ITEM 1.   DESCRIPTION OF BUSINESS

 

Background

 

We were formed on February 21, 2001 under the laws of the State of Delaware.

 

On May 10, 2001, we entered into a letter of intent with Tri-Corp. Enterprises Ltd., or Tri-Corp, a privately-held corporation located in British Columbia, Canada, to jointly develop Gateway Falls R.V. Estates, a recreational vehicle community located on Shuswap Lake near Lee Creek, British Columbia, Canada. Under the terms of the agreement with Tri-Corp, we agreed to forward CDN$1,500,000.00 to the joint venture for the purpose of providing clear title to the development property and for use in the development of property infrastructure. We abandoned this business plan in 2001 due to the British Columbia Financial Institutions Commission's issuance of an order preventing the sale of the recreational vehicle sites.

 

On March 6, 2002, we entered into an option agreement to acquire an interest in the Manchester South Property, a mineral claim located in the Sudbury Mining Division of Ontario, Canada. The agreement, as amended on October 8, 2003, was between us and Terry Loney, doing business as Klondike Bay Resources. Our objective was to conduct mineral exploration activities on the Manchester South Property in order to assess whether the claim possessed commercially exploitable reserves of copper and/or nickel.

 

Under the terms of the option agreement, we would have been deemed to have exercised the option to acquire a 90% interest in the Manchester South Property when we had:

 

 

 

 

 

Due to our inability to raise sufficient funds to meet the exploration expenditure requirements of the option agreement with Klondike Bay Resources, we were unable to exercise the option and our right to acquire an interest in the Manchester South Property was terminated.

 

On December 29, 2006, we entered into a reorganization agreement with Thatcher Mining Pte Ltd., or Thatcher, a privately-held corporation formed on June 6, 2006 under the laws of Singapore. Thatcher was formed to conduct mining, quarrying and prospecting services and to engage in wholesale and retail sales of certain commodities.

 

Under the terms of the reorganization agreement, we agreed to acquire all of the issued and outstanding shares of Thatcher in exchange for 32,000,000 shares of our common stock. Upon closing the transactions contemplated by the reorganization agreement, we also agreed to make a cash payment of $10,000 to the former shareholders of Thatcher and to execute a royalty agreement pursuant to which we agreed to pay the former shareholders of Thatcher a royalty of $0.40 per metric ton of coal sold by us. We completed the transactions contemplated by the reorganization agreement on February 9, 2007 and, thereafter, Thatcher became our wholly-owned subsidiary.

 

 

We formed PT Kubar Resources, or Kubar, a limited liability foreign investment (PMA) company under the laws of the Republic of Indonesia on April 12, 2007, and completed its registration on June 6, 2007. Kubar will be our operating company for Indonesia.

 

On September 12, 2007, we acquired Finchley Resources Pte. Ltd., or Finchley, by assuming its liabilities and expenses, via a transfer of stock from its sole owner. Finchley is a corporation that was formed under the laws of the Republic of Singapore on August 13, 2007. The only expenditures incurred by Finchley were those in association with its formation. We assumed a total of $209 in liabilities from this transaction.

 

We now carry on the business of Thatcher as our sole line of business and all of our operations are conducted by and through Thatcher or its subsidiaries. All references to the “Company,” “we,” “our” and “us” for periods prior to the closing of the reorganization transaction refer to KAL Energy, and references to the “Company,” “we,” “our” and “us” for periods subsequent to the closing of the reorganization transaction refer to the KAL Energy and its subsidiaries.

 

Current Activities

 

Our business plan is to engage in the exploration, extraction and distribution of coal. We are currently considered to be an exploration stage corporation because we are engaged in the search for coal deposits and are not engaged in the exploitation of a coal deposit. We have not engaged in the preparation of an established commercially mineable coal deposit for extraction or in the exploitation of a coal deposit. We will be in the exploration stage until we discover commercially viable coal deposits on one of our properties, if ever. In an exploration stage company, management devotes most of its activities to acquiring and exploring mineral properties.

 

We have the rights to two large coal concessions situated near the Mahakam River in North Eastern Kalimantan, Indonesia. Further exploration will be required before a final evaluation as to the economic feasibility of coal extraction on these properties can be determined. We have completed phase 1 drilling and obtained a Joint Ore Reserves Committee, or JORC, compliant resource measurement on one of the properties and require additional work to determine the economic viability of the deposit. The result of the programme is an inferred resource of 204 million tons of thermal coal. See item 2 for a further description of the results of the phase I programme.

 

There is no assurance that a commercially viable coal deposit exists on the unexplored portion of either of our current properties. Furthermore, there is no assurance that we will be able to successfully develop our current properties or identify, acquire or develop other coal properties that would allow us to profitably extract and distribute coal and to emerge from the exploration stage.

 

Products

 

Coal is a combustible, sedimentary, organic rock, which is composed mainly of carbon, hydrogen and oxygen. Coal goes through the process of coalification as it matures, affecting its chemical and physical properties. There are various grades of coal, ranging from low rank coals ( lignite & sub -bituminous) to hard coals ( bituminous & anthracite). Bituminous coal is used as either thermal coal or coking coal, depending on its properties. The properties of the coal determine its value in the market, and include but are not limited to calorific value, sulphur, moisture and ash content.

 

In the event that our coal concessions are found to contain commercially viable coal deposits, they are expected to yield thermal coal , which is primarily used for power generation and industrial uses. According to the World Coal Institute, or the WCI, coal accounts for approximately 39% of the world’s electricity production. Coal is a lower cost fossil fuel, helping it maintain this sizable share of energy consumption. Coal is also used for iron, steel and cement manufacture.

 

International Coal Market

 

According to the WCI, the international coal market is led by the world’s top five national producers: China, United States, India, Russia and Australia, and 16% of global hard coal production, or approximately 775 million tons , is traded internationally. The WCI also estimates that the amount of seaborne traded steam coal has increased by an average of approximately 7% per year over the past 20 years and, according to the WCI, the Pacific Rim market currently accounts for approximately 57% of the total amount of steam coal traded annually. Thermal coal is the largest contributor of this trade and Indonesia is currently the number two world exporter of thermal coal.  

 

 

According to the WCI, Asia is the largest consumer of coal, accounting for approximately 54% of the total global consumption of coal , and China is the leading user of coal in the region. The Energy Information Association, or the EIA , estimates that the world coal trade should reach approximately 901 million tons by 2015, and 1,122 million tons by 2030. EIA estimates that world coal consumption will grow 74% from 2004 to 2030 and that coal’s share of energy consumption will grow from 24% to 28% from 2004 to 2030. During that period, the EIA estimates that China’s coal consumption will double from 2004 to 2015 and triple from 2004 to 2030, with 50%-60% used in electricity production and close to 40% in industrial uses. The EIA further estimates that total coal imports in Asia should increase from under 200 million tons in 2004 to approximately 500 million tons in   2030. According to Platts, the energy information division of McGraw-Hill, power generation is expected to increase in China and India, with the addition of 562 and 213 coal fired power plants from 2004-2012, respectively.

 

The WCI estimates that global coal demand is expected to grow by 60% through 2030, pushing electrification rates from 66% in 2002 to 78% in 2030. The WCI further estimates that coal supplies 49% to 72% of the energy production in Asian markets. The price of coal as compared to natural gas and oil drives that increased use in the region.

 

Employees

 

As of May 31, 2008, we employed 32 people, each on a full-time basis. To the best of our knowledge, we are compliant with local prevailing wage, contractor licensing and insurance regulations, and have good relations with our employees.

 

Filing Status

 

We file periodic reports, current reports, proxy and information statements and other information with the Securities and Exchange Commission, or the Commission. We make available free of charge on our website, www.kalenergyinc.com , our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, proxy and information statements and amendments to those reports and statements as soon as reasonably practicable after we electronically file such materials with or furnish them to the Commission. You may read and copy any materials we file with the Commission at its Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet website, www.sec.gov, that contains our periodic reports, current reports, proxy and information statements, and other information regarding us that we file electronically with the Commission.

 

Risk Factors

 

The following risks could affect our business, financial results and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-KSB because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements.

 

Risks Related to Us

 

We are in the exploration stage and have yet to establish our mining operations, which makes it difficult to evaluate our business. There can be no assurance that we will ever generate revenues from operations or ever operate profitably.

 

We are currently in the exploration stage and have yet to establish our mining operations. Our limited history makes it difficult for potential investors to evaluate our business. We need to complete a drilling program and obtain feasibility studies on the properties in which we have an interest in order to establish the existence of commercially viable coal deposits and proven and probable reserves on such properties. Therefore, our proposed operations are subject to all of the risks inherent in the unforeseen costs and expenses, challenges, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the coal industry in general. Despite our best efforts, we may never overcome these obstacles to financial success. There can be no assurance that our efforts will be successful or result in revenue or profit, or that investors will not lose their entire investment.

   

 

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Our future success depends upon our ability to acquire and develop coal reserves that are economically recoverable and to raise the capital necessary to fund mining operations.

 

Our future success depends upon our conducting successful exploration and development activities and acquiring properties containing economically recoverable coal deposits. In addition, we must also generate enough capital, either through our operations or through outside financing, to mine these reserves. Our current strategy includes completion of exploration activities on our current properties and, in the event we are able to establish the existence of commercially viable coal deposits on such properties, continuing to develop our existing properties. Our ability to develop our existing properties and to commence mining operations will depend on our ability to obtain sufficient working capital through financing activities.  

 

Our ability to implement our planned development and exploration projects is dependent on many factors, including the ability to receive various governmental permits.

 

In the event our planned exploration activities confirm the existence of significant coal deposits on our properties, we will then be required to renew our rights in the properties in order to continue with development and mining operations. This may include renewing the existing exploration Kuasa Pertambangan, or KP, on each property, or applying for exploitation KP’s in order to have the right to commence mining operations. We currently intend to maintain interests in the properties described herein by making timely application for renewal of the existing KP’s or by filing applications to obtain the required forms of KP to commence exploitation of the properties. Although we believe that absent unusual circumstances, such as failure to pay rent or fees or the existence of excessive environmental damage, it is common practice for the Indonesian government to approve requests for issuance or renewal of KP’s, there can be no assurance that our applications will be approved. In the event our applications are not approved, we will no longer have any interest in the properties and will be unable to continue with exploration, development or exploitation of those properties.  We would be required to resubmit applications or look for other properties to explore, involving additional time and capital. Additionally, the GPK property requires an additional permit from the Forestry department before Phase II can proceed. We are in the process of obtaining this permit.

 

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The coal industry is highly competitive and includes many large national and international resource companies. There is no assurance that we will be able to effectively compete in this industry and our failure to compete effectively could cause our business to fail or could reduce our revenue and margins and prevent us from achieving profitability.

 

In the event we are able to produce coal, we will be in competition for sale of our coal with numerous large producers and hundreds of small producers who operate globally. The markets in which we may seek to sell our coal are highly competitive and are affected by factors beyond our control. There is no assurance of demand for any coal we are able to produce, and the prices that we may be able to obtain will depend primarily on global coal consumption patterns, which in turn are affected by the demand for electricity, coal transportation costs, environmental and other governmental regulations and orders, technological developments and the availability and price of competing alternative energy sources such as oil, natural gas, nuclear energy and hydroelectric energy. In addition, during the mid-1970s and early 1980s, a growing coal market and increased demand for coal attracted new investors to the coal industry and spurred the development of new mines and added production capacity throughout the industry. Although demand for coal has grown over the recent past, the industry has since been faced with overcapacity, which in turn has increased competition and lowered prevailing coal prices. Moreover, because of greater competition for electricity and increased pressure from customers and regulators to lower electricity prices, public utilities are lowering fuel costs and requiring competitive prices on their purchases of coal. Accordingly, there is no assurance that we will be able to produce coal at competitive prices or that we will be able to sell any coal we produce for a profit. Our inability to compete effectively in the global market for coal would cause our business to fail.

 

Our inability to diversify our operations may subject us to economic fluctuations within our industry.

 

Our limited financial resources reduce the likelihood that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one business area will subject us to economic fluctuations within the coal industry and therefore increase the risks associated with our operations.

 

We rely heavily on our senior management, the loss of which could have a material adverse effect on our business.

 

Our future success is dependent on having capable seasoned executives with the necessary business knowledge and relationships to execute our business plan. Accordingly, the services of our management team, specifically, William Bloking, our President and the Chairman of our board of directors, and Jorge Nigaglioni, our Chief Financial Officer, who serves pursuant to an employment agreement, and our board of directors are deemed essential to maintaining the continuity of our operations. If we were to lose their services, our business could be materially adversely affected. Our performance will also depend on our ability to find, hire, train, motivate and retain other executive officers and key employees, of which there can be no assurance.

 

 

Because our assets and operations are located outside the United States and a majority of our officers and directors are non-United States citizens living outside of the United States, investors may experience difficulties in attempting to enforce judgments based upon United States federal securities laws against us and our directors. United States laws and/or judgments might not be enforced against us in foreign jurisdictions.

 

All of our operations are conducted through a subsidiary corporation organized and located outside of the United States, and all of the assets of such subsidiary corporation are located outside the United States. In addition, all of our officers and directors, other than William Bloking, our President and Chairman of our board of directors and Jorge Nigaglioni, our Chief Financial Officer, are foreign citizens. As a result, it may be difficult or impossible for United States investors to enforce judgments of United States courts for civil liabilities against us or against any of our individual directors or officers. In addition, United States investors should not assume that courts in the countries in which our subsidiary is incorporated or where the assets of our subsidiary are located would enforce judgments of United States courts obtained in actions against us or our subsidiary based upon the civil liability provisions of applicable United States federal and state securities laws or would enforce, in original actions, liabilities against us or our subsidiary based upon these laws.

 

Risks Related to the Coal Business

 

The international coal industry is highly cyclical, which will subject us to fluctuations in prices for any coal we produce.

 

In the event we are able to produce coal, we will be exposed to swings in the demand for coal, which will have an impact on the prices for our coal. The demand for coal products and, thus, the financial condition and results of operations of companies in the coal industry, including us, are generally affected by macroeconomic fluctuations in the world economy and the domestic and international demand for energy. In recent years, the price of coal has been at historically high levels, but these price levels may not continue. Any material decrease in demand for coal could have a material adverse effect on our operations and profitability.

 

The price of coal is driven by the global market. It is affected by changing requirements of customers based on their needs and the price of alternative sources of energy such as natural gas and oil .

 

In the event that we are able to begin producing coal, our success will depend upon maintaining a consistent margin on our coal sales to pay our costs of mining and capital expenditures. We intend to seek to control our costs of operations, but pressures by government policies and the price of substitutes could drive the price of coal down to make it unprofitable for us. The price of coal is controlled by the global market and we will be dependent on both economic and government policies to maintain the price above our future cost structure.

 

Logistics costs could increase and limit our ability to sell coal to end customers economically .

 

Logistics costs represent a significant portion of the total cost of coal and, as a result, the cost of transportation is a critical factor in a customer’s purchasing decision. Increases in transportation costs could make coal a less competitive source of energy or could make some of our operations less competitive than other sources of coal. Our future coal production, if any, will depend upon barge, trucking, pipeline and ocean-going vessels to deliver coal to markets. While coal customers typically arrange and pay for transportation of coal from the mine or port to the point of use, disruption of these transportation services because of weather-related problems, infrastructure damage, capacity restraints, strikes, lock-outs, lack of fuel or maintenance items, transportation delays or other events could temporarily impair our ability to supply coal to our customers and thus could adversely affect our results of operations.  

 

Operating a mine has hazardous risks that can delay and increase the costs of production .

 

Our mining operations, if any, will be subject to conditions that can impact the safety of the workforce, or delay production and deliveries or increase the full cost of mining. These conditions include fires and explosions from methane gas or coal dust; accidental discharges; weather, flooding and natural disasters; unexpected maintenance problems; key equipment failures; variations in coal seam thickness; variations in the amount of rock and soil overlying the coal deposit; variations in rock and other natural materials and variations in geologic conditions. Despite our efforts, once operational, significant mine accidents could occur and have a substantial impact.

 

 

A shortage of skilled labor in the mining industry could pose a risk to achieving optimal labor productivity and competitive costs, which could adversely affect our profitability.

 

Efficient coal mining using modern techniques and equipment requires skilled laborers, preferably with at least a year of experience and proficiency in multiple mining tasks. In order to support our planned production opportunities, we intend to sponsor both in-house and vocational coal mining programs at the local level in order to train additional skilled laborers. In the event the shortage of experienced labor continues or worsens or we are unable to train the necessary amount of skilled laborers, there could be an adverse impact on our future labor productivity and costs and our ability to commence production and therefore have a material adverse effect on our earnings.

 

The coal industry could have overcapacity which would affect the price of coal and in turn, would impact our ability to realize a profit from future coal sales.

 

Current prices of alternative fuels such as oil are at high levels, spurring demand and investment in coal. This can lead to over investment and over capacity in the sector, dropping the price of coal to unprofitable levels. Such an occurrence would adversely affect our ability to commence mining operations or to realize a profit from any future coal sales we may seek to make.

 

Environmental pressures could increase and accelerate requirements for cleaner coal or coal processing.

 

Environmental pressures could drive potential purchasers of coal to either push the price of coal down in order to compete in the energy market or move to alternative energy supplies therefore reducing demand for coal. Requirements to have cleaner mining operations could lead to higher costs for us which could hamper our ability to make future sales at a profitable level. Coal plants emit carbon dioxide, sulfur and nitrate particles to the air. Various countries have imposed cleaner air legislations in order to minimize those emissions. Some technologies are available to do so, but also increase the price of energy derived by coal. Such an increase will drive customers to make a choice on whether or not to use coal as their driver for energy production.

   

Risks Related to Doing Business in Indonesia

 

We face the risk that changes in the policies of the Indonesian government could have a significant impact upon the business we may be able to conduct in Indonesia and the profitability of such business .

 

Indonesia’s economy as it relates to coal is in a transition. Indonesia has recently reduced taxation on the import of mining equipment and on the export of coal. Those changes make doing business in Indonesia more favorable, but such regulations can change in the future, and could have the effect of limiting the financial viability of our operations. Other-in country regulations could increase costs of operations, limit export quotas or net trade.

 

Inflation in Indonesia could negatively affect our profitability and growth .

 

Indonesia’s rapid climb amongst the world exporters of coal can drive increased competition and access to resources can lead to higher costs. Indonesia has kept inflation in the 6% range per annum, but constant interest rate cuts by the central bank to spur investment can lead to quicker inflation hikes. We will monitor inflation and adjust cost structures as necessary, but market pressures on resources could possibly result in operating delays.

 

 

We may experience currency fluctuation and longer exchange rate payment cycles .

 

The local currencies in the countries in which we intend to seek to sell our products may fluctuate in value in relation to other currencies. Such fluctuations may affect the cost of our product sold and the value of our local currency profits. While we are not conducting any operations in countries other than Indonesia at the present time, we may expand to other countries and may then have an increased risk of exposure of our business to currency fluctuation.

 

Terrorist threats and civil unrest in Indonesia may negatively affect our business, financial condition and results of operations.

 

Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and market liquidity, which can decline as a result of numerous factors outside of our control,  such as terrorist attacks and acts of war. Our business also may be affected by civil unrest and individuals who engage in activities intended to disrupt our business operations. Future terrorist attacks against Indonesia or the interests of the United Kingdom or other Western nations in Indonesia, rumors or threats of war, actual conflicts involving Indonesia, the United Kingdom, or their allies, or military or trade disruptions affecting our customers may materially adversely affect our operations. As a result, there could be delays or losses in future transportation and deliveries of coal to our customers, decreased future sales of our coal and extension of time for payment of accounts receivable from our customers. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in Indonesia. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any, or a combination, of these occurrences could have a material adverse effect on our business, financial condition and results of operations.

 

Environmental disasters like earthquakes and tsunamis in Indonesia may negatively affect our business, financial condition and results of operations .

 

The coal concessions which we intend to operate in Indonesia are subject to natural disasters that can delay our drilling efforts to get certified measurements of the properties coal reserves, destroy infrastructure required for production and create delays in delivering product to our end customers. These impacts will require us to adjust our operations and may be financially detrimental to our success.

 

Risks Relating to Public Company Compliance Requirements

 

Public company compliance may make it more difficult to attract and retain officers and directors .

 

The Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the Securities and Exchange Commission, or the Commission, have required changes in corporate governance practices of public companies. As a public entity, we expect these new rules and regulations to increase compliance costs and to make certain activities more time consuming and costly. As a public entity, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve as directors or as executive officers.

 

 

Risks Relating to Our Common Stock

 

Our stock price may be volatile .

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

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technological innovations or new products and services by us or our competitors;

 

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additions or departures of key personnel;

 

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limited “public float” following the reorganization transaction, in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for the common stock;

 

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our ability to execute our business plan;

 

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operating results that fall below expectations;

 

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loss of any strategic relationship;

 

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industry developments;

 

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economic and other external factors; and

 

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period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

There is currently no liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained .

 

Our common stock is currently approved for quotation on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc., or the OTC Bulletin Board, trading under the symbol “KALG.OB.” However, there is limited trading activity and not currently a liquid trading market. There is no assurance as to when or whether a liquid trading market will develop, and if such a market does develop, there is no assurance that it will be maintained. Furthermore, for companies whose securities are quoted on the OTC Bulletin Board, it is more difficult to obtain accurate quotations, to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and to obtain needed capital. As a result, purchasers of our common stock may have difficulty selling their shares in the public market, and the market price may be subject to significant volatility.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline or could affect our ability to raise additional working capital .  

 

If our current stockholders seek to sell substantial amounts of common stock in the public market either upon expiration of any required holding period under Rule 144 or pursuant to an effective registration statement, it could create a circumstance commonly referred to as “overhang,” in anticipation of which the market price of our common stock could fall substantially. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing in the future through sale of securities at a time and price that we deem acceptable.

 

 

Our common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares .

 

Our common stock is currently subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act or 1934, as amended, or the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the Nasdaq Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

 

The elimination of monetary liability against our directors, officers and employees under Delaware law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees .

 

Our certificate of incorporation, as amended, does not contain any specific provisions that eliminate the liability of our directors for monetary damages to us and our stockholders. However, we are prepared to give such indemnification to our directors and officers to the fullest extent provided by Delaware law. We may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.