As filed
with the Securities and Exchange Commission on June 21,
2011
Registration
No. 333-173440
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 5
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KiOR, Inc.
(Exact name of registrant as
specified in charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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2860
(Primary Standard
Industrial
Classification Code Number)
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51-0652233
(I.R.S. Employer
Identification Number)
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13001 Bay Park Road
Pasadena, Texas 77507
(281) 694-8700
(Address, including zip
code, and telephone number, including area code, of
registrants principal executive offices)
Christopher A. Artzer
Vice President, General Counsel and Secretary
13001 Bay Park Road
Pasadena, Texas 77507
(281) 694-8700
(Address, including zip
code, and telephone number, including area code, of agent for
service)
With a copy to:
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Felix P. Phillips
Troy S. Lee
Baker Botts L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas
77002-4995
(713) 229-1234
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Andrew S. Williamson
Latham & Watkins LLP
140 Scott Drive
Menlo Park, California 94025
(650) 328-4600
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Approximate date of commencement of proposed sale to the
public: As soon as practicable on or after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Amount to be
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Offering Price Per
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Proposed Maximum Aggregate
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Amount of
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Securities to be Registered
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Registered(1)
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Share(2)
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Offering Price(1)(2)
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Registration Fee(3)
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Class A common stock, par value $0.0001 per share
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11,500,000
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$
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21.00
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241,500,000
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$
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28,039
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(1) |
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Includes 1,500,000 shares of Class A common stock
issuable upon exercise of the underwriters option to
purchase additional shares to cover over-allotments, if any. |
(2) |
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(a) under the Securities Act of
1933. |
(3) |
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$28,039 previously paid. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED JUNE 21, 2011
10,000,000 Shares
Class A
Common Stock
Prior to this
offering, there has been no public market for KiOR, Inc.
Class A common stock. We anticipate that the initial public
offering price will be between $19.00 and $21.00 per share. We
have applied to list our Class A common stock on The Nasdaq
Global Market under the symbol KIOR.
Upon completion of
this offering, we will have two classes of authorized common
stock: Class A common stock and Class B common stock.
The rights of the holders of our Class A common stock and
our Class B common stock are identical, except with respect
to voting and conversion. Each share of our Class A common
stock is entitled to one vote per share and will not convert
into any other shares of our capital stock. Each share of our
Class B common stock is entitled to 10 votes per share and
will convert into one share of our Class A common stock
upon the occurrence of specified events. Please read
Description of Capital Stock Common
Stock Conversion.
Entities affiliated
with Khosla Ventures and Artis Capital Management, L.P., two of
our principal stockholders, have indicated an interest in
purchasing shares of our Class A common stock in this
offering at the initial public offering price up to an aggregate
of 3,500,000 shares. Because this indication of interest is
not a binding agreement or commitment to purchase, these
existing investors may elect not to purchase shares in this
offering. The underwriters will receive the same discount from
any shares of our Class A common stock purchased by these
existing investors as they will from any other shares of our
Class A common stock sold to the public in this offering.
Entities affiliated
with Khosla Ventures will, following the completion of this
offering and assuming the purchase of 3,500,000 shares of
our Class A common stock that may be acquired by them in
this offering, own shares of our Class A common stock and
Class B common stock representing approximately 72% of the
combined voting power of our outstanding common stock. Khosla
Ventures II, L.P. has agreed not to sell any of the
46,259,738 shares of our common stock that it beneficially
owns, representing approximately 47% of our outstanding common
stock immediately prior to this offering, for a period of
360 days after the date of this prospectus.
We are selling
10,000,000 shares of our Class A common stock through
the underwriters.
The underwriters
have an option to purchase a maximum of 1,500,000 additional
shares to cover over-allotments of shares, if any.
Investing in our
Class A common stock involves risks. Please read Risk
Factors on page 13.
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Public
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Commissions
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KiOR
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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Delivery of the
shares of Class A common stock will be made on or
about ,
2011.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Credit
Suisse |
UBS Investment Bank |
Goldman, Sachs & Co. |
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Piper
Jaffray |
Citi |
Deutsche Bank Securities |
The date of this
prospectus
is ,
2011.
TABLE OF
CONTENTS
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Page
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1
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13
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32
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33
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F-1
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You should rely only on the information contained in this
prospectus. We and the underwriters have not authorized anyone
to provide you with information different from that contained in
this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions
where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date on the front
cover of this prospectus, or such other dates as are stated in
this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our Class A common stock.
i
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. You should read the following summary together
with the more detailed information appearing in this prospectus,
including Risk Factors, Selected Consolidated
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Business and our consolidated financial statements
and related notes before deciding whether to purchase shares of
our Class A common stock. Unless the context otherwise
requires, the terms KiOR, the Company,
we, us and our in this
prospectus refer to KiOR, Inc. and its subsidiaries.
Overview
We are a next-generation renewable fuels company.
Our mission is to produce renewable fuels in a profitable yet
sustainable manner. We strive to achieve net environmental and
social benefits by achieving a negative carbon footprint,
responsibly managing our land use and water resources, and
preserving our forests and food sources, while promoting energy
independence, job creation and community investment. Our
strategy is generally predicated on feedstock sources consisting
of unirrigated crops that can be harvested on a sustainable
basis on non-food or degraded lands in rural areas where our
investment will result in welcomed new jobs and economic
revitalization.
We have developed a proprietary technology platform to convert
low-cost, abundant and sustainable non-food biomass into
hydrocarbon-based oil. We process our renewable crude oil using
standard refinery equipment into gasoline and diesel blendstocks
that can be transported using the existing fuels distribution
system for use in vehicles on the road today. According to a
February 2011 analysis performed by TIAX LLC, a leading
technology processing and commercialization company, using data
we provided, gasoline and diesel blendstocks produced from our
proprietary biomass fluid catalytic cracking, or BFCC, process
in our planned commercial production facilities are projected to
reduce direct lifecycle greenhouse gas emissions by over 80%
compared to the petroleum-based fuels they displace.
We are fundamentally different from traditional oil and biofuels
companies. Unlike traditional oil companies, we generate
hydrocarbons from renewable sources rather than depleting fossil
fuel reserves. At the same time, we differ from most traditional
biofuels companies because our end products are fungible
gasoline and diesel blendstocks rather than alcohols or fatty
acid methyl esters, or FAME, such as ethanol or biodiesel. As
compared to ethanol, the energy density of one gallon of our
renewable blendstocks equates to 1.7 gallons of ethanol
equivalent. While we are a development stage company that has
not generated any revenue and has experienced net losses since
inception, through our proprietary technology platform, we
expect to provide new domestic sources of liquid transportation
fuels sustainably using a variety of
renewable natural resources to help further energy independence
and reduce greenhouse gas emissions.
Based on the technological and operational milestones we have
achieved to date, we believe that when we are able to commence
commercial production at our planned first standard commercial
production facility, primarily using Southern Yellow Pine whole
tree chips, we will be able to produce gasoline and diesel
blendstocks without government subsidies on a cost-competitive
basis with petroleum-based blendstocks produced from various
crude oil resources on- and offshore worldwide at current
pricing. Our proprietary catalyst systems, reactor design and
refining processes have achieved yields of renewable fuel
products of approximately 67 gallons per bone dry ton of
biomass, or BDT, in our demonstration unit that we believe would
allow us to produce gasoline and diesel blendstocks today at a
per-unit
unsubsidized production cost below $1.80 per gallon, if produced
in a standard commercial production facility with a feedstock
processing capacity of 1,500 BDT per day. This unsubsidized
production cost equates to less than $550 per metric ton,
$0.50 per liter and $1.10 per gallon of ethanol
equivalent. This
per-unit
cost assumes a price of $72.30 per BDT for Southern Yellow
Pine clean chip mill chips and anticipated operating expenses at
the increased scale and excludes cost of financing and facility
depreciation. Over time, we expect to improve our overall
process yield by enhancing our technology and to significantly
reduce our feedstock costs by using lower grade chips, logging
residues, branches and bark and lower our operating expenses
through various initiatives. For the month of May 2011, the
average U.S. Gulf Coast spot prices for conventional gasoline
and
ultra-low
sulfur
1
diesel were $3.024 and $3.001 per gallon, respectively.
For the month of May 2011, market prices for corn ethanol,
biodiesel and sugarcane ethanol were $2.587, $5.148 and $3.889
per gallon, respectively.
We believe that the solution to the worlds growing
transportation fuel demands must be:
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Real. Our technology produces high-quality
hydrocarbon blendstocks that we believe will drop in
to the existing transportation fuels infrastructure for use in
vehicles on the road today. Our fuels are not ethanol or FAME
diesel. Unlike ethanol, which is generally subject to a 10% to
15% blend wall, we believe that our gasoline and diesel
blendstocks can be used as components in formulating a variety
of fuel products meeting specifications of ASTM International
for finished gasoline and diesel derived from petroleum-based
blendstocks.
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Renewable. Our proprietary technology platform
allows us to convert a variety of low-cost, abundant and
sustainable non-food biomass, including woody biomass, such as
whole tree chips, logging residues, branches and bark,
agricultural residues, such as sugarcane bagasse, and energy
crops, such as switchgrass and miscanthus, into renewable
transportation fuels that we believe will help to satisfy
mandates under the Renewable Fuel Standard program, or RFS2.
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Rural. We plan to locate our commercial
production facilities in rural areas near sources of low-cost,
abundant and sustainable
non-food
biomass, which we believe will help revitalize rural communities
impacted by closed paper mills.
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Repeatable. We plan to employ a copy
exact modular design for our standard commercial
production facilities that can be replicated in numerous
locations with abundant and sustainable non-food feedstock in
the southeastern United States and beyond, which we believe will
help us reduce our capital costs. After we commercialize our
technology, our repeatable renewable crude oil production
process will effectively eliminate the exploration risk
experienced by traditional exploration and production companies.
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We expect that our renewable fuels will offer several
environmental benefits compared to traditional petroleum-based
fuels. According to a February 2011 analysis performed by TIAX
LLC using data we provided, gasoline and diesel blendstocks
produced from our proprietary BFCC process in our planned
commercial production facilities are projected to reduce direct
lifecycle greenhouse gas emissions by over 80% compared to the
fuels they displace. In addition, we are designing our planned
standard commercial production facilities to meet the criteria
for minor sources under the Clean Air Act.
Under RFS2, a renewable fuel must reduce direct lifecycle
greenhouse gas emissions by at least 20%, an advanced biofuel
must reduce lifecycle greenhouse gas emissions by at least 50%,
a biomass-based diesel must reduce lifecycle greenhouse gas
emissions by at least 50% and a cellulosic biofuel must reduce
lifecycle greenhouse gas emissions by at least 60%. Under the
Argonne National Laboratorys Greenhouse Gases, Regulated
Emissions and Energy Use in Transportation, or GREET, model, the
estimated default reductions in direct lifecycle greenhouse gas
emissions of certain renewable fuels and the projected
reductions in direct lifecycle greenhouse gas emissions of our
renewable gasoline and diesel blendstocks are as follows:
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Renewable Fuel Category
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% Lifecycle GHG Reduction
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Corn ethanol (renewable fuel)
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25
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Sugarcane ethanol (advanced biofuel)
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71
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Biodiesel (biomass-based diesel)
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76
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KiOR gasoline blendstocks (cellulosic biofuel)
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82
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KiOR diesel blendstocks (cellulosic diesel)
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83
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Our
Technology
We have developed a process that converts cellulosic biomass
into a renewable crude oil that can be refined in a conventional
hydrotreater into light refined products, such as gasoline and
diesel blendstocks. Our
biomass-to-renewable
fuel technology platform combines our proprietary catalyst
systems with well-established fluid catalytic cracking, or FCC,
processes that have been used in crude oil refineries to produce
2
gasoline for over 60 years. Our BFCC process operates at
moderate temperatures and pressures to convert biomass in a
matter of seconds into the renewable crude oil that we process
using standard refining equipment into our gasoline and diesel
blendstocks. As of June 9, 2011, we had 70 pending
original patent application families containing over
2,000 pending claims.
Our
Facilities
After an initial research and development effort, we
successfully converted biomass into a renewable crude oil in a
laboratory program that validated the technical feasibility of
our BFCC process. Building on the success of this program, we
constructed a pilot unit outside of Houston, Texas to continue
developing and validating our technology. This pilot unit has
amassed over 9,000 hours of operation and evaluated more
than 250 catalyst systems. We subsequently commenced
operation of a larger demonstration unit also outside of Houston
that is designed to process 10 BDT per day and represents a
400-times
scale-up
from our pilot unit. Our demonstration unit has amassed over
3,000 hours of operation and produced over 32,000 gallons
of our renewable crude oil.
We commenced construction of our initial-scale commercial
production facility in Columbus, Mississippi in the first
quarter of 2011, which we are financing with a combination of
existing cash on hand, including $55 million of proceeds
from the April 2011 sale of our Series C convertible preferred
stock to existing investors, and a $75 million
interest-free loan from the Mississippi Development Authority.
We estimate that the total cost to construct this facility,
including a hydrotreater, and place it into service will be
approximately $190 million, with an estimated 15% to 20% of
these costs attributable to the hydrotreater. We engaged KBR,
Inc., a global engineering, construction and services company,
to conduct the engineering, design and construction of this
initial-scale commercial production facility. We are designing
this facility to process 500 BDT per day, representing an
additional 50-times
scale-up
from our demonstration unit.
Going forward, we intend to construct our larger standard
commercial production facilities beginning in the third quarter
of 2012 with our first planned facility in Newton, Mississippi.
These facilities are being designed to process approximately
1,500 BDT of feedstock per day, approximately three times the
size of our Columbus facility, in order to take advantage of
economies of scale. Moreover, these standard commercial
production facilities are being designed to utilize a
centralized hydrotreating facility rather than dedicated,
standalone hydrotreaters such as the one being constructed at
our Columbus facility. Our two-train centralized hydrotreaters
will be constructed in phases, with each train expected to
support up to two standard commercial production facilities. By
employing larger plant designs and shared hydrotreating
facilities, we expect to be able to more effectively allocate
our fixed costs and stage our capital program to reduce the
capital intensity of our commercial expansion. By staging the
expansion of our standard commercial facilities in discrete
facility-by-facility
projects that are independently viable, we believe that we will
have flexibility to plan our growth in response to capital
availability and market conditions.
In selecting sites for our facilities, we plan to consider the
carbon emissions, land use, air pollution and water impact of
our facilities.
Our
Feedstock Strategy
Our technology platform is feedstock flexible and has been
successfully tested on a variety of biomass. We have selected
Southern Yellow Pine whole tree chips as our primary feedstock
because of its abundant, sustainable supply and its generally
stable pricing history. This non-food feedstock has a low cost
relative to traditional renewable feedstocks and a long
lifecycle that we believe significantly dampens price volatility
compared to seasonal feedstocks that depend more on weather and
other short-term supply and demand dynamics. Based on data from
the USDA Forest Service from 2005 to 2008, there was an
estimated 18% surplus of softwood in the South, over 95% of
which is Southern Yellow Pine. This surplus represents an excess
supply of nearly 60,000 BDT per day, which we believe far
exceeds what is necessary to execute our initial
commercialization plan. Each of our planned standard commercial
production facilities is expected to use 1,500 BDT per day, or
approximately 500,000 BDT per year.
We plan to reduce our feedstock costs by increasing the use of
lower grade woody biomass, such as logging residues, branches
and bark, at our commercial production facilities. Over time, we
also plan to
3
explore co-feeding other types of renewable cellulosic biomass,
including other woody biomass, such as poplar and eucalyptus
tree chips, agricultural residues, such as sugarcane bagasse,
and energy crops, such as sorghum, switchgrass and miscanthus.
Ideal crops vary by region and climate. For example, certain
energy crops like sorghum are more appropriate in drier regions
with low rainfall, while others like miscanthus are higher
yielding but also require more rain and may be sensitive to
cold; however, both offer significant opportunities for per-acre
yield improvements. Over time, we expect to investigate a
variety of feedstock opportunities in other parts of the United
States and in Canada, Brazil and other international locations.
We currently intend to emphasize non-food, rain-fed feedstocks
to minimize the environmental impact and water use from
irrigation. We generally expect the feedstocks we use to be
grown on land that is not in use for food production. In the
long term, we believe that crops will be developed for marginal
or degraded lands that can no longer be used for economic food
production. We believe millions of acres of agricultural lands
previously used for food production have been degraded. In
addition, a U.S. Department of Energy, or DOE, study in 2005
estimated that in the United States alone, almost a billion tons
of unutilized biomass may be available. Eventually, we expect
that our technologys ability to accept mixed feedstocks
will allow feedstock producers to increase biodiversity in
cultivating biomass.
We believe that our feedstock flexibility will allow us to
expand the geographic scope of our business both domestically
and internationally, identify locations with proximity to
multiple feedstocks and use the most cost-effective feedstock or
combination of feedstocks at a given location. Initially, we
expect to investigate many site opportunities in the United
States focusing on the locations of numerous paper mills that
have closed in the United States over the past 20 years.
We recently entered into a feedstock supply agreement with
Catchlight Energy, LLC, or Catchlight, for all of the supply of
pulpwood, whole tree chips and forest residuals for our
initial-scale commercial production facility. Subject to the
terms and conditions of the agreement, Catchlight has agreed to
supply all of the specified feedstock for the facility.
Our
Distribution Plan
We believe that we will be able to sell the output from our
planned commercial production facilities to a range of potential
customers, including refiners, terminal and rack owners and
fleet users. Unlike ethanol, which is generally subject to a 10%
to 15% blend wall, we believe that our gasoline and diesel
blendstocks can be used as components in formulating a variety
of fuel products meeting specifications of ASTM International
for finished gasoline and diesel derived from petroleum-based
blendstocks. We currently are performing motor vehicle fuel
tests as we seek to register our gasoline and diesel blendstocks
with the U.S. Environmental Protection Agency, or EPA. We
also intend to seek certification of our blendstocks for use in
jet fuel.
We recently entered into agreements with Hunt Refining Company,
or Hunt, Catchlight and FedEx Corporate Services, Inc., or
FedEx, for the purchase of blendstocks to be produced from our
initial-scale commercial production facility. We are also in
negotiations with these companies and additional prospective
customers for the purchase of blendstocks to be produced from
our planned standard commercial production facilities.
Production and sale of our fuel products pursuant to our
agreements with Hunt, Catchlight and FedEx and our other
potential customer relationships will depend on the satisfaction
of contract-specific conditions, including establishing product
specifications and satisfying commercial and production
requirements.
Our
Market
The global transportation fuels market represents one of the
worlds largest markets at over $2 trillion. According to
the U.S. Energy Information Administration, or EIA, for
2009, there was a 138 billion gallon market for gasoline
and a 49 billion gallon market for diesel in the United
States alone. Over time, we expect to compete in the broader
market for crude oil. We also expect our products to have
drop in compatibility with traditional hydrocarbons,
unlike conventional biofuels such as FAME diesel, corn ethanol
and sugarcane ethanol.
4
Although we expect that our blendstocks will be marketable into
the global transportation fuels market, their renewable nature
also allows us to benefit from government programs and
incentives. In 2007, the Energy Independence and Security Act,
or EISA, was adopted to move the United States toward greater
energy independence and security and to increase the production
of clean renewable fuels domestically. EISA updated the
Renewable Fuel Standard program to require the use of cellulosic
biofuel, a renewable fuel derived from renewable cellulosic
biomass that produces at least 60% lower lifecycle greenhouse
gas emissions compared to a 2005 baseline.
We believe that our gasoline and diesel blendstocks will qualify
as cellulosic biofuel under RFS2, which will provide an
opportunity to obtain premium pricing for our renewable
blendstocks. We expect that this designation will make our
blendstocks attractive to fuel producers because our blendstocks
can be used to satisfy specific volume requirements for
cellulosic biofuel, as well as the volume requirements for both
advanced biofuel and renewable fuel under RFS2. This provides
cellulosic biofuel producers like our company an opportunity to
compete with producers of advanced biofuel and other renewable
fuels, but not vice versa. Accordingly, the potential size of
the mandated market for cellulosic biofuel in 2022 under RFS2
encompasses the 36.0 billion gallon mandate for all
renewable fuels, which includes the 21.0 billion gallon
mandate for advanced biofuel, which also includes the
16.0 billion gallon mandate for cellulosic biofuel. Under
the EISA mandates, by 2022 renewable fuels are expected not only
to make up an increasing percentage of liquid transportation
fuels in the United States, but also are expected to
contribute to an approximately 15% reduction in net imports of
crude oil from 2009 levels. At May 2011 per gallon market prices
of $2.587 for ethanol as renewable fuel pricing, $3.889 for
sugarcane ethanol as advanced biofuel pricing, $5.148 for
biodiesel as biomass-based diesel pricing and $1.130 cellulosic
waiver as the premium to advanced biofuels, the
36.0 billion gallon RFS2 mandated market for 2022 would be
worth approximately $138 billion. Additional renewable fuel
mandates exist in Europe and other countries with varying
mandates and volume requirements for premium renewable fuels.
Our
Competitive Strengths
We believe that our business benefits from a number of
competitive strengths, including the following:
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Our renewable fuel products are hydrocarbons compatible with
the existing transportation fuels
infrastructure. Unlike other renewable fuels such
as ethanol or biodiesel, our gasoline and diesel blendstocks are
compatible hydrocarbons that can drop in to the
existing petroleum-based transportation fuels infrastructure
interchangeably with their petroleum-based counterparts to
produce various fuel products. In addition, due to the higher
energy content of our gasoline and diesel blendstocks, we
believe that our transportation fuels will sell at a premium to
ethanol. Currently, we expect to compete in the mandated
renewable fuels market against corn ethanol, sugarcane ethanol
and biodiesel, as well as in the general market for gasoline and
diesel fuels.
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We combine proprietary technology with well-established FCC
and other refining processes. We have developed a
technology platform that uses our proprietary catalyst systems,
process design and know-how, while leveraging well-established
FCC and other refining processes, to convert a variety of
cellulosic biomass into high-quality gasoline and diesel
blendstocks. As of June 9, 2011, we had 70 pending
original patent application families containing over 2,000
pending claims.
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Our BFCC process provides product flexibility and higher
yields of more valuable products. Our BFCC
process affords us flexibility to tailor our blendstock product
spectrum to attain higher overall product yields, as well as
higher proportions of valuable transportation fuels. Our
realized yield of gasoline and diesel blendstocks from our
renewable crude oil is approximately 90%, which is higher than
the yields that are typically attained when refining
petroleum-based crude oil.
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Our technology is feedstock flexible, and we have identified
low-cost, abundant and sustainable feedstock. Our
technology platform is feedstock flexible and has been
successfully tested on a variety of biomass. We believe that our
feedstock flexibility will allow us to use the most
cost-effective feedstock or combination of feedstocks at a given
location. We have selected Southern Yellow Pine whole tree chips
as our primary feedstock because of their abundant, sustainable
supply and generally
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5
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stable pricing history. We expect that our ability to use
logging residues, branches and bark will enable us to lower our
feedstock costs.
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We have secured or identified strategic locations for our
commercial production facilities. The site for
our initial-scale commercial production facility and the sites
that we have identified for our next four planned standard
commercial production facilities are situated in the Southeast
near abundant Southern Yellow Pine feedstock and a number of
potential significant customers and have access to rail,
pipelines (including the Colonial pipeline, which transports
approximately 100 million gallons of fuels per day to the
Northeast), inland and gulf waterways and other transportation
channels. We believe that former workers dislodged by the
closings of paper mills in the Southeast could provide an
available skilled labor force for us.
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We believe that we have a better use for woodchip
feedstock. Based on current prices, and if we
meet our target production cost metrics, and if competition for
feedstock develops in a region, we believe that we may be able
to afford higher prices for feedstock than paper mills.
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We have an experienced management team. Our
executive officers and senior operational managers have
extensive experience in research and development, new product
development, capital project execution, feedstock procurement,
plant operations and technology commercialization across the
catalyst, refining, chemicals and forest products industries.
|
Our
Strategy
Our mission is to leverage our proprietary technology platform
to provide gasoline and diesel blendstocks at prices that are
competitive with petroleum-based transportation fuels. Key
elements of our strategy include the following:
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We have adopted a build, own and operate
strategy. We plan to build, own and operate our
commercial production facilities in the United States. We began
constructing our 500 BDT per day initial-scale commercial
production facility in Columbus, Mississippi in the first
quarter of 2011, with production expected to begin in the second
half of 2012. We intend to construct our 1,500 BDT per day
standard commercial production facilities, beginning in the
third quarter of 2012 with our first planned facility in Newton,
Mississippi.
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We plan to deploy BFCC facilities using copy
exact principles. We plan to employ a
modular design that can be replicated for our subsequent
standard commercial production facilities. Utilizing learning
from our initial commercial production facilities, we plan to
deploy a copy exact strategy of standardized modular
1,500 BDT per day designs to reduce our capital costs,
implement best practices, reduce operating costs, increase
personnel flexibility and facilitate fast deployment of new
production facilities. We also expect to develop a remote
electronic facilities management control center in Houston,
Texas. We believe that commercially available feedstock sources
exist to support significant expansion opportunities in
biomass-rich regions in the United States and globally. At a
later date, we may consider larger or smaller standardized
facility sizes to optimize the scale for local feedstock
availability and transportation costs.
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We plan to expand our base of prospective
customers. We believe that we will be able to
sell our renewable hydrocarbon-based products to a variety of
potential customers, including independent refiners, integrated
oil companies, distributors of finished products, such as
terminal or rack owners, and end users of petroleum products,
such as transportation companies, fleets or petrochemical
operators. We also intend to seek certification of our
blendstocks for use in jet fuel.
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We intend to maximize our feedstock flexibility and reduce
costs. Our technology platform has been
successfully tested on a variety of biomass. We plan to reduce
our feedstock costs by increasing our use of lower grade woody
biomass, such as logging residues, branches and bark, at our
planned commercial production facilities. Longer term, we
believe that the flexibility of our proprietary catalyst systems
will enable us to co-feed many of our plants with a variety of
other types of renewable cellulosic biomass,
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6
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including other woody biomass, such as poplar and eucalyptus
tree chips, agricultural residues, such as sugarcane bagasse,
and energy crops, such as sorghum, switchgrass and miscanthus.
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We intend to leverage our technology and expertise to
increase our yields and the efficiency of our
process. We have focused on enhancing our
proprietary technology and processes through each stage of
development. This effort focuses on continuously improving our
proprietary catalyst systems, optimizing the reactor design and
operating conditions and enhancing our renewable crude oil
processing technology. We have increased our overall process
yield of biomass to renewable fuel from approximately
17 gallons per BDT to approximately 67 gallons per BDT.
Our research and development efforts are focused on increasing
this yield to approximately 92 gallons per BDT.
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We believe that we will be able to compete with
petroleum-based transportation fuels. Although we
benefit from mandated policies such as RFS2, we expect that our
standard commercial production facilities will be able to
produce our gasoline and diesel blendstocks on a
cost-competitive basis with existing petroleum-based
counterparts without government subsidies at current pricing. We
also expect to be able to compete in non-mandated international
transportation fuels markets, as well as mandated international
transportation fuels markets, such as the European biodiesel
market, that have historically commanded higher prices per
gallon.
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We plan to expand internationally through a variety of
structures. Over time, we intend to expand internationally
through direct operations and joint venture structures. We are
actively exploring opportunities to expand internationally in
countries with abundant, sustainable, non-food feedstocks
available at costs lower than or competitive with domestic
feedstocks. In March 2011, we hired a President of International
with executive experience in international operations to lead
our global expansion efforts.
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We plan to drive brand loyalty for
KiOR. We plan to capitalize on the
increasing global trend in green awareness to differentiate our
renewable transportation fuels from petroleum-based
alternatives. In the long term, we believe that we will have a
substantial marketing opportunity with a variety of large,
fuel-intensive prospective customers seeking sustainable,
renewable transportation fuel options.
|
Risks
Affecting Us
Our business is subject to a number of risks and uncertainties
that you should understand before making an investment decision.
These risks are discussed more fully in the section entitled
Risk Factors following this prospectus summary.
These risks include the following:
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we are a development stage company with a limited operating
history, have not generated any revenue and have a history of
net losses, and we expect significant increases in our costs and
expenses to result in continuing losses as we seek to
commercialize our renewable transportation fuels;
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we have no experience producing renewable transportation fuels
at the scale needed for the development of our business or in
building the facilities necessary for such production, and we
will not succeed if we cannot effectively scale our proprietary
technology platform and process design;
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the actual cost of constructing, operating and maintaining the
facilities necessary to produce our renewable transportation
fuels in commercial volumes may be significantly higher than we
plan or anticipate;
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we will need substantial additional capital in the future in
order to finance the construction of our planned standard
commercial production facilities and to expand our business, and
we may be unable to obtain such capital on terms acceptable to
us or at all;
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the production of our renewable transportation fuels will
require significant amounts of feedstock, and we may be unable
to obtain amounts of feedstock sufficient to satisfy our
commitments to our potential customers at the costs we
anticipate or at all;
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7
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existing alternative uses for biomass may increase feedstock
prices to uneconomic levels or otherwise limit feedstock
availability;
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we may be unable to obtain patent or other protection for our
proprietary technologies and, even if we obtain such protection,
we may be unable to prevent other parties from infringing on our
patents and other proprietary rights; and
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we face challenges in obtaining EPA fuel registration and market
acceptance of our renewable transportation fuels, and our
business would be harmed if they are not registered by the EPA
and accepted by prospective customers in the transportation
fuels market.
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Our Dual
Class Capital Structure
We currently have two classes of common stock: Class A common
stock and common stock (which will be redesignated as Class B
common stock as discussed below). Upon completion of this
offering, we will continue to have two classes of common stock:
Class A common stock and Class B common stock. The
rights of the holders of our Class A common stock and our
Class B common stock are identical, except with respect to
voting and conversion. Each share of our Class A common
stock is entitled to one vote per share and is not convertible
into any other shares of our capital stock. Each share of our
Class B common stock is entitled to 10 votes per share, is
convertible at any time into one share of our Class A
common stock at the option of the holder of such share and will
convert automatically into one share of our Class A common
stock upon the occurrence of certain specified events, including
a transfer of such shares (other than to such holders
family members, descendants or certain affiliated persons or
entities).
In connection with this offering, we intend to redesignate all
of the shares of our common stock as Class B common stock
while our Class A common stock will continue to be
designated as Class A common stock. Any rights to acquire
shares of common stock prior to the redesignation will become
rights to acquire shares of our Class B common stock. We
refer to our Class A common stock and our Class B
common stock collectively as our common stock. Please read
Description of Capital Stock Common
Stock.
Corporate
Information
We were incorporated in Delaware in July 2007. Our principal
executive offices are located at 13001 Bay Park Road, Pasadena,
Texas 77507, and our telephone number at that location is
(281) 694-8700.
Our corporate website address is
http://www.kior.com. The
information contained in or accessible from our corporate
website is not part of this prospectus.
The KiOR name and related images and symbols are our
properties, trademarks and service marks. All other trade names,
trademarks and service marks appearing in this prospectus are
the property of their respective owners.
Conversion
Metrics
This prospectus contains references to metric tons, barrels,
gallons and liters. In the United States, blendstock fuels are
typically measured and sold in barrels and gallons. In other
parts of the world, the standard unit is metric tons and liters.
In addition, a portion of the U.S. biofuels investment
community references biofuels to ethanol on an energy content
basis using gallons of ethanol equivalent. The following table
sets forth the conversion factor between these metrics.
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Gallons of Ethanol
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Gallons
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Equivalent (GEE)*
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Barrels
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Metric tons**
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Liters
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1
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=
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1.70
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=
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0.0238
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=
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0.00333
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=
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3.79
|
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|
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* |
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Based on energy content of 130,000 btu/gallon average for
gasoline and diesel blendstocks |
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** |
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Based on density of 0.88 g/mL |
8
THE
OFFERING
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Shares of Class A common stock offered by us
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10,000,000 shares |
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Conversion
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Upon completion of this offering, all outstanding shares of our
Series A and
Series A-1
convertible preferred stock will convert automatically into
shares of our common stock (which will be redesignated as
Class B common stock) and all outstanding shares of our
Series B and Series C convertible preferred stock will
convert automatically into shares of our Class A common
stock. |
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Shares of our common stock to be outstanding after this
offering:
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Class A common stock
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37,987,302 shares |
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Class B common stock
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61,848,696 shares |
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Option to purchase additional shares of Class A common stock
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We have granted the underwriters a
30-day
option to purchase up to 1,500,000 additional shares of our
Class A common stock at the initial public offering price
to cover over-allotments, if any. |
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Use of proceeds
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We estimate that the net proceeds we will receive from this
offering, after deducting estimated underwriting discounts and
other estimated offering expenses payable by us, will be
approximately $185.6 million, or approximately
$213.8 million if the underwriters option to purchase
additional shares is exercised in full. We plan to use the net
proceeds we will receive from this offering to fund a portion of
the capital expenditures, including front-end engineering and
procurement services and long-lead equipment, for our planned
first standard commercial production facility in Newton,
Mississippi. We intend to use any remaining net proceeds for
general corporate purposes, including the costs associated with
being a public company. Please read Use of Proceeds. |
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Proposed Nasdaq Global Market symbol
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KIOR |
|
Risk factors |
|
You should carefully read and consider the information set forth
under the heading Risk Factors and all other
information set forth in this prospectus before investing in our
Class A common stock. |
The common stock to be outstanding after the completion of this
offering is based on 27,987,302 shares of our Class A
common stock and 61,848,696 shares of Class B common
stock outstanding as of March 31, 2011, which numbers
reflect the conversion of all of our convertible preferred stock
into an aggregate of 27,917,302 shares of our Class A
common stock and 44,571,576 shares of Class B common
stock and excludes the following:
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as of March 31, 2011, 8,041,880 shares of Class A
common stock issuable upon the exercise of outstanding stock
options at a weighted-average exercise price of $1.98 per
share;
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as of March 31, 2011, 7,049,454 shares of Class B
common stock issuable upon the exercise of outstanding stock
options at a weighted-average exercise price of
$0.08375 per share;
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9
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456,822 shares of our Class A common stock issuable upon
the exercise of warrants outstanding as of March 31, 2011,
at a weighted-average exercised price of $2.152 per share;
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18,750 shares (assuming a conversion price that is 80% of
an assumed initial public offering price of $20.00 per share,
the midpoint of the price range set forth on the cover page of
this prospectus) of our Class A common stock issuable upon
the exercise of 61,200 warrants that we were required to issue
as of March 31, 2011 at a weighted-average exercise price
of $4.902 per share;
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411,312 shares of our Class B common stock issuable upon
the exercise of warrants outstanding as of March 31, 2011,
at a weighted-average exercise price of $0.4863 per share;
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2,199,936 shares of Class A common stock reserved for
future issuance as of March 31, 2011 under our amended and
restated 2007 Stock Option/Stock Issuance Plan;
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1,708,266 shares of our Class B common stock reserved
for future issuance as of March 31, 2011 under our amended
and restated 2007 Stock Option/Stock Issuance Plan; and
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9,983,600 shares of Class A common stock reserved for
future issuance under our 2011 Long-Term Incentive Plan, which
will become effective upon the completion of this offering, as
more fully described in Executive Compensation
2011 Long-Term Incentive Plan.
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Except as otherwise indicated, the information in this
prospectus:
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gives effect to a 4-for-1 stock split in April 2010 and a
2-for-1 stock split, which was completed on June 9, 2011;
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gives effect to the automatic conversion effective upon the
completion of this offering of all shares of our Series A
convertible preferred stock and
Series A-1
convertible preferred stock into shares of our Class B
common stock on a 1-to-1 basis;
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gives effect to the automatic conversion effective upon the
completion of this offering of all shares of our Series B
convertible preferred stock into shares of our Class A
common stock on a 1-to-1 basis;
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gives effect to the automatic conversion upon the completion of
this offering of all shares of our Series C convertible
preferred stock (issued in April 2011) into shares of our Class
A common stock, assuming a conversion price that is 80% of an
assumed initial public offering price of $20.00 per share
(the midpoint of the price range set forth on the cover page of
this prospectus) (see Capitalization
Conversion of Our Series C Convertible Preferred
Stock for conversion ratio adjustments that may be
applicable upon future events, such as the completion of this
offering);
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assumes the adoption of our amended and restated certificate of
incorporation and our amended and restated bylaws upon the
completion of this offering; and
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assumes the underwriters do not exercise their option to
purchase up to 1,500,000 additional shares of our Class A
common stock.
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10
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following table presents our summary consolidated financial
data for the periods indicated. The summary consolidated
statement of operations data for the years ended
December 31, 2008, 2009 and 2010 are derived from our
audited consolidated financial statements that are included
elsewhere in this prospectus. The summary consolidated statement
of operations data for the three months ended March 31,
2010 and 2011 and the summary condensed consolidated balance
sheet data as of March 31, 2011 are derived from our
unaudited interim condensed consolidated financial statements
that are included elsewhere in this prospectus. You should read
the summary of our consolidated financial data set forth below
together with the more detailed information contained in
Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, our financial
statements and related notes appearing elsewhere in this
prospectus. Our historical results presented below are not
necessarily indicative of financial results to be achieved in
the future.
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Three Months Ended
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Years Ended December 31,
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March 31,
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2008
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2009
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2010
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2010
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2011
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(In thousands, except per share amounts)
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Consolidated Statement of Operations Data:
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Research and development expenses
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$
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(3,643
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)
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$
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(9,961
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)
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$
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(22,042
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)
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|
$
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(4,381
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)
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|
$
|
(7,271
|
)
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General and administrative expenses
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|
|
(1,867
|
)
|
|
|
(2,987
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)
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|
|
(8,083
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)
|
|
|
(1,226
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)
|
|
|
(4,189
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)
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Depreciation and amortization expense
|
|
|
(178
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)
|
|
|
(688
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)
|
|
|
(1,656
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)
|
|
|
(279
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)
|
|
|
(523
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)
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Loss from operations
|
|
|
(5,688
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)
|
|
|
(13,636
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)
|
|
|
(31,781
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)
|
|
|
(5,886
|
)
|
|
|
(11,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
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|
|
71
|
|
|
|
65
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature expense
|
|
|
|
|
|
|
|
|
|
|
(10,000
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)
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
(242
|
)
|
|
|
(1,812
|
)
|
|
|
(367
|
)
|
|
|
|
|
Foreign currency gain (loss)
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|
|
(236
|
)
|
|
|
(215
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)
|
|
|
|
|
|
|
8
|
|
|
|
|
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Loss from change in fair value of warrant liability
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|
|
|
|
|
|
|
|
|
|
(2,365
|
)
|
|
|
|
|
|
|
(1,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,853
|
)
|
|
|
(14,028
|
)
|
|
|
(45,924
|
)
|
|
|
(6,245
|
)
|
|
|
(13,393
|
)
|
Income tax expense
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted(1)
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|
$
|
(0.10
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted(1)
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
15,382
|
|
|
|
14,774
|
|
|
|
16,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock, basic and diluted
(unaudited)(1)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing pro forma net
loss per share of common stock, basic and diluted (unaudited)(1)
|
|
|
45,084
|
|
|
|
58,972
|
|
|
|
74,722
|
|
|
|
59,346
|
|
|
|
85,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
|
As
|
|
As Further
|
|
|
Actual
|
|
Adjusted(2)
|
|
Adjusted(3)
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,947
|
|
|
$
|
103,560
|
|
|
|
289,135
|
|
Property, plant and equipment, net
|
|
|
55,969
|
|
|
|
55,969
|
|
|
|
55,969
|
|
Total assets
|
|
|
82,213
|
|
|
|
163,826
|
|
|
|
349,660
|
|
Long-term debt, including current portion
|
|
|
9,234
|
|
|
|
35,847
|
|
|
|
35,847
|
|
Convertible preferred stock
|
|
|
134,384
|
|
|
|
189,384
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(74,807
|
)
|
|
|
(74,807
|
)
|
|
|
305,047
|
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements
appearing elsewhere in this prospectus for an explanation of the
method used to calculate (a) net loss per share of common
stock, basic and diluted, (b) pro forma net loss per share
of common stock, basic and diluted and (c) weighted-average
number of shares used in the computation of the per share
amounts. |
|
(2) |
|
On an as adjusted basis to reflect borrowings under our
interest-free loan from the Mississippi Development Authority
from April 1, 2011 through May 13, 2011 of
$26.6 million and issuance of Series C convertible
preferred stock in April 2011 in the amount of
$55.0 million. For further discussion, please read
Capitalization. |
|
(3) |
|
On an as adjusted basis to reflect borrowings under our
interest-free loan from the Mississippi Development Authority
from April 1, 2011 through May 13, 2011 of
$26.6 million and issuance of Series C convertible
preferred stock in April 2011 in the amount of
$55.0 million and on an as further adjusted basis to
reflect the conversion of our Series A, Series A-1,
Series B and Series C convertible preferred stock into
Class A common stock and Class B common stock as
described in The Offering
Conversion, the issuance by us of 10,000,000 shares
of Class A common stock in this offering and the
application of our estimated net proceeds from this offering as
set forth under Use of Proceeds as if this offering
occurred on March 31, 2011. For further discussion, please
read Capitalization. |
12
RISK
FACTORS
Investing in our Class A common stock involves a high
degree of risk. You should carefully consider the following
risks and all other information contained in this prospectus,
including our consolidated financial statements and the related
notes, before investing in our Class A common stock. If any
of the following risks materialize, our business, prospects,
financial condition and operating results could be materially
harmed. In such case, the price of our Class A common stock
could decline, and you may lose some or all of your
investment.
Risks
Related to Our Business and Industry
We are
a development stage company and have not generated any revenue,
and our business will not succeed if we are unable to
commercialize successfully our renewable transportation
fuels.
We are a development stage company with a limited operating
history, and we have not yet commercialized our renewable
transportation fuels nor have we generated any revenue. We are
subject to the substantial risk of failure facing businesses
seeking to develop new products. Certain factors that could,
alone or in combination, prevent us from successfully
commercializing our products include:
|
|
|
|
|
technical challenges developing our commercial production
processes that we are unable to overcome;
|
|
|
|
our ability to finance the roll-out of our planned standard
commercial production facilities, including securing private or
public debt and/or equity financing, project financing and/or
federal, state and local government incentives;
|
|
|
|
our ability to achieve commercial-scale production of renewable
transportation fuels on a cost-effective basis and in the time
frame we anticipate;
|
|
|
|
our ability to secure and maintain customers to purchase any
renewable transportation fuels we produce from our planned
commercial production facilities;
|
|
|
|
our ability to produce renewable transportation fuels that meet
our potential customers specifications;
|
|
|
|
our ability to secure access to sufficient feedstock quantities
at economic prices;
|
|
|
|
our ability to secure and maintain all necessary regulatory
approvals for the production, distribution and sale of our
renewable transportation fuels and to comply with applicable
laws and regulations; and
|
|
|
|
actions of direct and indirect competitors that may seek to
enter the renewable transportation fuels markets in competition
with us or that may seek to impose barriers to one or more
aspects of the renewable transportation fuels business that we
are pursuing.
|
We
have a history of net losses, and we expect significant
increases in our costs and expenses to result in continuing
losses as we seek to commercialize our renewable transportation
fuels.
We have incurred substantial net losses since our inception,
including net losses of $5.9 million, $14.1 million
and $45.9 million for the years ended December 31,
2008, 2009 and 2010, respectively, and $13.4 million for the
three months ended March 31, 2011. We expect these losses to
continue. As of March 31, 2011, we had an accumulated
deficit of $79.7 million. We expect to incur additional
costs and expenses related to the continued development and
expansion of our business, including our research and
development expenses, continued testing and development at our
pilot and demonstration units and engineering and design work
and construction of our planned commercial production
facilities. We have not yet commercialized our renewable
transportation fuels nor have we generated any revenue. We
cannot assure you that we will ever achieve or sustain
profitability on a quarterly or annual basis.
13
We
have no experience producing renewable transportation fuels at
the scale needed for the development of our business or in
building the facilities necessary for such production, and we
will not succeed if we cannot effectively scale our proprietary
technology platform and process design.
We must demonstrate our ability to apply our proprietary
technology platform and process design at commercial scale to
convert biomass into renewable crude oil and to produce
renewable transportation fuels on an economically viable basis.
Such production will require that our proprietary technology
platform and process design be scalable from our demonstration
unit to commercial production facilities. We have not yet
completed construction of or operated a commercial-scale
production facility, and our technology may not perform as
expected when applied at the scale that we plan or we may
encounter operational challenges for which we are unable to
devise a workable solution. In particular, our initial-scale
commercial production facility under construction in Columbus,
Mississippi is a
first-of-kind
project, and we cannot assure you that it will be completed on
the schedule that we intend or at all. If and when completed,
our initial-scale commercial production facility may not process
biomass at designed levels or produce our gasoline and diesel
blendstocks at acceptable yields, and we may be unable to
improve its performance. As a result of these risks, we may be
unable to achieve commercial-scale production in a timely
manner, or at all. If these risks materialize, our business and
ability to commercialize our renewable transportation fuels
would be adversely affected.
The
actual cost of constructing, operating and maintaining the
facilities necessary to produce our renewable transportation
fuels in commercial volumes may be significantly higher than we
plan or anticipate.
The production of commercial volumes of our renewable
transportation fuels will require the construction of
commercial-scale facilities. The construction of these new
facilities will require the expenditure of significant amounts
of capital, which may exceed our estimates. We may be unable to
complete these facilities at the planned costs, on schedule or
at all. The construction of new facilities may be subject to
construction cost overruns due to labor costs, labor shortages
or delays, costs of equipment and materials, weather delays,
inflation or other factors, which could be material. In
addition, the construction of our facilities may 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.
If and when our facilities are constructed, our operating and
maintenance costs may be significantly higher than we
anticipate. In addition, our facilities may not operate as
efficiently as we expect and may experience unplanned downtime,
which may be significant. As a result, our initial-scale
commercial production facility under construction in Columbus,
Mississippi or one or more of the planned standard commercial
production facilities may be unable to achieve our expected
investment return, which could adversely affect our business and
results of operations.
We
will need substantial additional capital in the future in order
to expand our business.
We require substantial additional capital to grow our business,
particularly as we continue to design, engineer and construct
our commercial production facilities. The extent of our need for
additional capital will depend on many factors, including our
ability to obtain equity and debt financing from various public
or private sources and to meet any related equity contribution
requirements, whether we succeed in producing renewable
transportation fuels at commercial scale, our ability to control
costs, the progress and scope of our research and development
projects, the effect of any acquisitions of other businesses or
technologies that we may make in the future and the filing,
prosecution and enforcement of patent claims.
We will need to raise additional funds to build our planned
standard commercial production facilities and subsequent
facilities, continue the development of our technology and
products and commercialize any products resulting from our
research and development efforts. Future financings that involve
the issuance of equity securities would cause our existing
stockholders 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
14
to conduct our business. We may be unable to raise sufficient
additional funds on acceptable terms, or at all. If we are
unable to raise sufficient funds, 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 production
facilities, delay, scale back or terminate research or
development programs or the commercialization of products
resulting from our technologies, curtail or cease operations or
obtain funds through collaborative and licensing arrangements
that may require us to relinquish commercial rights or grant
licenses on terms that are unfavorable to us. If adequate funds
are unavailable, we will be unable to execute successfully our
business plan or to continue our business.
We may
be unable to obtain regulatory approval for the registration of
our products as transportation fuels or as cellulosic biofuel
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.
We are seeking to commence commercial sales of renewable
transportation fuels from our initial-scale commercial
production facility in the second half of 2012. Our renewable
transportation fuels will be subject to government regulation in
our target markets. The U.S. Environmental Protection
Agency, or EPA, administers the Clean Air Act, which regulates
the commercial registration, distribution and use of fuel
products or fuel additives. Before an entity can introduce a
fuel or fuel additive into commerce, it must register that fuel
or fuel additive with the EPA. Our gasoline and diesel
blendstocks have not been registered with the EPA as a fuel.
In addition, in order for our gasoline or diesel blendstocks to
qualify as a renewable fuel, advanced biofuel or cellulosic
biofuel for the purpose of satisfying the mandates of the
Renewable Fuel Standard program, or RFS2, upon petition the EPA
will conduct its own assessment of the greenhouse gas emissions
associated with the production and use of our gasoline or diesel
blendstocks and must verify that our feedstocks qualify as
renewable cellulosic biomass. The EPA may not complete this
assessment in a timely manner, which could delay or increase the
costs of the commercialization of our products, or it may
determine that our gasoline or diesel blendstocks do not reduce
greenhouse gas emissions in a sufficient amount to qualify as a
renewable fuel, advanced biofuel or cellulosic biofuel under
RFS2. The EPA could also decide that our feedstocks do not meet
the definition of renewable biomass, and thus our products would
be ineligible for RFS2 credits. A decision by the EPA that our
products do not qualify as a renewable fuel, advanced biofuel or
cellulosic biofuel for purposes of satisfying renewable fuel
mandates would significantly reduce demand for our product,
which would materially and adversely affect our business.
Our
offtake agreements for the sale and purchase of the gasoline,
diesel and fuel oil blendstocks from our initial-scale
commercial production facility under construction are subject to
the satisfaction of certain technical, commercial and production
requirements. If we fail to meet these requirements, our
commercialization plan could be delayed or harmed.
Currently, our offtake agreements for the sale and purchase of
the gasoline, diesel and fuel oil blendstocks to be produced at
our initial-scale commercial production facility under
construction are subject to the satisfaction of certain
technical, commercial and production requirements. These
agreements do not affirmatively obligate our counterparties to
purchase specific quantities of any products from us at this
time, and these agreements contain important conditions that
must be satisfied before any such purchases are made. These
conditions include that we and our counterparties agree on
product specifications for our gasoline, diesel and fuel oil
blendstocks and that our products conform to those
specifications. If we do not satisfy these contractual
requirements and if we subsequently are unable to renegotiate
those terms, our counterparties may terminate the agreements and
our commercialization plan could be delayed or harmed if we need
to find other counterparties.
15
We
face challenges in obtaining market acceptance of our renewable
transportation fuels, and our business would be harmed if they
are not accepted by prospective customers in the transportation
fuels market.
We intend to market our renewable transportation fuels as
gasoline and diesel blendstocks to refiners, terminal and rack
owners and end users. These potential customers frequently
impose lengthy and complex product qualification procedures on
new blendstocks, influenced by finished product specifications,
processing considerations, regulatory issues and other factors.
Potential customers may be reluctant to adopt new products due
to a lack of familiarity with our blendstocks even though our
gasoline and diesel blendstocks meet industry specifications. In
addition, our renewable transportation fuels may need to satisfy
product certification requirements of equipment manufacturers.
For example, fleet owners may need to certify that the use of
our renewable transportation fuels in their vehicles will not
invalidate product warranties. If we are unable to convince
prospective customers that our gasoline and diesel blendstocks
are compatible with their existing processes or that the use of
our products is otherwise to their benefit, our business will be
adversely affected.
We
have limited experience in structuring arrangements with
prospective customers for the purchase of our renewable
transportation fuels, including price mechanisms that allow us
to realize the benefit of any government incentives our
renewable transportation fuels generate for ourselves or our
potential customers, and we may not succeed in this essential
aspect of our business.
We have not yet completed the commercial development of our
renewable transportation fuels, and we have limited experience
structuring arrangements with potential customers that would
allow us to benefit from new government incentives for renewable
fuels. Our pricing formula with these potential customers must
be designed to allow us to realize the benefits of cellulosic
biofuel renewable identification number, or RIN, credits,
cellulosic biofuel tax credits and other government incentives
we generate for ourselves or our customers. Markets that value
cellulosic biofuel RIN credits and other government incentives
may take a long period of time to develop or may not materialize
at all. These events could delay our ability to capitalize on
the opportunities presented to us by our technology, including
preventing us from achieving commercialization of our renewable
transportation fuels.
Further, we plan to sell large amounts of our products to
specific potential customers, and this will require that we
effectively negotiate contracts for these relationships. The
companies with which we expect to have customer arrangements
generally are much larger and have substantially greater
bargaining power than us. As a result, we may be ineffective in
negotiating the terms of our relationships with these companies,
which could adversely affect our future results of operations.
The
price of renewable fuel credits may reduce demand for our
products.
RFS2 allows additional RIN credits to be granted to obligated
parties who blend into their fuel more than the required
percentage of renewable fuels in a given year. These credits may
be traded to other parties or may be used in subsequent years to
satisfy RFS2 requirements. The trading prices of renewable fuel
and advanced biofuel RIN credits are influenced by, among other
factors, the transportation costs associated with renewable
fuels, the mandated level of renewable fuel use for a specific
year, the possibility of waivers of renewable fuel mandates and
the expected supply of renewable fuel products. Any reduction in
the cost of RIN credits could reduce the demand for our
renewable transportation fuels.
Our future success may depend on our ability to produce our
renewable transportation fuels without government incentives on
a cost-competitive basis with petroleum-based fuels. If current
or anticipated government incentives are reduced significantly
or eliminated and petroleum-based fuel prices are lower or
comparable to the cost of our renewable transportation fuels,
demand for our products may decline, which could adversely
affect our future results of operations.
16
Changes
in government regulations, including mandates, tax credits,
subsidies and other incentives, could have a material adverse
effect upon our business and results of
operations.
The market for renewable fuels is heavily influenced by foreign,
federal, state and local government regulations and policies.
Changes to existing, or adoption of new foreign, federal, state
and local legislative and regulatory initiatives that impact the
production, distribution or sale of renewable fuels may harm our
business. For example, RFS2 currently calls for 14 billion
gallons of liquid transportation fuels sold in 2011 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. In the
United States and in a number of other countries, regulations
and policies like RFS2 have been modified in the past and may be
modified again in the future. In the United States, 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 research and development of renewable
fuels. The Administrator could also revise qualification
standards for renewable fuels in ways that increase our expenses
by requiring different feedstocks, imposing extensive tracking
and sourcing requirements, or prevent our process from
qualifying as a renewable fuel under RFS2.
In addition, the U.S. Congress has passed legislation that
extends tax credits for, among other things, the production of
certain renewable fuel products as contemplated by our current
process design. However, we cannot assure you that this or any
other favorable legislation will remain in place. Any reduction
in or phasing out or elimination of existing tax credits,
subsidies and other incentives in the United States and foreign
markets for renewable fuels, or any inability of us or our
prospective customers to access such credits, subsidies and
other incentives, may adversely affect demand for, and increase
the overall cost of our renewable transportation fuels, which
would adversely affect our business. In addition, market
uncertainty regarding future policies may also affect our
ability to develop new renewable products 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.
We may
be unable to realize expected economies of scale, reduce our
feedstock costs, increase our overall yields and optimize the
composition of our renewable transportation fuels, which could
limit our ability to sell our products at competitive prices and
materially and adversely affect our business and
prospects.
We may be unable to realize expected economies of scale, reduce
our feedstock costs, increase our overall yields and optimize
the composition of our renewable crude oil in order to produce
our renewable fuel products on a cost-competitive basis with
existing petroleum-based fuel products without government
incentives. In particular, we may be unsuccessful in
incorporating lower grade woody biomass, such as logging
residues, branches and bark, in our process to reduce our
feedstock costs or maintain our yields. In addition, our
research and development efforts may fail to increase the yield
of our BFCC process such that we may be unable to produce
renewable transportation fuels at the costs or in the quantities
that we anticipate. Our failure to achieve these efficiencies or
improvements over time could limit our ability sell our products
at competitive prices and materially and adversely affect our
business and prospects.
The
production of our renewable transportation fuels will require
significant amounts of feedstock, and we may be unable to
acquire sufficient amounts of feedstock to produce the amount of
our products that we commit to sell to potential customers, or
we may experience difficulties or incur costs obtaining such
feedstock.
The successful commercialization of our renewable transportation
fuels will require us to acquire and process large amounts of
feedstock, which primarily will be Southern Yellow Pine whole
tree chips. We may experience difficulties in obtaining access
to feedstock and transporting feedstock to our commercial
production facilities. Our access to feedstock may be adversely
affected by weather or actions by landowners,
17
sellers or competing buyers of feedstock. In addition, fires or
other natural disasters in the vicinity of our commercial
production facilities could affect the availability of
feedstock. We may be unable to secure access to feedstock or to
secure the transportation of feedstock to our planned commercial
production facilities on terms acceptable to us or at all. If we
are unable to secure cost-effective access to feedstock, our
ability to produce our renewable transportation fuels would be
adversely affected.
The
price of woody biomass and other renewable feedstock could
increase or become volatile, or their availability could be
reduced, which would increase the production costs of our
renewable transportation fuels.
The price of woody biomass and other renewable feedstock may
increase or become volatile due to changes in demand, such as
the increased use of such feedstock in the generation of
renewable electricity. Such changes would result in higher
feedstock prices
and/or a
significant decrease in the volume of woody biomass and other
renewable feedstock available for the production of the
renewable transportation fuels we plan to sell, which could
adversely affect our business and results of operations.
We may
be unable to locate facilities near low-cost, abundant and
sustainable sources of biomass and adequate infrastructure,
which may affect our ability to produce cost-effective renewable
transportation fuels.
Our business model and the successful commercialization of our
renewable transportation fuels will depend on our ability to
locate commercial production facilities near low-cost, abundant
and sustainable sources of renewable biomass and in proximity to
adequate infrastructure. Our ability to place facilities in
locations where we can economically produce our renewable
transportation fuels from nearby feedstock and transport those
fuels to potential customers will be subject to the availability
and cost of land, the availability of adequate infrastructure
and skilled labor resources in such areas, and to legal and
regulatory risks related to land use, permitting and
environmental regulations. If we are unable to locate facilities
at sites that allow economical production and transport of our
products, our ability to produce renewable transportation fuels
cost-effectively could be adversely affected.
A
disruption in our supply chain for components of our proprietary
catalyst system could materially disrupt or impair our ability
to produce renewable transportation fuels.
We rely on third parties to supply the components of our
proprietary catalyst system and, although we currently prepare
finished catalyst ourselves, we may require third parties to
provide commercial supply of finished catalyst. Our operations
could be materially disrupted if we lose any of these suppliers
or if any supplier experiences a significant interruption in its
manufacturing and is unable provide an adequate supply of these
components to meet our demand. Any such disruptions or delays
could have a material adverse effect on our business and results
of operations.
Our
business will be subject to fluctuations in commodity
prices.
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 gasoline and diesel
blendstocks as alternatives to corresponding petroleum-based
fuels. If the price of petroleum-based fuels declines, we may be
unable to produce gasoline and diesel blendstocks that are
cost-effective alternatives to their petroleum-based
counterparts. 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.
Petroleum prices have been extremely volatile. Lower petroleum
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 developed and produced.
If petroleum 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.
18
In addition, our commercial production facilities may use
significant amounts of natural gas to operate. Accordingly, our
business depends on natural gas supplied by third parties. An
increase in the price of natural gas could adversely affect our
results of operations and financial condition.
Growth
may place significant demands on our management and our
infrastructure.
We have experienced, and may continue to experience, expansion
of our business as we continue to make efforts to develop and
bring our products to market. Our growth and operations have
placed, and may continue to place, significant demands on our
management and our operational and financial infrastructure.
Managing our growth will require significant expenditures and
allocation of valuable management resources. If we fail to
achieve the necessary level of efficiency in our organization as
it grows, 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.
The production of renewable fuels involves the emission of
various airborne pollutants. As a result, we are subject to
several different environmental laws, regulations and permitting
requirements administered by the EPA and the states where our
facilities are and may be located, including Clean Air Act, or
CAA, requirements. These laws, regulations and permitting
requirements may restrict our emissions, affect our ability to
make changes to our operations, and otherwise impose limitations
on or require controls on our operations. In addition to costs
that we expect to incur to achieve and maintain compliance with
these laws, new or more stringent CAA standards or other
environmental requirements in the future also may limit our
operating flexibility or require the installation of new
controls 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 and local laws and regulations governing the 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, transporting, handling or disposal of
hazardous materials. In the event of contamination or injury, we
could be 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. 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.
Environmental laws could become more stringent over time,
imposing greater compliance costs and increasing risks and
penalties associated with violations, which could impair our
research, development or production efforts and harm our
business. Later-enacted federal and state 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.
Climate
change legislation, regulatory initiatives and litigation could
result in increased operating costs.
In recent years, the U.S. Congress has been considering
legislation to restrict or regulate emissions of greenhouse
gases, or GHGs, such as carbon dioxide and methane, that are
understood to contribute to global warming. In addition, almost
half of the 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. For
example, on December 15, 2009, the EPA officially published
its findings that emissions of carbon dioxide, methane and other
GHGs present an endangerment to human health and the environment
because emissions of such gases are, according to the EPA,
contributing to
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warming of the earths atmosphere and other climatic
changes. In 2009, the EPA adopted rules regarding regulation of
GHG emissions from motor vehicles. In addition, on
September 22, 2009, the EPA issued a final rule requiring
the reporting of greenhouse gas emissions from specified large
greenhouse gas emission sources in the United
States beginning in 2011 for emissions occurring in 2010.
In June 2010, the EPA also issued a final rule, known as the
Tailoring Rule, that makes certain large stationary
sources and modification projects subject to permitting
requirements for greenhouse gas emissions under the CAA.
Furthermore, legislation to delay or reduce the EPAs
ability to proceed with the regulation of GHGs continues to be
considered by Congress.
At this time, the projected GHG emissions from our facilities,
including our initial-scale commercial production facility under
construction in Columbus, Mississippi, would not meet the
applicable thresholds for GHG permitting or reporting
requirements. Although it is not possible at this time to
accurately estimate how potential future laws or regulations
addressing GHG emissions would impact our business, any future
federal laws or implementing regulations that may be adopted to
address GHG emissions 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 emissions of GHGs could include new or increased costs
to operate and maintain our facilities, install new emission
controls on our facilities, acquire allowances to authorize our
GHG emissions, pay any taxes related to our GHG emissions and
administer and manage a GHG emissions program. 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
management or key technical and operational employees, or the
failure to attract 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 process development program
depends on our ability to attract and retain 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
production facilities to bring our products to market will
require the expertise of individuals experienced and skilled in
managing complex,
first-of-kind
capital development projects.
All of our employees are at-will employees, which means that
either the employee or we may terminate their employment at any
time. 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 products, meet the demands of our
potential customers in a timely fashion or to support our
internal research and development programs, which could impair
our ability to meet our business objectives and adversely affect
our results of operations and financial condition.
Weather,
natural disasters and accidents may significantly affect our
results of operations and financial condition.
Our corporate headquarters, pilot plant and demonstration unit
are located outside of Houston, Texas, which is an area exposed
to and affected by hurricanes. Major hurricanes may cause
significant disruption in our operations on the U.S. Gulf
Coast, logistics across the region and the supply of feedstock,
which could have an adverse impact on our operations. We do not
have a detailed disaster recovery plan. In addition, we may not
carry sufficient business insurance to compensate us for losses
that may occur. We are not insured against environmental
pollution resulting from environmental accidents that occur on a
sudden and accidental
20
basis, some of which may result in toxic tort claims. Any losses
or damages could have a material adverse effect on our cash
flows and success as an overall business.
We may
be subject to product liability claims and other claims of our
potential customers.
The design, development, production and sale of our renewable
transportation fuels involve an inherent risk of product
liability claims and the associated adverse publicity. We may be
named in product liability suits relating to our gasoline and
diesel blendstocks or the finished gasoline and diesel fuel
containing our blendstocks, even for defects resulting from
errors of our potential customers. 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 customers.
In addition, our potential customers may bring suits against us
alleging damages for the failure of our products 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, including indemnification from
customers for such product liability claims, 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. We cannot assure you that our potential
customers will 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 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 stock
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:
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our ability to achieve or maintain profitability;
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the feasibility of producing our renewable transportation fuels
on a commercial scale;
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our ability to manage our growth;
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fluctuations in the price of and demand for petroleum-based
products;
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the availability of cost-effective renewable feedstock sources;
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the existence of government programs and incentives or
regulation;
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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;
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our ability to obtain, protect and enforce our intellectual
property rights;
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potential advantages that our competitors and potential
competitors may have in securing funding or developing projects;
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our ability to obtain additional capital that may be necessary
to expand our business;
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business interruptions such as hurricanes, natural disasters and
accidents;
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our ability to comply with laws and regulations;
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our ability to properly handle and dispose of hazardous
materials used in our business; and
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our ability to use our net operating loss carryforwards to
offset future taxable income.
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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.
Our
ability to use our net operating loss carryforwards to offset
future taxable income may be subject to certain
limitations.
In general, under Section 382 of the U.S. Internal
Revenue Code of 1986, as amended, a corporation that undergoes
an ownership change is subject to limitations on its
ability to utilize its pre-change net operating loss
carryforwards, or NOLs, to offset future taxable income. We have
not performed a detailed analysis to determine whether an
ownership change under Section 382 of the Internal Revenue
Code has occurred after each of our previous issuances of common
stock, preferred stock and convertible debt. In addition, if we
undergo an ownership change in connection with or after this
public offering, our ability to utilize NOLs could be limited by
Section 382 of the Internal Revenue Code. Future changes in
our stock ownership, some of which are outside of our control,
could result in an ownership change under Section 382 of
the Internal Revenue Code. Furthermore, our ability to utilize
NOLs of companies that we may acquire in the future may be
subject to limitations.
If we
fail to maintain an effective system of internal controls, we
might be unable to report our financial results accurately or
prevent fraud; in that case, our stockholders could lose
confidence in our financial reporting, which would harm our
business and could negatively impact the price of our
stock.
Effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud. In addition,
Section 404 of the Sarbanes-Oxley Act of 2002, or
Sarbanes-Oxley Act, will require us and our independent
registered public accounting firm to evaluate and report on our
internal control over financial reporting beginning with our
Annual Report on
Form 10-K
for the year ending December 31, 2012. The process of
implementing our internal controls and complying with
Section 404 will be expensive and time consuming, and will
require significant attention of management. We cannot be
certain that these measures will ensure that we implement and
maintain adequate controls over our financial processes and
reporting in the future. Even if we conclude, and our
independent registered public accounting firm concurs, that our
internal control over financial reporting provides reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles,
because of its inherent limitations, internal control over
financial reporting may not prevent or detect fraud or
misstatements. Failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our results of operations or cause us to fail to meet
our reporting obligations. If we or our independent registered
public accounting firm discover a material weakness, the
disclosure of that fact, even if quickly remedied, could reduce
the markets confidence in our financial statements and
harm our stock price. In addition, a delay in compliance with
Section 404 could subject us to a variety of administrative
sanctions, including Securities and Exchange Commission, or SEC,
action, ineligibility for short form resale registration, the
suspension or delisting of our Class A common stock from
The Nasdaq Global Market and the inability of registered
broker-dealers to make a market in our Class A common
stock, which would further reduce our stock price and could harm
our business.
Implementing
a new enterprise resource planning system could interfere with
our business or operations and could adversely impact our
financial position, results of operations and cash
flows.
We are in the process of implementing a new enterprise resource
planning, or ERP, system. This project requires significant
investment of capital and human resources, the re-engineering of
many processes of our business, and the attention of many
employees who would otherwise be focused on other aspects of our
business. Any disruptions, delays or deficiencies in the design
and implementation of the new ERP system could result in
potentially much higher costs than we had anticipated and could
adversely affect our ability to develop and commercialize
products, provide services, fulfill contractual obligations,
file reports with the SEC in a timely manner
and/or
otherwise operate our business, or otherwise impact our controls
environment. Any of these consequences could have an adverse
effect on our results of operations and financial condition.
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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, which could have an adverse effect on
our operating results.
We expect to focus our initial business and operations in the
United States; however, international expansion is one of our
growth strategies. If and when we expand internationally, our
operations will be subject to a variety of risks that we do not
face in the United States including:
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building and managing experienced foreign workforces and
overseeing and ensuring the performance of foreign
subcontractors;
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increased travel, infrastructure and legal and compliance costs
associated with multiple international locations;
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additional withholding taxes or other taxes on our foreign
income, and tariffs or other restrictions on foreign trade or
investment;
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imposition of, or unexpected adverse changes in, foreign laws or
regulatory requirements, many of which differ from those in the
United States;
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increased exposure to foreign currency exchange rate risk;
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longer payment cycles for sales in some foreign countries and
potential difficulties in enforcing contracts and collecting
accounts receivable;
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difficulties in repatriating overseas earnings;
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general economic conditions in the countries in which we
operate; and
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political unrest, war, incidents of terrorism or responses to
such events.
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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 may not be
successful in developing and implementing policies and
strategies that will be effective in managing these risks 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.
Risks
Related to Our Intellectual Property
There
are many companies developing technology in this area of
business, and other parties may have intellectual property
rights which could limit our ability operate
freely.
Our commercial success depends on our ability to operate without
infringing the patents and proprietary rights of other parties
and without breaching any agreements we enter. We are aware of
other parties applying various technologies, including FCC, to
make renewable transportation fuels from biomass. We cannot
determine with certainty whether patents of other parties may
materially affect our ability to conduct our business. Because
patent applications can take several years to issue, there may
currently be pending applications, unknown to us, that may
result in issued patents that cover our technologies or product
candidates. We are aware of a significant number of patents and
patent applications relating to aspects of our technologies
filed by, and issued to, third parties. The existence of
third-party patent applications and patents could significantly
reduce the scope of coverage of any patents granted to us and
limit our ability to obtain meaningful patent protection.
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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 a
license is available, or redesign our technology. We could
otherwise face a number of other issues that could seriously
harm our competitive position, including:
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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 attention from our business;
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substantial damages for past infringement, which we may have to
pay if a court determines that our products or technologies
infringe upon a competitors patent or other proprietary
rights;
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a court prohibition from selling or licensing our technologies
or future products unless the holder licenses the patent or
other proprietary rights to us, which it would not be required
to do; and
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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.
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Many of our employees were previously employed at specialty
chemical, oil and forest products companies, including our
competitors or potential competitors. We may be subject to
claims that these employees or we have inadvertently or
otherwise used or disclosed trade secrets or other proprietary
information of their former employers. 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 certain activities. A loss of key research
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 for our technologies and products and potential
products in the United States and other countries. We have
adopted a strategy of seeking patent protection in the United
States and in foreign countries with respect to certain of the
technologies used in or relating to our products and processes.
As of June 9, 2011, we had 70 pending original patent
application families containing over 2,000 pending claims. These
intellectual property claims cover different aspects of our
technology, and many of them have been or will be filed both in
the United States and in various foreign jurisdictions. These
patent applications and granted patent are directed to aspects
of our technology and/or to our methods and products that
support our business. However, the issuance and enforcement of
patents involves complex legal and factual questions.
Accordingly, we cannot be certain that the patent applications
that we file will result in patents being issued, or that our
patent and any patents that may be issued to us will cover our
technology or the methods or products that support our
business, or afford protection against competitors with
similar technology. Moreover, the issuance of a patent is not
conclusive as to its validity, scope or enforceability, and
competitors might successfully challenge the validity, scope or
enforceability of any issued patents should we try to enforce
them. In addition, patent applications filed in foreign
countries are subject to laws, rules and procedures that differ
from those of the United States, and thus we cannot be certain
that foreign patent applications will be granted even if
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, because we may be unable
to monitor the processes and materials employed by other
parties, and the end products of our proprietary technology may
be commodities from which it would be difficult to ascertain the
methods or materials used in their manufacture. We cannot be
certain that the steps we have taken will prevent unauthorized
use of our technology,
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particularly in foreign countries where enforcement of
intellectual property rights is more difficult than in the
United States. Proceedings to enforce or defend our
intellectual property rights could result in substantial costs,
even if the eventual outcome were favorable to us, and would
divert both funds and other of our 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. 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 significantly 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 cause harm to our
business.
Confidentiality
agreements with employees and others may not adequately prevent
disclosures of trade secrets and other proprietary
information.
We rely in part on trade secret protection to protect our
confidential and proprietary information and processes. However,
trade secrets are difficult to protect. We have taken measures
to protect our trade secrets and proprietary information, 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.
These agreements generally require that all confidential
information developed by the individual or made known to the
individual by us during the course of the individuals
relationship with us be kept confidential and not disclosed to
third parties. Nevertheless, our proprietary information may be
disclosed, third parties could reverse engineer our catalyst
systems and others may independently develop substantially
equivalent proprietary information and techniques or otherwise
gain access to our trade secrets. Costly and time-consuming
litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain
trade secret protection could adversely affect our competitive
business position.
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 proprietary technologies that produce interchangeable
products in large volumes and at costs below the prevailing
market prices for our 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
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 limit our
products or potential products increases, which could lead to
litigation.
In addition, various governments have recently announced a
number of spending programs focused on the development of clean
technology, including alternatives to petroleum-based fuels and
the reduction of carbon emissions. Such spending programs could
lead to increased funding for our competitors or the rapid
increase in the number of competitors within those markets.
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.
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Risks
Related to Securities Markets and Investments in Our
Class A Common Stock
No
public market for our Class A common stock currently exists
and an active trading market may not develop or be sustained
following this offering.
Prior to this offering, there has been no public market for our
Class A common stock. An active trading market may not
develop following the completion of this offering or, if
developed, may not be sustained. The lack of an active market
may impair your ability to sell your shares at the time you wish
to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market 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 offering price.
The initial public offering price for our shares will be
determined by negotiations between us and representatives of the
underwriters and may not be indicative of prices that will
prevail in the trading market. The market price of shares of our
Class A common stock could be subject to wide fluctuations
in response to many risk factors listed in this section, and
others beyond our control, including:
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actual or anticipated fluctuations in our financial condition
and operating results;
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the position of our cash, cash equivalents and marketable
securities;
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actual or anticipated changes in our growth rate relative to our
competitors;
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actual or anticipated fluctuations in our competitors
operating results or changes in their growth rate;
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announcements of technological innovations by us, our
collaborators or our competitors;
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announcements by us, our customers or our competitors of
significant acquisitions, strategic partnerships, joint ventures
or capital commitments;
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the entry into, modification or termination of customer
contracts;
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additions or losses of customers;
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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;
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issuance of new or updated research reports by securities or
industry analysts;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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disputes or other developments related to proprietary rights,
including patents, litigation matters and our ability to obtain
patent protection for our technologies;
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changes in existing laws, regulations and policies applicable to
our business and products, including RFS2, and the adoption or
failure to adopt carbon emissions regulation;
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announcement or expectation of additional financing efforts;
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sales of our common stock by us, our insiders or our other
stockholders;
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share price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
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general market conditions in our industry; and
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general economic and market conditions, including the recent
financial crisis.
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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
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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 shares of our Class A common stock. If the
market price of shares of our Class A common stock after
this offering does not exceed the initial public offering price,
you may not realize any return on your investment in us and may
lose some or all of your investment. In the past, companies that
have experienced volatility in the market price of their stock
have been subject to securities class action litigation. We may
be the target of this type of litigation in the future.
Securities litigation against us could result in substantial
costs and divert our managements attention from other
business concerns, which could harm our business.
Holders
of our Class A common stock, which is the stock we are
selling in this offering, are entitled to one vote per share,
and holders of our Class B common stock are entitled to 10
votes per share. The lower voting power of our Class A
common stock may negatively affect the attractiveness of our
Class A common stock to investors and, as a result, its
market value.
Upon completion of this offering, we will have two classes of
common stock: Class A common stock, which is the stock we
are selling in this offering and which is entitled to one vote
per share, and Class B common stock, which is entitled to
10 votes per share. The difference in the voting power of our
Class A common stock and Class B common stock may have
the effect of delaying or preventing a change in control of our
company otherwise favored by stockholders otherwise holding a
majority of our common stock and could diminish the market value
of our Class A common stock because of the superior voting
rights of our Class B common stock and the power those
rights confer.
For
the foreseeable future, Khosla Ventures will be able to control
the selection of all members of our Board of Directors, as well
as virtually every other matter that requires stockholder
approval, which will severely limit the ability of other
stockholders to influence corporate matters.
Except in certain limited circumstances required by applicable
law, holders of Class A common stock and Class B
common stock vote together as a single class on all matters to
be voted on by our stockholders. Immediately following the
completion of this offering, entities affiliated with Khosla
Ventures will own 74.8% of our Class B common stock, which,
together with the Class A common stock held by them,
assuming the purchase of 3,500,000 shares of our Class A
common stock that may be acquired in this offering by entities
affiliated with Khosla Ventures, will represent 72.4% of the
combined voting power of our outstanding Class A common
stock and Class B common stock. Under our amended and
restated certificate of incorporation that will become effective
prior to the completion of this offering, holders of shares of
Class B common stock may generally transfer those shares to
affiliated entities, without having the shares automatically
convert into shares of Class A common stock. Therefore,
Khosla Ventures will, for the foreseeable future, be able to
control the outcome of the voting on virtually all matters
requiring stockholder approval, including the election of
directors and significant corporate transactions such as an
acquisition of our company, even if they come to own, in the
aggregate, as little as 10% of the economic interest of the
outstanding shares of our Class A common stock and
Class B common stock. Moreover, Khosla Ventures may take
actions in their own interests that you or our other
stockholders do not view as beneficial. Please read
Principal Stockholders and Description of
Capital Stock.
As an example of how Khosla Ventures interests may differ
from other stockholders, Khosla Ventures has advised us as
follows: Khosla Ventures believes that promoting energy
independence and a sustainable environment are the most
important issues facing society today. Khosla Ventures
goal is to invest in products and services that will better the
lives of as many people as possible by fundamentally altering
the way the world produces and consumes energy. In pursuing that
goal, Khosla Ventures makes investments and decisions that may
give priority to long-term financial returns over short-term
financial returns. Khosla Ventures believes that considering
environmental, social and other consequences are important in
maximizing stockholder value over the long term and that high
risk projects may generate the highest long term returns.
Further, the objectives and goals of Khosla Ventures relating to
its investments may change over time. As a result of the
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foregoing, you should be aware that Khosla Ventures may vote its
shares of common stock in a way our other stockholders do not
view as beneficial.
Investors
in our Class A common stock will not have the same
protections generally available to stockholders of other
Nasdaq-listed companies because we are a controlled
company within the meaning of the Nasdaq Listing
Rules.
Khosla Ventures controls a majority of our outstanding common
stock and will continue to control a majority of our common
stock upon completion of this offering. As a result, we are a
controlled company within the meaning of Nasdaq
Listing Rule 5615(c). As a controlled company, we qualify
for, and our Board of Directors may and intends to rely upon,
exemptions from several corporate governance requirements,
including requirements that:
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a majority of the Board of Directors consist of independent
directors;
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compensation of officers be determined or recommended to the
Board of Directors by a majority of the Boards independent
directors or by a compensation committee comprised solely of
independent directors; and
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director nominees be selected or recommended to the Board of
Directors by a majority of the Boards independent
directors or by a nominating committee that is composed entirely
of independent directors.
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Additionally, Khosla Ventures will be able to have its nominees
represented on our compensation committee and our corporate
governance and nominating committee. Accordingly, investors in
our Class A common stock will not be afforded the same
protections generally as stockholders of other Nasdaq-listed
companies for so long as Khosla Ventures designees to our
Board of Directors represent a majority of our board and
determine to rely upon such exemptions. Please read
For the foreseeable future, Khosla Ventures
will be able to control the selection of all members of our
Board of Directors, as well as virtually every other matter that
requires stockholder approval, which will severely limit the
ability of other stockholders to influence corporate
matters for more information on the risks we face in
connection with our initial investors ability to control
the outcome of virtually all stockholder votes.
A
significant portion of our total outstanding shares of common
stock is restricted from immediate resale but may be sold into
the market in the near future. This could cause the market price
of our Class A common stock to drop significantly, even if
our business is doing well.
Sales of a substantial number of shares of our common stock in
the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares of common stock intend to sell shares, could reduce the
market price of our Class A common stock. As of
April 30, 2011, entities affiliated with Khosla Ventures,
entities affiliated with Artis Capital Management, L.P.,
entities affiliated with Alberta Investment Management
Corporation and BIOeCON B.V. beneficially own, collectively,
approximately 97.3% of our outstanding common stock. If one or
more of them were to sell a substantial portion of the shares
they hold, it could cause our stock price to decline. Based on
shares outstanding as of April 30, 2011, upon completion of
this offering, we will have approximately 38 million
outstanding shares of Class A common stock and
approximately 62 million outstanding shares of Class B
common stock, assuming no exercise of the underwriters
over-allotment option to purchase additional shares. As of the
date of this prospectus, assuming the purchase of
3.5 million shares of our Class A common stock in this
offering by entities affiliated with Khosla Ventures,
approximately 93 million shares of common stock will be
subject to a
180-day
contractual
lock-up with
the underwriters and approximately 46 million shares of
common stock will be subject to a
360-day
contractual lock-up with the underwriters. Of the shares subject
to a contractual lock-up with the underwriters, approximately 43
million shares of common stock also will be subject to a
180-day
contractual
lock-up with
us.
After this offering, holders of an aggregate of approximately 73
million shares of our common stock will have rights, subject to
some conditions, to require us to file registration statements
covering their shares or to include their shares in registration
statements that we may file for ourselves or other stockholders.
28
In addition, as of April 30, 2011, there were
14,793,200 shares subject to outstanding options granted
under our amended and restated 2007 Stock Option/Stock Issuance
Plan that will become eligible for sale in the public market to
the extent permitted by any applicable vesting requirements, the
lock-up
agreements and Rules 144 and 701 under the Securities Act
of 1933. We intend to register the shares of Class A common
stock issuable upon exercise of these options, plus any
additional shares Class A of common stock reserved for
future grant that remain unissued under our amended and restated
2007 Stock Option/Stock Issuance Plan. We also intend to
register all 9,983,600 shares of Class A common stock
that we may issue under the 2011 Long-Term Incentive Plan that
we intend to adopt. Once we register these shares, they can be
freely sold in the public market upon issuance and once vested,
subject to the
180-day
lock-up
periods under the
lock-up
agreements described in the Underwriting section of
this prospectus.
Participation
in this offering by entities affiliated with Khosla Ventures
would reduce the available public float for our
shares.
Entities affiliated with Khosla Ventures and Artis Capital
Management, L.P., two of our principal investors, have indicated
an interest in purchasing shares of our Class A common
stock in this offering at the initial public offering price up
to an aggregate of 3,500,000 shares. Because this
indication of interest is not a binding agreement or commitment
to purchase, these existing investors may elect not to purchase
shares in this offering. Assuming an initial public offering
price of $20.00 per share, which is the midpoint of the price
range set forth on the cover page of this prospectus, if these
existing investors were to purchase all of these shares, they
would purchase $70 million of our Class A common stock
in this offering.
If entities affiliated with Khosla Ventures are allocated all or
a portion of the shares in which they have indicated an interest
in this offering and purchase any such shares, such purchase
would reduce the available public float for our shares because
they would be restricted from selling the shares by
lock-up
agreements they have entered into with our underwriters and by
restrictions under applicable securities laws. As a result, any
purchase of shares by entities affiliated with Khosla Ventures
in this offering may reduce the liquidity of our Class A
common stock relative to what it would have been had these
shares been purchased by investors that were not affiliated with
us.
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 shares of our common
stock based on the total value of our tangible assets less our
total liabilities immediately following this offering.
Therefore, if you purchase shares of our Class A common
stock in this offering, you will experience immediate and
substantial dilution of approximately $16.97 per share in the
price you pay for shares of our Class A common stock as
compared to its tangible book value, assuming an initial public
offering price of $20.00 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 shares
of common stock are exercised, there will be further dilution.
For further information on this calculation, please read
Dilution elsewhere in this prospectus.
If
securities or industry analysts do not publish research or
reports about our business, or publish negative reports about
our business, our stock price and trading volume could
decline.
The trading market for our Class A common stock 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 any of the analysts who may cover
us change their recommendation regarding our stock adversely, or
provide more favorable relative recommendations about our
competitors, our stock price would likely decline. If any
analyst 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 stock price or trading volume to decline.
29
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. 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.
We
will incur significant increased costs as a result of operating
as a public company, and our management will be required to
devote substantial time to new compliance
initiatives.
We have never operated as a stand-alone public company. As a
public company, we will incur significant legal, accounting and
other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act, as well as related rules
implemented by the SEC and The Nasdaq Global Market, imposes
various requirements on public companies. Our management and
other personnel will need to devote a substantial amount of time
to these compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance
costs and will make some activities more time-consuming and
costly. For example, we expect these rules and regulations to
make it more expensive for us to maintain director and officer
liability insurance.
We do
not anticipate paying any cash dividends in the foreseeable
future, and accordingly, stockholders must rely on stock
appreciation for any return on their investment.
After the completion of this offering, we do not anticipate
declaring any cash dividends to holders of our common stock in
the foreseeable future. Consequently, investors must rely on
sales of their Class A common stock after price
appreciation, which may never occur, as the only way to realize
any future gains on their investment. Investors seeking cash
dividends should not invest our Class A common stock.
Anti-takeover
provisions contained in our certificate of incorporation and
bylaws, as well as provisions of Delaware law, could impair a
takeover attempt.
Our amended and restated certificate of incorporation and our
amended and restated bylaws to be effective upon the completion
of this offering will contain provisions that could delay or
prevent a change in control of our company. These provisions
could also make it more difficult for stockholders to elect
directors and take other corporate actions. These provisions
include:
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dual class of common stock with each share of Class B
common stock entitled to 10 votes while each share of
Class A common stock is entitled only to one vote;
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authorizing the Board of Directors to issue, without stockholder
approval, preferred stock with rights senior to those of our
common stock;
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authorizing the Board of Directors to amend our bylaws and to
fill board vacancies until the next annual meeting of the
stockholders;
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prohibiting stockholder action by written consent;
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limiting the liability of, and providing indemnification to, our
directors and officers;
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not authorizing our stockholders to call a special stockholder
meeting; and
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requiring advance notification of stockholder nominations and
proposals.
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30
As a Delaware corporation, we are subject to Section 203 of
the Delaware General Corporation Law, which, subject to some
exceptions, prohibits business combinations between
a Delaware corporation and an interested
stockholder, which is generally defined as a stockholder
who becomes a beneficial owner of 15% or more of a Delaware
corporations voting stock, for a three-year period
following the date that the stockholder became an interested
stockholder.
These and other provisions in our amended and restated
certificate of incorporation and our amended and restated bylaws
to be effective upon the completion of this offering and under
Delaware law could discourage potential takeover attempts,
reduce the price that investors might be willing to pay in the
future for shares of our common stock and result in the market
price of our common stock being lower than it would be without
these provisions. Please read Description of Capital
Stock Common Stock Voting Rights,
Preferred Stock and
Anti-Takeover Provisions.
31
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled
Prospectus Summary, Risk Factors,
Use of Proceeds, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and Business, contains
forward-looking statements. All statements other than statements
of historical facts contained in this prospectus, including
statements regarding our future results of operations and
financial position, business strategy and plans and our
objectives for future operations, are forward-looking
statements. The words believe, may,
will, estimate, continue,
anticipate, intend, expect
and similar expressions are intended to identify forward-looking
statements. We have based these forward-looking statements
largely on our current expectations and projections about future
events and financial trends that we believe may affect our
financial condition, results of operations, business strategy,
short-term and long-term business operations and objectives, and
financial needs.
In particular, forward-looking statements in this prospectus
include statements about:
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the size of the potential markets for our gasoline and diesel
blendstocks;
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the expected production costs and cost-competitiveness of our
gasoline and diesel blendstocks;
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the anticipated performance attributes of our renewable crude
oil and gasoline and diesel blendstocks;
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the accuracy of our estimates regarding expenses, future revenue
and capital requirements;
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the timing of the construction and commencement of operations at
our planned commercial production facilities;
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achievement of advances in our technology platform and process
design, including improvements to our yield;
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our ability to produce renewable crude oil and blendstocks at
commercial scale;
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our ability economically to obtain feedstock;
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our ability to locate production facilities near low-cost,
abundant and sustainable feedstock;
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the future price and volatility of petroleum-based products and
of our current and future feedstocks;
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government regulatory certification, including certification of
our gasoline and diesel blendstocks as cellulosic biofuels and
registration of our blendstocks with the U.S. Environmental
Protection Agency as fuels, and industry acceptance of our
gasoline and diesel blendstocks, as well as certification,
registration and acceptance of our blendstocks for use in jet
fuel;
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government policymaking and incentives relating to renewable
fuels;
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our ability to obtain and retain potential customers for our
gasoline and diesel blendstocks;
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our ability to hire and retain skilled employees;
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our ability to obtain and maintain intellectual property
protection for our products and processes; and
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the ability of our competitors, many of whom have greater
resources than we do, to offer alternatives to our gasoline and
diesel blendstocks.
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These forward-looking statements are subject to a number of
risks, uncertainties and assumptions, including those described
in Risk Factors. Moreover, we operate in a
competitive and rapidly changing environment in which new risks
emerge from time to time. It is not possible for our management
to predict all risks. 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.
Although we believe that the expectations reflected in
forward-looking statements are reasonable, we cannot guarantee
that the events and circumstances reflected in the
forward-looking statements will occur or be achieved. Moreover,
neither we nor any other person assumes responsibility for the
accuracy and
32
completeness of the forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements for
any reason after the date of this prospectus, except to the
extent required by law.
You should read this prospectus and the documents that we
reference in this prospectus and have filed with the SEC as
exhibits to the registration statement of which this prospectus
is a part with the understanding that our actual future results,
levels of activity and performance may be materially different
from what we expect.
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
opportunity and market size, is based on the most recently
available information of which we are aware from various
publicly available sources that are not affiliated with us,
including the U.S. Energy Information Administration, PIRA
Energy Group, RISI, Inc. and Timber Mart-South, on assumptions
that we have made that are based on those data and other similar
sources and on our knowledge of the markets for our renewable
crude oil and gasoline and diesel blendstocks. We believe that
the market opportunity and market size information included in
this prospectus is generally reliable; however, these data
involve a number of assumptions and limitations. In addition,
projections, assumptions and estimates of our future performance
and the future performance of the industry in which we operate
is necessarily subject to a high degree of uncertainty and risk
due to a variety of factors, including those described in
Risk Factors and elsewhere in this prospectus. These
and other factors could cause results to differ materially from
those expressed in the estimates made by the independent parties
and by us.
33
USE OF
PROCEEDS
We estimate that our net proceeds from the sale of
10,000,000 shares of Class A common stock in this
offering will be approximately $185.6 million, or
approximately $213.8 million if the underwriters
option to purchase additional shares is exercised in full, based
on an assumed initial public offering price of $20.00 per share
(the midpoint of the price range set forth on the cover page of
this prospectus), and after deducting estimated underwriting
discounts and commissions and estimated offering expenses that
we must pay in connection with this offering. Each $1.00
increase or decrease in the assumed initial public offering
price would increase or decrease, as applicable, our cash and
cash equivalents, working capital, total assets and total
stockholders equity by approximately $9.4 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 the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering to fund a
portion of the capital expenditures, including front-end
engineering and procurement services and long-lead equipment,
for our planned first standard commercial production facility in
Newton, Mississippi. We intend to use any remaining net proceeds
for general corporate purposes, including the costs associated
with being a public company. 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 not declared or paid any cash dividends on our capital
stock, and we do not anticipate paying any cash dividends on our
capital stock in the foreseeable future. We currently expect to
retain all future earnings, if any, in the operation and
expansion of our business and debt repayment. Any future
determination relating to our dividend policy will be at the
discretion of our Board of Directors and will depend on our
results of operations, financial condition, capital requirements
and other factors deemed relevant by our Board of Directors.
34
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2011:
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on an actual basis;
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on an as adjusted basis to give effect to:
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borrowings under our interest-free loan facility from the
Mississippi Development Authority from April 1, 2011
through June 9, 2011 of $26.6 million; and
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the issuance of our Series C convertible preferred stock in
April 2011 in the amount of $55.0 million; and
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on an as further adjusted basis to give additional effect to:
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the automatic conversion of all outstanding shares of our
Series A and
Series A-1
convertible preferred stock into 44,571,576 shares of
Class B common stock and of all outstanding shares of our
Series B and Series C convertible preferred stock into
27,917,302 shares of Class A common stock upon the
completion of this offering;
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the effectiveness of our amended and restated certificate of
incorporation in Delaware upon the completion of this
offering; and
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the issuance by us of 10,000,000 shares of Class A
common stock in this offering and the application of our
estimated net proceeds from this offering as set forth under
Use of Proceeds as if this offering occurred on
March 31, 2011.
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You should read this table together with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements and related notes
included elsewhere in this prospectus.
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March 31, 2011
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As
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As Further
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Actual
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Adjusted
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Adjusted
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(In thousands, except share and per share data)
(Unaudited)
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Cash and cash equivalents(1)
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$
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21,947
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$
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103,560
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$
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289,135
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Convertible preferred stock warrant liability
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$
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4,895
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$
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4,895
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$
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Long-term debt, including current portion, net of discount
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9,234
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35,847
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35,847
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Series A convertible preferred stock, $0.0001 par
value, 24,000,000 shares authorized, 24,000,000 shares
issued and outstanding, actual and as adjusted; no shares
authorized, issued or outstanding, as further adjusted
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4,360
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4,360
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Series A-1
convertible preferred stock, $0.0001 par value,
25,600,000 shares authorized, 20,571,576 shares issued
and outstanding, actual and as adjusted; no shares authorized,
issued or outstanding, as further adjusted
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10,024
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10,024
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Series B convertible preferred stock, $0.0001 par
value, 25,000,000 shares authorized, 24,479,802 shares
issued and outstanding, actual and as adjusted; no shares
authorized, issued or outstanding, as further adjusted
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120,000
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120,000
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Series C convertible preferred stock, $0.0001 par value, no
shares and 13,000,000 shares authorized, actual and as adjusted,
respectively; no shares and 11,219,908 issued and outstanding,
actual and as adjusted, respectively; no shares authorized,
issued or outstanding, as further adjusted
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55,000
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Stockholders equity (deficit):
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Class A common stock, $0.0001 par value,
112,100,000 shares authorized, 70,000 shares issued
and outstanding, actual and as adjusted; 250,000,000 shares
authorized and 37,987,302 shares issued and outstanding, as
further adjusted
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4
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Class B common stock (formerly common stock),
$0.0001 par value, 72,000,000 shares authorized,
17,277,120 shares issued and outstanding, actual and as
adjusted; 72,000,000 shares authorized and 61,848,696 shares
issued and outstanding, as further adjusted
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2
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2
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6
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Preferred stock, $0.0001 par value, no shares authorized,
issued and outstanding, actual; 2,000,000 shares authorized and
no shares issued and outstanding, as adjusted and as further
adjusted
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Additional paid-in capital(1)
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4,908
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4,908
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384,754
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Deficit accumulated during the development stage
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(79,717
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(79,717
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(79,717
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Total stockholders equity (deficit)(1)
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(74,807
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(74,807
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305,047
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Total capitalization(1)
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$
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73,706
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$
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155,319
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$
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340,894
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(1) |
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A $1.00 increase (decrease) in the assumed initial public
offering price of $20.00 per share, (the midpoint of the price
range set forth on the cover page of this prospectus) would
increase (decrease) each of cash and cash equivalents,
additional paid-in capital, total stockholders equity and
total capitalization |
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by $9.4 million, assuming no change in the number of shares
offered by us as set forth on the cover page of this prospectus
and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us. |
The table above excludes the following:
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8,041,880 shares of our Class A common stock issuable
upon the exercise of options to purchase shares of Class A
common stock outstanding as of March 31, 2011, at a
weighted average exercise price of $1.98 per share;
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7,049,454 shares of our Class B common stock issuable
upon the exercise of options to purchase shares of Class B
common stock outstanding as of March 31, 2011, at a
weighted average exercise price of $0.08375 per share;
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456,822 shares of our Class A common stock issuable
upon the exercise of warrants outstanding as of March 31,
2011, at a weighted average exercise price of $2.152 per share;
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18,750 shares (assuming a conversion price that is 80% of
an assumed initial public offering price of $20.00 per share,
the midpoint of the price range set forth on the cover page of
this prospectus) of our Class A common stock issuable upon
the exercise of 61,200 warrants that we were required to issue
as of March 31, 2011 at a weighted-average exercise price
of $4.902 per share;
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411,312 shares of our Class B common stock issuable
upon the exercise of warrants outstanding as of March 31,
2011 at a weighted-average exercise price of $0.4863 per share;
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2,199,936 shares of our Class A common stock reserved
for future issuance as of March 31, 2011 under our amended
and restated 2007 Stock Option/Stock Issuance Plan;
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1,708,266 shares of our Class B common stock reserved
for future issuance as of March 31, 2011 under our amended
and restated 2007 Stock Option/Stock Issuance Plan; and
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9,983,600 shares of our Class A common stock reserved for
future issuance under our 2011 Long-Term Incentive Plan, which
will become effective upon the completion of this offering.
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Conversion
of Our Series C Convertible Preferred Stock
Upon completion of this offering, all outstanding shares of our
Series A and Series A-1 convertible preferred stock will convert
automatically into shares of our Class B common stock and all
outstanding shares of our Series B and Series C convertible
preferred stock will convert into shares of our Class A common
stock. In this prospectus, we have assumed that our Series C
convertible preferred stock will convert into shares of our
Class A common stock a conversion price that is 80% of an
assumed initial public offering price of $20.00 per share (the
midpoint of the price range set forth on the cover page of this
prospectus).
Each share of Series C convertible preferred stock is
convertible into the number of shares of Class A common stock
determined by dividing the original issue price of the Series C
convertible preferred stock of $4.902 per share by the
conversion price of the Series C convertible preferred stock in
effect at the time of conversion. The initial conversion price
for the Series C convertible preferred stock is $4.902,
resulting in an initial conversion ratio that is one share of
Series C convertible preferred stock for one share of Class A
common stock. However, in addition to the conversion price
adjustments that are applicable to the other series of preferred
stock, including adjustments in connection with stock splits and
dilutive events, the conversion price of the Series C
convertible preferred stock adjusts upon the closing of a
qualifying initial public offering or a deemed liquidation
event, which we refer to as a pricing event. If the qualifying
initial public offering or pricing event closes on or before
October 31, 2011, the conversion price of the Series C
convertible preferred stock will be adjusted to equal 80% of the
offering price per share or price per share paid by investors in
the qualifying initial public offering or pricing event;
however, the conversion price will be not less than $4.902 per
share.
By way of example, the following table shows the effect of
various initial public offering prices within the price range
set forth on the cover page of this prospectus, on the
Series C convertible preferred stock
37
conversion ratio and on our capitalization following this
offering on an as further adjusted basis to reflect the
applicable conversion ratio adjustments and as further adjusted
assumptions set forth in the capitalization table above. The
initial public offering prices shown below are hypothetical and
illustrative, and assume that this offering is completed on or
before October 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
As Further Adjusted
|
|
|
|
|
|
|
|
|
|
|
Total Shares of
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
Class A Common
|
|
|
|
|
|
|
|
Convertible
|
|
|
Series C
|
|
|
Stock Issuable
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Convertible
|
|
|
upon Conversion
|
|
|
|
|
|
|
|
to Class A
|
|
|
Preferred Stock
|
|
|
of Series C
|
|
|
Total Shares
|
|
|
|
|
Common Stock
|
|
|
to Class A
|
|
|
Convertible
|
|
|
of Class A
|
|
Assumed Initial Public
|
|
|
Conversion Price
|
|
|
Common Stock
|
|
|
Preferred Stock(2)
|
|
|
Common Stock
|
|
Offering Price($)
|
|
|
($)(1)
|
|
|
Conversion Ratio
|
|
|
(e) = (c)*
|
|
|
Outstanding After
|
|
(a)
|
|
|
(b) = (a)*80%
|
|
|
(c) = $4.902/(b)
|
|
|
11,219,908
|
|
|
This Offering(3)
|
|
|
$
|
19.00
|
|
|
$
|
15.20
|
|
|
|
1:0.32250
|
|
|
|
3,618,420
|
|
|
|
38,168,222
|
|
$
|
19.50
|
|
|
$
|
15.60
|
|
|
|
1:0.31423
|
|
|
|
3,525,640
|
|
|
|
38,075,442
|
|
$
|
20.00
|
|
|
$
|
16.00
|
|
|
|
1:0.30638
|
|
|
|
3,437,500
|
|
|
|
37,987,302
|
|
$
|
20.50
|
|
|
$
|
16.40
|
|
|
|
1:0.29890
|
|
|
|
3,353,657
|
|
|
|
37,903,459
|
|
$
|
21.00
|
|
|
$
|
16.80
|
|
|
|
1:0.29179
|
|
|
|
3,273,808
|
|
|
|
37,823,610
|
|
|
|
|
(1) |
|
For purposes of the table set forth above, we have assumed that
the offering will close on or before October 31, 2011, and
have therefore assumed that the conversion price of the
Series C convertible preferred stock will be adjusted to an
amount equal to 80% of the offering price per share or price per
share paid by investors in the offering. |
|
(2) |
|
Pursuant to our amended and restated certificate of
incorporation, the number of shares of Class A common stock
that each holder of Series C convertible preferred stock
will be entitled to receive upon conversion thereof will be
rounded down to the nearest whole share and each holder will
receive cash in lieu of any fractional share that it would
otherwise be entitled to receive. For purposes of the table set
forth above, the number of shares of Class A common stock
issuable to each holder upon conversion has been rounded down to
the nearest whole share to eliminate such fractional shares. |
|
(3) |
|
Excludes: |
|
|
|
|
|
8,041,880 shares of our Class A common stock issuable
upon the exercise of options to purchase shares of Class A
common stock outstanding as of March 31, 2011, at a
weighted average exercise price of $1.98 per share;
|
|
|
|
456,822 shares of our Class A common stock issuable
upon the exercise of warrants outstanding as of March 31,
2011, at a weighted average exercise price of $2.152 per
share; and
|
|
|
|
|
|
18,750 shares (assuming a conversion price that is 80% of
an assumed initial public offering price of $20.00 per share,
the midpoint of the price range set forth on the cover page of
this prospectus) of our Class A common stock issuable upon
the exercise of 61,200 warrants that we were required to issue
as of March 31, 2011 at a weighted-average exercise price
of $4.902 per share.
|
38
DILUTION
If you invest in our Class A common stock, your interest
will be diluted to the extent of the difference between the
public offering price per share of our Class A common stock
and the pro forma as adjusted net tangible book value per share
of our Class A common stock and Class B common stock
after this offering.
Our pro forma net tangible book value as of March 31, 2011
was $62.1 million, or $0.69 per share of Class A
common stock and Class B common stock. Pro forma net
tangible book value per share represents total tangible assets
less total liabilities, divided by the number of outstanding
shares of Class A common stock and Class B common
stock on March 31, 2011, after giving effect to the
conversion of all outstanding shares of convertible preferred
stock into shares of Class A common stock and Class B
common stock as if the conversion occurred on March 31,
2011 (including our Series C convertible preferred stock issued
in April 2011).
Our pro forma as adjusted net tangible book value as of
March 31, 2011, as adjusted for the issuance of
$55 million of our Series C convertible preferred stock in
April 2011, after giving effect to the sale by us of
10,000,000 shares of Class A common stock in this
offering at an assumed initial public offering price of $20.00
per share (the midpoint of the price range set forth on the
cover page of this prospectus) and after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, would have been approximately
$302.7 million, or $3.03 per share of Class A common
stock and Class B common stock. This represents an
immediate increase in pro forma as adjusted net tangible book
value of $2.34 per share to existing stockholders and an
immediate dilution of $16.97 per share to new investors, or
approximately 84.9% of the assumed initial public offering price
of $20.00 per share. The following table illustrates this per
share dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
20.00
|
|
Pro forma net tangible book value per share of Class A
common stock and Class B common stock as of March 31,
2011, before giving effect to this offering
|
|
$
|
0.69
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributed to new investors purchasing shares in this offering
|
|
|
2.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
|
|
|
|
|
3.03
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to investors in this offering
|
|
|
|
|
|
$
|
16.97
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $20.00 per share (the midpoint of the price
range set forth on the cover page of this prospectus) would
increase (decrease) our pro forma as adjusted net tangible book
value by $9.4 million, the pro forma as adjusted net
tangible book value per share by $0.10 per share and the
dilution in the pro forma net tangible book value to new
investors in this offering to $17.87 per share, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
If the underwriters exercise their over-allotment option in
full, the pro forma as adjusted net tangible book value will
increase to $3.27 per share, representing an immediate increase
to existing stockholders of $2.58 per share and an immediate
dilution of $16.73 per share to new investors.
The following table summarizes, on a pro forma basis as of
March 31, 2011 (giving effect to the conversion of all
shares of our convertible preferred stock into shares of
Class A common stock and Class B common stock), the
number of shares of Class A common stock and Class B
common stock purchased from us, the total consideration paid to
us and the average price paid per share by existing stockholders
and by new investors purchasing Class A common stock in
this offering at an assumed initial public offering price of
39
$20.00 per share (the midpoint of the price range set forth on
the cover page of this prospectus), before deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Average Price
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
per Share
|
|
|
(In thousands other than percentages and per share data)
|
|
Existing stockholders
|
|
|
89,836
|
|
|
|
90
|
%
|
|
$
|
119,472
|
|
|
|
37.4
|
%
|
|
$
|
1.33
|
|
Investors participating in this offering
|
|
|
10,000
|
|
|
|
10
|
|
|
|
200,000
|
|
|
|
62.6
|
|
|
|
20.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
99,836
|
|
|
|
100
|
%
|
|
$
|
319,472
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $20.00 per share (the midpoint of the price
range set forth on the cover page of this prospectus) would
increase (decrease) total consideration paid by new investors by
$10.0 million, assuming the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the
same.
If the underwriters exercise their option to purchase additional
shares in full, our existing stockholders would own 88.7% and
our new public investors would own 11.3% of the total number of
shares of our Class A common stock and Class B common
stock outstanding upon the completion of this offering.
The discussion and tables in this section regarding dilution are
based on 27,987,302 shares of Class A common stock and
61,848,696 shares of Class B common stock issued and
outstanding as of March 31, 2011, which numbers reflect the
conversion of all of our Series A and Series A-1
convertible preferred stock into an aggregate of
44,571,576 shares of our Class B common stock and the
conversion of all of our Series B and Series C
convertible preferred stock (issued in April 2011) into an
aggregate of 27,917,302 shares of our Class A common
stock, assuming that the Series C convertible preferred
stock converts into shares of Class A common stock a
conversion price that is 80% of an assumed initial public
offering price of $20.00 per share (the midpoint of the price
range set forth on the cover page of this prospectus) (see
Capitalization Conversion of Our Series C
Convertible Preferred Stock for conversion ratio
adjustments that may be applicable upon future events, such as
the completion of this offering). The number of shares of our
Class A common stock and Class B common stock to be
outstanding after this offering excludes:
|
|
|
|
|
8,041,880 shares of our Class A common stock issuable
upon the exercise of options to purchase shares of Class A
common stock outstanding as of March 31, 2011, at a
weighted average exercise price of $1.98 per share;
|
|
|
|
7,049,454 shares of our Class B common stock issuable
upon the exercise of options to purchase shares of Class B
common stock outstanding as of March 31, 2011, at a
weighted average exercise price of $0.08375 per share;
|
|
|
|
456,822 shares of our Class A common stock issuable
upon the exercise of warrants outstanding as of March 31,
2011, at a weighted average exercise price of $2.152 per share;
|
|
|
|
|
|
18,750 shares (assuming a conversion price that is 80% of
an assumed initial public offering price of $20.00 per share,
the midpoint of the price range set forth on the cover page of
this prospectus) of our Class A common stock issuable upon
the exercise of 61,200 warrants that we were required to issue
as of March 31, 2011 at a weighted-average exercise price
of $4.902 per share;
|
|
|
|
|
|
411,312 shares of our Class B common stock issuable upon the
exercise of warrants outstanding as of March 31, 2011 at a
weighted-average exercise price of $0.4863 per share;
|
|
|
|
2,199,936 shares of our Class A common stock reserved
for future issuance as of March 31, 2011 under our amended
and restated 2007 Stock Option/Stock Issuance Plan;
|
|
|
|
1,708,266 shares of our Class B common stock reserved
for future issuance as of March 31, 2011 under our amended
and restated 2007 Stock Option/Stock Issuance Plan; and
|
40
|
|
|
|
|
9,983,600 shares of our Class A common stock reserved for
future issuance under our 2011 Long-Term Incentive Plan, which
will become effective upon the completion of this offering.
|
To the extent that outstanding options or warrants are
exercised, you will experience further dilution. If all of our
outstanding options and warrants were exercised, our pro forma
net tangible book value as of March 31, 2011 would have
been $80.1 million, or $0.76 per share, and the pro forma,
as adjusted net tangible book value after this offering would
have been $320.7 million, or $2.77 per share, causing
dilution to new investors of $17.23 per share.
In addition, we plan to raise additional capital to fund our
commercialization plan. To the extent that we raise additional
capital through the sale of equity or convertible debt
securities, the issuance of these securities could result in
further dilution to our stockholders.
41
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial
data for the periods indicated. The summary consolidated
statement of operations data for the years ended
December 31, 2008, 2009 and 2010 and the summary
consolidated balance sheet data as of December 31, 2009 and
2010 are derived from our audited consolidated financial
statements that are included elsewhere in this prospectus. The
summary consolidated statement of operations data for the three
months ended March 31, 2010 and 2011 and the summary
condensed consolidated balance sheet data as of March 31,
2010 are derived from our unaudited interim condensed
consolidated financial statements that are included elsewhere in
this prospectus. The summary consolidated statement of
operations data for the period from July 23, 2007 (date of
inception) through December 31, 2007 and the summary
consolidated balance sheet data as of December 31, 2007 and
2008 are derived from our audited consolidated financial
statements not included elsewhere in this prospectus. You should
read the summary of our consolidated financial data set forth
below together with the more detailed information contained in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and related notes appearing elsewhere in this
prospectus. Our historical results presented below are not
necessarily indicative of financial results to be achieved in
the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 23, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(196
|
)
|
|
$
|
(3,643
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
(22,042
|
)
|
|
$
|
(4,381
|
)
|
|
$
|
(7,271
|
)
|
General and administrative expenses
|
|
|
(277
|
)
|
|
|
(1,867
|
)
|
|
|
(2,987
|
)
|
|
|
(8,083
|
)
|
|
|
(1,226
|
)
|
|
|
(4,189
|
)
|
Depreciation and amortization expense
|
|
|
(15
|
)
|
|
|
(178
|
)
|
|
|
(688
|
)
|
|
|
(1,656
|
)
|
|
|
(279
|
)
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(488
|
)
|
|
|
(5,688
|
)
|
|
|
(13,636
|
)
|
|
|
(31,781
|
)
|
|
|
(5,886
|
)
|
|
|
(11,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
71
|
|
|
|
65
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
|
|
|
|
(242
|
)
|
|
|
(1,812
|
)
|
|
|
(367
|
)
|
|
|
|
|
Foreign currency gain (loss)
|
|
|
16
|
|
|
|
(236
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Loss from change in fair value of warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,365
|
)
|
|
|
|
|
|
|
(1,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(472
|
)
|
|
|
(5,853
|
)
|
|
|
(14,028
|
)
|
|
|
(45,924
|
)
|
|
|
(6,245
|
)
|
|
|
(13,393
|
)
|
Income tax expense
|
|
|
|
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(472
|
)
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted(1)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding, basic and
diluted(1)
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
15,382
|
|
|
|
14,774
|
|
|
|
16,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock, basic and diluted
(unaudited)(1)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing pro forma net
loss per share of common stock, basic and diluted (unaudited)(1)
|
|
|
29,040
|
|
|
|
45,084
|
|
|
|
58,972
|
|
|
|
74,722
|
|
|
|
59,346
|
|
|
|
85,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of December 31,
|
|
March 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
(In thousands)
|
|
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,310
|
|
|
$
|
7,061
|
|
|
$
|
5,176
|
|
|
$
|
51,350
|
|
|
$
|
21,947
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
2,506
|
|
|
|
10,526
|
|
|
|
34,880
|
|
|
|
55,969
|
|
Total assets
|
|
|
3,956
|
|
|
|
12,718
|
|
|
|
18,522
|
|
|
|
88,841
|
|
|
|
82,213
|
|
Long-term convertible promissory note to stockholder
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
|
|
|
|
|
|
|
|
|
4,049
|
|
|
|
9,517
|
|
|
|
9,234
|
|
Convertible preferred stock
|
|
|
1,444
|
|
|
|
14,384
|
|
|
|
14,384
|
|
|
|
134,384
|
|
|
|
134,384
|
|
Total stockholders equity (deficit)
|
|
|
2,127
|
|
|
|
(3,646
|
)
|
|
|
(17,252
|
)
|
|
|
(62,123
|
)
|
|
|
(74,807
|
)
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements
appearing elsewhere in this prospectus for an explanation of the
method used to calculate (a) net loss per share of common
stock, basic and diluted, (b) pro forma net loss per share
of common stock, basic and diluted and (c) weighted-average
number of shares used in the computation of the per share
amounts. |
43
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read together with
our consolidated financial statements and the other financial
information appearing elsewhere in this prospectus. This
discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking
statements as a result of various factors, including those
discussed below and those discussed in the section entitled
Risk Factors included elsewhere in this prospectus.
Due to the fact that we have not generated any revenue, we
believe that the financial information contained in this
prospectus is not indicative of, or comparable to, the financial
profile that we expect to have if and when we begin to generate
revenue. Except to the extent required by law, we undertake no
obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other
events occur in the future.
Overview
We are a next-generation renewable fuels company. We have
developed a proprietary technology platform to convert low-cost,
abundant and sustainable non-food biomass into hydrocarbon-based
oil. We process our renewable crude oil using standard refinery
equipment into gasoline and diesel blendstocks that can be
transported using the existing fuels distribution system for use
in vehicles on the road today. Our gasoline and diesel
blendstocks are projected to reduce direct lifecycle greenhouse
gas emissions by over 80% compared to the petroleum-based fuels
they displace.
We were incorporated and commenced operations in July 2007.
Since our inception, we have operated as a development stage
company, performing extensive research and development to
develop, enhance, refine and commercialize our
biomass-to-renewable
fuel technology platform. During this time, we have demonstrated
the efficacy and scalability of our biomass fluid catalytic
cracking, or BFCC, process, attaining progressive technology
milestones through laboratory, pilot unit and demonstration unit
environments.
To demonstrate the scalability of our BFCC process from pilot
scale, we have constructed a demonstration scale unit that
represents a 400 times capacity increase over our pilot unit.
Our demonstration unit has amassed over 3,000 hours of
operation and produced over 32,000 gallons of renewable crude
oil to date. We have increased our overall process yield of
biomass-to-renewable fuel from approximately 17 gallons of
blendstock per bone dry ton of biomass, or BDT, to approximately
67 gallons per BDT. Our research and development efforts are
focused on increasing this yield to approximately
92 gallons per BDT.
We have entered our commercialization phase and commenced
construction of our initial-scale commercial production facility
in Columbus, Mississippi in the first quarter of 2011. Going
forward, we intend to construct our larger standard commercial
production facilities, beginning in the third quarter of 2012
with our first planned facility in Newton, Mississippi. These
standard commercial production facilities are being designed to
utilize a centralized hydrotreating facility rather than
dedicated, standalone hydrotreaters such as the one being
constructed at our Columbus facility. By employing larger plant
designs and shared hydrotreating facilities, we expect to be
able to more effectively allocate our fixed costs and stage our
capital program to reduce the capital intensity of our
commercial expansion. However, these projects will entail
significant capital investment. Our initial-scale commercial
production facility will be financed in part through a
$75 million interest-free loan from the Mississippi
Development Authority. We have entered into agreements with Hunt
Refining Company, or Hunt, Catchlight Energy LLC, or Catchlight,
and FedEx Corporate Services, Inc., or FedEx, for the purchase
of the gasoline, diesel and fuel oil blendstocks produced from
our initial-scale commercial production facility. We intend to
utilize proceeds from this offering to fund a portion of the
capital expenditures for our first standard commercial
production facility in Newton. We plan to fund the remaining
construction costs of the Newton facility with debt from one or
more public or private sources. Please read
Liquidity and Capital Resources.
Until recently, we have focused our efforts on research and
development, and we have yet to generate revenue. As a result,
we had generated $63.6 million of operating losses and an
accumulated deficit of
44
$79.7 million from our inception through March 31,
2011. We expect to continue to incur operating losses through at
least 2013 as we continue into the commercialization stage of
our business.
Based on the technological and operational milestones we have
achieved to date, we believe that when we are able to commence
commercial production at our planned first standard commercial
production facility, primarily using Southern Yellow Pine whole
tree chips, we will be able to produce gasoline and diesel
blendstocks without government subsidies on a cost-competitive
basis with petroleum-based blendstocks at current pricing. Our
proprietary catalyst systems, reactor design and refining
processes have achieved yields of renewable fuel products of
approximately 67 gallons per BDT in our demonstration unit
that we believe would allow us to produce gasoline and diesel
blendstocks today at a
per-unit
unsubsidized production cost below $1.80 per gallon, if produced
in a standard commercial production facility with a feedstock
processing capacity of 1,500 BDT per day. This unsubsidized
production cost equates to less than $550 per metric ton,
$0.50 per liter and $1.10 per gallon of ethanol
equivalent. This
per-unit
cost assumes a price for Southern Yellow Pine clean chip mill
chips of $72.30 per BDT and anticipated operating expenses at
the increased scale and excludes cost of financing and facility
depreciation. Over time, we expect to improve our overall
process yield by enhancing our technology and to significantly
reduce our feedstock costs by using lower grade chips, logging
residues, branches and bark and lower our operating expenses
through various initiatives. For the month of May 2011, the
average U.S. Gulf Coast spot prices for conventional
gasoline and ultra-low sulfur diesel were $3.024 and $3.001 per
gallon, respectively. For the month of May 2011, market prices
for corn ethanol, biodiesel and sugarcane ethanol were $2.587,
$5.148 and $3.889 per gallon, respectively.
Our
Commercialization Plan
We commenced construction of our initial-scale commercial
production facility in Columbus, Mississippi in the first
quarter of 2011. This facility is designed to process 500 BDT of
feedstock per day. We expect that constructing our Columbus
facility will provide us with a practical basis for optimizing
our future standard commercial production facilities, which we
anticipate will be approximately three times larger than our
Columbus facility to allow for optimal allocation of our fixed
costs.
Although we expect that this initial-scale commercial production
facility ultimately will be able to accept a wide variety of
biomass types, we have selected Southern Yellow Pine whole tree
chips because of their abundant, sustainable supply and
generally stable pricing history. We estimate that this
initial-scale commercial production facility, including a
hydrotreater, will cost approximately $190 million to
complete and place into service, with an estimated 15% to 20% of
these costs attributable to the hydrotreater. We are financing
our initial-scale commercial production facility with a
combination of existing cash on hand, including $55 million
of proceeds from the April 2011 sale of our Series C
convertible preferred stock to existing investors, and a
$75 million interest-free loan from the Mississippi
Development Authority. Please read Liquidity
and Capital Resources for more information.
Going forward, we intend to construct our larger standard
commercial production facilities beginning in the third quarter
of 2012 with our first planned facility in Newton, Mississippi.
These facilities are being designed to process approximately
1,500 BDT of feedstock per day, approximately three times the
size of our Columbus facility, in order to take advantage of
economies of scale. Moreover, these standard commercial
production facilities are being designed to utilize a
centralized hydrotreating facility rather than dedicated,
standalone hydrotreaters such as the one being constructed at
our Columbus facility. By employing larger plant designs and
shared hydrotreating facilities, we expect to be able to more
effectively allocate our fixed costs and stage our capital
program to reduce the capital intensity of our commercial
expansion.
Our Newton facility is being designed to host a two-train
centralized hydrotreater that will be constructed in phases,
with each train expected to support up to two standard
commercial production facilities. Based on future market
conditions and operational metrics achieved at Columbus and
Newton, our plan is to construct additional standard commercial
production facilities in Mississippi and other Southeastern
states. These facilities are expected to be located near our
Newton facility and to share the Newton hydrotreater trains to
maximize the efficiency of our gasoline, diesel and fuel oil
blendstock finishing and distribution process.
45
We estimate that the construction costs for each of our planned
standard commercial production facilities will average
approximately $350 million, depending on each
facilitys unique design requirements. We estimate that
construction costs for our hydrotreaters will average
approximately $110 million per train. By staging the
expansion of our standard commercial facilities in discrete
facility-by-facility
projects that are independently viable, we believe that we will
have flexibility to plan our growth in response to capital
availability and market conditions.
We intend to utilize proceeds from this offering to fund a
portion of the capital expenditures, including front-end
engineering and procurement services and
long-lead
equipment, for our planned first standard commercial production
facility in Newton. We plan to fund the remaining construction
costs of the Newton facility with debt from one or more public
or private sources, including commercial banks, existing
investors and federal, state and local governments.
Over the longer term, we plan to accelerate our expansion
through the use of copy exact principles predicated
on the use of pre-engineered, modular, skid-mounted components
that can be assembled quickly in a limited number of preset
configurations. We expect that our copy exact strategy will
enable us to implement operational efficiencies systematically
across all of these facilities since they will involve
substantially similar components assembled in familiar
configurations.
Fundamentals
of Our Business
Our
biomass-to-renewable
fuel technology platform converts biomass into hydrocarbon-based
oil by combining our proprietary catalyst systems with
well-established fluid catalytic cracking, or FCC, processes.
Expanding on FCC processes routinely employed in the petroleum
refining industry, our biomass fluid catalytic cracking, or
BFCC, process allows us to introduce solid biomass into a
modified FCC system where it contacts our proprietary catalyst.
The result is a hydrocarbon-based oil that can be upgraded
through standard hydrotreating equipment into transportation
fuels, including gasoline and diesel blendstocks, that are
fungible with petroleum blendstocks.
Although we have not generated any revenue to date, we expect to
generate revenue from sales of our gasoline and diesel
blendstocks from our planned commercial production facilities.
We may also generate revenue from the sale of renewable
identification numbers, or RINs, that we will retain if we sell
our fuel blendstocks to customers who are not obligated parties
under the Renewable Fuel Standard program, or RFS2. We expect
that our gasoline and diesel blendstocks will have an
equivalence value of between 1.5 to 1.7. Equivalence value
equates to the number of RIN credits per gallon.
We expect that our cost of goods sold will consist of the
following:
|
|
|
|
|
Feedstock. The largest component of our cost
of goods sold will be the cost of procuring and preparing the
biomass we feed into our BFCC process. Our BFCC process can
convert a variety of biomass feedstock, including woody biomass,
such as whole tree chips, logging residues, branches and bark,
agricultural residues, such as sugarcane bagasse, and energy
crops, such as switchgrass and miscanthus. Our feedstock prices
are a function of feedstock acquisition, harvesting,
transportation and processing costs. We have selected Southern
Yellow Pine whole tree chips as our primary feedstock because of
their abundant supply and generally stable pricing history. For
the first quarter of 2011, the average cost of delivered, clean
chip mill chips from Southern Yellow Pine was $72.30 per BDT,
according to Timber Mart-South. Our actual feedstock costs may
be higher or lower, depending on then-prevailing market
conditions. We plan to reduce our feedstock costs by increasing
our use of lower grade woody biomass, such as logging residues,
branches and bark, at our initial commercial production
facilities.
|
|
|
|
Facility-related fixed costs. As an industrial
process, our facilities will require a baseline level of
staffing consisting of process engineering, monitoring staff,
testing personnel, health safety and environmental personnel and
maintenance personnel. Other fixed costs include maintenance
materials and casualty and liability insurance, as well as ad
valorem and property taxes.
|
46
|
|
|
|
|
Other variable costs. We expect to use natural
gas in our BFCC process. We also expect to incur other variable
costs for our catalysts for our biomass conversion and
hydrotreating processes.
|
Our largest expenditures are the capital costs associated with
the construction of our initial commercial production facilities
and planned facility turnarounds. These costs are comprised of
land acquisition, site preparation, utilities, permitting,
facility construction,
start-up and
contingency costs and related financing costs. We expect that
the depreciation of these facilities costs will be included in
cost of goods sold.
Our operating expenses currently consist primarily of research
and development expenses and general and administrative expenses.
We expect that the principal drivers of our gross and operating
margins will be the following:
|
|
|
|
|
Economies of scale. We expect to realize
incidental cost savings benefits as a result of the increased
scale of our planned standard commercial production facilities.
We plan to expand the throughput capacity from 500 BDT per day
in our initial-scale commercial production facility to 1,500 BDT
per day in our subsequent planned standard commercial production
facilities. As a result, we expect to be able to spread the
fixed baseline facilities costs and personnel costs across a
larger volume of production, achieving a lower
per-unit
labor cost.
|
|
|
|
Learning curve efficiencies. Engineering
principles indicate a downward trend in costs and construction
time of like-kind capital projects completed in progression. As
we begin construction 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. In the long term, by largely
replicating our subsequent commercial production facilities, we
hope to further reduce our capital investment and operating
costs through replication and familiarity.
|
|
|
|
Conversion yield. Conversion yield is the
barrel of saleable products achieved from our process for each
BDT of feedstock. Conversion yield is maximized primarily
through optimization of our catalyst systems that increase the
proportion of hydrogen and carbon in the biomass feedstock that
are converted into saleable products rather than coke, water or
gaseous byproducts. We have increased our overall process yield
of blendstocks from approximately 17 gallons per BDT to
approximately 67 gallons per BDT. Our research and
development efforts are focused on increasing this yield to
approximately 92 gallons per BDT.
|
|
|
|
Composition of blendstock
fractions. Blendstock fractions refer to the
relative composition of the blendstocks derived from processing
crude oils. Within limits, we can adjust the fractions of
gasoline, diesel and fuel oil blendstocks produced from our
renewable crude oil, which may be tailored to potential customer
requirements and pricing opportunities for these components. In
our demonstration unit, we have varied the volume output of
gasoline blendstock from 37% to 61%, diesel blendstock from 31%
to 55% and fuel oil blendstock from 8% to 9%.
|
Financial
Operations Overview
Revenue and cost of goods sold. To date, we
have not generated any revenue or incurred any cost of goods
sold, and we do not expect to do so until at least the second
half of 2012.
Research and Development Expenses. Research
and development expenses consist primarily of expenses for
personnel focused on increasing the scale of our operations and
the yield of our blendstocks. These expenses also consist of
facilities costs and other related overhead and lab materials.
We expense all of our research and development costs as they are
incurred. In the near term, we expect to hire additional
employees, as well as incur contract-related expenses, as we
continue to invest in the development of our proprietary
biomass-to-renewable
fuel technology platform. Accordingly, we expect that our
research and development expenses will continue to increase.
General and Administrative Expenses. General
and administrative expenses consist primarily of
personnel-related expenses related to our executive, legal,
finance, human resource and information technology functions, as
well as fees for professional services and allocated facility
overhead expenses. These expenses
47
also include costs related to our sales function, including
marketing programs and other allocated costs. Professional
services consist principally of external legal, accounting, tax,
audit and other consulting services. We expect general and
administrative expenses to increase as we incur additional costs
related to operating as a public company, including increased
legal and accounting fees, costs of compliance with securities,
corporate governance and other regulations, investor relations
expenses and higher insurance premiums, particularly those
related to director and officer insurance. In addition, we
expect to incur additional costs as we hire personnel and
enhance our infrastructure to support the anticipated growth of
our business.
Depreciation and Amortization
Expense. Depreciation and amortization expense
consists of depreciation of our property, plant and equipment
over their estimated useful lives and amortization of our
intangible assets, consisting primarily of purchased biomass
conversion technology and technology licenses, which are
amortized using the straight-line method over their estimated
useful lives.
Interest Income. Interest income consists
primarily of interest income earned on investments and cash
balances. We expect our interest income to fluctuate in the
future with changes in average investment balances and market
interest rates.
Beneficial Conversion Feature Expense. In
August 2009, we entered into a $15.0 million non-interest
bearing convertible promissory note, or the Note, which included
a beneficial conversion feature, with our principal stockholder,
Khosla Ventures. The value of the beneficial conversion feature
was not readily determinable upon issuance of the Note because
the conversion feature was contingent upon the occurrence of an
undetermined future financing transaction and neither the timing
nor value of such transaction could be estimated at the time the
Note was issued. In April 2010, we executed a financing
transaction that required the Note to be converted into
2.6 million shares of our Series B convertible
preferred stock. We recorded a $10.0 million expense at the
time of that conversion to reflect the beneficial conversion
feature associated with the conversion of the Note to
convertible preferred stock.
Interest Expense. We incur interest expense in
connection with our outstanding equipment and business loans. We
capitalize interest on long-term construction projects relating
to operating assets with a total expected expenditure generally
in excess of $10.0 million. We capitalized interest
relating to the construction of our initial-scale commercial
production facility in Columbus, Mississippi of approximately
$0.1 million for the year ended December 31, 2010 and
$0.3 million for the three months ended March 31,
2011. To the extent our planned commercial production facilities
are funded with debt, we anticipate capitalizing most of the
interest costs that we incur.
Foreign Currency Loss. All of our foreign
currency gains and losses were incurred in relation to our
subsidiary KiOR B.V. (in liquidation). The functional currency
of KiOR B.V. (in liquidation) is the Euro. As of
December 31, 2010, all of the operations of KiOR B.V. were
combined with the operations of KiOR, Inc., and KiOR B.V. is in
the process of liquidation. At this time, we have no other
foreign operations.
Loss from Change in Fair Value of Warrant
Liability. Our outstanding warrants to purchase
shares of our convertible preferred stock are required to be
classified as current liabilities and to be adjusted to their
fair value at the end of each reporting period. Any changes in
the fair value of these warrant liabilities are required to be
recorded as income or expense, as applicable, in the period that
the change in value occurs.
Income Tax Expense. Since inception, we have
incurred net losses and have not recorded any U.S. federal
and state income tax provisions. We have a full valuation
allowance for our net deferred tax assets because we have
incurred losses since inception. Our income tax provision
relates to current taxes payable in the Netherlands with respect
to KiOR B.V. (in liquidation).
Critical
Accounting Policies and Estimates
Our 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
accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, expenses and
related disclosures. We base our estimates and assumptions on
historical experience and on various other
48
factors that we believe to be reasonable under the
circumstances. We evaluate our estimates and assumptions on an
ongoing basis. The results of our analysis form the basis for
making assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Our actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies involve
significant areas of managements judgments and estimates
in the preparation of our financial statements.
Impairment
of Long-Lived Assets and Intangible Assets
We assess impairment of long-lived assets, including intangible
assets, on at least an annual basis and test long-lived assets
for recoverability when events or changes in circumstances
indicate that their carrying amount may not be recoverable.
Circumstances which could trigger a review include, but are not
limited to, significant decreases in the market price of the
asset; significant adverse changes in the business climate or
legal factors; accumulation of costs significantly in excess of
the amount originally expected for the acquisition or
construction of the asset; a forecast of continuing losses
associated with the use of the asset; or expectations that the
asset will more likely than not be sold or disposed of
significantly before the end of its estimated useful life.
Recoverability is assessed by using undiscounted future net cash
flows of assets grouped at the lowest level for which there are
identifiable cash flows independent of the cash flows of other
groups of assets. If the undiscounted future net cash flows are
less than the carrying amount of the asset, the asset is deemed
impaired. The amount of the impairment is measured as the
difference between carrying value and the fair value of the
asset.
The majority of our long-lived assets, other than intangible
assets, consist of our pilot unit and demonstration unit. Both
of these units are variations of common refinery equipment used
in technology development and
scale-up of
processes that have been scaled and modified for our research
and development purposes. Our intangible assets consist of
purchased biomass conversion technology and technology licenses.
Given our history of operating losses, we evaluated the
recoverability of the book value of our property, plant and
intangible assets by performing an undiscounted forecasted cash
flow analysis. Based on our analysis, the sum of the
undiscounted cash flows is in excess of the book value of the
property, plant and equipment and intangible assets.
Accordingly, no impairment charges have been recorded during the
period from July 23, 2007 (date of inception) through
March 31, 2011.
Our undiscounted cash flow analysis involves significant
estimates and judgments. Although our cash flow forecasts are
based on assumptions that are consistent with our plans, there
is significant exercise of judgment involved in determining the
cash flow attributable to a long-lived asset over its estimated
remaining useful life. Our estimates of anticipated cash flows
could be reduced significantly in the future. As a result, the
carrying amounts of our long-lived assets could be reduced
through impairment charges in the future. Changes in estimated
future cash flows could also result in a shortening of the
estimated useful life of long-lived assets, including
intangibles, for depreciation and amortization purposes.
Stock-Based
Compensation
From time to time, we issue stock option awards to our
employees, consultants and directors. The determination of the
fair value of our stock option awards is estimated using the
Black-Scholes option-pricing model and requires the use of
highly subjective assumptions relating to potential minimum and
maximum range of values at which holders of common stock,
convertible preferred stock and debt may receive value. The
option-pricing model also requires inputs such as the expected
term of the grant, expected volatility and risk-free interest
rate. Further, the forfeiture rate also affects the amount of
aggregate compensation that we are required to record as an
expense.
49
The fair value of stock options was estimated using the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Risk-free interest rate
|
|
0.8% 1.1%
|
|
0.5% 0.8%
|
|
2.13%
|
Expected volatility
|
|
95.4% 137.2%
|
|
98.8% 137.2%
|
|
84.0%
|
Expected lives (in years)
|
|
1.8 3.8
|
|
1.4 1.8
|
|
5.5
|
Expected forfeiture rate
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Our risk-free interest rate is based on U.S. Treasury
instruments with terms consistent with those of our stock
options.
Our expected volatility is derived from the historical
volatilities of several unrelated 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 stock. We based our
analysis of expected volatility on reported data for comparable
companies that issued options with substantially similar terms
using an average of the historical volatility measures of this
group of comparable companies.
Our expected lives is derived from a comparable group of public
companies that have a similar industry, life cycle, revenue and
market capitalization profile.
We estimate our forfeiture rate based on an analysis of our
actual forfeitures and will continue to evaluate the
appropriateness of the forfeiture rate based on actual
forfeiture experience, analysis of employee turnover and other
factors. Quarterly changes in the estimated forfeiture rate can
have a significant effect on reported stock-based compensation
expense, as the cumulative effect of adjusting the rate for all
expense amortization is recognized in the period the forfeiture
estimate is changed. If a revised forfeiture rate is higher than
the previously estimated forfeiture rate, an adjustment is made
that will result in a decrease to the stock-based compensation
expense recognized in the consolidated financial statements. If
a revised forfeiture rate is lower than the previously estimated
forfeiture rate, an adjustment is made that will result in an
increase to the stock-based compensation expense recognized in
the consolidated financial statements.
Our expected dividend yield was assumed to be zero as we have
not paid, and do not anticipate paying, cash dividends on our
shares of common stock.
We will continue to use judgment in evaluating the expected
volatility, lives, forfeiture and dividend rate related to our
stock-based compensation on a prospective basis and
incorporating these factors into our option-pricing model.
Each of these inputs is subjective and generally requires
significant management and director judgment to determine. If,
in the future, we determine that another method for calculating
the fair value of our stock options is more reasonable, or if
another method for calculating these input assumptions is
prescribed by authoritative guidance, and, therefore, should be
used to estimate expected volatility or expected term, the fair
value calculated for our stock options could change
significantly. Higher volatility and longer expected terms
generally result in an increase to stock-based compensation
expense determined at the date of grant.
50
The following table summarizes the options granted from 2009
(the first year share-based awards were granted) through the
date of this prospectus with their exercise prices, the fair
value of the underlying common stock and the intrinsic value per
share, if any:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Grant
|
|
Options
|
|
Exercise
|
|
|
|
Intrinsic
|
Grant Type
|
|
Date
|
|
Granted
|
|
Price
|
|
Fair Value
|
|
Value
|
|
Employee
|
|
April 23, 2009
|
|
|
6,644,120
|
|
|
$
|
0.0838
|
|
|
$
|
0.0838
|
(1)
|
|
|
|
|
Nonemployee
|
|
April 23, 2009
|
|
|
360,000
|
|
|
$
|
0.0838
|
|
|
$
|
0.0838
|
(2)
|
|
|
|
|
Employee
|
|
December 30, 2009
|
|
|
3,355,200
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
(3)
|
|
|
|
|
Employee
|
|
March 17, 2010
|
|
|
575,200
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
(3)
|
|
|
|
|
Nonemployee
|
|
March 17, 2010
|
|
|
40,000
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
(4)
|
|
|
|
|
Employee
|
|
July 28, 2010
|
|
|
3,992,918
|
|
|
$
|
1.98
|
|
|
$
|
1.98
|
(5)
|
|
|
|
|
Nonemployee
|
|
July 28, 2010
|
|
|
725,740
|
|
|
$
|
1.98
|
|
|
$
|
1.98
|
(6)
|
|
|
|
|
Employee
|
|
December 2, 2010
|
|
|
346,400
|
|
|
$
|
1.98
|
|
|
$
|
1.98
|
(3)
|
|
|
|
|
Nonemployee
|
|
December 2, 2010
|
|
|
558,660
|
|
|
$
|
1.98
|
|
|
$
|
1.98
|
(3)
|
|
|
|
|
Employee
|
|
March 18, 2011
|
|
|
2,428,262
|
|
|
$
|
1.98
|
|
|
$
|
7.0245
|
(7)
|
|
$
|
5.045
|
|
|
|
|
(1) |
|
1,165,712 of these options vested immediately. The remaining
options vest according to our standard vesting conditions, which
provide for vesting of 20% of the options after one year of
service and
1/60th of
the options vesting each month thereafter. All options fully
vest after five years of service. |
|
|
|
(2) |
|
240,000 of these options vest quarterly over four years. The
remaining options vest according to our standard vesting
conditions, which provide for vesting of 20% of the options
after one year of service and
1/60th of
the options vesting each month thereafter. All options fully
vest after five years of service. |
|
|
|
(3) |
|
All of these options vest according to our standard vesting
conditions, which provide for vesting of 20% of the options
after one year of service and
1/60th of
the options vesting each month thereafter. All options fully
vest after five years of service. |
|
(4) |
|
All of these options vested immediately. |
|
|
|
(5) |
|
1,064,048 of these options vest upon meeting certain milestones
determined by the Board of Directors and 1,170,470 vest monthly
over four years. |
|
|
|
(6) |
|
66,920 of these options vested immediately and 461,740 vest at
5% per quarter over five years. |
|
|
|
(7) |
|
All of these options vest 100% on the fifth anniversary of the
grant date. We will record the fair value of the awards,
totaling $14.6 million, as compensation expense ratably on
a quarterly basis over the five-year vesting period. |
In addition, we have agreed to issue William K. Coates options
to purchase 354,220 shares of our Class A common stock
and 708,440 shares of our restricted stock. Please read
Executive Compensation Employment Arrangements
with Executives. Such options will be priced at the final
price to public in this offering and will vest 20% after one
year and 1/60th of the options vesting each month
thereafter, and such restricted stock will vest ratably over
five years.
In the absence of a public market for our common stock, the fair
value of our common stock underlying our stock options has
historically been determined by our Board of Directors using
methodologies consistent with the American Institute of
Certified Public Accountants Practice Guide, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation.
In connection with making this determination, we have engaged
independent third-party valuation advisors to assist us. In each
case, our Board of Directors has made the ultimate fair value
determination.
We based each of our valuations on an implied business
enterprise value estimated using one or more of the three
generally accepted approaches to value: the asset-based
approach, the market approach and the income 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
sales or offerings of comparable investments.
51
The income approach measures the value of the company based on
the present value of expected future benefits.
For each valuation, we prepared financial forecasts that
considered our past experience and future expectations. There is
inherent uncertainty in these estimates because the assumptions
used are highly subjective and subject to changes as a result of
new operating data and economic and other conditions that impact
our business. We balanced the uncertainty associated with
achieving the forecasts through the selection of a discount rate.
Once the enterprise value was computed under the various
approaches, we calculated a weighted average of the methods. We
then allocated the total equity value between all classes of
equity using a probability-weighted expected return method
accepted by the American Institute of Certified Public
Accountants. We considered four exit events: (1) an initial
public offering, (2) a sale or merger of the company,
(3) continuing as a private company and
(4) dissolution of the company. We calculated the residual
common stock value under each scenario and based on our estimate
of the probability of the various expected outcomes of each of
the four events. The aggregate value of the common stock was
then divided by the number of shares of common stock outstanding
to arrive at the per share value. The value per share was then
adjusted for the discount attributable to a lack of
marketability.
In connection with each valuation, our Board of Directors and
management reviews numerous objective and subjective factors
viewed as determinate of the value of our common stock,
including the considerations and milestones below, as well as
all other facts and circumstances deemed relevant.
Subjective considerations and objective milestones taken into
account in determining stock value at any point in time include
the following:
|
|
|
|
|
any recent arms length transactions in any of our common
or preferred equity securities;
|
|
|
|
the likelihood and timing of our potential initial public
offering, including accomplishment of identified milestones
required for such a transaction;
|
|
|
|
prospects for a liquidity event, including an initial public
offering or a company sale, liquidation or other terminal
transaction;
|
|
|
|
prospects for, and potential magnitude of future cash flows from
our operations as determined by customary cash flow discounting
methodologies;
|
|
|
|
anticipated future capital needs, including the potential
dilution attendant any forecast future capital requirements;
|
|
|
|
achievement of any product certifications requisite to
commercial sale of our products;
|
|
|
|
the market for biofuels company equity securities, as reflected
in the recent stock price performance of the class;
|
|
|
|
recent changes in the risks inherent in execution of our
business plan;
|
|
|
|
success of our research and development activities;
|
|
|
|
general trends in the renewable fuels industry; and
|
|
|
|
macro-economic events affecting the value of equity investments
generally.
|
If our Board of Directors determines that any material
intervening developments have occurred since the most recent
valuation that are deemed likely to appreciably impact on the
prior valuation, then the Board of
52
Directors reassesses the valuation of the common stock. Pursuant
to this methodology, our Board of Directors reassessed the
estimated fair market value of our common stock on four previous
occasions:
|
|
|
|
|
|
|
|
Estimated Fair Market
|
Valuation Date
|
|
Value per Share
|
|
December 31, 2008
|
|
$
|
0
|
.0838
|
|
September 30, 2009
|
|
$
|
0
|
.0900
|
|
May 31, 2010
|
|
$
|
1
|
.9800
|
|
March 18, 2011
|
|
$
|
7
|
.0245
|
|
Factors that the Board considered in valuing our common stock at
$0.09 per share on September 30, 2009, were as follows:
|
|
|
|
|
we issued Series A convertible preferred stock and
Series A-1
convertible preferred stock generating an aggregate of
$14.4 million in net proceeds at $0.1813 per share and
$0.4863 per share, respectively;
|
|
|
|
|
|
we successfully achieved proof of concept of our
biomass-to-renewable
fuel technology platform and planned to construct a
demonstration facility;
|
|
|
|
our business plan was predicated on manufacturing and selling
our intermediate renewable oil product directly into the
refinery market, thereby avoiding the capital intensity of
installing hydrotreating equipment at our BFCC plants;
|
|
|
|
our capital requirements were predicated on a 500 BDT per day
facility cost without a hydrotreating unit;
|
|
|
|
we had entered into a letter of intent with a significant
industry partner for their joint testing of our renewable crude
oil, possible involvement in feedstock supply and funding of
production facilities;
|
|
|
|
we had filed 50 original patent applications relating to our
BFCC technology platform;
|
|
|
|
we internally assessed our probability of an initial public
offering at 25% and of a residual dissolution or other
non-favorable terminal event at 70%; and
|
|
|
|
we had established several milestones, including:
|
|
|
|
|
|
constructing our demonstration unit capable of processing 10 BDT
per day;
|
|
|
|
raising an additional $40 million of equity in the third
quarter of 2010 to help build a commercial production
facility; and
|
|
|
|
obtaining a Department of Energy, or DOE, loan guarantee to help
build a commercial production facility.
|
Based on intervening developments since the September 30,
2009 valuation, on May 31, 2010, the Board increased the
valuation of our common stock from $0.09 per share to $1.98 per
share based on the following developments:
|
|
|
|
|
we completed construction of our demonstration unit and
commenced operations at that unit;
|
|
|
|
|
|
we issued Series B convertible preferred stock in two
separate, arms length transactions during April 2010
generating an aggregate $110 million in net proceeds at an
equivalent of $4.902 per share;
|
|
|
|
|
|
we arranged a subsequent $45 million Series B
financing round expected to close in July 2010;
|
|
|
|
we had filed additional patent applications relating to our BFCC
technology platform;
|
|
|
|
we internally assessed our probability of an initial public
offering at 60% (up from 25% previously) and of a residual
dissolution or other non-favorable terminal event at 40% (down
from 70% previously);
|
53
|
|
|
|
|
we had established several substantial milestones, including:
|
|
|
|
|
|
a probable $55 million Series C financing round in the
first quarter of 2011;
|
|
|
|
a $9 million capital finance facility from a private
financial institution in September 2010;
|
|
|
|
receipt of a DOE term sheet for a loan guarantee to help build a
commercial production facility; and
|
|
|
|
entering into one or more offtake agreements for our product.
|
In granting options at year-end 2010, our Board determined that
no material intervening developments had occurred since the
May 31, 2010 valuation that were viewed as likely to
appreciably impact the prior valuation. In reaching its
conclusion, the Board considered the following:
|
|
|
|
|
the financings contemplated in May 2010 had not occurred;
|
|
|
|
the interest in and demand for alternative fuels was unchanged
during this period because crude oil prices and supplies were
relatively stable;
|
|
|
|
our business plan evolved to contemplate substantial additional
capital costs for the construction of hydrotreating facilities
decreasing the future cashflows expected to be generated from
each project relative to our prior plan and creating additional
financing risk;
|
|
|
|
we had yet to attain any of the following milestones making it
unlikely we would be able to access the public capital markets
in the near term:
|
|
|
|
|
|
entering into one or more offtake agreements for our product;
|
|
|
|
submission of our EPA fuel registration petition;
|
|
|
|
entering into engineering arrangements for our initial-scale
commercial production facility in Columbus, Mississippi;
|
|
|
|
obtaining a final $75 million loan agreement for the
Columbus, Mississippi facility;
|
|
|
|
closing a $60 million private financing round to fund the
equity portion of the Columbus, Mississippi facility;
|
|
|
|
updating the strategic plan for commercial viability without
government programs or incentives; and
|
|
|
|
receipt of a DOE term sheet for a loan guarantee to help build a
commercial production facility.
|
Based on intervening developments since the December 31,
2010 valuation and March 18, 2011, the Board increased the
valuation of our common stock from $1.98 per share to $7.0245
per share based on the following developments:
|
|
|
|
|
the $60 million private financing round to fund the equity
portion of our Columbus, Mississippi facility had not occurred;
|
|
|
|
the interest in and demand for alternative fuels remained strong
because crude oil prices and supplies were beginning to be
affected by potential impacts on the supply chain from the
Middle East due to internal conflicts in Egypt and
Libya; and
|
|
|
|
we had attained, or were very near to attaining, certain
milestones deemed necessary to our ability to access the capital
markets, including:
|
|
|
|
|
|
we executed an offtake agreement with Hunt for the gasoline,
diesel and fuel oil blendstocks produced from our Columbus,
Mississippi facility;
|
|
|
|
we submitted our RFS2 pathway petition to the EPA;
|
|
|
|
we executed an agreement with KBR for the engineering,
procurement and construction of our Columbus facility;
|
54
|
|
|
|
|
we signed our $75 million loan agreement with the State of
Mississippi to fund a portion of our Columbus facility;
|
|
|
|
we received a term sheet from the DOE for a loan guarantee to
fund a portion of our planned standard commercial production
facilities; and
|
|
|
|
we updated our strategic plan to provide for commercial
viability without government programs or incentives beyond 2022.
|
Since our March 18, 2011 valuation, our common stock
valuation has increased as reflected by the midpoint of the
price range on the cover page of this prospectus. We believe
that the factors set forth below contributed substantially to
further reducing the technical and operational risks attendant
our long-term growth plan, as well as increasing the prospects
for significant future capital raising activities to fund
construction of our planned standard commercial production
facilities, which we believe supported a significant increase in
the enterprise value of our company:
|
|
|
|
|
our perceived likelihood of a successful initial public offering
increased materially due to our filing of a registration
statement with the SEC on April 11, 2011 for an IPO, the
continued favorable IPO market for renewable fuel offerings,
including a successful peer company offering, and our
achievement of all of our pertinent IPO milestones;
|
|
|
|
|
|
we closed a $75 million interest-free loan with the
Mississippi Development Authority and had drawn
$26.6 million under the loan to help fund construction of
our initial-scale commercial production facility in Columbus,
Mississippi;
|
|
|
|
|
|
we closed a $55 million Series C round of financing
with existing investors, further validating the continued
support of our equity investors to fund our future growth;
|
|
|
|
|
|
we broke ground on the Columbus facility and construction was
proceeding on schedule and on budget;
|
|
|
|
|
|
we signed offtake agreements for the Columbus facility with two
additional counterparties, Catchlight Energy LLC and FedEx
Corporate Services, Inc., further validating the customer demand
for our blendstock products;
|
|
|
|
|
|
we believe that satisfactory sources of additional or
alternative financing to the DOE loan would be available to fund
the construction of our planned standard commercial production
facilities beginning in the second half of 2012; and
|
|
|
|
|
|
we believe that we could successfully increase the size of this
offering to $200 million, providing the reasonable prospect
for our successfully raising substantial additional equity
capital to partially fund our future construction plans, thereby
reducing our expected need to rely on debt financing.
|
We recognized a total of $331,000 in stock-based compensation
expense during 2009, of which $80,000 was recorded as general
and administrative expenses and $251,000 was recorded as
research and development expenses. During 2010, we recognized a
total of $930,000 in stock-based compensation expense, of which
$702,000 was recorded as general and administrative expenses,
and $228,000 was recorded as research and development expenses.
We recognized a total of $49,000 in stock-based compensation
expense during the three months ended March 31, 2010, of
which $34,000 was recorded as general and administrative
expenses and $15,000 was recorded as research and development
expenses. During the three months ended March 31, 2011, we
recognized a total of $604,000 in stock-based compensation
expense, of which $536,000 was recorded as general and
administrative expenses and $68,000 was recorded as research and
development expenses. Stock-based compensation expense is
recorded in general and administrative expenses or research and
development expenses based on the duties of the employee
receiving the stock-based award.
In future periods, our stock-based compensation expense is
expected to increase as a result of our existing unrecognized
stock-based compensation still to be recognized and as we issue
additional stock-based awards in order to attract and retain
employees and nonemployee consultants.
55
Fair
Value of Warrants Issued In Connection with Equipment and
Business Loans
In connection with our equipment and business loans, we issued
warrants to purchase an aggregate of 411,312 shares of our
Series A-1
convertible preferred stock at an exercise price of $0.487 per
share and warrants to purchase an aggregate of 308,000 shares of
our Series B convertible preferred stock at exercise prices
ranging from $2.9410 to $4.902 per share. The warrants are
exercisable upon issuance, expire seven to 10 years from
the issuance date and are subject to redemption. The issuance
date fair value of these warrants was recorded as a current
liability because of the redemption feature. The warrants are
adjusted to their fair value at the end of each reporting
period. Any changes in the fair value of our warrant liabilities
are recorded as a non-cash charge to income or expense, as
applicable, in the period that the change in value occurs. We
determined the fair value of the warrants as of the date of
issuance and at each reporting date using the Black-Scholes
pricing model. The Black-Scholes pricing model requires a number
of variables that require management judgment including the
estimated price of the underlying instrument, the risk-free
interest rate, the expected volatility, the expected dividend
yield and the expected exercise period of the warrants. We
consider the estimate of fair value of the warrants issued in
connection with equipment and business loans to be Level 3
within the hierarchy of fair value measurements because of the
significance of unobservable inputs to fair value used in the
Black-Scholes pricing model.
During 2010, we recorded an increase in the fair value of the
warrants issued in connection with equipment and business loans
of $2.4 million due primarily to managements change
in the estimated fair value of the underlying instruments,
changes in estimated volatility and estimated exercise period of
the options. As of December 31, 2010, we estimated the fair
value of the warrants issued in connection with equipment and
business loans to be approximately $3.2 million, which
represented approximately 19.2% of our total liabilities. As of
March 31, 2011, we estimated the fair value of the warrants
issued to be approximately $4.9 million, which represented
approximately 21.6% of our total liabilities. These warrants
were our only asset or liability within the Level 3
hierarchy. Upon conversion of our
Series A-1
and Series B convertible preferred stock into our Class B
common stock and Class A common stock, respectively, the
warrants will be reclassified to additional paid-in capital at
fair value as of the date of conversion. The change in fair
value will be recorded in earnings.
In February 2011, we amended Equipment Loan #1 and our
business loan. Pursuant to the terms of the amendments, we
agreed to issue warrants to purchase $300,000 of securities
issued in a next-round equity financing resulting in gross
proceeds of at least $35 million that is completed prior to
March 31, 2011. In April 2011, we amended the loans to
change this date from March 31, 2011 to May 15, 2011.
The Series C convertible preferred stock issued in April
2011 in the aggregate amount of $55.0 million met the
next-round equity financing requirement and, as a result,
warrants to purchase 61,200 shares of our Series C
convertible preferred stock at an exercise price of $4.902 per
share are required to be issued in connection with the equipment
and business loan amendments. As of March 31, 2011, no
warrants had been issued. We recorded a liability of $300,000 in
connection with the warrants that are required to be issued.
We expect that the warrants ultimately will be exercised on a
net exercise basis, resulting in no cash proceeds to us.
Income
Taxes
We are subject to income taxes in United States. Prior to
December 31, 2010, our wholly owned subsidiary, KiOR B.V
(in liquidation) was subject to income taxes in the Netherlands.
As of December 31, 2010, all of the operations of KiOR B.V.
(in liquidation) were combined with the operations of KiOR, Inc.
We use the liability method of accounting for income taxes,
whereby deferred tax asset or liability account balances are
calculated at the balance sheet date using current tax laws and
rates in effect for the year in which the differences are
expected to affect taxable income.
We must make certain estimates and judgments in determining
income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits,
benefits and deductions and in the calculation of certain tax
assets and liabilities, which arise from differences in the
timing of recognition of
56
revenue and expenses for tax and financial statement purposes.
Significant changes to these estimates may result in an increase
or decrease to our tax provision in a subsequent period.
Recognition of deferred tax assets is appropriate when
realization of such assets is more likely than not. We recognize
a valuation allowance against our net deferred tax assets if it
is more likely than not that some portion of the deferred tax
assets will not be fully realizable. This assessment requires
judgment as to the likelihood and amounts of future taxable
income by tax jurisdiction. At December 31, 2009 and 2010
and at March 31, 2011, we had a full valuation allowance
against all of our deferred tax assets, including our net
operating loss carryforwards.
We make estimates and judgments about our future taxable income
that are based on assumptions that are consistent with our plans
and estimates. Should the actual amounts differ from our
estimates, the amount of our valuation allowance could be
materially impacted. Any adjustment to the deferred tax asset
valuation allowance would be recorded in the income statement
for the periods in which the adjustment is determined to be
required.
We assess all material positions taken in any income tax return,
including all significant uncertain positions, in all tax years
that are still subject to assessment or challenge by relevant
taxing authorities. Assessing an uncertain tax position begins
with the initial determination of the positions
sustainability and is measured at the largest amount of benefit
that is greater than 50% likely of being realized upon ultimate
settlement. As of each balance sheet date, unresolved uncertain
tax positions must be reassessed, and we will determine whether
(i) the factors underlying the sustainability assertion
have changed and (ii) the amount of the recognized tax
benefit is still appropriate. The recognition and measurement of
tax benefits requires significant judgment. Judgments concerning
the recognition and measurement of a tax benefit might change as
new information becomes available. We believe that it is more
likely than not that our income tax positions and deductions
will be sustained following an audit. Therefore, we have not
recorded any liabilities in any of the periods presented in the
consolidated financial statements resulting from uncertain tax
positions taken or expected to be taken in our tax returns.
Results
of Operations
The following table sets forth our consolidated results of
operations for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(3,643
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
(22,042
|
)
|
|
$
|
(4,381
|
)
|
|
$
|
(7,271
|
)
|
General and administrative expenses
|
|
|
(1,867
|
)
|
|
|
(2,987
|
)
|
|
|
(8,083
|
)
|
|
|
(1,226
|
)
|
|
|
(4,189
|
)
|
Depreciation and amortization expense
|
|
|
(178
|
)
|
|
|
(688
|
)
|
|
|
(1,656
|
)
|
|
|
(279
|
)
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,688
|
)
|
|
|
(13,636
|
)
|
|
|
(31,781
|
)
|
|
|
(5,886
|
)
|
|
|
(11,983
|
)
|
Interest income
|
|
|
71
|
|
|
|
65
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature expense
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
(242
|
)
|
|
|
(1,812
|
)
|
|
|
(367
|
)
|
|
|
|
|
Foreign currency loss
|
|
|
(236
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Loss from change in fair value of warrant liability
|
|
|
|
|
|
|
|
|
|
|
(2,365
|
)
|
|
|
|
|
|
|
(1,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,853
|
)
|
|
|
(14,028
|
)
|
|
|
(45,924
|
)
|
|
|
(6,245
|
)
|
|
|
(13,393
|
)
|
Income tax expense
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Comparison
of Three Months Ended March 31, 2010 and 2011
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Increase/
|
|
|
|
March 31,
|
|
|
(decrease)
|
|
|
|
2010
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(4,381
|
)
|
|
|
(7,271
|
)
|
|
$
|
2,890
|
|
|
|
66
|
%
|
General and administrative expenses
|
|
|
(1,226
|
)
|
|
|
(4,189
|
)
|
|
|
2,963
|
|
|
|
242
|
%
|
Depreciation and amortization expense
|
|
|
(279
|
)
|
|
|
(523
|
)
|
|
|
244
|
|
|
|
87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
(5,886
|
)
|
|
$
|
(11,983
|
)
|
|
$
|
6,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses. Our
research and development expenses increased by
$2.9 million, or 66%, for the three months ended
March 31, 2011 as compared to the same period in 2010.
During the three months ended March 31, 2011, we expanded
our research and development efforts as we focused more on
commercialization of our technology. In March 2010, we brought
our demonstration unit on-line and commenced testing of
feedstocks, catalyst formulations and other process variables
under a simulated commercial production environment. Operating
costs associated with our demonstration unit, which include
repairs, utilities and supplies, increased approximately
$0.9 million from $2.4 million in the first quarter of
2010 to $3.3 million in the first quarter of 2011. Research
and lab testing costs increased from $0.4 million in the
first quarter of 2010 to $1.3 million in the first quarter
of 2011 as a result of our use of independent lab testing and
validation services and specialized research consultants.
Operating costs associated with our pilot plant, which include
repairs, utilities and supplies, increased approximately
$1.1 million from $1.2 million in the first quarter of
2010 to $2.3 million in the first quarter of 2011.
General and Administrative Expenses. Our
general and administrative expenses increased by
$3.0 million, or 242%, for the three months ended
March 31, 2011 as compared to the same period in 2010. This
increase was primarily the result of $1.0 million of higher
payroll and related expenses due to hiring additional personnel
for business development and support staff, a $0.4 million
increase in legal expenses incurred in 2011 in connection with
financing and regulatory activities and a $1.5 million
increase in expenses for consultants engaged to assist us with
applications to various federal governmental agencies for grants
and loan guarantees.
Depreciation and Amortization Expense. Our
depreciation and amortization expense increased by
$0.2 million, or 87%, for the three months ended
March 31, 2011 as compared to the same period in 2010 due
to additional depreciation expense associated with our
demonstration unit.
Other
Income (Expense), Net
Interest Expense. Interest expense decreased
by approximately $0.4 million, or 100%, for the three
months ended March 31, 2011 as compared to the same period
in 2010. This decrease is primarily due to capitalized interest
of $0.3 million recorded in the first quarter of 2011 as
compared to zero in the first quarter of 2010, which was
associated with equipment purchases for the construction of our
initial-scale commercial production facility in Columbus,
Mississippi.
Foreign Currency Loss. Our foreign currency
loss in 2010 was attributable to our wholly owned subsidiary,
KiOR B.V. (in liquidation), whose operations were combined with
those of KiOR, Inc. in 2010. During the three months ended
March 31, 2011, we did not enter into any foreign currency
transactions.
58
Comparison
of Years Ended December 31, 2009 and 2010
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase in 2010
|
|
|
|
2009
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(9,961
|
)
|
|
$
|
(22,042
|
)
|
|
$
|
12,081
|
|
|
|
121
|
%
|
General and administrative expenses
|
|
|
(2,987
|
)
|
|
|
(8,083
|
)
|
|
|
5,096
|
|
|
|
171
|
%
|
Depreciation and amortization expense
|
|
|
(688
|
)
|
|
|
(1,656
|
)
|
|
|
968
|
|
|
|
141
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
(13,636
|
)
|
|
$
|
(31,781
|
)
|
|
$
|
18,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses. Our
research and development expenses increased by
$12.1 million, or 121%, for the year ended
December 31, 2010 as compared to the same period in 2009.
During 2010, we expanded our research and development efforts as
we focused more on commercialization of our technology. In March
2010, we brought our demonstration unit on-line and commenced
testing of feedstocks, catalyst formulations and other process
variables under a simulated commercial production environment.
Increased operating costs associated with our demonstration
unit, including repairs, utilities and supplies, accounted for
$5.4 million of our increase in research and development
expenses. During 2010, we increased our research and development
staff to 75 full-time equivalents, or FTEs, as compared to
30 FTEs at December 31, 2009. Research and development
employee costs increased from $3.5 million in 2009 to
$6.5 million in 2010 as a result of the increased staff,
including a patent attorney and related support staff. Research
and technical consulting and contract employee costs increased
from $2.6 million in 2009 to $6.6 million in 2010 as a
result of our use of independent lab testing and validation
services and specialized research consultants. Research and
development legal expenses decreased from $1.4 million in
2009 to $1.1 million in 2010 as we employed a full-time
patent attorney, which decreased our reliance on third-party
patent attorneys in 2010.
General and Administrative Expenses. Our
general and administrative expenses increased by
$5.1 million, or 171%, for the year ended December 31,
2010 as compared to the same period in 2009. This increase was
primarily the result of $2.5 million of higher payroll and
related expenses due to hiring additional personnel for business
development and support staff, a $1.1 million increase in
legal expenses incurred in 2010 in connection with financing and
regulatory activities, and a $0.8 million increase in
expenses for consultants engaged to assist us with applications
to various federal governmental agencies for grants and loan
guarantees. The balance of the increase of $0.7 million was
due to increased insurance, office costs and other costs
associated with our expanded operations.
Depreciation and Amortization Expense. Our
depreciation and amortization expense increased by
$1.0 million in 2010 due to additional depreciation expense
associated with our demonstration unit.
Other
Income (Expense), Net
Beneficial Conversion Feature
Expense. Beneficial conversion feature expense
increased by $10.0 million for the year ended
December 31, 2010 as compared to the same period in 2009.
This increase is due to the non-cash charge we recorded in April
2010 in connection with the Note converting into Series B
convertible preferred stock. Please read
Liquidity and Capital Resources for more
information.
Interest Expense. Interest expense increased
by approximately $1.6 million for the year ended
December 31, 2010 as compared to the same period in 2009.
This increase primarily is due to the additional equipment loan
and business loans we entered into causing higher interest
expense in 2010. The increase in interest expense was partially
offset by capitalized interest recorded in 2010 of $118,000 that
was associated with equipment purchases for the construction of
our initial-scale commercial production facility in Columbus,
Mississippi.
59
Foreign Currency Loss. Our foreign currency
loss in 2009 was attributable to our wholly owned subsidiary,
KiOR B.V. (in liquidation), whose operations were combined with
those of KiOR, Inc. in 2010. During 2010, we did not enter into
any foreign currency transactions.
Loss from Change in Fair Value of Warrant
Liability. The $2.4 million incurred during
2010 relates to the change in fair value of our convertible
preferred stock warrants, which are recorded as derivatives and
reflected on our consolidated balance sheets as a current
liability.
Comparison
of Years Ended December 31, 2008 and 2009
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase in 2009
|
|
|
|
2008
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(3,643
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
6,318
|
|
|
|
173
|
%
|
General and administrative expenses
|
|
|
(1,867
|
)
|
|
|
(2,987
|
)
|
|
$
|
1,120
|
|
|
|
60
|
%
|
Depreciation and amortization expense
|
|
|
(178
|
)
|
|
|
(688
|
)
|
|
$
|
510
|
|
|
|
287
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
(5,688
|
)
|
|
$
|
(13,636
|
)
|
|
$
|
7,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses. Our
research and development expenses increased by
$6.3 million, or 173%, for the year ended December 31,
2009 as compared to the same period in 2008. The majority of the
increase was due to bringing our pilot unit online in February
2009. During 2009, we increased research and development staff
to 30 FTEs as compared to 7 FTEs at December 31, 2008.
Research and development employee costs increased by
$2.0 million, from $1.5 million in 2008 to
$3.5 million, in 2009 as a result of the increased staff.
Research and technical consulting costs increased
$1.2 million, from $1.4 million to $2.6 million,
in 2009 as a result of our use of independent lab testing and
validation services and specialized research consultants.
Research and development legal expenses increased by
$1.2 million from $0.2 million in 2008 to
$1.4 million in 2009. Since inception, we have sought to
protect our intellectual property by applying for patents and
other protective measures. The balance of the increase of
$1.9 million was attributable to increased operating costs
associated with our pilot unit.
General and Administrative Expenses. Our
general and administrative expenses increased by approximately
$1.1 million, or 60%, for the year ended December 31,
2009 as compared to the same period in 2008, in part due to a
$0.5 million increase from hiring additional personnel to
support the continued development of our business. The remainder
of the increase of $0.6 million was primarily attributable
to additional legal expenses in 2009 in connection with our debt
financing and corporate governance, as well as increased
information technology costs associated with expanding our
corporate office.
Depreciation and Amortization Expense. Our
depreciation and amortization expense increased by approximately
$0.5 million in 2009 as compared to the same period in
2008. This increase is primarily the result of the additional
depreciation for our pilot unit.
Other
Income (Expense), Net
Interest Expense. Interest expense increased
by $0.2 million in 2009 as compared to 2008 due to the
commencement of the equipment loans and the debt discount
amortization of the warrants issued in connection with the
equipment loan.
Foreign Currency Loss. We incur certain
operating expenses in currencies other than the U.S. dollar
in relation to our subsidiary located in the Netherlands. The
decrease in foreign currency loss in 2009 as compared to 2008 of
approximately $21,000 was primarily due to fluctuations in
spending associated with the Netherlands entity.
60
Liquidity
and Capital Resources
Since inception, we have generated significant losses. As of
March 31, 2011, we had an accumulated deficit of
approximately $79.7 million. We have never generated any
revenue. We expect to continue to incur operating losses through
at least 2013 as we continue into the commercialization stage of
our business. Commercialization of our technology will require
significant capital expenditures.
We anticipate that our material liquidity needs in the near and
intermediate term will consist of the following:
|
|
|
|
|
Funding the construction and startup of our initial-scale
commercial production facility under construction in Columbus,
Mississippi. We estimate that this initial-scale commercial
production facility, including a hydrotreater, will cost
approximately $190 million to complete, of which we had
paid $29.1 million as of March 31, 2011. We expect to
spend approximately $150 million over the next
12 months to complete construction of this facility. We
expect our Columbus facility to commence production by the
second half of 2012.
|
|
|
|
Funding the construction and startup of our planned first
commercial production facility in Newton, Mississippi at an
estimated cost of approximately $350 million and the first
train of our two-train centralized hydrotreating facility at an
estimated cost of approximately $110 million. We expect to
begin construction of this facility in the third quarter of
2012. We expect to spend between approximately $50 million
and $70 million over the next 12 months on capital
expenditures, including front-end engineering and procurement
services and long-lead equipment, for this facility.
|
|
|
|
Funding our anticipated continued operating losses through at
least 2013.
|
Issuance
of Series C Convertible Preferred Stock
In April 2011, we issued 11,219,908 shares of Series C
convertible preferred stock for total consideration of
$55 million. Each share of Series C convertible
preferred stock has the same voting rights as our Series A,
Series A-1
and Series B convertible preferred stock. Each share of
Series C convertible preferred stock is convertible at the
option of the holder at any time without payment of additional
consideration into such number of fully paid and non-assessable
shares of our Class A common stock as is determined by
dividing the original issue price of the Series C
convertible preferred stock by the Series C convertible
preferred stock conversion price, which is initially $4.902. The
conversion price will be adjusted to 80% of the issuance price
of our Class A common stock in our initial public offering,
if we complete an initial public offering of our Class A
common stock with aggregate proceeds greater than
$50 million and at a price in excess of $4.902 per share by
October 31, 2011. The conversion price is also subject to
adjustment upon issuance of additional shares of our
Class A common stock or Class B common stock.
We believe that our current cash and cash equivalents, proceeds
of $55 million from the sale of our Series C
convertible preferred stock, borrowings under our
$75 million interest-free loan from the Mississippi
Development Authority and the net proceeds from this offering
will be sufficient to fund our current operations for the next
12 months and to fund completion of our initial-scale
commercial production facility in Columbus, Mississippi. We will
need substantial additional capital resources to complete our
subsequent standard commercial production facilities we plan to
build in Mississippi and other Southeastern states. If we are
unable to obtain sufficient additional financing, we will have
to delay, scale back or eliminate construction plans for some or
all of these facilities, any of which could harm our business,
financial condition and results of operations.
Mississippi
Development Authority Loan
On March 17, 2011, our subsidiary, KiOR Columbus LLC, or
KiOR Columbus, entered into a loan agreement with the
Mississippi Development Authority, or MDA, pursuant to which the
MDA has agreed to make disbursements to KiOR Columbus from time
to time in a principal amount not to exceed $75 million in
the aggregate to reimburse costs incurred by KiOR Columbus to
purchase land, construct buildings and to purchase and install
equipment for use in the manufacturing of our renewable crude
oil from Mississippi-
61
grown biomass. Principal payments on the loan are due
semiannually on June 30 and December 31 of each year, commencing
on the earlier of (a) December 31, 2012 and
(b) the next scheduled payment date that is at least six
months after we commence commercial production of renewable
crude oil at our initial-scale commercial production facility
for sale to customers in the ordinary course of business. On
each such payment date, we are required to pay an amount equal
to the lesser of an amount sufficient to repay the total loan
within (a) a period of time determined by the
weighted-average life of the equipment being purchased with the
proceeds thereof or (b) 20 years. Under this loan, we
committed to employing at least 30 employees, with
aggregate salaries of at least $1.0 million, once our
initial-scale commercial production facility is fully
operational. In addition, we are required to pay the entire
outstanding principal amount of the loan, together with all
other applicable costs, charges and expenses no later than the
date 20 years from the date of our first payment on the
loan. This loan is non-interest bearing.
The loan agreement contains no financial covenants, and events
of default include a failure by KiOR Columbus to make specified
investments within Mississippi by December 31, 2015,
including an aggregate $500.0 million investment in
property, plant and equipment located in Mississippi and
expenditures for wages and direct local purchases in Mississippi
totaling $85.0 million. If an event of default occurs and
is continuing, the MDA may accelerate amounts due under the loan
agreement. The loan is secured by certain equipment, land and
buildings of KiOR Columbus.
In April 2011, we received $26.6 million of the Mississippi
loan to reimburse us for expenses incurred in the construction
of our commercial production facility located in Columbus,
Mississippi.
Additional
Financing Requirements
We will need substantial additional capital resources to fund
our operations and to construct our standard commercial
production facilities, beginning with our first planned facility
in Newton, Mississippi in the third quarter of 2012.
We estimate that the construction costs for each of our standard
commercial production facilities will average approximately
$350 million, depending on each facilitys unique
design requirements. Our two-train centralized hydrotreaters
will be constructed in phases, with each train expected to
support up to two standard commercial production facilities. We
estimate that construction costs for our hydrotreaters will
average approximately $110 million per train. By staging
the expansion of our standard commercial facilities in discrete
facility-by-facility
projects that are independently viable, we believe that we will
have flexibility to plan our growth in response to capital
availability and market conditions.
We intend to utilize proceeds from this offering to fund our
operations and a portion of the capital expenditures for our
first standard commercial production facility in Newton. We plan
to fund the remaining construction costs of the Newton facility
with debt from one or more public or private sources.
62
Long-Term
Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment loans
|
|
$
|
4,165
|
|
|
$
|
3,710
|
|
|
$
|
3,507
|
|
Business loan
|
|
|
|
|
|
|
6,327
|
|
|
|
6,194
|
|
Less: unamortized debt discounts
|
|
|
(116
|
)
|
|
|
(520
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of discount
|
|
|
4,049
|
|
|
|
9,517
|
|
|
|
9,234
|
|
Less: current portion
|
|
|
(1,667
|
)
|
|
|
(4,480
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion, net of discount
|
|
$
|
2,382
|
|
|
$
|
5,037
|
|
|
$
|
8,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note to stockholder
|
|
$
|
15,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
Loans
Equipment Loan #1. On December 30,
2008, we entered into an equipment loan agreement with
Lighthouse Capital Partners VI, L.P. The loan agreement
provides for advances at $100,000 minimum increments up to
$5.0 million in the aggregate for purchases of equipment.
During 2009, we borrowed all $5.0 million available under
the loan. Each advance represents a separate loan tranche that
is payable monthly over a three-year period from the date of
issuance of the advance at an annual interest rate of 7.5%. In
addition, at loan maturity, we are required to make a payment
equal to 7.5% of the total principal on the loan. The loans
mature at dates from March 2012 to October 2012.
The loan tranches are collateralized by certain of our pilot
unit, lab equipment and office equipment valued at approximately
$5.0 million.
Equipment Loan #2. On March 17,
2010, we entered into an equipment loan agreement with Silicon
Valley Bank with total availability of $1.0 million,
limited to two advances of at least $500,000 each. The full
amount of the availability under the loan agreement was drawn
down in a single advance of $1.0 million. The loan is
payable monthly over a three-year period at an annual interest
rate of 10%. The loan is collateralized by the equipment
purchased with the advances valued at approximately
$1.3 million.
Business
Loan
On January 27, 2010, we entered into a business loan
agreement with Lighthouse Capital Partners VI, L.P. and
Leader Lending, LLC for an amount up to $7.0 million.
Advances are payable monthly over a three-year period at an
annual interest rate of 12% commencing on the date of the
advance. In addition, at loan maturity, we are required to make
a payment equal to 7.5% of the total amount drawn on the loan.
During 2010, we borrowed $7.0 million under the loan
agreement. The loan is collateralized by our assets not
previously pledged as collateral on the equipment loans
described above.
Amendments
of Equipment and Business Loans
In February 2011 and April 2011, we amended Equipment
Loan #1 and the Business Loan to waive certain covenant
restrictions to allow us to enter into the Mississippi Loan
Agreement. In addition, the amendments provided for a deferral
of principal payment for one year, included prepayment penalties
and extended the maturities of the loans to January 2014. All
other terms were unchanged. Interest during the principal
deferral period is paid at 1% to 2.5% over the original stated
interest rate and reverts to the original interest rate upon
expiration of the deferral period. In connection with the
amendments, we paid aggregate fees of $60,000 and $240,000
payable upon execution of the amendments and upon maturity,
respectively. In addition, we agreed to issue warrants to
purchase $300,000 of securities issued in a next-round equity
63
financing, if such equity financing of at least
$35 million is completed prior to May 15, 2011. The
Series C convertible preferred stock issued in April 2011
in the aggregate amount of $55.0 million met the next-round
equity financing requirement and, as a result, warrants to
purchase 61,200 shares of our Series C convertible
preferred stock at an exercise price of $4.902 per share are
required to be issued in connection with the equipment and
business loan amendments. As of March 31, 2011, no warrants
had been issued. We recorded a liability of $300,000 in
connection with the warrants that are required to be issued.
Convertible
Promissory Note to Stockholder
In April 2010, the Note, which was outstanding with one of our
stockholders, was non-interest bearing and due to mature on
August 4, 2011, with no principal payments required prior
to maturity. Under the terms of the Note, if we were to sell on
or before the maturity date at least $10.0 million of our
convertible preferred stock in a sale or series of related
sales, pursuant to which we received gross proceeds of at least
$10.0 million, excluding any amounts as a result of
conversion of the Note, the Note would be convertible into the
same class and series of convertible preferred stock just sold
at a price per share equal to 60% of the price paid by the
investors participating in the sale. Our Series B
convertible preferred stock issuance triggered this conversion
option, and the holder of the Note subsequently exercised the
right to convert.
We recorded a $10.0 million expense to beneficial
conversion feature expense associated with the conversion of the
Note into Series B convertible preferred stock. The
$10.0 million reflects the value assigned to the beneficial
conversion feature. The value of the beneficial conversion
feature was not readily determinable upon issuance of the Note
because the conversion feature was contingent upon the
occurrence of a qualified financing transaction. Neither the
timing nor value of such transaction could be estimated at the
time the Note was issued. Therefore, we recorded the entire
amount of the beneficial conversion feature on the consolidated
statements of operations at the time the conversion occurred and
value for the beneficial conversion feature could be determined.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Years Ended December 31,
|
|
March 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(4,416
|
)
|
|
$
|
(12,401
|
)
|
|
$
|
(30,505
|
)
|
|
$
|
(6,194
|
)
|
|
$
|
(12,455
|
)
|
Investing activities
|
|
$
|
(3,116
|
)
|
|
$
|
(8,438
|
)
|
|
$
|
(23,488
|
)
|
|
$
|
(4,997
|
)
|
|
$
|
(16,641
|
)
|
Financing activities
|
|
$
|
12,940
|
|
|
$
|
19,164
|
|
|
$
|
100,382
|
|
|
$
|
7,608
|
|
|
$
|
(307
|
)
|
Operating activities. Net cash used in
operating activities for the year ended 2010 was
$30.5 million compared with $12.4 million for the year
ended 2009 and $4.4 million for the year ended 2008. The
increase in cash used in 2010 is attributed primarily to
increased research and development and general and
administrative expenses when compared to 2009. The increase in
cash used in 2009 is attributed primarily to increased research
and development and general and administrative expenses when
compared to 2008. Net cash used in operating activities for the
three months ended March 31, 2011 was $12.5 million
compared with $6.2 million in the same period in 2010. This
increase in cash used was attributable to running the
demonstration unit and increased employee costs, as well as
increased costs for research and development.
Investing Activities. Net cash used in
investing activities for the year ended 2010 was
$23.5 million compared with net cash used in investing
activities of $8.4 million for the year ended 2009 and
$3.1 million for the year ended 2008. The increase in net
cash used in investing activities during this period is
attributed to costs incurred in connection with the construction
of our demonstration unit. Our demonstration unit was
constructed in late 2009 to early 2010. The increase in cash
used in investing activities for the year ended 2009 when
compared to the same period in 2008 is attributed to increased
capital expenditures associated with our demonstration unit. Net
cash used in investing activities for the three months ended
March 31, 2011 was $16.6 million compared to
$5.0 million in the same period in 2010. This increase in
cash used is directly related to the construction of the
production facility in Columbus, Mississippi.
64
Financing Activities. For the year ended 2010,
cash provided by financing activities was $100.4 million,
which was attributable to $95.0 million in net proceeds
from the issuance of Series B convertible preferred stock
and proceeds from two business loans amounting to
$7.0 million, as well as proceeds from our second equipment
loan amounting to $1.0 million. Principal payments on our
equipment and business loans aggregated to $2.7 million
during 2010. For the year ended 2009, cash provided by financing
activities was $19.2 million, which was attributable to
$15.0 million from the issuance of the Note and
$5.0 million in net proceeds from our first equipment loan.
Principal payments on our first equipment loans was
$0.8 million during 2009. For the year ended 2008, cash
provided by financing activities was $12.9 million, which
was attributable to $10.0 million from the issuance of
Series A-1
convertible preferred stock and $2.9 million of proceeds
from the issuance of Series A convertible preferred stock.
Net cash used in financing activities was $0.3 million for
the three months ended March 31, 2011 as compared to cash
provided by financing activities of $7.6 million in the
same period in 2010. The difference was primarily attributable
to borrowings under our equipment loan ($1.0 million) and
business loan ($7.0 million) that were received during the
three months ended March 31, 2010. We did not enter into
any debt or equity transactions during the three months ended
March 31, 2011.
Contractual
Obligations
The following is a summary of our contractual obligations as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1 - 3
|
|
|
4 - 5
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(Amounts in thousands)
|
|
|
Equipment loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
3,797
|
|
|
$
|
2,080
|
|
|
$
|
1,717
|
|
|
$
|
|
|
|
$
|
|
|
Interest(1)
|
|
|
254
|
|
|
|
193
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
Business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
6,607
|
|
|
|
2,400
|
|
|
|
4,207
|
|
|
|
|
|
|
|
|
|
Interest(1)
|
|
|
852
|
|
|
|
571
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
773
|
|
|
|
540
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
Purchase commitments(2)
|
|
|
28,657
|
|
|
|
28,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
40,940
|
|
|
$
|
34,441
|
|
|
$
|
6,499
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rates are more fully described in Note 6 of our
consolidated financial statements. |
|
(2) |
|
Purchase commitments related to the construction of our
initial-scale commercial production facility in Columbus,
Mississippi. |
Off-Balance
Sheet Arrangements
During the periods presented, we did not, nor do we currently
have, any off-balance sheet arrangements, such as relationships
with unconsolidated entities or financial partnerships, which
are often referred to as structured finance or special purpose
entities, established for the purpose of facilitating financing
transactions that are not required to be reflected on our
consolidated balance sheets.
Seasonality
We do not expect that commercial production of our gasoline and
diesel blendstocks will be subject to seasonality.
Recent
Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board, or
FASB, issued an amendment to an accounting standard which
requires new disclosures for fair value measures and provides
clarification for existing disclosure requirements.
Specifically, this amendment requires an entity to disclose
separately the
65
amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and to describe the reasons
for the transfers; and to disclose separately information about
purchases, sales, issuances and settlements in the
reconciliation for fair value measurements using significant
unobservable inputs, or Level 3 inputs. This amendment
clarifies existing disclosure requirements for the level of
disaggregation used for classes of assets and liabilities
measured at fair value and require disclosure about the
valuation techniques and inputs used to measure fair value for
both recurring and nonrecurring fair value measurements using
Level 2 and Level 3 inputs. The adoption of this
amendment did not have a material impact on our consolidated
financial statements.
There have been no other recent accounting pronouncements or
changes in accounting pronouncements which we expect to have a
material impact on our financial statements, nor do we believe
that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material
effect on our financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. We generally
invest our cash in investments with short maturities or with
frequent interest reset terms. Accordingly, our interest income
fluctuates with short-term market conditions. As of
March 31, 2011, our investment portfolio consisted
primarily of money market funds. Due to the short-term nature of
our investment portfolio, our exposure to interest rate risk is
minimal.
Foreign
Currency Risk
Prior to December 31, 2010 we incurred certain operating
expenses in currencies other than the U.S. dollar in
relation to our subsidiary located in the Netherlands and,
therefore, are subject to volatility in cash flows due to
fluctuations in exchange rates between the U.S. Dollar and
the Euro. This subsidiary is in the process of liquidation.
66
INDUSTRY
We are a next-generation renewable fuels company. We have
developed a proprietary technology platform to convert low-cost,
abundant and sustainable non-food biomass into hydrocarbon-based
renewable crude oil. We process our renewable crude oil using
standard refinery equipment into gasoline and diesel
blendstocks, which can be transported using the existing fuels
distribution system for use in vehicles on the road today. Our
gasoline and diesel blendstocks are projected to reduce direct
lifecycle greenhouse gas emissions by over 80% compared to the
petroleum-based fuels they displace. Our proprietary technology
platform allows us to convert a wide variety of low-cost,
abundant and sustainable non-food biomass into renewable
transportation fuels. We have selected Southern Yellow Pine
whole tree chips as our primary feedstock.
Industries that are important to our business include the
traditional oil industry, from exploration and production to
refining, renewable fuels and forest products.
The
Traditional Oil Industry
Overview
According to international energy statistics from the U.S.
Energy Information Administration, or EIA, global crude oil
production in 2009 was 72.3 million barrels per day, which
equates to a market size of over $2 trillion. Transportation
alone accounts for more than 50% of world consumption of liquid
fuels, and its share is projected to increase through 2035.
Crude oil is produced in 31 U.S. states and
U.S. coastal waters. In 2009, 50% of U.S. crude oil
production came from Texas (21%), Alaska (12%), California
(11%), North Dakota (4%) and Louisiana (3.5%). According to the
EIA, although total U.S. crude oil production has generally
decreased each year since it peaked in 1970, it increased by 7%
in 2009 from 2008, in large part due to a 35% increase in
production in federal waters of the Gulf of Mexico.
The market for crude oil depends on a broad array of economic,
demographic, political and technological factors; however, the
crude oil industry is influenced most heavily by economic
activity, pricing and government regulations. Healthy economic
conditions tend to spur demand for crude oil, placing upward
pressures on crude prices. Profitability for these producers is
tied closely to the price of crude. Recent political instability
in oil producing regions of the world may also continue to
contribute to market volatility for crude oil.
Exploration &
Production
Oil and gas exploration encompasses the processes and methods
involved in locating and discovering potential sites for oil and
gas drilling and extraction. This is the first stage of oil and
gas production. Many uncertainties exist during the exploration
process, and costs can vary dramatically. Geological surveys are
conducted using various means from testing subsoil for onshore
exploration to employing sophisticated technology such as
seismic imaging for offshore exploration. The U.S. oil and
gas exploration and production industry consists of a large
number of companies that target a variety of strategies and
niches within the space. These include oil-focused versus
gas-focused, onshore versus offshore, resource plays, major
independents and the exploration and production divisions of
large integrated oil companies.
Development costs include the cost of drilling, production
facilities and any systems required for transporting the
resources. Capital costs for developing an oil and gas
production facility can amount to several billion dollars
depending on size and type. Projections of production trends
assist in characterizing well performance over its predicted
life and its potential economic profitability.
As a well is produced, the pressure, which was highest when the
well first produced, begins to diminish. As a consequence, the
flow rate of the well also diminishes. Without assistance, the
wells production will eventually slow to a trickle, and
finally cease. This decline could take days, years or decades to
occur. Typically, production rates decline over time, driving up
operations costs while revenue shrinks. This scenario continues
until the well fails
and/or
becomes uneconomic to operate or repair.
The crude oil and refining industry provides a vast array of
products, including diesel and gasoline. Roughly two-thirds of
crude oil products are used for transportation fuels, while the
remainder is spread across industrial, manufacturing and other
sectors of the U.S. economy. Given the importance of crude
oil products to
67
the U.S. economy, demand for diesel and gasoline has grown
steadily over the past 15 years. According to the EIA, the
United States consumed 18.8 million barrels per day of
petroleum products during 2009, making it the worlds
largest petroleum consumer. U.S. crude oil consumption is
projected to reach 22 million barrels per day by 2035.
Understanding the dynamics of consumption, production, supply
and demand of crude oil is critical to understanding the
industry in which our company operates.
Refining
The market is comprised of integrated and independent oil
refiners whose primary business involves converting crude oil
into its various end products, including gasoline, diesel, jet
fuel, liquefied petroleum gas, bunker fuel, asphalt and carbon
black oil. Crude oil undergoes three primary steps in a refinery
before it is fully converted into its marketed end products.
First, crude oil is separated into its individual components
from a light to heavy spectrum through fractional distillation.
Next, the less economically valuable components of fractional
distillation, such as light gases and heavy gasoil, are
converted into more economically valuable products. This can
occur through cracking, alkylation or reforming. Cracking
involves breaking large hydrocarbon chains into smaller pieces.
Alkylation combines smaller molecules to make larger ones.
Reforming is the rearranging of various molecules to increase
octane levels. Finally, after the components are converted, they
undergo finishing. In this step, the components are treated to
remove impurities such as sulfur and nitrogen to create
blendstocks, which are blended together to make various
on-specification end products, such as gasoline and diesel,
ready for the market.
According to the EIA, as of January 1, 2010, there were 137
oil refineries operating in the United States with a total
capacity of 16.9 million barrels per day.
Refining
Economics
Profit margins in the refining industry are often referred to as
crack spreads. The crack spread is the difference
between the price of the crude oil and the value realized from
the end products. Refiners look to maximize crack spreads by
producing a slate of end products with as much value as
possible. Compared to heavy refined products, such as bunker
fuel, carbon black oil, asphalt and petroleum coke, light
refined products, such as liquefied petroleum gas, gasoline, jet
fuel and diesel, are generally more valuable. Accordingly,
refiners are willing to pay more for crude oil that yields a
lighter product slate and can be produced at lower cost,
requiring less complex and expensive equipment.
Refining is a capital-intensive business. In addition, both
crude oil and the end products are volatile commodities, and the
lack of perfect correlation between them leads to crack spread
volatility. These two facts necessitate high utilization rates
to cover refiners substantial fixed operating costs.
The
Renewable Fuels Industry
Overview
According to the EIA, U.S. crude oil demand in 2009 was
14.3 million barrels per day, of which approximately 63%
was supplied by foreign imports. 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 by accelerating the
development and commercialization of renewable fuels. Among
other things, EISA updated the Renewable Fuel Standard program,
which we refer to as RFS2, to (a) increase the total volume
of renewable fuel required to be used in transportation fuel,
(b) establish four renewable fuel categories and
(c) set separate volume requirements for next-generation
renewable fuels.
The four renewable fuel categories are as follows:
|
|
|
|
|
Renewable Fuel: A fuel produced from renewable
biomass that replaces or reduces the quantity of fossil fuel
present in transportation fuel, heating oil or jet fuel. A
renewable fuel must also reduce lifecycle greenhouse gas
emissions by at least 20% compared to a 2005 baseline for the
fuel it supplants. The EISA requirement for the volume of all
renewable fuel was 12.95 billion gallons in 2010,
increasing to 20.5 billion gallons in 2015 and reaching
36.0 billion gallons in 2022.
|
68
|
|
|
|
|
Advanced Biofuel: A renewable fuel, other than
corn ethanol, that reduces lifecycle greenhouse gas emissions by
at least 50%. Advanced biofuel is a subset of renewable fuel. Of
the total EISA requirement for the volume of renewable fuel, at
least 950 million gallons of renewable fuel was required to
be advanced biofuel in 2010, increasing to 5.5 billion
gallons in 2015 and reaching 21.0 billion gallons in 2022.
|
|
|
|
Biomass-based Diesel: A renewable fuel meeting
the definition of either biodiesel or non-ester renewable diesel
that reduces lifecycle greenhouse gas emissions by at least 50%.
Biomass-based diesel is a subset of advanced biofuel and cannot
be co-processed with petroleum. Of the total EISA requirement
for the volume of renewable fuel, at least 650 million
gallons of advanced biofuel was required to be biomass-based
diesel in 2010, with volumes for 2015 and 2022 to be established
by the U.S. Environmental Protection Agency, or EPA, but in
no event less than 1.0 billion gallons.
|
|
|
|
Cellulosic Biofuel: A renewable fuel derived
from any cellulose, hemicellulose or lignin that reduces
lifecycle greenhouse gas emissions by at least 60%. Cellulosic
biofuel is a subset of advanced biofuel. Of the total EISA
requirement for the volume of renewable fuel, at least
100 million gallons of advanced biofuel was required to be
cellulosic biofuel in 2010, increasing to 3.0 billion
gallons in 2015 and reaching 16.0 billion gallons in 2022.
|
Cash Cost
and Market Price for Renewable Fuels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane
|
|
|
Biodiesel
|
|
|
|
Corn ethanol
|
|
|
ethanol
|
|
|
(biomass-based
|
|
|
|
(renewable fuel)
|
|
|
(advanced biofuel)
|
|
|
diesel)
|
|
|
Cash cost
|
|
$
|
2.412
|
|
|
|
Unavailable
|
|
|
$
|
4.770(1
|
)
|
Market price
|
|
$
|
2.587
|
|
|
|
$3.889
|
|
|
$
|
5.148(1
|
)
|
Sources: Cash costs and market prices
presented on a per-gallon basis from data from PIRA Energy
Group. Cash costs and market prices are estimated by PIRA Energy
Group for May 2011. Cash cost is all fixed and variable
operating costs associated with producing the fuel. Cash cost
excludes financing and capital recovery costs.
|
|
|
(1) |
|
On a per gallon of ethanol equivalent basis, this equates to a
production cost of $3.180 and market price of $3.432. |
69
The following graphics illustrate the RFS2 mandates for the
categories of renewable fuel and the overlapping relationship of
the fuel categories:
We believe that our gasoline and diesel blendstocks will qualify
as cellulosic biofuel. Cellulosic biofuel is a subset of
advanced biofuel, which is a subset of renewable fuel, and
cellulosic biofuel satisfies the requirements for both of these
other fuel categories. In contrast, only cellulosic biofuel
satisfies the requirements for cellulosic biofuel, which
provides cellulosic biofuel producers with an opportunity to
compete with producers of advanced biofuel and other renewable
fuel, but not vice versa. Accordingly, the potential size of the
renewable fuel market for cellulosic biofuel in 2022 under RFS2
is 16.0 billion gallons to 36.0 billion gallons. The
impact of EISA mandates is that by 2022, renewable fuels are
expected not only to make up an increasing percentage of liquid
transportation fuels in the United States, but also are expected
to contribute to an approximately 15% reduction in net imports
of crude oil from 2009 levels. However, as of 2010, the EPA
expects a significant shortfall in production of cellulosic
biofuel. The EIAs Annual Energy Outlook 2010 forecasts an
overall renewable fuel shortfall as well. Total production of
renewable fuels is
70
projected to be 25.7 billion gallons versus
36.0 billion gallons required under the EISA mandate. The
figure below illustrates the increasing RFS2 mandates for
cellulosic biofuel and the EIAs projections for production.
Additional renewable fuels mandates exist in Europe and other
countries with varying mandates and volume requirements for
premium renewable fuels.
Government
Programs, Incentives and Regulations
The renewable fuels industry benefits from government programs,
incentives and regulations that seek to promote the development
and commercialization of renewable fuel technologies, including
RFS2, the Cellulosic Biofuel Tax Credit, the U.S. Department of
Energy, or DOE, loan guarantee program and other state and local
government programs and incentives.
RFS2,
RINs and Waiver Credits
Under RFS2, any refiner or importer of gasoline or diesel fuel
in the United States (other than Alaska or
U.S. territories, which may petition to opt-in) is an
obligated party, and must comply on an annual basis with volume
requirements for both renewable fuels as a whole as well as
those for each renewable fuel category. Although EISA outlines
initial volume requirements for each year through 2022, it
requires the EPA to perform a market analysis each year to set
final standards for the following year. For
cellulosic biofuel, the EPA sets the final volume standards
based on projected production volumes for the following year. If
the projected production volume is less than the EISA target,
the EPA has the authority to lower the final volume standard to
address the projected shortfall. The EPA then takes into account
total projected transportation fuel production volumes for the
ensuing year to calculate standards for cellulosic biofuel as a
percentage of total transportation fuel production, to which
each obligated party must adhere.
By way of example, because the supply of cellulosic biofuel was
projected to be very limited in 2011, the EPA determined that
the final volume standard for cellulosic biofuel for 2011 would
be 6.0 million gallons, well below the 250 million
gallon volume requirement target specified in EISA. This
6.0 million gallons represented 0.003% of total projected
transportation fuel production for 2011. Thus, each obligated
party is required to ensure 0.003% of its total transportation
fuel production consisted of cellulosic biofuel, which
translated to its respective volume obligations.
The EPA assigns renewable identification numbers, or RINs, to
each batch of qualified renewable fuel produced or imported.
RINs demonstrate compliance with, and are the credit currency
of, RFS2. Each fuel category has a unique set of RINs. Each
obligated party must obtain the requisite number of RINs for
each fuel category based on that partys annual volume
obligations. If an obligated party meets or exceeds its RIN
volume obligations, that obligated party may either sell its
excess RINs or use its excess RINs to satisfy its RIN volume
obligations in subsequent years.
For a compliance year in which the EPA lowers the final volume
requirement target set forth in EISA for cellulosic biofuel due
to a projected shortfall, the EPA will also issue cellulosic
biofuel waiver credits, or
71
Waiver Credits, equal to the reduced cellulosic biofuel volume
established by EPA for that compliance year to ensure that
obligated parties have the ability to meet their cellulosic
biofuel RIN volume obligations. The Waiver Credits are valid for
use only in the compliance year in which they are made available
and only may be purchased by an obligated party with a RIN
volume obligation at the time the obligated party submits its
annual compliance report. Obligated parties may purchase Waiver
Credits for a given compliance year only up to the level of
their cellulosic biofuel RIN volume obligations for that year,
less the number of cellulosic biofuel RINs they own.
Waiver Credits for cellulosic biofuel are sold at an
inflation-adjusted price that is the higher of (a) $0.25
per gallon, which as adjusted for inflation equals $0.26, or
(b) the amount by which $3.00 per gallon, which as adjusted
for inflation equals $3.10, exceeds the average wholesale price
of a gallon of gasoline in the United States for the last 12
months. From an economic standpoint, an obligated party should
be indifferent between purchasing:
|
|
|
|
|
a Waiver Credit, which only meets an obligated partys
cellulosic renewable volume obligation, or RVO, plus an advanced
RIN, which meets their advanced and renewable RVOs; or
|
|
|
|
a cellulosic RIN, which meets their cellulosic, advanced and
renewable RVOs.
|
For the year 2011, Waiver Credits are priced at $1.13 per
gallon, and for the month of May 2011, the price at which an
advanced biofuel RIN sold ranged from $0.58 to $0.78 per gallon.
To continue with the above example, because the EPA lowered the
cellulosic biofuel standard to 6.0 million gallons in 2011,
the EPA is making available 6.0 million gallons of Waiver
Credits in 2011. Because the prior 12 months average
wholesale price of a gallon of gasoline in the United States, as
calculated by the EPA, was $1.97, the EPA is selling these
Waiver Credits for $1.13 per gallon. Thus in order to satisfy
both its cellulosic biofuel and advanced biofuel volume
obligations, for the 2011 compliance year, an obligated party
could either (a) purchase Waiver Credits from the EPA for
$1.13 per gallon and an advanced biofuel RIN, which traded
between $0.49 to $0.55 per gallon for the week ended
April 29, 2011, or (b) purchase cellulosic biofuel
RINs from a producer of cellulosic biofuel or any third party
willing to sell its excess cellulosic biofuel RINs.
As noted, the availability and use of Waiver Credits is limited,
and as such Waiver Credits are intended only to be used by the
obligated party who purchases the credits to meet cellulosic
biofuel RIN shortfalls in a given compliance year. Accordingly,
in order to prevent abuse, Waiver Credits will only be made
available by the EPA during years in which the EISA volume
requirement target for cellulosic biofuel is reduced by the EPA
due to a projected production shortfall. The Waiver Credits made
available by the EPA are only valid for use in the compliance
year they are made available and may not be used by obligated
parties to meet a prior year shortfall in a volume obligation or
carried over to the next compliance year. Waiver Credits are
only available to obligated parties up to the level needed to
meet compliance obligations for the compliance year and are
nontransferable and nonrefundable.
Cellulosic
Biofuel Tax Credit
The Internal Revenue Code provides to taxpayers that produce
cellulosic biofuel a non-refundable federal income tax credit
generally in an amount equal to $1.01 per gallon of qualified
cellulosic biofuel produced in the United States by such
taxpayers and used as a fuel in the United States. For purposes
of this Cellulosic Biofuel Tax Credit, the term cellulosic
biofuel means any liquid fuel that is produced from any
lignocellulosic or hemicellulosic matter that is available on a
renewable or recurring basis, such as woody biomass, and that
meets certain registration requirements established by the EPA.
The Cellulosic Biofuel Tax Credit applies to qualified
cellulosic biofuel produced after December 31, 2008 and
before January 1, 2013, unless extended.
U.S.
Department of Energy Loan Guarantee Program
The DOE administers a loan guarantee program. The Energy Policy
Act of 2005, or EPAct, authorizes the DOE to provide loan
guarantees to qualified projects to accelerate commercial use of
innovative technologies
72
that will sustain economic growth, yield environmental benefits
and produce a more stable and secure energy supply.
Section 1703 of the loan guarantee program is intended to
support promising viable technologies by transitioning such
technologies to full commercialization, and it is not intended
to fund research and development projects or projects based on
technology that is in general use in the commercial marketplace
in the United States.
The American Recovery and Reinvestment Act of 2009 amended the
EPAct by adding Section 1705 to appropriate an additional
$6 billion to support loan guarantees for the rapid
deployment of renewable energy projects that generate
electricity and facilities that manufacture related components,
electric power transmission systems and biofuel projects. Under
the Section 1705 loan guarantee program, the DOE can issue
guarantees, backed by the full faith and credit of the
U.S. government, for up to 100% of a loan borrowed to
finance construction of an eligible project, subject to a
maximum guarantee amount of 80% of the aggregate project costs.
The project sponsor must commit to provide a significant cash
equity contribution to the project. Loans for eligible projects
are made either by the Federal Financing Bank or other lenders
deemed eligible under the DOE regulations. Eligible projects
must commence construction no later than September 30,
2011. As of March 2011, the DOE has approved approximately
$26.5 billion of loan guarantees for the entire DOE program.
California
Low Carbon Fuel Standard
Californias Governor issued Executive Order
S-1-07 on
January 18, 2007, which ordered the establishment of a
low-carbon fuel standard, or LCFS, for California. The LCFS was
approved for adoption by the California Air Resources Board, or
CARB, and took effect on January 12, 2010, with reporting
requirements that began in 2010 and carbon intensity standards
that took effect on January 1, 2011. Fuel carbon intensity,
measured in terms of full lifecycle carbon dioxide-equivalent
per unit of fuel energy, is the currency for the LCFS. The LCFS
requires all refiners, blenders, producers or importers of
transportation fuels, which we refer to as providers, to ensure
that the mix of transportation fuel they sell, supply or offer
for sale in the California market meets the established
declining annual limits for greenhouse gas emissions measured in
carbon intensity. The LCFS directive calls for a reduction of at
least 10% in the carbon intensity of Californias
transportation fuels between 2011 and 2020, with gradual
reductions in the early years, starting with a 0.25% reduction
for 2011, and increasingly more stringent standards in
subsequent years. The LCFS may be met through any combination of
approved fuels with carbon intensity above or below the limit as
well as through the purchase or banking of credits. Providers
earn credits when their aggregate fuel carbon intensities during
an annual compliance period fall below the annual regulatory
limit for that period. Credits earned can be sold to other
providers, or banked for future sale or use.
For refiners with significant capacity in California, such as
Chevron, BP, Tesoro and ConocoPhillips, the LCFS represents a
major challenge. However, the regulations allow refiners to
import and use lower emission fuels produced outside of
California as a component of the fuel portfolio used to achieve
the annual carbon intensity standards. As a result, biofuel
producers located outside California could also benefit from the
market created by the LCFS. CARB is actively reviewing and
adding fuel pathways and associated carbon intensities under the
LCFS, including fuels produced outside of California. In its
approval of carbon intensity for a fuel pathway, CARB looks at
full lifecycle direct and indirect greenhouse gas emissions
associated with the pathway, which includes emissions associated
with the transportation of the fuel. As a result, fuels that are
produced in or in close proximity to California would be
expected to have a lower carbon intensity than the same fuel
produced at a more distant refinery.
The
Forest Products Industry
Overview
We have selected Southern Yellow Pine whole tree chips as our
primary feedstock. Accordingly, supply and procurement of
feedstock for our
biomass-to-renewable
fuel technology platform relies on the forest products industry.
The forest products industry includes planting, cultivating and
harvesting trees and other organic forest products for
commercial use. Biomass, a source of renewable energy, is
treated as a fundamental measure of organic material on forest
land. Woody materials in tree boles, forks, limbs, branches and
tops are classified as aboveground biomass.
73
Trees are classified broadly as softwood or hardwood. To qualify
as cellulosic biofuel under RFS2, products derived from trees
generally must be sourced from tree plantations or logging slash
and thinnings from private land. Softwood trees, of which over
95% in the South are Southern Yellow Pine, are further
classified as either sawtimber or pulpwood, depending on their
size. Sawtimber is typically a log or tree that is large enough
(usually 10 to 12 inches in diameter and at least eight
feet in length) to be sawed into lumber and is generally used
for higher grade products. Pulpwood is comprised of less
straight, smaller diameter trees. Pulpwood is less expensive and
is used to make pulp for paper production or oriented strand
board, or OSB, which consists of layered wooden strips
compressed and bonded together. Pulpwood accounts for
approximately 45% of the harvest of Southern softwood.
Typical buyers of softwood pulpwood include pulp and paper mills
and OSB mills. Additionally, RISI, Inc., a leading information
provider for the forest products industry, expects biomass
consuming power plants, wood pellet plants and cellulosic
biofuel facilities to also consume pulpwood in the future.
Abundant
Supply
The United States has approximately 751 million acres of
forest lands, of which 28.6%, or 215 million acres, is
located in the South (defined as Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
Oklahoma, South Carolina, Tennessee, Texas and Virginia). Based
on data from the USDA Forest Service from 2005 to 2008, the
amount of aboveground biomass in the South was 8.67 billion
dry tons, representing roughly 36% of the U.S. total.
In recent years, there has been a growing surplus of plantation
pine trees and excess logging and wood chipping capacity.
Surplus is defined as the proportion by which growth exceeds
harvest. For softwood in the South, over 95% of which is
Southern Yellow Pine, surplus was 18% in 2007, which represents
excess supply of nearly 60,000 dry tons per day. If growth is
equal to harvest, the supply of timber is stabilized. Thus,
growth in excess of harvest indicates that timber inventory is
increasing.
The surplus of Southern Yellow Pine has been driven by both
supply and demand factors. Government incentives such as the
USDAs Conservation Reserve Program, led to aggressive
planting of fast growing pine plantations by forest products
companies and private timberland owners in the late 1980s and
1990s. Genetically enhanced seeds and enriched genotypes allowed
foresters to increase the productivity of their land. In
addition, demand for pine diminished as many paper mills and OSB
plants closed due to weak paper and housing markets.
The following table sets forth the historical and projected
inventory of Southern softwood:
Source:
RISI, Inc.
Going forward, although demand is anticipated to trend modestly
upward, driven by increased demand from the OSB manufacturers
and bio-energy companies, paper demand is expected to remain
weak. As a
74
result, Southern softwood growth is expected to outpace removals
and the average annual surplus is projected to be
7.9 million dry tons through 2024.
Source:
RISI, Inc. Converted from billions of cubic feet using 0.0178
dry tons per cubic foot.
|
|
|
(1)
|
|
Approximately
annual average. |
|
(2)
|
|
Harvests
from operable forests only. |
Favorable
Feedstock Economics
Logging and chipping costs are generally stable, and hauling
costs vary with diesel prices. The stumpage price, or the price
of standing timber, is the only component of cost that varies
with the timber market. Historically, stumpage prices have been
generally stable due to a long production cycle and the
resulting large standing inventories. This cycle, which may last
from 10 to 30 years or more, better enables timber
producers to meet short-term demand shocks. When pricing is
above or below normalized levels, foresters often adjust their
harvests, increasing or decreasing their inventory to adjust the
supply of timber. This dynamic leads to relative price
stabilization, when supply-demand imbalances have occurred due
to wet weather, diseases or other natural incidents.
Since 1976, the 2010 inflation-adjusted stumpage price of
Southern pulpwood has hovered around $20 per dry ton and has
ranged between $14 to $33 per dry ton. Historical data shows
that spikes are more likely to occur when harvests exceed growth
but tend to normalize within a few years. The price of delivered
woodchips has been much less volatile than other food-based
biofuel feedstock or product markets. For example, from 1992 to
2010 the maximum 12-month price increase was 15% for pine
woodchips versus 67% for corn and 139% for West Texas
Intermediate crude according to average quarterly data from
Timber Mart-South, the USDA and the EIA.
|
|
Sources: |
Timber
Mart-South for Stumpage data (nominal dollars per green ton
adjusted assuming 2.5% annual inflation to base year 2010 and
50% moisture content). USDA Forest Service for Growth and
Removals. Net growth is gross growth minus loss of volume due to
mortality. Includes Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma,
South Carolina, Tennessee, Texas and Virginia. Dry ton is
defined as 2,000 pounds of woody material at 0% moisture
content.
|
75
BUSINESS
Overview
We are a next-generation renewable fuels company.
Our mission is to produce renewable fuels in a profitable yet
sustainable manner. We strive to achieve net environmental and
social benefits by achieving a negative carbon footprint,
responsibly managing our land use and water resources, and
preserving our forests and food sources, while promoting energy
independence, job creation and community investment. Our
strategy is generally predicated on feedstock sources consisting
of unirrigated crops that can be harvested on a sustainable
basis on non-food or degraded lands in rural areas where our
investment will result in welcomed new jobs and economic
revitalization.
We have developed a proprietary technology platform to convert
low-cost, abundant and sustainable non-food biomass into
hydrocarbon-based oil. We process our renewable crude oil using
standard refinery equipment into gasoline and diesel blendstocks
that can be transported using the existing fuels distribution
system for use in vehicles on the road today.
We are fundamentally different from traditional oil and biofuels
companies. Unlike traditional oil companies, we generate
hydrocarbons from renewable sources rather than depleting fossil
fuel reserves. At the same time, we differ from most traditional
biofuels companies because our end products are fungible
gasoline and diesel blendstocks rather than alcohols or fatty
acid methyl esters, or FAME, such as ethanol or biodiesel. As
compared to ethanol, the energy density of one gallon of our
renewable blendstocks equates to 1.7 gallons of ethanol
equivalent. While we are a development stage company that has
not generated any revenue and has experienced net losses since
inception, through our proprietary technology platform, we
expect to provide new domestic sources of liquid transportation
fuels sustainably using a variety of
renewable natural resources to help further energy independence
and reduce greenhouse gas emissions.
Based on the technological and operational milestones we have
achieved to date, we believe that when we are able to commence
commercial production at our planned first standard commercial
production facility, primarily using Southern Yellow Pine whole
tree chips, we will be able to produce gasoline and diesel
blendstocks without government subsidies on a cost-competitive
basis with petroleum-based blendstocks produced from various
crude oil resources on- and offshore worldwide at current
pricing. Our proprietary catalyst systems, reactor design and
refining processes have achieved yields of renewable fuel
products of approximately 67 gallons per bone dry ton of
biomass, or BDT, in our demonstration unit that we believe would
allow us to produce gasoline and diesel blendstocks today at a
per-unit
unsubsidized production cost below $1.80 per gallon, if produced
in a standard commercial production facility with a feedstock
processing capacity of 1,500 BDT per day. This unsubsidized
production cost equates to less than $550 per metric ton,
$0.50 per liter and $1.10 per gallon of ethanol
equivalent. This
per-unit
cost assumes a price of $72.30 per BDT for Southern Yellow Pine
clean chip mill chips and anticipated operating expenses at the
increased scale and excludes cost of financing and facility
depreciation. Over time, we expect to improve our overall
process yield by enhancing our technology and to significantly
reduce our feedstock costs by using lower grade woody biomass
and other biomass feedstocks and lower our operating expenses
through various initiatives. For the month of May 2011, the
average U.S. Gulf Coast spot prices for conventional
gasoline and ultra-low sulfur diesel were $3.024 and $3.001 per
gallon, respectively. For the month of May 2011, market prices
for corn ethanol, biodiesel and sugarcane ethanol were $2.587,
$5.148 and $3.889 per gallon, respectively.
We believe that the solution to the worlds growing
transportation fuel demands must be:
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Real. Our technology produces high-quality
hydrocarbon blendstocks that we believe will drop in
to the existing transportation fuels infrastructure for use in
vehicles on the road today. Our gasoline and diesel blendstocks
can be used as components in formulating a wide variety of fuel
products meeting specifications of ASTM International for
finished gasoline and diesel derived from petroleum-based
blendstocks. Our fuels are not ethanol or FAME diesel. Unlike
ethanol, which is generally subject to a 10% to 15% blend wall,
our gasoline and diesel blendstocks can be used as components in
formulating a variety of fuel products meeting specifications of
ASTM International for finished gasoline and diesel derived from
petroleum-based blendstocks.
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76
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Renewable. Our proprietary technology platform
allows us to convert a wide variety of low-cost, abundant and
sustainable non-food biomass, including woody biomass, such as
whole tree chips, logging residues, branches and bark,
agricultural residues, such as sugarcane bagasse, and energy
crops, such as switchgrass and miscanthus, into renewable
transportation fuels. In this regard, we believe that
transportation fuels produced from our process will help to
satisfy mandates under the Renewable Fuel Standard program, or
RFS2. We have selected Southern Yellow Pine whole tree chips as
our primary feedstock because of their abundant, sustainable
supply and generally low-cost and stable pricing history
compared to feedstocks used by traditional biofuels companies.
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Rural. We plan to locate our commercial
production facilities in rural areas near sources of low-cost,
abundant and sustainable biomass. We also consider the proximity
of a potential site to our prospective customers, the adequacy
of infrastructure, the availability of labor to operate our
facilities and the award of any state or local incentives. We
believe that our rural focus not only will help us reduce our
operating costs, but also will revitalize rural economies
impacted by closed paper mills.
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Repeatable. We plan to employ a modular design
for our standard commercial production facilities that can be
replicated in numerous locations with abundant and sustainable
non-food feedstock in the southeastern United States and beyond.
We believe that this copy exact design will help us
to reduce our capital costs, implement learned best practices
and facilitate rapid deployment of new production facilities.
After we commercialize our technology, our repeatable renewable
crude oil production process will effectively eliminate the
exploration risk experienced by traditional exploration and
production companies.
|
Our
biomass-to-renewable
fuel technology platform combines our proprietary catalyst
systems with well-established fluid catalytic cracking, or FCC,
processes that have been used in crude oil refineries to produce
gasoline for over 60 years. This biomass fluid catalytic
cracking, or BFCC, process operates at moderate temperatures and
pressures to convert biomass in a matter of seconds into the
renewable crude oil that we process using standard refining
equipment into our gasoline and diesel blendstocks. In the
future, we plan to explore opportunities to reduce our capital
costs by outsourcing the hydrotreating of our renewable crude
oil to the traditional refining infrastructure.
We were incorporated in Delaware and commenced operations in
July 2007. Since our inception, we have operated as a
development stage company, performing extensive research and
development to develop, enhance, refine and commercialize our
biomass-to-renewable fuel technology platform. During this time,
we have demonstrated the efficacy and scalability of our BFCC
process, attaining progressive technology milestones through
laboratory, pilot unit and demonstration unit environments.
To demonstrate the scalability of our BFCC process from pilot
scale, we have constructed a demonstration scale unit that
represents a
400-times
capacity increase over our pilot unit. Our demonstration unit
has amassed over 3,000 hours of operation and produced over
32,000 gallons of renewable crude oil at our demonstration unit
to date. In the first quarter of 2011, we began construction on
our initial-scale commercial production facility that is
designed to process 500 BDT per day, which represents a
50-times
capacity increase over our demonstration unit. In the third
quarter of 2012, we intend to begin construction of our first
standard commercial production facility in Newton, Mississippi.
Our standard commercial production facilities are being designed
to process approximately 1,500 BDT of feedstock per day,
approximately three times the size of our Columbus facility, in
order to take advantage of economies of scale. By staging the
expansion of our standard commercial facilities in discrete
facility-by-facility
projects that are independently viable, we believe that we will
have flexibility to plan our growth in response to capital
availability and market conditions.
We expect that our renewable fuels will offer several
environmental benefits compared to traditional petroleum-based
fuels. According to a February 2011 analysis performed by TIAX
LLC, a leading technology processing and commercialization
company, using data we provided, gasoline and diesel blendstocks
produced from our proprietary BFCC process in our planned
commercial production facilities are projected to reduce direct
lifecycle greenhouse gas emissions by over 80% compared to the
fuels they displace. In addition, we are
77
designing our planned standard commercial production facilities
to meet the criteria for minor sources under the Clean Air Act.
Under RFS2, a renewable fuel must reduce direct lifecycle
greenhouse gas emissions by at least 20%, an advanced biofuel
must reduce lifecycle greenhouse gas emissions by at least 50%,
a biomass-based diesel must reduce lifecycle greenhouse gas
emissions by at least 50% and a cellulosic biofuel must reduce
lifecycle greenhouse gas emissions by at least 60%. Under the
Argonne National Laboratorys Greenhouse Gases, Regulated
Emissions and Energy Use in Transportation, or GREET, model, the
estimated default reductions in direct lifecycle greenhouse gas
emissions of certain renewable fuels and the projected
reductions in direct lifecycle greenhouse gas emissions of our
renewable gasoline and diesel blendstocks are as follows:
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Renewable Fuel Category
|
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% Lifecycle GHG Reduction
|
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Corn ethanol (renewable fuel)
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25
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%
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Sugarcane ethanol (advanced biofuel)
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71
|
%
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Biodiesel (biomass-based diesel)
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76
|
%
|
KiOR gasoline blendstocks (cellulosic biofuel)
|
|
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82
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%
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KiOR diesel blendstocks (cellulosic diesel)
|
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83
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%
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Our
Market
The global transportation fuels market represents one of the
worlds largest markets at over $2 trillion. According to
the U.S. Energy Information Administration, or EIA, for
2009, there was a 138 billion gallon market for gasoline
and a 49 billion gallon market for diesel in the United
States alone. Over time, we expect to compete in the broader
market for crude oil. We also expect our products to have
drop in compatibility with traditional hydrocarbons,
unlike conventional biofuels such as FAME diesel, corn ethanol
and sugarcane ethanol.
Although we expect our blendstocks will be marketable not only
into the global transportation fuels market, their renewable
nature also allows us to benefit from government programs and
incentives. In 2007, the Energy Independence and Security Act,
or EISA, was adopted to move the United States toward greater
energy independence and security and to increase the production
of clean renewable fuels domestically. EISA updated the
Renewable Fuel Standard program, which we refer to as RFS2, to
require the use of cellulosic biofuel, a renewable fuel derived
from renewable cellulosic biomass that produces at least 60%
lower lifecycle greenhouse gas emissions compared to a 2005
baseline. According to a February 2011 analysis performed by
TIAX LLC using data we provided, gasoline and diesel blendstocks
produced from our proprietary BFCC process in our planned
commercial production facilities are projected to reduce direct
lifecycle greenhouse gas emissions by over 80% compared to the
fuels they displace.
We believe that our gasoline and diesel blendstocks will qualify
as cellulosic biofuel under RFS2. We expect that our gasoline
and diesel blendstocks will have an equivalence value of between
1.5 to 1.7. Equivalence value equates to the number of RIN
credits per gallon. We expect that this designation, together
with the higher energy content of our renewable fuels than
ethanol, will make our blendstocks attractive to fuel producers
because our blendstocks can be used to satisfy specific volume
requirements for cellulosic biofuel, as well as the volume
requirements for both advanced biofuel and renewable fuel under
RFS2. This provides cellulosic biofuel producers like our
company an opportunity to compete with producers of advanced
biofuel and other renewable fuel, but not vice versa.
Accordingly, the potential size of the mandated market for
cellulosic biofuel in 2022 under RFS2 encompasses the
36.0 billion gallon mandate for all renewable fuels, which
includes the 21.0 billion gallon mandate for advanced
biofuel, which also includes the 16.0 billion gallon
mandate for cellulosic biofuel. Under the EISA mandates, by 2022
renewable fuels are expected not only to make up an increasing
percentage of liquid transportation fuels in the United States,
but also are expected to contribute to a 15% reduction in net
imports of crude oil from 2009 levels. At May 2011 per gallon
market prices of $2.587 for ethanol as renewable fuel pricing,
$3.889 for sugarcane ethanol as advanced biofuel pricing, $5.148
for biodiesel as biomass-based diesel pricing and $1.130
cellulosic waiver as the premium to advanced biofuels, the
36.0 billion gallon RFS2 mandated market for 2022 would be
worth
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approximately $138 billion. Additional renewable fuels
mandates exist in Europe and other countries with varying
mandates and volume requirements for premium renewable fuels.
Our
Competitive Strengths
We believe that our business benefits from a number of
competitive strengths, including the following:
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Our renewable fuel products are hydrocarbons compatible with
the existing transportation fuels
infrastructure. Unlike other renewable fuels such
as ethanol, which is alcohol-based, or biodiesel, which is
composed of fatty acids, our gasoline and diesel blendstocks are
compatible hydrocarbons that can drop in to the
existing petroleum-based transportation fuels infrastructure,
including pipelines, interchangeably with their petroleum-based
counterparts to produce various fuel products, including
finished gasoline and diesel. In addition, due to the higher
energy content of our gasoline and diesel blendstocks, we
believe that our transportation fuels will sell at a premium to
ethanol. Currently, we expect to compete in the mandated
renewable fuels market against corn ethanol, sugarcane ethanol
and biodiesel and in the general market for gasoline and diesel
fuels.
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We combine proprietary technology with well-established FCC
and other refining processes. We have developed a
technology platform that uses our proprietary catalyst systems,
process design and know-how, while leveraging well-established
FCC and other refining processes, to convert a variety of
cellulosic biomass into high-quality gasoline and diesel
blendstocks. We believe that our in-house catalytic development
program affords us a significant advantage in terms of
developmental lifecycle time and efficacy of our research and
development investment. As of June 9, 2011, we had 70
pending original patent application families containing over
2,000 pending claims covering different aspects of our
technology, including our proprietary catalyst systems and
process design. By leveraging our technological innovations with
well-established FCC processes with their long and successful
track record and demonstrated
scale-up
cost, we believe we have significantly reduced our operating
risk.
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Our BFCC process provides product flexibility and higher
yields of more valuable products. Our BFCC
process affords us flexibility to tailor our blendstock product
spectrum to attain higher overall product yields, as well as
higher proportions of valuable transportation fuels. Our
realized yield of gasoline and diesel blendstocks from our
renewable crude oil is approximately 90%, which is higher than
the yields that are typically attained when refining
petroleum-based crude oil. Our proprietary catalyst systems also
afford us the flexibility to vary our light product mix between
gasoline and diesel blendstocks based on market conditions and
prices, customer requirements and proximity to end markets.
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Our technology is feedstock flexible, and we have identified
low-cost, abundant and sustainable feedstock. Our
technology platform is feedstock flexible and has been
successfully tested on a variety of biomass. We believe that our
feedstock flexibility will allow us to use the most
cost-effective feedstock or combination of feedstocks at a given
location. We have selected Southern Yellow Pine whole tree chips
as our primary feedstock because of their abundant supply and
generally stable pricing history. This non-food feedstock has a
low cost relative to other traditional renewable biomass and a
long lifecycle that we believe significantly dampens price
volatility compared to seasonal feedstocks that depend more on
weather and other short-term supply and demand dynamics. We
expect that our ability to use logging residues, branches and
bark will enable us to lower our feedstock costs.
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We have secured or identified strategic locations for our
commercial production facilities. The site for
our initial-scale commercial production facility and the sites
that we have identified for our next four planned standard
commercial production facilities are situated in the Southeast
near abundant Southern Yellow Pine feedstock and have access to
rail, pipelines (including the Colonial pipeline, which
transports approximately 100 million gallons of fuels per
day to the Northeast), inland and gulf waterways and other
transportation channels. We also have identified four additional
potential site locations for subsequent standard commercial
production facilities in the southeastern United States. We
believe that former workers dislodged by the closings of paper
mills in the Southeast could provide an available skilled labor
force for us.
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We believe that we have a better use for woodchip
feedstock. Based on current prices, and if we
meet our target production cost metrics, and if competition for
feedstock develops in a region, we believe that we may be able
to afford higher prices for feedstock than paper mills.
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We have an experienced management team. Our
executive officers and senior operational managers have
extensive experience in research and development, new product
development, capital project execution, feedstock procurement,
plant operations and technology commercialization across the
catalyst, refining, chemicals and forest products industries. We
believe that the experience of our management team provides us
with valuable relevant experience, which we believe will enhance
our ability to commercialize our products, grow our business and
improve our technology.
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Our
Strategy
Our mission is to leverage our proprietary technology platform
to provide gasoline and diesel blendstocks at prices that are
competitive with petroleum-based transportation fuels. Key
elements of our strategy include the following:
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We have adopted a build, own and operate
strategy. We plan to build, own and operate our
commercial production facilities in the United States. We began
constructing our 500 BDT per day initial-scale commercial
production facility in Columbus, Mississippi in the first
quarter of 2011, with production expected to begin in the second
half of 2012. We intend to construct our 1,500 BDT per day
standard commercial production facilities, which are designed to
have three times the capacity of our initial-scale commercial
production facility, beginning in the third quarter of 2012 with
our first planned facility in Newton, Mississippi.
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We plan to deploy BFCC facilities using copy
exact principles. We are designing our
initial-scale commercial production facility to process 500 BDT
per day and our subsequent standard commercial production
facilities to process 1,500 BDT per day, and we plan to employ a
modular design that can be replicated for our subsequent
standard commercial production facilities. Utilizing learning
from our initial commercial production facilities, we plan to
deploy a copy exact strategy of standardized modular
designs to reduce our capital costs, implement best practices,
reduce operating costs, increase personnel flexibility and
facilitate fast deployment of new production facilities. We also
expect to develop a remote electronic facilities management
control center in Houston, Texas. We believe that commercially
available feedstock sources exist to support significant
expansion opportunities in biomass-rich regions in the United
States and globally. At a later date, we may consider larger or
smaller standardized facility sizes to optimize the scale for
local feedstock availability and transportation costs.
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We plan to expand our base of prospective
customers. We believe that we will be able to
sell our renewable hydrocarbon-based products to a variety of
potential customers, including independent refiners, integrated
oil companies, distributors of finished products, such as
terminal or rack owners, and end users of petroleum products,
such as transportation companies, fleets or petrochemical
operators. We also intend to seek certification of our
blendstocks for use in jet fuel. We believe that this broad
potential customer base will allow us to maximize the value we
receive for our products, as well as make us less dependent on
any one customer or market.
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We intend to maximize our feedstock flexibility and reduce
costs. Our technology platform is feedstock
flexible and has been successfully tested on a variety of
biomass. We plan to reduce our feedstock costs by increasing our
use of lower grade woody biomass, such as logging residues,
branches and bark, at our planned commercial production
facilities. Longer term, we believe that the flexibility of our
proprietary catalyst systems will enable us to co-feed many of
our plants with a variety of other types of renewable cellulosic
biomass, including other woody biomass, such as poplar and
eucalyptus tree chips, agricultural residues, such as sugarcane
bagasse, and energy crops, such as sorghum, switchgrass and
miscanthus. We believe that our feedstock flexibility will allow
us to expand the geographic scope of our business, identify
locations with proximity to multiple feedstocks and use the most
cost-effective feedstock or combination of feedstocks at a given
location.
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We intend to leverage our technology and expertise to
increase our yields and the efficiency of our
process. We have focused on enhancing our
proprietary technology and processes through each stage of
development. This effort focuses on continuously improving our
proprietary catalyst systems, optimizing the reactor design and
operating conditions and enhancing our renewable crude oil
processing technology. We have increased our overall process
yield of biomass renewable fuel from approximately
17 gallons of blendstocks per BDT to approximately 67
gallons per BDT. Our research and development efforts are
focused on increasing this yield to approximately 92 gallons per
BDT. We believe that as we build and operate our initial-scale
commercial production facility and subsequent standard
commercial production facilities, we will also be able to
realize operational efficiencies and reduce our production costs
on a
per-unit
basis.
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We believe that we will be able to compete with
petroleum-based transportation fuels. Over time,
our goal is to achieve commercial viability without reliance on
government incentives, mandates or tariffs. Although we benefit
from mandated policies such as RFS2, we expect that our standard
commercial production facilities will be able to produce our
gasoline and diesel blendstocks on a cost-competitive basis with
existing petroleum-based counterparts without government
subsidies at current pricing. We also expect to be able to
compete in non-mandated international transportation fuels
markets, as well as mandated international transportation fuels
markets, such as the European biodiesel market, that have
historically commanded higher prices per gallon.
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We plan to expand internationally through a variety of
structures. Over time, we intend to expand internationally
through direct operations and joint venture structures. We are
actively exploring opportunities to expand internationally in
countries with abundant, sustainable, non-food feedstocks
available at costs lower than or competitive with domestic
feedstocks. In March 2011, we hired a President of International
with executive experience in international operations to lead
our global expansion efforts.
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We plan to drive brand loyalty for
KiOR. We believe our products will
provide new domestic sources of liquid transportation fuels,
sustainably utilizing local renewable resources to help further
energy independence and reduce greenhouse gas emissions. We plan
to capitalize on the increasing global trend in green awareness
to differentiate our renewable transportation fuels from
petroleum-based alternatives. In the long term, we believe that
we will have a substantial marketing opportunity with a variety
of large, fuel-intensive prospective customers seeking
sustainable, renewable transportation fuel options. These
potential customers may include distributors of finished
products, such as terminal or rack owners, and end users of
petroleum products such as transportation companies, fleets or
municipalities that would place a premium on environmentally
friendly products.
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Our
Technology
We have developed a process that converts cellulosic biomass
into a renewable crude oil that can be refined in a conventional
hydrotreater into light refined products, such as gasoline and
diesel blendstocks. Our
biomass-to-renewable
fuel technology platform combines our proprietary catalyst
systems with existing fluid catalytic cracking, or FCC,
processes that have been used in crude oil refineries to produce
gasoline for over 60 years. This biomass fluid catalytic
cracking, or BFCC, process operates at moderate temperatures and
pressures to convert biomass in a
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matter of seconds into the renewable crude oil that we process
using standard refining equipment into our gasoline and diesel
blendstocks. The following diagram illustrates the process of
producing our fuel products.
Our process design starts with harvesting biomass. Once the
biomass arrives at our facility, it undergoes biomass processing
and conditioning. We then feed the processed biomass into our
BFCC reactor where it interacts with our proprietary catalyst
systems and, in a matter of seconds, produces renewable crude
oil as a primary product, as well as light gases, water and coke
as byproducts.
Once the renewable crude oil, byproducts and proprietary
catalyst exit the reactor, they enter a separator, where the
catalyst is separated from the renewable crude oil, water and
light gases. The renewable crude oil and other byproducts
proceed to the next step of the conversion process, and the
catalyst moves to a catalyst regenerator where the coke that was
created during the reaction and deposited on the catalyst is
burned off. The clean, or regenerated, catalyst is then recycled
back into the reactor where it will once again interact with
incoming biomass. This regeneration step creates a loop that is
standard in FCC.
Meanwhile, the renewable crude oil and byproducts created in the
reactor are transferred from the separator unit to a product
recovery unit where they are cooled and separated. The renewable
crude oil condenses into liquid, while the light gases are
transferred to the cogeneration unit where they are burned to
generate steam and produce electricity that we use to power our
process, allowing for anticipated utility cost savings and
reduced environmental impact.
Our renewable crude oil is then transferred from the product
recovery unit to a hydrotreating unit for further processing
into blendstocks. In the hydrotreating unit, which uses standard
refining equipment, our renewable crude oil undergoes a reaction
with hydrogen, or hydrotreating, to remove oxygen from the
renewable crude oil. The deoxygenated renewable crude oil is
then separated into gasoline, diesel and fuel oil blendstocks
for sale to our potential customers. In our demonstration unit,
we have varied the volume output of gasoline blendstock from 37%
to 61%, diesel blendstock from 31% to 55% and fuel oil
blendstock from 8% to 9%. The focus of our commercialization
efforts are with respect to our gasoline and diesel blendstocks.
Our realized yield of gasoline and diesel blendstocks from our
renewable crude oil is approximately 90%, which is higher than
the yields that are typically attained when refining
petroleum-based crude oil.
Scaling
Our Technology
After an initial research and development effort, we
successfully converted biomass into a renewable crude oil in a
laboratory program that validated the technical feasibility of
our BFCC process. Building on the success of
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this program, we constructed a pilot unit outside of Houston,
Texas to continue developing and validating our technology. This
pilot unit has amassed over 9,000 hours of operation and
evaluated more than 250 catalyst systems. We subsequently
commenced operation of a larger demonstration unit also outside
Houston that is designed to process 10 BDT per day and
represents a
400-times
scale-up
from our pilot unit. Our demonstration unit has amassed over
3,000 hours of operation and produced over 32,000 gallons
of our renewable crude oil.
We commenced construction of our initial-scale commercial
production facility in Columbus, Mississippi in the first
quarter of 2011, which we are financing with a combination of
existing cash on hand, including $55 million of proceeds
from the April 2011 sale of our Series C convertible preferred
stock to existing investors, and a $75 million
interest-free loan from the Mississippi Development Authority.
We estimate that the total cost to construct this facility,
including a hydrotreater, and place it in service will be
approximately $190 million, with an estimated 15% to 20% of
these costs attributable to the hydrotreater. We engaged KBR,
Inc., a global engineering, construction and services company,
to conduct the engineering, design and construction of this
initial-scale commercial production facility. We are designing
this unit to process 500 BDT per day, representing an additional
50-times
scale-up
from our demonstration unit. Our initial-scale commercial
production facility will include the conventional hydrotreater
to process our renewable crude oil into gasoline and diesel
blendstocks.
Going forward, we intend to construct our larger standard
commercial production facilities, beginning in the third quarter
of 2012 with our first planned facility in Newton, Mississippi.
These facilities are being designed to process approximately
1,500 BDT of feedstock per day, approximately three times the
size of our Columbus facility, in order to take advantage of
economies of scale. Moreover, these standard commercial
production facilities are being designed to utilize a
centralized hydrotreating facility rather than dedicated,
standalone hydrotreaters such as the one being constructed at
our Columbus facility. By employing larger plant designs and
shared hydrotreating facilities, we expect to be able to more
effectively allocate our fixed costs and stage our capital
program to reduce the capital intensity of our commercial
expansion. We estimate that the construction costs for each of
our standard commercial production facilities will average
approximately $350 million, depending on each
facilitys unique design requirements. Our two-train
centralized hydrotreaters will be constructed in phases, with
each train expected to support up to two standard commercial
production facilities. We estimate that construction costs for
our hydrotreaters will average approximately $110 million per
train. By staging the expansion of our standard commercial
facilities in discrete facility-by-facility projects that are
independently viable, we believe that we will have flexibility
to plan our growth in response to capital availability and
market conditions.
Increasing
Our Yield
Through each stage of development, we have focused on improving
our technology platform to maximize overall yields and optimize
the composition of our renewable crude oil. Our research efforts
have focused on developing our proprietary catalyst systems,
optimizing the reactor design and operating conditions and
enhancing our renewable crude oil processing technology. We have
increased our overall process yield from approximately 17
gallons per BDT to approximately 67 gallons per BDT of gasoline,
diesel and fuel oil blendstocks. Our research and development
efforts are focused on increasing this yield to approximately 92
gallons per BDT.
Our catalyst development team is working to further advance our
understanding of catalyst science and develop advanced solutions
through the application of this complex chemistry. This team
develops many potential catalyst options to address the
challenge of converting biomass to renewable crude oil. We
implement these concepts through the development of laboratory
catalyst system formulations, which we test in small-scale
laboratory reactors. These catalyst systems are also fully
characterized through
state-of-the-art
analytical testing tools. Based on the results of the lab
testing and characterization, we fully test promising catalyst
system candidates in our pilot unit. In most cases, we use an
iterative approach to define viable and improved catalyst
solutions. Our strategy is then to test the most promising
catalyst systems in our demonstration unit.
Our reactor optimization team seeks to define the optimal
reactor design and operating conditions through the development
of advanced reactor mathematical models, based on a fundamental
understanding of the heat and mass transfer of the system,
particle hydrodynamics and reactions kinetics. We develop, test
and improve these
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models at both our pilot and demonstration units. We then employ
selected reactor models to develop the physical reactor design
and dimensions, as well as temperature and residence time
profiles, for use in larger scale units.
Our product processing team is focused on optimizing the
technology to process our renewable crude oil into fuels within
the refining environment. In both the catalyst and reactor
systems, we are working to develop more efficient methods for
processing our renewable crude oil into fuels.
Our
Feedstock Strategy
Our technology platform is feedstock flexible and has been
successfully tested on a variety of biomass. We have selected
Southern Yellow Pine whole tree chips as our primary feedstock
because of its abundant, sustainable supply and its generally
stable pricing history. This non-food feedstock has a low cost
relative to traditional renewable feedstocks and a long
lifecycle that we believe significantly dampens price volatility
compared to seasonal feedstocks that depend more on weather and
other short-term supply and demand dynamics.
Aggressive planting of fast-growing pine plantations by forest
products companies and private timberland owners in the late
1980s and 1990s due to state and federal incentives, combined
with the closings of paper mills in this region, has resulted in
a surplus of plantation pine fiber, significant logging capacity
and excess wood chipping capacity. Based on data from the USDA
Forest Service from 2005 to 2008, there was an estimated 18%
surplus of softwood in the South, over 95% of which is Southern
Yellow Pine. This surplus represents an excess supply of nearly
60,000 BDT per day, which we believe far exceeds what is
necessary to execute our initial commercialization plan. Each of
our planned standard commercial production facilities is
expected to use 1,500 BDT per day, or approximately 500,000 BDT
per year.
We plan to reduce our feedstock costs by increasing the use of
lower grade woody biomass, such as logging residues, branches
and bark, at our commercial production facilities. Over time, we
also plan to explore
co-feeding
other types of renewable cellulosic biomass, including other
woody biomass, such as poplar and eucalyptus tree chips,
agricultural residues, such as sugarcane bagasse, and energy
crops, such as switchgrass and miscanthus. Ideal crops vary by
region and climate. For example, certain energy crops like
sorghum are more appropriate in drier regions with low rainfall,
while others like miscanthus are higher yielding but also
require more rain and may be sensitive to cold; however, both
offer significant opportunities for
per-acre
yield improvements. Over time, we expect to investigate a
variety of feedstock opportunities in other parts of the United
States and in Canada, Brazil and other international locations.
We currently intend to emphasize non-food, rain-fed feedstocks
to minimize the environmental impact and water use from
irrigation. We generally expect the feedstocks we use to be
grown on land that is not in use for food production. In the
long term, we believe that crops will be developed for marginal
or degraded lands that can no longer be used for economic food
production. We believe millions of acres of agricultural lands
previously used for food production have been degraded. In
addition, a DOE study in 2005 estimated that in the United
States alone, almost a billion tons of unutilized biomass may be
available. Eventually, we expect that our technologys
ability to accept mixed feedstocks will allow feedstock
producers to increase biodiversity in cultivating biomass.
We believe that our feedstock flexibility will allow us to
expand the geographic scope of our business, identify locations
with proximity to multiple feedstocks and use the most
cost-effective feedstock or a combination of feedstocks at a
given location. Initially, we expect to investigate many site
opportunities in the United States focusing on the locations of
numerous paper mills that have closed in the United States over
the past 20 years.
We recently entered into a feedstock supply agreement with
Catchlight Energy, LLC, or Catchlight, a
50-50 joint
venture between subsidiaries of Chevron Corporation and
Weyerhaeuser Company, for all of the supply of pulpwood, whole
tree chips and forest residuals for our initial-scale commercial
production facility under construction in Columbus, Mississippi.
Subject to the terms and conditions of the agreement, Catchlight
has agreed to supply all of the specified feedstock for the
facility. The initial term of the supply agreement expires two
years after the date we select for the commencement of
deliveries and is subject to automatic renewal for successive
one-year periods until either party provides notice of
termination at least six months prior to the end of the
then-current term. This agreement is conditioned upon, among
other things, the parties mutual agreement on certain
feedstock specifications.
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Our Site
Strategy
We plan to locate our commercial production facilities near
sources of low-cost, abundant and sustainable feedstock. We also
consider the proximity of a potential site to our prospective
customers, the adequacy of infrastructure, the time required to
construct our facilities, the availability of labor to operate
our facilities and the award of any state or local incentives,
as well as potential competing feedstock purchasers.
We have the right to use, and expect to acquire, the site for
our initial-scale commercial production facility under
construction and have identified the sites in Mississippi and
other Southeastern states for our next four standard commercial
production facilities. We also have identified four additional
potential site locations in the southeastern United States. Each
of the planned and potential sites for our standard commercial
production facilities is located in a wood basin that we believe
has sufficient sustainable Southern Yellow Pine whole tree chips
to support a supply of 1,500 BDT per day. These sites also
afford access to rail, pipelines, inland and gulf waterways or
other transportation channels. Former workers dislodged by the
closings of paper mills in the Southeast could provide an
available skilled labor force for us.
We are actively exploring opportunities to expand the geographic
scope of our business both domestically and internationally in
regions with abundant feedstocks available at costs lower than
or competitive with domestic feedstocks.
In selecting sites for our facilities, we plan to consider the
carbon emissions, land use, air pollution and water impact of
our facilities.
Our
Distribution Plan
We believe that we will be able to sell the output from our
planned commercial production facilities to a range of potential
customers, including refiners, terminal and rack owners and
fleet users. Unlike ethanol, which is generally subject to a 10%
to 15% blend wall, we believe that our gasoline and diesel
blendstocks can be used as components in formulating a variety
of fuel products meeting specifications of ASTM International
for finished gasoline and diesel derived from petroleum-based
blendstocks. We are currently performing motor vehicle fuel
tests as we seek to register our gasoline and diesel blendstocks
with the U.S. Environmental Protection Agency, or EPA. We
also intend to seek certification of our blendstocks for use in
jet fuel.
We have recently entered into agreements with Hunt Refining
Company, or Hunt, Catchlight and FedEx Corporate Services, Inc.,
or FedEx, for the purchase of blendstocks to be produced from
our initial-scale commercial production facility. We are also in
negotiations with these companies and additional potential
customers for the purchase of blendstocks to be produced from
our planned standard commercial production facilities.
Our offtake agreement with Hunt establishes terms under which
Hunt has agreed to purchase all of the gasoline, diesel and fuel
oil blendstocks to be produced from our initial-scale commercial
production facility, which is expected to commence production in
the second half of 2012. We may, however, sell to other firm
customers or use for market development purposes up to
two-thirds of the quarterly production from this facility. The
initial term of this offtake agreement expires five years from
the date that our first commercial production facility reaches
specified average production levels and is subject to automatic
renewal for successive one-year periods until either party
provides notice of termination at least 180 days prior to the
end of the then-current term. During the initial term of the
agreement, Hunt may exercise an option to commit to purchase
specified volumes of gasoline, diesel and fuel oil blendstocks
on a firm commitment basis from the second commercial production
facility that we construct.
Our offtake agreement with Catchlight establishes terms under
which Catchlight may purchase gasoline and diesel blendstocks to
be produced from our initial-scale commercial production
facility. The initial term of this offtake agreement expires two
years from the date that we deliver a specified volume of
gasoline and diesel blendstocks to Catchlight, and automatically
renews for up to two additional years unless either party
provides notice of termination at least 12 months prior to the
end of the then-current term. This agreement is conditioned
upon, among other things, the entry into certain other feedstock
supply and testing arrangements
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between the parties. We have also entered into a testing and
optimization agreement with Catchlight to optimize the
compatibility of our blendstocks with Chevrons facilities.
Our master ground fuel supply agreement with FedEx establishes
terms under which affiliates of FedEx may purchase at least
one-third (up to a specified amount) of the diesel blendstocks
to be produced from our initial-scale commercial production
facility. The initial term of this agreement expires two years
from the date of the first delivery to FedEx of product from
this facility and may be terminated at any time by FedEx or us
upon 60 days or 180 days notice, respectively, to
the other party.
Production and sale of our fuel products pursuant to our
agreements with Hunt, Catchlight and FedEx and our other
potential customer relationships will depend on the satisfaction
of contract-specific conditions, including establishing product
specifications and satisfying commercial and production
requirements.
Intellectual
Property
Our success depends, at least in part, on our ability to protect
our proprietary technology and intellectual property. To
accomplish this, we rely on a combination of patent
applications, trade secrets, including know-how, employee and
third party nondisclosure agreements, trademarks, intellectual
property licenses and other contractual rights to establish and
protect our proprietary rights in our technology. As of
June 9, 2011, we had 70 pending original patent
application families containing over 2,000 pending claims. These
intellectual property claims cover different aspects of our
technology, and many of them have been or will be filed both in
the United States and in various foreign jurisdictions. We
intend to continue to file additional patent applications with
respect to our technology with a particular emphasis on
protecting our core technologies. As is the case with all patent
application filings, 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. Although there can be no assurance that these pending
patent applications, if granted, will provide us with
protection, our management of these filings is focused on
maximizing the likelihood of acquiring strong patent protection.
With respect to proprietary know-how that may not be patentable,
or that we believe is best protected by means that do not
require public disclosure, and processes for which patents are
difficult to enforce, we rely on, among other things, trade
secret protection and confidentiality agreements to protect our
interests. All of our employees and consultants have entered
into non-disclosure and proprietary information and inventions
assignment agreements with us. These agreements address
intellectual property protection 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. We also control
access to sensitive information by limiting access to only those
employees and consultants with a need to know the information
and who have agreed contractually to maintain the
confidentiality of that information. There can be no assurance
that these agreements will not be breached, that we will have
adequate remedies for any breach, that others will not
independently develop equivalent proprietary information or that
other third parties will not otherwise gain access to our trade
secrets and other intellectual property.
Our precautions may not prevent misappropriation or infringement
of our intellectual property. Third parties could infringe or
misappropriate our patents, copyrights, trademarks, trade
secrets and other proprietary rights. Litigation may be
necessary to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others or to defend against claims
of infringement, invalidity, misappropriation or other claims.
Any such litigation could result in substantial costs and
diversion of our resources. Moreover, any settlement of or
adverse judgment resulting from such litigation could restrict
or prohibit our use of the technology. Our failure or inability
to adequately protect our intellectual property or to defend
against third-party infringement claims could materially harm
our business.
If any of our processes, products or technology is covered by
third party patents or other intellectual property rights, we
could be subject to various legal actions. We cannot assure you
that our technology and products do not infringe patents held by
others or that they will not in the future. Litigation is costly
and time-consuming, and there can be no assurance that our
litigation expenses will not be significant in the future or
that we will prevail in any such litigation.
86
Regulatory
Approvals
In order to be able to realize the material regulatory benefits
of our renewable transportation fuels, our BFCC process must be
within a cellulosic biofuel pathway under RFS2, as approved by
the EPA. In addition, our products must be registered as a motor
fuel with the EPA, and we must be registered as a producer of
cellulosic biofuel with the Internal Revenue Service in order to
qualify for the Cellulosic Biofuel Tax Credit.
Cellulosic
Biofuel
According to a February 2011 analysis performed by TIAX LLC
using data we provided, gasoline and diesel blendstocks produced
from our proprietary BFCC process in our planned commercial
production facilities are projected to reduce direct lifecycle
greenhouse gas emissions by over 80% compared to the fuels they
displace. Such emissions reductions would qualify our renewable
fuels as cellulosic biofuel under RFS2. For our fuel pathways
that are approved by the EPA and assigned a Renewable
Identification Number, or RIN, we would generate a cellulosic
biofuel RIN credit for each gallon of transportation fuel we
produce from our renewable crude oil. The credits are based on
the BTU content of the fuel, with one RIN approximately equal to
one gallon of ethanol. Our fuels are expected to have a higher
BTU content and therefore a higher RIN value per gallon.
In order to qualify for treatment as a cellulosic biofuel that
can generate RINs to satisfy an obligated partys volume
requirements under RFS2, a fuel pathway must be evaluated and
approved by the EPA. This qualification is based on a
demonstration that the fuel pathway meets certain minimum
greenhouse gas reduction standards, based on a lifecycle
assessment, in comparison to the petroleum fuels they displace.
The fuel pathway is defined by three components: the type of
fuel, the feedstock and the production process. Our production
of diesel blendstock using wood residuals fits within an
approved pathway for cellulosic diesel. Neither diesel nor
gasoline blendstocks produced from planted trees has been
approved as a fuel pathway for cellulosic biofuel under RFS2,
but the EPA is currently evaluating cellulosic diesel produced
from wood pulp.
RFS2 allows the EPA to evaluate additional fuel pathways and to
allow a party to petition the EPA for a renewable fuel pathway
not previously evaluated by the EPA. We have petitioned the EPA
for gasoline and diesel blendstocks produced from wood residuals
using our process. Where the requested pathway does not involve
a new product or a new feedstock, as is the case with our
petition, the petition review process can be handled without
rulemaking, potentially expediting the approval process.
Part 79
Registration of Our Fuels
Pursuant to the Clean Air Act, or CAA, and the Code of Federal
Regulations, a manufacturer of a motor vehicle fuel or fuel
additive generally must register the fuel or fuel additive with
the EPA prior to introducing the product into commerce. The
Part 79 registration process involves providing a chemical
description of the product and certain technical, marketing and
health-effects information. The registration process includes
three levels of potential testing and reviews, known as
Tier 1, Tier 2 and Tier 3. Tier 1 requires
the manufacturer to provide the EPA with information concerning
the identity and concentration of certain emission products and
available health effects information. Tier 2 requires the
manufacturer to conduct health effects testing or to use
applicable group data, if available, which generally requires
cost sharing with the parties that funded the health effects
testing that yielded the group data. The EPA can impose
additional Tier 3 testing on a
case-by-case
basis.
Our gasoline and diesel blendstocks have not been registered
with the EPA as a fuel. To secure EPA registration of our fuels,
we will need to satisfy at least the Tier 1 and Tier 2
requirements of Part 79. We are in the process of conducting the
Tier 1 review for our products. To satisfy Tier 2, we will need
to conduct health effects testing or provide the EPA with
adequate existing information to comply with the Tier 2
requirements.
87
Cellulosic
Biofuel Tax Credit
Upon the registration of our gasoline and diesel blendstocks as
a fuel with the EPA and our registration with the Internal
Revenue Service as a producer of cellulosic biofuel, we would be
entitled to the Cellulosic Biofuel Tax Credit of $1.01 per
gallon of our gasoline and diesel blendstocks that we produce
until January 1, 2013, unless this deadline is extended.
Research
and Development
Our research and development team is focused on the continued
advancement of our technology platform to maximize the value of
our renewable crude oil by increasing the overall yield of our
BFCC process and improving the composition of our renewable
crude oil. We believe that we will achieve this by developing
our advanced catalysts systems, optimizing our reactor design
and operating conditions and refining our renewable crude oil
processing technology.
We devote significant expenditures to research and development.
We spent $3.6 million, $10.0 million and
$22.0 million on research and development activities in
2008, 2009 and 2010, respectively, and $4.4 million and
$7.3 million for the three months ended March 31, 2010
and 2011, respectively. The following table shows our research
and development costs by functional area during 2008, 2009, 2010
and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Laboratory research
|
|
$
|
3,419
|
|
|
$
|
4,373
|
|
|
$
|
2,819
|
|
|
$
|
359
|
|
|
$
|
1,337
|
|
Pilot plant
|
|
|
|
|
|
|
3,936
|
|
|
|
6,145
|
|
|
|
1,178
|
|
|
|
2,348
|
|
Demonstration unit
|
|
|
|
|
|
|
|
|
|
|
11,374
|
|
|
|
2,361
|
|
|
|
3,325
|
|
Intellectual property
|
|
|
224
|
|
|
|
1,652
|
|
|
|
1,704
|
|
|
|
483
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,643
|
|
|
$
|
9,961
|
|
|
$
|
22,042
|
|
|
$
|
4,381
|
|
|
$
|
7,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Competition
In the near-term, we expect that our gasoline and diesel
blendstocks will compete with other cellulosic biofuels,
advanced biofuels and renewable fuels developed by established
enterprises and new companies that seek to produce these
renewable fuels to satisfy RFS2 mandates. In the longer term, we
believe that our gasoline and diesel blendstocks will compete
with petroleum-based blendstocks in the transportation fuels
market.
We believe that the primary competitive factors in the renewable
fuels market are:
|
|
|
|
|
the scope of qualification of fuels under RFS2;
|
|
|
|
compatibility with the existing liquid fuels infrastructure;
|
|
|
|
product performance and other measures of quality;
|
|
|
|
price;
|
|
|
|
ability to produce meaningful volumes; and
|
|
|
|
reliability of supply.
|
We believe that the primary competitive factors in the global
transportation fuels market are:
|
|
|
|
|
product performance and other measures of quality;
|
|
|
|
price;
|
|
|
|
ability to produce meaningful volumes; and
|
88
Given the size of the traditional transportation fuels markets
and the developing stage of alternative fuels markets, we do not
believe that the success of other renewable products will
prevent our gasoline and diesel blendstocks from being
successful. However, with the wide range of renewable fuels
products under development, we must be successful in reaching
potential customers and convincing them that our products are
effective and reliable alternatives. Our potential competitors
include integrated oil companies, independent refiners, large
chemical companies and well-established agricultural products
companies that are much larger than we are, in many cases 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.
Environmental
and Other Regulatory Matters
Our operations are subject to a variety of federal, state and
local environmental laws and regulations that govern the
discharge of materials into the environment or otherwise relate
to environmental protection. Examples of these laws include:
|
|
|
|
|
the federal Clean Air Act, or CAA, and analogous state laws that
impose obligations related to air emissions;
|
|
|
|
the federal Comprehensive Environmental Response, Compensation,
and Liability Act, also known as CERCLA or the Superfund law,
and analogous state laws that regulate the cleanup of hazardous
substances that may be or have been released at properties
currently or previously owned or operated by us or at locations
to which our wastes are or have been transported for disposal;
|
|
|
|
the federal Water Pollution Control Act, also known as the Clean
Water Act, and analogous state laws that regulate discharges
from our facilities into state and federal waters, including
wetlands;
|
|
|
|
the federal Resource Conservation and Recovery Act, also known
as RCRA, and analogous state laws that impose requirements for
the storage, treatment and disposal of solid and hazardous waste
from our facilities;
|
|
|
|
the Endangered Species Act; and
|
|
|
|
the Toxic Substances Control Act and analogous state laws that
impose requirements on the use, storage and disposal of various
chemicals and chemical substances at our facilities.
|
These laws and regulations may impose numerous obligations that
are applicable to our operations, including the acquisition of
permits to conduct regulated activities, the incurrence of
capital or operating expenditures to limit or prevent releases
of materials from our facilities, and the imposition of
substantial liabilities and remedial obligations for pollution
resulting from our operations. Numerous governmental
authorities, such as the EPA and analogous state agencies, have
the power to enforce compliance with these laws and regulations
and the permits issued under them, often requiring difficult and
costly corrective actions. Most of these statutes include
citizen suit provisions, which enable private parties to sue in
lieu of the government, alleging violations of environmental
law. Failure to comply with these laws, regulations and permits
may result in the assessment of administrative, civil and
criminal penalties, the imposition of remedial obligations and
the issuance of injunctions limiting or preventing some or all
of our operations. In addition, we may experience a delay in
obtaining or be unable to obtain required permits, which may
cause us to lose potential and current customers, interrupt our
operations and limit our growth and revenue.
We believe that our current operations are in substantial
compliance with existing environmental laws, regulations and
permits. New laws, new interpretations of existing laws,
increased governmental enforcement of environmental laws or
other developments could require us to make significant
additional expenditures. Continued government and public
emphasis on environmental issues can be expected to result in
increased future investments for environmental controls at our
ongoing and future operations. Present and future environmental
laws and regulations and related interpretations applicable to
our operations, more vigorous enforcement policies and discovery
of currently unknown conditions may require substantial capital
and other expenditures.
89
Clean Air Act Regulation. Our operations and
the products we manufacture are subject to certain specific
requirements of the CAA and similar state and local regulations
and permitting requirements. These laws, regulations and
permitting requirements may restrict our emissions, affect our
ability to make changes to our operations, and otherwise impose
limitations on or require controls on our operations. For
example, our renewable fuel products will be subject to
government regulation under the CAA, which requires the
registration of fuel products or fuel additives and regulates
the distribution and use of certain fuel products or fuel
additives. We are currently at the beginning stages of the
registration process for gasoline and diesel fuel containing
blendstocks derived from our renewable crude oil with the EPA,
as required by the CAA. Additionally, if the EPA were to
determine that our feedstock is not a fuel under the
CAA, it could require us to implement additional pollution
controls on our operations. Our initial-scale commercial
production facility under construction has been deemed a
minor source under the CAA and our planned standard
commercial production facilities are designed to meet the
criteria for minor sources and require minor source permits
under applicable state laws. It is possible that additional
facilities that we construct in the future may be considered
major sources and be subject to more stringent
permitting requirements, including requirements of Title V
of the CAA. In addition to costs that we expect to incur to
achieve and maintain compliance with these laws, new or more
stringent CAA standards in the future also may limit our
operating flexibility or require the installation of new
controls at our facilities and future facilities. Because other
domestic alternative fuel manufacturers will be subject to
similar restrictions and requirements, however, we believe that
compliance with more stringent air emission control or other
environmental laws and regulations is not likely to materially
affect our competitive position.
Hazardous Substances and Wastes. There is a
risk of liability for the investigation and cleanup of
environmental contamination at each of the properties that we
own or operate now and in the future and at off-site locations
where we may arrange for the disposal of hazardous substances.
If these substances have been or are disposed of or released at
sites that undergo investigation
and/or
remediation by regulatory agencies, we may be responsible under
CERCLA or other environmental laws for all or part of the costs
of investigation
and/or
remediation and for damage to natural resources. We may also be
subject to related claims by private parties alleging property
damage and personal injury due to the presence of or exposure to
hazardous or other materials at or from these properties. Some
of these matters may require us to expend significant amounts
for investigation
and/or
cleanup or other costs. We are unaware of any material
environmental liabilities relating to contamination at or from
our facilities.
We also generate solid wastes, including hazardous wastes, that
are subject to the requirements of RCRA and comparable state
statutes. Although RCRA regulates both solid and hazardous
wastes, it imposes strict requirements on the generation,
storage, treatment, transportation and disposal of hazardous
wastes. The EPA and various state agencies have limited the
approved methods of disposal for certain hazardous and
non-hazardous wastes.
Water Discharges. The Clean Water Act and
analogous state laws impose restrictions and strict controls
regarding the discharge of pollutants into state waters as well
as waters of the United States and to conduct construction
activities in waters and wetlands. Certain state regulations and
the general permits issued under the Federal National Pollutant
Discharge Elimination System, or NPDES, program prohibit any
discharge into surface waters, ground waters, injection wells
and publicly owned treatment works except in strict conformance
with permits, such as pre-treatment permits and NPDES permits,
issued by federal, state and local governmental agencies. We
anticipate that our process waste water will not be directly
discharged into state or U.S. waters, but rather will be sent to
a publicly owned treatment works. In addition, the Clean Water
Act and analogous state laws require individual permits or
coverage under general permits for discharges of storm water
runoff from certain types of facilities. These regulations and
permits may require us to monitor and sample the storm water
runoff from certain of our facilities or our discharges to
publicly owned treatment works. Some states also maintain
groundwater protection programs that require permits for
discharges or operations that may impact groundwater conditions.
Federal and state regulatory agencies can impose administrative,
civil and criminal penalties for non-compliance with discharge
permits or other requirements of the Clean Water Act and
analogous state laws and regulations. We believe that compliance
with existing
90
permits and compliance with foreseeable new permit requirements
will not have a material adverse effect on our financial
condition, results of operations or cash flow.
Construction Permits. Our business is also
subject to sewer, electrical and construction permitting
requirements. As a condition to granting necessary permits,
regulators could make demands that increase our costs of
construction and operations, in which case we could be forced to
obtain additional debt or equity capital. Permit conditions
could also restrict or limit the extent of our operations. We
cannot assure you that we will be able to obtain and comply with
all necessary permits to construct our commercial production
facilities. Failure to obtain and comply with all applicable
permits and licenses could halt our construction and could
subject us to future claims.
Safety. The hazards and risks associated with
producing and transporting our renewable transportation fuels,
such as fires, natural disasters, explosions and pipeline
ruptures, also may result in personal injury claims or damage to
property and third parties. As protection against operating
hazards, we maintain insurance coverage against some, but not
all, potential losses. Our coverage includes physical damage to
assets, employers liability, comprehensive general
liability, automobile liability and workers compensation.
We are not insured against pollution resulting from
environmental accidents that occur on a sudden and accidental
basis, some of which may result in toxic tort claims. We believe
that our insurance is adequate and customary for our industry,
but losses could occur for uninsurable or uninsured risks or in
amounts in excess of existing insurance coverage. We are not
currently aware of pending material claims for damages or
liability to third parties relating to the hazards or risks of
our business.
OSHA. We are subject to the requirements of
the federal Occupational Safety and Health Act and comparable
state statutes, laws and regulations. These laws and the
implementing regulations strictly govern the protection of the
health and safety of employees. The Occupational Safety and
Health Administrations, or OSHA, hazard communication
standard, the EPAs community
right-to-know
regulations under Title III of CERCLA and similar state
laws require that we organize
and/or
disclose information about hazardous materials used or produced
in our operations.
Our operations are also subject to standards designed to ensure
the safety of our processes, including OSHAs Process
Safety Management standard. The Process Safety Management
standard imposes requirements on regulated entities relating to
the management of hazards associated with highly hazardous
chemicals. Such requirements include conducting process hazard
analyses for processes involving highly hazardous chemicals,
developing detailed written operating procedures, including
procedures for managing change, and evaluating the mechanical
integrity of critical equipment.
TSCA. We are subject to the requirements of
the Toxic Substances Control Act, or TSCA, which regulates the
commercial use of chemicals. Before an entity can manufacture a
chemical, it needs to determine whether that chemical is listed
in the TSCA inventory. If a substance is listed, then
manufacture can commence immediately. If not, then a
Chemical Abstracts Service number registration and
pre-manufacture notice must be filed with the EPA, which has
90 days to review. We will submit a pre-manufacture notice
and a notice of commencement to the EPA prior to commercial
production. While we expect to obtain approval of the
pre-manufacture notice and notice of commencement prior to
commercial production, there can be no assurance that the EPA
will approve these submissions or that our products will be
listed on the TSCA inventory. The failure to comply with TSCA
could have a material adverse effect on our results of
operations and financial condition. However, the TSCA new
chemical submission policies may change and additional
government legislation or regulations may be enacted that could
prevent or delay regulatory approval of our products.
Climate Change. In the United States,
legislative and regulatory initiatives are underway to limit
greenhouse gas, or GHG, emissions, including emissions by
facilities such as our planned commercial production facilities.
In 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. In addition, in
September 2009, the EPA issued a final rule requiring the
reporting of GHGs from specified large GHG emission sources in
the United States, beginning in 2011 for emissions in 2010. At
this time, projected GHG emissions from our initial-scale
commercial production facility would not meet the
91
applicable thresholds for GHG reporting or permitting
requirements. Our future commercial production facilities may be
required to comply with GHG reporting or permitting requirements
if they emit over 100,000 tons per year of GHGs. Complying with
greenhouse gas reporting and permitting requirements may result
in materially increased compliance costs, increased capital
expenditures, increased operating costs and additional operating
restrictions for our business.
Because regulation of GHG emissions is relatively new, further
regulatory, legislative and judicial developments are likely to
occur. Such developments may affect how these GHG initiatives
will impact the demand for our products and our operating
results. Due to the uncertainties surrounding the regulation of
and other risks associated with GHG emissions, we cannot predict
the financial impact of related developments on us. Because
other domestic alternative fuel manufacturers will be subject to
similar restrictions and requirements, however, we believe that
compliance with GHG reporting or emission requirements is not
likely to materially affect our competitive position.
Facilities
Our corporate headquarters are located in Pasadena, Texas, where
we lease approximately two acres for our offices, pilot plant
and demonstration plants, test laboratories and research and
development facilities. Approximately 16,000 square feet of
building space are dedicated to office space, approximately
9,000 square feet are dedicated to laboratory space and
approximately 28,000 square feet are dedicated to
production and storage space. The lease for this property
expires on October 31, 2011, and we have two three-year
renewal options.
We have obtained the right to use a
22-acre
property near Columbus, Mississippi and, in the first quarter of
2011, we began constructing our initial-scale commercial
production facility at that site. We expect to acquire this site
subject to the sellers option to repurchase it from us for
a nominal fee if we cease construction, manufacturing or
commercial activity on the site for an uninterrupted period of
two years. If the seller were to exercise its option in that
case, we would be required to remove all of our improvements
from the property and restore it to marketable condition. We
also lease and expect to acquire approximately seven acres
adjacent to this site.
Employees
As of March 31, 2011, we had 107 full-time employees,
including over 80 scientists and technical support personnel,
all of whom are located in the United States. We plan to
continue to expand our manufacturing and operations as we build
initial commercial production facilities, which will require us
to hire a significant number of additional employees. None of
our employees is 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 employee
relationships 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.
92
MANAGEMENT
Executive
Officers, Directors and Key Employees
Our directors, executive officers and other key persons and
their ages and their positions as of June 6, 2011 are as
follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Executive Officers
|
|
|
|
|
|
|
Fred Cannon
|
|
|
59
|
|
|
President, Chief Executive Officer and Director
|
John H. Karnes
|
|
|
49
|
|
|
Chief Financial Officer
|
William K. Coates
|
|
|
44
|
|
|
Chief Operating Officer
|
Joseph S. Cappello
|
|
|
45
|
|
|
President of International
|
John Kasbaum
|
|
|
52
|
|
|
Senior Vice President of Commercial
|
Christopher A. Artzer
|
|
|
39
|
|
|
Vice President, General Counsel and Secretary
|
Non-Employee Directors
|
|
|
|
|
|
|
Ralph Alexander
|
|
|
56
|
|
|
Director
|
Jagdeep Singh Bachher
|
|
|
38
|
|
|
Director
|
Samir Kaul
|
|
|
37
|
|
|
Director
|
John Melo
|
|
|
44
|
|
|
Director
|
Paul OConnor
|
|
|
55
|
|
|
Director
|
William Roach
|
|
|
54
|
|
|
Director
|
Gary L. Whitlock
|
|
|
61
|
|
|
Director
|
Key Employees
|
|
|
|
|
|
|
Michael J. Adams
|
|
|
62
|
|
|
Vice President of Process Engineering
|
Andre Ditsch
|
|
|
34
|
|
|
Vice President of Strategy
|
John Hacskaylo
|
|
|
51
|
|
|
Vice President of Research and Development
|
Michael P. McCollum
|
|
|
56
|
|
|
Vice President of Supply
|
Edward J. Smith
|
|
|
62
|
|
|
Vice President of Engineering and Construction
|
Daniel J. Strope
|
|
|
62
|
|
|
Vice President of Technology
|
Executive
Officers
Fred Cannon is our President and Chief Executive Officer
and a member of our Board of Directors. Mr. Cannon joined
KiOR as President and Chief Operating Officer and as a director
in June 2008 and was elected Chief Executive Officer in July
2010. He brings to the company strong leadership skills,
technical expertise and a
30-year
track record of successful international business management in
the fuels and chemicals industries, with a particular focus on
catalyst and fluidic catalytic cracking (FCC) technologies.
Prior to KiOR, Mr. Cannon led a distinguished 30 year
career at AkzoNobel, a global leader in refining catalysts and
specialty chemicals manufacturing. Mr. Cannon was president
of AkzoNobel Catalysts LLC from 1997 until the divestment of the
business in August 2004. In his role, Mr. Cannon had full
profit and loss responsibilities for the companys Americas
business and managed various joint ventures around the world. In
August 2004, AkzoNobels refinery catalyst business was
sold to Albemarle Corporation. Mr. Cannon served in several
executive roles in transitioning the business to ensure
continued smooth operations and integration across the new
company until June 2008 when he joined KiOR. In all,
Mr. Cannon has over 20 years in the refining catalyst
business, where he has managed the development, scaling and
commercialization of new catalyst technologies, including FCC
and hydro-processing catalysts. Mr. Cannon holds an MBA and
a B.S. in Engineering from the University of South Alabama.
John H. Karnes has been our Chief Financial Officer since
joining us in February 2011. From February 2010 until February
2011, Mr. Karnes was Chief Financial Officer of Highland
Oil & Gas, LLC. From September 2006 to November 2009,
he served as Senior Vice President, Chief Financial Officer and
Treasurer
93
of Mariner Energy, Inc. From January 2006 to September 2006,
Mr. Karnes provided advisory services in a variety of
industries, including oil and gas. He served as Chief Financial
Officer of The Houston Exploration Company from 2002 until
December 2005. Earlier in his career, Mr. Karnes served in
Chief Financial Officer and in other senior management roles
with several other public growth companies including Encore
Acquisition Company, CyberCash, Inc., Snyder Oil Company and
Apache Corporation. He began his career in the securities
industry and also practiced law with the national firm of
Kirkland & Ellis LLP where he focused on mergers and
acquisitions and capital markets transactions. Mr. Karnes
holds a BBA in Accounting from The University of Texas at Austin
and a J.D. from Southern Methodist University School of Law.
William K. Coates has been our Chief Operating Officer
since joining us in June 2011. From January 2010 to June 2011,
Mr. Coates served as Vice President, Marketing for
Schlumberger Limited, the worlds leading supplier of
technology, integrated project management and information
solutions to customers working in the oil and gas industry
worldwide. From March 2006 to January 2010, Mr. Coates was
President of Schlumberger North America. From October 2003 to
March 2006, he served as GeoMarket Manager of Schlumberger
Oilfield Services Gulf of Mexico. Mr. Coates began his
career with Schlumberger in 1988. Mr. Coates has a B.S. in
Mechanical Engineering from Virginia Polytechnic Institute and
State University and has studied Executive Finance at IMD in
Lausanne, Switzerland.
Joseph S. Cappello has been our President of
International since joining us in March 2011. Mr. Cappello
has more than 20 years of business experience split between
industry and equity research on Wall Street. Prior to joining
KiOR, Mr. Cappello spent nearly 15 years with Praxair,
one of the largest industrial gases companies worldwide. From
October 2008 to March 2011, Mr. Cappello was President of
Praxair Asia, responsible for the growth and profitability of
Praxairs businesses in China, India, South Korea and
Thailand as well as several joint ventures, including Singapore.
Mr. Cappello joined Praxair in October 1996 and
subsequently held roles with increasing responsibility,
including director of Praxairs carbon dioxide business
from October 1999 to January 2001, Vice President of Global
Helium and Rare Gases from January 2001 to January 2006 and
Vice President of Product Management and Service for North
America from January 2006 to October 2008. His experience
includes the expansion of global product lines, replication of
business capabilities to other countries and the acquisition of
service and technology companies. As an equity analyst,
Mr. Cappello covered several sectors of the chemical
industry. Mr. Cappello holds a B.S. in Accounting from
Montclair State University in New Jersey.
John Kasbaum has been our Senior Vice President of
Commercial since joining us in June 2010. Previously,
Mr. Kasbaum served as Division Vice President of the
Fluid Catalytic Cracking (FCC) division of Albemarle
Corporation, a leader in refining catalysts and specialty
chemicals manufacturing, from September 2009 to May 2010. He
also served on the Board of Directors for Albemarles joint
venture with PetroBras, the Brazilian energy company, for the
manufacture, sales and marketing of FCC catalysts in South
America. In a previous role at Albemarle, Mr. Kasbaum was
Division Vice President of Alternative Fuel Technologies
from December 2007 to August 2009. He served as Alliance
Director for Albemarles petroleum refining Hydroprocessing
Alliance with Honeywells UOP division from 2006 to
December 2007. Mr. Kasbaum has more than 20 years of
experience in catalysis business strategy, sales, marketing,
manufacturing and technology. Mr. Kasbaum holds an MBA from
the McCombs School of Business at the University of Texas at
Austin, as well as bachelors degrees in Engineering and Business
Management, also from the University of Texas at Austin.
Christopher A. Artzer has been our Vice President,
General Counsel and Secretary since joining us in March 2011.
From December 2004 to March 2011, Mr. Artzer served as Vice
President, General Counsel & Secretary of TPC Group,
Inc. Prior to joining TPC Group in December 2004,
Mr. Artzer was counsel at the law firm of Akin Gump Strauss
Hauer & Feld LLP in Houston, Texas. Mr. Artzer
received a B.A. in Government from Dartmouth College and a J.D.
from the University of Texas School of Law.
Non-Employee
Directors
Ralph Alexander has been a member of our Board of
Directors since February 2011. He has been a Managing Director
of Riverstone Holdings, LLC, a private equity fund focused on
the energy and power sectors, since September 2007. During 2007,
Mr. Alexander served as a consultant to TPG Capital. For
nearly 25 years, Mr. Alexander served in various
senior management positions with subsidiaries and affiliates of
BP
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plc, most recently as Chief Executive Officer of Innovene,
BPs olefins and derivatives subsidiary, from 2004 to
December 2005, as Chief Executive Officer of BPs Gas,
Power and Renewables and Solar segment from 2001 to 2004, and as
a Group Vice President in BPs Exploration and Production
segment and BPs Refinery and Marketing segment. He also
has been a director of Amyris, Inc. and Stein Mart Corporation,
in each case since May 2007. He previously served on the board
of Foster Wheeler from May 2006 to February 2007 and
Anglo-American
plc from April 2005 to October 2007. He holds a B.S. and M.S. in
nuclear engineering from Brooklyn Polytech (now NYU Polytechnic)
and holds an M.S. in management science from Stanford
University. He is currently Chairman of the Board of NYU
Polytechnic. Mr. Alexanders extensive experience with
the energy industry generally and renewable fuels in particular
enables him to provide important insight and guidance to our
management team and Board of Directors.
Jagdeep Singh Bachher, Ph.D., has been a member of
our Board of Directors since July 2010. Dr. Bachher has
served as Chief Operating Officer of Alberta Investment
Management Corporation since January 2009. He previously served
as the President and General Manager of JH Investments
(Delaware) LLC, a fixed-income asset manager owned by Manulife
Financial Corporation, from April 2008 to January 2009. From
2004 to April 2008, Dr. Bachher served as Assistant Vice
President of Manulife Asset Management, investing in alternative
assets (timber, agriculture, oil and gas and infrastructure).
Dr. Bachher holds a Ph.D. and an M.A.Sc. in Management
Sciences as well as a B.A.Sc. in Mechanical Engineering from the
University of Waterloo in Waterloo, Canada. Dr. Bachher
brings to the Board of Directors extensive experience in
operations, timber and infrastructure investments.
Samir Kaul has been a member of our Board of Directors
since November 2007. Mr. Kaul has been a General Partner at
Khosla Ventures, a venture capital firm focusing on clean
technologies, since February 2006. Previously, Mr. Kaul was
a member of Flagship Ventures, a venture capital firm, from 2002
to May 2006. Prior to Flagship, Mr. Kaul worked at The
Institute for Genomic Research. Mr. Kaul currently serves
on the board of directors of Amyris, Inc. and on the boards of
directors of several private companies. Mr. Kaul holds a
B.S. in Biology from the University of Michigan, an M.S. in
Biochemistry from the University of Maryland and an MBA from
Harvard Business School. Mr. Kaul provides our Board of
Directors with wide-ranging experience in clean technology
companies and insight in the management of startup companies and
the building of companies from early stage to commercial scale.
John Melo has been a member of our Board of Directors
since July 2010. Mr. Melo has served as President and Chief
Executive Officer of Amyris, Inc. since January 2007. Before
joining Amyris, Mr. Melo served in various senior
management positions at BP plc, one of the worlds largest
energy firms, from 1997 to 2006, most recently as President of
U.S. Fuels Operations from 2004 until December 2006, and
previously as Chief Information Officer of the refining and
marketing segment from 2001 to 2003, Senior Advisor for
e-business
strategy to Lord Browne, BPs Chief Executive Officer, from
2000 to 2001, and Director of Global Brand Development from 1999
to 2000. Before joining BP, Mr. Melo was with
Ernst & Young, an accounting firm, from 1996 to 1997,
and a member of the management teams of several startup
companies, including Computer Aided Services, a management
systems integration company, and Alldata Corporation, a provider
of automobile repair software to the automotive service
industry. Mr. Melo currently serves on the board of
directors of U.S. Venture, Inc. and Amyris, Inc.
Mr. Melos experience as a senior executive at one of
the worlds largest energy companies provides critical
leadership in designing the fuels value chain, shaping strategic
direction and business transactions, and in building teams to
drive innovation.
Paul OConnor has been a member of our Board of
Directors since November 2007. From June 2008 until November
2009, he was our Chief Technology Officer. He has been the
Director of Science and Technology of BIOeCON B.V., which is
focused on the conversion of biomass to renewable fuels and
energy, since he founded BIOeCON in 2005. Prior to founding
BIOeCON, Mr. OConnor led the long-term development
strategy for Albemarle Catalysts and worked in marketing,
research management and technology development of refining
catalysts at AkzoNobel prior to its acquisition by Albemarle.
Prior to AkzoNobel, he worked in heavy oil conversion processes
in design, process and refinery operations. He holds an M.S. in
Chemical Engineering from the Eindhoven University of Technology
in the Netherlands. As a leading expert in catalytic cracking
processes, Mr. OConnor brings to our Board
significant knowledge about our technical processes.
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William Roach, Ph.D., has been a member of our Board
of Directors since July 2010. Dr. Roach currently serves as
Chief Executive Officer and a director of Calera Corporation, a
green energy company, a position he has held since October of
2010. From June 2004 to October 2010, Dr. Roach served as
President, Chief Executive Officer and Director of UTS Energy
Corporation, a Canadian oil sands exploration and development
company. Prior to joining UTS Energy, Dr. Roach served in
international project management roles with Husky Energy,
British-Borneo Oil & Gas and Shell. Dr. Roach
currently serves on the board of Sonde Resources, a natural gas
development company, and Porto Energy Corp., an international
oil and gas company, both of which trade on the Toronto Stock
Exchange, and on the boards of several private companies engaged
in oil and gas production and transportation. He is a
professional engineer in Canada and the U.K. and holds a B.S. in
metallurgy and a Ph.D. in physical metallurgy from the
University of Swansea in the U.K. Dr. Roach brings to the
Board of Directors extensive experience developing and managing
capital-intensive projects, including experience with
first-of-kind projects.
Gary L. Whitlock has been a member of our Board of
Directors since December 2010. Mr. Whitlock serves as
Executive Vice President and Chief Financial Officer of
CenterPoint Energy, Inc., a position he has held since September
2002. He served as Executive Vice President and Chief Financial
Officer of the Delivery Group of Reliant Energy, Incorporated,
from July 2001 to September 2002. Prior to joining Reliant,
Mr. Whitlock served as the Vice President of Finance and
Chief Financial Officer of Dow AgroSciences, a subsidiary of The
Dow Chemical Company, from 1998 to 2001. He began his career
with Dow in 1972, where he held a number of financial leadership
positions, both in the United States and globally.
Mr. Whitlock is a Certified Public Accountant and received
a BBA from Sam Houston State University. Mr. Whitlock
brings to the Board of Directors extensive experience in public
company financial management and reporting.
Key
Employees
Michael J. Adams is our Vice President of Process
Engineering. Mr. Adams has over 38 years of experience
in oil and gas production, gas processing, refining,
petrochemicals and chemicals. Prior to joining KiOR in January
2011, Mr. Adams spent 28 years with Fluor Corporation,
a global engineering and construction firm, where he was most
recently the Department Manager for Process Technology from
February 2009 to December 2010. From September 2008 to February
2009, Mr. Adams was the downstream technology focus leader
responsible for support of business development and project
execution. From April 2006 to August 2008, he was the process
manager responsible for technical oversight of contractors and
licensors executing a major refinery expansion project in
Cartagena, Spain. From January 2005 to March 2006, he was the
process manager responsible for technical oversight, front-end
engineering and design (FEED) and development for a new refinery
project in Kuwait. In addition, Mr. Adams has worked as a
consultant dealing with technology, execution and project
management. Mr. Adams holds a B.S. with honors in Chemical
Engineering from the University of Texas at Austin.
Andre Ditsch, Ph.D., is our Vice President of
Strategy. He is responsible for the strategic direction of
various facets of the business including financing, business
development, risk management and process economics. He
previously served as our Strategy Director and our Strategy and
Projects Manager from June 2008 to February 2011. Prior to
joining KiOR in June 2008, Dr. Ditsch was a consultant for
McKinsey and Company, where he was a consultant for the
petrochemical, energy and pharmaceutical industries from August
2005 to May 2008. Dr. Ditsch also has worked at Archer
Daniels Midland as a process engineer and foreman in their
ethanol facility in Decatur, Illinois, where he improved
procedures and was responsible for people leadership and process
optimization. Dr. Ditsch holds a B.S. in Chemical
Engineering from the University of Nebraska-Lincoln and obtained
his Ph.D. in Chemical Engineering from the Massachusetts
Institute of Technology.
John Hacskaylo, Ph.D., is our Vice President of
Research and Development. Prior to joining KiOR in May 2010,
Dr. Hacskaylo spent more than 20 years at The Dow
Chemical Company, one of the worlds largest chemical
manufacturers, where he served most recently as Global R&D
Director for Dows basic plastics business from September
2008 to May 2010. Dr. Hacskaylo also served as Vice
President/Global R&D Director for Dows Automotive and
Engineering Plastics businesses from 2004 to 2008. He also has
served on the Advisory Board of the University of
Virginias Department of Chemical Engineering.
Dr. Hacskaylo received his
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Ph.D. and M.S. in Chemical Engineering as well as a B.S. in
Chemistry from the University of Virginia at Charlottesville.
Michael P. McCollum, Ph.D., is our Vice President of
Supply. He has over 30 years of experience in the forest
products industry. From 2006 until joining KiOR in January 2010,
Dr. McCollum was most recently President of United States
Forest Consulting LLC, a provider of consulting services to the
forest products industry. From June 1996 until his retirement in
December 2005, Dr. McCollum led the Wood and Fiber Supply
Division of Georgia-Pacific Corporation, a leading manufacturer
and distributor of tissue, pulp, paper, packaging, building
products and related chemicals, and in January 2001, he became
President of the Fiber Supply Division. From July 1992 to June
1996, Dr. McCollum served in positions of increasing
responsibility at Georgia-Pacific in the areas of forest
management, wood and fiber supply, technical support, and
strategic planning. Dr. McCollum started his career in the
Wood Products Division of Manville Forest Products Corporation
and served in various positions at Temple-Inland Inc., a major
forest products corporation. Dr. McCollum holds a B.S. in
Forest Science from the University of Arkansas at Monticello and
obtained his M.S. in Wood Chemistry and Ph.D. in Forest
Resources from Texas A&M University. He currently serves on
the board of directors of Wells Timberland REIT, a position he
has held since June 2005.
Edward J. Smith is our Vice President of Engineering and
Construction. From the time he joined KiOR in July 2009 to
December 2010, he was our Director of Engineering.
Mr. Smith has 36 years of experience in the chemical
and catalyst industries, where he has designed, constructed and
operated various chemical facilities in the United States and
abroad. Prior to joining KiOR, Mr. Smith was
Albemarles General Manager and Director of Manufacturing
at facilities in China and Jordan from October 2005 to July
2009. Mr. Smith spent 33 years with AkzoNobel, whose
refinery catalyst business was acquired by Albemarle in 2004.
Earlier in his career, he worked at Pioneer Chemicals, where he
developed a number of products and specialty chemicals that were
used in the industrial paper making industry. Mr. Smith
holds a B.S. in Chemical Engineering from Drexel University and
a B.S. in Chemistry from Villanova University.
Daniel J. Strope, Ph.D., is our Vice President of
Technology. He manages our technology with a focus on
engineering, regulatory and commercial development. Between
September 2008 and May 2009, before joining KiOR,
Dr. Strope was the President of Refining Services, LLC,
where he consulted in areas of hydrocarbon processing and
alternate fuels. Before September 2006, Dr. Strope spent
more than 30 years in research and technology management
with ConocoPhillips. Between August 2006 and September 2008 he
managed technology development and support for ConocoPhillips
worldwide refining business. He also managed 50 people in
two research centers with a $45 million annual budget and
started a new Advanced Fuels group focused on alternate fuels
issues and developments. Dr. Strope also served as a
technology member of a specialty carbon business steering
committee. From May 2001 to August 2006, Dr. Strope was the
Manager, Licensing Technology Development at ConocoPhillips
where he managed process package development and improvement,
projects oversight and service for worldwide licensees of
coking, alkylation and sulfur removal projects. He also
developed and negotiated contracts and relationships with major
engineering partners and suppliers. Dr. Strope has a B.S. in
Chemistry from Rockhurst College and an M.S. and a Ph.D. in
Inorganic Chemistry from Northwestern University.
Board of
Directors
Our Board of Directors currently consists of eight members. We
have determined that five of these directors,
Messrs. Alexander, Melo and Whitlock and Drs. Bachher
and Roach, are independent in accordance with the listing
requirements of The Nasdaq Global Market. All of our current
directors were elected or appointed in accordance with the terms
of an amended and restated voting agreement among us and certain
of our stockholders. The amended and restated voting agreement
will terminate upon the completion of this offering, and there
will be no further contractual obligations regarding the
election of our directors. Our current directors will continue
to serve as directors until their resignation or until their
successors are duly elected by the holders of our common stock,
despite the fact that the amended and restated voting agreement
will terminate upon the completion of this offering.
97
Upon the completion of this offering, entities affiliated with
Khosla Ventures will continue to control a majority of the
voting power of our outstanding common stock. As a result, we
will be a controlled company under The Nasdaq Global
Market corporate governance standards. As a controlled company,
exemptions under The Nasdaq Global Market standards will free us
from the obligation to comply with certain Nasdaq Global Market
corporate governance requirements, including the requirements:
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that a majority of our Board of Directors consists of
independent directors, as defined under the rules of
The Nasdaq Global Market;
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that the compensation of our executive officers be determined,
or recommended to the Board of Directors for determination, by
independent directors constituting a majority of the independent
directors of the board in a vote in which only independent
directors participate or by a compensation committee comprised
solely of independent directors; and
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that director nominees be selected, or recommended to the Board
of Directors for selection, by independent directors
constituting a majority of the independent directors of the
board in a vote in which only independent directors participate
or by a nomination committee comprised solely of independent
directors.
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Accordingly, you may not have the same protections afforded to
stockholders of companies that are subject to all of The Nasdaq
Global Market corporate governance requirements. In the event
that we cease to be a controlled company, we will be required to
comply with these provisions within the transition periods
specified in the rules of The Nasdaq Global Market.
These exemptions do not modify the independence requirements for
our audit committee, and we intend to comply with the applicable
requirements of the Sarbanes-Oxley Act and Nasdaq Global Market
rules with respect to our audit committee within the applicable
time frame.
At each annual meeting of stockholders, all of our directors
will be elected for a one-year term.
Audit
Committee
Our audit committee is comprised of Messrs. Alexander and
Whitlock and Dr. Roach. Our board has determined that
Messrs. Alexander and Whitlock are independent directors as
defined under and required by the Securities Exchange Act of
1934, or the Exchange Act, and the listing requirements of The
Nasdaq Global Market.
Rule 10A-3
under the Exchange Act and the listing requirements of The
Nasdaq Global Market require that our audit committee be
composed of a minimum of three members and that it be composed
of a majority of independent directors within 90 days of
the effectiveness of the registration statement of which this
prospectus is a part and that it be composed solely of
independent directors within one year of such date.
Mr. Whitlock has been designated as the audit committee
financial expert, as defined under SEC rules. The principal
duties of the audit committee, which will also be chaired by
Mr. Whitlock, will be as follows:
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to review our external financial reporting;
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to engage our independent auditors; and
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to review our procedures for internal auditing and the adequacy
of our internal accounting controls.
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Our Board of Directors has adopted a written charter for the
audit committee that will be available on our website,
http://www.kior.com,
after the completion of this offering.
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee is comprised
of Messrs. Alexander and Kaul and Dr. Roach. Our board
has determined that Messrs. Alexander and Roach are
independent as required by the listing requirements of The
Nasdaq Global Market. Upon the completion of this offering, we
will be a controlled company under The Nasdaq Global
Market corporate governance standards and we will qualify for,
and expect to rely on, exemptions from The Nasdaq Global Market
corporate governance requirements that require our nominating
and corporate governance committee to be composed entirely of
independent
98
members. The principal duties of the nominating and corporate
governance committee, which will be chaired by
Mr. Alexander, will be as follows:
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to recommend to the Board of Directors proposed nominees for
election to the Board of Directors by the stockholders at annual
meetings, including an annual review as to the renominations of
incumbents and proposed nominees for election by the Board of
Directors to fill vacancies that occur between stockholder
meetings; and
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to make recommendations to the Board of Directors regarding
corporate governance matters and practices.
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Our Board of Directors has adopted a written charter for the
corporate governance and nominating committee that will be
available on our website,
http://www.kior.com,
after the completion of this offering.
Compensation
Committee
Our compensation committee is comprised of Messrs. Kaul and Melo
and Dr. Bachher. Our board has determined that
Mr. Melo and Dr. Bachher are independent as defined by the
rules of The Nasdaq Global Market. Upon the completion of this
offering, we will be a controlled company under The
Nasdaq Global Markets corporate governance standards and
we will qualify for, and expect to rely on, exemptions from The
Nasdaq Global Market corporate governance requirements that
require our compensation committee to be composed entirely of
independent members. The principal duties of the compensation
committee, which will be chaired by Mr. Melo, will be as
follows:
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to administer our stock plans and incentive compensation plans,
including our stock incentive plans, and in this capacity, make
all option grants or awards to our directors and employees under
such plans;
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to make recommendations to the Board of Directors with respect
to the compensation of our chief executive officer and our other
executive officers; and
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to review key employee compensation policies, plans and programs.
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Our Board of Directors has adopted a written charter for the
compensation committee that will be available on our website,
http://www.kior.com,
after the completion of this offering.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers serve as a member of the Board of
Directors or compensation committee of any entity that has one
or more of its executive officers serving as a member of our
Board of Directors or compensation committee.
Mr. Kaul has pecuniary interests in Khosla Ventures and may
be deemed to have an interest in certain transactions with us,
as more fully described in Certain Relationships and
Related Person Transactions below.
Code of
Business Conduct and Ethics
Our Board of Directors has adopted a code of business conduct
and ethics in connection with this offering. The code will apply
to all of our employees, officers (including our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions), including directors and consultants. Upon the
effectiveness of the registration statement of which this
prospectus forms a part, the full text of our code of business
conduct and ethics will be posted on our website at
http://www.kior.com.
The inclusion of our website address in this prospectus does not
include or incorporate by reference the information on our
website into this prospectus.
Compensation
of Directors
Our directors who are affiliated with certain of our other
stockholders, Messrs. Kaul and OConnor and
Dr. Bachher, and our employee director, Mr. Cannon,
have not received any compensation in connection with
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their service as directors. For information about the
compensation that we pay to Mr. Cannon for his service as
an executive officer, please read Executive
Compensation.
We pay our non-employee directors who are not affiliated with
any of our other stockholders a cash retainer of $2,500 per
month, and we compensate them for the reasonable expenses that
they incur in connection with their attendance of meetings. This
policy currently applies to Messrs. Alexander, Melo and
Whitlock and Dr. Roach. Except for this monthly retainer,
we have not paid any cash compensation to any of our directors
for their service on the Board of Directors or on committees of
the Board of Directors. Each of our non-employee directors who
is not affiliated with any of our other stockholders has also
been awarded options as set forth in the table below.
The following table sets forth a summary of the compensation we
paid to our non-employee directors during the year ended
December 31, 2010:
Director
Compensation for the Year Ended December 31, 2010
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Fees Earned or
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Option
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Name
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Paid in Cash
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Awards(1)(2)
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Total
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Ralph Alexander
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$
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5,000
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$
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202,542
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$
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207,542
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Jagdeep Singh Bachher
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Samir Kaul
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John Melo
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$
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12,500
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$
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202,542
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$
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215,042
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Paul OConnor
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William Roach
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$
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12,500
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$
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202,542
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$
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215,042
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Gary L. Whitlock
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$
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2,500
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$
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202,542
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$
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205,042
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All non-employee directors not affiliated with any of our other
stockholders have been granted 230,870 options to purchase
shares of Class A common stock at an exercise price of
$1.98 with 5% of the option shares vesting upon the completion
of each fiscal quarter measured from the applicable vesting
commencement date in a series of 20 successive and equal
quarterly installments over the 60-month period measured from
the vesting commencement dates. The options are not exercisable
for any additional option shares following the cessation of
service. |
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Amounts in this column reflect the grant date fair value of each
award computed in accordance with Financial Accounting Standards
Board Accounting Standards Codification, or FASB ASC, Topic
718. These amounts do not correspond to the actual value that
will be recognized by the directors. Our assumptions with
respect to the calculation of stock-based compensation expenses
are set forth above in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates Stock-Based Compensation. The
assumptions used in the valuation of these awards are consistent
with the valuation methodologies specified in the notes to our
consolidated financial statements included elsewhere in this
prospectus. |
Limitation
on Liability and Indemnification
Our amended and restated certificate of incorporation and
amended and restated bylaws, each to be effective prior to the
completion of this offering, will provide that we will indemnify
our directors, officers, employees and agents to the fullest
extent permitted by Delaware law. Delaware law prohibits our
amended and restated certificate of incorporation from limiting
the liability of our directors for the following:
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any breach of the directors duty of loyalty to us or to
our stockholders;
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acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
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unlawful payment of dividends or unlawful stock repurchases or
redemptions; and
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any transaction from which the director derived an improper
personal benefit.
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If Delaware law is amended to authorize corporate action further
eliminating or limiting the personal liability of a director,
then the liability of our directors will be eliminated or
limited to the fullest extent permitted by Delaware law, as so
amended. Our amended and restated certificate of incorporation
does not eliminate a directors duty of care and, in
appropriate circumstances, equitable remedies, such as
injunctive or other forms of non-monetary relief, remain
available under Delaware law. This provision also does not
affect a directors responsibilities under any other laws,
such as the federal securities laws or other state or federal
laws. Under our amended and restated bylaws, we will also be
empowered to enter into indemnification agreements with our
directors, officers, employees and other agents and to purchase
insurance on behalf of any person whom we are required or
permitted to indemnify.
In addition to the indemnification required in our amended and
restated certificate of incorporation and amended and restated
bylaws, we will enter into new indemnification agreements with
each of our current directors, officers and certain employees
before the completion of this offering. These agreements will
provide for the indemnification of our directors, officers and
certain employees for all reasonable expenses and liabilities
incurred in connection with any action or proceeding brought
against them by reason of the fact that they are or were our
agents. We believe that these provisions in our amended and
restated certificate of incorporation, amended and restated
bylaws and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers.
Furthermore, we have obtained director and officer liability
insurance to cover liabilities our directors and officers may
incur in connection with their services to us. This description
of the indemnification provisions of our amended and restated
certificate of incorporation, our amended and restated bylaws
and our indemnification agreements is qualified in its entirety
by reference to these documents, each of which is attached as an
exhibit to this registration statement.
The limitation of liability and indemnification provisions in
our amended and restated certificate of incorporation and
amended and restated bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their
fiduciary duties. They may also reduce the likelihood of
derivative litigation against directors and officers, even
though an action, if successful, might benefit us and our
stockholders. A stockholders investment may be harmed to
the extent we pay the costs of settlement and damage awards
against directors and officers pursuant to these indemnification
provisions.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in
the Securities Act, and is, therefore, unenforceable.
There is no pending litigation or proceeding naming any of our
directors or officers as to which indemnification is being
sought, nor are we aware of any pending or threatened litigation
that may result in claims for indemnification by any director or
officer.
101
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following compensation discussion and analysis describes the
compensation arrangements for our named executive officers for
the year ended December 31, 2010. It also includes
forward-looking statements that are based on our current plans,
expectations and determinations regarding future elements of our
compensation program.
Our named executive officers for the year ended
December 31, 2010 are:
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Fred Cannon, our President and Chief Executive Officer
(CEO);
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T. Kevin DeNicola, our former Chief Financial Officer
(CFO); and
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John Kasbaum, our Senior Vice President of Commercial.
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The compensation of our named executive officers for the year
ended December 31, 2010 is set forth in the Summary
Compensation Table below.
We describe compensation actions taken in prior years to the
extent that such descriptions enhance the understanding of our
executive compensation practices and the disclosure in this
prospectus. In connection with this offering, we anticipate
making changes to our compensation practices for 2011 and later
years that we believe will be more appropriate for a publicly
traded company. This compensation discussion and analysis
addresses our compensation practices in place during 2010 and
highlights changes we plan to implement on the completion of
this offering.
Redesignation
of Common Stock
In connection with this offering, we intend to redesignate all
shares of the class of our common stock currently designated as
common stock as Class B common stock while the class of our
common stock currently designated as Class A common stock
will continue to be referred to as Class A common stock.
Any rights to acquire shares of common stock prior to the
redesignation will become rights to acquire shares of
Class B common stock. Please see Description of
Capital Stock for more detail on this redesignation. For
clarity, our discussion below refers to Class A common
stock and Class B common stock, as such classes will be in
effect after the redesignation. (References to Class B
common stock are intended also to refer, as appropriate, to our
common stock prior to the redesignation.)
Compensation
Philosophy and Objectives
We believe our success depends, among other things, on our
ability to:
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attract and retain a management team with the combined
experience, knowledge and skills necessary to commercialize our
renewable transportation fuels technology;
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incentivize our management team to achieve our strategic
objectives; and
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create long-term stockholder value by aligning the financial
interests of our management team with those of our stockholders.
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Since our inception, our compensation philosophy has been
directed at achieving these objectives and rewarding the
creation of long-term stockholder value while prudently managing
our capital resources and expenses as a development stage,
pre-revenue company.
Historically, we have not engaged the services of a third-party
compensation consultant to assist our Board of Directors in
developing our approach to executive compensation. Instead, we
relied on the judgment of our Board of Directors based on its
members collective experiences in the clean technology,
chemical and startup sectors in determining the appropriate
levels of executive compensation and our approach to executive
102
compensation. In March 2011, our compensation committee engaged
Hay Group, an independent global management consulting firm, to
assist our compensation committee in:
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further developing our approach to executive compensation;
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establishing an appropriate peer group for compensation
purposes; and
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providing benchmark compensation data regarding companies,
including our competitors, with which we compete for executive
talent.
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We anticipate Hay Group will also advise our compensation
committee on market practices and our compensation policies and
programs, with a focus on our incentive programs.
Elements
of Compensation for our Named Executive Officers
For 2010, compensation for our named executive officers
consisted of a combination of base salaries, annual incentive
bonuses, and equity compensation in the form of options and
stock awards. Payment of the annual incentive bonus for Mr.
Cannon was primarily determined based on the achievement of
performance milestones established by the Board of Directors.
Mr. DeNicola was not eligible to receive an annual
incentive bonus with respect to 2010, as his employment was
voluntarily terminated in January 2011 before the bonus was paid
and, therefore, this bonus was forfeited.
Historically, our Board of Directors, based on the collective
experience of its members, has used its subjective judgment in
determining the appropriate mix of different elements of
compensation and the balance of short-term versus long-term
compensation. Generally, we seek to award a significant portion
of each named executive officers compensation in the form
of equity compensation in order to strongly incentivize the
achievement of long-term objectives and the creation of
long-term value for our stockholders and to conserve our cash
resources. We believe that our approach of compensating
executive officers with a significant equity component has been
appropriate for a development stage, pre-revenue company such as
ours and has enabled us to attract executive talent from more
established companies and to compete with other technology
companies for executive talent. While we have no pre-determined
policy for the allocation of compensation between short-term and
long-term elements, our compensation committee will be
consulting with Hay Group as to the appropriateness of
implementation of such a policy on a prospective basis.
Base Salaries. We believe that competitive
base salaries serve to attract talented and experienced
executives and to reward our named executive officers for
short-term,
day-to-day
performance. Base salary levels are set for each executive
officer at the time the officer commences employment with us and
is based on such officers experience and expected
contributions to our development, as well as competitive
conditions in the market for talented executives. Our
compensation committee is empowered to set the base salary of
our CEO and, in consultation with our CEO, to set the base
salaries of our other named executive officers. Generally, the
cash component of our named executive officers
compensation (base salary and bonuses) has been less than the
officers could likely have received at more established
companies, such as their respective previous employers. We
believe that offering a compensation package more heavily
weighted towards an equity component has enabled us to recruit
our named executive officers to our company, serves to reward
them for the creation of long-term value and is appropriate for
a company in our stage of development.
Annual Bonuses. The offer letters for Messrs.
Cannon and DeNicola provide for potential annual cash incentive
bonuses. The possibility of earning cash bonuses is intended to
encourage executives to work towards the achievement of defined
company objectives and strategic goals that are established by
our Board of Directors. For Mr. Cannons second year
of employment, which ended in June 2010, the Board of Directors
determined that his annual bonus would be determined based on
completion of a demonstration facility and placing the facility
into operational status, an increase in our overall product
yields, completion of our loan application under the DOE loan
guarantee program, completion of the design of the initial-scale
commercial production facility and closing of the Series B
financing. The Board of Directors reviewed the attainment of
these goals and determined that all milestones had been achieved
at a level in excess of bonus requirements. In recognition of
such superior milestone attainment, the Board of Directors
awarded Mr. Cannon 60,000 fully vested shares (subject to
transfer restrictions) in lieu of a cash bonus of $118,800 to
conserve our cash
103
resources. Based on the then-current $1.98 fair market value of
our stock, an award of 60,000 shares was determined. The
Board of Directors believed the bonus provided a suitable
recognition for superior attainment and would provide an
incentive for future outstanding performance. In July 2010, the
Board of Directors increased Mr. Cannons annual bonus
potential to $100,000, subject to completion of milestones.
Mr. DeNicola was not awarded an annual bonus as he was no
longer employed. Following the completion of this offering, the
compensation committee will annually review and approve
milestones that bear on annual bonus compensation. The
compensation committee anticipates working with Hay Group
regarding establishment of an annual bonus program following the
completion of this offering.
Equity Compensation. Equity incentives are
intended to help align the long-term financial interests of our
executives with those of our stockholders. The potential future
value of equity awards is also important to our efforts to
attract talented and skilled executives. Prior to 2011, we
generally have granted equity awards in the form of stock
options with an exercise price equal to the fair market value of
the common stock underlying the award on the date of the
grant, and in March 2011, we granted 409A Options, as
defined below. Under the terms of our amended and restated 2007
Stock Option/Stock Issuance Plan, the option awards we granted
generally vest and become exercisable at a rate of 20% on the
first anniversary of the grant date with the remainder vesting
in equal monthly installments over the next four years; however,
in March, 2011, we granted certain options that generally vest
on the fifth anniversary of the vesting commencement date. Prior
to 2011, our options provided for immediate exercisability, with
the resulting shares being subject to certain transfer
restrictions and repurchase rights of the company until such
times as the underlying options would have vested. Our Board of
Directors is authorized to set different vesting schedules and
exercise prices and has used that authority with respect to
certain awards, as further disclosed in the compensation tables
below. Prior to 2011, our Board of Directors generally
determined that awards with 20% vesting on the first anniversary
and incremental monthly vesting over the following four-year
period would provide a strong incentive for both continued
employment and dedication towards increasing shareholder value
as well as appropriateness in light of our focus on our
long-term objectives; the exercise prices for these awards were
based on fair market value as determined by our Board of
Directors and described under Managements Discussion
and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates Stock-Based Compensation. As stated
above, we have also granted fully vested awards of stock to our
CEO pursuant to the amended and restated 2007 Stock Option/Stock
Issuance Plan in lieu of cash bonus payments to conserve our
cash resources. We believe that equity awards serve to align the
interests of our named executive officers with those of our
stockholders because such awards incentivize our executive
officers to work towards increased stockholder value over the
long term. We also believe that the general five-year vesting
schedule of our option grants improves our ability to retain our
named executive officers. Our compensation committee plans to
adopt a new equity compensation program appropriate for a public
company that will provide for additional types of equity awards.
For more information about our amended and restated 2007 Stock
Option/Stock Issuance Plan and our future equity compensation
plan, please see Amended and Restated 2007
Stock Option/Stock Issuance Plan and
2011 Long-Term Incentive Plan below.
We have typically granted stock options to our named executive
officers in connection with the commencement of their employment
with us. The size of the initial grant is determined based on
the executives position with us and takes into account the
executives base salary and other compensation. These
initial grants are intended to provide the executive with an
incentive to build long-term stockholder value. Our Board of
Directors also has awarded additional options to certain of our
named executive officers at other times when, in the
Boards judgment, such awards were advisable to assist in
executive retention or to reward significant company or
individual performance.
Stock options are granted with an exercise price determined as
provided under our amended and restated 2007 Stock Option/Stock
Issuance Plan. Upon completion of this offering, we expect to
determine fair market value for purposes of option pricing based
on the most recent closing price of our Class A common
stock on The Nasdaq Global Market.
Messrs. Artzer, Cappello and Karnes joined our executive
team in 2011, bringing critical experience to our company. As we
believed that it was important to align the interests of our
entire executive team in the growth of our company, the Board of
Directors granted options to these new executives at the
exercise price of
104
$1.98 per share. As the fair market value of the underlying
shares on the date of grant may have been greater than the
exercise price, it was necessary to structure the options in a
manner compliant with Section 409A of the Internal Revenue
Code. The options generally vest on the fifth anniversary of the
grant date. For more information about these options, please
read Amended and Restated 2007 Stock
Option/Stock Issuance Plan below.
Finally, our Board has approved accelerated vesting on the date
of termination of 100% of unvested options for each of
Messrs. Cannon, Artzer, Cappello and Karnes and 50% of
unvested options for Mr. Kasbaum if the respective officer
is terminated without cause following a change of control. We
believe this serves as a retention tool as well as reducing the
degree to which possible loss of employment might affect an
officers willingness to pursue transactions that, while
resulting in his loss of employment, might be potentially
beneficial for stockholders. These arrangements with our named
executive officers are discussed in more detail in
Employment Arrangements with Executives
below. Messrs. Artzer, Cappello and Karnes joined us in
2011 and therefore were not named executive officers at the end
of fiscal 2010.
Compensation
Decision Process
From our inception until the establishment of the compensation
committee of our Board of Directors as discussed below, our
Board of Directors has overseen the compensation of our
executive officers and our executive compensation programs.
Non-employee directors reviewed and approved our executive
compensation and benefits policies, including our amended and
restated 2007 Stock Option/Stock Issuance Plan. Our Board of
Directors historically has relied on its members business
judgment and collective experience with respect to compensation
practices at other companies in the technology sector, both
established and
start-up
enterprises.
Historically, our Board of Directors has approved levels of base
salaries for new executives that, in its judgment, were
necessary to attract the executives from the positions they
previously held or from other positions available to individuals
with their respective experience and skills and that were in
line with other start-up companies in the technology sector.
Salary increases were historically awarded to our named
executive officers by our Board of Directors from time to time
when our Board deemed such increases to be appropriate to retain
our named executive officers or to reward them for our
companys progress and their contribution towards that
progress. None of our named executive officers is currently
party to an employment agreement that provides for scheduled or
automatic increases in base salary. In addition, our historical
compensation approach has been to keep our CEO, Mr. Cannon,
as our most highly paid employee, including awarding him the
highest base salary.
In setting the levels of equity compensation, our Board of
Directors has historically relied on the business judgment and
collective experience of its members in the industries in which
we compete for executives. As discussed above, our named
executive officers received initial option grants upon the
commencement of their employment at levels determined by our
Board of Directors. Our Board of Directors has also awarded
additional options to certain of our named executive officers at
other times, not in connection with the commencement of their
employment when, in the Boards judgment, such awards were
advisable to assist in executive retention or to reward
significant performance. While we have not had a predetermined
policy on the timing or frequency of additional equity award
grants to our named executive officers, we anticipate that our
compensation committee will be considering such issues with the
advice of Hay Group following the completion of this offering.
In March 2010, our Board of Directors established a compensation
committee and appointed Messrs. Cannon and Kaul to that
committee. In February 2011, the Board reconstituted the
compensation committee and appointed Messrs. Kaul and Melo
and Dr. Bachher to serve on that committee. Since its
formation, the compensation committee has been responsible for
evaluating and recommending our executive compensation policies
and plans for approval by our Board. Following the completion of
this offering, the compensation committee will make these
decisions. While we have not used peer group analysis or
benchmarking to set levels of executive compensation in the
past, our compensation committee intends to use benchmarking
data provided by Hay Group as a reference in determining
appropriate levels of compensation in the future. The charter of
our compensation committee grants the committee sole authority
to retain outside consultants or counsel to assist it in its
duties with respect to establishing compensation practices and
the level of executive compensation.
105
Other
Executive Benefits
We provide the following benefits to our named executive
officers on the same basis as other eligible employees:
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health and dental insurance;
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vacation, sick days and personal days;
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life insurance and supplemental life insurance;
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long-term disability insurance;
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a 401(k) plan;
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flexible spending accounts;
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an employee assistance program; and
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income tax planning assistance.
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We believe these benefits are generally consistent with benefits
offered by companies with which we compete for employees and
executives. In light of the immediate exercisability of certain
of our stock options discussed above and potential decision
making related to Section 83(b) elections under the
Internal Revenue Code as well as the implications of this
offering, we believe it is in the companys best interest
to provide tax planning assistance in order that our employees
may more easily devote their time to business activities.
Other
Compensation Policies and Practices
Tax considerations. Section 162(m) of the
Internal Revenue Code disallows a tax deduction for any publicly
held corporation for individual compensation exceeding
$1 million in any taxable year for each named executive
officer (other than our chief financial officer), unless
compensation is performance-based. As we are not currently
publicly traded, the deductibility limit imposed by
Section 162(m) has not applied to us.
The 2011 Long-Term Incentive Plan qualifies for transition
relief under Treasury Regulation
Section 1.162-27(f),
which provides that the deduction limit of Section 162(m)
of the Internal Revenue Code does not apply to a compensation
plan or agreement that existed during the period in which we
were not publicly held. Generally, we will be able to rely on
this transition relief for a period of three years after we
become publicly held. Thereafter, we can preserve the
deductibility of compensation over $1,000,000 if certain
conditions of Section 162(m) are met, including stockholder
approval of the plan and the material terms of the performance
goals. At such time as Section 162(m) limits our
deductibility, we expect that our compensation committee will
adopt a policy that, where reasonably practicable, we will seek
to qualify the variable compensation paid to our executive
officers for an exemption from the deductibility limitations of
Section 162(m). For more information about our 2011
Long-Term Incentive Plan, please see 2011
Long-Term Incentive Plan below.
Policy regarding the timing of equity
awards. Because we have been a privately-owned
company since our inception, there has been no market for our
Class A common stock. Accordingly, in 2010, we had no
program or policy with respect to the timing of option grants to
executive officers relative to the release of material
non-public information. We anticipate working with Hay Group to
consider such a policy for implementation after we become a
public company.
Policy regarding restatements of performance
measures. We do not have a formal policy
regarding adjustment or recovery of bonus payments if the
relevant performance measures upon which they are based are
restated or otherwise adjusted in a manner that would reduce the
size of the payment. Under those circumstances, our Board of
Directors or our compensation committee would evaluate whether
adjustments or recoveries of payments were appropriate based
upon the facts and circumstances surrounding the restatement.
Our compensation committee will evaluate establishment of a
formal policy with Hay Group.
106
Stock ownership policies. We have not
established stock ownership or similar guidelines with regards
to our executive officers at the time of this offering; however,
all of our executive officers currently have a direct or
indirect, through their stock option holdings, equity interest
in our company, and we believe that they regard the potential
returns from these interests as a significant element of their
potential compensation for services to us.
Summary
Compensation Table
The following table summarizes, with respect to our named
executive officers, information relating to the compensation
earned for services rendered in all capacities during our fiscal
year ended December 31, 2010.
Summary
Compensation Table
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Non-Equity
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Stock
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Option
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Incentive Plan
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All Other
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Salary
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Awards
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Awards
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(1)
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($)
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($)
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($)
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Fred Cannon
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2010
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299,897
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1,960,343
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118,800(2
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8,881
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2,387,921
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President and Chief Executive Officer
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T. Kevin DeNicola(3)
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2010
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235,686
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903
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236,589
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Former Chief Financial Officer
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John Kasbaum
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2010
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140,750
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491,288
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5,713
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637,751
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Senior Vice President Commercial
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(1) |
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The amounts shown under Stock Awards and
Option Awards in the above table reflect the grant
date fair value of these awards as determined in accordance with
Financial Accounting Standards Board, or FASB, Accounting
Standards Codification, or ASC, Topic 718,
Compensation Stock Compensation, excluding the
effects of estimated forfeitures. We based the fair value of
stock awards on the market price of the shares awarded on the
grant date. We calculated the value of stock option awards using
the Black-Scholes option-pricing model. See Note 2 to our
consolidated financial statements in this prospectus for a
discussion of the valuation assumptions used in the valuation of
option awards. Please see the Grants of Plan-Based
Awards Table for more information regarding equity awards
granted during fiscal year 2010. |
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(2) |
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In lieu of a cash bonus for the period of employment ended in
June 2010, Mr. Cannon was awarded 60,000 fully vested
shares of Class A common stock (subject to transfer
restrictions) on July 29, 2010 with respect to achievement
of the milestones described above in Elements
of Compensation for Our Named Executive Officers
Annual Bonuses in order to conserve our cash resources.
Milestones were set based on full completion rather than
percentage of completion and thus we do not provide thresholds
or maximums as part of our annual performance bonus program.
Based on the then-current $1.98 fair market value of our stock,
an award of 60,000 shares was determined. While milestones
were structured with a focus on full completion, our Board of
Directors recognized the superior attainment of the prescribed
milestones and desired to reward this superior attainment by
awarding a bonus in an amount greater than that set forth in
Mr. Cannons employment agreement. |
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(3) |
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Mr. DeNicolas employment with us terminated effective
in January 2011. |
107
Grants of
Plan-Based Awards
The following table provides information concerning each grant
of an award made to our named executive officers under any plan
during our fiscal year ended December 31, 2010. No awards
were granted to Mr. DeNicola, our former CFO, in 2010.
Grants of
Plan-Based Awards for Fiscal Year 2010
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All Other
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Stock
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All Other
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Awards:
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Option Awards
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Estimated Future
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Number
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Number of
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Exercise or
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Grant Date Fair
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Payouts Under Non-
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of Shares
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Securities
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Base Price of
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Value of Stock
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Equity Incentive Plan
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of Stock
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Underlying
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Option
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and Option
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Name
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Grant Date
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Awards(1)
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or Units
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Options(2)
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Awards(3)
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Awards(4)
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(#)
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(#)
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($/Sh)
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($)
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Mr. Cannon
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03/22/2010
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895,520
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(5)
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51,985
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07/28/2010
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1,064,048
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1.98
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933,489
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07/28/2010
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1,170,470
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1.98
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1,026,853
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07/29/2010
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60,000
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(6)
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52,638
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07/28/2010
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100,000
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Mr. Kasbaum
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07/28/2010
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560,000
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1.98
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491,288
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(1) |
|
Milestones were set based on full completion rather than
percentage of completion and thus we do not provide thresholds
or maximums as a part of our annual performance bonus program.
Our performance program is described above in
Elements of Compensation for Named Executive
Officers Annual Bonuses. Actual amounts
awarded in 2010 are included in the Summary
Compensation Table above. |
|
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(2) |
|
Grants of 1,064,048 options to Mr. Cannon are subject to
vesting upon achievement of three milestones determined by the
Board of Directors, with 1/3 of the shares vesting with each
achievement. The first and second milestones have been achieved:
the execution of the memorandum of understanding with the
Mississippi Development Authority, which occurred in November
2010, and the execution of a commercially acceptable product
offtake agreement, which was signed with Hunt Refining Company,
or Hunt, in February 2011. The third milestone, the mechanical
completion of our
initial-scale
commercial production facility under construction in Columbus,
Mississippi, has not yet been achieved. Other grants vest as to
20% of the original number of shares on the first anniversary of
the vesting commencement date and as to an additional 1/60th of
the original number of shares each month thereafter until the
fifth anniversary of the vesting commencement date, subject to
continued service through each relevant vesting date. 100%, or
50% with respect to Mr. Kasbaum, of unvested options are
subject to immediate vesting upon a change of control of our
company and termination of employment following a change of
control, as further described below in
Potential Benefits upon Termination Following
a Change of Control. All options were granted under our
amended and restated 2007 Stock Option/Stock Issuance Plan. |
|
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(3) |
|
Represents the fair market value of a share of our Class A
common stock and Class B common stock, as determined by our
Board of Directors, on the respective option grant date. For a
discussion of our methodology for determining the fair market
value of our Class A common stock and Class B common
stock, please read Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates Stock-Based Compensation elsewhere
in this prospectus. |
|
(4) |
|
Reflects the grant date fair value of each award as determined
in accordance with FASB ASC Topic 718, excluding the effects of
estimated forfeitures. We based the fair value of stock awards
on the market price of the shares awarded on the grant date. We
calculated the value of stock option awards using the
Black-Scholes option-pricing model. See Note 2 to our
consolidated financial statements in this prospectus for a
discussion of the valuation assumptions used in the valuation of
option awards. |
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(5) |
|
Mr. Cannon was awarded 895,520 fully vested shares of
Class B common stock (subject to transfer restrictions) on
March 23, 2010 with respect to achievement of milestones
for 2009. |
108
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(6) |
|
Mr. Cannon was awarded 60,000 fully vested shares of
Class A common stock (subject to transfer restrictions) on
July 29, 2010 with respect to achievement of the milestones
described above in Elements of Compensation
for Our Named Executive Officers Annual
Bonuses. Shares were fully vested upon date of grant,
subject to certain transfer restrictions, and were granted in
lieu of an annual cash bonus. |
Outstanding
Equity Awards at Fiscal Year End
The following table sets forth information regarding outstanding
equity awards held as of December 31, 2010 by our named
executive officers.
Outstanding
Equity Awards at Fiscal Year-End 2010
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Option Awards
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Equity
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Incentive
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Plan
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Awards:
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Number of
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Number of
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Number of
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Securities
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Securities
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Securities
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Underlying
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Underlying
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Underlying
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Unexercised
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Unexercised
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Unexercised
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Option
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Option
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Options
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Options
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Options
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Exercise
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Vesting
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Option
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(#)
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(#)
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(#)
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Price
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Commencement
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Expiration
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Name
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Grant Date
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Exercisable(1)
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Unexercisable
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Unearned
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($)
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Date
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Date
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Mr. Cannon
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04/23/2009
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3,085,720
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1,200,004
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0.0838
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06/15/2008
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04/22/2019(2
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)
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07/28/2010
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1,170,470
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1,024,162
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1.98
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06/01/2010
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07/27/2020(3
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)
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07/28/2010
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1,064,048
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354,680
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1.98
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07/27/2020(4
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)
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Mr. DeNicola
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12/30/2009
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298,134
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1,077,866
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0.09
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12/16/2009
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04/20/2011(2
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Mr. Kasbaum
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07/28/2010
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560,000
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560,000
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1.98
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06/01/2010
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07/27/2020(2
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(1) |
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Options granted under the amended and restated 2007 Stock
Option/Stock Issuance Plan prior to 2011 allowed for the option
to be exercised prior to vesting with the stock acquired on
exercise being subject to certain transfer restrictions and
repurchase rights of the company at the lesser of fair market
value or the exercise price, with such repurchase rights lapsing
at such time as the underlying options would have vested. |
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(2) |
|
Grants vest as to 20% of the original number of shares on the
first anniversary of the vesting commencement date and as to an
additional 1/60th of the original number of shares each month
thereafter until the fifth anniversary of the vesting
commencement date, subject to continued service through each
relevant vesting date; additionally, options to purchase 685,712
shares granted to Mr. Cannon vested on the grant date.
100%, or 50% with respect to Mr. Kasbaum, of unvested options
are subject to rights to immediate vesting upon a change of
control of our company and termination of employment following a
change of control, as further described below in
Potential Benefits upon Termination Following
a Change of Control. Mr. DeNicolas options have
been forfeited as his employment with us terminated in January
2011. All options were granted under our amended and restated
2007 Stock Option/Stock Issuance Plan. |
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(3) |
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Grants vest in a series of 48 successive equal monthly
installments upon the optionees completion of each
additional month of service over a
48-month
period measured from the vesting commencement date. If an
optionee exercises options prior to vesting, the option shares
initially will be unvested until such time as the underlying
options would have vested and are subject to repurchase by us at
the lower of the exercise price or the fair market value per
share at the time of optionees cessation of service. 100%
of unvested options are subject to rights to immediate vesting
upon a change of control of our company and termination of
employment following a change of control, as further described
below in Potential Benefits upon Termination
Following a Change of Control. All options were granted
under our amended and restated 2007 Stock Option/Stock Issuance
Plan. |
|
(4) |
|
Grants vest upon achievement of three milestones determined by
the Board of Directors, with 1/3rd of the shares vesting with
each achievement. The first and second milestones have been
achieved: the execution of the memorandum of understanding with
the Mississippi Development Authority, which occurred in |
109
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November 2010, and the execution of a commercially acceptable
product offtake agreement, which was signed with Hunt in
February 2011. The third milestone, the mechanical completion of
our initial-scale commercial production facility under
construction in Columbus, Mississippi, has not yet been achieved. |
Option
Exercises and Stock Vested During Fiscal 2010
None of our named executive officers exercised stock options
during 2010.
Potential
Benefits upon Termination Following a Change of
Control
None of our named executive officers have any agreements with
respect to severance payments.
As described below in Employment Arrangements
with Executives, the Board has approved accelerated
vesting of 100% of unvested options for Messrs. Cannon,
Artzer, Cappello, DeNicola and Karnes and 50% of unvested
options for Mr. Kasbaum in the event that such executive is
terminated without cause within 12 months following a
change of control of KiOR. For these purposes, a change of
control is defined as (i) a merger or acquisition of
us after which our stockholders immediately prior to such
transaction own less than 50% of the surviving entity or
(ii) a sale of all or substantially all of our assets. For
these purposes cause is defined as
(i) indictment or conviction of any felony or any crime
involving moral turpitude or dishonesty, including a plea of
guilty or no contest; (ii) commission or furtherance of a
fraud or act of dishonesty against us; (iii) repeated abuse
of alcohol or abuse of any controlled substance;
(iv) willful failure or refusal to perform the
officers job duties; (v) intentional damage to any of
our property; or (vi) material violation of any contract
with us or policy of ours. Each of Messrs. Cannon,
DeNicola, Kasbaum and Karnes executed a proprietary information
and inventions assignment agreement, described under
Employment Arrangements with Executions
below. Any material breach of such agreement would constitute
cause and would result in a forfeiture of the breaching
officers accelerated awards.
The following table summarizes the value of the accelerated
options of Messrs. Cannon, DeNicola and Kasbaum assuming
they had been terminated on December 31, 2010 following a
change of control. Mr. DeNicolas employment with the
company was voluntarily terminated in January 2011.
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Termination Without Cause
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Within 12 Months Following a
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Change of Control
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Name
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Value of Accelerated Options
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Mr. Cannon
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$
|
2,275,508
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(1)
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Mr. DeNicola
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Mr. Kasbaum
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(1) |
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This amount is equal to the product of (a) 100%, or 50% in
the case of Mr. Kasbaum, of the number of shares underlying
unexercised options that would vest immediately upon termination
without cause following a change of control, assuming a
December 31, 2010, change of control and employment
termination and (b) the excess of $1.98 per share, which
represents our Board of Directors determination of the
fair market value of our common stock as of December 2,
2010, over the exercise price of the option. |
Employment
Arrangements with Executives
Each of our named executive officers received an offer letter in
connection with the commencement of his employment with us. As a
condition to employment, each of our named executive officers
has entered into a proprietary information and inventions
assignment agreement. Under these agreements, each named
executive officer has agreed not to compete with us during his
employment, not to solicit our employees during his employment
or for a period of one year following the termination of his
employment, to protect our confidential and proprietary
information and to assign to us intellectual property developed
during the course of his employment.
110
Fred Cannon. On May 12, 2008, we provided
Mr. Cannon with an offer letter setting forth the terms and
conditions of his employment. The offer letter provided for an
initial annual base salary of $275,000, with the ability to earn
an annual bonus of up to $75,000 upon the achievement of certain
milestones to be determined by Mr. Cannon and our Board of
Directors. Mr. Cannons base salary has since been
increased to $341,250 and his potential annual bonus has been
raised to $100,000. In connection with the commencement of his
employment, Mr. Cannon received incentive options to
purchase an aggregate of 3,085,720 shares of our
Class B common stock with a weighted average exercise price
of $0.0838 per share, of which the first 685,712 options were
fully vested on the grant date and the remaining options vest
with 20% of the total number of shares vested on the first
anniversary of the vesting commencement date, and the remaining
balance of the shares subject to the options vesting in 48 equal
monthly installments thereafter until all shares are vested,
subject to his continued employment with us. The Board has
approved accelerated vesting of 100% of his unvested options if
he is terminated without cause following a change of control.
T. Kevin DeNicola. On September 23,
2009, we provided Mr. DeNicola with an offer letter setting
forth the terms and conditions of his employment. The offer
letter provided for an annual base salary of $250,000, with the
ability to earn an annual bonus of up to $100,000 upon the
achievement of certain milestones to be set by Mr. DeNicola
and us. In connection with the commencement of his employment,
Mr. DeNicola received incentive options to purchase
1,376,000 shares of our Class B common stock with an
exercise price of $0.09 per share, which options vested as to
1/5th of the total number of shares subject to the option
on the first anniversary of the vesting commencement date, and
the remaining balance of the shares subject to the option were
to vest in 48 equal monthly installments thereafter until all
shares vested, subject to his continued employment with us.
Mr. DeNicolas offer letter also provided that if he
was terminated without cause following a change of control, 100%
of his unvested options would have become vested upon the date
of termination. Mr. DeNicolas employment was
voluntarily terminated in January 2011, and he forfeited his
remaining unvested options.
John Kasbaum. On May 3, 2010, we provided
Mr. Kasbaum with an offer letter setting forth the terms
and conditions of his employment. The offer letter provided for
an initial annual base salary of $240,000. In connection with
the commencement of his employment, Mr. Kasbaum received
incentive options to purchase an aggregate of
560,000 shares of our Class A common stock with an
exercise price of $1.98 per share, of which 1/5th of the
total number of shares subject to the option will vest on the
first anniversary of his employment date, and the remaining
balance of the shares subject to the options vesting in 48 equal
monthly installments thereafter until all shares are vested,
subject to his continued employment with us. The Board has
approved accelerated vesting of 50% of his unvested options if
he is terminated without cause following a change of control.
Joseph Cappello. On January 30, 2011, we
provided Mr. Cappello with an offer letter setting forth
the terms and conditions of his employment as President of
International. The offer letter provided for an initial annual
base salary of $300,000 with the ability to earn an annual bonus
of up to $100,000 upon the achievement of certain milestones to
be set by us. In connection with the commencement of his
employment, Mr. Cappello was granted 409A Options to
purchase an aggregate of 1,062,662 shares of our
Class A common stock with an exercise price of $1.98 per
share under the amended and restated 2007 Stock Option/Stock
Issuance Plan, which options will vest on the fifth anniversary
of the grant date, subject to his continued employment with us.
For more information about our 409A Options, please see
Amended and Restated 2007 Stock Option/Stock
Issuance Plan immediately below. In the event of death or
disability, the 409A Options would vest on a pro rata basis
based on the number of days of service, provided such death or
disability occurred after the one-year anniversary of the grant
date. If Mr. Cappello is terminated without cause following
a change of control, 100% of his unvested options would become
vested upon the date of termination.
John Karnes. On February 8, 2011, we
provided Mr. Karnes with an offer letter setting forth the
terms and conditions of his employment as our Chief Financial
Officer. The offer letter provided for an initial annual base
salary of $250,000 with the ability to earn an annual bonus of
up to $100,000 upon the achievement of certain milestones to be
set by us. In connection with the commencement of his
employment, Mr. Karnes was granted 409A Options to purchase
an aggregate of 1,100,000 shares of our Class A common
stock with an
111
exercise price of $1.98 per share under the amended and restated
2007 Stock Option/Stock Issuance Plan, which options will vest
on the fifth anniversary of the grant date, subject to his
continued employment with us. For more information about our
409A Options, please see Amended and Restated
2007 Stock Option/Stock Issuance Plan immediately below.
In the event of death or disability, the 409A Options would vest
on a pro rata basis based on the number of days of service,
provided such death or disability occurred after the one-year
anniversary of the grant date. If Mr. Karnes is terminated
without cause following a change of control, 100% of his
unvested options would become vested upon the date of
termination.
Christopher Artzer. On February 11, 2011,
we provided Mr. Artzer with an offer letter setting forth
the terms and conditions of his employment as our Vice
President, General Counsel and Corporate Secretary. The offer
letter provided for an initial annual base salary of $285,000
with the ability to earn an annual bonus of up to $50,000 upon
the achievement of certain milestones to be set by us. In
connection with the commencement of his employment,
Mr. Artzer was granted 409A Options to purchase an
aggregate of 265,600 shares of our Class A common
stock with an exercise price of $1.98 per share under the
amended and restated 2007 Stock Option/Stock Issuance Plan,
which options will vest on the fifth anniversary of the grant
date, subject to his continued employment with us. For more
information about our 409A Options, please see
Amended and Restated 2007 Stock Option/Stock
Issuance Plan immediately below. In the event of death or
disability, the 409A Options would vest on a pro rata basis
based on the number of days of service, provided such death or
disability occurred after the one-year anniversary of the grant
date. If Mr. Artzer is terminated without cause following a
change of control, 100% of his unvested options would become
vested upon the date of termination.
William K. Coates. On May 12, 2011, we
provided Mr. Coates with an offer letter setting forth the
terms and conditions of his employment as Chief Operating
Officer. The offer letter provided for an initial annual base
salary of $350,000 with the ability to earn an annual bonus of
up to $150,000 upon the achievement of certain milestones to be
set by us. In addition, Mr. Coates will receive a one-time
signing bonus of $100,000, subject to continued employment
through June 6, 2012. In connection with the commencement
of his employment, Mr. Coates will be granted options, to
purchase an aggregate of 354,220 shares of our Class A
common stock with an exercise price equal to the price to public
per share in this offering, of which 1/5th of the total
number of shares subject to the option will vest on the first
anniversary of his employment date, and the remaining balance of
the shares subject to the options vesting in 48 equal monthly
installments thereafter until all shares are vested, subject to
his continued employment with us. Also in connection with the
commencement of his employment, Mr. Coates will be granted,
effective upon the pricing of this offering, 708,440 shares of
restricted stock, which vest in equal annual installments over
five years from the date of his employment. If Mr. Coates
is terminated without cause following a change of control, 100%
of his unvested options and shares of restricted stock would
become vested upon the date of termination.
Amended
and Restated 2007 Stock Option/Stock Issuance Plan
On October 12, 2007, our Board of Directors adopted, and
our stockholders subsequently approved, our 2007 Stock
Option/Stock Issuance Plan. On March 17, 2010, our Board of
Directors adopted, and our stockholders subsequently approved,
our amended and restated 2007 Stock Option/Stock Issuance Plan,
which, among other changes, increased the number of shares
available for issuance and authorized the issuance of our
Class A common stock, which was newly authorized, pursuant
to the exercise of certain options. The maximum number of shares
of Class A common stock and Class B common stock which
may be issued under the amended and restated 2007 Stock
Option/Stock Issuance Plan is 21,936,656 shares, of which
10,301,816 shares must be Class A common stock,
subject to adjustment as provided thereunder. On March 18,
2011, our Board also amended the amended and restated 2007 Stock
Option/Stock Issuance Plan to allow for the grant of options
which comply with Section 409A of the Internal Revenue
Code. The amended and restated 2007 Stock Option/Stock Issuance
Plan provides for awards under two separate equity programs:
(i) the Option Grant Program, under which eligible persons
may be granted options, and (ii) the Stock Issuance
Program, under which eligible persons may be granted awards of
stock. Our Board of Directors administers the amended and
restated 2007 Stock Option/Stock Issuance Plan. Our Board of
Directors may
112
delegate administrative functions to our compensation committee
and has delegated to our compensation committee the authority to
issue any stock or option award that is less than 1% of our
then-outstanding capital stock on an as-converted basis without
the consent of the full Board of Directors. Shares of our
Class A common stock acquired pursuant to the exercise of
an option prior to our initial public offering are subject to
repurchase rights by us and a right of first refusal in favor of
us and may be subject to certain other restrictions.
Option Grant Program. Our amended and restated
2007 Stock Option/Stock Issuance Plan provides for the grant of
options to our employees, directors, consultants and other
independent advisors who provide services to us or to any
subsidiary of ours. Options may be granted in the form of
incentive stock options which meet the requirements of
Section 422 of the Internal Revenue Code or nonqualified
stock options, both of which are generally exempt from
Section 409A of the Internal Revenue Code if the exercise
price is at least equal to the fair market value of the
underlying stock on the date of grant, and in the case of
incentive options, 110% of fair market value in the event of a
grantee who is greater than a 10% stockholder. Additionally,
options may be granted in a manner that is compliant with
Section 409A of the Internal Revenue Code in which event
the exercise price may be less than the fair market value of the
underlying stock on the date of grant (409A
Options). The term of any option may not exceed ten years,
except that any incentive option granted to an employee who is
greater than a 10% stockholder may not exceed five years. In the
event of a change of control, the amended and restated 2007
Stock Option/Stock Issuance Plan provides that unvested options
will be assumable by the successor corporation and that no
unvested options will be subject to accelerated vesting upon the
change of control, but our Board may provide for accelerated
vesting immediately prior to a change of control. Our Board of
Directors is authorized to grant options under the amended and
restated 2007 Stock Option/Stock Issuance Plan which provide for
accelerated vesting if the grantee is involuntarily terminated
following a change of control.
The amended and restated 2007 Stock Option/Stock Issuance Plan
allows for grantees to exercise unvested incentive and
nonqualified options in which event they receive shares of
Class B common stock or Class A common stock subject
to the vesting schedule of the underlying option. Grantees are
also allowed to make elections under Section 83(b) of the
Internal Revenue Code within 30 days of the receipt of such
shares.
After an employee, director, consultant or independent advisor
ceases to provide services to us, incentive and nonqualified
options held by such individual will remain exercisable for a
period of three months following cessation of service, except
that such options will remain exercisable for 12 months in
the event of a cessation of service caused by death or
disability and any options will terminate immediately upon a
termination for misconduct. An incentive and nonqualified option
may be exercised later than the above-described time periods if
the plan administrator so determines, but in no event beyond the
expiration of the option term.
To be compliant with Section 409A of the Internal Revenue
Code, any 409A Options must provide for a specified time of
exercise which generally may not be accelerated. As granted, the
409A Options may only be exercised on the earlier of these
required exercise dates: (i) the first business day after
the date that is 30 days following the optionees
separation from service or (ii) the first business day
after the date that is 60 days following the
optionees death or disability. However, if this required
exercise date has not occurred prior to November 1, 2016,
then the option may be exercised between such date and the
earlier of the described required exercise dates or
December 31, 2016. In no event will a 409A Option be
exercisable after December 31, 2016.
Stock Issuance Program. Our amended and
restated 2007 Stock Option/Stock Issuance Plan provides for
direct issuance of shares of our Class A common stock and
Class B common stock. We may issue common stock to
employees, directors, consultants or other independent advisors
at a purchase price set by our Board of Directors, or as a bonus
for services rendered to us. The shares that we issue under this
program may be subject to vesting restrictions based on length
of service or the attainment of specified objectives as
determined by our Board of Directors. After an employee,
director, consultant or independent advisor ceases to provide
services to us, any unvested shares must be immediately returned
to us for cancellation and we are obligated to refund to any
holder who paid consideration for issued shares the lesser of
(i) the consideration
113
paid for such shares or (ii) the fair market value at the
time of the cessation of service. Our plan administrator is
authorized to waive the return and cancellation of unvested
shares in the event of a cessation of service, which results in
the immediate vesting of those shares. In the event of a change
of control, the amended and restated 2007 Stock Option/Stock
Issuance Plan provides that our repurchase rights will be
assumable by the successor corporation and that no unvested
shares will be subject to accelerated vesting, but our Board may
provide for the termination of the repurchase rights on an
accelerated basis and for share vesting in the event of a
grantees involuntary termination following a change of
control.
Our Board of Directors has the authority to amend or modify the
amended and restated 2007 Stock Option/Stock Issuance Plan,
provided such action does not impair the rights of any
participant without the written consent of such participant.
2011
Long-Term Incentive Plan
Prior to the completion of this offering, we anticipate adopting
a 2011 Long-Term Incentive Plan, which will be effective upon
the completion of this offering. Upon the adoption of the 2011
Long-Term Incentive Plan, we will no longer make awards under
the amended and restated 2007 Stock Option/Stock Issuance Plan.
The following summary describes the principal features of the
2011 Long-Term Incentive Plan, which is under consideration.
Objectives. The 2011 Long-Term Incentive Plan
is designed to attract and retain officers, employees and
directors of the company and its subsidiaries, to encourage the
sense of proprietorship of such persons, to stimulate the active
interest of such persons in our development and financial
success and to provide them with additional incentive and reward
opportunities designed to enhance our profitable growth. These
objectives are to be accomplished by making awards under the
2011 Long-Term Incentive Plan and thereby providing participants
with a proprietary interest in our growth and performance.
Eligibility. All employees and directors of
the company are eligible for awards under the 2011 Long-Term
Incentive Plan. Our compensation committee will select the
participants from time to time for the grant of awards.
Shares Available for Awards. Shares of
Class A common stock representing ten percent of all common
stock outstanding upon the completion of this offering will be
available for awards granted, wholly or in part (including
rights or options which may be exercised for or settled in
common stock), under the 2011 Long-Term Incentive Plan. The
maximum number of shares related to or exercisable for awards to
an individual during the term of the 2011 Long-Term Incentive
Plan will be 1,000,000. All shares of Class A common stock
available for awards under the 2011 Long-Term Incentive Plan may
be the subject incentive stock options.
Our Board of Directors may make certain adjustments to the terms
of outstanding awards and the number of shares available under
the 2011 Long-Term Incentive Plan, cancel awards for cash or
exchange awards in the event of any subdivision or consolidation
of outstanding shares of Class A common stock or
declaration of a dividend payable in shares of common stock or
capital reorganization or reclassification or other transaction
involving an increase or reduction in the number of outstanding
shares of Class A common stock, our consolidation or merger
with another corporation or entity, our adoption of a plan of
exchange affecting the common stock, any distribution to holders
of common stock of securities or property (other than normal
cash dividends or dividends payable in common stock) or our
acquisition of property or stock, separation, reorganization or
liquidation.
Shares subject to awards under the 2011 Long-Term Incentive Plan
that are forfeited, terminated, expire unexercised, settled for
cash, withheld to satisfy tax obligations or otherwise lapse
will again become available for awards under the 2011 Long-Term
Incentive Plan.
Administration. The 2011 Long-Term Incentive
Plan will be administered by our compensation committee. The
compensation committee will have full and exclusive power to
interpret the 2011 Long-Term Incentive Plan and to adopt such
rules, regulations and guidelines for carrying out the 2011
Long-Term Incentive Plan as they may deem necessary or proper,
all of which powers shall be exercised in our best interests and
in keeping with the objectives of the 2011 Long-Term Incentive
Plan. The compensation
114
committee may amend or modify any award that is not adverse to
the participant or to which the participant consents. Any
decisions of the compensation committee in the interpretation
and administration of the 2011 Long-Term Incentive Plan will lie
within its sole and absolute discretion and will be final,
conclusive and binding on all parties concerned. The
compensation committee may delegate to our senior officers
certain duties under the 2011 Long-Term Incentive Plan.
Awards. At the discretion of the compensation
committee, awards may be in the form of (1) stock options,
representing rights to purchase a specified number of shares of
common stock at a specified price, (2) stock appreciation
rights, representing rights to receive a payment, in cash or
Class A common stock, equal to the excess of the fair
market value or other specified value of a number of shares of
Class A common stock on the rights exercise date over
a specified strike price, (3) grants of restricted or
unrestricted Class A common stock, (4) grants of units
denominated in Class A common stock, (5) grants
denominated in cash, (6) grants of any of the above awards
subject to the attainment of one or more performance goals, and
(7) grants of performance stock units, representing the
right to receive Class A common stock upon the attainment
of certain performance goals. The compensation committee will
determine the type or types of awards to be made to each
participant under the 2011 Long-Term Incentive Plan and the
terms, conditions and limitations applicable to each such award.
Each award will be embodied in an award agreement or other
communication containing such terms, conditions and limitations
as determined by the compensation committee in its sole
discretion. Except in connection with a change in our
capitalization, no stock option or stock appreciation right may
be repriced, replaced, regranted through cancellation or
modified without stockholder approval if the effect would be to
reduce the exercise price for the shares underlying such award.
The following is a brief description of these awards:
Stock Options. An award may consist of a right
to purchase a specified number of shares of common stock at a
price specified by the compensation committee in the award
agreement or otherwise. A stock option awarded to an employee
may be in the form of an incentive stock option, which in
addition to being subject to applicable terms, conditions and
limitations established by the compensation committee, complies
with Section 422 of the Internal Revenue Code, or in the
form of a non-qualified option. A stock option awarded to a
director may only be in the form of a non-qualified option. The
option price will not be less than the fair market value of our
Class A common stock on the date of grant. Payment may be
made in cash or shares of Class A common stock, or by
surrendering all or part of that or any other award, valued at
fair market value (as defined in the 2011 Long-Term Incentive
Plan) on the date of exercise, or any combination thereof.
Certain restrictions may apply in the event shares of restricted
stock are tendered as consideration for the exercise of a stock
option.
Stock Appreciation Rights. A stock
appreciation right, or SAR, consists of a right to receive a
payment, in cash or Class A common stock, equal to the
excess of the fair market value or other specified valuation of
a specified number of shares of Class A common stock on the
date the SAR is exercised over a specified strike price as set
forth in the award agreement. The strike price will not be less
than the fair market value of our Class A common stock on
the date of grant. The compensation committee is authorized to
determine the terms and conditions of SAR grants, subject to
certain limitations.
Stock Award. A stock award consists of an
award of Class A common stock. All or part of any stock
award may be subject to conditions and limitations established
by the compensation committee and set forth in the award
agreement, including vesting and other restrictions. Such
conditions may include continuous service with us. The
certificates evidencing shares of Class A common stock
issued in connection with a stock award may contain appropriate
legends and restrictions describing the terms and conditions of
the restrictions applicable to the shares.
Restricted Stock Unit Award. A restricted
stock unit award consists of a unit evidencing the right to
receive one share of Class A common stock or equivalent
value in cash. All or part of a restricted stock unit award will
be subject to conditions and limitations established by the
compensation committee and set forth in the award agreement.
Such conditions may include continuous service with us. The
compensation committee may permit dividend equivalents to be
paid with respect to restricted stock units.
115
Cash Awards. The compensation committee may
also provide for cash awards, with the amount of the eventual
payment subject to future service and such other restrictions
and conditions as may be established by the compensation
committee and set forth in the award agreement, including
continuous service with us.
Performance Awards. A performance award
consists of a right to receive an option, SAR, stock award,
restricted stock unit award or cash award subject to the
attainment of one or more performance goals. Performance awards
may be qualified performance-based compensation under
Section 162(m) of the Internal Revenue Code.
Performance Stock Units. The compensation
committee may provide for an award in the form of performance
share units. A performance share unit evidences the right to
receive one share of Class A common stock upon the
attainment of performance goals established by the compensation
committee. An award of performance share units may be qualified
or unqualified under the Internal Revenue Code.
Payment of Awards; Deferral; No
Dividends. Generally, payment of awards may be
made in the form of cash or common stock or combinations thereof
and may include such restrictions as the compensation committee
determines, including, in the case of common stock, restrictions
on transfer and forfeiture provisions. The compensation
committee may, in its discretion, permit selected participants
to elect to defer payments (i.e., in the form of
installment payments or a future lump sum payment) of some or
all types of awards in accordance with procedures established by
the compensation committee and provided that such deferral is in
compliance with the requirements of Section 409A of the
Internal Revenue Code. The compensation committee may also
permit the exercise or purchase of awards by use of the proceeds
to be received from the sale of Class A common stock
issuable pursuant to an award. Rights to dividends and dividend
equivalents may not be extended to and made part of any stock
award. The compensation committee may also establish rules and
procedures for the crediting of interest on deferred cash
payments for awards.
Assignability. Generally, no award may be
sold, transferred, pledged, assigned or otherwise alienated or
hypothecated by a participant other than by will or the laws of
descent and distribution, and during the lifetime of a
participant, any award shall be exercisable only by the
participant. Nevertheless, subject to the approval by the
compensation committee in its sole discretion, all or a portion
of non-qualified stock options, stock appreciation rights, stock
awards, restricted stock units and cash awards, none of which
are in the form of performance awards, may be transferable by
the participant, to the extent specified in such approval, to
certain family members of the participant, including a trust or
entity fully owned by such family member or the participant.
Change in Control. The compensation committee
may provide in an award agreement for acceleration of the
vesting and exercisability of awards granted under the 2011
Long-Term Incentive Plan in connection with a change in
control of our company.
Amendment. Our Board of Directors may amend,
modify, suspend or terminate the 2011 Long-Term Incentive Plan
for the purpose of meeting or addressing any changes in legal
requirements or for any other lawful purpose, except that
(1) no amendment or alteration that would impair the rights
of any participant under any award previously granted to such
participant may be made without such participants consent
and (2) no amendment or alteration will be effective prior
to approval by our stockholders to the extent such approval is
determined by the Board to be required by applicable laws,
regulations or stock exchange requirements.
Duration. The 2011 Long-Term Incentive Plan
will terminate on the 10th anniversary of its adoption, or if
later, the 10th anniversary of any subsequent approval of the
plan by our stockholders.
We intend to file with the SEC a registration statement on
Form S-8
covering the shares of our Class A common stock issuable
under the 2011 Long-Term Incentive Plan.
116
401(k)
Retirement Plan
We maintain a 401(k) retirement plan that is intended to be a
tax-qualified defined contribution plan under
Section 401(k) of the Internal Revenue Code. Contributions
to the 401(k) retirement plan are not taxable to employees until
withdrawn from the plan. Each participant may elect to
contribute a portion of his or her pre-tax compensation to the
plan, up to the statutory maximum that was $16,500 for each of
2010 and 2011. We currently match 100% of employees
contributions up to 3% of base salary, and we match 50% of any
additional employee contributions up to 5% of base salary, for a
total matching of a maximum of 4% of base salary.
Indemnification
Agreements
We plan to enter into customary indemnification agreements with
our directors, executive officers and certain employees. The
indemnification agreements and our amended and restated
certificate of incorporation and bylaws will require us to
indemnify our directors and officers to the fullest extent
permitted by Delaware law.
117
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Since our inception, we have entered into the following
transactions and contractual arrangements with our officers,
directors and principal stockholders. Although we have not
historically had formal policies and procedures regarding the
review and approval of related person transactions, all
transactions outside of the ordinary course of business between
us and any of our officers, directors and principal stockholders
were approved by our Board of Directors. Our Board of Directors
has adopted a written policy that will require our audit
committee to review on an annual basis all transactions with
related persons, or in which a related person has a direct or
indirect interest, and to determine whether to ratify or approve
the transaction after consideration of the related persons
interest in the transaction and other material facts. We believe
that the terms of these arrangements and agreements are at least
as favorable as they would have been had we contracted with an
unrelated third person.
The descriptions below give effect to a 4-for-1 stock split that
occurred in April 2010, a 2-for-1 stock split that was completed
on June 9, 2011 and the redesignation of all of the class
of our common stock designated as common stock in our current
charter as Class B common stock in our amended and restated
certificate of incorporation that will become effective upon the
completion of this offering.
Financings
In November 2007, we issued and sold 14,400,000 shares of
our Class B common stock, to BIOeCON B.V., or BIOeCON, as
consideration for intellectual property valued at
$2.6 million. In November 2007 and June 2008, we issued and
sold an aggregate of 24,000,000 shares of our Series A
convertible preferred stock at $0.1813 per share for an
aggregate purchase price of approximately $4.4 million to
Khosla Ventures. In June 2008, we issued and sold
20,571,576 shares of our
Series A-1
convertible preferred stock, at $0.4863 per share for an
aggregate purchase price of approximately $10.0 million to
Khosla Ventures. In August 2009, we issued a convertible
promissory note in the amount of $15.0 million to Khosla
Ventures and in April 2010, this convertible promissory note was
exchanged for 5,099,958 shares of Series B convertible
preferred stock, representing a per share purchase price of
$2.9410 per share. In April, May and July 2010, we issued and
sold an aggregate of 19,379,844 shares of our Series B
convertible preferred stock at $4.902 per share for an aggregate
purchase price of approximately $95.0 million, of which
3,059,976 shares were issued to entities affiliated with
Khosla Ventures. In April 2011, we issued and sold an aggregate
of 11,219,908 shares of our Series C convertible
preferred stock at $4.902 per share for an aggregate purchase
price of approximately $55.0 million, of which
3,059,976 shares were issued to entities affiliated with
Khosla Ventures.
Although none of our executive officers or directors purchased
Series A,
Series A-1,
Series B or Series C convertible preferred stock,
pursuant to a voting agreement last amended and restated on
April 21, 2011, Khosla Ventures had a representative, Samir
Kaul, serving on our Board of Directors at the time (i) a
portion of the Series A convertible preferred stock was
purchased by Khosla Ventures, (ii) at the time the
convertible note was issued to Khosla Ventures and (iii) at
the time the
Series A-1,
Series B and Series C convertible preferred stock were
purchased. Mr. Kaul may have been considered to
beneficially own any Series A convertible preferred stock
issued in June 2008 or any
Series A-1,
Series B or Series C convertible preferred stock
purchased by the entities with which he is affiliated.
Mr. Kaul disclaims beneficial ownership of these securities.
Stockholder
Agreements
We have entered into an investors rights agreement with
the purchasers of our convertible preferred stock and certain
holders of common stock and warrants to purchase our convertible
preferred stock, including entities with which certain of our
directors are affiliated. The investors rights agreement
grants certain registration rights, rights of first offer with
respect to certain stock issuances, information rights and other
rights. In addition, we have entered into an agreement with
certain of our investors that grants certain rights of first
refusal and co-sale rights with respect to stock transfers and a
voting agreement providing for the election of investor
designees to our Board of Directors. All of these rights, other
than certain registration rights, will terminate upon the
completion of this offering. Please read Description of
Capital Stock Registration
118
Rights for more information on the registration rights
that will be held by certain of our existing investors following
the completion of this offering.
Agreements
with BIOeCON
In 2007, we entered into a two-year service agreement with
BIOeCON, one of our initial investors and a current stockholder,
that required BIOeCON to provide certain general and
administrative support, including patent research and
facilities-related services, to us. The agreement was terminated
in October 2009. We incurred general and administrative expenses
amounting to $143,000 and $331,000 for the years ended
December 31, 2008, and 2009 respectively, for such
services. No outstanding payments were due to BIOeCON under this
agreement as of December 31, 2009 or 2010.
In November 2007, we purchased certain intellectual property
rights relating to our technology pursuant to an intellectual
property transfer agreement with BIOeCON. In November 2010, we
entered into a settlement agreement with BIOeCON to settle
disputes under the November 2007 agreement as to ownership of
certain inventions and the funding of related research, patent
filing and prosecution activities. Under the settlement
agreement, BIOeCON transferred to us certain patent applications
that BIOeCON had intended to transfer to us under the November
2007 agreement and also certain other intellectual property
useful in our business or anticipated research or development.
We and BIOeCON each retracted and released ownership claims to
certain inventions and patent applications covering such
inventions controlled by the other party. BIOeCON then granted
to us a non-exclusive, worldwide, perpetual, royalty-free and
transferable license (which we may sublicense), under
intellectual property covering certain inventions, to develop,
use and commercialize products derived from certain processes
for the conversion of solid biomass.
Paul OConnor, a director and stockholder of ours, is the
founder and Director of Science and Technology of BIOeCON, and
therefore may be deemed to have had an indirect interest in the
agreements described in the preceding two paragraphs.
Letter of
Intent with Khosla Ventures
In May 2011, we entered into a non-binding letter of intent with
Khosla Ventures with respect to the discussion and negotiation
of a potential transaction in which Khosla Ventures would build,
own and operate commercial production facilities that
incorporate our BFCC process. The terms contemplate that,
beginning in 2015, Khosla Ventures would be permitted to
construct a limited number of commercial production facilities
using our plant design, operation and related technologies. In
addition to proceeds from the sale of catalyst, we would share a
portion of the revenue generated by these facilities above a
hurdle rate of return for Khosla Ventures. Entry by us into a
definitive agreement with Khosla Ventures would require the
approval of our Board of Directors pursuant to our Related Party
Transaction Approval Policy, which includes a requirement that
the terms of such transaction are fair to the company and no
less favorable than those obtainable from an unrelated third
party. Neither we nor Khosla Ventures is obligated to enter into
any transaction.
Letter of
Intent with AIMCo
In May 2011, we entered into a non-binding letter of intent with
affiliates of Alberta Investment Management Corporation, or
AIMCo, which sets forth certain proposed terms for potential
project financing for our planned standard commercial production
facility in Newton, Mississippi and the first train of our
two-train centralized hydrotreater. The letter of intent
contemplates, on the date of closing of such potential project
financing, the issuance to the AIMCo affiliates of warrants to
purchase shares of our Class A common stock. Entry by us into a
definitive agreement with the AIMCo affiliates would require the
approval of our Board of Directors pursuant to our Related Party
Transaction Approval Policy, which includes a requirement that
the terms of such transaction are fair to the company and no
less favorable than those obtainable from an unrelated third
party. Neither we nor AIMCo nor its affiliates are obligated to
enter into any transaction.
Affiliates of AIMCo are among our principal stockholders.
Pursuant to a voting agreement last amended and restated on
April 21, 2011, AIMCo has a representative, Jagdeep
Bachher, serving on our Board of Directors. Mr. Bachher is
the Chief Operating Officer of AIMCo.
119
Participation
in the Initial Public Offering
Entities affiliated with Khosla Ventures and Artis Capital
Management, L.P., two of our principal investors, have indicated
an interest in purchasing shares of our Class A common
stock in this offering at the initial public offering price up
to an aggregate of 3,500,000 shares. Because this
indication of interest is not a binding agreement or commitment
to purchase, these existing investors may elect not to purchase
shares in this offering.
Policies
and Procedures for Related Person Transactions
As provided by our audit committee charter to be effective upon
completion of this offering, our audit committee is responsible
for reviewing and approving in advance any related person
transaction. Prior to the creation of our audit committee, our
full Board of Directors reviewed related person transactions.
Our Board of Directors has adopted a written Related Party
Transaction Approval Policy that documents procedures pursuant
to which related person transactions are reviewed, approved or
ratified. The policy applies to any transaction, without regard
to the dollar amount involved, in which:
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we or any of our subsidiaries is a participant; and
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any related person has a direct or indirect interest.
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The audit committee, with assistance from our General Counsel,
is responsible for reviewing and, where appropriate, approving
or ratifying any related person transaction involving us or our
subsidiaries and related persons. In determining whether to
approve a related person transaction, the committee considers
(1) whether the terms of the transaction are fair to the
company and no less favorable than those obtainable under
similar circumstances if a related person were not involved;
(2) whether the transaction is material, considering the
interest of the related person, the relationship of the related
person to the transaction, the amount involved and the
significance of the transaction to our investors in light of all
circumstances; (3) whether the transaction would impair the
independence of a non-employee director; and (4) whether
the transaction would present an improper conflict of interest
for a director or executive officer.
120
PRINCIPAL
STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our Class A common stock and
Class B common stock, as redesignated upon the completion
of this offering as described below as of April 30, 2011 by:
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each person who is known by us to own beneficially 5% or more of
our outstanding Class A common stock and Class B
common stock;
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each of our named executive officers;
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each of our directors; and
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all of our executive officers and directors as a group
(12 persons).
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Upon completion of this offering, all of our common stock
currently designated as common stock will be redesignated as
Class B common stock. For purposes of the table below, we
have assumed that this class of common stock had been so
redesignated as of April 30, 2011.
We have determined beneficial ownership in accordance with the
rules of the SEC. Under these rules, beneficial ownership
includes any shares as to which a person or entity has sole or
shared voting power or investment power. These rules also
provide that a person or entity below beneficially owns any
shares issuable upon the exercise of stock options or warrants
held by such person or entity that were exercisable on or within
60 days of April 30, 2011. Except as otherwise
indicated, to our knowledge the persons and entities listed
below have sole voting and investment power with respect to all
shares of our common stock beneficially owned by them, except to
the extent this power may be shared with a spouse. Unless
otherwise indicated, the address of each stockholder listed
below is 13001 Bay Park Road, Pasadena, Texas 77507.
In computing the number of shares of common stock beneficially
owned by a person or entity and the percentage ownership of that
person or entity, we deemed outstanding shares of common stock
subject to options or warrants held by that person or entity
that are currently exercisable or exercisable within
60 days of April 30, 2011. We did not deem these
shares outstanding for the purpose of calculating the percentage
ownership of any other person or entity.
121
We have based our calculation of the percentage of shares
beneficially owned prior to the offering on
89,835,998 shares of common stock outstanding on
April 30, 2011 (as adjusted to reflect at that date the
conversion of our Series B and Series C convertible
preferred stock into shares of our Class A common stock,
assuming that the Series C convertible preferred stock
(issued in April 2011) converts into shares of Class A
common stock a conversion price that is 80% of an assumed
initial public offering price of $20.00 per share (the midpoint
of the price range set forth on the cover page of this
prospectus) (see Capitalization Conversion of
Our Series C Convertible Preferred Stock for
conversion ratio adjustments that may be applicable upon future
events, such as the completion of this offering). Our
calculation of the percentage of shares beneficially owned after
the offering (assuming no exercise of the underwriters
over-allotment
option) assumes the sale of 10,000,000 shares of
Class A common stock in this offering.
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Shares Beneficially Owned Before Offering
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Shares Beneficially Owned After Offering
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% of
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% of
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Class A
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Class B
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Total
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Class A
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Class B
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Total
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Common Stock(5)
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Common Stock(6)
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Voting
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Common Stock(5)
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Common Stock(6)
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Voting
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Shares
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%
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Shares
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%
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Power
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Shares
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%
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Shares
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%
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Power
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5% Stockholders
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Entities affiliated with Khosla Ventures(1)(11)
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9,097,434
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32.5
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46,259,738
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74.8
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73.0
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9,097,434
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23.9
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46,259,738
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74.8
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71.9
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Entities affiliated with Artis Capital Management, L.P.(2)(11)
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11,449,918
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40.9
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1.8
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11,449,918
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30.1
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1.7
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Entities affiliated with Alberta Investment Management
Corporation(3)
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7,369,950
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26.3
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1.1
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7,369,950
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19.4
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1.1
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BIOeCON B.V.(4)
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13,191,838
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21.3
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20.4
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13,191,838
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21.3
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20.1
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Directors and Named Executive Officers
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Fred Cannon(7)
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1,061,982
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|
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|
3.7
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|
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|
3,021,236
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|
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|
4.7
|
|
|
|
4.7
|
|
|
|
1,061,982
|
|
|
|
2.7
|
|
|
|
3,021,236
|
|
|
|
4.7
|
|
|
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4.6
|
|
T. Kevin DeNicola
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John Karnes
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John Kasbaum
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112,000
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|
|
*
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*
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112,000
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*
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|
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*
|
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William K. Coates
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Joseph S. Cappello
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Christopher A. Artzer
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Ralph Alexander
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34,630
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*
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|
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|
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*
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34,630
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|
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*
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|
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*
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Jagdeep Singh Bachher(8)
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7,369,950
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26.3
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1.1
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7,369,950
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19.4
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1.1
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Samir Kaul(9)
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John Melo
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46,174
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*
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|
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|
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|
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*
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46,174
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|
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*
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|
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*
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Paul OConnor(10)
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13,191,838
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21.3
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20.4
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13,191,838
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21.3
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20.1
|
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William Roach
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46,174
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*
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|
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|
|
|
|
|
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*
|
|
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46,174
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|
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*
|
|
|
|
|
|
|
|
|
|
|
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*
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Gary L. Whitlock
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34,630
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|
|
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*
|
|
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|
|
|
|
|
|
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|
|
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|
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34,630
|
|
|
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*
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|
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|
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|
|
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*
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Executive officers and directors as a group (13 persons)(7)
|
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8,705,540
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29.7
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|
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16,213,074
|
|
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25.3
|
|
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25.5
|
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8,705,540
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|
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22.2
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|
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16,213,074
|
|
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25.3
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|
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25.2
|
|
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* |
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Less than one percent. |
|
(1) |
|
Includes 42,449,224 shares of Class B common stock
held by Khosla Ventures II, L.P. (Khosla II),
3,330,514 shares of Class B common stock held by members or
affiliates of members of Khosla Ventures Associates II, LLC
(KVA II), 480,000 shares of Class B common
stock held by Khosla Ventures III, L.P. (Khosla III)
and 9,097,434 shares of Class A common stock held by
Khosla III. Vinod Khosla is the managing member of VK Services,
LLC (VK Services). VK Services is the manager of
each of KVA II and Khosla Ventures Associates III, LLC
(KVA III). KVA II is the general partner of
Khosla II and KVA III is the general partner of Khosla III.
The members or affiliates of members of KVA II who directly hold
shares of Class B common stock have granted Khosla II voting and
investment power with respect to such shares. Vinod Khosla, VK
Services, KVA II and KVA III may be deemed to have indirect
beneficial ownership of the shares held by Khosla II,
members or affiliates of members of KVA II and Khosla III, as
applicable. Vinod Khosla, VK Services and KVA II disclaim
beneficial ownership of the shares held by |
122
|
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Khosla II and members or affiliates of members of KVA II, except
to the extent of their respective pecuniary interests therein.
Vinod Khosla, VK Services and KVA III disclaim beneficial
ownership of the shares held by Khosla III, except to the extent
of their respectively pecuniary interests therein. The address
for Mr. Khosla and these entities is 3000 Sand Hill Road,
Building 3, Suite 170, Menlo Park, CA 94025. |
|
(2) |
|
Includes 65,394 shares of Class A common stock held by
Artis Partners, L.P., 306,963 shares of Class A common
stock held by Artis Partners 2X, L.P., 257,014 shares of
Class A common stock held by Artis Partners
(Institutional), L.P., 1,855,593 shares of Class A
common stock held by Artis Partners 2X (Institutional), L.P.,
545,654 shares of Class A common stock held by Artis
Aggressive Growth, L.P., 712,814 shares of Class A
common stock held by Artis Partners Ltd., 3,436,818 shares
of Class A common stock held by Artis Partners 2X Ltd.,
956,178 shares of Class A common stock held by Artis
Aggressive Growth Master Fund, L.P., 1,301,198 shares of
Class A common stock held by Artis Private Growth Partners,
L.P., 476,012 shares of Class A common stock held by
Artis Private Growth Partners II, L.P., 117,146 shares of
Class A common stock held by APG2, L.P. and
1,419,134 shares of Class A common stock held by Artis
Private Growth Partners Entrepreneurs Fund, L.P. A principal of
Artis Capital Management, L.P. is related to an executive
officer of Goldman, Sachs & Co., one of the underwriters of
this offering. The address for each of these entities is c/o
Artis Capital Management, L.P., One Market Plaza, Steuart Street
Tower, Suite 2700, San Francisco, California 94105. |
|
(3) |
|
Includes 2,645,812 shares of Class A common stock held
by 1538731 Alberta Ltd. and 4,724,138 shares of
Class A common stock held by 1538716 Alberta Ltd. The
address for each of these entities is c/o Alberta Investment
Management Corporation (AIMCo),
1100-10830
Jasper Avenue, Edmonton, AB, Canada T5J 2B3. |
|
(4) |
|
The address of BIOeCON B.V. is Hogebrinkerweg 15 e, 3871 KM
Hoevelaken, the Netherlands. |
|
(5) |
|
Class A common stock has a voting right of one vote per
share. |
|
(6) |
|
Class B common stock has a voting right of 10 votes
per share. |
|
(7) |
|
24,918,614 shares beneficially owned includes the following
shares that are subject to options that are currently
exercisable or will become exercisable within 60 days of
April 30, 2011. |
|
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Shares Subject
|
Name of Beneficial Owner
|
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to Options
|
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Ralph Alexander
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|
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34,630
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Fred Cannon
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3,127,698
|
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John Kasbaum
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112,000
|
|
John Melo
|
|
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46,174
|
|
William Roach
|
|
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46,174
|
|
Gary Whitlock
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|
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34,630
|
|
Total
|
|
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3,401,306
|
|
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|
|
(8) |
|
Dr. Bachher, one of our directors, is the Chief Operating
Officer of AIMCo and as such may be deemed to have voting and
investment power with respect to shares held by entities
affiliated with AIMCo. Dr. Bachher disclaims beneficial
ownership of all of these shares. The address for
Dr. Bachher and these entities is
1100-10830
Jasper Avenue, Edmonton, AB, Canada T5J 2B3. |
|
|
|
(9) |
|
Mr. Kaul, one of our directors, is a member of KVA II and
KVA III, the general partner of Khosla II and Khosla III,
respectively. Mr. Kaul has no voting or investment power
with respect the shares of our common stock beneficially owned
by these entities. Mr. Kaul disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest
therein, including 1,408,020 shares of Class B common stock
held by The Kaul Family Trust Dated July 20, 2009 and
504,000 shares of Class B common stock held in trusts for
the benefit of Mr. Kauls children. Mr. Kaul is
the trustee of The Kaul Family Trust Dated July 20,
2009, and each of Mr. Kaul, Mr. Kauls wife and
Mr. Kauls father are trustees of the trusts for the
benefit of Mr. Kauls children, but Khosla II has been
granted voting and investment control over such shares. The
address for Mr. Kaul and these entities is 3000 Sand Hill
Road, Building 3, Suite 170, Menlo Park, CA 94025. |
123
|
|
|
(10) |
|
Paul OConnor, one of our directors and stockholders, is
the founder, an indirect controlling stockholder and Director of
Science and Technology of BIOeCON B.V. As such, he may be deemed
to have voting and investment power over the shares held by
BIOeCON B.V. The address for Mr. OConnor and BIOeCON
B.V. is Hogebrinkerweg 15 e, 3871 KM Hoevelaken,
the Netherlands. |
|
(11) |
|
Entities affiliated with Khosla Ventures and Artis Capital
Management, L.P. have indicated an interest in purchasing shares
of our Class A common stock in this offering at the initial
public offering price up to an aggregate of
3,500,000 shares. Because this indication of interest is
not a binding agreement or commitment to purchase, these
principal stockholders may elect not to purchase shares in this
offering. However, if any shares are purchased by these
stockholders, the number of shares of Class A common stock
beneficially owned, the percentage of Class A common stock
beneficially owned and the percentage of total voting power held
after the offering will differ from that set forth in the table
above. Assuming the purchase of all 3,500,000 shares in
this offering by one of these stockholders, the number of shares
of Class A common stock beneficially owned by such
stockholder would increase by 3,500,000 shares, the
percentage of Class A common stock beneficially owned by
such stockholder would increase by 9.2% and the percentage of
total voting power held by such existing investor would increase
by 0.5%. |
124
DESCRIPTION
OF CAPITAL STOCK
The following is a description of our capital stock and certain
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, as they will be
in effect upon the completion of this offering. This description
is intended as a summary, and is qualified in its entirety by
the provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, copies of which
are filed as exhibits to the registration statement of which
this prospectus is a part. In connection with the amendment and
restatement of our certificate of incorporation in connection
with this offering, we intend to redesignate all of the shares
of our capital stock currently designated as common stock as
Class B common stock, and any rights to acquire shares of
common stock will become rights to acquire shares of
Class B common stock. This description of our capital stock
reflects changes to our capital structure that will have
occurred upon the completion of this offering.
Immediately following the completion of this offering, our
authorized capital stock will consist of:
|
|
|
|
|
250,000,000 shares of our Class A common stock,
$0.0001 par value per share;
|
|
|
|
|
|
70,800,000 shares of our Class B common stock,
$0.0001 par value per share (we refer to the Class A
common stock and the Class B common stock collectively as
common stock); and
|
|
|
|
|
|
2,000,000 shares of preferred stock, $0.0001 par value
per share.
|
As of March 31, 2011, we had outstanding
27,987,302 shares of Class A common stock, held of
record by four stockholders, 61,848,696 shares of
Class B common stock, held of record by 13 stockholders,
and no shares of preferred stock, assuming the automatic
conversion of all outstanding shares of our Series A and
Series B convertible preferred stock into Class B
common stock and of our Series B convertible preferred
stock and Series C convertible preferred stock (issued in
April 2011) into Class A common stock immediately prior to
the completion of this offering. In addition, as of
March 31, 2011, we had outstanding options to acquire
8,041,880 shares of Class A common stock and
7,049,454 shares of Class B common stock and
outstanding warrants to acquire 456,822 shares of
Class A common stock and 411,312 shares of
Class B common stock.
Common
Stock
Dividend
Rights
Subject to preferences that may apply to shares of preferred
stock outstanding at the time, the holders of outstanding shares
of our common stock are entitled to receive dividends out of
funds legally available if our Board of Directors, in its
discretion, determines to issue dividends, and only then at the
times and in the amounts that our Board of Directors may
determine. After the completion of this offering, we do not
anticipate declaring any cash dividends to holders of our common
stock in the foreseeable future.
Voting
Rights
The holders of Class A common stock and Class B common
stock vote together on all matters properly submitted to our
stockholders for their vote, including the election of
directors. Each holder of Class A common stock is entitled
to one vote per share on all matters submitted to a vote of
stockholders, and each holder of Class B common stock is
entitled to 10 votes per share on all matters submitted to a
vote of stockholders. Our restated certificate of incorporation
does not permit stockholders to cumulate votes for the election
of directors. Delaware law generally requires holders of our
Class A common stock and our Class B common stock, as
applicable, to vote separately as a single class if we amend our
restated certificate of incorporation in a manner that adversely
affects the powers, preferences or rights of such class or
increases or decreases the authorized number of shares of such
class.
Conversion
Our Class A common stock is not convertible into any other
shares of our capital stock.
125
Our Class B common stock is convertible as follows:
|
|
|
|
|
Voluntary Conversion. Each share of our
Class B common stock is convertible into one share of our
Class A common stock at any time, at the option of the
holder.
|
|
|
|
Mandatory Conversion. All shares of our
Class B common stock will convert into shares of our
Class A common stock on a
1-for-1
basis upon the affirmative vote of holders of at least a
majority of the shares of Class B common stock outstanding.
|
In addition, each share of our Class B common stock will
automatically convert into one share of our Class A common
stock upon any transfer of such share of Class B common
stock, whether or not for value, except for transfers
(a) in the case of a holder who is a natural person,
between such holder and entities controlled by such holder or
certain trusts for the benefit of, or controlled by, such
holder, (b) in the case of a holder that is a partnership,
limited liability company or corporation that, together with its
affiliates, holds more than five percent of the outstanding
Class B common stock as of the completion of our initial
public offering, to its partners, members or stockholders, as
the case may be, on a pro rata basis in according to its
governing documents or (c) to a pledgee (subject to certain
limitations) or nominee of the holder of such Class B
common stock.
No
Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not
subject to conversion, redemption or sinking fund provisions.
The rights, preferences and privileges of the holders of our
common stock are subject to and may be adversely affected by the
rights of the holders of shares of any series of our preferred
stock that we may designate in the future
Right
to Receive Liquidation Distributions
Upon our dissolution, liquidation or
winding-up,
the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our
common stock, subject to prior satisfaction of all outstanding
debt and liabilities and the preferential rights and payment of
liquidation preferences, if any, on any outstanding shares of
preferred stock.
Preferred
Stock
Immediately upon the completion of this offering, each
outstanding share of our convertible preferred stock will be
converted into common stock.
Following this offering, we will be authorized, subject to
limitations prescribed by Delaware law, to issue preferred stock
in one or more series, to establish from time to time the number
of shares to be included in each series and to fix the
designation, powers, preferences and rights of the shares of
each series and any of its qualifications, limitations or
restrictions. Our Board of Directors also can increase or
decrease the number of shares of any series, but not below the
number of shares of that series then outstanding, without any
further vote or action by our stockholders. Our Board of
Directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the
voting power or other rights of the holders of the common stock.
The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of our
company and may adversely affect the market price of our common
stock and the voting and other rights of the holders of common
stock. We have no current plan to issue any shares of preferred
stock.
Options
As of March 31, 2011, we had options to purchase
8,041,880 shares of our Class A common stock and
7,049,454 shares of our Class B common stock
outstanding pursuant to our amended and restated 2007 Stock
Option/Stock Issuance Plan.
126
Warrants
As of March 31, 2011, we had issued two warrants granted on
July 28, 2010 to purchase a total of 157,424 shares of
our Class A common stock. One warrant was for
120,000 shares with an exercise price of $0.09 per share.
The second warrant was for 27,424 shares with an exercise
price of $0.09 per share and exercisable up to 8 years
after grant. A third warrant for 10,000 shares with an
exercise price of $0.09 per share and exercisable for up to five
years after grant date was also granted on July 28, 2010. This
warrant was exercised on March 1, 2011.
As of March 31, 2011, we had issued one warrant to purchase
411,312 shares of our
Series A-1
convertible preferred stock with an exercise price of $0.4863
per share. The warrant has a net exercise provision under which
the holder in lieu of payment of the exercise price in cash can
surrender the warrant and receive a net number of shares of
Series A-1
convertible preferred stock based on the fair market value of
such stock at the time of exercise of the warrant after
deduction of the aggregate exercise price. Unless earlier
exercised, this warrant will expire on the second anniversary of
the completion of this offering. After the completion of this
offering, this warrant will become exercisable for a number of
shares of Class B common stock (or, if all shares of
Class B common stock have converted into Class A
common stock, Class A common stock) determined by
multiplying 411,312 by the conversion ratio of the
Series A-1
convertible preferred stock in effect at the completion of this
offering.
As of March 31, 2011, we had issued three warrants to
purchase an aggregate of 278,798 shares of our
Series B convertible preferred stock with an exercise price
of $2.941 per share and one warrant to purchase
30,600 shares of our Series B convertible preferred
stock with an exercise price of $4.902. Each of these warrants
has a net exercise provision under which the holder in lieu of
payment of the exercise price in cash can surrender the warrant
and receive a net number of shares of Series B convertible
preferred stock based on the fair market value of such stock at
the time of exercise of the warrant after deduction of the
aggregate exercise price. Unless earlier exercised, one warrant
to purchase 16,998 shares of Series B convertible
preferred stock will expire on the fifth anniversary of the
completion of this offering, warrant to purchase
30,600 shares of Series B convertible preferred stock
will expire on April 16, 2018 and two warrants to purchase
an aggregate of 261,800 shares of our Series B
convertible preferred stock will expire on January 27,
2017. After the completion of this offering, these warrants will
become exercisable for an aggregate number of shares of
Class A common stock determined by multiplying 309,398 by
the conversion ratio of the Series B convertible preferred
stock in effect at the completion of this offering.
As of March 31, 2011, we had committed to issue three
warrants to purchase an aggregate of 61,200 shares of our
Series C convertible preferred stock with an exercise price
of $4.902 per share. Each of these warrants has a net exercise
provision under which the holder in lieu of payment of the
exercise price in cash can surrender the warrant and receive a
net number of shares of Series C convertible preferred
stock based on the fair market value of such stock at the time
of exercise of the warrant after deduction of the aggregate
exercise price. After the completion of this offering, these
warrants will become exercisable for an aggregate number of
shares of Class A common stock determined by multiplying
61,200 by the conversion ratio of the Series C convertible
preferred stock in effect at the completion of this offering,
which would be 0.30638 shares of Class A common stock
per share of Series C preferred stock assuming an initial
public offering price of $20.00 per share (the midpoint of the
price range set forth on the cover page of this prospectus) (see
Capitalization Conversion of Our Series C
Convertible Preferred Stock for conversion ratio
adjustments that may be applicable upon future events, such as
the completion of this offering).
Registration
Rights
Demand
Registration Rights
At any time beginning 180 days after the completion of this
offering and ending on the fifth anniversary of the completion
of this offering or on certain specified deemed liquidation
events, the holders of at least 40% of the shares having
registration rights under our investors rights agreement
may request that we file a registration statement under the
Securities Act covering the shares of the requesting holders. We
will be obligated to use our commercially reasonable efforts to
register such shares if they represent at least 30% of
127
the shares resulting from conversion of our convertible
preferred stock and if the anticipated aggregate offering price
to the public is at least $20 million. We are required to
effect no more than two registration statements upon exercise of
these demand registration rights. We may postpone the filing of
a registration statement for up to 60 days once in a
12-month
period if we determine that the filing would be seriously
detrimental to us and our stockholders. The managing underwriter
of any underwritten offering will have the right to limit, due
to marketing reasons, the number of shares registered by these
holders covered by the registration statement, with such
reduction to be allocated among the holders in proportion to the
number of shares owned by the holders or in such other
proportion as mutually agreed upon by such holders.
Piggyback
Registration Rights
If we register any of our securities for public sale, the
stockholders with registration rights will have the right to
include their shares in the registration statement. However,
this right does not apply to a registration relating to any of
our employee benefit plans, a registration relating to
transaction subject to Rule 145 under the Securities Act, the
offer and sale of debt securities, or a registration on any
registration form that does not include the information required
for registration of the shares having piggyback registration
rights. The managing underwriter of any underwritten offering
will have the right to limit, due to marketing reasons, the
number of shares registered by these holders to 25% of the total
shares covered by the registration statement. Additionally, the
holders of registration rights have waived their rights to
include any of their shares in this offering prior to the
completion of this offering.
Form S-3
Registration Rights
The holders of shares having registration rights can request
that we register all or a portion of their shares on
Form S-3
if we are eligible to file a registration statement on
Form S-3
and the aggregate offering price to the public of such shares is
at least $10.0 million. We are required to file no more
than two registration statements on
Form S-3
upon exercise of these rights in any
12-month
period. We may postpone the filing of a registration statement
on
Form S-3
for up to 60 days once in a
12-month
period if we determine that the filing would be seriously
detrimental to us and our stockholders. The managing underwriter
of any underwritten offering will have the right to limit, due
to marketing reasons, the number of shares registered by these
holders covered by the registration statement, with such
reduction to be allocated among the holders in proportion to the
number of shares owned by the holders or in such other
proportion as mutually agreed upon by such holders.
Registration
Expenses
We will pay all expenses incurred in connection with the
exercise of demand and piggyback registration rights, except for
underwriting discounts and commissions. However, we will not pay
for any expenses of any demand registration if the request is
subsequently withdrawn by the holders of a majority of the
shares requested to be included in such a registration
statement, subject to limited exceptions.
Expiration
of Registration Rights
The registration rights described above will expire five years
after this offering is completed.
Holders of all of our shares with these registration rights have
signed agreements with the underwriters prohibiting the exercise
of their registration rights for 180 days or 360 days, as
applicable, subject to a possible extension of up to 34
additional days beyond the end of such
180-day or
360-day period, as applicable, following the date of this
prospectus. These agreements are described below under
Underwriting.
Anti-Takeover
Provisions
The provisions of Delaware law, our amended and restated
certificate of incorporation and our amended and restated bylaws
may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.
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Delaware
Law
Section 203 of the Delaware General Corporation Law
prevents some Delaware corporations from engaging, under some
circumstances, in a business combination, which includes a
merger or sale of at least 10% of the corporations assets
with any interested stockholder, meaning a stockholder who,
together with affiliates and associates, owns or, within three
years prior to the determination of interested stockholder
status, did own 15% or more of the corporations
outstanding voting stock, unless:
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the transaction is approved by the Board of Directors prior to
the time that the interested stockholder became an interested
stockholder;
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upon consummation of the transaction which resulted in the
stockholders becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction
commenced; or
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at or subsequent to such time that the stockholder became an
interested stockholder the business combination is approved by
the Board of Directors and authorized at an annual or special
meeting of stockholders by at least two-thirds of the
outstanding voting stock which is not owned by the interested
stockholder.
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Amended
and Restated Certificate of Incorporation and Amended and
Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our
amended and restated bylaws will include a number of provisions
that may have the effect of deterring hostile takeovers or
delaying or preventing changes in control of our management
team, including the following:
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Dual Class Capital Structure. We have two
classes of common stock, Class A common stock and
Class B common stock. Each share of our Class A common
stock is entitled to one vote per share and is not convertible
into any other shares of our capital stock. Each share of our
Class B common stock is entitled to 10 votes per share. Our
initial investors and their affiliates, who will hold the
majority of Class B common stock following the completion
of this offering, will, for the foreseeable future, be able to
control the outcome of the voting on virtually all matters
requiring stockholder approval, including the election of
directors and significant corporate transactions such as an
acquisition of our company.
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Board of Directors Vacancies. Our amended and
restated certificate of incorporation and amended and restated
bylaws will authorize only our Board of Directors to fill vacant
directorships. In addition, the number of directors constituting
our Board of Directors will be set only by resolution adopted by
a majority vote of our entire Board of Directors. These
provisions prevent a stockholder from increasing the size of our
Board of Directors and gaining control of our Board of Directors
by filling the resulting vacancies with its own nominees.
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Stockholder Action; Special Meeting of
Stockholders. Our amended and restated
certificate of incorporation will provide that our stockholders
may not take action by written consent, but may only take action
at annual or special meetings of our stockholders. Our amended
and restated bylaws will further provide that special meetings
of our stockholders may be called only by a majority of our
Board of Directors, the chairman of our Board of Directors, our
lead director, our chief executive officer or our president.
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Advance Notice Requirements for Stockholder Proposals and
Director Nominations. Our amended and restated
bylaws will provide advance notice procedures for stockholders
seeking to bring business before our annual meeting of
stockholders, or to nominate candidates for election as
directors at our annual meeting of stockholders. Our amended and
restated bylaws also will specify certain requirements regarding
the form and content of a stockholders notice. These
provisions may preclude our stockholders from bringing matters
before our annual meeting of stockholders or from making
nominations for directors at our annual meeting of stockholders.
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Issuance of Blank Check Preferred
Stock. After the filing of our amended and
restated certificate of incorporation, our Board of Directors
will have the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of
undesignated blank check preferred stock with rights
and preferences, including voting rights, designated from time
to time by the Board of Directors. The existence of authorized
but unissued shares of preferred stock enables our Board of
Directors to render more difficult or to discourage an attempt
to obtain control of us by means of a merger, tender offer,
proxy contest or otherwise.
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Supermajority Voting Requirement to Amend Certain Provisions
of Our Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws. Our amended and
restated certificate of incorporation will require a
662/3%
stockholder vote for the adoption, amendment or repeal of any
provision of our amended and restated bylaws and for the
amendment or repeal of certain provisions of our amended and
restated certificate of incorporation relating to the
requirement that stockholder actions be effected at a duly
called meeting, and the designated parties entitled to call a
special meeting of the stockholders.
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Transfer
Agent and Registrar
The transfer agent and registrar for our common stock will be
Computershare Trust Company, N.A.
Stock
Exchange Listing
We have applied to have our Class A common stock listed on
The Nasdaq Global Market under the symbol KIOR.
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SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
Class A common stock. Future sales of our Class A
common stock in the public market, or the availability of such
shares for sale in the public market, could adversely affect
market prices prevailing from time to time. As described below,
only a limited number of shares will be available for sale
shortly after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of a substantial
number of shares of our Class A common stock in the public
market after such restrictions lapse, or the perception that
those sales may occur, could adversely affect the prevailing
market price at such time and our ability to raise
equity-related capital at a time and price we deem appropriate.
Sales of
Restricted Shares
Upon the completion of this offering, we will have outstanding
an aggregate of 37,987,302 shares of Class A common
stock. Assuming the purchase of 3,500,000 shares of our
Class A common stock in this offering by entities
affiliated with Khosla Ventures, 6,500,000 shares of
Class A common stock to be sold in this offering, plus any
shares sold upon exercise of the underwriters option to
purchase additional shares, will be freely tradable without
restriction or further registration under the Securities Act,
unless the shares are held by any of our affiliates
as such term is defined in Rule 144 of the Securities Act.
Any shares purchased in this offering by entities affiliated
with Khosla Ventures will be subject to the
lock-up
agreements described below and restrictions under applicable
securities laws. All remaining shares of Class A common
stock held by existing stockholders will be deemed
restricted securities as such term is defined under
Rule 144. The restricted securities were issued and sold by
us in private transactions and are eligible for public sale only
if registered under the Securities Act or if they qualify for an
exemption from registration under Rule 144 or Rule 701
under the Securities Act, which rules are summarized below.
As a result of the
lock-up
agreements described below and the provisions of Rule 144
and Rule 701 under the Securities Act, all of the shares of
our Class A common stock (excluding 6,500,000 shares to be
sold in this offering, assuming the purchase of
3,500,000 shares in this offering by entities affiliated
with Khosla Ventures) will be available for sale in the public
market upon the expiration of the
lock-up
agreements, beginning 180 days (or 360 days, as
applicable) after the date of this prospectus (subject to
extension) and when permitted under Rule 144 or
Rule 701.
Lock-Up
Agreements
We, all of our directors and officers and all of our principal
stockholders have agreed not to sell or otherwise transfer or
dispose of any our securities for a period of 180 days from
the date of this prospectus, subject to certain exceptions and
extensions. Khosla Ventures II, L.P. has agreed not to sell
any of the 46,259,738 shares of our common stock that it
beneficially owns, representing approximately 47% of our
outstanding common stock immediately prior to this offering, for
a period of 360 days after the date of this prospectus.
Please read Underwriting for a description of these
lock-up
provisions.
Rule 144
In general, under Rule 144 as currently in effect, once we
have been a reporting company subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act for
90 days, a person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of ours at any time
during the three months preceding a sale, and who has
beneficially owned restricted securities within the meaning of
Rule 144 for at least six months (including any period of
consecutive ownership of preceding non-affiliated holders) would
be entitled to sell those shares, subject only to the
availability of current public information about us. A
non-affiliated person who has beneficially owned restricted
securities within the meaning of Rule 144 for at least one
year would be entitled to sell those shares without regard to
the provisions of Rule 144.
Once we have been a reporting company subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act for
90 days, a person (or persons whose shares are aggregated)
who is deemed to be an affiliate of ours and who has
beneficially owned restricted securities within the meaning of
Rule 144 for at
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least six months would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of our Class A
common stock or the average weekly trading volume of our
Class A common stock reported through The Nasdaq Global
Market during the four calendar weeks preceding the filing of
notice of the sale. Such sales are also subject to certain
manner of sale provisions, notice requirements and the
availability of current public information about us.
Rule 701
Employees, directors, officers, consultants or advisors who
purchase shares from us in connection with a compensatory stock
or option plan or other written compensatory agreement in
accordance with Rule 701 before the effective date of the
registration statement are entitled to sell such shares
90 days after the effective date of the registration
statement in reliance on Rule 144 without having to comply
with the holding period requirement of Rule 144 and, in the
case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of
Rule 144. The SEC has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such
options, including exercises after the date of this prospectus.
Stock
Issue Under Employee Plans
We intend to file a registration statement on
Form S-8
under the Securities Act to register stock issuable under our
amended and restated 2007 Stock Option/Stock Issuance Plan and
our 2011 Long-Term Incentive Plan. This registration statement
is expected to be filed following the effective date of the
registration statement of which this prospectus is a part and
will be effective upon filing. Accordingly, shares registered
under such registration statement will be available for sale in
the open market following the effective date, unless such shares
are subject to vesting restrictions with us, Rule 144
restrictions applicable to our affiliates or the
lock-up
restrictions described above.
Investors
Rights Agreement
Under our amended and restated Investors Rights Agreement
and our amended and restated Right of First Refusal and Co-Sale
Agreement, certain holders of our capital stock that are party
to such agreements have agreed to not sell any of our securities
owned by them for a period specified by us and by the managing
underwriters, not to exceed 180 days after the date of
effectiveness of the registration statement of which this
prospectus is a part, and in specific circumstances, up to an
additional 15 days. Such market stand-off
rights are contingent upon all directors, officers and holders
of at least 1% of our voting capital stock entering into a
similar agreement.
Other
Market Stand-Off Provisions
In addition to the market stand-off restrictions described
above, the stock purchase agreements entered into by all
optionees who have exercised options under our amended and
restated 2007 Stock Option/Stock Issuance Plan contain a market
stand-off restriction of a number of days requested by the
underwriters and us, up to a maximum of (a) 180 days
following the completion of this offering and
(b) 180 days following the completion of any
subsequent public offering within two years of the completion of
this offering. The applicability of this market stand-off
restriction is contingent upon all of our directors and officers
being subject to a similar restriction.
Registration
Rights
Upon the completion of this offering, certain of our investors
or their permitted transferees will be entitled to rights with
respect to the registration of their shares under the Securities
Act. Except for shares purchased by affiliates, registration of
these shares under the Securities Act would result in these
shares becoming fully tradable without restriction under the
Securities Act immediately upon the effectiveness of the
registration. Please read Description of Capital
Stock Registration Rights for more information.
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MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal
income tax consequences relating to the purchase, ownership, and
disposition of our Class A common stock that are generally
applicable to beneficial owners of our Class A common stock
that purchase shares of our Class A common stock in this
offering and hold such shares as capital assets for
U.S. federal income tax purposes (generally, property held
for investment) (collectively Holders and each
individually a Holder).
This summary does not address the U.S. federal estate,
gift, or alternative minimum tax consequences, any
U.S. state or local tax consequences, any foreign tax
consequences or any consequences under any tax treaty of the
purchase, ownership and disposition of our Class A common
stock. Moreover, this summary does not address all aspects of
U.S. federal income taxation that may be applicable to
Holders in light of their particular circumstances, or to
Holders subject to special treatment under U.S. federal
income tax law, such as:
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financial institutions, banks and thrifts,
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insurance companies,
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real estate investment trusts,
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regulated investment companies,
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retirement plans,
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grantor trusts,
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common trust funds,
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partnerships or other pass-through entities and investors who
hold our Class A common stock through such entities,
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dealers or traders in securities or currencies or notional
principal contracts,
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tax-exempt entities,
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certain former citizens or long-term residents of the United
States,
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controlled foreign corporations, passive
foreign investment companies or corporations that
accumulate earnings to avoid United States federal income tax,
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persons that own, or are deemed to own, more than 5% of our
outstanding common stock (except to the extent specifically set
forth below),
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persons deemed to sell our Class A common stock under the
constructive sale provisions of the Internal Revenue Code of
1986, as amended, or the Internal Revenue Code,
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persons that received shares as compensation for the performance
of services or pursuant to the exercise of options or warrants,
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persons that will hold shares as part of a hedging
or conversion transaction or as a position in a
straddle or as part of synthetic
security or other integrated transaction for
U.S. federal income tax purposes, or
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U.S. Holders (as defined below) that have a
functional currency other than the U.S. dollar.
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This summary is based upon the Internal Revenue Code, proposed,
temporary, and final U.S. Treasury regulations promulgated
under the Internal Revenue Code, or Treasury Regulations, and
judicial and administrative interpretations of the Internal
Revenue Code and Treasury Regulations, in each case as in effect
and available as of the date of this prospectus. The Internal
Revenue Code, Treasury Regulations, and judicial and
administrative interpretations thereof are subject to differing
interpretations and may be changed at any time, possibly with
retroactive effect. Thus, there can be no guarantee that the
Internal Revenue Service, or the IRS, or a U.S. court will
agree with the U.S. federal income tax consequences
described in this summary. Prospective purchasers of our
Class A common stock should consult their own tax advisors
with respect to the
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U.S. federal, state, local, and foreign tax consequences,
or any consequences under any tax treaty, of purchasing, owning,
and disposing of our Class A common stock.
For purposes of this summary, a U.S. Holder
means a Holder that, for U.S. federal income tax purposes,
is:
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an individual who is a citizen or resident of the United States,
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a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof, or
the District of Columbia,
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or
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a trust if either (i) such trust was in existence on
August 20, 1996 and validly elected to be treated as a
United States person for U.S. federal income tax purposes
or (ii) a court within the United States is able to
exercise primary supervision over the administration of such
trust and one or more United States persons have the authority
to control all of the substantial decisions of such trust.
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For purposes of this summary, a
Non-U.S. Holder
means a Holder (other than a partnership or any other entity or
arrangement treated as a partnership for U.S. federal
income tax purposes) that is not a U.S. Holder.
If a partnership (or any other entity or arrangement treated as
a partnership for U.S. federal income tax purposes) holds
our Class A common stock, the tax treatment of a partner in
such partnership generally will depend on the status of the
partner and the activities of the partnership. Such a partner
should consult its own tax advisor with respect to the tax
consequences of being a partner in a partnership that purchases,
owns, or disposes of our Class A common stock.
U.S.
Holders
Distributions
on Our Class A Common Stock
Distributions in respect of our Class A common stock will
constitute dividends for U.S. federal income tax purposes
to the extent such distributions are paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. If the distribution
exceeds current and accumulated earnings and profits, the excess
will be treated as a nontaxable return of capital, reducing the
U.S. Holders tax basis in the U.S. Holders
Class A common stock to the extent of the
U.S. Holders tax basis in that stock. Any remaining
excess will be treated as capital gain. Dividends received by
certain non-corporate U.S. Holders (including individuals)
generally will be subject to a reduced maximum tax rate of 15%
with respect to taxable years beginning on or before
December 31, 2012, after which the maximum rate applicable
to dividends is scheduled to return to the tax rate generally
applicable to ordinary income. The rate reduction will not apply
to dividends received to the extent that the U.S. Holder
elects to treat such dividends as investment income,
which may be offset by investment expense. Furthermore, the rate
reduction also will not apply to dividends that are paid to a
U.S. Holder with respect to shares of our Class A
common stock unless certain holding period and other
requirements are satisfied. Dividends paid to a U.S. Holder
that is a U.S. corporation may be eligible for the
dividends-received deduction allowed to U.S. corporations
in respect of dividends received from other
U.S. corporations equal to a portion of the dividends
received, subject to certain requirements and limitations.
U.S. Holders should consult their own tax advisors
regarding the holding period and other requirements that must be
satisfied in order to qualify for the reduced maximum tax rate
on dividends and the dividends-received deduction.
In addition, a 3.8% tax may be imposed on the net
investment income of certain U.S. individuals, and
the undistributed net investment income of certain
estates and trusts, for taxable years beginning after
December 31, 2012. Among other items, net investment
income would generally include gross income from dividends
paid on our Class A common stock and net gain attributable
to our Class A common stock, less certain deductions. Such
legislation is the subject of a number of constitutional
challenges, and at least one court has held that the law is void.
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U.S. Holders should consult their own tax advisors
regarding the holding period and other requirements that must be
satisfied in order to qualify for the reduced maximum tax rate
on dividends and the dividends-received deduction.
Dispositions
of Our Class A Common Stock
A U.S. Holder will recognize gain or loss on the sale or
other taxable disposition of our Class A common stock in an
amount equal to the difference, if any, between the amount
realized on such sale or disposition and the
U.S. Holders adjusted tax basis in such stock. Any
such gain or loss generally will be capital gain or loss, which
will be long-term capital gain or loss if the U.S. Holder
has held such stock for more than one year. Preferential tax
rates apply to long-term capital gains of a U.S. Holder
that is an individual, estate, or trust. There are currently no
preferential tax rates for long-term capital gains of a
U.S. Holder that is a corporation. Deductions for capital
losses are subject to significant limitations under the Internal
Revenue Code.
Backup
Withholding and Information Reporting Requirements
In general, dividends in respect of our Class A common
stock, and the proceeds of a sale or other taxable disposition
of our Class A common stock, paid to a U.S. Holder are
subject to information reporting and may be subject to
U.S. federal backup withholding unless the U.S. Holder
(i) is an exempt recipient or (ii) provides us with a
correct taxpayer identification number and certifies that it is
not subject to backup withholding. Backup withholding is not an
additional tax. Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is allowable
as a credit against such Holders U.S. federal income
tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the IRS in a
timely manner.
Non-U.S.
Holders
Distributions
on Our Class A Common Stock
Dividends paid to a
Non-U.S. Holder
generally will be subject to withholding of U.S. federal
income tax at a 30% rate (or such lower rate as may be specified
by an applicable income tax treaty) unless the dividends are
effectively connected with a trade or business carried on by the
Non-U.S. Holder
within the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment
of the
Non-U.S. Holder
within the United States). A
Non-U.S. Holder
that is eligible for a reduced rate of withholding tax under an
income tax treaty may obtain a refund or credit of any excess
amounts withheld by filing an appropriate claim for refund with
the IRS. Under applicable Treasury Regulations, a
Non-U.S. Holder
(including, in the case of certain
Non-U.S. Holders
that are entities, the owner or owners of these entities) will
be required to satisfy certain certification requirements as set
forth on IRS
Form W-8BEN
(or other applicable form) in order to claim a reduced rate of
withholding pursuant to an applicable income tax treaty.
Non-U.S. Holders
should consult their own tax advisors regarding their
entitlement to benefits under an applicable income tax treaty
and the manner of claiming the benefits of such treaty.
Dividends that are effectively connected with a
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, are attributable to
a permanent establishment of the
Non-U.S. Holder
in the United States) generally are not subject to the
withholding tax described above but instead are subject to
U.S. federal income tax on a net income basis at applicable
graduated U.S. federal income tax rates. A
Non-U.S. Holder
must satisfy certain certification requirements, including, if
applicable, the furnishing of an IRS
Form W-8ECI
(or other applicable form), for its effectively connected
dividends to be exempt from the withholding tax described above.
Dividends that are effectively connected with a corporate
Non-U.S. Holders
conduct of a trade or business in the United States may be
subject to an additional branch profits tax at a 30% rate (or
such lower rate as may be specified by an applicable income tax
treaty).
To the extent distributions paid on our Class A common
stock exceed our current and accumulated earnings and profits,
such distributions will constitute a return of capital, and will
reduce the adjusted tax basis in such stock, but not below zero.
The amounts of any such distribution in excess of such adjusted
tax basis
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will be treated as gain from the sale of stock and will have the
tax consequences described under Dispositions
of Our Class A Common Stock below.
Dispositions
of Our Class A Common Stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income tax on
gain recognized on a disposition of our Class A common
stock unless:
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the
Non-U.S. Holder
is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year of the
disposition and certain other conditions are met;
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the gain is effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, the gain is
attributable to a permanent establishment of the
Non-U.S. Holder
in the United States); or
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our Class A common stock constitutes a United States
real property interest by reason of our being or having
been a United States real property holding
corporation (USRPHC) for U.S. federal
income tax purposes at any time within the shorter of the
five-year period ending on the date of disposition or the period
during which the
Non-U.S. Holder
held our Class A common stock.
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An individual
Non-U.S. Holder
described in the first bullet point above will be taxed on his
or her gains from the sale, exchange, or other taxable
disposition of our Class A common stock at a flat rate of
30% (or such lower rate as may be specified by an applicable
income tax treaty), which may be offset by U.S. source
capital losses of such
Non-U.S. Holder
provided that such
Non-U.S. Holder
has timely filed U.S. federal income tax returns with
respect to such losses.
Non-U.S. Holders
that recognize gain from the sale, exchange, or other taxable
disposition of our Class A common stock described in the
second bullet point above will be subject to U.S. federal
income tax on a net income basis at applicable graduated
U.S. federal income tax rates in much the same manner as if
such Holder were a resident of the U.S. and, in the case of
corporate
Non-U.S. Holders,
the branch profits tax discussed above also may apply. If a
Non-U.S. Holder
is subject to U.S. federal income tax because of our status
as a USRPHC and the exception for certain interests in publicly
traded corporations described below is not satisfied, then, in
the case of any disposition of our Class A common stock by
the
Non-U.S. Holder,
the purchaser will generally be required to deduct and withhold
a tax equal to 10% of the amount realized on the disposition.
Non-U.S. Holders
may also be subject to certain U.S. filing and reporting
requirements.
We believe that we have not been, and currently are not, a
USRPHC. Even if we are a USRPHC, a
Non-U.S. Holder
generally will not be subject to U.S. federal income tax on
gain recognized on a disposition of our Class A common
stock if such stock is regularly traded on an
established securities market within the meaning of applicable
Treasury Regulations, unless such
Non-U.S. Holders
shares of our Class A common stock (including shares of our
Class A common stock that are attributed to such Holder
under applicable attribution rules) represent more than 5% of
the total fair market value of all of the shares of our
Class A common stock at any time during the shorter of the
five-year period ending on the date of disposition of such
shares by the
Non-U.S. Holder
or the
Non-U.S. Holders
holding period for such stock. We expect we would be able to
satisfy the applicable public trading requirements even if we
are a USRPHC, but this cannot be assured. Prospective investors
should consult their own tax advisors regarding the application
of the exception for certain interests in publicly traded
corporations.
Information
Reporting and Backup Withholding
In general, backup withholding will apply to dividends on our
Class A common stock paid to a
Non-U.S. Holder,
unless such
Non-U.S. Holder
has provided the required certification that it is not a
United States person and the payor does not have actual
knowledge (or reason to know) that the
Non-U.S. Holder
is a United States person or such
Non-U.S. Holder
otherwise establishes an exemption. Dividends paid to a
Non-U.S. Holder
of our Class A common stock generally will be exempt from
backup withholding if the
Non-U.S. Holder
provides a properly executed IRS
Form W-8BEN
or otherwise establishes an exemption from backup withholding.
Generally, information regarding the amount of dividends paid,
the
136
name and address of the recipient and the amount, if any, of tax
withheld will be reported to the IRS and to the recipient even
if no tax was required to be withheld. Copies of these
information reports may also be made available under the
provisions of an applicable treaty or other agreement to the tax
authorities of the country in which the
Non-U.S. Holder
is a resident for purposes of such treaty or agreement.
In general, backup withholding and information reporting will
apply to the payment of proceeds from the disposition of our
Class A common stock by a
Non-U.S. Holder
through a U.S. office of a broker unless such
Non-U.S. Holder
has provided the required certification that it is not a United
States person and the payor does not have actual knowledge (or
reason to know) that the Holder is a United States person, or
such
Non-U.S. Holder
otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to the
payment of proceeds from the disposition of our Class A
common stock by a
Non-U.S. Holder
through the
non-U.S. office
of a broker, except that in the case of a broker that is a
United States person or has certain specified relationships or
connections with the United States information reporting will
apply unless the broker has documentary evidence in its files
that the Holder is not a United States person and the broker
does not have actual knowledge (or reason to know) that the
Holder is a United States person and certain other conditions
are satisfied, or the Holder otherwise establishes an exemption.
Backup withholding will apply if the sale is subject to
information reporting and the broker has actual knowledge that
the
Non-U.S. Holder
is a United States person.
Backup withholding is not an additional tax. Any amounts that
are withheld under the backup withholding rules from a payment
to a
Non-U.S. Holder
will be credited or refunded against the
Non-U.S. Holders
U.S. federal income tax liability, if any, provided that
certain required information is timely furnished to the IRS.
Non-U.S. Holders
should consult their own tax advisors regarding the application
of the information reporting and backup withholding rules to
them.
Additional
Withholding Tax Relating to Foreign Accounts
An additional withholding tax will apply to certain types of
payments made after December 31, 2012 to foreign
financial institutions (as specifically defined under
these rules) and certain other
non-U.S. entities.
Specifically, a 30% withholding tax will be imposed on dividends
on, or gross proceeds from the sale or other disposition of, our
Class A common stock paid to a foreign financial
institution or to a foreign non-financial entity, unless
(i) the foreign financial institution undertakes certain
diligence and reporting obligations or (ii) the foreign
non-financial entity either certifies it does not have any
substantial U.S. owners or furnishes identifying
information regarding each substantial U.S. owner. If the
payee is a foreign financial institution, it must enter into an
agreement with the U.S. Treasury requiring, among other
things, that it undertake to identify accounts held by certain
U.S. persons or
U.S.-owned
foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. Under certain circumstances, a Holder may be
eligible for refunds or credits of such taxes. In addition, any
individual required to file a U.S. income tax return who,
during the taxable year, holds any interest in a specified
foreign financial asset (including any financial account
maintained by a foreign financial institution) will be required
to disclose certain information with respect to each such asset,
and a penalty will be imposed for failing to disclose such
information.
Prospective purchasers of our Class A common stock should
consult their own tax advisors with respect to the tax
consequences of these rules.
137
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2011, we have agreed to sell to the underwriters named below,
for whom Credit Suisse Securities (USA) LLC, UBS Securities LLC
and Goldman, Sachs & Co. are acting as
representatives, the following respective numbers of shares of
Class A common stock:
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Number of
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Underwriter
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Shares
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Credit Suisse Securities (USA) LLC
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UBS Securities LLC
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Goldman, Sachs & Co.
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Piper Jaffray & Co.
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Citigroup Global Markets Inc.
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Deutsche Bank Securities Inc.
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Total
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10,000,000
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The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of Class A common
stock in the offering if any are purchased, other than those
shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting
underwriters may be increased or the offering may be terminated.
We have granted to the underwriters a
30-day
option to purchase on a pro rata basis up to 1,500,000
additional shares at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of Class A
common stock.
The underwriters propose to offer the shares of Class A
common stock initially at the public offering price on the cover
page of this prospectus, including any shares sold to entities
affiliated with Khosla Ventures and Artis Capital Management,
L.P., and to selling group members at that price less a selling
concession of $ per share. After
the initial public offering, the representatives may change the
public offering price and concession. The offering of the shares
by the underwriters is subject to receipt and acceptance and
subject to the underwriters right to reject any order in
whole or in part.
The following table summarizes the compensation and estimated
expenses we will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-allotment
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Over-allotment
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Over-allotment
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Over-allotment
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Underwriting discounts and commissions paid by us
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$
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$
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$
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$
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Expenses payable by us
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$
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$
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$
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$
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The representatives have informed us that they do not expect
sales to accounts over which the underwriters have discretionary
authority to exceed 5% of the shares of Class A common
stock being offered.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of the
representatives for a period of 180 days after the date of
this prospectus, except issuances pursuant to the exercise of
employee stock options outstanding on the date hereof. However,
in the event that either (1) during the last 17 days
of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the lock-up period, we announce that we will
release earnings results during the
16-day
period beginning on the last day of the lock-up period, then in
either case the expiration of the lock-up will be extended until
the
138
expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless the representatives waive, in writing, such
an extension.
Our officers and directors and holders of substantially all of
our outstanding securities have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement, without, in each case, the prior written
consent of the representatives for a period of 180 days
after the date of this prospectus, except for transfers of
shares of our common stock or securities convertible into or
exchangeable or exercisable for shares of our common stock to a
family member or trust, provided the transferee agrees to be
bound in writing by the terms of the
lock-up
prior to such transfer, such transfer does not involve a
disposition for value and no filing by any party (donor, donee,
transferor or transferee) under the Exchange Act be required or
be voluntarily made in connection with such transfer (other than
a filing on a Form 5 made after the expiration of the
lock-up
period). However, in the event that either (1) during the
last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up will
be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless the representatives waive, in writing, such
an extension.
Khosla Ventures II, L.P. has agreed not to sell any of the
46,259,738 shares of our common stock that it beneficially
owns, representing approximately 47% of our outstanding common
stock immediately prior to this offering, for a period of
360 days after the date of this prospectus.
We have agreed to indemnify the several underwriters against
liabilities under the Securities Act, or contribute to payments
that the underwriters may be required to make in that respect.
Prior to this offering, there has been no public market for our
Class A common stock. The initial public offering price has
been negotiated among us and the representatives. The factors to
be considered in determining the initial public offering price
of the shares of our Class A common stock, in addition to
prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses. We have applied to list the
shares of Class A common stock on The Nasdaq Global Market,
under the symbol KIOR.
In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
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Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of
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139
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shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than
could be covered by the over-allotment option, a naked short
position, the position can only be closed out by buying shares
in the open market. A naked short position is more likely to be
created if the underwriters are concerned that there could be
downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase
in the offering.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The Nasdaq Global Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter represents and agrees that with
effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of securities to the public in that Relevant Member
State prior to the publication of a prospectus in relation to
the securities which has been approved by the competent
authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of securities to the public in that Relevant
Member State at any time,
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100, or, if the Relevant Member State has
implemented the relevant provisions of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined in the Prospectus Directive), subject to
obtaining the prior consent of the manager for any such
offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the Shares, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State, the
expression Prospectus Directive means Directive 2003/71/EC (and
amendments thereto, including the 2010 PD Amending Directive, to
the extent implemented in the Relevant Member State), and
includes any relevant implementing measure in each Relevant
Member State and the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
140
Each of the underwriters severally represents, warrants and
agrees as follows:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) to persons who
have professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of FSMA does not apply to
the company; and
(b) it has complied with, and will comply with all
applicable provisions of FSMA with respect to anything done by
it in relation to the shares in, from or otherwise involving the
United Kingdom.
The prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (CO) and the shares will not be listed on the SIX
Swiss Exchange. Therefore, the prospectus may not comply with
the disclosure standards of the CO
and/or the
listing rules (including any prospectus schemes) of the SIX
Swiss Exchange. Accordingly, the shares may not be offered to
the public in or from Switzerland, but only to a selected and
limited circle of investors, which do not subscribe to the
shares with a view to distribution.
The underwriters and their respective affiliates are
full-service institutions engaged in various activities, which
may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates may in the future perform various financial advisory
and investment banking services for the company for which they
will receive customary fees and expenses.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers and such investment and
securities activities may involve securities and instruments of
the company. The underwriters and their respective affiliates
may also make investment recommendations and/or publish or
express independent research views in respect of such securities
or instruments and may at any time hold, or recommend to clients
that they acquire, long and/or short positions in such
securities and instruments.
141
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of our Class A common stock in Canada is
being made only on a private placement basis exempt from the
requirement that we prepare and file a prospectus with the
securities regulatory authorities in each province where trades
of Class A common stock are made. Any resale of our
Class A common stock in Canada must be made under
applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made
under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of our Class A common stock.
Representations
of Purchasers
By purchasing our Class A common stock in Canada and
accepting delivery of a purchase confirmation, a purchaser is
representing to us and the dealer from whom the purchase
confirmation is received that:
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the purchaser is entitled under applicable provincial securities
laws to purchase the notes without the benefit of a prospectus
qualified under those securities laws as it is an
accredited investor as defined under National
Instrument
45-106
Prospectus and Registration Exemptions;
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the purchaser is a permitted client as defined in
National Instrument
31-103
Registration Requirements and Exemptions;
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where required by law, that the purchaser is purchasing as
principal and not as agent;
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the purchaser has reviewed the text above under the heading
Resale Restrictions; and
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the purchaser acknowledges and consents to the provision of
specified information concerning the purchase of the notes to
the regulatory authority that by law is entitled to collect the
information, including certain personal information. For
purchasers in Ontario, questions about such indirect collection
of personal information should be directed to Administrative
Support Clerk, Suite 1903, Box 55, 20 Queen Street West,
Toronto, Ontario M5H 3S8 or to
(416) 593-3684.
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Further details concerning the legal authority for this
information is available on request.
Rights of
Action Ontario Purchasers
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the Class A common
stock, for rescission against us in the event that this
prospectus contains a misrepresentation without regard to
whether the purchaser relied on the misrepresentation. The right
of action for damages is exercisable not later than the earlier
of 180 days from the date the purchaser first had knowledge
of the facts giving rise to the cause of action and three years
from the date on which payment is made for the Class A
common stock. The right of action for rescission is exercisable
not later than 180 days from the date on which payment is
made for the Class A common stock. If a purchaser elects to
exercise the right of action for rescission, the purchaser will
have no right of action for damages against us. In no case will
the amount recoverable in any action exceed the price at which
the Class A common stock was offered to the purchaser and
if the purchaser is shown to have purchased the securities with
knowledge of the misrepresentation, we will have no liability.
In the case of an action for damages, we will not be liable for
all or any portion of the damages that are proven to not
represent the depreciation in value of the Class A common
stock as a result of the misrepresentation relied upon. These
rights are in addition to, and without derogation from, any
other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to
an Ontario purchaser. Ontario purchasers should refer to the
complete text of the relevant statutory provisions.
142
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of
process within Canada upon us or those persons. All or a
substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against us or those
persons in Canada or to enforce a judgment obtained in Canadian
courts against us or those persons outside of Canada.
Taxation
and Eligibility for Investment
Canadian purchasers of our Class A common stock should
consult their own legal and tax advisors with respect to the tax
consequences of an investment in our Class A common stock
in their particular circumstances and about the eligibility of
our Class A common stock for investment by the purchaser
under relevant Canadian legislation.
143
LEGAL
MATTERS
The validity of the shares of Class A common stock offered
by this prospectus will be passed upon for us by Baker Botts
L.L.P., Houston, Texas, and certain legal matters in connection
with this offering will be passed upon for the underwriters by
Latham & Watkins LLP, Menlo Park, California.
EXPERTS
The consolidated financial statements as of December 31,
2010 and 2009 and for each of the three years in the period
ended December 31, 2010 and cumulatively, for the period
from July 23, 2007 (date of inception) to December 31,
2010 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The information contained in this prospectus relating to the
projected reductions in greenhouse gas emissions of our gasoline
and diesel blendstocks was derived from the analysis of TIAX LLC
and has been included herein upon the authority of TIAX LLC as
an expert.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
regarding the Class A common stock offered by this
prospectus. This prospectus does not contain all of the
information found in the registration statement. For further
information regarding us and the Class A common stock
offered in this prospectus, you may desire to review the full
registration statement, including its exhibits. The registration
statement, including the exhibits, may be inspected and copied
at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington D.C. 20549. Copies of
this material can also be obtained upon written request from the
Public Reference Section of the SEC at prescribed rates, or
accessed at the SECs website on the Internet at
http://www.sec.gov. Please call the SEC at
1-800-SEC-0330
for further information on its public reference room.
We are not, and the underwriters are not, making an offer to
sell these securities in any jurisdiction where an offer or sale
is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed
since that date.
Following the completion of this offering, we will file with or
furnish to the SEC periodic reports and other information. These
reports and other information may be inspected and copied at the
public reference facilities maintained by the SEC or obtained
from the SECs website as provided above. Our website on
the Internet is located at http://www.kior.com, and we
expect to make our periodic reports and other information filed
with or furnished to the SEC available, free of charge, through
our website, as soon as reasonably practicable after those
reports and other information are electronically filed with or
furnished to the SEC. Information on our website or any other
website is not incorporated by reference into this prospectus
and does not constitute a part of this prospectus. You may also
request a copy of these filings at no cost, by writing or
telephoning us at the following address:
KiOR,
Inc.
13001 Bay Park Road
Pasadena, Texas 77507
Attention: Chief Financial Officer
(281) 694-8700
We intend to furnish or make available to our stockholders
annual reports containing our audited financial statements
prepared in accordance with GAAP. We also intend to furnish or
make available to our stockholders quarterly reports containing
our unaudited interim financial information, including the
information required on a Quarterly Report on
Form 10-Q,
for the first three fiscal quarters of each fiscal year.
144
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of KiOR, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
convertible preferred stock, stockholders deficit and
comprehensive loss, and of cash flows, present fairly, in all
material respects, the financial position of KiOR, Inc. and its
subsidiaries (a development stage enterprise) at
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 and, cumulatively, for
the period from July 23, 2007 (the date of inception) to
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 21, 2011, except for the stock split described in
Note 15 to the consolidated financial statements, as to
which the date is June 9, 2011.
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands, except share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,176
|
|
|
$
|
51,350
|
|
Restricted cash
|
|
|
100
|
|
|
|
100
|
|
Prepaid expenses and other current assets
|
|
|
74
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,350
|
|
|
|
51,535
|
|
Property, plant and equipment, net
|
|
|
10,526
|
|
|
|
34,880
|
|
Intangible assets, net
|
|
|
2,646
|
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,522
|
|
|
$
|
88,841
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Convertible Preferred Stock and
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt, net of discount
|
|
$
|
1,667
|
|
|
$
|
4,480
|
|
Accounts payable
|
|
|
1,802
|
|
|
|
3,207
|
|
Accrued liabilities
|
|
|
384
|
|
|
|
671
|
|
Convertible preferred stock warrants liability
|
|
|
155
|
|
|
|
3,185
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,008
|
|
|
|
11,543
|
|
Long-term convertible promissory note to stockholder
|
|
|
15,000
|
|
|
|
|
|
Long-term debt, less current portion, net of discount
|
|
|
2,382
|
|
|
|
5,037
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
21,390
|
|
|
|
16,580
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.0001 par value,
24,000,000 shares authorized, 24,000,000 shares issued
and outstanding at December 31, 2009 and 2010, respectively
|
|
|
4,360
|
|
|
|
4,360
|
|
Series A-1
convertible preferred stock, $0.0001 par value,
25,600,000 shares authorized, 20,571,576 shares issued
and outstanding at December 31, 2009 and 2010, respectively
|
|
|
10,024
|
|
|
|
10,024
|
|
Series B convertible preferred stock, $0.0001 par value,
25,000,000 shares authorized, none and 24,479,802 issued
and outstanding at December 31, 2009 and 2010, respectively
|
|
|
|
|
|
|
120,000
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 72,000,000 shares
authorized at December 31, 2009 and 2010; 14,400,000 and
15,820,320 issued and outstanding at December 31, 2009 and
2010, respectively
|
|
|
1
|
|
|
|
2
|
|
Class A common stock, $0.0001 par value; none and
112,100,000 shares authorized at December 31, 2009 and
2010, respectively; none and 60,000 shares issued and
outstanding at December 31, 2009 and 2010, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,929
|
|
|
|
4,199
|
|
Deficit accumulated during the development stage
|
|
|
(20,397
|
)
|
|
|
(66,324
|
)
|
Accumulated other comprehensive income
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(17,252
|
)
|
|
|
(62,123
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock and
stockholders equity (deficit)
|
|
$
|
18,522
|
|
|
$
|
88,841
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
July 23, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(3,643
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
(22,042
|
)
|
|
$
|
(35,842
|
)
|
General and administrative expenses
|
|
|
(1,867
|
)
|
|
|
(2,987
|
)
|
|
|
(8,083
|
)
|
|
|
(13,214
|
)
|
Depreciation and amortization expense
|
|
|
(178
|
)
|
|
|
(688
|
)
|
|
|
(1,656
|
)
|
|
|
(2,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,688
|
)
|
|
|
(13,636
|
)
|
|
|
(31,781
|
)
|
|
|
(51,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
71
|
|
|
|
65
|
|
|
|
34
|
|
|
|
170
|
|
Beneficial conversion feature expense
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
(242
|
)
|
|
|
(1,812
|
)
|
|
|
(2,054
|
)
|
Foreign currency loss
|
|
|
(236
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
(435
|
)
|
Loss from change in fair value of warrant liability
|
|
|
|
|
|
|
|
|
|
|
(2,365
|
)
|
|
|
(2,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(165
|
)
|
|
|
(392
|
)
|
|
|
(14,143
|
)
|
|
|
(14,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,853
|
)
|
|
|
(14,028
|
)
|
|
|
(45,924
|
)
|
|
|
(66,277
|
)
|
Income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
(47
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
$
|
(66,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
15,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock, basic and diluted
(unaudited) (Note 2)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing pro forma net
loss per share of common stock, basic and diluted (unaudited)
(Note 2)
|
|
|
45,084
|
|
|
|
58,972
|
|
|
|
74,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
Accum.
|
|
|
Accum.
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common
|
|
|
Common
|
|
|
|
Addtl
|
|
|
During the
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Stock
|
|
|
Stock
|
|
|
|
Paid-in
|
|
|
Dev.
|
|
|
Comp.
|
|
|
Stockholders
|
|
|
|
Shrs
|
|
|
$
|
|
|
|
Shrs
|
|
|
$
|
|
|
Shrs
|
|
|
$
|
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
|
|
|
Equity (Deficit)
|
|
|
|
(Amounts in thousands)
|
|
Issuance of Series A convertible preferred stock
|
|
|
14,400
|
|
|
$
|
2,599
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Receivable from Series A convertible preferred stockholder
|
|
|
|
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
14,400
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
2,598
|
|
|
|
|
|
|
|
|
|
|
|
2,599
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
(472
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
14,400
|
|
|
$
|
1,444
|
|
|
|
|
14,400
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
|
|
|
|
$
|
2,598
|
|
|
$
|
(472
|
)
|
|
$
|
|
|
|
$
|
2,127
|
|
Collection of receivable from Series A convertible
preferred stockholder
|
|
|
|
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A convertible preferred stock
|
|
|
9,600
|
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Series A-1
convertible preferred stock
|
|
|
20,572
|
|
|
|
10,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,866
|
)
|
|
|
|
|
|
|
(5,866
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
44,572
|
|
|
$
|
14,384
|
|
|
|
|
14,400
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
|
|
|
|
$
|
2,598
|
|
|
$
|
(6,338
|
)
|
|
$
|
93
|
|
|
$
|
(3,646
|
)
|
Stock-based compensation- options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,059
|
)
|
|
|
|
|
|
|
(14,059
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
44,572
|
|
|
$
|
14,384
|
|
|
|
|
14,400
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
|
|
|
|
$
|
2,929
|
|
|
$
|
(20,397
|
)
|
|
$
|
215
|
|
|
$
|
(17,252
|
)
|
Stock-based compensation- options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
730
|
|
|
|
|
|
|
|
|
|
|
|
730
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Stock-based
compensation- Common and Class A common stock
|
|
|
|
|
|
|
|
|
|
|
|
896
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Issuance of Series B convertible preferred stock
|
|
|
24,480
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,927
|
)
|
|
|
|
|
|
|
(45,927
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
69,052
|
|
|
$
|
134,384
|
|
|
|
|
15,820
|
|
|
$
|
1
|
|
|
|
60
|
|
|
$
|
|
|
|
|
$
|
4,200
|
|
|
$
|
(66,324
|
)
|
|
$
|
|
|
|
$
|
(62,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
July 23, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
|
|
Years Ended December 31,
|
|
|
through
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
December 31, 2010
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
$
|
(66,324
|
)
|
Adjustments to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
178
|
|
|
|
688
|
|
|
|
1,656
|
|
|
|
2,537
|
|
Stock-based compensation
|
|
|
|
|
|
|
331
|
|
|
|
930
|
|
|
|
1,261
|
|
Non cash compensation from warrants issued on common stock
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
298
|
|
Beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Derivative fair value adjustments
|
|
|
|
|
|
|
|
|
|
|
2,365
|
|
|
|
2,365
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
534
|
|
Amortization of debt discount
|
|
|
|
|
|
|
39
|
|
|
|
261
|
|
|
|
300
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(96
|
)
|
|
|
239
|
|
|
|
16
|
|
|
|
96
|
|
Accounts payable
|
|
|
1,153
|
|
|
|
463
|
|
|
|
(925
|
)
|
|
|
877
|
|
Accrued liabilities
|
|
|
215
|
|
|
|
(102
|
)
|
|
|
287
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,416
|
)
|
|
|
(12,401
|
)
|
|
|
(30,505
|
)
|
|
|
(47,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(2,439
|
)
|
|
|
(8,588
|
)
|
|
|
(23,488
|
)
|
|
|
(34,515
|
)
|
Purchases of intangible assets
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
(427
|
)
|
Restricted cash
|
|
|
(250
|
)
|
|
|
150
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,116
|
)
|
|
|
(8,438
|
)
|
|
|
(23,488
|
)
|
|
|
(35,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory note to
stockholder
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
Proceeds from equipment loans
|
|
|
|
|
|
|
5,000
|
|
|
|
1,000
|
|
|
|
6,000
|
|
Payments on equipment loans
|
|
|
|
|
|
|
(836
|
)
|
|
|
(1,742
|
)
|
|
|
(2,578
|
)
|
Proceeds from business loans
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Payments on business loans
|
|
|
|
|
|
|
|
|
|
|
(919
|
)
|
|
|
(919
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
Proceeds from issuance of Series A convertible preferred
stock
|
|
|
2,916
|
|
|
|
|
|
|
|
|
|
|
|
4,360
|
|
Proceeds from issuance of
Series A-1
convertible preferred stock
|
|
|
10,024
|
|
|
|
|
|
|
|
|
|
|
|
10,024
|
|
Proceeds from issuance of Series B convertible preferred
stock
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
12,940
|
|
|
|
19,164
|
|
|
|
100,382
|
|
|
|
133,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
93
|
|
|
|
40
|
|
|
|
(215
|
)
|
|
|
(82
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,501
|
|
|
|
(1,635
|
)
|
|
|
46,174
|
|
|
|
51,350
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,310
|
|
|
|
6,811
|
|
|
|
5,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
6,811
|
|
|
$
|
5,176
|
|
|
$
|
51,350
|
|
|
$
|
51,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
13
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
47
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
203
|
|
|
$
|
1,083
|
|
|
$
|
1,286
|
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of purchased biomass conversion technology for
common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,599
|
|
Accrued purchase of property, plant and equipment
|
|
$
|
72
|
|
|
$
|
1,012
|
|
|
$
|
2,330
|
|
|
$
|
2,330
|
|
Convertible preferred stock warrants issued in connection with
loans
|
|
$
|
155
|
|
|
$
|
|
|
|
$
|
665
|
|
|
$
|
820
|
|
Common stock warrants issue in connection with compensation
arrangements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
298
|
|
|
$
|
298
|
|
Conversion of convertible promissory note to stockholder into
Series B convertible preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
See accompanying notes to consolidated financial statements
F-6
|
|
1.
|
Organization
and Operations of the Company
|
Organization
KiOR, Inc., a Delaware corporation (the Company), is
a next-generation renewable fuels company based in Houston,
Texas. The Company was incorporated and commenced operations in
July 2007 as a joint venture between Khosla Ventures, an
investment partnership, and BIOeCON B.V. (BIOeCON).
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, KiOR
B.V. (in liquidation) and KiOR Columbus LLC. KiOR B.V., a
Netherlands company, was formed on March 4, 2008 and
commenced the process of liquidation in March 2010. As of
December 31, 2010, all of the operations of KiOR B.V. were
combined into the operations of KiOR, Inc. KiOR Columbus, LLC, a
wholly owned subsidiary of the Company (KiOR
Columbus), was formed on October 6, 2010.
Nature
of Business
The Company has developed a proprietary technology platform to
convert abundant and sustainable non-food biomass into
hydrocarbon-based crude oil. The Company processes its renewable
crude oil using standard refinery equipment into gasoline and
diesel blendstocks that can be transported using the existing
fuels distribution system for use in vehicles on the road today.
Since inception, the Company has performed extensive research
and development efforts to develop, enhance, refine and
commercialize its
biomass-to-fuel
technology platform. The Company is now entering its
commercialization phase and, in the first quarter of 2011,
commenced construction of its first initial-scale commercial
production facility in Columbus, Mississippi.
Development
Stage Enterprise
The Company is a development stage enterprise, and has incurred
losses since inception. Until recently, the Company has focused
its efforts on the research and development of its
biomass-to-renewable
fuel technology platform, and it has yet to generate revenue
from its process. As a result, it has generated operating losses
of $51.6 million and an accumulated deficit of
$66.3 million since inception. The Company expects to
continue to incur operating losses through at least 2013 as it
continues into the commercialization stage of its business. The
Companys ultimate success is dependent upon the successful
transition of the Company from primarily a research and
development company to an operating company. There can be no
assurance that the Companys proprietary technologies will
be successful on a commercial scale, that it will be successful
in funding its long-term expansion plans or that it will be able
to generate sufficient revenue in the future to sustain
operations.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America. All intercompany
transactions and balances have been eliminated in consolidation.
The Company reports consolidated financials on a calendar year
basis.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period. Accordingly, actual results could differ from these
estimates.
F-7
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Stock
Split
On April 16, 2010, the Company authorized a
4-for-1
split on all common stock and convertible preferred stock
authorized, issued and outstanding at that time. All share and
per share amounts in the consolidated financial statements and
related notes have been restated to reflect the
4-for-1
split.
Significant
Risks and Uncertainties
The Companys operations are subject to certain risks and
uncertainties, including those associated with the
Companys limited operating history, the ability to produce
renewable gasoline and diesel blendstocks on a commercial scale,
the ability to obtain and retain potential customers, the
ability to attract and retain key employees, acquiring access to
feedstock, the ability to protect the Companys proprietary
technologies and processes, development by the Companys
competitors of new technologies, changes in government
regulations or incentives, continuing losses, negative cash
flows from operations and fluctuations in operating results,
managing growth and expansion, the ability to finance the
Companys growth, financing arrangement terms that may
restrict operations, the economy, technology trends and evolving
industry standards.
Cash
and Cash Equivalents
Cash and cash equivalents include all short-term, highly liquid
instruments purchased with an original maturity of three months
or less. These items are carried at cost, which approximates
market value.
Restricted
Cash Certificate of Deposit
At December 31, 2009 and 2010, the Company maintained a
certificate of deposit in the amount of $100,000. The
certificate of deposit is pledged as collateral on company
credit cards and is classified as restricted cash on the
Companys balance sheet. The certificate of deposit matures
annually in November. The certificate of deposit is not used as
a compensating balance for payment of the credit card balances.
The Company is required to maintain a certificate of deposit as
a pledge of collateral as long as the credit card account is
open.
Concentration
of Credit Risk
The Company maintains its cash balances at several financial
institutions in the United States. Prior to December 31,
2009, it also maintained cash balances in foreign financial
institutions located in the Netherlands. The Federal Deposit
Insurance Corporation insures the United States account balances
in an amount up to $250,000. The Company does not believe that
it is exposed to any significant credit risk on any uninsured
amounts.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
and amortization are calculated using the straight-line method
based on the estimated useful lives of the related assets as
follows:
|
|
|
|
|
Description
|
|
Useful Life
|
|
Leasehold improvements
|
|
|
9 years
|
|
Lab and testing equipment
|
|
|
5 years
|
|
Manufacturing machinery and equipment
|
|
|
20 30 years
|
|
Furniture and fixtures
|
|
|
10 years
|
|
Computer equipment and software
|
|
|
3 5 years
|
|
F-8
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Expenditures for repairs and maintenance are charged to expense
as incurred and major renewals and improvements are capitalized.
Cost and accumulated depreciation applicable to assets retired
or sold are removed from the accounts, and any resulting gain or
loss is included in operations.
Intangible
Assets
At December 31, 2009 and 2010, the Companys
intangible assets consisted of purchased biomass conversion
technology and technology licenses. These intangible assets are
amortized using the straight-line method based on their expected
lives, which the Company determined to be 15 years for the
purchased biomass conversion technology and 20 years for
the technology licenses.
Impairment
of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For
purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted future
net cash flows of assets grouped at the lowest level for which
there are identifiable cash flows that are independent of the
cash flows of other groups of assets. If the undiscounted future
net cash flows are less than the carrying amount of the asset,
the asset is deemed impaired. The amount of the impairment is
measured as the difference between carrying value and the fair
value of the asset. The estimated fair value is determined based
on a discounted cash flow model.
Patents
All costs related to filing and pursuing patent applications are
expensed as incurred because recoverability of such expenditures
is uncertain and the underlying technologies are under
development. Patent-related legal expenses incurred are included
in general and administrative expenses. During the years ended
December 31, 2008, 2009 and 2010, the Company recorded
approximately $224,000, $1.4 million and $1.2 million,
respectively, of patent-related legal expenses.
Unamortized
Debt Discount
In connection with the issuance of the Companys equipment
and business loans, the Company issued warrants to purchase
Series A-1
and Series B convertible preferred stock. The warrants were
recorded as debt discounts and are amortized to interest expense
over the terms of the debt using the effective interest method.
These debt discounts are recorded on the Companys balance
sheet as a reduction to long-term debt.
Foreign
Currency
The functional currency for the Companys foreign
subsidiary, KiOR B.V. (in liquidation), is the Euro, the local
currency of the Netherlands. As of December 31, 2010, all
of the operations of KiOR B.V. were combined into the operations
of KiOR, Inc., and the accumulated translation account was
eliminated. Prior to December 31, 2010, all assets and
liabilities of KiOR B.V (in liquidation) were translated into
U.S. Dollars using year-end exchange rates, and all
expenses are translated at average rates prevailing during the
periods. The translation results were included in the currency
translation adjustments in accumulated other comprehensive
income in stockholders equity.
Research
and Development
Research and development expenses consist primarily of expenses
for personnel focused on increasing the scale of the
Companys operations to increase production capacity and
reduce operating costs. These expenses
F-9
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
also consist of facilities costs and other related overhead and
lab materials. Research and development costs are expensed as
they are incurred.
Capitalized
interest
The Company capitalizes interest on long-term construction
projects relating to operating assets with a total expected
expenditure generally in excess of $10 million. During
2010, the Company capitalized interest of approximately $118,000
relating to the purchase of equipment for the Columbus,
Mississippi facility. No interest was capitalized in 2008 or
2009.
Deferred
Income Taxes
Income taxes are computed based upon the asset and liability
method for financial accounting purposes. The Company is
required to evaluate whether it is more likely than not that
deferred tax assets will be realized. The Companys
deferred tax assets were fully reserved with a valuation
allowance of $6.3 million and $19.0 million as of
December 31, 2009 and 2010, respectively. This valuation
allowance was recorded as the Company concluded that it is more
likely than not that these assets would not be utilized.
The Company accounts for uncertain tax positions in accordance
with FASB ASC 740, Income Taxes. The guidance clarifies the
accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being
recognized in the financial statements. The standard also
provides guidance on derecognition, measurement, classification,
interest and penalties, disclosure and transition. The Company
did not record a liability for unrecognized tax benefits in any
of the periods presented in the consolidated financial
statements resulting from uncertain tax positions taken or
expected to be taken in Company tax returns. The Company
recognizes interest and penalties, if any, related to
unrecognized tax benefits in income tax expense.
Stock-Based
Compensation
The Company recognizes stock-based compensation expense relating
to share-based payments, including stock options, to be
recognized in the Consolidated Statement of Operations based on
their fair values. The expense is recognized over the requisite
service period of the award. The determination of the fair value
of the stock options was estimated using the Black-Scholes
option-pricing model and required the use of highly subjective
assumptions relating to potential minimum and maximum range of
values at which holders of common stock, preferred stock and
debt may receive value (liquidation preferences),
the term that the options would be outstanding based on
estimates used by similar public entities and the Companys
own expectations, and a risk-free rate. The Company estimates
volatility using volatilities of publicly held companies similar
to the Company. The Company assumes an estimated dividend yield
of zero in its calculations, since it has not paid dividends on
its common stock and does not anticipate paying dividends in the
future.
The following assumptions were used to calculate compensation
expense relating to the Companys stock options:
|
|
|
|
|
|
|
2009
|
|
2010
|
|
Risk-free interest rate
|
|
0.8% 1.1%
|
|
0.5% 0.8%
|
Expected volatility
|
|
95.4% 137.2%
|
|
98.8% 137.2%
|
Expected lives (in years)
|
|
1.8 3.8
|
|
1.4 1.8
|
Expected forfeiture rate
|
|
0.0%
|
|
0.0%
|
Expected dividend yield
|
|
0.0%
|
|
0.0%
|
F-10
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Fair
Value of Financial Instruments
The Companys financial instruments consist primarily of
cash and cash equivalents, restricted cash, accounts payable,
convertible preferred stock warrants and long-term debt.
Assets and liabilities recorded at fair value in the
consolidated financial statements are categorized based upon the
level of judgment associated with the inputs used to measure
their fair value. Hierarchical levels, which are directly
related to the amount of subjectivity associated with the inputs
to the valuation of these assets or liabilities are as follows:
|
|
|
|
|
Level 1 Observable inputs, such as
quoted prices in active markets for identical assets or
liabilities.
|
|
|
|
Level 2 Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
|
|
|
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities and
which reflect managements best estimate of what market
participants would use in pricing the asset or liability at the
measurement date. Consideration is given to risk inherent in the
valuation technique and the risk inherent in the inputs to the
model.
|
Assets and liabilities measured at fair value are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement.
Convertible
Preferred Stock
The Companys convertible preferred stock is classified
outside of stockholders equity due to the liquidation
rights of the holders. The holders of the Companys
convertible preferred stock control the vote of its stockholders
and Board of Directors through their appointed representatives.
As a result, the holders can force a change in control that
would trigger liquidation. Since redemption of the convertible
preferred stock through liquidation is outside of the
Companys control, all shares of convertible preferred
stock have been presented outside of permanent equity on the
Consolidated Balance Sheets.
Convertible
Preferred Stock Warrant Liability
Outstanding warrants to purchase shares of the Companys
convertible preferred stock are freestanding warrants that are
subject to redemption and are therefore classified as
liabilities on the Consolidated Balance Sheets at fair value.
The initial liability recorded is adjusted for changes in fair
value at each reporting date with an offsetting entry recorded
as a component of other income (expense) in the Consolidated
Statements of Operations. The liability will continue to be
adjusted for changes in fair value until the earlier event of
the exercise date or the conversion of the underlying
convertible preferred stock into the corresponding Class A
common stock and common stock. Upon conversion of the underlying
convertible preferred stock, the warrants will automatically
convert into warrants to purchase an equivalent number of shares
of Class A common stock and common stock using the same exercise
provisions, exercise prices and expiration dates as the warrants
to purchase convertible preferred stock. Also, upon conversion,
the warrants will cease to be subject to redemption and will be
reclassified to additional paid-in capital in stockholders
deficit on the Consolidated Balance Sheets. The Company
estimates the fair value of its convertible preferred stock
warrants using the Black-Scholes option-pricing model.
Net
Loss per Share and Unaudited Pro Forma Net Loss per Share of
Common Stock
Basic net loss per share of common stock is computed by dividing
the Companys net loss attributable to its stockholders by
the weighted-average number of shares of common stock
outstanding during the period.
F-11
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Diluted net loss per share of common stock is computed by giving
effect to all potentially dilutive securities, including stock
options, warrants and convertible preferred stock. Basic and
diluted net loss per share of common stock attributable to the
Companys stockholders was the same for all periods
presented on the Consolidated Statements of Operations, as the
inclusion of all potentially dilutive securities outstanding
would have been anti-dilutive. As such, the numerator and the
denominator used in computing both basic and diluted net loss
per share are the same for each period presented.
All of the Companys preferred stock participate in
earnings or losses of the Company. Consequently, the
calculations for the unaudited pro forma basic and diluted net
loss per share of common stock attributable to the
Companys stockholders assume the conversion of all
outstanding shares of convertible preferred stock into
corresponding shares of Class A common stock and common
stock, as if the conversions had occurred at January 1,
2010, or the issuance date for Series B convertible
preferred stock issued during the year ended December 31,
2010. Also, the numerator in the pro forma basic and diluted net
loss per share calculation has been adjusted to remove gains and
losses resulting from re-measurements of the convertible
preferred stock warrant liability as these measurements would no
longer be required when the convertible preferred stock warrants
convert into warrants to purchase shares of the Companys
Class A and Class B common stock.
F-12
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
The following table presents the calculation of historical and
pro forma basic and diluted net loss per share of common stock
attributable to the Companys stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Historical net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
Net loss attributable to preferred stockholders
|
|
|
4,433
|
|
|
|
10,626
|
|
|
|
37,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders basic
and diluted
|
|
$
|
(1,433
|
)
|
|
$
|
(3,433
|
)
|
|
$
|
(8,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing net loss per
share of common stock basic and diluted
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
15,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock attributable to common
stockholders basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders basic
and diluted
|
|
$
|
(1,433
|
)
|
|
$
|
(3,433
|
)
|
|
$
|
(8,521
|
)
|
Net loss attributable to preferred stockholders
|
|
|
(4,433
|
)
|
|
|
(10,626
|
)
|
|
|
(37,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss in computing pro forma net loss per share of common
stock attributable to common stockholders basic and
diluted
|
|
$
|
(5,866
|
)
|
|
$
|
(14,059
|
)
|
|
$
|
(45,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock used in computing net
loss per share of common stock basic and diluted
|
|
|
14,400
|
|
|
|
14,400
|
|
|
|
15,382
|
|
Pro forma adjustment to reflect weighted-average effect of
assumed conversion of convertible preferred stock
|
|
|
30,684
|
|
|
|
44,572
|
|
|
|
59,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock used in computing pro
forma net loss per share of common stock basic and
diluted
|
|
|
45,084
|
|
|
|
58,972
|
|
|
|
74,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock attributable to
common stockholders basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
The following outstanding shares on a weighted-average basis of
potentially dilutive securities were excluded from the
computation of diluted net loss per share of common stock for
the periods presented because including them would have been
antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Convertible preferred stock (as converted basis)
|
|
|
30,684
|
|
|
|
44,572
|
|
|
|
59,340
|
|
Convertible preferred stock warrants (as converted basis)
|
|
|
2
|
|
|
|
412
|
|
|
|
688
|
|
Common stock warrants (as converted basis)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Stock options
|
|
|
|
|
|
|
4,770
|
|
|
|
12,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,686
|
|
|
|
49,754
|
|
|
|
72,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In January 2010, the FASB issued an amendment to an accounting
standard, which requires new disclosures for fair value measures
and provides clarification for existing disclosure requirements.
Specifically, this amendment requires an entity to disclose
separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and to
describe the reasons for the transfers; and to disclose
separately information about purchases, sales, issuances and
settlements in the reconciliation for fair value measurements
using significant unobservable inputs, or Level 3 inputs.
This amendment clarifies existing disclosure requirements for
the level of disaggregation used for classes of assets and
liabilities measured at fair value and require disclosure about
the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements
using Level 2 and Level 3 inputs. The adoption of this
amendment did not have a material impact on the Companys
consolidated financial statements.
There have been no other recent accounting pronouncements or
changes in accounting pronouncements that the Company expects to
have a material impact on its financial statements, nor does the
Company believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have
a material effect on its financial statements.
|
|
3.
|
Fair
Value of Financial Instruments
|
The Companys assessment of the significance of a
particular input to the fair value measurement of an asset or
liability in its entirety requires management to make judgments
and consider factors specific to the asset or liability. As of
December 31, 2009 and 2010, the Company considered cash and
cash equivalents, restricted cash and accounts payable to be
representative of their fair values because of their short-term
maturities. Further, the Companys long-term debt
approximates fair value as it has been negotiated on an
arms length basis with reputable third-party lenders at
prevailing market rates.
The following tables set forth the Companys financial
instruments that were measured at fair value on a recurring
basis by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
155
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
155
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
45,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
45,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,185
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,185
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the fair value of the convertible preferred stock
warrant liability, (Level 3), is summarized below (amounts
in thousands):
|
|
|
|
|
Fair value as of December 31, 2009
|
|
$
|
155
|
|
Fair value of warrants issued
|
|
|
665
|
|
Change in fair value recorded in other expense, net
|
|
|
2,365
|
|
|
|
|
|
|
Fair value as of December 31, 2010
|
|
$
|
3,185
|
|
|
|
|
|
|
The Companys assets and liabilities that are measured at
fair value on a non-recurring basis include long-lived assets
and intangible assets. These items are recognized at fair value
when they are considered to be impaired. For the years ended
December 31, 2009 and 2010, there were no required fair
value adjustments for assets and liabilities measured at fair
value on a non-recurring basis.
|
|
4.
|
Property,
plant and equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
$
|
5,163
|
|
|
$
|
14,604
|
|
Lab and testing equipment
|
|
|
4,220
|
|
|
|
3,250
|
|
Leasehold improvement
|
|
|
1,377
|
|
|
|
2,194
|
|
Manufacturing machinery and equipment
|
|
|
|
|
|
|
16,305
|
|
Computer equipment and software
|
|
|
64
|
|
|
|
347
|
|
Furniture and fixtures
|
|
|
202
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
11,026
|
|
|
|
36,843
|
|
Less: accumulated depreciation
|
|
|
(500
|
)
|
|
|
(1,963
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
10,526
|
|
|
$
|
34,880
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was approximately $4,000, $496,000 and
$1.5 million for the years ended December 31, 2008,
2009 and 2010, respectively.
Construction in progress as of December 31, 2009 is related
to construction of one of the Companys testing facilities
in Houston, Texas, which was completed in 2010. Construction in
progress as of December 31, 2010 relates to the
engineering, design and development of the Companys
initial-scale
F-15
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
commercial production facility in Columbus, Mississippi.
Depreciation of construction in progress costs begins as soon as
the facility is placed into service.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
Purchased biomass conversion technology
|
|
$
|
2,626
|
|
|
$
|
2,599
|
|
Accumulated amortization
|
|
|
(362
|
)
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
Purchased biomas conversion technology, net
|
|
|
2,264
|
|
|
|
2,064
|
|
Technology licenses
|
|
|
400
|
|
|
|
400
|
|
Accumulated amortization
|
|
|
(18
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Technology licenses, net
|
|
|
382
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
2,646
|
|
|
$
|
2,426
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense was approximately
$173,000, $192,000, and $193,000 for the years ended
December 31, 2008, 2009 and 2010, respectively.
Amortization expense relating to these intangibles for the next
five years is summarized below (amounts in thousands):
|
|
|
|
|
2011
|
|
$
|
193
|
|
2012
|
|
|
193
|
|
2013
|
|
|
193
|
|
2014
|
|
|
193
|
|
2015
|
|
|
193
|
|
|
|
|
|
|
|
|
$
|
965
|
|
|
|
|
|
|
|
|
6.
|
Long-Term
Debt and Convertible Promissory Note to Stockholder
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
Equipment loans
|
|
$
|
4,165
|
|
|
$
|
3,710
|
|
Business loan
|
|
|
|
|
|
|
6,327
|
|
Less: unamortized debt discounts
|
|
|
(116
|
)
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of discount
|
|
|
4,049
|
|
|
|
9,517
|
|
Less: current portion
|
|
|
(1,667
|
)
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion, net of discount
|
|
$
|
2,382
|
|
|
$
|
5,037
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note to stockholder
|
|
$
|
15,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-16
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
The following are maturities of long-term debt for each of the
next five years (amounts in thousands):
|
|
|
|
|
2011
|
|
$
|
4,480
|
|
2012
|
|
|
4,199
|
|
2013
|
|
|
1,358
|
|
2014-2015
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,037
|
|
|
|
|
|
|
Convertible
Promissory Note to Stockholder
On August 5, 2009, the Company entered into a non-interest
bearing convertible promissory note agreement for
$15.0 million (the Note), which included a
beneficial conversion feature, with one of its stockholders,
Khosla Ventures. The Note was a general unsecured obligation of
the Company and was payable in full on August 4, 2011.
Principal payments were not required prior to the maturity date.
The Note was convertible into shares of the Companys
convertible preferred stock upon the occurrence of certain
events. On April 16, 2010, the Note was converted into
5.2 million shares of Series B convertible preferred
stock.
One of the triggering events enabling conversion of the Note
into shares of the Companys convertible preferred stock
was met in April 2010. The triggering event was: if on or before
the maturity date of the Note, the Company consummates a sale,
or series of related sales, of its convertible preferred stock,
pursuant to which the Company receives gross proceeds of at
least $10.0 million, excluding any amounts as a result of
conversion of the Note (a Qualified Financing), then
simultaneously with the Qualified Financing, the principal
balance then outstanding under the Note shall convert into the
same class and series of convertible preferred stock sold in the
Qualified Financing at a conversion price per share equal to 60%
of the price per share paid by the investors in the Qualified
Financing. The Companys Series B convertible
preferred stock issuance in April 2010 (see
Note 11) triggered this conversion option and the note
holder subsequently exercised the right to convert.
In accordance with FASB
ASC 470-20,
Debt with Conversion and Other Options, the Company
recorded a $10.0 million expense to beneficial conversion
feature expense on the Consolidated Statement of Operations
connected with the conversion of the Note into Series B
convertible preferred stock. The $10.0 million reflects the
value assigned to the beneficial conversion feature. The value
of the beneficial conversion feature was not readily
determinable upon issuance of the Note because the conversion
feature was contingent upon the occurrence of a Qualified
Financing transaction. Neither the timing nor value of such
transaction could be estimated at the time the Note was issued.
Therefore, the Company recorded the entire amount of the
beneficial conversion feature to the Consolidated Statements of
Operations at the time the conversion occurred and value for the
beneficial conversion feature could be determined.
Equipment
Loans
Equipment Loan #1 On
December 30, 2008, the Company entered into an equipment
loan agreement with Lighthouse Capital Partners VI, L.P. The
loan agreement provides for advances at $100,000 minimum
increments up to $5.0 million in the aggregate for
purchases of equipment. All advances must have been funded no
later than September 30, 2009. Each advance represents a
separate loan tranche that is payable monthly over a three-year
period from the date of issuance of the advance at an annual
interest rate of 7.5%. In addition, at loan maturity, the
Company is required to make a payment equal to 7.5% of the total
principal on the loan, which is amortized over the life of the
loan and included in interest expense on the Consolidated
Statements of Operations. The loans mature at dates from March
2012 to October 2012. The interest expense during 2009 and 2010
was approximately $202,000 and $550,000, respectively. The
amortized amount during 2009 and 2010 was approximately $0 and
$288,000, respectively.
F-17
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
During 2009, the Company borrowed all $5.0 million
available under the loan. The loan tranches are collateralized
by certain of the Companys production pilot unit, lab
equipment and office equipment valued at approximately
$5.0 million.
Equipment Loan #2 On
March 17, 2010, the Company entered into an equipment loan
agreement with Silicon Valley Bank with total availability of
$1.0 million, limited to two advances of at least $500,000
each. The full amount of the availability under the loan
agreement was drawn down in a single advance of $1 million.
The loan is payable monthly over a three-year period at an
annual interest rate of 10%. The loan is collateralized by the
equipment purchased with the advances valued at approximately
$1.3 million.
Business
Loan
On January 27, 2010, the Company entered into a business
loan agreement with Lighthouse Capital Partners VI, L.P. and
Leader Lending, LLC for an amount of up to $7.0 million.
Advances are payable monthly over a three-year period at an
annual interest rate of 12% commencing on the date of the
advance. In addition, at loan maturity, the Company is required
to make a payment equal to 7.5% of the total amount drawn on the
loan, which is amortized over the life of the loan and included
in interest expense on the Consolidated Statements of
Operations. The amortized amount during 2010 was approximately
$246,000.
During 2010, the Company borrowed the full $7.0 million
under the loan agreement. The loan is collateralized by the
Companys assets not previously pledged as collateral on
the equipment loans described above.
Loss before income taxes was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
United States
|
|
$
|
(5,877
|
)
|
|
$
|
(14,235
|
)
|
|
$
|
(45,908
|
)
|
Foreign
|
|
|
24
|
|
|
|
207
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,853
|
)
|
|
$
|
(14,028
|
)
|
|
$
|
(45,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes have been provided based upon the tax laws and
rates in the countries in which operations are conducted and
income is earned. The amounts of income tax provision consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
United States current and deferred
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign current and deferred
|
|
|
13
|
|
|
|
31
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Deferred income tax provisions result from temporary differences
in the recognition of expenses for financial reporting purposes
and for tax reporting purposes. The effects of these differences
are presented as deferred income tax assets and liabilities as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Federal net operating loss carryforward
|
|
$
|
6,914
|
|
|
$
|
18,055
|
|
Section 195 capitalization
start-up
expenditures
|
|
|
824
|
|
|
|
3,682
|
|
Other
|
|
|
145
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
7,883
|
|
|
|
22,571
|
|
|
|
|
|
|
|
|
|
|
Basis difference related to property and equipment
|
|
|
(1,514
|
)
|
|
|
(3,565
|
)
|
Unremitted earnings of foreign subsidiary
|
|
|
(42
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(1,556
|
)
|
|
|
(3,601
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
6,327
|
|
|
|
18,970
|
|
Valuation allowance
|
|
|
(6,327
|
)
|
|
|
(18,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2010, the Company had a federal
income tax net operating loss carryforward balance of
$6.9 million and $18.1 million, respectively. If
unused, the net operating loss carryforwards begin expiring in
2028. The Company has a full valuation allowance for its net
deferred tax assets because the Company has incurred losses
since inception. Certain changes in the ownership of the Company
could result in limitations on the Companys ability to
utilize the federal net operating loss carryforwards.
The following table summarizes the differences between income
tax expense based on the Companys effective tax rate and
the federal statutory tax rate of 35%:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Income tax benefit at statutory rate
|
|
$
|
(2,049
|
)
|
|
$
|
(4,910
|
)
|
|
$
|
(16,091
|
)
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
1
|
|
|
|
(36
|
)
|
|
|
3,451
|
|
Foreign taxes
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Valuation allowance on tax assets
|
|
|
2,056
|
|
|
|
4,977
|
|
|
|
12,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
13
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax years that remain open to examination by the major
taxing jurisdictions to which the Company is subject range from
2008 to 2010. The Company has identified its major taxing
jurisdictions as the United States of America, the State of
Texas and the State of Mississippi.
|
|
8.
|
Commitments
and Contingencies
|
Litigation
From time to time, the Company may be subject to legal
proceedings and claims that arise in the ordinary course of
business. The Company is not a party to any material litigation
or proceedings and is not aware of any material litigation or
proceedings, pending or threatened against it.
F-19
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Leases
Operating leases are primarily for rental of modular office and
lab buildings, land, lab instrumentation, office and logistic
equipment. All leases expire between 2011 and 2013. Rental
expense for operating leases was approximately $148,000,
$416,000 and $719,000 for the years ended December 31,
2008, 2009 and 2010, respectively.
For the next five years, the scheduled minimum rental
commitments under non-cancelable operating leases at
December 31, 2010, consist of the following (amounts in
thousands):
|
|
|
|
|
2011
|
|
$
|
540
|
|
2012
|
|
|
154
|
|
2013
|
|
|
79
|
|
2014-2015
|
|
|
|
|
|
|
|
|
|
|
|
$
|
773
|
|
|
|
|
|
|
New
Equipment Purchases
The Company has several contracts in place for the purchase of
various manufacturing equipment related to the construction of
its initial-scale commercial production facility in Columbus,
Mississippi. These contracts are non-cancelable and payments are
due at various intervals based on the progress of the assembly
of the equipment. Payments aggregating to $28.7 million are
due at various times with the final payments due at time of
completion, which is estimated to be in September 2011.
|
|
9.
|
Related-Party
Transactions
|
In 2007, KiOR B.V. (in liquidation) and BIOeCON, one of KiOR
B.V.s original investors, entered into a services
agreement that required BIOeCON to provide certain general and
administrative support, including patent research and
facilities-related services, to KiOR B.V. The agreement was
terminated in October 2009. The Company incurred general and
administrative expenses amounting to $143,000 and $331,000 for
the years ended December 31, 2008 and 2009, respectively,
for such services. No outstanding payments were due to BIOeCON
under this agreement as of December 31, 2009 or 2010.
In August 2009, the Company entered into a non-interest bearing
loan agreement with Khosla Ventures in the amount of
$15.0 million (See Note 6).
Common
Stock
The Company was incorporated on July 23, 2007 and issued
its initial founding shares on November 1, 2007. On
April 16, 2010, the Company authorized a
4-for-1
split on all common stock authorized, issued and outstanding at
that time. All shares and per share amounts in the consolidated
financial statements and related notes have been restated to
reflect the 4-for-1 split. After giving effect to the stock
split, the Company had authorized shares of common stock of
72.0 million and issued and outstanding common shares of
15.8 million as of December 31, 2010.
Class A
Common Stock
On April 16, 2010, the Company authorized 110 million
shares of a new class of common stock; Class A common
stock. Class A common stockholders are entitled to one vote
at all meetings of stockholders for every
F-20
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
10 votes entitled to common stockholders. All other rights and
privileges of Class A common stock are substantially the
same as for common stock. On July 16, 2010, the Company
authorized an additional 2.0 million shares of Class A
common stock. As of December 31, 2010, 60,000 shares
of Class A common shares were issued and outstanding.
Common
Stock Warrants
The Company has 158,000 warrants outstanding to purchase shares
of its Class A common stock at an exercise price of $0.09
per share. The warrants were issued in 2010 to certain
consultants as compensation for prior services performed and
were fully vested upon issuance. The fair value of these
warrants was estimated at $298,000 using the Black-Scholes
option-pricing model and the entire amount was recorded as
compensation expense for the year ended December 31, 2010.
Fair value of the warrants was determined at the grant date
using the following key inputs: risk free interest rate of
0.50%, volatility of 98.8%, dividend yield of zero, and an
expected term of 1.4 years.
|
|
11.
|
Convertible
Preferred Stock
|
The Company authorized a
4-for-1
split on all convertible preferred stock authorized, issued and
outstanding on April 16, 2010. All share and per share
amounts in the consolidated financial statements and related
notes have been restated to reflect the
4-for-1
split.
During 2007 and 2008, the Company authorized 45.6 million
shares of convertible preferred stock, of which
24.0 million shares were designated as Series A
convertible preferred stock and 21.6 million shares were
designated as
Series A-1
convertible preferred stock. At incorporation in 2007,
14.4 million shares of Series A convertible preferred
stock were issued under an agreement with Khosla Ventures for
total consideration of $2.6 million, of which
$1.4 million was paid at issuance and $1.2 million was
paid on June 17, 2008. On June 17, 2008, the Company
issued 9.6 million shares of Series A convertible
preferred stock and 20.6 million shares of
Series A-1
convertible preferred stock to Khosla Ventures for
$1.8 million and $10.0 million, respectively. An
additional 4.0 million shares of
Series A-1
convertible preferred stock were authorized on December 31,
2009.
During 2010, the Company authorized 24.6 million shares of
Series B convertible preferred stock. On April 16,
2010, 5.2 million of these shares were issued for total
consideration of $25.0 million. An additional
5.2 million shares were issued to Khosla Ventures upon the
conversion of the $15.0 million convertible promissory
note. While no additional consideration was received from Khosla
Ventures, the Company was required to record a
$10.0 million charge to beneficial conversion feature
expense on the Consolidated Statements of Operations, with
regards to the Note, with an offset to additional paid in
capital, to properly reflect the $25.0 million in total
value of Series B convertible preferred stock issued to
Khosla Ventures.
On May 3, 2010, an additional 5.0 million shares of
the Series B convertible preferred shares were issued for
total consideration of $25.0 million. On July 19,
2010, 9.2 million additional shares of Series B
convertible preferred stock were issued for total consideration
of $45.0 million.
F-21
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
A summary of convertible preferred stock issued and outstanding
is as follows (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Shares
|
|
|
Liquidation
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Issued and
|
|
|
Preference per
|
|
|
Liquidation
|
|
|
Carrying
|
|
|
|
Authorized
|
|
|
Outstanding
|
|
|
Share
|
|
|
Amount
|
|
|
Value
|
|
|
Series A
|
|
|
24,000
|
|
|
|
24,000
|
|
|
$
|
0.183
|
|
|
$
|
4,380
|
|
|
$
|
4,360
|
|
Series A-1
|
|
|
25,600
|
|
|
|
20,572
|
|
|
$
|
0.487
|
|
|
|
10,008
|
|
|
|
10,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49,600
|
|
|
|
44,572
|
|
|
|
|
|
|
$
|
14,388
|
|
|
$
|
14,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Shares
|
|
|
Liquidation
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Issued and
|
|
|
Preference per
|
|
|
Liquidation
|
|
|
Carrying
|
|
|
|
Authorized
|
|
|
Outstanding
|
|
|
Share
|
|
|
Amount
|
|
|
Value
|
|
|
Series A
|
|
|
24,000
|
|
|
|
24,000
|
|
|
$
|
0.183
|
|
|
$
|
4,380
|
|
|
$
|
4,360
|
|
Series A-1
|
|
|
25,600
|
|
|
|
20,572
|
|
|
$
|
0.487
|
|
|
|
10,008
|
|
|
|
10,024
|
|
Series B
|
|
|
24,500
|
|
|
|
24,480
|
|
|
$
|
4.902
|
|
|
|
120,001
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
74,100
|
|
|
|
69,052
|
|
|
|
|
|
|
$
|
134,389
|
|
|
$
|
134,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The convertible preferred stock is recorded at fair value on the
dates of issuance, net of issuance costs. The convertible
preferred stock is classified outside of stockholders
equity because the shares contain liquidation features that are
not solely within the control of the Company.
Rights,
preferences and privileges of the convertible preferred
stock
Voting Each holder of Series A,
Series A-1
and Series B convertible preferred stock is entitled to
cast 10 votes for every share of common stock into which the
shares are convertible and to cast one vote for every share of
Class A common stock into which the shares are convertible,
as applicable, as of the record date for determining
stockholders entitled to vote on such matters. Holders of
convertible preferred stock vote together with the holders of
common stock and Class A common stock as a single class.
Dividends The holders of shares of the
convertible preferred stock are entitled to receive dividends
prior and in preference to any declaration or payment of any
dividend on the common stock or Class A common stock of the
Company. The holders of the convertible preferred stock shall
first receive a dividend on each such outstanding share of
convertible preferred stock in an amount at least equal to the
following (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar
recapitalization with respect to the convertible preferred
stock):
|
|
|
|
|
|
|
Dividend
|
|
|
Amount
|
|
|
per share
|
|
Series A
|
|
$
|
0.01465
|
|
Series A-1
|
|
$
|
0.03890
|
|
Series B
|
|
$
|
0.39210
|
|
Dividends on the convertible preferred stock are not cumulative
and are to be paid when and if declared by the Board of
Directors of the Company. No additional dividend shall be
declared or paid with respect to any share of common stock or
Class A common stock unless such dividend is also declared
or paid on a pro rata basis with respect to all shares of
convertible preferred stock.
F-22
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Liquidation Preferences In the event
of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible
preferred stock are entitled to be paid out of the assets of the
Company available for distribution before any payment is made to
the holders of Class A common stock or common stock, an
amount per share equal to one times the convertible preferred
stock original issue price (as defined in the table below) for
each share of convertible preferred stock, plus any dividends
declared but unpaid. Class A common stock and common stock
have the same liquidation preference.
If, upon a liquidation, dissolution or winding up of the
Company, the assets of the Company available for distribution to
its stockholders are insufficient to pay the holders of the
convertible preferred stock the full amount to which they are
entitled, the holders of the convertible preferred stock shall
share ratably in any distribution of the assets available for
distribution in proportion to the respective amounts, which
would otherwise be payable of the shares held.
|
|
|
|
|
|
|
Original
|
|
|
Issue Price(1)
|
|
Series A
|
|
$
|
0.183
|
|
Series A-1
|
|
$
|
0.487
|
|
Series B
|
|
$
|
4.902
|
|
|
|
|
(1) |
|
Original issue price is subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other
similar recapitalization with respect to each series of
convertible preferred stock. |
Conversion Each share of Series A
and
Series A-1
convertible preferred stock is convertible at any time without
payment of additional consideration into such number of fully
paid and non-assessable shares of common stock or, if all shares
of common stock are converted into Class A common stock,
Class A common stock as is determined by dividing the
original issue price of the Series A or
Series A-1
convertible preferred stock, as applicable, by the associated
conversion price, which is initially equal to the original issue
price. The conversion price is subject to adjustment upon
issuance of additional shares of Class A common stock or
common stock by the Company.
Each share of Series B convertible preferred stock is
convertible at the option of the holder at any time without
payment of additional consideration into such number of fully
paid and non-assessable shares of Class A common stock as
is determined by dividing the original issue price of the
Series B convertible preferred stock, by the Series B
convertible preferred stock conversion price, which is initially
equal to the original issue price. The conversion price is
subject to adjustment upon issuance of additional shares of
Class A common stock or common stock by the Company.
In the event of liquidation, dissolution or winding up of the
Company or a deemed liquidation event, the conversion rights
terminate at the close of business on the last full day
preceding the date fixed for the payment of any amounts
distributable on such event to the holders of the convertible
preferred stock.
Upon the closing of the sale of shares of common stock to the
public in a firm-commitment underwritten public offering
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least
$50.0 million of gross proceeds, net of the underwriting
discount and commissions, to the Company, all outstanding shares
of the Series A,
Series A-1
and Series B convertible preferred stock will automatically
be converted into shares of common stock (common stock will be
renamed Class B common stock prior to the completion of the
Companys initial public offering) or Class A common
stock, and such shares may not be reissued by the Company.
Redemption Any shares of convertible
preferred stock that are redeemed or otherwise acquired by the
Company or any of its subsidiaries shall be automatically and
immediately cancelled and retired and shall not
F-23
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
be reissued, sold or transferred. Neither the Company nor any of
its subsidiaries may exercise any voting or other rights granted
to the holders of the convertible preferred stock following
redemption.
|
|
12.
|
Derivative
Liabilities (Convertible Preferred Stock Warrant
Liabilities)
|
The Company had the following unexercised convertible preferred
stock warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Shares as of
|
|
|
Fair Value as of
|
|
|
|
Price per
|
|
|
December 31,
|
|
|
December 31,
|
|
Underlying Stock
|
|
Share
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Series A-1
convertible preferred stock
|
|
$
|
0.487
|
|
|
|
412
|
|
|
|
412
|
|
|
$
|
155
|
|
|
$
|
1,975
|
|
Series B convertible preferred stock
|
|
$
|
4.902
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
109
|
|
Series B convertible preferred stock
|
|
$
|
2.941
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
412
|
|
|
|
720
|
|
|
$
|
155
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Issued in Connection with Equipment Loans
In connection with the Equipment Loan #1 dated
December 30, 2008, the Company issued warrants to purchase
411,312 shares of the Companys
Series A-1
convertible preferred stock at an exercise price of
$0.487 per share. The agreement also required the Company
to issue another set of warrants as part of the next round of
equity financing to occur. With the issuance of Series B
convertible preferred stock on April 16, 2010, the lenders
of Equipment Loan #1 received warrants to purchase an
additional 30,600 shares of the Companys
Series B convertible preferred stock at an exercise price
of $4.902. Each set of warrants are exercisable upon issuance
and expire eight years from the issuance date. The issuance date
fair value of these warrants was estimated to be $155,000 and
has been recorded as a reduction, or discount, to the carrying
value of the loan. The discount is being amortized to interest
expense over the term of the loan. The interest expense for 2009
and 2010 was approximately $39,000 and $42,000, respectively.
The warrants were valued on the issuance date using the
following assumptions: a risk-free interest rate of 1.14%,
expected volatility of 72%, no expected dividend yield and a
term of eight years.
In connection with the Equipment Loan #2 dated
January 18, 2010, the Company issued warrants to purchase
16,998 shares of the Companys Series B
convertible preferred stock at an exercise price of
$2.941 per share. The warrants are exercisable upon
issuance and expire 10 years from the issuance date. The
issuance date fair value of these warrants was estimated to be
$42,000 and has been recorded as a reduction, or discount, to
the carrying value of the loan. The discount is being amortized
to interest expense over the term of the loan. The interest
expense for 2010 was approximately $12,000. The warrants were
valued on the issuance date using the following assumptions: a
risk-free interest rate of 0.50%, expected volatility of 98.8%,
no expected dividend yield and a term of 10 years.
Warrants
Issued in Connection with Business Loan
In connection with the Business Loan dated January 27,
2010, the Company issued warrants to purchase
261,460 shares of the Companys Series B
convertible preferred stock at an exercise price of
$2.941 per share. The warrants are exercisable upon
issuance and expire seven years from the issuance date. The
issuance date fair value of these warrants was estimated to be
$623,000 and has been recorded as a reduction, or discount, to
the carrying value of the loan. The discount is being amortized
to interest expense over the term of the loan. The interest
expense for 2010 was approximately $207,000. The warrants were
valued on the issuance date using the following assumptions: a
risk-free interest rate of 0.50%, expected volatility of 98.8%,
no expected dividend yield and a term of seven years.
F-24
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
The change in the fair value of convertible preferred stock
warrants resulted in a charge to other expense, net in the
amount of $2.4 million for the year ended December 31,
2010. The Company determined the fair value of the warrants as
of December 31, 2010 using the following assumptions:
|
|
|
|
|
Risk free interest rate
|
|
|
1.1
|
%
|
Expected volatility
|
|
|
115.0
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected lives (in years)
|
|
|
3.0
|
|
Each of these warrants includes a cashless exercise provision,
which permits the holder of the warrant to elect to exercise the
warrant without paying the cash exercise price, and receive a
number of shares determined by multiplying (i) the number
of shares for which the warrant is being exercised by
(ii) the difference between the fair market value of the
stock on the date of exercise and the warrant exercise price,
and dividing such by (iii) the fair market value of the
stock on the date of exercise. At December 31, 2010, all of
the warrants were outstanding and exercisable.
|
|
13.
|
Employee
Benefit Plan
|
The Company has a 401(k) plan covering all of its
U.S. employees. Effective May 1, 2010, the Company
began matching 100% of the first 3% of individual employee
contributions and 50% of the next 2% of individual employee
contributions. New employees can immediately join the plan and
participants immediately vest in employer matching
contributions. Employer matching contributions under the plan
totaled $0, $0 and $158,000 for the years ended
December 31, 2008, 2009 and 2010, respectively.
|
|
14.
|
Stock-Based
Compensation
|
2007
Stock Option/Stock Issuance Plan
The Company established the 2007 Stock Option/Stock issuance
Plan (the Plan) as a method to grant stock options,
common stock and Class A common stock as an incentive to
employees and nonemployees. The Plan, as originally approved,
provided for a maximum of 10.2 million common shares to be
granted to eligible employees, consultants and directors. On
April 16, 2010, the Plan was amended such that the maximum
number of common shares to be granted to eligible employees,
consultants and directors is now 22.0 million. Options
granted under the plan are granted at an exercise price that
approximates the fair market value of the stock at the time the
option is granted. The stock options expire on the tenth
anniversary of the date of grant. A portion of the stock options
became exercisable upon issuance and the remaining stock options
vest ratably over a five-year period. Common stock or
Class A common stock issued under the Plan are granted at
the discretion of the Plan administrator and are either granted
through the immediate purchase of such shares or as a bonus for
services rendered to the Company. Options to purchase
approximately 9.8 million shares of common stock and
options to purchase approximately 5.6 million shares of
Class A common stock were outstanding as of
December 31, 2010.
Options The Company recorded $331,000
and $930,000 in stock-based compensation expense related to
stock options granted under the Plan for the years ended
December 31, 2009 and 2010, respectively. During 2009, the
Company recorded $80,000 of compensation expense as general and
administrative expense and $251,000 as a research and
development expense on the Consolidated Statements of
Operations. During 2010, the Company recorded $702,000 of
compensation expense as general and administrative expense and
$228,000 as a research and development expense on the
Consolidated Statements of Operations. There is a remaining
$3.7 million in unrecognized stock-based compensation cost
that is expected to be recognized over a weighted-average period
of 3.4 years. The weighted-average grant-date fair market
value of options granted during the years ended
December 31, 2009 and 2010 was $0.084 and $0.80,
respectively.
F-25
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
No income tax benefit has been recognized relating to
stock-based compensation expense and no tax benefits have been
realized from exercised stock options.
Stock option activity for the Company was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2009
|
|
|
10,004
|
|
|
$
|
0.08625
|
|
|
|
9.56
|
|
|
$
|
933
|
|
Granted
|
|
|
6,238
|
|
|
$
|
1.79365
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(524
|
)
|
|
$
|
0.08375
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(310
|
)
|
|
$
|
0.08405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
15,408
|
|
|
$
|
0.77745
|
|
|
|
8.98
|
|
|
$
|
11,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2010
|
|
|
5,346
|
|
|
$
|
0.17250
|
|
|
|
8.68
|
|
|
$
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Subject to Repurchase In
accordance with the stock option agreement between the Company
and the holders of options to purchase shares of its common
stock, option holders may exercise their options prior to
vesting. The Company has the right to repurchase, at the lower
of the original purchase price or the then current fair market
value, any unvested (but issued) common shares upon termination
of service of the option holder. The consideration received for
an exercise of an unvested option is considered to be a deposit
of the exercise price and the related dollar amount is recorded
as a liability. The shares and liability are reclassified into
equity on a ratable basis as the award vests. As of
December 31, 2009 and 2010, there were no shares
outstanding subject to repurchase by the Company.
Stock Grants In March 2010, the Board
of Directors of the Company authorized the issuance of
895,520 shares of common stock to the Companys chief
executive officer in lieu of a cash bonus. The shares were
valued at $81,000 and were fully vested at the time of issuance.
In July 2010, the Board of Directors authorized the issuance of
60,000 Class A common shares to the Companys chief
executive officer in lieu of a cash bonus. The Class A
shares were fully vested at the time of issuance and were valued
at approximately $119,000. The share issuances were recorded as
compensation expense.
The Company has evaluated the period after the balance sheet
date through the date the consolidated financial statements were
issued, noting no subsequent events or transactions that
required recognition or disclosure in the financial statements.
Engineering,
Procurement Services and Construction Agreement
In January 2011, the Company executed an Engineering,
Procurement Services and Construction Agreement (the EPC
Agreement) with a subsidiary of KBR, Inc.
(KBR) and KiOR Columbus. The EPC Agreement is for
the engineering, procurement services, construction means,
methods, techniques, sequences, procedures, safety and security
programs in connection with the construction of a biomass
processing unit to be located in Columbus, Mississippi. The
agreement is estimated to result in approximately
$60.7 million of payments from the Company to KBR. During
the term of the EPC Agreement, KBR will provide invoices on a
monthly or bi-weekly basis and KiOR will provide payment within
15 days of invoice date. A license fee of $350,000 will be
assessed on each of the second through eighth additional biomass
processing unit that is constructed using KBRs FCC
technology.
F-26
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Hydrogen
Plant Lease Agreement
In connection with the construction of the Companys
initial-scale commercial production facility in Columbus,
Mississippi, in January 2011 the Company entered into a
15-year
lease agreement for a four million cubic foot per day hydrogen
plant. The hydrogen plant will be located at the Companys
facility in Columbus, Mississippi. Monthly lease payments of
$173,000 per month commence upon installation and
start-up of
the facility.
Memorandum
of Understanding Port Authority
In April 2011, the Company entered into a Memorandum of
Understanding (the MOU), between Lowndes County,
Mississippi; Lowndes County Port Authority; the City of
Columbus, Mississippi; Columbus Light and Water Department; KiOR
Columbus and the Company, to acquire land for the Companys
Columbus, Mississippi facility. The acquisition of the land was
subject to the execution of a final purchase agreement. Upon
execution of the MOU, KiOR placed $50,000 in escrow. The escrow
account is to be used to update the roads leading to the
commercial production facility and for site preparation. KiOR
also agreed to invest at least $100,000,000 in construction and
operation of a material production facility no later than
December 31, 2012. KiOR has also agreed to certain
milestones list as follows:
|
|
|
|
|
application by the Company for all necessary permits with
45 days, and grant of such permits within 120 days,
which has been completed;
|
|
|
|
completion of a site specific plan within 60 days;
|
|
|
|
design completion within 270 days; and
|
|
|
|
the commencement of substantial construction within one year of
the execution of the MOU.
|
KiOR has committed to employing at least 30 employees, with
aggregate salaries of at least $1.0 million once the
Columbus, Mississippi facility is fully operational. The Port
Authority in Lowndes County, Mississippi has agreed to convey
and lease at no additional cost approximately 29.78 acres
of land of which 7.43 acres of land belong to the
U.S. Army Corps of Engineers, in order for the Columbus,
Mississippi facility to be constructed. If the Company defaults
under the terms of the MOU
and/or the
definitive agreement, the escrow amount is forfeited. The
Company also has the responsibility of restoring the land to
original condition or paying $500,000 to the Port Authority in
lieu of restoration fees. The Company will pay an operation fee
related to the use of the site starting at such time as the
project becomes fully operational. For the first 10 years
of operations the fee shall be $35,000 monthly. With
completion of two years of operations the $50,000 escrowed funds
will be credited towards the monthly fee. During the second 10
years of operations, and thereafter, the annual operation fee
shall be equivalent to $50,000, to be adjusted beginning in year
11 and annually thereafter, by the increase in the Producers
Price Index for the previous 12 months.
2-for-1
Stock Split
On June 9, 2011, the Company authorized a
2-for-1
split of all common stock and convertible preferred stock
authorized, issued and outstanding at that time. All share and
per share amounts in the consolidated financial statements and
related notes have been restated to reflect the
2-for-1
split.
F-27
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Amendments
of Equipment and Business Loans
In February 2011 and April 2011, the Company amended certain of
its equipment and business loans to waive certain covenant
restrictions to allow the Company to enter into the Mississippi
Loan Agreement described below. In addition, the amendments
provided for a deferral of principal payment for one year,
included prepayment penalties and extended the maturities of the
loans to January 2014. All other terms were unchanged. Interest
during the principal deferral period is paid at 1% to 2.5% over
the original stated interest rate and reverts to the original
interest rate upon expiration of the deferral period. In
connection with the amendments, the Company paid aggregate fees
of $300,000 with $60,000 payable upon execution of the
amendments and the remainder payable upon maturity. In addition,
the Company agreed to issue warrants to purchase $300,000 of
securities issued in a next-round equity financing, if such
equity financing of at least $35 million is completed prior
to May 15, 2011. If such financing is not completed prior
to May 15, 2011, the Company will issue warrants to
purchase approximately 61,200 shares of Series C
Preferred Stock at an exercise price of $4.902 per share.
Mississippi
Loan Agreement
In March 2011, KiOR Columbus entered into a loan agreement with
the Mississippi Development Authority, or MDA, pursuant to which
the MDA has agreed to make disbursements to KiOR Columbus from
time to time, in a principal amount not to exceed
$75 million, to reimburse costs incurred by KiOR Columbus
to purchase land, construct buildings and to purchase and
install equipment for use in the manufacturing of the
Companys renewable crude oil and transportation fuels from
Mississippi-grown biomass. Principal payments on the loan are
due semiannually on June 30 and December 31 of each year,
commencing on the earlier of (a) December 31, 2012 and
(b) the next scheduled payment date that is at least six
months after the Company commences commercial production of
renewable crude oil from Mississippi-grown biomass at its
initial-scale commercial production facility for sale to
customers in the ordinary course of business. On each such
payment date, the Company is required to pay an amount equal to
the lesser of an amount sufficient to repay the total loan
within (a) a period of time determined by the
weighted-average life of the equipment being purchased with the
proceeds thereof or (b) 20 years. Under the loan agreement,
the Company committed to employing at least 30 employees,
with aggregate salaries of at least $1.0 million, once the
Companys initial-scale commercial production facility is
fully operational. In addition, the Company is required to pay
the entire outstanding principal amount of the loan, together
with all other applicable costs, charges and expenses no later
than the date 20 years from the date of its first payment on the
loan. This loan is non-interest bearing.
The loan agreement contains no financial covenants, and events
of default include a failure by KiOR Columbus to make specified
investments within Mississippi by December 31, 2015,
including an aggregate $500.0 million investment in
property, plant and equipment located in Mississippi and
expenditures for wages and direct local purchases totaling
$85.0 million. If an event of default occurs and is
continuing, the MDA may accelerate amounts due under the loan
agreement. The loan is secured by certain equipment, land and
buildings of KiOR Columbus.
Blendstock
Supply Agreement
In February 2011, the Company entered into an offtake agreement
with Hunt Refining Company (Hunt). The offtake
agreement establishes terms under which Hunt has agreed to
purchase gasoline, diesel and fuel blendstocks to be produced
from the Companys initial-scale commercial production
facility, which is expected to commence production in the second
half of 2012. Production and sale of the Companys fuel
products pursuant to the Companys agreement with Hunt will
depend on the satisfaction of contract-specific conditions,
including establishing product specifications and satisfying
commercial and production requirements.
F-28
KiOR,
Inc.
(A development stage enterprise)
Notes to Consolidated Financial
Statements (Continued)
Stock
Options
In March 2011, the Company amended the Plan to allow the Plan
Administrator to set the exercise price of any stock option
grants under the Plan, even if such exercise price did not
correspond with the fair value of the underlying common stock,
provided that such grants at the grant date contained conditions
of vesting and exercise for termination of services in
compliance with Section 409A of the Internal Revenue Code.
Concurrent with the Plan amendment, the Company issued options
to purchase an aggregate of 2,428,262 shares of
Class A common stock at $1.98 per share to three senior
executives. The fair value of the options granted under the Plan
had not been determined as of the grant date. The options vest
100% at the end of five years of service and expire on
December 31, 2016.
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(Amounts in thousands,
|
|
|
|
except share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,350
|
|
|
$
|
21,947
|
|
|
$
|
21,947
|
|
Restricted cash
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Prepaid expenses and other current assets
|
|
|
85
|
|
|
|
192
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
51,535
|
|
|
|
22,239
|
|
|
|
22,239
|
|
Property, plant and equipment, net
|
|
|
34,880
|
|
|
|
55,969
|
|
|
|
55,969
|
|
Intangible assets, net
|
|
|
2,426
|
|
|
|
2,378
|
|
|
|
2,378
|
|
Other assets
|
|
|
|
|
|
|
1,627
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
88,841
|
|
|
$
|
82,213
|
|
|
$
|
82,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Convertible Preferred Stock and
Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt, net of discount
|
|
$
|
4,480
|
|
|
$
|
667
|
|
|
$
|
667
|
|
Accounts payable
|
|
|
3,207
|
|
|
|
7,798
|
|
|
|
7,798
|
|
Accrued liabilities
|
|
|
671
|
|
|
|
709
|
|
|
|
709
|
|
Convertible preferred stock warrants liability
|
|
|
3,185
|
|
|
|
4,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,543
|
|
|
|
14,069
|
|
|
|
9,174
|
|
Long-term debt, less current portion, net of discount
|
|
|
5,037
|
|
|
|
8,567
|
|
|
|
8,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,580
|
|
|
|
22,636
|
|
|
|
17,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.0001 par
value, 24,000,000 shares authorized, 24,000,000 shares
issued and outstanding at December 31, 2010 and
March 31, 2011
|
|
|
4,360
|
|
|
|
4,360
|
|
|
|
|
|
Series A-1
convertible preferred stock, $0.0001 par value,
25,600,000 shares authorized, 20,571,576 shares issued
and outstanding at December 31, 2010 and March 31, 2011
|
|
|
10,024
|
|
|
|
10,024
|
|
|
|
|
|
Series B convertible preferred stock, $0.0001 par
value, 25,000,000 shares authorized, 24,479,802 issued and
outstanding at December 31, 2010 and March 31, 2011
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 72,000,000 shares
authorized at December 31, 2010 and March 31, 2011;
15,820,320 and 17,277,120 issued and outstanding at
December 31, 2010 and March 31, 2011, respectively;
61,848,696 shares issued pro forma
|
|
|
2
|
|
|
|
2
|
|
|
|
6
|
|
Class A common stock, $0.0001 par value;
112,100,000 shares authorized at December 31, 2010 and
March 31, 2011; 60,000 and 70,000 shares issued and
outstanding at December 31, 2010 and March 31, 2011,
respectively; 24,549,802 shares issued pro forma
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
4,199
|
|
|
|
4,908
|
|
|
|
144,180
|
|
Deficit accumulated during the development stage
|
|
|
(66,324
|
)
|
|
|
(79,717
|
)
|
|
|
(79,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(62,123
|
)
|
|
|
(74,807
|
)
|
|
|
64,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock and
stockholders deficit
|
|
$
|
88,841
|
|
|
$
|
82,213
|
|
|
$
|
82,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
July 23,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
Three Months Ended March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(4,381
|
)
|
|
$
|
(7,271
|
)
|
|
$
|
(43,113
|
)
|
General and administrative expenses
|
|
|
(1,226
|
)
|
|
|
(4,189
|
)
|
|
|
(17,403
|
)
|
Depreciation and amortization expenses
|
|
|
(279
|
)
|
|
|
(523
|
)
|
|
|
(3,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,886
|
)
|
|
|
(11,983
|
)
|
|
|
(63,576
|
)
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
170
|
|
Beneficial conversion feature expense
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
Interest expense, net of amounts capitalized
|
|
|
(367
|
)
|
|
|
|
|
|
|
(2,054
|
)
|
Foreign currency gain (loss)
|
|
|
8
|
|
|
|
|
|
|
|
(435
|
)
|
Loss from change in fair value of warrant liability
|
|
|
|
|
|
|
(1,410
|
)
|
|
|
(3,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(359
|
)
|
|
|
(1,410
|
)
|
|
|
(16,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,245
|
)
|
|
|
(13,393
|
)
|
|
|
(79,670
|
)
|
Income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
$
|
(79,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
(.11
|
)
|
|
$
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
14,774
|
|
|
|
16,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock, basic and diluted
(Note 2)
|
|
$
|
(.11
|
)
|
|
$
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing pro forma net
loss per share of common stock, basic and diluted (Note 2)
|
|
|
59,345
|
|
|
|
85,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements
F-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
Accum.
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common
|
|
|
Common
|
|
|
|
Addtl
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Stock
|
|
|
Stock
|
|
|
|
Paid-in
|
|
|
Dev.
|
|
|
Stockholders
|
|
|
|
Shrs
|
|
|
$
|
|
|
|
Shrs
|
|
|
$
|
|
|
Shrs
|
|
|
$
|
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
(unaudited)
|
|
|
|
(Amounts in thousands)
|
|
Balance at December 31, 2010
|
|
|
69,052
|
|
|
$
|
134,384
|
|
|
|
|
15,820
|
|
|
$
|
1
|
|
|
|
60
|
|
|
$
|
|
|
|
|
$
|
4,200
|
|
|
$
|
(66,324
|
)
|
|
$
|
(62,123
|
)
|
Stock-based compensation options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604
|
|
|
|
|
|
|
|
604
|
|
Stock options/warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
105
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,393
|
)
|
|
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
69,052
|
|
|
$
|
134,384
|
|
|
|
|
17,277
|
|
|
$
|
1
|
|
|
|
70
|
|
|
$
|
|
|
|
|
$
|
4,909
|
|
|
$
|
(79,717
|
)
|
|
$
|
(74,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements
F-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
July 23,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
|
|
Three Months Ended
|
|
|
through
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
$
|
(79,717
|
)
|
Adjustments to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
279
|
|
|
|
523
|
|
|
|
3,060
|
|
Stock-based compensation
|
|
|
49
|
|
|
|
604
|
|
|
|
1,865
|
|
Non cash compensation from warrants issued on common stock
|
|
|
|
|
|
|
|
|
|
|
298
|
|
Beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Derivative fair value adjustments
|
|
|
|
|
|
|
1,410
|
|
|
|
3,775
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
534
|
|
Amortization of debt discount
|
|
|
48
|
|
|
|
|
|
|
|
300
|
|
Changes in operating assets and liabilities
|
|
|
(325
|
)
|
|
|
(1,599
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,194
|
)
|
|
|
(12,455
|
)
|
|
|
(59,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(4,997
|
)
|
|
|
(16,641
|
)
|
|
|
(51,156
|
)
|
Purchases of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(427
|
)
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,997
|
)
|
|
|
(16,641
|
)
|
|
|
(51,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory note to
stockholder
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Proceeds from equipment loans
|
|
|
1,000
|
|
|
|
|
|
|
|
6,000
|
|
Payments on equipment loans
|
|
|
(392
|
)
|
|
|
(223
|
)
|
|
|
(2,801
|
)
|
Proceeds from business loans
|
|
|
7,000
|
|
|
|
|
|
|
|
7,000
|
|
Payments on business loans
|
|
|
|
|
|
|
(189
|
)
|
|
|
(1,108
|
)
|
Proceeds from stock option/warrants exercises
|
|
|
|
|
|
|
105
|
|
|
|
148
|
|
Proceeds from issuance of Series A convertible preferred
stock
|
|
|
|
|
|
|
|
|
|
|
4,360
|
|
Proceeds from issuance of
Series A-1
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
10,024
|
|
Proceeds from issuance of Series B convertible preferred
stock
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided/(used) by financing activities
|
|
|
7,608
|
|
|
|
(307
|
)
|
|
|
133,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(40
|
)
|
|
|
|
|
|
|
(82
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,623
|
)
|
|
|
(29,403
|
)
|
|
|
21,947
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
5,176
|
|
|
|
51,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,553
|
|
|
$
|
21,947
|
|
|
$
|
21,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued purchase of property, plant and equipment
|
|
$
|
2,038
|
|
|
$
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements
F-33
Organization
KiOR, Inc., a Delaware corporation (the Company), is
a next-generation renewable fuels company based in Houston,
Texas. The Company was incorporated and commenced operations in
July 2007 as a joint venture between Khosla Ventures, an
investment partnership, and BIOeCON B.V. (BIOeCON).
The accompanying condensed consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries, KiOR B.V. (in liquidation) and KiOR Columbus LLC.
KiOR B.V., a Netherlands company, was formed on March 4,
2008 and commenced the process of liquidation in March 2010. As
of December 31, 2010, all of the operations of KiOR B.V.
were combined into the operations of KiOR, Inc. KiOR Columbus,
LLC, a wholly owned subsidiary of the Company (KiOR
Columbus), was formed on October 6, 2010.
Nature
of Business
The Company has developed a proprietary technology platform to
convert abundant and sustainable non-food biomass into
hydrocarbon-based crude oil. The Company processes its renewable
crude oil using standard refinery equipment into gasoline and
diesel blendstocks that can be transported using the existing
fuels distribution system for use in vehicles on the road today.
Since inception, the Company has performed extensive research
and development efforts to develop, enhance, refine and
commercialize its
biomass-to-fuel
technology platform. The Company is now entering its
commercialization phase and, in the first quarter of 2011,
commenced construction of its first initial-scale commercial
production facility in Columbus, Mississippi.
Development
Stage Enterprise
The Company is a development stage enterprise, and has incurred
losses since inception. Until recently, the Company has focused
its efforts on the research and development of its
biomass-to-renewable
fuel technology platform, and it has yet to generate revenue
from its process. As a result, it has generated operating losses
of $63.6 million as of March 31, 2011 and has
accumulated a deficit of $79.7 million since inception. The
Company expects to continue to incur operating losses through at
least 2013 as it continues into the commercialization stage of
its business. The Companys ultimate success is dependent
upon the successful transition of the Company from primarily a
research and development company to an operating company. There
can be no assurance that the Companys proprietary
technologies will be successful on a commercial scale, that it
will be successful in funding its long-term expansion plans or
that it will be able to generate sufficient revenue in the
future to sustain operations.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America. Certain
information and note disclosures normally included in annual
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been condensed or omitted pursuant to these rules and
regulations. In the opinion of the Company, these financial
statements contain all adjustments necessary to present fairly
its financial position as of December 31, 2010 and
March 31, 2011 and the results of its operations and
changes in its cash flows for the three months ending
March 31, 2010 and 2011. All such adjustments represent
normal recurring items. These condensed consolidated financial
statements should be
F-34
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
read in conjunction with the financial statements as of and for
the year ended December 31, 2010 and the notes thereto
included in elsewhere in this Registration Statement on
Form S-1/A.
Use of
Estimates
The preparation of the condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period.
Accordingly, the three months ended March 31, 2011, are not
necessarily indicative of the results to be expected for the
year ending December 31, 2011 or for any other interim
period or for any future year.
Comprehensive
Income/Loss
The Company did not have any items of other comprehensive
income/loss during the three-month period ended March 31,
2011. During the three-month period ended March 31, 2010,
the Company recognized a cumulative translation loss of $40,000.
Stock
Split
On April 16, 2010, the Company authorized a
4-for-1
split on all common stock and convertible preferred stock
authorized, issued and outstanding at that time. All share and
per share amounts in the consolidated financial statements and
related notes have been restated to reflect the 4-for-1 split.
Pro
Forma Balance Sheet
Upon the completion of the sale of shares of the Companys
Class A common stock to the public in a firm commitment
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, resulting in at least $50.0 million of gross
proceeds to the Company, net of the underwriting discount and
commissions, (1) all outstanding shares of the
Series A and
Series A-1
convertible preferred stock will convert into 44.6 million
shares of common stock on a 1-to-1 basis (which will be renamed
Class B common stock prior to the completion of
the Companys initial public offering), and (2) all
outstanding shares of Series B convertible preferred stock
will convert automatically into 24.4 million shares of
Class A common stock on a 1-to-1 basis. In addition,
(1) warrants to purchase 411,312 shares of
Series A-1
convertible preferred stock will automatically be converted into
warrants to purchase an equivalent number of Class B common
shares, and (2) warrants to purchase 308,000 shares of
Series B convertible preferred stock will automatically be
converted into warrants to purchase an equivalent number of
Class A common shares. The related convertible preferred
stock warrant liability of $4.9 million at March 31,
2011 would be reclassified to additional paid-in capital at the
fair value of the warrants as of the conversion date. The pro
forma balance sheet information at March 31, 2011 gives
effect to the conversion of all convertible preferred stock
warrants to warrants to purchase Class A and Class B
common stock and assumes all convertible preferred shares are
converted into 69 million shares of Class A and
Class B common stock as described above.
Net
Loss per Share of Common Stock
Basic net loss per share of common stock is computed by dividing
the Companys net loss attributable to its stockholders by
the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share of
common stock is computed by giving effect to all potentially
dilutive securities, including stock options, warrants and
convertible preferred stock. Basic and diluted net loss per
share of common stock attributable to the Companys
stockholders was the same for all periods presented on the
F-35
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Condensed Consolidated Statements of Operations, as the
inclusion of all potentially dilutive securities outstanding
would have been anti-dilutive. As such, the numerator and the
denominator used in computing both basic and diluted net loss
per share are the same for each period presented.
All of the Companys preferred stock participate in
earnings or losses of the Company. Consequently, the
calculations for the pro forma basic and diluted net loss per
share of common stock attributable to the Companys
stockholders assume the conversion of all outstanding shares of
convertible preferred stock into corresponding shares of Class A
common stock and Class B common stock, as if the conversions had
occurred at beginning of the period presented. Also, the
numerator in the pro forma basic and diluted net loss per share
calculation has been adjusted to remove gains and losses
resulting from re-measurements of the convertible preferred
stock warrant liability as these measurements would no longer be
required when the convertible preferred stock warrants convert
into warrants to purchase shares of the Companys Class A
and Class B common stock.
The following table presents the calculation of historical basic
and diluted net loss per share of common stock attributable to
the Companys stockholders:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Historical net loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
Net loss attributable to preferred stockholders
|
|
|
4,690
|
|
|
|
10,831
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders basic
and diluted
|
|
$
|
(1,555
|
)
|
|
$
|
(2,562
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing net loss per
share of common stock basic and diluted
|
|
|
14,774
|
|
|
|
16,330
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock attributable to common
stockholders basic and diluted
|
|
$
|
(.11
|
)
|
|
$
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
F-36
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Pro forma net loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders basic
and diluted
|
|
$
|
(1,555
|
)
|
|
$
|
(2,562
|
)
|
Net loss attributable to preferred stockholders
|
|
|
(4,690
|
)
|
|
|
(10,831
|
)
|
|
|
|
|
|
|
|
|
|
Net loss in computing pro forma net loss per share of common
stock attributable to common stockholders basic and
diluted
|
|
$
|
(6,245
|
)
|
|
$
|
(13,393
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock used in computing net
loss per share of common stock basic and diluted
|
|
|
14,774
|
|
|
|
16,330
|
|
Pro forma adjustment to reflect weighted-average effect of
assumed conversion of convertible preferred stock
|
|
|
44,571
|
|
|
|
69,051
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock used in computing pro
forma net loss per share of common stock basic and
diluted
|
|
|
59,345
|
|
|
|
85,381
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share of common stock attributable to
common stockholders basic and diluted
|
|
$
|
(.11
|
)
|
|
$
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
The following outstanding shares on a weighted average basis of
potentially dilutive securities were excluded from the
computation of diluted net loss per share of common stock for
the periods presented because including them would have been
antidilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Convertible preferred stock (as converted basis)
|
|
|
44,571
|
|
|
|
69,051
|
|
Convertible preferred stock warrants (as converted basis)
|
|
|
595
|
|
|
|
721
|
|
Common stock warrants (as converted basis)
|
|
|
|
|
|
|
157
|
|
Stock options
|
|
|
9,818
|
|
|
|
14,290
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54,984
|
|
|
|
84,219
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
There have been no recent accounting pronouncements or changes
in accounting pronouncements which we expect to have a material
impact on our financial statements, nor do we believe that any
other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on
our financial statements.
|
|
3.
|
Fair
Value of Financial Instruments
|
The Companys assessment of the significance of a
particular input to the fair value measurement in its entirety
requires management to make judgments and consider factors
specific to the asset or liability. As of December 31, 2010
and March 31, 2011, the Company considered the cash and
cash equivalents restricted cash and accounts payable to be
representative of their fair values because of their short-term
maturities.
F-37
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Further, the Companys long-term debt approximates fair
value as it has been negotiated on an arms length basis
with reputable third-party lenders at prevailing market rates.
Assets and liabilities recorded at fair value in the condensed
consolidated financial statements are categorized based upon the
level of judgment associated with the inputs used to measure
their fair value. Hierarchical levels, which are directly
related to the amount of subjectivity associated with the inputs
to the valuation of these assets or liabilities are as follows:
|
|
|
|
|
Level 1 Observable inputs, such as
quoted prices in active markets for identical assets or
liabilities.
|
|
|
|
Level 2 Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
|
|
|
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities and
which reflect managements best estimate of what market
participants would use in pricing the asset or liability at the
measurement date. Consideration is given to risk inherent in the
valuation technique and the risk inherent in the inputs to the
model.
|
Assets and liabilities measured at fair value are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement. The following tables
set forth the Companys financial instruments that were
measured at fair value on a recurring basis by level within the
fair value hierarchy (amounts in tables in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
45,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
45,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,185
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,185
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
14,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
14,033
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock warrants liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,895
|
|
|
$
|
4,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,895
|
|
|
$
|
4,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds decreased $31.0 million due to
expenditures of approximately $16.6 million for the
construction of our plant in Columbus, Mississippi and other
capital expenditures, approximately $12.5 million for
operating expenses and the remainder of $0.9 million was
transferred to cash accounts.
F-38
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The change in the fair value of the convertible preferred stock
warrant liability is summarized below (amounts in thousands):
|
|
|
|
|
Fair value as of December 31, 2010
|
|
$
|
3,185
|
|
Fair value of warrants liability for loan amendment
|
|
|
300
|
|
Change in fair value of warrant liability
|
|
|
1,410
|
|
|
|
|
|
|
Fair value as of March 31, 2011
|
|
$
|
4,895
|
|
|
|
|
|
|
The Companys assets and liabilities that are measured at
fair value on a non-recurring basis include long-lived assets
and intangible assets. These items are recognized at fair value
when they are considered to be impaired. At December 31,
2010 and March 31, 2011, there were no required fair value
adjustments for assets and liabilities measured at fair value on
a non-recurring basis.
|
|
4.
|
Property
, Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
$
|
14,604
|
|
|
$
|
34,861
|
|
Lab and testing equipment
|
|
|
3,250
|
|
|
|
3,553
|
|
Leasehold improvement
|
|
|
2,194
|
|
|
|
2,573
|
|
Manufacturing, machinery and equipment
|
|
|
16,305
|
|
|
|
16,830
|
|
Computer equipment and software
|
|
|
347
|
|
|
|
428
|
|
Furniture and fixtures
|
|
|
143
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
36,843
|
|
|
|
58,406
|
|
Less: accumulated depreciation
|
|
|
(1,963
|
)
|
|
|
(2,437
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
34,880
|
|
|
$
|
55,969
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $232,000 and $475,000 for the three
months ended March 31, 2010 and 2011, respectively.
Construction in progress as of December 31, 2010 and
March 31, 2011 includes capitalized interest of $118,000
and $443,000, respectively. During the three-month periods ended
March 31, 2010 and 2011 the Company capitalized interest of
zero and $325,000, respectively.
F-39
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Purchased biomass conversion technology
|
|
$
|
2,599
|
|
|
$
|
2,599
|
|
Accumulated amortization
|
|
|
(535
|
)
|
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
Purchased biomass conversion technology, net
|
|
|
2,064
|
|
|
|
2,021
|
|
Technology licenses
|
|
|
400
|
|
|
|
400
|
|
Accumulated amortization
|
|
|
(38
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
Technology licenses, net
|
|
|
362
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
2,426
|
|
|
$
|
2,378
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense was $48,000 for the three
months ended March 31, 2010 and 2011.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Amounts in thousands)
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Equipment loans
|
|
$
|
3,710
|
|
|
$
|
3,507
|
|
Business loan
|
|
|
6,327
|
|
|
|
6,194
|
|
Less: unamortized debt discounts
|
|
|
(520
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
Total debt, net of discount
|
|
|
9,517
|
|
|
|
9,234
|
|
Less: current portion
|
|
|
(4,480
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of discount
|
|
$
|
5,037
|
|
|
$
|
8,567
|
|
|
|
|
|
|
|
|
|
|
Equipment
Loans
Equipment Loan #1 On
December 30, 2008, the Company entered into their first
equipment loan agreement with Lighthouse Capital Partners VI,
LP. The loan agreement provides for advances at $100,000 minimum
increments up to $5.0 million in the aggregate for
purchases of equipment. All advances must have been funded no
later than September 30, 2009. Each advance represents a
separate loan tranche that is payable monthly over a three-year
period from the date of issuance of the advance at an annual
interest rate of 7.5%. In addition, at loan maturity, the
Company is required to make a payment equal to 7.5% of the total
principal on the loan, which is amortized over the life of the
loan and included in interest expense on the Condensed
Consolidated Statements of Operations. The loans mature at dates
from March 2012 to October 2012.
During 2009, the Company borrowed all $5.0 million
available under the loan. The loan tranches are collateralized
by certain of the Companys production pilot unit, lab
equipment and office equipment valued at approximately
$5.0 million.
F-40
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Equipment Loan #2 On
March 17, 2010, the Company entered into a second equipment
loan agreement with Silicon Valley Bank with total availability
of $1.0 million, limited to two advances of at least
$500,000 each. The full amount of the availability under the
loan agreement was drawn down in a single advance of
$1 million. The loan is payable monthly over a three-year
period at an annual interest rate of 10%. The loan is
collateralized by the equipment purchased with the advances
valued at approximately $1.3 million.
Business
Loan
On January 27, 2010, the Company entered into its first
business loan agreement with Lighthouse Capital Partners VI,
L.P. and Leader Lending, LLC for an amount of up to
$7.0 million. Advances are payable monthly over a
three-year period at an annual interest rate of 12% commencing
on the date of the advance. In addition, at loan maturity, the
Company is required to make a payment equal to 7.5% of the total
amount drawn on the loan, which is amortized over the life of
the loan and included in interest expense on the Consolidated
Statements of Operations.
During 2010, the Company borrowed the full $7.0 million
under the loan agreement. The loan is collateralized by the
Companys assets not previously pledged as collateral on
the equipment loans described above.
Amendments
of Equipment and Business Loan
In February 2011 and April 2011, the Company amended equipment
loan #1 and both business loans to waive certain covenant
restrictions to allow the Company to enter into the Mississippi
Loan Agreement. In addition, the amendments provided for a
deferral of principal payment for one year, included prepayment
penalties and extended the maturities of the loans to January
2014. All other terms were unchanged. Interest during the
principal deferral period is paid at 1% to 2.5% over the
original stated interest rate and reverts to the original
interest rate upon expiration of the deferral period. In
connection with the amendments, the Company paid aggregate fees
of $60,000 upon execution of the amendments and agreed to pay
$240,000 upon maturity. In addition, the Company agreed to issue
warrants to purchase $300,000 of securities issued in a
next-round equity financing, if such equity financing of at
least $35 million is completed prior to May 15, 2011.
If such financing was not completed prior to May 15, 2011,
the Company agreed to issue warrants to purchase
61,200 shares of Series B Preferred Stock at an
exercise price of $4.902 per share. The Series C
convertible preferred stock issued in April 2011 in the
aggregate amount of $55.0 million (see Note 13
Subsequent Events) met the next-round equity financing
requirement and, as a result, warrants to purchase 61,200 shares
of Series C convertible preferred stock at an exercise
price of $4.902 per share are required to be issued in
connection with the equipment and business loan amendments. As
of March 31, 2011, no warrants had been issued. The Company
recorded a liability of $300,000 in connection with the warrants
that are required to be issued.
Mississippi
Loan Agreement
In March 2011, KiOR Columbus entered into a loan agreement with
the Mississippi Development Authority, or MDA, pursuant to which
the MDA has agreed to make disbursements to KiOR Columbus from
time to time, in a principal amount not to exceed
$75 million, to reimburse costs incurred by KiOR Columbus
to purchase land, construct buildings and to purchase and
install equipment for use in the manufacturing of the
Companys renewable crude oil and transportation fuels from
Mississippi-grown biomass. Principal payments on the loan are
due semiannually on June 30 and December 31 of each year,
commencing on the earlier of (a) December 31, 2012 and
(b) the next scheduled payment date that is at least six
months after the Company commences commercial production of
renewable crude oil from Mississippi-grown biomass at its
initial-scale commercial production facility for sale to
customers in the ordinary course of business. On each such
payment
F-41
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
date, the Company is required to pay an amount equal to the
lesser of an amount sufficient to repay the total loan within
(a) a period of time determined by the weighted-average
life of the equipment being purchased with the proceeds thereof
or (b) 20 years. Under the loan agreement, the Company
committed to employing at least 30 employees, with
aggregate salaries of at least $1.0 million, once the
Companys initial-scale commercial production facility is
fully operational. In addition, the Company is required to pay
the entire outstanding principal amount of the loan, together
with all other applicable costs, charges and expenses no later
than the date 20 years from the date of its first payment on the
loan. The loan is non-interest bearing.
The loan agreement contains no financial covenants, and events
of default include a failure by KiOR Columbus to make specified
investments within Mississippi by December 31, 2015,
including an aggregate $500.0 million investment in
property, plant and equipment located in Mississippi and
expenditures for wages and direct local purchases totaling
$85.0 million. If an event of default occurs and is
continuing, the MDA may accelerate amounts due under the loan
agreement. The loan is secured by certain equipment, land and
buildings of KiOR Columbus.
In April 2011, the Company received $26.6 million of the
Mississippi Loan to reimburse the Company for expenses incurred
on the construction of the commercial production facility
located in Columbus, Mississippi.
The effective tax rate for the three months ended March 31,
2010 and 2011 was 0%.
At December 31, 2010 and March 31, 2011, the Company
had a federal net operating loss carryforward balance of
$18.1 million and $21.0 million, respectively. If
unused, the net operating loss carryforwards begin expiring in
2028. The Company has a full valuation allowance of
$23.2 million for its net deferred tax assets because the
Company has incurred losses since inception. In addition,
certain changes in the ownership of the Company could result in
limitations on the Companys ability to utilize the federal
net operating loss carryforwards.
The tax years that remain open to examination by the major
taxing jurisdictions to which the Company is subject range from
2008 to 2010. The Company has identified its major taxing
jurisdictions as the United States of America, the State of
Texas and the State of Mississippi.
|
|
8.
|
Commitments
and Contingencies
|
Litigation
From time to time, the Company may be subject to legal
proceedings and claims that arise in the ordinary course of
business. The Company is not a party to any material litigation
or proceedings and is not aware of any material litigation or
proceedings, pending or threatened against it.
New
Equipment Purchases
The Company has several contracts in place for the purchase of
various manufacturing equipment related to the construction of
its initial-scale commercial production facility in Columbus,
Mississippi. These contracts are non-cancelable and payments are
due at various intervals based on the progress of the assembly
of the equipment. As of March 31, 2011, payments
aggregating to $48.0 million are due at various times with
the final payments due at time of completion, which is estimated
to be in September 2011.
F-42
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Common
Stock Warrants
The Company had warrants outstanding to purchase
157,424 shares of its Class A common stock at an
exercise price of $.09 per share. During the three-month period
ended March 31, 2011, 10,000 shares of the warrants
were exercised at $.09 per share for net proceeds received by
the Company of $900 leaving warrants to purchase
147,424 shares outstanding at March 31, 2011.
|
|
10.
|
Convertible
Preferred Stock Warrants
|
Warrants
Issued in Connection with Equipment Loans
In connection with the Equipment Loan #1 dated
December 30, 2008, the Company issued warrants to purchase
411,312 shares of the Companys
Series A-1
convertible preferred stock at an exercise price of $.4865 per
share. The agreement also required the Company to issue another
set of warrants as part of the next round of equity financing to
occur. With the issuance of Series B convertible preferred
stock on April 16, 2010, the lenders of Equipment
Loan #1 received warrants to purchase an additional
30,600 shares of the Companys Series B
convertible preferred stock at an exercise price of $4.902. Each
set of warrants are exercisable upon issuance and expire eight
years from the issuance date. The issuance date fair value of
these warrants was estimated to be $155,000 and has been
recorded as a reduction, or discount, to the carrying value of
the loan. The discount is being amortized to interest expense
over the term of the loan. The warrants were valued on the
issuance date using the following assumptions: a risk-free
interest rate of 1.14%, expected volatility of 72%, no expected
dividend yield and a term of eight years.
In connection with the Equipment Loan #2 dated
January 18, 2010, the Company issued warrants to purchase
16,998 shares of the Companys Series B
convertible preferred stock at an exercise price of $2.941 per
share. The warrants are exercisable upon issuance and expire
10 years from the issuance date. The issuance date fair
value of these warrants was estimated to be $42,000 and has been
recorded as a reduction, or discount, to the carrying value of
the loan. The discount is being amortized to interest expense
over the term of the loan. The warrants were valued on the
issuance date using the following assumptions: a risk-free
interest rate of 0.50%, expected volatility of 98.8%, no
expected dividend yield and a term of 10 years.
Warrants
Issued in Connection with Business Loan
In connection with the Business Loan dated January 27,
2010, the Company issued warrants to purchase
261,460 shares of the Companys Series B
convertible preferred stock at an exercise price of $2.941 per
share. The warrants are exercisable upon issuance and expire
seven years from the issuance date. The issuance date fair value
of these warrants was estimated to be $623,000 and has been
recorded as a reduction, or discount, to the carrying value of
the loan. The discount is being amortized to interest expense
over the term of the loan. The warrants were valued on the
issuance date using the following assumptions: a risk-free
interest rate of 0.50%, expected volatility of 98.8%, no
expected dividend yield and a term of seven years.
Convertible
Preferred Stock Warrant Liability
Outstanding warrants to purchase shares of the Companys
convertible preferred stock are freestanding warrants that are
subject to redemption and are therefore classified as
liabilities on the Condensed Consolidated Balance Sheets at fair
value. The initial liability recorded is adjusted for changes in
fair value at each reporting date with an offsetting entry
recorded as a component of other income (expense) in the
Condensed Consolidated Statements of Operations. The liability
will continue to be adjusted for changes in fair value until the
earlier event of the exercise date or the conversion of the
underlying convertible preferred stock into the corresponding
Class A common stock and common stock. Upon conversion of
the underlying
F-43
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
convertible preferred stock, the warrants will automatically
convert into warrants to purchase an equivalent number of shares
of Class A common stock and common stock using the same exercise
provisions, exercise prices and expiration dates as the warrants
to purchase convertible preferred stock. Also, upon conversion,
the warrants will cease to be subject to redemption and will be
reclassified to additional paid-in capital in stockholders
deficit on the Condensed Consolidated Balance Sheets. The
Company estimates the fair value of its convertible preferred
stock warrants using the Black-Scholes option-pricing model.
Warrant
Liability
In February 2011, the Company agreed to issue warrants to the
lenders in connection with amendments of certain equipment and
business loans (see Note 6 Long-Term Debt). As of
March 31, 2011, no warrants had been issued. The Company
recorded a liability of $300,000 in connection with the warrants
that are required to be issued. As of March 31, 2011, the
warrant liability was recorded at a fair value of $319,000.
Convertible preferred stock warrants liability consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Shares as of
|
|
|
Fair Value as of
|
|
|
|
Price per
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
Underlying Stock/Description
|
|
Share
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
Series A-1
convertible preferred stock
|
|
$
|
0.487
|
|
|
|
411
|
|
|
|
411
|
|
|
$
|
1,975
|
|
|
$
|
2,752
|
|
Series B convertible preferred stock
|
|
$
|
4.902
|
|
|
|
31
|
|
|
|
31
|
|
|
|
109
|
|
|
|
170
|
|
Series B convertible preferred stock
|
|
$
|
2.941
|
|
|
|
279
|
|
|
|
279
|
|
|
|
1,101
|
|
|
|
1,654
|
|
Warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
721
|
|
|
|
721
|
|
|
$
|
3,185
|
|
|
$
|
4,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Employee
Benefit Plan
|
The Company has a 401(k) plan covering all of its
U.S. employees. Effective May 1, 2010, the Company
began matching 100% of the first 3% of individual employee
contributions and 50% of the next 2% of individual employee
contributions. New employees can immediately join the plan and
participants immediately vest in employer matching
contributions. Employer matching contributions under the plan
totaled zero and $87,500 for the three months ended
March 31, 2010 and 2011, respectively.
|
|
12.
|
Stock-Based
Compensation
|
2007
Stock Option/Stock Issuance Plan
The Company established the 2007 Stock Option/Stock issuance
Plan (the Plan) as a method to grant stock options,
common stock and Class A common stock as an incentive to
employees and nonemployees. The Plan, as originally approved,
provided for a maximum of 10.2 million common shares to be
granted to eligible employees, consultants and directors. On
April 16, 2010, the Plan was amended such that the maximum
number of common shares to be granted to eligible employees,
consultants and directors is now 22.0 million. Options
granted under the plan are granted at an exercise price that
approximates the fair market value of the stock at the time the
option is granted. The stock options expire on the tenth
anniversary of the date of grant. A portion of the stock options
became exercisable upon issuance and the remaining stock options
vest ratably over a five-year period. Common stock or
Class A common stock issued under the Plan are granted at
the discretion of the Plan administrator and are either granted
through the immediate purchase of such shares or as a bonus for
services
F-44
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
rendered to the Company. Options to purchase approximately
9.8 million shares of common stock and options to purchase
approximately 5.6 million shares of Class A common
stock were outstanding as of December 31, 2010. Options to
purchase approximately 7.0 million shares of common stock
and options to purchase approximately 8.0 million shares of
Class A common stock were outstanding as of March 31,
2011.
In March 2011, the Company amended the Plan to allow the Plan
Administrator to set the exercise price of any stock option
grants under the Plan, even if such exercise price did not
correspond with the fair value of the underlying common stock,
provided that such grants at the grant date contained conditions
of vesting and exercise for termination of services in
compliance with Section 409A of the Internal Revenue Code.
Concurrent with the Plan amendment, the Company issued options
to purchase an aggregate of 2,428,262 shares of
Class A common stock at $1.98 per share to three senior
executives. The options vest 100% at the end of five years of
service and expire on December 31, 2016. The options were
valued at $12.04 on the grant date using the following
assumptions: a risk-free interest rate of 2.13%, expected
volatility of 84%, no expected dividend yield and a term of five
and one half years. The total value of the options as of the
grant date was determined to be $14.6 million, which will
be amortized over the vesting period of the options of five
years.
Compensation Expense The Company
recorded $49,000 and $604,000 in stock-based compensation
expense related to stock options granted under the Plan for the
three months ended March 31, 2010 and 2011, respectively.
During the first quarter of 2010, the Company recorded $34,000
of compensation expense as general and administrative expense
and $15,000 as a research and development expense on the
Condensed Consolidated Statements of Operations. During the
first quarter of 2011, the Company recorded $536,000 of
compensation expense as general and administrative expense and
$68,000 as a research and development expense on the Condensed
Consolidated Statements of Operations. There is a remaining
$17.8 million in unrecognized stock-based compensation cost
that is expected to be recognized over a weighted-average period
of 4.1 years. The weighted-average grant-date fair market
value of options granted during the period ended March 31,
2010 and 2011 was $.06 and $6.02, respectively.
No income tax benefit has been recognized relating to
stock-based compensation expense and no tax benefits have been
realized from exercised stock options.
Stock option activity for the Company was as follows:
|
|
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|
|
|
|
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|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(In thousands)
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
15,408
|
|
|
$
|
.7470
|
|
Granted
|
|
|
2,428
|
|
|
$
|
1.98
|
|
Exercised
|
|
|
(1,457
|
)
|
|
$
|
.085
|
|
Forfeited
|
|
|
(1,288
|
)
|
|
$
|
.1039
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
15,091
|
|
|
$
|
1.064
|
|
|
|
|
|
|
|
|
|
|
Common Stock Subject to Repurchase In
accordance with the stock option agreement between the Company
and the holders of options to purchase shares of its common
stock, option holders may exercise their options prior to
vesting. The Company has the right to repurchase, at the lower
of the original purchase price or the then current fair market
value; any unvested (but issued) common shares upon termination
of service of the option holder. The consideration received for
an exercise of an unvested option is considered to be a deposit
of the exercise price and the related dollar amount is recorded
as a liability. The shares and liability are reclassified into
equity on a ratable basis as the award vests. As of
December 31, 2010 and March 31, 2011, there were no
shares outstanding subject to repurchase by the Company.
F-45
KIOR,
Inc.
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Stock Grants In March 2010, the Board
of Directors of the Company authorized the issuance of
896,000 shares of common stock to the Companys chief
executive officer in lieu of a cash bonus. The shares were
valued at $81,000 and were fully vested at the time of issuance
and recorded as stock-based compensation expense.
Issuance
of Series C Convertible Preferred Stock
In April 2011, the Company issued 11,219,908 shares of
Series C convertible preferred stock for total
consideration of $55.0 million. Each share of Series C
has the same voting rights has Series A,
Series A-1
and Series B. The holders of the Series C convertible
preferred stock shall receive a dividend, if declared, on each
such outstanding share in an amount at least equal to $.3921.
Each share of Series C convertible preferred stock is
convertible at the option of the holder at any time without
payment of additional consideration into such number of fully
paid and non-assessable shares of Class A common stock as
is determined by dividing the original issue price of the
Series C convertible preferred stock, by the Series C
convertible preferred stock conversion price, which is initially
equal to the original issue price of $4.902. The conversion
price is adjusted to 80% of the issuance price of the
Companys Class A common stock, if the Company
completes an initial public offering of Class A common
stock with aggregate proceeds greater than $50.0 million
and at a price in excess of $4.902 per Class A common share
by October 31, 2011. The conversion price is also subject
to adjustment upon issuance of additional shares of Class A
common stock or common stock by the Company.
Registration
Statement
In April 2011, the Company filed a registration statement on
Form S-1
with the U.S. Securities and Exchange Commission relating
to a proposed initial public offering of its Class A common
stock.
2-for-1
Stock Split
On June 9, 2011, the Company authorized a 2-for-1 split of
all common stock and convertible preferred stock authorized,
issued and outstanding at that time. All share and per share
amounts in the condensed consolidated financial statements and
related notes have been restated to reflect the 2-for-1 split.
F-46
Dealer Prospectus
Delivery Obligation
Until ,
2011 (25 days after commencement of this offering), all
dealers that buy, sell, or trade shares of our Class A
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
expenses of issuance and distribution
|
The following table sets forth the costs and expenses to be paid
by us in connection with the sale of the shares of Class A
common stock being registered hereby. All amounts are estimates
except for the SEC registration fee, the FINRA filing fee and
the Nasdaq listing fee.
|
|
|
|
|
Securities and Exchange Commission registration fee
|
|
$
|
28,039
|
|
FINRA filing fee
|
|
|
24,650
|
|
Nasdaq listing fee
|
|
|
150,000
|
|
Accounting fees and expenses
|
|
|
395,000
|
|
Legal fees and expenses
|
|
|
1,125,000
|
|
Printing and engraving expenses
|
|
|
400,000
|
|
Transfer agent and registrar fees and expenses
|
|
|
2,500
|
|
Other expenses
|
|
|
300,000
|
|
|
|
|
|
|
Total
|
|
$
|
2,425,189
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of directors and officers
|
Section 145 of the General Corporation Law of the State of
Delaware (the DGCL) authorizes a corporation, under
certain circumstances, to indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact
that the person is or was an officer or director of such
corporation, or is or was serving at the request of that
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the corporation. With respect to any criminal
action or proceeding, such indemnification is available if he
had no reasonable cause to believe his conduct was unlawful.
Article VIII of the registrants Amended and Restated
Bylaws (the Bylaws), will provide for
indemnification of each person who is or was made a party to any
actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding because such person is,
was or has agreed to become an officer or director of the
registrant or is a person who is or was serving or has agreed to
serve at the request of the registrant as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation or of a partnership,
joint venture, sole proprietorship, trust, employee benefit plan
or other enterprise to the fullest extent permitted by the DGCL
as it existed at the time the indemnification provisions of the
Bylaws were adopted or as may be thereafter amended. Article
VIII expressly provides that it is not the exclusive method of
indemnification.
Section 145 of the DGCL also empowers a corporation to
purchase and maintain insurance on behalf of any person who is
or was an officer or director of such corporation against
liability asserted against or incurred by him in any such
capacity, whether or not such corporation would have the power
to indemnify such officer or director against such liability
under the provisions of Section 145.
Article VIII of the Bylaws will also provide that the
registrant may maintain insurance, at the registrants
expense, to protect the registrant and any director, officer,
employee or agent of the registrant or of another entity against
any expense, liability, or loss, regardless of whether the
registrant would have the power to indemnify such person against
such expense, liability or loss under the DGCL.
II-1
Section 102(b)(7) of the DGCL provides that a certificate
of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such provision shall not eliminate
or limit the liability of a director (a) for any breach of
the directors duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or
dividends on, capital stock) or (d) for any transaction
from which the director derived improper personal benefit.
Article VIII of the registrants Amended and Restated
Certificate of Incorporation will contain such a provision.
The underwriting agreement to be entered into in connection with
this offering will provide that the Underwriters shall indemnify
the registrant, its directors and certain officers of the
registrant against liabilities resulting from information
furnished by or on behalf of the Underwriters specifically for
use in the Registration Statement. Please read
Item 17. Undertakings for a description of the
Commissions position regarding such indemnification
provisions.
|
|
Item 15.
|
Recent
sales of unregistered securities
|
During the past three years, we have issued unregistered
securities to a number of persons, as described below (after
giving effect to a 4-for-1 stock split in April 2010 and 2-for-1
stock split in June 2011):
(a) Equity Issuances
|
|
|
|
|
In November 2007, we issued and sold 14,400,000 shares of
our Class B common stock to an accredited investor for
intellectual property valued at approximately $2.6 million.
|
|
|
|
|
|
In November 2007 and June 2008, we issued and sold an aggregate
of 24,000,000 shares of our Series A preferred stock
at $0.183 per share for an aggregate purchase price of
approximately $4.4 million to an accredited investor.
|
|
|
|
|
|
In June 2008, we issued and sold 20,571,576 shares of our
Series A-1
preferred stock at $0.487 per share for an aggregate purchase
price of approximately $10 million to an accredited
investor.
|
|
|
|
|
|
From April to July 2010, we issued and sold an aggregate of
19,379,844 shares of our Series B preferred stock at $4.902
per share for an aggregate purchase price of approximately
$95 million to 12 accredited investors. In addition, in
April 2010, we issued 5,099,958 shares of our Series B
preferred stock to an accredited investor in exercise of the
conversion of a convertible promissory note in the amount of
$15,000,000, representing a per share purchase price of $2.941
per share.
|
|
|
|
|
|
In April 2011, we issued and sold an aggregate of
11,219,908 shares of our Series C convertible
preferred stock at $4.902 per share for an aggregate purchase
price of approximately $55.0 million to eight accredited
investors that were existing investors in our company.
|
(b) Debt Issuance
|
|
|
|
|
In August 2009, we issued a convertible promissory note in the
amount of $15,000,000 to an accredited investor. Before any of
the principal was repaid, this note was converted into
5,099,958 shares of Series B preferred stock at a
conversion price of $2.941 per share as described above.
|
(c) Warrant Issuances
|
|
|
|
|
In December 2008, we issued a warrant to purchase
411,312 shares of our
Series A-1
preferred stock at an exercise price of $0.487 per share to
Lighthouse Capital Partners VI, L.P. in connection with a
$5 million equipment loan.
|
|
|
|
|
|
In January 2010, we issued warrants to purchase an aggregate of
261,800 shares of our Series B preferred stock at an
exercise price of $2.941 to Lighthouse Capital Partners VI, L.P.
(183,260 shares) and Leader Lending, LLC
(78,540 shares) in connection with a $7 million
business loan.
|
II-2
|
|
|
|
|
In March 2010, we issued a warrant to purchase
16,998 shares of our Series B preferred stock at an
exercise price of $2.491 per share to Silicon Valley Bank in
connection with a $1 million equipment loan.
|
|
|
|
In April 2010, we issued a warrant to purchase
30,600 shares of our Series B preferred stock at an
exercise price of $4.902 per share to Lighthouse Capital
Partners VI, L.P. in connection with the December 2008
$5 million equipment loan.
|
|
|
|
In July 2010, we issued three warrants to purchase an aggregate
of 157,424 shares of our Class A common stock at an
exercise price of $0.09 per share to consultants for services
rendered to us. One of these warrants covering
10,000 shares of our Class A common stock was
exercised in March 2011 for net proceeds received by us of $900.
|
|
|
|
In June 2011, we issued warrants to purchase an aggregate of
10,198 shares of our Series C preferred stock at an
exercise price of $4.902 per share to Lighthouse Capital
Partners VI, L.P. in connection with an amendment to the
December 2008 $5 million equipment loan.
|
|
|
|
In June 2011, we issue warrant to purchase an aggregate of
50,996 shares of our Series C preferred stock at an
exercise price of $4.902 per share to Lighthouse Capital
Partners VI, L.P. (35,698 shares) and Leader Lending, LLC
(15,298 shares) in connection with an amendment to a
$7 million business loan.
|
(d)Options under Amended and Restated 2007 Stock Option/Stock
Issuance Plan
|
|
|
|
|
As of March 31, 2011, we have issued 15,091,334 shares
of our Class A common stock and Class B common stock to
employees, directors and consultants issuable upon the exercise
of options to purchase under our amended and restated 2007 Stock
Option/Stock Issuance Plan, with exercise prices ranging from
$0.08375 to $1.98 per share.
|
None of the foregoing transactions involved any underwriters,
underwriting discounts or commissions, or any public offering,
and the registrant believes the transactions were exempt from
the registration requirements of the Securities Act of 1933 in
reliance on Section 4(2) thereof, and the rules and
regulations promulgated thereunder, or Rule 701 thereunder,
as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such
Rule 701. The recipients of securities in such transactions
represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were
affixed to the share certificates and instruments issued in such
transactions. All recipients of securities described in
paragraphs (a), (b) and (c) above were accredited or
sophisticated and either received adequate information about the
registrant or had access, through their relationships with the
registrant, to such information.
|
|
Item 16.
|
Exhibits
and financial statement schedules
|
(a)The following exhibits are filed herewith:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
1
|
.1
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation, as currently
in effect.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
3
|
.1
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws, as currently in effect.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.2
|
|
|
|
3
|
.3
|
|
Form of Amended and Restated Certificate of Incorporation, to be
in effect upon completion of this offering.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.3
|
|
|
|
3
|
.4
|
|
Form of Amended and Restated Bylaws, to be in effect upon
completion of this offering.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.4
|
|
|
II-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
4
|
.1
|
|
Specimen Stock Certificate representing Class A common
stock.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.1
|
|
|
|
4
|
.2
|
|
Amended and Restated Investors Rights Agreement dated
April 21, 2011, among the Registrant and the
Registrants securityholders listed therein.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.2
|
|
|
|
4
|
.3
|
|
Preferred Stock Purchase Warrant issued December 30, 2008
by KiOR, Inc. to Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.4
|
|
|
|
4
|
.4
|
|
Preferred Stock Purchase Warrant issued January 27, 2010 by
KiOR, Inc. to Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.5
|
|
|
|
4
|
.5
|
|
Preferred Stock Purchase Warrant issued January 27, 2010 by
KiOR, Inc. to Leader Equity LLC.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
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4
|
.6
|
|
|
|
4
|
.6
|
|
Warrant to Purchase Stock issued March 17, 2010, by KiOR,
Inc. to Silicon Valley Bank.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
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4
|
.7
|
|
|
|
4
|
.7
|
|
Form of Class A Common Stock Purchase Warrant issued
July 28, 2010.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.7
|
|
|
|
4
|
.8
|
|
Loan and Security Agreement No. 1451, dated as of
December 30, 2008, between KiOR, Inc. and Lighthouse
Capital Partners VI, L.P. (the Loan 1451).
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.8
|
|
|
|
4
|
.9
|
|
Amendment No. 1, dated as of February 28, 2011, to
Loan 1451.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.9
|
|
|
|
4
|
.10
|
|
Amendment No. 2, dated as of April 12, 2011, to
Loan 1451.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.10
|
|
|
|
4
|
.11
|
|
Loan and Security Agreement No. 1452, dated as of
January 27, 2010, between KiOR, Inc. and Lighthouse Capital
Partners VI, L.P., as Agent (the
Loan 1452).
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.11
|
|
|
|
4
|
.12
|
|
Amendment No. 1, dated as of June 30, 2010, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.12
|
|
|
|
4
|
.13
|
|
Amendment No. 2, dated as of February 28, 2011, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.13
|
|
|
|
4
|
.14
|
|
Amendment No. 3, dated as of April 12, 2011, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.14
|
|
|
|
4
|
.15
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.15
|
|
|
|
4
|
.16
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.16
|
|
|
|
4
|
.17
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Leader Lending, LLC.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.17
|
|
|
|
5
|
.1
|
|
Opinion of Baker Botts L.L.P.
|
|
S-1
|
|
|
|
|
|
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X
|
II-4
|
|
|
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|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
10
|
.1
|
|
Loan Agreement, dated as of March 17, 2011, between KiOR
Columbus LLC and the Mississippi Development Authority.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.1
|
|
|
|
10
|
.2
|
|
Purchase Money Security Agreement dated March 17, 2011, between
KiOR Columbus LLC and the Mississippi Development Authority.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.2
|
|
|
|
10
|
.3
|
|
Amended and Restated 2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.3
|
|
|
|
10
|
.4
|
|
Form of Option Award Agreement under the Amended and Restated
2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.4
|
|
|
|
10
|
.5
|
|
Form of Stock Award Agreement under the Amended and Restated
2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.5
|
|
|
|
10
|
.6
|
|
Form of 409A Option Award Agreement under the Amended and
Restated 2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
10
|
.6
|
|
|
|
10
|
.7
|
|
Form of 2011 Long-Term Incentive Plan.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
10
|
.7
|
|
|
|
10
|
.8
|
|
Form of Indemnification Agreement.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.8
|
|
|
|
10
|
.9
|
|
Memorandum of Understanding, dated as of April 14, 2011,
among KiOR, Inc., KiOR Columbus, LLC, Lowndes County,
Mississippi, the Lowndes County Port Authority and the City of
Columbus, Mississippi.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.9
|
|
|
|
10
|
.10
|
|
Hydrogen On-Site Supply Agreement, dated as of December 10,
2010, by and between Matheson Tri-Gas, Inc. and KiOR, Inc.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.10
|
|
|
|
10
|
.11**
|
|
Feedstock Supply Agreement, dated as of May 27, 2011, between
Catchlight Energy LLC and KiOR Columbus LLC.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
10
|
.11
|
|
|
|
21
|
.1
|
|
Subsidiaries.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
21
|
|
|
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
S-1
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.2
|
|
Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
|
|
S-1
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.3
|
|
Consent of TIAX LLC.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
23
|
.3
|
|
|
|
24
|
.1
|
|
Power of Attorney
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
24
|
.1
|
|
|
|
99
|
.1*
|
|
Engineering, Procurement Services and Construction Agreement,
dated as of January 5, 2011, between Kellogg
Brown & Root LLC and KiOR Columbus, LLC.
|
|
S-1
|
|
|
|
|
|
|
|
|
|
|
II-5
|
|
|
* |
|
To be filed by amendment. |
|
|
|
** |
|
Certain portions have been omitted pursuant to a confidential
treatment request. Omitted information has been filed separately
with the SEC. |
|
|
|
Management contracts or compensatory plans or arrangements. |
Agreements with respect to certain of the Registrants
long-term debt are not filed as Exhibits hereto inasmuch as the
debt authorized under any such agreement does not exceed 10% of
the Registrants total assets. The Registrant agrees to
furnish a copy of each such agreement to the SEC upon request.
The undersigned Registrant hereby undertakes:
(a)Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(b)To provide to the underwriters at the closing specified in
the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(c)For purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by
the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(d)For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of
Texas, on the 21st day of June, 2011.
KiOR, Inc.
Fred Cannon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons in the capacities indicated on the
21st day of June, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Fred
Cannon
Fred
Cannon
|
|
President, Chief Executive Officer
and Director
(Principal Executive Officer)
|
|
|
|
/s/ John
H. Karnes
John
H. Karnes
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ George
E. Staggs
George
E. Staggs
|
|
Controller and Treasurer
(Principal Accounting Officer)
|
|
|
|
*
Ralph
Alexander
|
|
Director
|
|
|
|
*
Jagdeep
Singh Bachher
|
|
Director
|
|
|
|
*
Samir
Kaul
|
|
Director
|
|
|
|
*
John
Melo
|
|
Director
|
|
|
|
*
Paul
OConnor
|
|
Director
|
|
|
|
*
William
Roach
|
|
Director
|
II-7
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
*
Gary
L. Whitlock
|
|
Director
|
|
|
|
|
|
*By:
|
|
/s/ Christopher
A. Artzer
Christopher
A. Artzer
Attorney-in-Fact
|
|
|
II-8
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
1
|
.1
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation, as currently
in effect.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
3
|
.1
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws, as currently in effect.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.2
|
|
|
|
3
|
.3
|
|
Form of Amended and Restated Certificate of Incorporation, to be
in effect upon completion of this offering.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.3
|
|
|
|
3
|
.4
|
|
Form of Amended and Restated Bylaws, to be in effect upon
completion of this offering.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
3
|
.4
|
|
|
|
4
|
.1
|
|
Specimen Stock Certificate representing Class A common
stock.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.1
|
|
|
|
4
|
.2
|
|
Amended and Restated Investors Rights Agreement dated
April 21, 2011, among the Registrant and the
Registrants securityholders listed therein.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.2
|
|
|
|
4
|
.3
|
|
Preferred Stock Purchase Warrant issued December 30, 2008
by KiOR, Inc. to Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.4
|
|
|
|
4
|
.4
|
|
Preferred Stock Purchase Warrant issued January 27, 2010 by
KiOR, Inc. to Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.5
|
|
|
|
4
|
.5
|
|
Preferred Stock Purchase Warrant issued January 27, 2010 by
KiOR, Inc. to Leader Equity LLC.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.6
|
|
|
|
4
|
.6
|
|
Warrant to Purchase Stock issued March 17, 2010, by KiOR,
Inc. to Silicon Valley Bank.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
4
|
.7
|
|
|
|
4
|
.7
|
|
Form of Class A Common Stock Purchase Warrant issued
July 28, 2010.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.7
|
|
|
|
4
|
.8
|
|
Loan and Security Agreement No. 1451, dated as of
December 30, 2008, between KiOR, Inc. and Lighthouse
Capital Partners VI, L.P. (the Loan 1451).
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.8
|
|
|
|
4
|
.9
|
|
Amendment No. 1, dated as of February 28, 2011, to
Loan 1451.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.9
|
|
|
|
4
|
.10
|
|
Amendment No. 2, dated as of April 12, 2011, to
Loan 1451.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.10
|
|
|
|
4
|
.11
|
|
Loan and Security Agreement No. 1452, dated as of
January 27, 2010, between KiOR, Inc. and Lighthouse Capital
Partners VI, L.P., as Agent (the
Loan 1452).
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.11
|
|
|
|
4
|
.12
|
|
Amendment No. 1, dated as of June 30, 2010, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.12
|
|
|
|
4
|
.13
|
|
Amendment No. 2, dated as of February 28, 2011, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
4
|
.13
|
|
|
|
4
|
.14
|
|
Amendment No. 3, dated as of April 12, 2011, to
Loan 1452.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
4
|
.14
|
|
|
II-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
4
|
.15
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.15
|
|
|
|
4
|
.16
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Lighthouse Capital Partners VI, L.P.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.16
|
|
|
|
4
|
.17
|
|
Preferred Stock Purchase Warrant issued June 6, 2011 to
Leader Lending, LLC.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
4
|
.17
|
|
|
|
5
|
.1
|
|
Opinion of Baker Botts L.L.P.
|
|
S-1
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.1
|
|
Loan Agreement, dated as of March 17, 2011, between KiOR
Columbus LLC and the Mississippi Development Authority.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.1
|
|
|
|
10
|
.2
|
|
Purchase Money Security Agreement dated March 17, 2011, between
KiOR Columbus LLC and the Mississippi Development Authority.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.2
|
|
|
|
10
|
.3
|
|
Amended and Restated 2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.3
|
|
|
|
10
|
.4
|
|
Form of Option Award Agreement under the Amended and Restated
2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.4
|
|
|
|
10
|
.5
|
|
Form of Stock Award Agreement under the Amended and Restated
2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
10
|
.5
|
|
|
|
10
|
.6
|
|
Form of 409A Option Award Agreement under the Amended and
Restated 2007 Stock Option/Stock Issuance Plan.
|
|
S-1
|
|
333-173440
|
|
June 1, 2011
|
|
|
10
|
.6
|
|
|
|
10
|
.7
|
|
Form of 2011 Long-Term Incentive Plan.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
10
|
.7
|
|
|
|
10
|
.8
|
|
Form of Indemnification Agreement.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.8
|
|
|
|
10
|
.9
|
|
Memorandum of Understanding, dated as of April 14, 2011,
among KiOR, Inc., KiOR Columbus, LLC, Lowndes County,
Mississippi, the Lowndes County Port Authority and the City of
Columbus, Mississippi.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.9
|
|
|
|
10
|
.10
|
|
Hydrogen On-Site Supply Agreement, dated as of December 10,
2010, by and between Matheson Tri-Gas, Inc. and KiOR, Inc.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
10
|
.10
|
|
|
|
10
|
.11**
|
|
Feedstock Supply Agreement, dated as of May 27, 2011,
between Catchlight Energy LLC and KiOR Columbus LLC.
|
|
S-1
|
|
333-173440
|
|
June 10, 2011
|
|
|
10
|
.11
|
|
|
|
21
|
.1
|
|
Subsidiaries.
|
|
S-1
|
|
333-173440
|
|
May 18, 2011
|
|
|
21
|
|
|
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
S-1
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.2
|
|
Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
|
|
S-1
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.3
|
|
Consent of TIAX LLC.
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
23
|
.3
|
|
|
|
24
|
.1
|
|
Power of Attorney
|
|
S-1
|
|
333-173440
|
|
April 11, 2011
|
|
|
24
|
.1
|
|
|
II-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed
|
|
Filed
|
Number
|
|
Exhibit
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit
|
|
Herewith
|
|
|
99
|
.1*
|
|
Engineering, Procurement Services and Construction Agreement,
dated as of January 5, 2011, between Kellogg
Brown & Root LLC and KiOR Columbus, LLC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment. |
|
|
|
** |
|
Certain portions have been omitted pursuant to a confidential
treatment request. Omitted information has been filed separately
with the SEC. |
|
|
|
Management contracts or compensatory arrangements. |
Agreements with respect to certain of the Registrants
long-term debt are not filed as Exhibits hereto inasmuch as the
debt authorized under any such agreement does not exceed 10% of
the Registrants total assets. The Registrant agrees to
furnish a copy of each such agreement to the SEC upon request.
II-11