mandate for a specific year, creates cellulosic biofuel waiver credits, or CWCs, for purchase for that year. After all physical volumes are consumed, if there remains a shortfall between the actual production and the reduced mandate, obligated parties must purchase CWCs to satisfy their RVOs or carry the deficit into the next year. The EPA will make CWCs available for sale to obligated parties for a price, indexed annually, that is the higher of: (1) the amount by which $3.22 per gallon (in 2011 prices) exceeds the average wholesale price of a gallon of gasoline in the United States; or (2) $0.27 per gallon (in 2011 prices). Based on this formula, the EPA stated that it will make CWCs available for a price of $0.78 per gallon-RIN for compliance year 2012. CWCs can only be used by obligated parties to satisfy their current year cellulosic RVOs, cannot be banked for future use, cannot satisfy compliance obligations carried over from a previous year, and cannot be sold or transferred.

United States Cellulosic Biofuel Production Tax Credit

          Cellulosic biofuel producers in the United States are eligible for a production tax credit, or PTC, equal to $1.01 per gallon. Credits are earned by producers and can only be used to offset income taxes. The credit, which was part of the Food, Conservation and Energy Act (Farm Bill) of 2008, is available through December 31, 2012.

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United States Department of Energy Cost-Sharing Arrangements and United States Department of Agriculture Loan Guarantee Programs

          The DOE, between 2007 and 2010, provided grant funds under cost-sharing arrangements for construction of integrated biorefineries providing advanced biofuels and related co-products. This cost share funding provided up to $50.0 million in funding. In addition, the DOE has in the past, and may again in the future, issue grant funding opportunities for biofuels research, feedstock research, logistics and supply chain management, downstream biofuels infrastructure, or facility construction and retrofits. The DOE also has a loan guarantee program supporting the deployment of renewable energy technologies for which certain renewable energy projects may be eligible.

          The USDA provides loan guarantees specifically for advanced biorefineries. The USDA loan guarantee authority is limited to $250.0 million per facility, and the most recent solicitation for applications closed on July 6, 2011.

Canadian Policies on Renewable Fuels

          The Canadian Renewable Fuels Regulations, adopted under the Canadian Environmental Protection Act, 1999, require gasoline fuel producers, sellers and importers to have an average annual renewable fuel content equal to at least 5% of the volume of gasoline that they produce, sell or import. These regulations came into force on December 15, 2010. The requirement for renewable fuel content is on the basis of the obligated party's total annual volumes, and compliance is based on the calendar year, save and except for the first compliance period, which began on December 15, 2010 and ends on December 15, 2012. To qualify as renewable fuel under the regulations, the renewable fuels must be ethanol, biodiesel or a liquid fuel produced from renewable fuel feedstock, which includes MSW. Many provinces are also mandating the blending of ethanol into gasoline, such as the following Canadian provinces: British Columbia, Alberta, Saskatchewan, Manitoba and Ontario.

          Canadian production incentives are paid directly to producers. The Canadian federal incentive, which is managed under the ecoENERGY program, was launched in 2007 and was available to all ethanol and biodiesel producers including corn ethanol producers. The initial C$1.5 billion in available funds is now fully allocated to facilities that are currently, or will soon be, in production. The program provides incentives ranging from C$0.10 per liter, or C$0.38 per gallon, initially and declining to C$0.03 per liter, or C$0.11 per gallon, in 2017. The federal government is currently being asked by market participants to create an incentive for next generation biofuels that would create parity with the RFS2 system in the U.S.

          In Alberta, facilities producing second generation ethanol with capacity of less than 150 million liters, or 39.6 million gallons, per year are eligible for an incentive equal to C$0.14 per liter, or C$0.53 per gallon, sold. The program has been extended through 2016.

          In Quebec, producers of cellulosic ethanol using a thermochemical process like ours, are eligible to receive a reimbursable tax credit of up to C$0.15 per liter, or C$0.57 per gallon, of cellulosic ethanol produced, with the size of the credit linked to an average of the closing spot price of ethanol on a monthly basis.

Regulations Affecting Our Business and Operations

          Our biorefineries are subject to a variety of federal, state, provincial and municipal environmental laws and regulations that govern the discharge of materials into the environment or otherwise relate to environmental and natural resource protection.

U.S. Federal Regulations

          Our U.S.-based facilities must comply with U.S. federal environmental laws and regulations, such as those laws commonly referred to as the National Environmental Policy Act, or NEPA, the

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Clean Air Act, or CAA, and the Clean Water Act, or CWA. These laws and regulations generally require the completion of an environmental impact study for certain types of proposed federal actions, compliance with consultation or other evaluatory obligations and the application for and issuance of various governmental permits, approvals and authorizations. Federal laws and regulations may be delegated to state and local governmental authorities for implementation in accordance with the requirements of an approved state or local program.

          Achieving and maintaining compliance with these laws and regulations may require a regulated facility to obtain permits, submit periodic reports to governmental authorities, make routine or unscheduled facility and equipment upgrades, take actions to address certain potential environmental and related liabilities, and take other actions relating to the prevention, mitigation, or compensation for pollutant emissions associated with our operations. Compliance with environmental laws and regulations may require our company and/or facilities to incur both direct and indirect costs, such as permitting fees and equipment procurement, or administrative, civil, criminal and other penalties for noncompliance, if any. Delays in achieving or gaps in maintaining environmental compliance with applicable requirements may have a negative impact on our operations, growth, and revenues.

          We believe that our planned operations in the United States are in substantial compliance with existing environmental laws, regulations and permitting obligations. We have prioritized such compliance as we developed and engineered our processes, and have to date obtained certain necessary permits in a timely manner that will facilitate adherence to our anticipated construction schedule. However, further spending will be necessary in the future, including in the event of enactment of new laws or regulations, new interpretations of existing laws, increased enforcement of certain environmental laws, or other developments.

          Examples of some of the principal federal environmental requirements applicable to the company or our facilities include:

          National Environmental Policy Act.    NEPA requires federal agencies to assess the potential environmental impacts associated with a proposed federal action and to identify measures to avoid or minimize those impacts as part of the agency's decision making processes. Federal agencies also must evaluate reasonable alternatives to those actions. Our planned facility in Pontotoc is subject to the NEPA evaluation process because it is receiving financial support from the DOE and the USDA.

          Under NEPA, an Environmental Assessment, or EA, was prepared for our Pontotoc project. The EA process included a public consultation period, which began with a scoping notice that was sent to federal, state, and local agencies, tribal governments, elected officials, businesses, organizations, and special interest groups, as well as members of the general public. Stakeholders were given 30 days to submit comments regarding the project. Following the EA, DOE issued a Finding of No Significant Impact, or FONSI. The FONSI indicates that the project will not result in significant adverse effects to the environment and that the potential environmental impact has been sufficiently avoided, minimized or mitigated. The FONSI supports the DOE's decision to authorize the proposed grant of specified federal funding for the project. This determination allowed us to proceed with the project without the need to undertake a more comprehensive environmental impact study, or EIS, under NEPA.

          Clean Air Act Regulation.    The CAA requires the Environmental Protection Agency, or EPA, to adopt various standards for air pollutant emissions, emissions control technologies, operating practices and other requirements necessary to control air pollutant emissions to the ambient environment. Our operations, air pollutant emissions from our facilities, and our products will be subject to requirements established under the CAA and analogous state laws and regulations. The CAA also governs the registration of fuel products and additives, which include methanol and ethanol, some of our main products.

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          Clean Water Act Regulation.    The CWA requires the EPA to regulate the discharge of pollutants to waters of the United States through the development and enforcement of regulations. The CWA serves a similar role for the protection of surface water quality as does the CAA for ambient air quality. Our facility and operations will be subject to the CWA, compliance with which may be achieved through analogous state laws where the state administers a federally-approved program. Accordingly, for our Pontotoc facility, we have filed notices and applications for authorizations pertaining to the discharge of construction and operations-phase stormwater and for wastewater effluent discharges to the municipal wastewater authority, which is a publicly owned treatment works, for purposes of the CWA.

          Regulation of Hazardous Materials or Other Waste.    Other federal environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, or Resource Conservation and Recovery Act, or RCRA, among others, may apply to the generation, handling, use, storage, treatment, disposal, transportation, release or threatened release, and reporting of hazardous materials or other waste materials at or associated with our Pontotoc facility.

U.S. State Regulations

          Our facilities will be subject to state regulations. For example, our Pontotoc facility will be subject to environmental regulations and requirements under the authority of the Mississippi Department of Environmental Quality. Such regulations relate to both the construction and the operation of the facility. Various permits with respect to construction, air, stormwater discharges, wastewater discharges, and solid waste storage, treatment, processing and disposal are required.

Canadian Federal Regulations

          Our Canadian operations are subject to Canadian federal environmental legislation and regulations. Under the Canadian Environmental Assessment Act (CEAA), a project is subject to a federal environmental assessment when a federal authority proposes a project, provides financial assistance for a project, transfers control of land for a project, or provides a license, permit, or approval for the execution of a project. For example, when selected to receive federal financial support under the ecoENERGY for Biofuels program for our commercial demonstration facility in Westbury, we were required to undergo a federal environmental assessment. Natural Resources Canada determined that, subject to the implementation of certain mitigation measures, our Westbury facility is not likely to cause significant adverse environmental effects. As such, the Westbury facility has qualified for the ecoENERGY program.

Canadian Provincial Regulations

          In the province of Quebec, two categories of authorizations were required and obtained for our Westbury facility: a Certificate of Compliance from the municipality confirming compliance of the project with the municipal by-laws, and Certificates of Authorization from the Ministry of Sustainable Development, Environment and Parks to construct and operate the facility, to install an ethanol and methanol loading station and to discharge the cooling water to the Saint-Francois River.

          In the province of Alberta, our future facility in Edmonton is required to comply with the Environmental Protection and Enhancement Act and the Water Act in Alberta. These regulations require industrial activities to be regulated in the interest of protecting environmental and human health. This Environmental Assessment process is managed by Alberta Environment. Under this process, an Environmental Impact Assessment report was required to describe the risks and uncertainties associated with the project's activities in order to assist Alberta Environment in making a public interest decision in approving the project. This report was provided to Alberta Environment and we have obtained approval through this process for our Edmonton facility.

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U.S. and Canadian Municipal Regulations

          Our operations also require permits from municipalities where facilities are located, such as development, foundation, structural, and building permits.

Employees

          As of December 31, 2011, we had a total of 136 full-time employees, including 129 employees in Canada and 7 in the United States. Of these 136 employees, 19 were engaged in supply chain, quality and project management, 35 in engineering, 22 in operations and 14 in research and development activities. We had approximately 78 employees on December 31, 2010. No employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages, and we consider our relations with our employees to be good.

Legal Proceedings

          We are not a party to any material litigation or proceeding and are not aware of any material litigation or proceeding, pending or threatened against us.

Corporate Structure and Head and Registered Office

          We were incorporated under the Canada Business Corporations Act, or CBCA, on December 24, 2007 under the name Enerkem Inc. as part of an internal corporate reorganization effective on December 31, 2007, through which we became the successor to the operations of the biofuels division initiated by Enerkem Technologies Inc. Enerkem Technologies Inc. was incorporated under the Companies Act (Quebec) on December 8, 1997 and was involved in the development and commercialization of renewable energy technologies. Effective as of December 31, 2007, Enerkem Technologies Inc. completed a transaction pursuant to which its business, properties and liabilities were separated into two divisions: a biofuels division and an oils by-product conversion division. All assets and business, including certain intellectual property rights, related exclusively to the oils by-product conversion division were retained by Enerkem Technologies Inc. The oils by-product conversion division was focused on the transformation of oil by-products into various gases and fuels. Pursuant to the transaction, Enerkem Technologies Inc. transferred all of its assets and business relating to the biofuels division, including intellectual property rights, to us. Following the 2007 corporate reorganization, Enerkem Technologies Inc. changed its name to Afina Energy Inc., or Afina. All of the shareholders of Afina are also shareholders of our company, and include Vincent Chornet, our President and Chief Executive Officer, Dr. Esteban Chornet, our Chief Technology Officer, as well as affiliates of Rho Ventures and Braemar Energy Ventures, both of which are our principal shareholders. We have entered into an agreement with certain of our shareholders to purchase all of the issued and outstanding shares of Afina. We expect this transaction to close immediately following the closing of this offering. For more information, see "Certain Relationships and Related Person Transactions — Acquisition of Afina Energy Inc."

          Our principal executive office and registered office is at 1010, Sherbrooke Street West, Suite 1610, Montreal (Quebec) H3A 2R7, Canada. Our telephone number is (514) 875-0284. Our agent for services in the United States is The Delaware Corporation Agency, Inc., 222 Delaware Avenue — 9th Floor Wilmington, DE 19801. We also maintain a website at www.enerkem.com. The information contained in, or that can be assessed through our website, is not a part of this prospectus.

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          The table below shows our main subsidiaries, where they are incorporated or registered, and the percentage of voting and non-voting securities that we beneficially own or directly or indirectly exercise control or direction over.

Subsidiary
 
Jurisdiction of incorporation or registration
 
Percentage of
voting securities
or partnership
interest held at
December 31, 2011(1)
 

Varennes Cellulosic Ethanol L.P.(2)

  Ontario, Canada     50%  

Enerkem Alberta Biofuels LP(3)

  Alberta, Canada     33%  

Enerkem Mississippi Biofuels LLC(4)

  Delaware     100%  

(1)
We do not own any outstanding non-voting securities issued by these subsidiaries.

(2)
Partnership which owns the Varennes facility, held jointly with GreenField Ethanol Inc.

(3)
In December 2011, each of Waste Management of Canada Corporation and EB Investments ULC invested C$7.5 million in Enerkem Alberta Biofuels LP, the partnership that is currently developing and which will own and operate the Edmonton facility. As a result of these investments, we currently have an ownership interest of 33% in the Edmonton facility. Upon completion of the agreed upon capital contributions (including a contribution of C$29.6 million by us), which we expect to be completed in the first quarter of 2013, we will have an ownership interest of 71% in the facility and Waste Management of Canada Corporation and EB Investments ULC will each have an ownership interest of 14.5% in the facility. See the section titled "— Our Existing Facilities — Edmonton, Canada" above.

(4)
Limited liability company which will own the Pontotoc facility and held indirectly through our wholly-owned subsidiary, Enerkem Corporation, a corporation existing under the laws of the state of Delaware.

          The following diagram illustrates our organizational structure, on a simplified basis, as of December 31, 2011.

GRAPHIC


(1)
Each of Waste Management of Canada Corporation and EB Investments ULC currently own a 33% limited partnership interest in Enerkem Alberta Biofuels LP. See the section titled "— Our Existing Facilities — Edmonton, Canada" above.

          Our principal legal advisor in Canada is Stikeman Elliott LLP, 1155 René-Lévesque Blvd. West, 40th Floor, Montréal, QC H3B 3V2, and our principal legal advisor in the United States is Cooley LLP, 1114 Avenue of the Americas, New York, NY 10036.

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MANAGEMENT

Executive Officers, Directors and Key Employees

          The following table sets forth, for each of our executive officers, directors and key employees, the person's name, province or state, and country of residence, age and positions with us as of January 15, 2012.

Name
  Age  
Position

Executive Officers

       

Vincent Chornet
Quebec, Canada

  38   President, Chief Executive Officer and Director

Patrice Ouimet
Quebec, Canada

  39   Senior Vice President and Chief Financial Officer

Esteban Chornet
Quebec, Canada

  69   Chief Technology Officer and Director

Dirk Andreas
Illinois, USA

  50   Senior Vice President, Business Development

James A. Conner
Texas, USA

  58   Senior Vice President, Operations

Jocelyn Auger
Quebec, Canada

  39   Vice President, Legal and General Counsel

Non-Employee Directors

       

Bruce Aitken(1)(2)
British Columbia, Canada

  56   Director

Anton de Vries(1)
The Hague, Netherlands

  60   Director

Larry A. MacDonald(1)
Alberta, Canada

  60   Director

Joshua Ruch(2)
New York, USA

  61   Chairman of the Board

Carl Rush
Texas, USA

  56   Director

Neil S. Suslak(2)
New York, USA

  52   Director

Key Employees

       

Denis Arguin
Quebec, Canada

  52   Vice President, Engineering and Operations

Philippe Burton
Quebec, Canada

  42   Vice President, Human Resources

Marie-Hélène Labrie
Quebec, Canada

  43   Vice President, Government Affairs and Communications

Jean-François Normand
Quebec, Canada

  47   Vice President, Project Management

(1)
Member of the audit committee.

(2)
Member of the compensation committee.

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Executive Officers

          Vincent Chornet co-founded our predecessor Enerkem Technologies, Inc. in 2000 and has served as a member of our board of directors and President and Chief Executive Officer since January 2008. From November 2006 to December 2007, he served as President of Enerkem Technologies, Inc. From 2000 until November 2006, he served as Vice President, Finance of Enerkem Technologies, Inc. Prior to founding Enerkem, Mr. V. Chornet was a consultant and entrepreneur in the development and funding of industrial projects and start-up companies in the energy and speciality chemicals sectors. In 2010, Mr. V. Chornet was voted by industry peers as one of Biofuels Digest's Top 100 People in Bioenergy, ranking in the top tenth percentile. Mr. V. Chornet holds a B.Comm. from Hautes Études Commerciales—Montreal (Canada).

          Patrice Ouimet has been our Senior Vice President and Chief Financial Officer since November 2010. From February 2010 to November 2010, Mr. Ouimet served as our Vice President and Chief Financial Officer. From 2007 to 2009, Mr. Ouimet was Vice President, Corporate Development and Enterprise Risk Management for Gildan Activewear Inc., an international apparel manufacturer and marketer, where he was responsible for corporate strategy, treasury, risk management and internal audit. From 2005 to 2007, Mr. Ouimet held various positions in the investment banking department at Lazard Ltd., an advisory investment bank. From 1997 to 2005, he held various positions in the investment banking department of CIBC World Markets Inc., an investment bank. Mr. Ouimet is a Chartered Accountant and holds a B.Comm. from McGill University (Canada) and a Diploma in Accountancy from Concordia University (Canada).

          Esteban Chornet co-founded our predecessor Enerkem Technologies, Inc. in 2000 and has served as a member of our board of directors since December 2007 and Chief Technology Officer since November 2009. From 2001 to 2007, he was a Professor of Chemical Engineering at the University of Sherbrooke (Canada). Since 2007, he has jointly held the University of Sherbrooke's Industrial Research Chair in Second Generation Biofuels. From 1993 to 2003, Dr. E. Chornet was also a Principal Research Engineer with the National Renewable Energy Laboratory in Colorado. In 2004, Dr. E. Chornet was a laureate for the Prix Lionel Boulet, an award by the Government of Quebec which goes to researchers who have distinguished themselves through their inventions, their scientific and technological innovations, their leadership in scientific development and their contribution to the Province of Quebec's economic growth. Dr. E. Chornet holds a degree in Industrial Engineering from Escola Tècnica Superior d'Enginyeria Industrial de Barcelona (Spain) and a Ph.D. in Chemical Engineering from Lehigh University, Pennsylvania.

          James A. Conner has been our Senior Vice President, Operations since November 2011. Prior to joining Enerkem, from November 2010 to November 2011, Mr. Conner headed Eiger Consulting, LLC, a consulting firm specialised in manufacturing excellence and process safety management. From 1976 to November 2010, Mr. Conner held various positions at Celanese Corporation, a global producer of acetyl products and engineered polymers. His most recent roles with Celanese were Vice President of Manufacturing, from September 2009 to October 2010, where he was responsible for a number of corporate initiatives focused on process safety; and Vice President of Global Operations and Technology, from 2005 to September 2009, during which time he was responsible for manufacturing at plant sites in Europe, Asia, and North America, as well as engineering, construction, and start-up of a major manufacturing facility in China. Mr. Conner holds a Masters in Environmental Engineering and a Bachelor of Science in Chemical Engineering from Rice University, Texas.

          Dirk E. Andreas has been our Senior Vice President of Business Development, North America since November 2010 and is employed by our wholly-owned subsidiary, Enerkem Corporation. From 2007 to 2010, Mr. Andreas was the Managing Director and Midwest regional Vice President of business development for Iberdrola Renewables Inc., a clean energy company. Mr. Andreas opened

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the Iberdrola Midwest development office, hired and integrated staff from numerous acquisitions, established a pipeline of projects, and oversaw the building of projects from this pipeline. From 2005 to 2007, Mr. Andreas worked for Navigant Consulting, Inc., a consulting firm. Mr. Andreas is a Registered Professional Engineer in the State of Illinois, holds a B.S. in Mechanical Engineering from the University of Illinois at Urbana-Champaign and an M.B.A. from the University of Chicago.

          Jocelyn Auger has been our Vice President, Legal and General Counsel since October 2008. From 2001 to October 2008, Mr. Auger was an attorney at the law firm BCF, LLP, where he was the co-chair of the firm's Business & Technology practice group. Mr. Auger holds a BCL from the University of Sherbrooke (Canada) and a Master of Laws from the European Academy of Legal Theory in Brussels (Belgium). He is a member of the Bar of the Province of Quebec and of the Licensing Executives Society.

Non-Employee Directors

          Bruce Aitken has been a member of our board of directors since November 2010. Since 2004, Mr. Aitken has been the President and Chief Executive Officer and a member of the board of directors of Methanex Corporation, a global leader in methanol production and marketing. He has also held numerous other positions at Methanex, including President and Chief Operating Officer and Senior Vice President, Asia Pacific. Mr. Aitken has a Bachelor of Commerce from Auckland University (New Zealand).

          Anton de Vries has been a member of our board of directors since October 2011. From January 2010 until his retirement in November 2010, Mr. De Vries served as Senior Vice President Olefins & Polyolefins Europe, Asia and International at LyondellBasell Industries AF S.C.A., a manufacturer and seller of chemicals and polymers and a crude oil refiner. He has also held numerous other positions with the Basell group since 2000, including President of the Advanced Polyolefins Business of Basell AF S.C.A. and President of Basell Research and Development of Basell N.V. Mr. De Vries worked for the Montell group of companies, predecessor companies to the Basell group, since 1995. He has a Masters in Chemical Engineering from Delft Technical University (Netherlands).

          Larry A. MacDonald has been a member of our board of directors since September 2011. Since 2010, Mr. MacDonald has been serving as co-chairman of the Sarnia Lambton Industrial Alliance, a trade association. From 2002 to December 2009, when he retired, Mr. MacDonald was the Senior Vice President and Chief Financial Officer of NOVA Chemicals Corporation, a Canadian company which produces plastics and chemicals. Mr. MacDonald is a Chartered Accountant and holds a B.Comm. from the University of Windsor (Canada).

          Joshua Ruch has been a member of our board of directors since December 2007. Mr. Ruch is the Chairman and Chief Executive Officer of Rho Capital Partners, LLC, an investment and venture capital management company, which he co-founded in 1981. Prior to founding Rho, Mr. Ruch was employed in investment banking at Salomon Brothers. Mr. Ruch holds a B.S. in Electrical Engineering from Technion—the Israel Institute of Technology, and an M.B.A. from the Harvard Business School. Mr. Ruch is a member of the board of directors of Verenium Corporation.

          Carl Rush has been a member of our board of directors since January 2012. Since 2006, Mr. Rush has been the Senior Vice President of the Organic Growth Group, which explores new and greener technologies for managing waste, of Waste Management, Inc. From 2001 to 2006, Mr. Rush held other positions at Waste Management, including Director of the In-Plant Services Group, now called Sustainability Services, Vice President of Sustainability Services and Vice President of the Organic Growth Group. Before joining Waste Management, Mr. Rush was President and CEO of GNI Group Inc., a waste management services company. He received a Bachelor of Commerce and an M.B.A. from Texas Christian University.

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          Neil S. Suslak has been a member of our board of directors since December 2007. He is a co-founder and Managing Partner at Braemar Energy Ventures, a venture capital fund with offices in New York and Boston, existing since 2001, which focuses on energy technology. Prior to founding Braemar, Mr. Suslak was an investment banker at Swiss Bank Corporation, a predecessor to UBS. Mr. Suslak holds a B.A. from the University of Rochester and an M.B.A. from Columbia Business School.

Key Employees

          Denis Arguin has been our Vice President, Engineering & Operations since April 2008. From 2004 to 2008, he was Director of Process Technology at Minerals Technologies Inc., a worldwide manufacturer of minerals products, where he managed a team providing technical support to production facilities. From 1997 to 2004, he was Director of Operations for Europe at Specialty Minerals Inc., a subsidiary of Minerals Technologies Inc. Mr. Arguin graduated with a B.Sc. in Chemical Engineering from the University of Sherbrooke (Canada) and also holds an Executive M.B.A. in Operations Management from the University of Western Ontario (Canada).

          Philippe Burton has been our Vice President, Human Resources since January 2011. From 2006 to 2010, Mr. Burton was the Managing Director, Human Resources at AVEOS Fleet Performance Inc., an aircraft maintenance, repair, and overhaul company. From 2001 to December 2005, he was Director, Human Resources of the Energy Group of General Electric Company. Mr. Burton has both a Bachelors degree and a Masters in Industrial Relations from the University of Montreal (Canada). He also holds a Master Certificate in Operational Management from York University (Canada).

          Marie-Hélène Labrie has been our Vice President, Government Affairs and Communications since May 2008. From February 2006 to May 2008, Ms. Labrie was a strategy and marketing consultant for Enerkem and other companies, including Delta Organization & Leadership LLC (a business unit of the management consulting firm Oliver Wyman), and Desjardins Financial Security (Desjardins Group's life and health insurance subsidiary). From 1997 to 2006, she worked at CAE Inc., a leading maker of flight simulators, where she held the position of Director of Marketing and Strategic Planning from 2002 to 2006. Ms. Labrie holds a Masters in International Business and a Bachelors degree in Business Administration from Université Laval (Canada).

          Jean-François Normand has been our Vice President, Project Management since February 2011. From 2004 to January 2011, Mr. Normand was a Director at Voith Hydro (previously Voith Siemens Hydro Power Generation, the joint venture of Voith GmbH and Siemens AG in the field of hydroelectric equipment), where he managed multiple hydroelectric projects and also launched its Canadian construction and field service department. From 1999 to 2004, Mr. Normand held various positions in the Transportation Industrial Aerospace divisions at Bombardier Inc., an aircraft and mass transportation equipment manufacturer. From 1991 to 1999, Mr. Normand held various positions at General Electric Company in the hydropower generation sector. Mr. Normand holds a B.Sc from École Polytechnique de Montréal (Canada) and is a member of the Quebec Order of Engineers.

          Vincent Chornet, our Chief Executive Officer and a member of our board of directors, is the son of Esteban Chornet, our Chief Technology Officer and a member of our board of directors. There are no other family relationships between any of our executive officers, key employees or directors.

Conflicts of Interest

          To the best of our knowledge, other than as disclosed under the sections titled "Risk Factors," "Certain Relationships and Related Person Transactions" and "Management — Executive Officers,

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Directors and Key Employees," there are no known existing or potential conflicts of interest among us and our directors, officers or other members of management as a result of their outside business interests.

Corporate Governance

Composition of our Board of Directors

          Our directors are elected at each annual general meeting of our shareholders and serve until their successors are elected or appointed, unless their office is earlier vacated. Upon the closing of this offering, our articles will provide that the number of directors may be between three and fifteen; provided that, between annual general meetings of our shareholders, the directors may appoint one or more additional directors, but the number of additional directors may not at any time exceed one-third of the number of directors who held office at the expiration of the last meeting of our shareholders. Under the CBCA, at least 25% of our directors must be resident Canadians.

          The election of our directors is governed by an amended and restated shareholders agreement, as amended, that we entered into in April 2011 with the holders of all of our shares. See the section titled "Description of Share Capital — Shareholders Agreement." Upon the closing of this offering, the shareholders agreement will automatically terminate and none of our shareholders will have any special rights regarding the election or designation of our board members.

Director Independence

          Under the NASDAQ listing standards and Canadian securities laws, independent directors must comprise a majority of a listed company's board of directors within a specified period after the closing of this offering.

          Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. For purposes of the NASDAQ rules, an independent director means a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. A director is considered to be independent for the purposes of Canadian securities laws if the director has no direct or indirect material relationship to the company. A material relationship is a relationship that could, in the view of the board of directors, be reasonably expected to interfere with the exercise of a director's independent judgment. Certain individuals, such as our employees and executive officers, are deemed by Canadian securities laws to have material relationships with us. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares by each non-employee director.

          Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that Messrs. Aitken, de Vries, MacDonald and Suslak, representing four of the eight members of our board of directors, are "independent" as that term is defined by the NASDAQ listing standards and Canadian securities laws. Each of Vincent Chornet and Dr. Esteban Chornet are not independent as they are executive officers of Enerkem. We intend to have a board of directors comprised of a majority of independent directors within twelve months of the date of this prospectus in compliance with the NASDAQ listing rules and Canadian securities laws.

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Mandate of the Board of Directors

          The mandate of our board of directors is to oversee corporate performance and to provide quality, depth and continuity of management so that we can meet our strategic objectives. In particular, our board of directors focuses its attention on the following key areas of responsibility:

    appointing and supervising the chief executive officer and other senior officers;

    supervising strategy implementation and performance;

    monitoring our financial performance and reporting;

    identifying and supervising the management of our principal business risks;

    monitoring our legal and ethical conduct;

    maintaining shareholder relations; and

    developing and supervising our governance strategy.

          The board of directors discharges many of its responsibilities through its standing committees: the audit committee and the compensation committee. Other committees may be formed periodically by our board of directors to address specific issues that are not on-going in nature. The duties and responsibilities delegated to each of the standing committees are prescribed in the respective charter of each standing committee.

Position Descriptions

          Our board of directors adopted a written position description for each of the Chief Executive Officer and the chair of each of the committees of the board of directors.

Board Committees

          Our board of directors has established an audit committee and a compensation committee. We currently do not plan to establish a nominating committee. The independent directors of our company will select and recommend to the board for nomination by the board such candidates as the independent directors, in the exercise of their judgment, have found to be well qualified and willing and available to serve as our directors prior to each annual meeting of our shareholders at which meeting directors are to be elected or re-elected. In addition, our board of directors has resolved that director nomination at any time be approved by a majority of the board as well as independent directors constituting a majority of the board's independent directors in a vote in which only independent directors participate. Our board of directors may establish other committees, including a nominating and corporate governance committee, to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee

          Our audit committee currently consists of Messrs. Aitken, de Vries and MacDonald, each of whom satisfies the independence requirements under the NASDAQ listing standards, Rule 10A-3(b)(1) of the Exchange Act and National Instrument 52-110 — Audit Committees. The chair of our audit committee is Mr. MacDonald, whom our board of directors has determined is an "audit committee financial expert" within the meaning of the SEC regulations. Each member of our audit committee can read and understand fundamental financial statements in accordance with NASDAQ Audit Committee requirements and is financially literate, as required by Canadian securities laws. In arriving at this determination, the board has examined each audit committee member's scope of experience and the nature of their employment in the corporate finance sector.

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          The functions of the audit committee, as set out in a written charter adopted by our board of directors, include:

    reviewing and pre-approving the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit services;

    evaluating the performance of our independent registered public accounting firm and deciding whether to retain their services;

    monitoring the rotation of partners of our independent registered public accounting firm on our engagement team as required by law;

    reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent registered public accounting firm and management; including a review of disclosures under the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations";

    considering and approving or disapproving of all related party transactions;

    reviewing, with our independent registered public accounting firm and management, significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the scope, adequacy and effectiveness of our financial controls;

    conducting an annual assessment of the performance of the audit committee and its members, and the adequacy of its charter; and

    establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters.

          Our Board of Directors has adopted a written charter for the audit committee that will be available on our website, http://www.enerkem.com, after the completion of this offering. The inclusion of our web site address in this prospectus does not include or incorporate by reference the information on our web site into this prospectus.

          Pre-Approval Policies and Procedures.    The audit committee has the sole authority to pre-approve all audit and permitted non-audit services provided by the independent registered public accounting firm. In addition, we have adopted an audit and non-audit services pre-approval policy which sets forth the procedures and conditions pursuant to which services proposed to be performed by our independent auditor must be pre-approved. The policy provides that before our independent registered public accounting firm may be engaged to render a service, the proposed services may be either pre-approved without consideration of specific case-by-case services by the audit committee; or require specific pre-approval of the committee. For both types of pre-approval, the audit committee will consider whether such services are consistent with SEC, Canadian securities regulators and the Public Company Accounting Oversight Board rules on auditor independence. The audit committee will also consider whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its understanding and knowledge of our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality.

          The audit committee will annually review and pre-approve the services that may be provided by the independent registered public accounting firm pursuant to the audit and non-audit services pre-approval policy. The audit committee may add to or delete from the list of pre-approved services from time to time, based on subsequent determinations.

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          Independent Auditor Service Fees.    KPMG LLP was appointed as our independent registered public accounting firm in February 2011. The aggregate fees that KPMG LLP has billed or is expected to bill for services related to the years ended December 31, 2010 and 2011 are C$301,127 and C$1,412,500, as detailed below.

 
  Year Ended
December 31,
 
 
 
2010
 
2011
 

Audit fees

  C$ 130,000   C$ 1,117,500 (1)

Audit-related fees

         

Tax fees

    103,491 (2)   215,000 (2)

All other fees

    67,636 (3)   80,000 (4)
           

Total

  C$ 301,127   C$ 1,412,500  
           

(1)
Relates to audit of financial statements and services in connection with the initial public offering.

(2)
Relates to Canadian and U.S. tax planning and compliance.

(3)
Relates to assistance to management for the preparation of a private placement memorandum, using data and information provided by management.

(4)
Relates to assistance with the translation of financial information into French.

Compensation Committee

          Our compensation committee consists of Messrs. Aitken, Ruch and Suslak. Our board of directors has determined that Messrs. Aitken and Suslak are independent under the NASDAQ listing standards and Canadian securities laws, is a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act and is an "outside director" as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended. The chairman of our compensation committee, Mr. Ruch, is not independent under the Nasdaq listing standards and Canadian securities laws, is not a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act and is not an "outside director" as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended. We intend to have a compensation committee solely comprised of independent directors within twelve months of the date of this prospectus.

          The functions of the compensation committee, as set forth in a written charter adopted by our board of directors, include:

    determining the compensation and other terms of employment of our chief executive officer and our other executive officers, and reviewing and approving corporate performance goals and objectives relevant to such compensation;

    reviewing and recommending to the full board of directors the compensation of our directors;

    evaluating, adopting and administering the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying or terminating existing plans and programs;

    establishing policies with respect to equity compensation arrangements;

    reviewing with management our disclosures under the section titled "Executive Compensation — Compensation Discussion and Analysis" and recommending to the full

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      board its inclusion in our periodic reports to be filed with the SEC and the applicable Canadian provincial securities commissions; and

    reviewing and evaluating, at least annually, the performance of the compensation committee and the adequacy of its charter.

          Our Board of Directors has adopted a written charter for the compensation committee that will be available on our website, http://www.enerkem.com, after the completion of this offering. The inclusion of our web site address in this prospectus does not include or incorporate by reference the information on our web site into this prospectus.

Code of Business Conduct and Ethics

          We have adopted a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), and directors. The full text of our Code of Business Conduct and Ethics will be posted on our web site at http://www.enerkem.com at the completion of this offering. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our web site identified above. The inclusion of our web site address in this prospectus does not include or incorporate by reference the information on our web site into this prospectus.

Orientation and Continuing Education

          Newly elected members of our board of directors will be provided with a director orientation session, and continuing directors will be provided opportunities for continuing education to become more knowledgeable about specific areas of importance to our operations and governance.

Compensation Committee Interlocks and Insider Participation

          Except for Mr. V. Chornet, who served on the compensation committee until November 2011, none of the members of the compensation committee is currently or has been at any time one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Director Compensation

          All members of our board of directors are reimbursed for reasonable expenses incurred in connection with attending board and committee meetings. The following table sets forth information

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regarding compensation earned by or paid to our non-employee directors during the year ended December 31, 2011.

Name
 
Fees Earned
or Paid
in Cash
 
Option
Awards(1)
 
Total
 

Bruce Aitken(2)

  C$ 15,000   C$ 307,499   C$ 322,499  

Tim Cesarek(3)

             

Anton de Vries(4)

  C$ 3,105       C$ 3,105  

Michael Dennis(5)

             

Larry A. MacDonald(6)

  C$ 4,125       C$ 4,125  

Joshua Ruch

             

Carl Rush(7)

             

Neil S. Suslak

             

(1)
Amounts in this column represent the full grant date fair value of options granted during 2011.

(2)
Mr. Aitken is paid an annual retainer of C$15,000, or C$3,750 per quarter, for his service on our board of directors. In June 2011, we granted Mr. Aitken an option under our stock option plan to purchase 5,408 common shares with an exercise price per share of C$6.00 and an expiration date of June 17, 2021.

(3)
Mr. Cesarek resigned as a member of our board of directors in December 2011.

(4)
Mr. de Vries joined our board of directors in October 2011. He is paid an annual retainer of C$15,000, or C$1,250 per month, for his service on our board of directors.

(5)
Mr. Dennis resigned as a member of our board of directors in August 2011.

(6)
Mr. MacDonald joined our board of directors in September 2011. He is paid an annual retainer of C$15,000, or C$1,250 per month, for his service on our board of directors.

(7)
Mr. Rush joined our board of directors in January 2012.

          In February 2012, our board approved a grant of 5,408 options for each of Messrs. de Vries and MacDonald, which grants will be made on the date that the registration statement, of which this prospectus forms a part, is declared effective, and shall have an exercise price equal to the public offering price. In addition, subsequent to this public offering, we intend to make equity grants to each of Messrs. Ruch, Rush and Suslak having a grant date fair value of $300,000.

          In February 2012, our board of directors adopted a policy regarding compensation for our non-employee directors. Under that policy, our non-employee directors will be entitled to receive an annual retainer of $25,000 plus annual payments, as follows, for serving in each of the following capacities:

Director Role
 
Annual Payment
 

Chair, audit committee

  $ 15,000  

Member, audit committee

    7,500  

Chair, compensation committee

    12,000  

Member, compensation committee

    5,000  

          In addition to cash compensation, we intend to grant to our non-employee directors options or other equity awards with a grant date fair value of $300,000 in the year of such director's election or appointment and $100,000 in each subsequent year.

          We do not have any service contracts with any of our non-employee directors that provide for benefits upon termination of their services.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

          This Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and the components of our executive compensation program. In addition, we explain how and why we arrived at specific compensation policies and decisions involving our named executive officers during 2011.

          Our named executive officers for 2011 were:

    Vincent Chornet, our President and Chief Executive Officer

    Patrice Ouimet, our Senior Vice President and Chief Financial Officer

    Dirk Andreas, our Senior Vice President of Business Development

    Jocelyn Auger, our Vice President and General Counsel

    Esteban Chornet, our Chief Technology Officer

          This Compensation Discussion and Analysis contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.

Executive Compensation Philosophy and Objectives

          We operate in a new and rapidly evolving industry sector. To achieve our business and financial objectives, we need to attract and retain a highly talented team of skilled employees. We believe in providing a total compensation package to our executive team through a combination of base salary, discretionary bonuses, equity compensation and severance and change in control benefits. Our executive compensation programs are designed to achieve the following objectives:

    attract, motivate and retain talented and experienced executive officers, whose knowledge, skills and performance are critical to our success;

    motivate these executive officers to achieve our strategic goals by aligning their compensation with our business and financial objectives;

    promote teamwork while also recognizing the role each executive plays in our success; and

    align the interests of our executive officers with those of our shareholders.

          We do not affirmatively set out in any given year, or with respect to any given compensation package for a new executive officer, an apportionment of compensation in any specific ratio between cash and equity, or between long-term and short-term compensation. Rather, total compensation may be weighted more heavily toward either cash or equity, or short-term or long-term compensation, as a result of the factors described below.

Compensation-Setting Process

          Role of Our Board and Our Compensation Committee.    During 2011, our board of directors had responsibility for overseeing our executive compensation program. The compensation committee, which was composed of Messrs. Ruch, Aitken (as of May 2011), Dennis (until September 2011), Suslak (since September 2011) and V. Chornet (until November 2011), generally met prior to meetings of the full board to discuss compensation matters, including compensation packages for new executive officers, discretionary bonuses and salary adjustments. The compensation committee shared its recommendations and decisions with the full board. Mr. V. and

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Dr. E. Chornet, as members of the board, attended meetings of our board and actively participated in determining our executive compensation philosophy, design and amounts, but each abstained from final decisions with respect to his own performance and compensation.

          During 2011, our board of directors, or our compensation committee, as applicable, considered one or more of the following factors when setting compensation for our named executive officers, as further explained in the discussion of each compensation element below:

    the experiences and individual knowledge of the members of our board of directors regarding executive compensation, without reference to compensation surveys, as we believe this approach helped us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure;

    the recommendations of our Chief Executive Officer;

    individual negotiations with executive officers, particularly in connection with their initial compensation package, as these executive officers have generally foregone meaningful compensation opportunities to work for us;

    corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives;

    the executive's existing equity award and share holdings;

    internal pay equity of the compensation paid to one executive officer as compared to another — that is, that the compensation paid to each executive should reflect the importance of his or her role to the company as compared to the roles of the other executive officers, while at the same time providing a certain amount of parity to promote teamwork; and

    the potential dilutive effect of new equity awards on our shareholders.

          Following this offering, we expect that our compensation committee may review and consider, in addition to the items above, factors such as the achievement of pre-defined milestones, tax deductibility of compensation, the total compensation that may become payable to executive officers in various hypothetical scenarios, the performance of our common shares and compensation levels at public peer companies.

          Role of Management.    In setting compensation for 2011, our Chief Executive Officer worked closely with members of our board in managing our executive compensation program, including reviewing existing compensation for adjustment (as needed), determining bonus payments and establishing new hire packages. No executive officer participated directly in the final determinations regarding the amount of any component of his or her own compensation package.

          Role of Our Compensation Consultant.    Prior to 2011, neither the Company nor the board had engaged a compensation consultant to provide guidance on executive compensation. In July 2011, our compensation committee retained Mercer LLC to assist the compensation committee in its deliberations on compensation payable to our executive officers and directors. Other than providing limited advice to our management team regarding the design of our newly-adopted broad-based equity compensation plans, Mercer does not provide any other services to management. While the Company pays the cost for Mercer's service, the compensation committee directs Mercer's services and has the power to terminate the relationship.

          The nature and scope of Mercer's services in 2011 included the following:

    working with management to provide recommendations to our compensation committee regarding the composition of our peer group of companies;

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    providing survey data and advice to our compensation committee regarding the compensation levels for similarly situated executive officers and for the board of directors at our peer group companies to be used for 2012 compensation decisions;

    providing advice regarding best practices and market trends in executive compensation;

    assisting with the design of our broad-based equity compensation program;

    preparing for and attending compensation committee meetings, as requested by our compensation committee; and

    working with our named executive officers and human resource personnel to obtain any information needed about us in order to provide its services.

          2012 Peer Group of Companies.    In July 2011, our Chief Executive Officer and our human resources team worked with Mercer and our compensation committee to determine a set of peer companies for purposes of making compensation decisions in 2012. The companies selected were comparable to us with respect to industry segment (that is, biotechnology and renewable energy), revenue level (that is, up to $250 million), and general stage of development. In August 2011, based on consultations with Mercer and the recommendations of our management, our compensation committee approved the following companies as our peer group of companies for purposes of determining 2012 compensation: Codexis, Inc., Amyris, Inc., Solazyme, Inc., Gevo, Inc., Ceres, Inc., KiOR, Inc., Rentech, Inc., FuelCell Energy, Inc., Verenium Corporation, Boralex, Inc. and Innergex Renewable Energy, Inc.

          Benchmarking/Creation of Peer Group.    Prior to this offering, we have not utilized a peer group of companies in setting compensation or benchmarked our executive compensation to a specific level. Instead, we relied heavily on the reasonable business judgment of our board members and executive officers, and negotiations with the new hire candidates, in determining compensation levels that would allow us to compete in hiring and retaining the best possible talent. As noted above, in 2011, our compensation committee approved a set of peer companies for use in making compensation decisions in 2012. However, as of the date of this filing, our compensation committee has not considered peer data in respect of 2011 compensation decisions, and has not established any specific level at which compensation may be targeted, as compared to peer companies, in 2012.

Executive Compensation Program Components

          Base Salary.    We provide base salary as a fixed source of compensation for our executive officers that is not contingent upon short-term variations in our corporate performance, allowing the executive officers a degree of certainty in the context of working for a privately-held company and having a meaningful portion of their compensation "at risk" in the form of cash-based incentive compensation and equity awards relating to the shares of a private company. Our board of directors recognizes the importance of base salaries as an element of compensation that helps to attract highly qualified executive talent. Our board does not apply specific formulas in determining base salaries. Base salaries for our executive officers were established primarily based on individual negotiations with the executive officers when they joined us and reflect the scope of their anticipated responsibilities, the individual experience they bring, the board members' experiences and knowledge in compensating similarly situated individuals at other companies, our then-current cash constraints and a general sense of internal pay equity among our executive officers.

          In determining base salaries for 2011, the board considered the recommendations of the compensation committee, the scope of the executive's anticipated responsibilities, the independent

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judgment of the directors in compensating similarly situated individuals at other companies and our budget for salary adjustments.

Name
 
2010 Salary
 
2011 Salary
 
% Increase
 

Vincent Chornet

  C$                             262,500   C$                             285,000     8.6 %

Patrice Ouimet

  C$ 220,000   C$ 230,000     4.5 %

Dirk Andreas

  US$ 240,000   US$ 240,000      

Jocelyn Auger

  C$ 200,000</