KIOR — The Spring 2013 O’Connor note

September 9, 2014 |

In today’s Digest, we publish a series of six documents that were filed in the past week with the SEC, relating to KiOR, and a growing dispute between the company’s Board — and an individual director, Paul O’Connor.

It is important to note KiOR’s response:

“The Company intends to continue to vigorously respond to allegations by Mr. O’Connor that it considers to be false, misleading or inappropriate and is currently considering all of its options, including the possibility of legal action against Mr. O’Connor.” As KiOR’s response becomes public, The Digest will publish it.

At the same time, it would be unfair to dismiss O’Connor’s assessment without a fair hearing, either. As O’Connor notes on his Board resignation letter:

“The KiOR technology to convert waste biomass into fuels and chemicals via catalytic pyrolysis (or cracking) originated from a Dutch company called BIOeCON, which invented and explored this concept in 2006 and 2007. I am one of the principal inventors of this technology. Other key inventors are Prof’s Avelino Corma, Jacob Moulijn, Dr. Dennis Stamires, Dr. Igor Babich and Sjoerd Daamen B.Sc. all working and cooperating with BIOeCON since early 2006.

“During the first two years of KiOR 2008-2009, I worked as CTO with Fred in building up the organization, proving the concept in a modified FCC pilot plant and leading the research into improved catalysts.”

[Note to readers: We don’t have a specific date on this one memo — it definitely appeared in Spring 2013, and appears to have been written before a May 2013 board meeting.

On account of length, we are publishing each of the documents separately and sequentially. We have added appropriate illustrations in the form of plant photos and logos — but none of these were a part of the original documents. Where you see a (**) symbol, this represents information withheld from the public and filed separately with the SEC.]

After the mechanical completion of the Columbus plant it took quite a long time, before the plant actually started producing products. Of course I was concerned and in preparation of the Annual shareholders meeting in May 2013, I sent a letter to Fred Cannon asking some important questions ( Attachment D ). At the annual meeting I had a separate meeting with Fred and Samir Kaul. Fred’s response was that I was too negative: “ We (= KiOR) have made tremendous progress in the last 18 months in R&D ”

This concern of mine is not new, and I have expressed it already for a while, also during my tenure as director on the KiOR board and an official memo to the board and management: “ KiOR Technology R&D: Assessment & Recommendations ” of April 21 st 2012, one year ago. As far as I know these recommendations have not been followed up, while they remain at least just as relevant today as they were a year ago.

While I already for some time, no longer have any official function at KiOR and I do not have any non-public information of KiOR, I am regularly being approached by shareholders from BIOeCON heritage, but also by other institutional investors and the press, asking me critical questions, amongst others why I am not actively helping the KiOR team to solve their problems?

Keep in mind that the success or failure of KiOR is for me not only a financial issue, but also as main inventor one of honor. Although KiOR never properly acknowledges the origin and heritage of the technology: BIOeCON and myself as primary inventor, most informed outsiders are smart enough to figure that out.

I cannot just stand back and watch; As I see it now, the only thing I can really do is to ask critical questions at the annual shareholder meeting on the 30 th of May next in Houston with the hope to get the ball moving in the direction of the corrective actions needed to speed up the transition towards a profitable and prosperous business.

I understand that US securities laws requires that any answers must be released to the public via press release, so I am sending the questions for KiOR management and/or board of directors before the quarterly report of May 9 th , so that management and/or the board of directors has the option to include answers in the press release(s) of May 9 th and/or in a second press release before or on the 30 th of May.

Attached the questions, which I intend to raise at the shareholders meeting.

Separate to that, I would like the opportunity to present and discuss my thoughts on how to tackle the issues raised by these questions with CEO Fred Cannon and Samir Kaul as key representative of Khosla Ventures (the controlling shareholder) in the board of directors.

QUESTIONS for KiOR management at the shareholders meeting:

1) KiOR has disclosed that the expected yield of [**], mentioned at the IPO will be achieved in the Natchez plant. How sure is KiOR about that? What are the overall product yields achieved at present in the R&D pilot plant(s) the demo plant and at Columbus? and how and when does KiOR expect to reach the more ambitious target of [**]?

2) Two of KiOR’s previous operations managers (Coates ad Lyle) have stepped down, leaving KiOR without a COO or VP Operations. The delay in starting up and getting Columbus on stream could be related to this lack of operational leadership. Does KiOR have sufficient high-level staff with sufficient operational hands-on experience in the FCC and HPC processes to start up and run Columbus and a second plant in Natchez.

3) Does KiOR have a Scientific and/or Technological Advisory Board in place? How does KiOR ensure an independent technical audit of their R&D and Operations to ensure quality and progress in development?

4) When does KiOR expect to have the financing of the Natchez plant finalized?

More documents in this set

The March 15 2012 O’Connor email memo
The March 22 2012 O’Connor technology assessment
The April 21 2012 O’Connor technology assessment
The April 30 2012 O’Connor memo
The August 31 2014 O’Connor resignation letter

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