Khosla Applies Life Support To KIOR

Vinod Khosla and his Adviser Condi Rice have given out a lifeline to their still born child KIOR.   KIOR had exhausted all of its cash and was either headed to read Chapter 11 or needed Khosla to prop up the corpse on Halloween in the hope other investors will join in and fund the company.   By my reckoning the  $50 million injection of new funds into the company will give it another 4 months of life and Khosla and Rice must have some other interested parties who will invest when the time is right but that it not today.

Khosla took a bit of a bath on swapping old debt he held for new debt and gave KIOR cash.  He also swapped some old debt for shares and gave some cash.  He is trying to clean up the balance sheet to attract new investors.   It is interesting that the Province of Alberta that also holds debt and equity in the company did not follow Khosla and do a similar transaction.  My guess is they have certain accounting requirements and did not want to recognize losses right now. 

Here is SEC 8K form that was filed today

Form 8-K for KIOR INC

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21-Oct-2013

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or

Item 1.01. Entry Into Material Definitive Agreement.

Note Purchase Agreement

On October 18, 2013, KiOR, Inc. ("KiOR") and its wholly-owned subsidiary Kior Columbus, LLC, ("KiOR Columbus," together, with KiOR, the "Company") entered into a Senior Secured Convertible Promissory Note Purchase Agreement (the "Note Purchase Agreement") with Khosla Ventures III, LP ("KV III"), KFT Trust, Vinod Khosla, Trustee, ("KFT Trust") and VNK Management, LLC ("VNK") and, collectively with KFT Trust and KV III, the "Purchasers") and KV III in its capacity as agent for the Purchasers. The Note Purchase Agreement was amended on October 20, 2013 and the Note Purchase Agreement, as amended, is described below.

The Note Purchase Agreement contemplates two tranches of financing. The first tranche consists of the issuance of $42.5 million of Senior Secured Mandatorily Convertible Notes due 2020 (the "Notes") in exchange for a like amount of cash and approximately $53.2 million of Notes in exchange for a like amount of existing indebtedness outstanding under the Company's existing Loan and Security Agreement (the "Loan and Security Agreement") by and among the Company and the Lenders named therein, dated as of January 26, 2012, as amended on March 17, 2013. The second tranche consists of the sale of up to $7.5 million of shares of the Company's Class A Common Stock (the "Shares," which also includes shares issuable as a part of a Purchaser's option or the Company's call option, as described below) and the sale of Shares in exchange for a like amount of existing indebtedness equal to $25 million in principal amount, plus accrued interest and applicable fees outstanding under the Loan and Security Agreement prior to March 17, 2013.

In the first tranche, which we expect will close on October 21, 2013, KV III and VNK will purchase Notes in an aggregate amount of $42.5 million, resulting in gross proceeds to the Company of $42.5 million, and KFT Trust will purchase Notes in an aggregate amount of approximately $53.2 million pursuant to the conversion of outstanding indebtedness owed to KFT Trust for loans received from KFT Trust from and after March 17, 2013 under the Company's Loan and Security Agreement.

The Notes accrue interest at a rate of 0% per annum and are convertible into shares of Class A Common Stock at a conversion price of $2.897 per share (such price, as it may be adjusted from time to time as set forth below, the "Conversion Price"), which represents a 25% premium over the average daily volume weighted average price of our Class A Common Stock for the twenty
(20) trading days ending on October 17, 2013. The Conversion Price may be decreased in the event of certain subsequent equity issuances (each, a "Dilutive Issuance") by the Company below the Conversion Price of the Notes between the date of the first tranche closing and the earlier of (i) the one year anniversary of the first tranche closing and (ii) the conversion of the Notes. In the event of a Dilutive Issuance, the Conversion Price of the Notes will be reduced, concurrently with such issuance, to a price (calculated to the nearest one-hundredth of a cent) equal to the product of (x) the Conversion Price then in effect and (y) the quotient of (A) the price per share of the additional shares of common stock so issued and (B) the Conversion Price then in effect. The Conversion Price will also be adjusted in the event of stock splits and combinations, certain dividends and distributions and mergers or reorganizations. In addition, if on or before the one year anniversary of the first tranche closing, the Company consummates a Financing Event (as defined below), the Notes will automatically convert on the earliest of the following events: (i) if the average closing price of the Class A Common Stock exceeds 150% of the Conversion Price in any thirty (30) day period or (ii) if the one year anniversary of the closing of the first tranche occurs. If the Company consummates a Financing Event after the one year anniversary of the first tranche closing, the Notes will automatically convert simultaneous with the closing of the Financing Event. Upon the occurrence of any of the foregoing events, the principal amount of the Notes (which, for clarification, will include any interest previously paid in kind) and all accrued but unpaid interest thereunder (including any interest paid in kind) will automatically be converted into shares of the Company's Class A Common Stock at the then effective Conversion Price. The Notes are secured by liens on fixtures and personal property of the Company specified in the Note Purchase Agreement.

The second tranche will occur subsequent to the receipt by the Company of aggregate net cash proceeds of at least $400 million from one or more offerings, private placements or other financing transactions comprised of the issuance of Notes and Shares under the Note Purchase Agreement, a pre-approved high yield debt financing and/or the sale of Class A Common Stock (the "Project Financing Amount"). The closing of the second tranche is subject to standard conditions, including notification pursuant to the Hart-Scott-Rodino Act that any applicable waiting period has expired, receipt of any necessary approvals by governmental authorities and the approval, if required by applicable law, of the holders of a majority of the voting power of the Company's Class A and Class B Common Stock voting together as a single class at a stockholder meeting of the issuance and sale by the Company to the Purchasers of the shares of Class A Common Stock . . .

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of Registrant.

The information provided in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

Item 3.02. Unregistered Sale of Equity Securities.

The information provided in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The Company issued the Notes and the Gates Shares in reliance on the exemption from registration provided for under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The Company relied on the exemption from registration provided for under
Section 4(2) of the Securities Act based in part on the representations made by the Purchasers and by Gates, including the representations with respect to the Purchaser's and Gates', as applicable, status as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and the investment intent of the Purchasers and Gates with respect to (i) the Notes and the underlying shares of Class A common stock and (ii) the Gates Shares, respectively.

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Item 8.01 Other Events.

On October 21, 2013, the Company issued a press release relating to the Note Purchase Agreement and Stock Purchase Agreement. A copy of this press release is attached hereto as Exhibit 99.6 and incorporated by reference herein.

The press release contains statements intended as "forward-looking statements," all of which are subject to the cautionary statement about forward-looking statements set forth therein.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit   No.                                    Description 99.1        Note Purchase Agreement, dated as of October 18, 2013, by and among             KiOR, KiOR Columbus, Khosla Ventures III, LP ("KV III"), KFT Trust,             Vinod Khosla, Trustee, ("KFT Trust") and VNK Management, LLC ("VNK") 99.1B       Amendment No. 1 to Note Purchase Agreement, dated October 20, 2013 99.2        Form of Note under the Note Purchase Agreement 99.3        Form of Registration Rights Agreement by and among KiOR, KiOR             Columbus, KV III, KFT Trust and VNK 99.4        Stock Purchase Agreement, dated as of October 18, 2013, by and among             KiOR and Gates Ventures, LLC ("Gates") 99.5        Form of Registration Rights Agreement by and among KiOR and Gates 99.6        Press Release, dated October 21, 2013 99.7        Agreement to Subordinate, dated October 20, 2013, and related Form of             Subordination Agreement