S-1/A 1 file1.htm AMENDMENT NO. 3 TO FORM S-1 Table of Contents

As filed with the Securities and Exchange Commission on April 23, 2007

Registration No. 333-139203

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Amendment No. 3 to

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

BIOFUEL ENERGY CORP.

(Exact name of registrant as specified in its charter)


Delaware 2869 20-5952523
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)

1801 Broadway, Suite 1060
Denver, CO 80202
(303) 592-8110

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)


Scott H. Pearce
BioFuel Energy Corp.
1801 Broadway, Suite 1060
Denver, CO 80202
(303) 592-8110
Fax: (303) 592-8117
Thomas J. Edelman
BioFuel Energy Corp.
667 Madison Avenue
New York, NY 10021
(212) 371-1117
Fax: (212) 888-6877
 
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
 

    

Copies to:


Ronald Cami
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY 10019
(212) 474-1000
Fax: (212) 474-3700
Gerald S. Tanenbaum
Cahill Gordon & Reindel llp
80 Pine Street
New York, NY 10005
(212) 701-3000
Fax: (212) 269-5420

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:    [ ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:    [ ]

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:    [ ]

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:    [ ]

CALCULATION OF REGISTRATION FEE


Title of class of
securities
Amount to be
registered(1)
Proposed maximum
offering price
per unit
Proposed maximum
aggregate offering
price(1)(2)
Amount of
registration fee(3)
Common stock, $0.01 par value per share 10,925,000 shares $18.00 $196,650,000 $21,042
(1) Includes 1,425,000 shares of common stock which may be purchased by the underwriters to cover over-allotments, if any. See ‘‘Underwriting’’.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).
(3) $32,100 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 Commission, acting pursuant to said Section 8(a), may determine.




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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy the securities in any state where the offer or sale is not permitted.

Subject to completion, dated April 23, 2007

Prospectus

9,500,000 shares

BioFuel Energy Corp.

Common stock

This is an initial public offering of shares of common stock by BioFuel Energy Corp.

Prior to this offering, there has been no public market for our common stock. We are selling 9,500,000 shares of common stock. The estimated initial public offering price is between $16.00 and $18.00 per share.

We have applied to list our common stock on the Nasdaq Global Market under the symbol ‘‘BIOF’’.


  Per share Total
Initial public offering price $                 $       
Underwriting discount $                 $       
Proceeds to BioFuel, before expenses $                 $       

We have granted the underwriters an option for a period of 30 days to purchase up to 1,425,000 additional shares of common stock on the same terms and conditions set forth above to cover over-allotments, if any.

Investing in our common stock involves a high degree of risk. See ‘‘Risk factors’’ beginning
on page 10.

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.

The underwriters expect to deliver the shares of common stock to investors on             , 2007.


JPMorgan Citi A.G. Edwards
Bear, Stearns & Co. Inc. Cowen and Company
     

, 2007




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You should rely only on the information contained in this prospectus or to which we have referred you, including any free writing prospectus that we file with the Securities and Exchange Commission relating to this prospectus. We have not, and the underwriters have not, authorized any person to provide you with different information. This prospectus is not an offer to sell, nor is it an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

‘‘BioFuel Energy Corp.’’ and our logo are trademarks for which we have applied for federal trademark protection. Other products, services and company names mentioned in this prospectus are the service marks or trademarks of their respective owners.

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Industry and market data

We obtained the industry, market and competitive data used in this prospectus from our own research, internal surveys and studies conducted by third parties, industry associations or general publications and other publicly available information. Much of our discussion of the ethanol industry, including government regulation and forecasted demand growth is based on information published by the Renewable Fuels Association, or RFA, the national trade association for the American ethanol industry, to which we belong. Because the RFA is a trade organization, it may present information in a manner that is more favorable to the ethanol industry.

Ethanol units and ethanol production capacities

All references to gallons of ethanol refer to denatured ethanol, a blend of pure ethanol and approximately 5% unleaded gasoline. The gasoline is added as a denaturant, rendering the ethanol undrinkable and therefore not subject to alcoholic beverage taxes.

Each of our planned ethanol plants will have a production capacity specified in the applicable construction agreement. The Wood River and Fairmont plants will each have a production capacity of 115 million gallons per year, or Mmgy, of ethanol. We also expect our planned Alta facility to have a 115 Mmgy production capacity. ‘‘Mmgy’’ means millions of gallons per year, ‘‘Bgpy’’ means billions of gallons per year and ‘‘Mmbtu’’ means millions of British Thermal Units.

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Summary

This summary highlights certain information in the prospectus. It does not contain all information that may be important to you. You should carefully read the entire prospectus, including ‘‘Risk factors’’ before making an investment decision. Unless the context requires otherwise, ‘‘BioFuel’’, ‘‘we’’, ‘‘our’’ and ‘‘us’’ refer to BioFuel Energy Corp. and its subsidiaries, after giving effect to the recapitalization described below. References to ‘‘Cargill’’ refer to Cargill, Incorporated, its subsidiaries or affiliates.

Overview

We are a development stage company whose goal is to become a leading ethanol producer in the United States. We are currently constructing two 115 Mmgy ethanol plants in the Midwestern corn belt. In addition, we expect to commence construction of a third 115 Mmgy ethanol plant later this year. At each location, Cargill, with whom we have an extensive relationship, has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities. Three similar sites are being developed in anticipation of the possible construction of additional plants. All six sites were selected primarily based on access to favorably priced corn as well as availability of rail transportation and natural gas. We ultimately expect to grow, at least in part, through acquisitions. However, in current market conditions, we believe it is more attractive financially to build rather than buy. We will continue to assess the build versus acquire trade-off as we consider initiating construction on one or more of our next three sites.

From inception, we have worked closely with Cargill, one of the world’s leading agribusiness companies. Cargill will handle corn procurement, marketing of ethanol and distillers grain and transportation logistics for our two initial plants under long-term contracts. In addition, they will lease us their adjacent grain storage and handling facilities. We expect to enter into similar agreements for our third plant. Finally, we will have access to Cargill’s risk management services, which we believe to be particularly attractive with regard to corn given their virtually unique position in that market.

The Wood River, Nebraska and Fairmont, Minnesota plants are currently under construction and should be operational in the first quarter of 2008. Plans to construct a third plant in Alta, Iowa are being finalized and engineering and construction contracts relating to that facility should be finalized within 90 to 120 days. In the interim, site preparation in Alta will begin so that construction can proceed promptly once agreements are finalized. Sites in Gilman, Illinois, Atchison, Kansas and Litchfield, Illinois have been selected as the locations for possible additional plants. Land has been optioned and permit filings have begun at each of these sites.

Fixed-price, turnkey construction contracts are in place covering the Wood River and Fairmont plants with The Industrial Company, or TIC, of Steamboat Springs, Colorado, a leading industrial general contractor. We have a construction time slot confirmed and a preliminary agreement with TIC to build our Alta plant. Groundbreaking for the facility is currently expected late in the third quarter or early in the fourth quarter of 2007. Technology for the Wood River and Fairmont plants is being provided by Delta-T Corporation of Williamsburg, Virginia, a company with extensive experience in ethanol process technology and plant operation. We have not yet reached a commercial understanding with Delta-T for using its technology at Alta. If we are unable to reach an agreement, we will need to engage an alternative technology firm for that plant before construction there can begin. Once complete, the initial three plants are expected to produce 345 Mmgy of fuel grade ethanol and 1.1 million tons of distillers grain annually.

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The following table provides an overview of ethanol plants we have under construction or in development.


  Under Construction Under
Development
Additional Development Sites
  Wood
River,
Nebraska
Fairmont,
Minnesota
Alta,
Iowa
Gilman,
Illinois
Atchison,
Kansas
Litchfield,
Illinois
Capacity 115 Mmgy
115 Mmgy
115 Mmgy
115 Mmgy
115 Mmgy
115 Mmgy
Rail transportation Union
Pacific
Union
Pacific
CN
CN and TPW Union
Pacific
Norfolk
Southern
and BNSF
Site Owned
Owned Optioned Optioned Optioned Optioned
Construction start Begun Begun Q3/Q4 2007
Expected completion Q1 2008 Q1 2008 Q2 2009

Industry overview

Ethanol is a clean-burning, high-octane fuel produced from renewable sources. In the United States, ethanol is produced primarily from corn. It is used primarily as a gasoline additive to increase octane ratings and comply with air emissions regulations. According to the RFA, ethanol is blended into 30% of the gasoline sold in the United States. Ethanol blends of up to 10% are approved for use by major motor vehicle manufacturers.

We believe that the ethanol industry currently lacks sufficient capacity to meet anticipated demand. Drivers of substantial growth prospects in the market include:

  Favorable production economics. Based on data provided by the RFA, the cost to produce a gallon of ethanol is currently significantly lower than the cost to produce a gallon of gasoline.
  Blending benefits. Adding ethanol to gasoline raises gasoline’s octane level and results in a more complete fuel combustion, reducing carbon monoxide and nitrogen oxide emissions.
  Expansion of gasoline supply. By blending ethanol with gasoline, the volume of gasoline available for sale is increased. According to the Energy Information Administration, between 1980 and 2005, petroleum refining capacity in the United States decreased approximately 5% while domestic demand increased approximately 21%. We believe that increased pressure on domestic fuel refining capacity will result in greater demand for ethanol.
  Strong legislative and government policy support. The Renewable Fuels Standard, included in the Energy Policy Act of 2005, mandated minimum annual use of 7.5 billion gallons per year of renewable fuels in the U.S. fuel supply by 2012. In addition, the President and many members of Congress and farm state legislators are extremely supportive of the ethanol industry.
  Favorable tax treatment. Ethanol’s favorable production economics are enhanced by a federal tax credit of $0.51 a gallon — $0.051 a gallon of gasoline at a 10% blend — that is received by refiners or marketers for blending ethanol into gasoline.

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  Replacement of MTBE. Historically, ethanol and methyl tertiary butyl ether, or MTBE, were the two primary additives used to meet the Clean Air Act’s oxygenate requirements. In recent years, as a result of health and environmental concerns, refiners have been phasing out MTBE. Ethanol has served as a replacement for much of the MTBE eliminated.

Competitive strengths

We believe we have the following competitive strengths:

  Proven management.    Our senior management has an extensive and successful record in the energy and natural resource sectors. Our Chairman, Thomas J. Edelman, has founded, led or played a significant role in managing more than half a dozen successful public and private energy companies over the past 25 years. Our President and Chief Executive Officer, Scott H. Pearce, and our Executive Vice President and Chief Operating Officer, Daniel J. Simon, have significant expertise in industrial development. Our senior management has extensive experience in acquisitions and dispositions of businesses, individual properties and groups of properties.
  Plant locations.    We have selected our plant locations based on an in-depth analysis designed to maximize profitability, particularly by minimizing the costs of corn, natural gas and electricity and assuring adequate rail access.
  Relationship with Cargill.    We have entered into a number of long-term contracts with Cargill, which participates in almost every aspect of the corn industry in the United States. In addition, Cargill has made an equity investment in BioFuel. We are aware of only one other ethanol company with which Cargill has this type of commercial relationship. We believe our relationship with Cargill will provide us with a number of competitive advantages:
  Reliable corn supply. We expect to benefit from Cargill’s expertise in corn origination services and extensive experience with corn supply in the areas of our facilities. Pursuant to our corn supply agreements for our Wood River and Fairmont plants, Cargill will supply our corn requirements during the 20-year term of the contracts, regardless of local supply and demand.
  Logistics and transportation.    We believe access to Cargill’s expertise, through its extensive network of rail and trucking relationships and an array of logistical and scheduling tools, will minimize the risk of disruption or unexpected additional transportation costs for the delivery of corn and the transportation of the ethanol and distillers grain.
  Ethanol and distillers grain marketing.    Because of Cargill’s significant historical experience marketing ethanol and distillers grain, Cargill will provide immediate access to a broad customer base. Under 10-year agreements, Cargill will be responsible for maintaining a continuous outlet for the marketing, sale and distribution of all ethanol and distillers grain produced by our Wood River and Fairmont plants. In addition, we believe our relationship with Cargill positions us well with large end-users of ethanol due to the size and reliability of Cargill compared to other small ethanol marketers and producers that market ethanol directly or through other marketing channels.
  Risk management services.    We will have the opportunity to utilize Cargill’s comprehensive risk management platform to help manage our commodity risks relating to corn, ethanol and natural gas prices and may hedge through them.

We have entered into a letter agreement with Cargill with respect to our planned Alta plant and anticipate entering into long-term commercial agreements with them for this facility similar to those described above.

  Close relationship with TIC.    We are one of TIC’s strategic ethanol accounts and have a

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  priority relationship with them. We believe this will enable us to add new ethanol production capacity faster than many of our competitors by providing access to construction slots as needed. This may be a key advantage over our competitors that have not secured construction commitments for their announced capacity expansions.
  State-of-the-art production technology and operational scale.    We expect each of our plants will utilize state-of-the-art ethanol production technology designed to produce the highest corn-to-ethanol conversion yields in the industry today, in addition to higher throughput, lower production costs and higher operating efficiency than smaller and older plants, which currently comprise the majority of industry capacity. In addition, we expect the scale of our facilities to generate significant cost efficiencies and other economies of scale.

Strategy

  Become an industry leader.    We intend to become one of the nation’s leading producers of ethanol. We initially intend to construct three ethanol plants, each of which will produce 115 Mmgy of fuel grade ethanol. We also have additional projects under development and evaluation that could further expand our ethanol production capacity. We expect to incur up to approximately $125 million in additional debt as funds are required to finance a portion of the costs of construction of our third plant.
  Dedication to cost control and efficiency.    We are developing and constructing our ethanol facilities with a focus on minimizing cost inputs such as corn, natural gas and transportation. Once our plants are operational, we will continue to promote a culture of cost control and efficiency regardless of economic cycle.
  Evaluate alternative production technologies.    We will continually review technological developments that could result in more efficient production. We believe our sites will accommodate modifications to utilize alternative feedstock supplies or production technologies that may become available in the future, including ethanol from corn stover, cellulosic biomass and switchgrass.
  Flexibility to capitalize on market opportunities.    Because of the unpredictability of energy markets and commodity prices, we believe it is important to be prepared to respond quickly to strategic opportunities presented by changes in market conditions. We plan to maintain a capital structure that will enable us to withstand and capitalize on opportunities presented by changing market conditions.
  Consider possible sales of plants or plant sites.    We believe our plants will have a number of competitive advantages, particularly under certain market conditions. Consequently, there may be opportunities to sell individual plants or plant sites on favorable terms. Being dedicated to maximizing our stockholders’ returns, we expect to consider the sale of one or more plants or plant sites and to actively seek such opportunities on a regular basis.
  Risk management.    We will seek to eventually hedge a majority of our corn and natural gas costs, as well as our primary product, ethanol. By doing so, we expect to limit our exposure to commodity price fluctuations and reduce earnings volatility.

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Risk factors

Our relationship with Cargill subjects our company to certain risks that are more fully described in the ‘‘Risk Factors’’ and ‘‘Business’’ sections. These risks include the following.

  We are dependent on Cargill, and it is possible that our interests may conflict. Cargill has commercial relationships with other ethanol producers, including at least one of our competitors, and has announced plans to develop four 100 Mmgy ethanol plants in the Midwestern United States. Cargill may favor its own interests or those of its other business partners over ours. We have waived any claims for conflict of interest under our marketing agreements with Cargill except that we have retained a right to terminate the agreements if we suffer material quantifiable loss.
  Under our agreement with Cargill, if any of five parties identified on an annual basis by Cargill acquires 30% or more of our common stock or the power to elect a majority of our Board, Cargill may terminate our commercial agreements.
  If either the Wood River or Fairmont plant is not complete by December 31, 2009, Cargill may terminate its commercial agreements relating to that plant.

In addition, we will face other significant challenges. The numerous risks we are exposed to are discussed more fully in the ‘‘Risk Factors’’ section immediately following this summary. These risks include:

  A lack of operating history;
  Difficulties securing suitable sites, obtaining the services of qualified contractors, receiving approvals and permits and funding construction costs;
  Possible excess production capacity in the ethanol industry resulting from new plants under construction or decreases in demand;
  Dependence on key members of management;
  Failure to reach definitive agreements with Cargill with respect to our Alta plant or any additional plants;
  Dependence on TIC and its partner Delta-T, and the possibility that delays, defaults or non-performance by TIC or Delta-T could adversely affect us;
  Failure or inability to reach definitive agreements relating to the construction of and/or the technology to be used in our proposed Alta plant;
  Emergence of new, more energy-efficient technologies for producing ethanol that could displace corn-based ethanol;
  Our significant indebtedness;
  Fluctuations in the selling price and production cost of gasoline;
  Possible operating disruptions in our operations;
  Dependence on commodity prices, which are subject to significant volatility and uncertainty;
  Increasing prices, escalation of construction costs and potential shortages of corn and natural gas;
  The potentially adverse effects of hedging and other risk mitigation strategies;
  Our ability to compete effectively;
  The dependence of our industry upon a myriad of federal and state legislation and regulation, including the blenders’ credit, the Freedom to Farm Act, tariff barriers and the RFS; and

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  The effect of environmental, health and safety laws, regulations and liabilities.

Any of the above risks could adversely affect our financial condition, results of operations and profitability. Investment in our common stock involves significant risks. You should read and consider the information set forth in ‘‘Risk factors’’ and all other information set forth in this prospectus before investing in our stock.

Organizational structure

Immediately prior to this offering we will effect the recapitalization described in ‘‘Organizational structure’’. BioFuel Energy Corp. will contribute the net proceeds to BioFuel Energy, LLC, which we refer to as ‘‘the LLC’’, in exchange for additional membership interests. Following the recapitalization and this offering, BioFuel Energy Corp. will be a holding company whose sole asset will be a controlling equity interest in the LLC. As the sole managing member of the LLC, BioFuel Energy Corp. will operate and control all of the business and affairs of the LLC and its subsidiaries. BioFuel Energy Corp. will consolidate the financial results of the LLC and its subsidiaries. Members of the LLC prior to the recapitalization (other than Biofuel Energy Corp.), which we refer to as our ‘‘historical LLC equity investors’’, will be the only other members of the LLC at the time of this offering and their ownership interest in the LLC will be reflected as a minority interest in BioFuel Energy Corp.’s consolidated financial statements. Our historical LLC equity investors consist of affiliates of Greenlight Capital, Inc., Third Point LLC and Cargill, certain of our Directors and officers and certain other investors. The historical LLC equity investors’ interests in the LLC will entitle them to their pro rata economic benefits in the LLC, but they will have no voting rights in the LLC. However, each historical LLC equity investor will be issued one share of our Class B common stock for each membership interest held by them in the LLC.

Holders of shares of Class B common stock will have no economic rights because they will not be entitled to any monetary rights, including rights to receive dividends or to receive a distribution upon a dissolution, liquidation or winding up of BioFuel Energy Corp. Holders of shares of Class B common stock, however, will be entitled to one vote for each share held. Prior to this offering, two affiliates of Greenlight Capital, Inc. held all the interests in BioFuel Energy Corp. We refer to these two historical investors in BioFuel Energy Corp., together with our historical LLC equity investors, as our ‘‘historical equity investors’’. To ensure that our public stockholders are treated fairly with our historical LLC equity investors, our charter will require that all distributions received from the LLC, other than distributions to cover tax obligations and other corporate expenses, will be dividended to holders of our common stock (which does not include the Class B common stock).
 

Our historical LLC equity investors may exchange their LLC membership interests for shares of our common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. We expect that, as a result of these exchanges in the future, the tax basis of the LLC’s assets attributable to our interest in the LLC will be increased. These increases in tax basis will result in a tax benefit to BioFuel that would not have been available but for the future exchanges of the LLC membership interests for shares of our common stock. These increases in tax basis would reduce the amount of tax that BioFuel would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge. The exchanges by our historical LLC equity investors of membership interests for shares of our common stock will not, except for the tax benefit generated for BioFuel, affect our public stockholders.

We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits between the company and the historical LLC equity investors. Under this agreement, BioFuel will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a result of this increase in tax basis. BioFuel and its

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common stockholders will benefit from the remaining 15% of cash savings, if any, in income tax that is realized by BioFuel. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of the LLC as a result of the exchanges and had we not entered into the tax benefit sharing agreement. The term of the tax benefit sharing agreement will commence upon consummation of this offering and will continue until all such tax benefits have been utilized or expired, unless a change of control occurs and we exercise our resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments remaining to be made under the agreement. For additional information regarding our tax benefit sharing agreement, see ‘‘Certain relationships and related party transactions—Tax benefit sharing agreement’’.

Immediately following this offering our public stockholders will own approximately 29% of our equity and our historical equity investors will own approximately 71%. If the underwriters exercise in full their option to purchase additional shares, immediately following this offering, public stockholders will own approximately 32% of our equity and historical equity investors will own approximately 68%.

Corporate information

BioFuel Energy Corp. was formed as a Delaware corporation in April 2006 as a holding company through which certain of our historical equity investors hold membership interests in the LLC. The LLC was organized as a Delaware limited liability company in January 2006. For a more complete description of our company history, please refer to ‘‘Organizational structure — Company history’’.

Our principal executive offices are located at 1801 Broadway, Suite 1060, Denver, Colorado 80202. Our telephone number is (303) 592-8110. Our website address is www.bfenergy.com. The content of our website is not a part of this prospectus.

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The offering

Common stock offered by us in this offering 9,500,000 shares
Common stock and Class B common stock to be outstanding after this offering 32,500,000 total shares, of which 14,268,044 will be shares of common stock and 18,231,956 will be shares of Class B common stock. Holders of shares of Class B common stock will have no economic rights but will be entitled to one vote for each share held. In addition, there will be 18,231,956 membership interests in the LLC that can be exchanged for newly issued shares of common stock on a one-for-one basis, in which case the related shares of Class B common stock will be retired.
Use of proceeds We estimate that the net proceeds from this offering will approximate $147 million, after deducting underwriting discounts and our offering expenses.  We intend to use up to $50 million of the net proceeds to repay all outstanding subordinated debt.  We expect that all remaining proceeds will ultimately be used to fund the equity portion of the construction costs of our Alta plant.  However, prior to the time funds are required at Alta, we may use them to repay or defer borrowing under our bank construction loans for the Wood River and Fairmont plants.
As funds are required for the construction of our Alta ethanol plant, we expect to borrow up to approximately $125 million of additional debt under existing or subsequent bank facilities, which, in combination with proceeds from this offering and internal cash flow, would fund such expenditures. For further discussion of our expected use of proceeds from this offering, see ‘‘Use of proceeds’’.
Voting rights Each share of our common stock will entitle its holder to one vote on all matters to be voted on by stockholders generally. Our public stockholders will collectively have approximately 29% of the voting power in BioFuel Energy Corp. (or approximately 32% if the underwriters exercise in full their option to purchase additional shares) and our historical equity investors will have approximately 71% of the voting power in BioFuel Energy Corp. (or approximately 68% if the underwriters

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exercise in full their option to purchase additional shares).
Each member of the LLC (other than BioFuel Energy Corp.) will receive one share of our Class B common stock for each membership interest held. The shares of Class B common stock have no economic rights but will entitle the holder to one vote for each share held of record on all matters submitted to a vote of stockholders. If a holder of Class B common stock exchanges any of its membership interests in the LLC for shares of our common stock, the shares of Class B common stock held by such holder and attributable to the exchanged LLC membership interests will automatically be transferred to BioFuel Energy Corp. and be retired without further action.
Holders of our common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.
Dividend policy We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Risk factors See ‘‘Risk factors’’ and the other information included in this prospectus for a discussion of some of the factors you should consider carefully before deciding to invest in our common stock.
Listing We have applied to list our common stock on the Nasdaq Global Market, or Nasdaq, under the symbol ‘‘BIOF’’.

The number of shares of our common stock to be outstanding after this offering excludes 3,000,000 shares of common stock reserved for issuance under our 2007 Equity Incentive Compensation Plan. Effective upon and subject to the completion of this offering, we plan to grant to employees and Directors an aggregate of 100,810 shares of restricted common stock and options to purchase an aggregate of 370,950 shares of our common stock with an exercise price equal to the initial public offering price per share indicated on the cover of this prospectus. The number of shares of common stock to be outstanding after the offering set forth in this prospectus does not take these restricted stock and option awards into account.

Other information about this prospectus

Unless specifically stated otherwise, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option.

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Risk factors

Investing in our common stock involves a high degree of risk. Before making an investment in our common stock, you should carefully consider the following risks, as well as other information contained in this prospectus, including ‘‘Management’s discussion and analysis of financial condition and results of operations’’. The risks described below are those that we believe are the material risks we face. Any of these risks could significantly and adversely affect our business, prospects, financial condition and results of operations. As a result, the trading price of our common stock could decline and you could lose all or part of your investment.

Risks relating to our business and industry

We do not have an operating history and our business may not succeed.

We are a new company with no operating results to date, and therefore you do not have an operating history upon which you can evaluate our business and prospects. In addition, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in rapidly evolving markets, such as the ethanol market, where supply and demand may change significantly over a short period.

Some of these risks relate to our potential inability to:

  construct our planned plants;
  commence significant operations;
  recruit and retain key personnel, including plant managers, particularly as the industry expands and we face increasing competition;
  effectively manage our business and operations;
  successfully establish and maintain our intended low-cost structure;
  predict the extent to which our operations may adversely impact the local price of our primary production inputs and our primary products;
  manage rapid growth in personnel and operations; and
  successfully address the other risks described throughout this prospectus.

If we cannot successfully manage these risks, our business and results of operations and financial condition will suffer.

We may not be able to implement our strategy as planned or at all.

Our strategy depends on our ability to develop and construct ethanol production facilities. While we currently have two facilities under construction, we have not yet begun construction of our third plant under development. The construction of this facility is contingent on a number of significant uncertainties, including those described below. In addition, the two facilities that are currently under construction may encounter difficulties or delays during the construction process. As a result, we may be unable to construct our facilities as planned or at all.

We may not be able to secure sites for our plants.    We have entered into option agreements to purchase land for our third plant in Alta, Iowa and for our other development sites, but we have not yet secured property for any plant under evaluation. As a result of the significant expansion of ethanol production capacity currently underway in the United States, we believe that there is increasing and intense competition for suitable sites for ethanol plants, and we may not be able to secure suitable sites for construction of future facilities. In addition, title defects or other title problems may arise following the purchase of land options which may render the land unsuitable for the construction of an ethanol plant.

We may not be able to obtain the approvals and permits that will be necessary in order to construct and operate our facilities as planned.    Although we have begun the permitting process

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with respect to our Alta plant and our other plants under development, we have not yet obtained all of the required permits for the operation of Alta and the construction of these other plants. Before we begin construction of these plants, we will need to obtain a number of required permits, which is often a time-consuming process. If we experience delays in obtaining the required approvals and permits for our plants under development, our expected construction start dates may be delayed. If we are unable to obtain the required approvals and permits for any of our plants under development, we will not be able to construct these plants. In addition, in order to operate our new facilities, we will also need to obtain the final approval of the rail line operators that operate adjacent rail lines. In addition, federal and state governmental requirements could substantially increase our costs, which could materially harm our results of operations and financial condition.

We may be unable to secure construction services or supplies for our additional plants under development and evaluation on acceptable terms.    Our strategy is particularly dependent on the continued availability of construction services. Although we have received a construction commitment from TIC with respect to our Alta plant under development, we have not entered into agreements for the engineering, procurement or construction for this plant or with respect to any of our other plants under development or evaluation. We have also not yet reached an agreement with Delta-T to use its technology at Alta. If we are unable to reach an agreement, we will need to engage an alternative technology firm for the Alta plant before construction can begin. Any such contracts would limit our exposure to higher costs in developing and completing new ethanol production facilities. We believe that contractors, engineering firms, construction firms and equipment suppliers increasingly are receiving requests and orders from other companies to build ethanol production facilities, which has led to an escalation of projected construction costs and an increase in the length of time to construct ethanol plants. Therefore, we may not be able to secure their services or products for our Alta plant or other plants under development or evaluation on a timely basis or on acceptable financial or commercial terms.

We may not be able to obtain the financing necessary to complete construction of our Alta plant under development or to complete future acquisitions.    In addition to the net proceeds of this offering, we estimate that we will need up to approximately $125 million in additional financing to construct our Alta plant currently under development. This amount assumes the full utilization of our current bank facility. This amount may be partially offset by cash flow generated by our first two plants. We intend to raise part or all of these necessary funds through additional debt financing. We may also need further funding if there are delays in construction or increased construction costs at any of our planned construction sites or to complete any acquisitions that we may identify from time to time. We may finance unanticipated construction costs or acquisitions with additional indebtedness or by issuing additional equity securities. We may not have access to the required funding, or funding may not be available to us on acceptable terms.

Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility for the construction of our Wood River and Fairmont plants remains subject to the satisfaction of a number of additional conditions precedent, including, among other considerations, the provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders. Any inability to borrow under our bank facility could materially harm our ability to finance construction of these plants.

We may encounter unanticipated difficulties in constructing our plants. The TIC subsidiary that has agreed to construct our Wood River and Fairmont plants has not previously constructed an entire ethanol plant of the size and type we are constructing. In addition, the Delta-T technology we plan to utilize at our plants is currently in use only in ethanol plants with capacities of 60 Mmgy or less. Further, we remain responsible for the construction of certain infrastructure outside of the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. As a result, we

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may encounter unanticipated difficulties and the construction and development of our proposed plants may be more costly or time-consuming than we anticipate. We may be entitled to seek damages from TIC if we encounter unanticipated difficulties in constructing or operating our proposed plants, but our ability to seek damages may be limited. Under the engineering, procurement and construction, or EPC, contracts relating to our Wood River and Fairmont plants, TIC’s liability is capped at 100% of the contract price until provisional acceptance of the relevant plant and 30% of the contract price thereafter. TIC may also be wholly or partially excused from performance under the EPC contracts due to certain force majeure events or delays or defaults on our part.

Competition for qualified personnel in the ethanol industry is intense, and we may not be able to hire and retain qualified personnel to operate our ethanol plants.    Our success depends in part on our ability to attract and retain competent personnel. For each of our plants, we must hire qualified managers, engineers and operations and other personnel, which can be challenging in a rural community. Competition for both managers and plant employees in the ethanol industry is intense, and we may not be able to attract and maintain qualified personnel. If we are unable to hire and maintain productive and competent personnel, our strategy may be adversely affected and we may not be able to efficiently operate our ethanol plants upon completion of construction as planned.

Delays and defects may cause our costs to increase to levels that would make our new facilities too expensive to construct or unprofitable.    We may suffer significant delays or cost overruns at our sites that could prevent us from commencing operations as expected as a result of various factors. These factors include shortages of workers or materials, construction and equipment cost escalation, transportation constraints, adverse weather, unforeseen difficulties or labor issues, or changes in political administrations at the federal, state or local levels that result in policy change towards ethanol in general or our projects in particular. Defects in materials or workmanship could also delay the commencement of operations of our planned facilities, increase production costs or negatively affect the quality of our ethanol and distillers grain. Due to these or other unforeseen factors, we may not be able to proceed with the construction or operation of our ethanol production facilities under construction or in development in a timely manner or at all.

Excess production capacity in our industry resulting from new plants under construction or decreases in the demand for ethanol or distillers grain could adversely affect our business.

According to the RFA, domestic ethanol production capacity has increased from approximately 1.8 Bgpy, in 2001, to an estimated 5.9 Bgpy at April 2007. The RFA estimates that, as of April 2007, approximately 6.2 Bgpy of additional production capacity, an increase of approximately 106% over current production levels, is under construction at 85 new and existing facilities. This estimate does not include our construction plans or certain expansion plans of other ethanol producers. In particular, Archer Daniels Midland Company, the largest domestic ethanol producer, has announced plans to increase its production capacity by approximately 51% by mid-2008. As a result of this increase in production, the ethanol industry faces the risk of excess capacity. In a manufacturing industry with excess capacity, producers have an incentive to continue manufacturing products for so long as the price of the product exceeds the marginal cost of production (i.e., the cost of producing only the next unit, without regard to interest, overhead or other fixed costs). If there is excess capacity in our industry, this could result in a reduction of the market price of ethanol to a level that is inadequate to generate sufficient cash flow to cover costs, which would have an adverse effect on our results of operations, cash flows and financial condition. If such circumstances were to arise, it would be extremely unlikely that the potential sale of one or more plants or plant sites would be worth pursuing at that time.

Excess ethanol production capacity also may result from decreases in the demand for ethanol, which could result from a number of factors, including regulatory developments and reduced gasoline consumption in the United States. Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and

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consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or as a result of technological advances, such as the commercialization of hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs. There is some evidence that reduced gasoline consumption has occurred in the recent past as gasoline prices have increased in the United States.

In addition, because ethanol production produces distillers grain as a co-product, increased ethanol production will also lead to increased supplies of distillers grain. An increase in the supply of distillers grain, without corresponding increases in demand, could lead to lower prices.

Increased acceptance of ethanol as a fuel and construction of additional ethanol production plants could lead to shortages of availability and increases in the price of corn.

We anticipate that the expansion of the ethanol industry will lead to significantly greater demand for corn. Cargill, which has agreed to supply corn for our plants under construction, may have difficulty from time to time in sourcing corn on economical terms, due to supply shortages or elevated market prices. Any supply shortage could require us to suspend operations until corn becomes available on economical terms. Suspension of operations would materially harm our business, results of operations and financial condition. Additionally, the price we pay for corn could increase if another ethanol production facility were built in the same general vicinity, if we expand one of our production facilities or based on market conditions. In Minnesota, one of our competitors has begun construction on a large scale ethanol production plant approximately six miles from our Fairmont site, near Welcome, Minnesota. Two plants in such close proximity could lead to increases in the price of corn or shortages of availability of corn in the area. In addition, the price of corn has increased significantly over historical levels in late 2006 and to date in 2007. This increase in corn prices is due in part to the anticipated demand from new ethanol production plants under construction or development. We cannot assure you that the price of corn will not continue to rise, which could adversely affect our results of operations.

We are dependent upon our officers for management and direction, and the loss of any of these persons could adversely affect our operations and results.

We are dependent upon the diligence and skill of our senior management for implementation of our proposed strategy and execution of our business plan. Our future success depends to a significant extent on the continued service and coordination of our senior management team, particularly Thomas J. Edelman, Scott H. Pearce, Daniel J. Simon, David J. Kornder and Timothy S. Morris. We rely on Mr. Edelman’s experience managing natural resources companies and his skill and experience in acquiring and disposing of businesses and properties. We also rely on the expertise and business relationships of Messrs. Edelman, Pearce and Simon in identifying our plant sites and securing construction, supply, marketing and other arrangements for our plants. None of these individuals would be easy to replace on short notice. In addition, Mr. Edelman, our Chairman, also serves as Chairman of two other companies and is on the board of directors and a significant stockholder in several additional companies. As a result, Mr. Edelman can commit only a portion of his business time to our company. We do not have employment agreements with any of our officers or key employees, other than Mr. Pearce and Mr. Simon. We do not maintain ‘‘key person’’ life insurance for any of our officers or other employees. The loss of any of our officers could delay or prevent the achievement of our business objectives.

We will be dependent on our commercial relationship with Cargill and will be subject to various risks associated with this relationship.

Our operating results may suffer if Cargill does not perform its obligations under our contracts.    We have entered into an extensive commercial relationship with Cargill and will be dependent on Cargill for the success of our business. This relationship includes long-term

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marketing agreements with Cargill, under which Cargill has agreed to market and distribute 100% of the ethanol and distillers grain produced at our Wood River and Fairmont production plants. We have also entered into corn supply agreements with Cargill, under which Cargill will supply 100% of the corn for our Wood River and Fairmont plants. We intend to enter into ethanol and distillers grain marketing agreements and corn supply agreements with Cargill for our Alta plant under development, although we cannot assure you that we will be able to enter into these agreements or that they will be on the same terms as the agreements currently in place with respect to our Wood River and Fairmont plants. The success of our business will depend on Cargill’s ability to provide our production plants with the required corn supply in a cost-effective manner and to market and distribute our products successfully. If Cargill defaults on payments to us, fails to perform any of its responsibilities or does not perform its responsibilities as effectively as we expect them to, our results of operations will be adversely affected.

Cargill may terminate the marketing and supply agreements relating to each of our Wood River and Fairmont plants if provisional acceptance of the plants does not occur by December 31, 2009.    If provisional acceptance under our EPC contracts with TIC relating to our Wood River or Fairmont plant does not occur by December 31, 2009, Cargill may terminate the marketing and supply agreements relating to that plant. This means that if the completion of construction of either of the first two plants, currently scheduled for the first quarter of 2008, were delayed beyond December 31, 2009 for any reason, Cargill could terminate, or seek to renegotiate the terms of, its commercial agreements with us relating to the delayed plant. Without our commercial relationship with Cargill, we may not be able to acquire sufficient corn to produce ethanol and distillers grain at expected capacities and may not be able to market our products successfully.

Cargill may terminate its arrangements with us in the event that certain parties acquire 30% or more of our common stock or the power to elect a majority of the Board. Cargill has the right to terminate its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires 30% or more of our common stock or the power to elect a majority of our Board of Directors. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of identified parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited. Cargill’s termination right may have the effect of deferring, delaying or discouraging transactions with these parties and their affiliates that might otherwise be beneficial to us. If Cargill were to terminate any of our goods and services agreements, it would have a significant negative impact on our business and we would be unable to continue our operations at each affected facility until alternative arrangements were made. If we were required to make alternative arrangements, we may not be able to make such arrangements or, if we are able to make such arrangements, they may not be on terms as favorable as our agreements with Cargill. We currently have no agreements or structure in place that would prohibit any of the parties identified by Cargill from acquiring 30% or more of our common stock and we do not expect to have any such agreements or structures in the future. However, we have no expectation that any of these parties would have an interest in acquiring stock of the company. We will implement a procedure upon initiation of public trading to monitor Schedule 13D filings so that we will be informed of any parties accumulating ownership of our stock. If any identified party accumulates a significant amount of stock, our Board of Directors will address the matter at that time consistent with its fiduciary duties under applicable law.

If we do not meet certain quality and quantity standards under our marketing agreements with Cargill, our results of operations may be adversely affected.    If our ethanol or distillers grain does not meet certain quality standards, Cargill may reject our products or accept our products and decrease the purchase price to reflect the inferior quality. In addition, if our distillers grain is subject to a recall reasonably determined by Cargill to be necessary, we will be

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responsible for all reasonable costs associated with the recall. If we fail to produce a sufficient amount of ethanol or distillers grain and, as a result, Cargill is required to purchase replacement products from third parties at a higher purchase price to meet sale commitments, we must pay Cargill the price difference plus a commission on the deficiency volume. Our failure to meet the quality and quantity standards in our marketing agreements with Cargill could adversely affect our results of operations.

We will be subject to certain risks associated with Cargill’s ethanol marketing pool.    Under the terms of our ethanol marketing agreements, Cargill will place our ethanol in a common marketing pool with ethanol produced by Cargill and certain other third party producers. Each participant in the pool will receive the same price for its share of ethanol sold, net of freight and other agreed costs incurred by Cargill with respect to the pooled ethanol. Freight and other charges will be divided among pool participants based solely upon each participant’s ethanol volume in the pool. As a result, we may be responsible for higher freight and other costs than we would be if we did not participate in the marketing pool, depending on the freight and other costs attributable to the other marketing pool members. We have the right to opt out of the ethanol marketing pool for any contract year by giving Cargill six-months advance notice. However, we may be required to participate in the pool for an additional 18 months if Cargill has contractually committed to sell ethanol based on our continued participation in the pool.

We are subject to certain risks associated with our corn supply agreements with Cargill.    We have agreed to purchase our required corn supply for our Wood River and Fairmont plants exclusively from Cargill and will pay Cargill a per bushel fee for all corn Cargill sells to us. We cannot assure you that the prices we will pay for corn under our corn supply agreements with Cargill, together with the fee we have agreed to pay to Cargill, will be lower than the prices we could pay for corn from other sources.

Our interests may conflict with the interests of Cargill.    According to the RFA, as of April 2007, Cargill was the sixth largest domestic producer of ethanol, producing approximately 120 Mmgy, and has announced its intention to expand production at one of these facilities by approximately 110 Mmgy and to develop four new 100 Mmgy ethanol plants in the Midwestern United States. In addition, we understand that Cargill has entered into commercial arrangements similar to ours with ASAlliances Biofuels, Inc. and has made an equity investment in that company. Furthermore, we understand that Cargill markets ethanol for other third parties under the marketing pool arrangements described above. We cannot assure you that Cargill will not favor its own interests or those of other parties over our interests. Under our marketing agreements with Cargill, other than our right to terminate to the extent such conflict results in material quantifiable pecuniary loss, we have waived any claim of conflict of interest against Cargill for failure to use commercially reasonable efforts to maximize our returns to the extent such claims relate to an alleged conflict of interest or alleged preference to third parties for which Cargill provides marketing services. If we elected to terminate the marketing agreements in these circumstances, we would need to enter into replacement marketing arrangements with another party, which may not be possible at all or on terms as favorable as our current agreements with Cargill. To the extent a conflict of interest does not result in material quantifiable pecuniary loss, we would be without recourse against Cargill.

We may not be able to enter into definitive agreements with Cargill with respect to our additional plants under development.    Although we have entered into a letter agreement with Cargill with respect to our additional plants under development, we cannot assure you that we will be able to enter into definitive commercial agreements with Cargill relating to our planned Alta plant or any future plants on commercially reasonable terms or at all. If we are unable to enter into definitive commercial arrangements with Cargill with respect to these plants, we cannot assure you that we will be able to enter into replacement agreements with another party on commercially reasonable terms or at all.

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New, more energy-efficient technologies for producing ethanol could displace corn-based ethanol and materially harm our results of operations and financial condition.

The development and implementation of new technologies may impact our business significantly. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulosic biomass such as agricultural waste, forest residue, and municipal solid waste. This trend is driven by the fact that cellulosic biomass is generally cheaper than corn and producing ethanol from cellulosic biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical process rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be cost competitive, new technologies may develop that would allow these or other methods to become viable means of ethanol production in the future thereby displacing corn-based ethanol in whole or in part or intensifying competition in the ethanol industry. Our planned plants are designed to produce corn-based ethanol through a fermentation process. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, and retrofitting our plants may be very time-consuming and could require significant capital expenditures. In addition, advances in the development of alternatives to ethanol, such as alternative fuel additives, or technological advances in engine and exhaust system design performance, such as the commercialization of hydrogen fuel-cells or hybrid engines, or other factors could significantly reduce demand for or eliminate the need for ethanol. We cannot predict when new technologies may become available, the rate of acceptance of new technologies, the costs associated with new technologies or whether these other factors may harm demand for ethanol.

We expect to incur a significant amount of indebtedness to construct our facilities, a substantial portion of which will be secured by our assets.

Assuming that this offering generates net proceeds to us of $147 million as set forth under ‘‘Use of proceeds’’, we expect to borrow up to approximately $340 million in order to finance the construction of our three planned facilities. A $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the mid-point of the price range on the cover page of this prospectus, would decrease or increase the amount we expect to borrow by approximately $9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise by the underwriters of their over-allotment option. Under our current bank facility and our subordinated loan agreement, we have commitments in place for up to an aggregate of $210 million of construction loans for our Wood River and Fairmont plants. In addition, up to $20 million in working capital loans will be available to pay the operating expenses of these plants, with up to $5 million becoming available upon mechanical completion of a plant, up to $10 million becoming available upon provisional acceptance of a plant and the full $20 million becoming available if certain conditions precedent, including completion of the plants, are satisfied prior to June 30, 2009. We may also borrow additional amounts in order to finance construction or acquisition of, or investment in, additional ethanol production projects.

Our substantial indebtedness could have important consequences by adversely affecting our financial position.

Our substantial indebtedness could:

  require us to dedicate all of our cash flow from operations (after the payment of operating expenses) to payments with respect to our indebtedness, thereby reducing the availability of our cash flow for working capital, capital expenditures and other general corporate expenditures;
  restrict our ability to take advantage of strategic opportunities;
  increase our vulnerability to adverse general economic or industry conditions;

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  limit our flexibility in planning for, or reacting to, competition or changes in our business or industry;
  limit our ability to borrow additional funds;
  restrict us from building new facilities or exploring business opportunities; and
  place us at a competitive disadvantage relative to competitors that have less debt or greater financial resources.

Our ability to make payments on and refinance our indebtedness will depend on our ability to generate cash from our operations. Our ability to generate cash from operations is subject, in large part, to general economic, competitive, legislative and regulatory factors and other factors that are beyond our control. We may not be able to generate enough cash flow from operations or obtain enough capital to service our debt or fund our planned capital expenditures.

If we do not have sufficient cash flow to service our debt, we would need to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, any or all of which we may not be able to do on commercially reasonable terms or at all.

We are subject to risks associated with our existing debt arrangements.

Our bank facility.    The subsidiaries that own our Wood River and Fairmont plants have entered into a bank facility with a group of financial institutions that is secured by substantially all of those subsidiaries’ assets. Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility remains subject to the satisfaction of a number of additional conditions precedent, including the provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders, which could result in a delay of our construction.

The terms of the bank facility include customary events of default and covenants that limit the applicable subsidiaries from taking certain actions without obtaining the consent of the lenders. In particular, our bank facility places significant restrictions on the ability of those subsidiaries to distribute cash to the LLC, which limits our ability to use cash generated by those subsidiaries for other purposes. In addition, the bank facility restricts those subsidiaries’ ability to incur additional indebtedness.

Under our bank facility, if Cargill, or as long as any warranty obligations remain outstanding under our Wood River or Fairmont EPC contracts, TIC or Delta-T admits in writing its inability to, or is generally unable to, pay its debts as such debts become due, we will be deemed to be in default.

In addition, the construction loans for our Wood River and Fairmont plants under our bank facility will become due and payable on June 30, 2009, unless certain conditions precedent are met by that date, including the substantial completion of those plants. If our Wood River and Fairmont plants are not substantially complete by June 30, 2009, any outstanding borrowings under our bank facility will be immediately due and payable, and we may not have sufficient funds to repay the borrowings.

Moreover, because the bank facility only contains limits on the amount of indebtedness that certain of our subsidiaries may incur, we have the ability to incur substantial additional indebtedness, and any additional indebtedness we incur could exacerbate the risks described above.

Our subordinated loan agreement.    The LLC has entered into a subordinated loan agreement with entities affiliated with Greenlight Capital, Inc. and entities and individuals affiliated with Third Point LLC. Subordinated borrowings are secured by the subsidiary equity interests owned by the LLC.

A default under our senior debt would also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding. Moreover,

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these lenders would have the option to terminate any obligation to make further extensions of credit. In the event of a default, the lenders could also proceed to foreclose against the assets securing such obligations. Because the debt under our existing arrangements subjects substantially all of our assets to liens, there may be no assets left for stockholders in the event of a liquidation. In the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to operate as a going concern.

Our future debt facilities will likely be secured by substantially all our assets.

We expect that the debt we will incur to finance our plants under development or evaluation will be incurred either pursuant to a new corporate credit facility that would replace our current bank facility and would be secured by substantially all of our assets or, in the alternative, by different, newly-formed subsidiaries, secured by substantially all of the assets related to those additional plants. Because the debt under these facilities may subject substantially all of our assets to liens, there may be no assets left for stockholders in the event of a liquidation.

Our profit margins may be adversely affected by fluctuations in the selling price and production cost of gasoline.

Ethanol is marketed as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of the gasoline with which it is blended and, to a lesser extent, as a gasoline substitute. As a result, ethanol prices are influenced by the supply of and demand for gasoline. Our results of operations may be materially harmed if the demand for or the price of gasoline decreases. Conversely, a prolonged increase in the price of or demand for gasoline could lead the U.S. government to relax import restrictions on foreign ethanol that currently benefit us.

Any facility that we complete may not operate as planned. A disruption in our operations could result in a reduction of sales volume and could cause us to incur substantial losses.

Our revenues will be derived from the sale of ethanol and distillers grain that we produce at our facilities. Any facility we construct may have operational problems preventing production at its expected capacity or requiring halts in production. Furthermore, local water, electricity and gas utilities may not be able to reliably supply the resources that our facilities will need or may not be able to supply them on acceptable terms. Our operations may be subject to significant interruption if any of our facilities experiences a major accident or is damaged by severe weather or other natural disasters. In addition, our operations may be subject to labor disruptions, unscheduled downtime or other operational hazards inherent in our industry. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to cover the potential operational hazards described above and we may not be able to renew our insurance on commercially reasonable terms or at all. In addition, until our Alta plant under development is operational, we will be particularly dependent on our Wood River and Fairmont plants, and the effects of a disruption at these plants could have a more significant effect on our business.

Our business will be highly dependent on commodity prices, which are subject to significant volatility and uncertainty, and on the availability of raw materials supplies, so our results of operations, financial condition and business outlook may fluctuate substantially.

Our results of operations depend substantially on the prices of various commodities, particularly the prices for ethanol, corn, natural gas and unleaded gasoline. The prices of these commodities are volatile and beyond our control. See ‘‘Management’s discussion and analysis of financial condition and results of operations — Components of revenues and expenses’’ for information regarding changes in the prices of ethanol, corn and natural gas during the period since 2000. As a result of the volatility of the prices for these items, our results may fluctuate substantially. We may experience periods during which the prices of our products decline and the

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costs of our raw materials increase, which in turn may result in operating losses and hurt our financial condition. If a substantial imbalance occurred, we may take actions to mitigate the effect of the imbalance, such as storing our uncontracted ethanol for a period of time. These actions could involve additional costs and could have a negative impact on our operating results.

Our business will be highly sensitive to corn prices, and we generally cannot pass along increases in corn prices to our customers.

Corn is the principal raw material we will use to produce ethanol and distillers grain. We expect corn costs to represent approximately 60% of our total operating expenses. Changes in the price of corn therefore will significantly affect our business. In general, rising corn prices result in lower profit margins. Under current market conditions, because ethanol competes with fuels that are not corn-based, we generally will be unable to pass along increased corn costs to our customers. At certain levels, corn prices would make ethanol uneconomical to use in fuel markets. Over the period from April 1997 to April 2007, corn prices, based on the Chicago Board of Trade, or CBOT, daily futures data, have ranged from a low of $1.83 per bushel in July 2000 to a high of $4.48 per bushel in February 2007, with prices averaging $2.43 per bushel during this period. As of April 17, 2007, the CBOT spot price of corn was $3.39 per bushel. The price of corn is influenced by a number of factors, including weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors, government policies and subsidies with respect to agriculture and international trade, and global and local supply and demand. In addition, any event that tends to increase the demand for corn could cause the price of corn to increase. We believe it is likely that increasing ethanol production capacity will contribute to a period of elevated corn prices compared to historical levels.

The price spread between ethanol and corn can vary significantly.

Our gross profit will depend principally on the spread — referred to as the ‘‘crush spread’’ — between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol. During the period from September 1997 to April 2007, ethanol prices, based on average U.S. ethanol rack prices reported by Bloomberg, L.P., have ranged from a low of $0.94 per gallon in February 2002 to a high of $3.98 per gallon in July 2006, averaging $1.53 per gallon during this period, and the spot price of Chicago No. 2 yellow corn has ranged from $1.51 to $4.19. From 2005 to 2007, this spread has fluctuated widely, as average U.S. ethanol rack prices, reported by Bloomberg, have ranged from $1.18 to $3.98, and Chicago No. 2 yellow corn spot prices have ranged from $1.64 to $4.19. As of April 17, 2007, based on these same sources, the ethanol rack price was $2.36 per gallon, the spot price of corn was $3.39 per bushel and the spread between the average U.S. rack price for a gallon of ethanol and the amount of corn required to produce a gallon of ethanol was $2.99 per bushel. We expect fluctuations in the crush spread to continue. Any reduction in the crush spread, whether as a result of an increase in corn prices or a reduction in ethanol prices, would adversely affect our results of operations. A prolonged significant reduction in the crush spread could affect our ability to obtain financing for our planned Alta plant or our additional plants under development.

The market for natural gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that we will use in our manufacturing process.

We will rely upon third parties for our supply of natural gas, which we will use in the ethanol production process. The prices for and availability of natural gas are subject to volatile market conditions. The fluctuations in natural gas prices over the ten-year period from April 1997, through April 2007, based on the New York Mercantile Exchange, or NYMEX, daily futures data, have ranged from a low of $1.66 per Mmbtu in February 1999 to a high of $15.36 per Mmbtu in December 2005, averaging $4.88 per Mmbtu during this period. As of April 17, 2007, the NYMEX spot price of natural gas was $7.50 per Mmbtu. These market conditions are often affected by factors beyond our control such as the price of oil as a competitive fuel, higher prices resulting from colder than average weather conditions or the impact of hurricanes and overall economic

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conditions. Depending upon business conditions, we anticipate using approximately 7,920,000 Mmbtu of natural gas annually when our Wood River and Fairmont plants are fully operational and approximately 11,880,000 Mmbtu when all three of our proposed plants are fully operational. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol for our customers. Furthermore, increases in natural gas prices could adversely affect our results of operations.

Our results may be adversely affected by hedging transactions and other strategies.

We may enter into contracts to supply a portion of our ethanol and distillers grain production or to purchase a portion of our corn or natural gas requirements on a forward basis to offset some of the effects of volatility of ethanol prices and costs of commodities. From time to time, we may also engage in other hedging transactions involving exchange-traded futures contracts for corn and natural gas. The financial statement impact of these activities will depend upon, among other things, the prices involved and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts or our ability to sell excess corn or natural gas purchased in hedging transactions. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. Hedging activities can result in losses when a position is purchased in a declining market or a position is sold in a rising market. A hedge position is often settled when the physical commodity is either purchased (corn and natural gas) or sold (ethanol or distillers grain). We may experience hedging losses in the future. We may also vary the amount of hedging or other price mitigation strategies we undertake, and we may choose not to engage in hedging transactions at all. As a result, our results of operations and financial condition may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol.

We may not be able to compete effectively.

Upon completion and successful operation of our ethanol plants, we expect to compete with a number of significant ethanol producers in the United States, including Archer Daniels Midland Company, VeraSun Energy Corporation, ASAlliances Biofuels, Inc., Aventine Renewable Energy, Inc., Abengoa Bioenergy Corporation, US BioEnergy Corporation and Hawkeye Holdings Inc. Some of our competitors are divisions of larger enterprises and have substantially greater financial resources than we do. According to the RFA, Archer Daniels Midland Company, currently the largest domestic producer of ethanol, accounted for approximately 18% of domestic ethanol production capacity as of April 2007. In addition, Archer Daniels has announced that it intends to increase its ethanol production capacity by approximately 51% by mid-2008. According to the RFA, as of April 2007, the next nine largest domestic ethanol producers accounted for approximately 26% of domestic production capacity. Smaller competitors, made up mostly of farmer-owned cooperatives and independent firms consisting of groups of individual farmers and investors have also been able to compete successfully in the ethanol industry. Many of these smaller competitors are farmer-owned, receive greater government subsidies than we will and often require their farmer-owners to commit to selling them a certain amount of corn as a requirement of ownership. We expect competition to increase as the ethanol industry becomes more widely known and demand for ethanol increases.

In addition, Cargill has entered into arrangements similar to ours with at least one other ethanol producer and has announced plans to expand production at an existing ethanol facility by 110 Mmgy and to develop four new 100 Mmgy ethanol plants in the Midwestern United States. If Cargill decides to forgo future opportunities to do business with us, or chooses to give these opportunities to our competitors or to retain them for itself, whether due to our performance or for reasons beyond our control, our business may not perform as expected.

We also face increasing competition from international suppliers. International suppliers produce ethanol primarily from sugar cane and have cost structures that may be substantially

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lower than ours. Although there is a $0.54 per gallon tariff on foreign-produced ethanol that is approximately equal to the federal blenders’ credit, ethanol imports equivalent to up to 7% of total domestic production in any given year from various countries were exempted from this tariff under the Caribbean Basin Initiative in order to spur economic development in Central America and the Caribbean. In addition, this tariff is currently scheduled to expire in January 2009, and there can be no assurance that it will be renewed beyond that time. Any increase in domestic or foreign competition could force us to reduce our prices and take other steps to compete effectively, which may adversely affect our results of operations and financial position.

Growth in the sale and distribution of ethanol depends on changes to and expansion of related infrastructure which may not occur on a timely basis, if at all.

It currently is impracticable to transport by pipeline fuel blends that contain ethanol. Substantial development of infrastructure will be required by persons and entities outside our control for our business, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to:

  additional rail car capacity;
  additional storage facilities for ethanol;
  increases in truck fleets capable of transporting ethanol within localized markets; and
  investment in refining and blending infrastructure to handle ethanol.

The substantial investments or government support required for these infrastructure changes and expansions may not be made on a timely basis or at all. Any delay or failure in making the changes to or expansion of infrastructure could weaken the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise materially harm our results of operations or financial position.

Transportation delays, including as a result of disruptions to infrastructure, could adversely affect our operations.

Our business will depend on the availability of rail and road distribution infrastructure. Any disruptions in this infrastructure network, whether caused by earthquakes, storms, other natural disasters or human error or malfeasance, could materially impact our business. It currently is impracticable to transport by pipeline fuel blends that contain ethanol, and we will have limited ethanol storage capacity at our facilities. Therefore, any unexpected delay in transportation of our ethanol could result in significant disruption to our operations. We will rely upon others to maintain our rail lines from our production plants to national rail networks, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us or otherwise cause our results of operations or financial condition to suffer.

Disruptions in the supply of oil or natural gas could materially harm our business.

Significant amounts of oil and natural gas are required for the growing, fertilizing and harvesting of corn, as well as for the fermentation, distillation and transportation of ethanol and the drying of distillers grain. A serious disruption in the supply of oil or natural gas and any related period of elevated prices could significantly increase our production costs and materially harm our business.

Our business may be influenced by seasonal fluctuations.

Our operating results may be influenced by seasonal fluctuations in the price of our primary operating inputs, corn and natural gas, and the price of our primary product, ethanol. The spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November, although corn prices have not

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followed this pattern in 2006 and to date in 2007. The price for natural gas, however, tends to move inversely to that of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition, our ethanol prices are substantially correlated with the price of unleaded gasoline. The price of unleaded gasoline tends to rise during each of the summer and winter. Given our lack of operating history, we do not know yet how these seasonal fluctuations will affect our operating results over time.

The price of distillers grain is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the price of distillers grain.

Distillers grain is one of many animal feed products and competes with other protein-based animal feed products. The price of distillers grain may decrease when the price of competing feed products decreases. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grain. Because the price of distillers grain is not tied to production costs, decreases in the price of distillers grain will result in us generating less revenue and lower profit margins. In addition, the production of distillers grain is expected to rise significantly in connection with the projected expansion of ethanol production capacity in the United States over the next several years. As a result of this likely significant increase in supply, the market price of distillers grain may fall sharply from its current levels. If the market price of distillers grain falls, our business and financial results may be harmed.

Our financial results may be adversely affected by potential future acquisitions or sales of our plants, which could divert the attention of key personnel, disrupt our business and dilute stockholder value.

As part of our business strategy, we intend to (1) pursue acquisitions of other ethanol producers, building sites, production facilities, storage or distribution facilities and selected infrastructure and (2) seek opportunities to sell one or more plants or plant sites on a basis more favorable than we would expect to realize by holding them. Due to increased competition, however, we may not be able to secure suitable acquisition opportunities. Further, we may not be able to find a buyer or buyers for one or more of our plants or plant sites at prices that we considered attractive.

In addition, the completion of any acquisition may result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our currently planned operations. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing equity securities or debt that is convertible into equity securities, our existing stockholders may be diluted, which could affect the market price of our common stock. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

The domestic ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could adversely affect our results of operations and financial position.

The elimination of, or any significant reduction in, the blenders’ credit could have a material impact on our results of operations and financial position.    The cost of production of ethanol is made significantly more competitive with that of gasoline as a result of federal tax incentives. Before January 1, 2005, the federal excise tax incentive program allowed gasoline distributors that blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sold. If the fuel was blended with 10% ethanol, the refiner/marketer paid $0.052 per gallon less tax, which amounted to an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon incentive for ethanol was reduced to $0.51 per gallon in 2005 and is scheduled

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to expire in 2010. It is possible that the blenders’ credit will not be renewed beyond 2010 or will be renewed on different terms. In addition, the blenders’ credit, as well as other federal and state programs benefiting ethanol (such as tariffs), generally are subject to U.S. government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, and may be the subject of challenges, in whole or in part. If the blenders’ credit is not extended by June 30, 2009, or is scheduled to expire less than 18 months from any date after June 30, 2009, the amounts we will be required to deposit into an excess cash flow sweep account under our bank facility will increase.

The elimination of or significant changes to the Freedom to Farm Act could reduce corn supplies.    In 1996, Congress passed the Freedom to Farm Act, which allows farmers continued access to government subsidies while reducing restrictions on farmers’ decisions about land use. This act not only increased acreage dedicated to corn crops but also allowed farmers more flexibility to respond to increases in corn prices by planting greater amounts of corn. The elimination of this act could reduce the amount of corn available in future years and could reduce the farming industry’s responsiveness to the increasing corn needs of ethanol producers.

Ethanol can be imported into the United States duty-free from some countries, which may undermine the domestic ethanol industry.    Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.51 per gallon ethanol incentive available under the federal excise tax incentive program for refineries that blend ethanol in their gasoline. A special exemption from the tariff exists for ethanol imported from 24 countries in Central America and the Caribbean Islands, which is limited to a total of 7.0% of U.S. production per year. In addition, the North American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new plants under development. Production costs for ethanol in these countries can be significantly less than in the United States and the duty-free import of lower price ethanol through the countries exempted from the tariff may reduce the demand for domestic ethanol and the price at which we sell our ethanol.

The effect of the Renewable Fuels Standard in the recent Energy Policy Act is uncertain.    The use of fuel oxygenates, including ethanol, was mandated through regulation, and much of the forecasted growth in demand for ethanol was expected to result from additional mandated use of oxygenates. Most of this growth was projected to occur in the next few years as the remaining markets switch from MTBE to ethanol. The recently enacted Energy Policy Act, however, eliminated the mandated use of oxygenates and instead established minimum nationwide levels of renewable fuels — ethanol, biodiesel or any other liquid fuel produced from biomass or biogas — to be included in gasoline. The legislation also included provisions for trading of credits for use of renewable fuels and authorized potential reductions in the RFS minimum by action of a governmental administrator. The rules for implementation of the RFS and the energy bill are still under development, and the favorable ethanol provisions in the energy bill may be adversely affected by these rules or the enactment of additional legislation.

The legislation did not include MTBE liability protection sought by refiners. Ethanol producers predict that this lack of protection will result in accelerated removal of MTBE and increased demand for ethanol. Refineries, however, may use replacement additives other than ethanol, such as iso-octane, iso-octene and alkylate. Accordingly, the actual demand for ethanol may increase at a lower rate than previously estimated, resulting in excess production capacity in our industry, which would negatively affect our business.

Under the Energy Policy Act, the U.S. Department of Energy, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the Environmental Protection Agency determines that implementing the requirements would severely harm the economy or the environment of a state, a region or the nation, or that there is inadequate supply to meet the requirement. Any waiver of the RFS with respect to one or more states would reduce demand for ethanol and could cause our results of operations to decline and our financial condition to suffer.

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We may be adversely affected by environmental, health and safety laws, regulations and liabilities.

We are, and will be upon completion of our ethanol production facilities, subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees. Some of these laws and regulations will require our facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can require expensive emissions testing and pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and facility shutdowns. We may not be at all times in compliance with these laws, regulations or permits or we may not have all permits required to operate our business. We may be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or permits. In addition, we may be required to make significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

We may be liable for the investigation and cleanup of environmental contamination at any of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, or other environmental laws for all or part of the costs of investigation and remediation, and for damage to natural resources. We also may be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant amounts for investigation, cleanup or other costs.

New laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our production facilities. Environmental laws and regulations applicable to our operations now or in the future, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a negative impact on our results of operations and financial position. For example, carbon dioxide is a co-product of the ethanol manufacturing process and may be released into the atmosphere. Emissions of carbon dioxide are not currently subject to applicable permit requirements. If new laws or regulations are passed relating to the production, disposal or emissions of carbon dioxide, we may be required to incur significant costs to comply with such new laws or regulations.

The hazards and risks, such as fires, natural disasters, explosions and abnormal pressures and blowouts, associated with producing and transporting ethanol also may result in personal injury claims or damage to property and third parties. We could sustain losses for uninsurable or uninsured risks, or in amounts in excess of our insurance coverage. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could materially harm our results of operations and financial position.

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Risks relating to our organizational structure

Our only material asset after completion of this offering will be our interest in BioFuel Energy, LLC, and we are accordingly dependent upon distributions from BioFuel Energy, LLC to pay dividends, taxes and other expenses.

BioFuel Energy Corp. will be a holding company and will have no material assets other than its ownership of membership interests in the LLC. BioFuel Energy Corp. has no independent means of generating revenue. We intend to cause the LLC to make distributions to its members in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. Our bank facility contains negative covenants, which limit the ability of our operating subsidiaries to declare or pay dividends or distributions. To the extent that BioFuel Energy Corp. needs funds, and the LLC is restricted from making such distributions under applicable law or regulations, or is otherwise unable to provide such funds due, for example, to the restrictions in our bank facility that limit the ability of our operating subsidiaries to distribute funds, our liquidity and financial condition could be materially harmed.

We will be required to pay our historical LLC equity investors for a portion of the benefits relating to any additional tax depreciation or amortization deductions we may claim as a result of tax basis step-ups we receive in connection with future exchanges of BioFuel Energy, LLC membership interests for shares of our common stock.

The membership interests in the LLC held by our historical LLC equity investors upon consummation of the recapitalization and this offering may in the future be exchanged for shares of our common stock. The exchanges may result in increases in the tax basis of the assets of the LLC that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge.

We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for the payment by us to our historical LLC equity investors of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of these increases in tax basis. The increase in tax basis, as well as the amount and timing of any payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our common stock at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income. As a result of the size of the increases in the tax basis of the tangible and intangible assets of the LLC attributable to our interest in the LLC, during the expected term of the tax benefit sharing agreement, we expect that the payments that we may make to our historical LLC equity investors could be substantial.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors will not reimburse us for any payments that may previously have been made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit sharing agreement in excess of our cash tax savings. Our ability to achieve benefits from any tax basis increase, and the payments to be made under the tax benefit sharing agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.

If BioFuel Energy Corp. were deemed an ‘‘investment company’’ under the Investment Company Act of 1940 as a result of its ownership of BioFuel Energy, LLC, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

If BioFuel Energy Corp. were to cease participation in the management of the LLC, its interest in the LLC could be deemed an ‘‘investment security’’ for purposes of the Investment Company Act of 1940, or the 1940 Act. Generally, a person is deemed to be an ‘‘investment company’’ if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive

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of U.S. government securities and cash items), absent an applicable exemption. Following this offering, BioFuel Energy Corp. will have no material assets other than its equity interest in the LLC. A determination that this interest was an investment security could result in BioFuel Energy Corp. being an investment company under the 1940 Act and becoming subject to the registration and other requirements of the 1940 Act.

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to conduct our operations so that BioFuel Energy Corp. will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause BioFuel Energy Corp. to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among BioFuel Energy Corp., the LLC or our historical equity investors, or any combination thereof and materially adversely affect our business, financial condition and results of operations.

Risks relating to the offering and ownership of our common stock

There is no existing market for our common stock, and we do not know whether a market will develop.

Prior to this offering, our common stock has not been traded on a public market, and there are few public companies with substantial ethanol operations. Although we have applied to list our common stock on Nasdaq, we cannot assure you that a liquid trading market for the shares will develop. The liquidity of any market for the shares of our common stock will depend on a number of factors, including the number of stockholders of our common stock, our operating performance and financial condition and the market for similar securities. An illiquid market will limit your ability to resell shares of our common stock. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering.

The price of our common stock may be volatile.

The trading price of our common stock following this offering is likely to be highly volatile and could be subject to fluctuations in response to a number of factors beyond our control. Some of these factors are:

  our results of operations and the performance of our competitors;
  the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission, or SEC;
  changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry;
  changes in general economic conditions;
  changes in market prices for our products or for our raw materials;
  actions of our historical equity investors, including sales of common stock by our Directors and executive officers;
  actions by institutional investors trading in our stock;

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  disruption of our operations;
  any major change in our management team;
  other developments affecting us, our industry or our competitors; and
  U.S. and international economic, legal and regulatory factors unrelated to our performance.

In recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance, and those fluctuations could materially reduce our common stock price.

Certain stockholders’ shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decrease significantly.

After this offering, we will have outstanding 14,268,044 shares of common stock (15,693,044 shares if the underwriters exercise their over-allotment option in full) and 18,231,956 shares of Class B common stock. Of these shares, the 9,500,000 shares we are selling in this offering (10,925,000 shares if the underwriters exercise their over-allotment option in full) will be freely tradable without restriction under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by one of our ‘‘affiliates’’ as defined in Rule 144 under the Securities Act. All of the shares outstanding other than the shares sold in this offering will be ‘‘restricted securities’’ within the meaning of Rule 144 under the Securities Act.

In connection with this offering, we, our executive officers and Directors and the holders of substantially all of our outstanding capital stock have entered into lock-up agreements with the underwriters. Under these agreements, subject to exceptions, we may not issue any new shares of common stock, and those holders of stock may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any shares of common stock or any securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without the prior written consent of J.P. Morgan Securities Inc., for a period of 180 days from the date of this prospectus. After the expiration of these lock-up agreements, all of the shares subject to the lock-up agreements will become eligible for sale in the public market over time under Rule 144 of the Securities Act, subject to volume limitations and other restrictions contained in Rule 144. In addition, holders of these shares will have the right to require us to register the resale of their shares. If any of these holders sell their shares after the lock-up period, the price of our common stock could decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional equity securities.

Our historical equity investors, including some of our officers and Directors, will exert significant influence over us after the completion of this offering. Their interests may not coincide with yours and they may make decisions with which you may disagree.

Our certificate of incorporation provides that the holders of shares of our Class B common stock will be entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Accordingly, immediately following this offering, Greenlight Capital, Inc. and its affiliates, Third Point LLC and its affiliates and Cargill will each control approximately 27%, 14% and 5% of the voting power in BioFuel Energy Corp., respectively, and our officers and Directors will together control approximately 59% of the voting power in BioFuel Energy Corp. The shares of common stock and Class B common stock held by affiliates of Greenlight Capital, Inc. and Third Point LLC, which are controlled by our Directors David Einhorn and Daniel S. Loeb, respectively, were included in the calculation of voting power attributable to our officers and Directors. Our historical equity investors, acting together, could effect substantially all matters requiring stockholder approval, including the election of Directors and approval of significant corporate

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transactions. In addition, this concentration of ownership may delay or prevent a change in control of our company and make some transactions more difficult or impossible without the support of these stockholders. The interests of these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that you would not approve or make decisions with which you may disagree.

We do not intend to pay dividends on our common stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund the development and operation of our business. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the Board of Directors deems relevant. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

You will experience immediate and significant dilution in the tangible book value of the shares you purchase in this offering.

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering. Based upon the issuance and sale of 9,500,000 shares of our common stock at the assumed offering price of $17.00 per share, the mid-point of the price range on the cover page of this prospectus, you will incur immediate dilution of approximately $9.72 in the net tangible book value per share if you purchase common stock in the offering. See ‘‘Dilution’’.

Provisions in our charter documents and our organizational structure may delay or prevent our acquisition by a third party or may reduce the value of your investment.

Some provisions in our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder may deem to be in his or her best interest. For example, our Board may determine the rights, preferences, privileges and restrictions of unissued series of preferred stock without any vote or action by our stockholders. In addition, stockholders must provide advance notice to nominate Directors or to propose business to be considered at a meeting of stockholders and may not take action by written consent. Our corporate structure, which provides our historical LLC equity investors, through the shares of Class B common stock they will hold, a number of votes equal to the number of shares of common stock issuable upon exchange of their membership interests in the LLC, may also have the effect of delaying, deferring or preventing a future takeover or change in control of our company. The existence of these provisions and this structure could also limit the price that investors may be willing to pay in the future for shares of our common stock.

Management and our auditors have identified material weaknesses in the design or operation of our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods.

In connection with the audit of our consolidated financial statements as of December 31, 2006, and for the period from April 11, 2006 through December 31, 2006, our management and our independent registered public accounting firm, Deloitte & Touche LLP, identified certain material weaknesses related to our internal control over financial reporting. A material weakness is defined by the Public Company Accounting Oversight Board as a significant deficiency, or

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combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

The identified material weaknesses consisted of the following:

  Lack of adequate financial systems: We have not implemented an integrated accounting and financial reporting system. Without an adequate accounting system, there is a significant risk that transactions will not be completely and accurately recorded.
  Lack of adequate accounting staff: We do not have the accounting resources to adequately segregate responsibilities and review our financial reports.
  Lack of written policies and procedures: We have not completed the documentation of our financial policies and procedures.

If we are unable to implement an accounting system, hire adequate staff and document our policies and procedures in a timely and effective manner, we will be unable to establish an adequate system of internal control over our financial reporting and our ability to comply with the accounting and financial reporting requirements and other rules that apply to public companies would be impaired.

We have begun to address these material weaknesses, although they have not been completely remediated. We have identified an integrated accounting and financial reporting software package. We anticipate that the implementation of this system will take approximately 60 days. We have also hired David J. Kornder to serve as our Executive Vice President and Chief Financial Officer. Mr. Kornder has substantial experience acting as Chief Financial Officer of public companies. We have begun recruiting additional accounting staff and have reached agreement with a new Controller who is scheduled to commence employment on May 1, 2007. Finally, we have continued with the documentation of accounting policies and procedures, although our limited accounting staff to date has restricted our ability to complete this task. We intend to accelerate this process significantly with the addition of our new CFO and staff.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

When our common stock is publicly traded, we will need to comply with laws, regulations and requirements, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 and related regulations of the SEC and requirements of Nasdaq, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our Board of Directors and management. We will need to:

  institute a comprehensive compliance function;
  establish internal policies, such as those relating to disclosure controls and procedures and insider trading;
  design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

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  prepare and distribute periodic reports in compliance with our obligations under the federal securities laws;
  involve and retain outside counsel and accountants in the above activities; and
  establish an investor relations function.

If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired, and we may be subject to sanctions or investigation by regulatory authorities such as the SEC or Nasdaq. In addition, failure to comply with Section 404 or a report of a material weakness may cause investors to lose confidence in us and may have a material adverse effect on our stock price.

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Forward-looking statements

This prospectus contains ‘‘forward-looking statements’’ that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are ‘‘forward-looking statements’’, including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘predicts’’, ‘‘potential’’, ‘‘continue’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘future’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’ and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the success of our business. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time and in relatively new and rapidly developing industries such as ethanol.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings ‘‘Risk factors’’, ‘‘Management’s discussion and analysis of financial condition and results of operations’’, ‘‘Business’’ and elsewhere in this prospectus.

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Organizational structure

Incorporation of BioFuel Energy Corp.

BioFuel Energy Corp. was incorporated as a Delaware corporation in April 2006. BioFuel Energy Corp. has not engaged in any business or other activities except in connection with its formation and its holding of interests in the LLC. Immediately prior to the consummation of this offering, the certificate of incorporation of BioFuel Energy Corp. will be amended and restated so that it:

  authorizes two classes of common stock, common stock and Class B common stock, having the terms described in ‘‘Description of capital stock’’. The Class B common stock, shares of which will be held only by members of the LLC (other than BioFuel Energy Corp.), provides its holders with no economic rights but entitles each holder to a number of votes as described in ‘‘Description of capital stock — Common stock — Class B common stock’’; and
  entitles the members of the LLC (other than BioFuel Energy Corp.) to exchange their membership interests for shares of common stock on a one-for-one basis, subject to customary rate adjustments for stock splits, stock dividends and reclassifications. See ‘‘Certain relationships and related party transactions — Amended BioFuel Energy, LLC limited liability company agreement’’. If a holder of Class B common stock exchanges any membership interests in the LLC for shares of common stock, the shares of Class B common stock held by such holder and attributable to the exchanged LLC membership interests will automatically be transferred to BioFuel Energy Corp. and be retired.

Recapitalization

Immediately prior to the consummation of this offering, the LLC will amend and restate its limited liability company agreement to replace the various classes of its existing membership interests with a single class of membership interests. As part of the amendment and restatement of the limited liability company agreement, BioFuel Energy Corp. will become the sole managing member of the LLC. Our historical LLC equity investors and BioFuel Energy Corp. will exchange their existing membership interests in the LLC for new membership interests in amounts to be determined in accordance with the existing limited liability company agreement and based on the initial public offering price of our shares of common stock issued in this offering. BioFuel Energy Corp. will amend and restate its certificate of incorporation to create two classes of common stock as described above and will issue a number of shares of common stock to Greenlight Capital Offshore, Ltd. and Greenlight Reinsurance, Ltd., the historical investors in BioFuel Energy Corp., equal to the number of membership interests held by BioFuel Energy Corp. in the LLC. In addition, BioFuel Energy Corp. will issue to each historical LLC equity investor shares of our Class B common stock, which will entitle each holder to a number of votes that is equal to the total number of shares of common stock issuable upon exchange of all of such holder’s membership interests in the LLC.

BioFuel Energy Corp. will contribute all of the net proceeds from this offering to the LLC, and the LLC will issue to BioFuel Energy Corp. a number of membership interests equal to the number of shares of common stock that BioFuel Energy Corp. has issued in this offering.

As a result of the transactions described above, which we collectively refer to as the ‘‘recapitalization’’, immediately following this offering:

  BioFuel Energy Corp. will be the sole managing member of the LLC and, through the LLC and its subsidiaries, operate our business;
  our historical LLC equity investors will hold 18,231,956 shares of our Class B common stock and an equal number of membership interests in the LLC, and BioFuel Energy Corp. will hold 14,268,044 membership interests in the LLC (or 15,693,044 membership interests in the LLC if the underwriters exercise in full their option to purchase additional shares);
  our public stockholders will collectively own 9,500,000 shares of our common stock (or 10,925,000 shares if the underwriters exercise in full their option to purchase additional shares);

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  the historical investors in BioFuel Energy Corp. will collectively own 4,768,044 shares of our common stock; and
  our public stockholders will collectively have approximately 29% of the voting power in BioFuel Energy Corp. (or approximately 32% if the underwriters exercise in full their option to purchase additional shares) and our historical equity investors will have approximately 71% of the voting power in BioFuel Energy Corp. (or approximately 68% if the underwriters exercise in full their option to purchase additional shares). See ‘‘Description of capital stock’’.

The diagram below depicts our organizational structure following this offering.

Holding company structure

BioFuel Energy Corp. will be a holding company and its sole asset will be a controlling equity interest in the LLC. As the sole managing member of the LLC, BioFuel Energy Corp. will operate and control all of the business and affairs of the LLC and its subsidiaries. BioFuel Energy Corp. will consolidate the financial results of the LLC and its subsidiaries and the ownership interest of the historical LLC equity investors in the LLC will be reflected as a minority interest in BioFuel Energy Corp.’s consolidated financial statements.

Pursuant to the amended limited liability company agreement of the LLC, BioFuel Energy Corp. will have the right to determine when distributions will be made to the members of the LLC and the amounts of any such distributions. If BioFuel Energy Corp. authorizes a distribution, such distribution will be made to the members of the LLC (1) in the case of a tax distribution (as described below), to the holders of membership interests in proportion to the amount of taxable income of the LLC allocated to such holder and (2) in the case of other distributions, pro rata in accordance with the percentages of their respective membership interests.

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The holders of membership interests in the LLC, including BioFuel Energy Corp., will incur U.S. federal, state and local income taxes on their proportionate shares of any net taxable income of the LLC. Net profits and net losses of the LLC will generally be allocated to its members, including BioFuel Energy Corp., the managing member, pro rata in accordance with the percentages of their respective membership interests. Because BioFuel Energy Corp. will own approximately 44% of the total membership interests in the LLC (or approximately 46% if the underwriters exercise in full their option to purchase additional shares), BioFuel Energy Corp. will generally be allocated approximately 44% of the net profits and net losses of the LLC (or approximately 46% if the underwriters exercise in full their option to purchase additional shares). The remaining net profits and net losses will generally be allocated to the other historical members of the LLC. These percentages are subject to change, including upon an exchange of membership interests for shares of our common stock and upon issuance of additional shares to the public. The amended limited liability company agreement will provide for cash distributions to the holders of membership interests of the LLC if BioFuel Energy Corp. determines that the taxable income of the LLC will give rise to taxable income for its members. In accordance with the amended limited liability company agreement, we will generally intend to cause the LLC to make cash distributions to the holders of its membership interests for purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the LLC allocable to such holders of membership interests multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income).

BioFuel Energy Corp. does not intend to pay any dividends on its common stock. If, however, BioFuel Energy Corp. declares dividends on its common stock, the LLC will make distributions to BioFuel Energy Corp. in order to fund any dividends. If BioFuel Energy Corp. declares dividends, our historical LLC equity investors will be entitled to receive equivalent distributions pro rata based on their membership interests in the LLC.

Company history

BioFuel Energy Corp. was formed as a Delaware corporation in April 2006 as a holding company through which certain of our historical equity investors hold membership interests in the LLC. The LLC was organized as a Delaware limited liability company in January 2006.

BioFuel Solutions Delaware, our predecessor for accounting purposes, was formed in 2005 and held a minority interest in Bio Fuel Solutions Colorado until October 2005 when the remaining interest of Bio Fuel Solutions Colorado was acquired by BioFuel Solutions Delaware. In September 2006, BioFuel Solutions Delaware was contributed to the LLC and BioFuel Solutions Delaware was dissolved. The LLC, Bio Fuel Solutions Colorado and BioFuel Solutions Delaware have conducted all of our business to date.

To date, all of our activity has been focused on the acquisition of real property for our first two facility sites, commencing construction at these sites, arranging for approximately $390 million in equity and debt financing and entering into certain construction and operating agreements with respect to our first two facilities, as well as other site development activities related to our facilities under development. This prospectus includes the audited consolidated balance sheet of BioFuel Energy Corp. and its subsidiaries as of December 31, 2006, and related consolidated statements of loss, stockholders’ equity and cash flows for the period from inception on April 11, 2006 through December 31, 2006, audited consolidated balance sheets of BioFuel Solutions Delaware as of June 30, 2006 and December 31, 2005, and related consolidated statements of income (loss), members’ equity and cash flows for the six months ended June 30, 2006, the year ended December 31, 2005 and from inception on January 1, 2005 through June 30, 2006, and the audited balance sheet of Bio Fuel Solutions Colorado as of October 31, 2005, and related statement of loss, members’ equity and cash flows from inception on January 1, 2005 through October 31, 2005.

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Use of proceeds

We estimate that the net proceeds from the sale of 9,500,000 shares of our common stock in this offering will approximate $147 million ($170 million if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and our estimated offering expenses. This estimate assumes a public offering price of $17.00 per share, which is the mid-point of the offering price range indicated on the cover of this prospectus. Each $1 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts, by approximately $9 million ($10 million if the underwriters’ over-allotment option is exercised in full).

We intend to use up to $50 million of the net proceeds to repay all outstanding subordinated debt.  Upon consummation of this offering and any such repayment, we will permanently terminate the subordinated loan agreement.

We expect that all remaining proceeds will ultimately be used to fund the equity portion of the construction costs of our Alta plant.  However, prior to the time funds are required at Alta, we may use them to repay or defer borrowing under our bank construction loans for the Wood River and Fairmont plants.

We intend to borrow up to approximately $125 million of additional debt to finance the remaining costs of construction of our Alta plant. As funds are required for the construction, we expect to borrow these funds under existing or subsequent bank facilities, which, in combination with proceeds from this offering and internal cash flow, would fund such expenditures.

Borrowings under our bank facility will bear interest at a variable rate based upon LIBOR or an alternate base rate, at our option, and will mature in 2014, assuming timely completion of our Wood River and Fairmont facilities. Borrowings under our subordinated loan agreement will bear interest at an annual rate of 15.0% and will mature in 2015. See ‘‘Risk factors — We expect to incur a significant amount of indebtedness to construct our facilities, a substantial portion of which will be secured by our assets’’. As of March 31, 2007, we had no outstanding borrowings under our bank facility and $18 million of outstanding borrowings under our subordinated loan agreement.

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Dividend policy

We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund the development and operation of our business. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors as our Board of Directors deems relevant. In addition, our bank facility imposes restrictions on the ability of the subsidiaries that will own our Wood River and Fairmont plants to pay dividends or make other distributions to us, which will restrict our ability to pay dividends.

BioFuel Energy Corp. will be a holding company and will have no material assets other than its ownership of membership interests in the LLC. We intend to cause the LLC to make distributions to BioFuel Energy Corp. in an amount sufficient to cover dividends, if any, declared by us. If the LLC makes such distributions, our historical LLC equity investors will be entitled to receive equivalent distributions from the LLC on their membership interests. To ensure that our public stockholders are treated fairly with our historical LLC equity investors, our charter will require that all distributions received from the LLC, other than distributions to cover tax obligations and other corporate expenses, will be dividended to holders of our common stock. See ‘‘Certain relationships and related party transactions — Amended BioFuel Energy, LLC limited liability company agreement’’ for a description of tax distributions that may be made to members of the LLC.

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Capitalization

The following table sets forth, as of December 31, 2006:

  the capitalization and cash and equivalents of BioFuel Energy Corp. on an actual basis; and
  the capitalization and cash and equivalents of BioFuel Energy Corp. on a pro forma as adjusted basis to give effect to the recapitalization and the issuance of shares of common stock in this offering at an assumed initial public offering price of $17.00 per common share (the mid-point of the price range on the cover page of this prospectus), after deducting the underwriting discount and estimated offering expenses payable by us.

You should read this table in conjunction with ‘‘Use of proceeds’’ and ‘‘Management’s discussion and analysis of financial condition and results of operations’’.


As of December 31, 2006
(dollars in thousands)
BioFuel
Energy Corp.
Actual
BioFuel
Energy Corp.
Pro forma
as adjusted
Cash and equivalents $27,239 $174,738
Total debt $        — $          —
Minority interest(1) 74,027 75,355
Stockholders’ equity(2):    
Preferred stock ($1.00 par value per share; no shares authorized, issued or outstanding, actual; 5 million shares authorized and no shares issued or outstanding, pro forma as adjusted)
Common stock ($0.01 par value per share; 1,000 shares authorized, issued and outstanding, actual; 100 million shares authorized and 14,268,044 shares issued and outstanding, pro forma as adjusted) 143
Class B common stock ($0.01 par value per share; no shares authorized, issued or outstanding, actual; 50 million shares authorized and 18,231,956 shares issued and outstanding, pro forma as adjusted) 182
Additional paid-in capital 26,953 174,127
Deficit accumulated during development stage(1) (2,334) (3,662)
Total stockholders’ equity   24,619 170,790
Total capitalization $98,646 $246,145
(1) In conjunction with the closing of this offering, based on an assumed initial public offering price of $17.00 per share of common stock, the mid-point of the price range on the cover page of this prospectus, the LLC would record a beneficial conversion charge of $4.6 million, which would result in a beneficial charge of approximately $1.3 million on a consolidated basis (based on our 28% ownership interest in the LLC). This non-cash charge will be reflected as an increase in minority interest, offset by a corresponding increase in the deficit accumulated during development stage.

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(2) A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share of common stock (the mid-point of the price range on the cover page of this prospectus) would increase (decrease) each of cash and equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $8.9 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 underwriting discount and estimated offering expenses payable by us.

The table above excludes the following:

  370,950 shares of common stock issuable upon exercise of options that will be granted to certain of our employees and Directors upon consummation of this offering under our 2007 Equity Incentive Compensation Plan, or our 2007 Plan, with a per-share exercise price equal to the initial public offering price;
  78,310 shares of restricted stock that will be granted to our officers and employees upon consummation of this offering under the 2007 Plan;
  22,500 shares of restricted stock that we intend to grant to our non-employee Directors upon consummation of this offering under our 2007 Plan;
  2,528,240 shares of our common stock available for future grant under our 2007 Plan; and
  1,425,000 shares of common stock that may be purchased by the underwriters to cover over-allotments, if any.

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Dilution

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. Dilution results from the fact that the per share initial public offering price of our common stock is in excess of the book value per share attributable to our historical equity investors. We calculate net tangible book value per share of our common stock by dividing our net tangible book value, which equals total book value of tangible assets plus minority interest less total liabilities, by the number of shares outstanding. Our pro forma net tangible book value at December 31, 2006, was $87.8 million, or $3.82 per share of our common stock, based upon 23,000,000 shares outstanding, which gives pro forma effect to the recapitalization and an assumed exchange of all outstanding units for shares of our common stock.

After giving effect to the sale of 9,500,000 shares of our common stock in this offering at an assumed offering price of $17.00 per share (the mid-point of the price range on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2006, would have been approximately $236.7 million, or $7.28 per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $3.46 per share of our common stock to our historical equity investors, and an immediate dilution in pro forma net tangible book value of $9.72 per share of our common stock to new investors, or approximately 57% of the offering price of $17.00 per share of our common stock. The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional shares:


Assumed initial public offering price per share   $ 17.00
Pro forma net tangible book value per share at December 31, 2006 before giving effect to the offering $ 3.82  
Increase in pro forma net tangible book value per share attributable to this offering 3.46  
Pro forma as adjusted net tangible book value per share after giving effect to this offering   7.28
Dilution per share to new investors   $ 9.72

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $17.00 per share would increase (decrease) the increase in pro forma as adjusted net tangible book value attributable to this offering by $0.28 per share and the dilution to new investors by $0.72 per share and increase (decrease) the pro forma as adjusted net tangible book value after this offering by $0.28 per share.

The following table sets forth, on the same pro forma as adjusted basis as of December 31, 2006, the number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share paid by our historical equity investors and by new investors, at the initial public offering price of $17.00 per share, which is the mid-point of the price range set forth on the cover of this prospectus, before deducting the underwriting discount and estimated offering expenses payable by us, assuming that all our historical equity investors exchanged their membership interests in the LLC for shares of our common stock on a one-for-one basis:

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  Shares purchased Total consideration Average
price per
share
  Number Percent Amount Percent
  (dollars in millions, except per share)
Historical equity investors 4,768,044 14.7 %  $ 27.0 10.0 %  $ 5.65
Minority interest 18,231,956 56.1 81.3 30.1 4.46
New investors 9,500,000 29.2 161.5 59.9 17.00
Total 32,500,000 100.0 %  $ 269.8 100.0 %   

The discussion and the table above assume no exercise of outstanding stock options. As of the date of closing of this offering, there will be options outstanding to purchase a total of 370,950 shares of our common stock at an exercise price equal to the offering price. Assuming the exercise of all the outstanding options, there would be no dilution to new investors in net tangible book value per share.

If the underwriters’ over-allotment option is exercised in full, (1) the pro forma as adjusted net tangible book value per share of common stock would be approximately $7.64 and (2) the dilution to new investors in pro forma as adjusted net tangible book value per share would be reduced to $9.36.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the total consideration paid by new investors by $8.9 million and the total consideration paid by all stockholders by $8.9 million.

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Selected financial data

BioFuel Energy Corp. was formed in April 2006 to hold certain membership interests in BioFuel Energy, LLC, which was formed in January 2006 to build and operate our ethanol production facilities. BioFuel Energy Corp. has consolidated BioFuel Energy, LLC. BioFuel Solutions Delaware, which was formed in January 2005, is considered the predecessor to BioFuel Energy, LLC for accounting purposes. The following tables set forth certain consolidated financial data for the periods and at the dates indicated. The information presented was derived from the audited financial statements included elsewhere in this prospectus.

You should read the selected historical financial data in conjunction with the information included under the heading ‘‘Management’s discussion and analysis of financial condition and results of operations’’ and the consolidated financial statements and accompanying notes included in this prospectus. We believe that the results of operations of our predecessor should not be relied upon as an indication of our future performance.


(in thousands, except per share amount) BioFuel Solutions Delaware BioFuel Energy Corp.
  Inception on
January 1,
2005
through
December 31,
2005
Six months
ended June 30,
2006
Inception on
April 11,
2006
through
December 31,
2006
Selected income statement data:      
Advisory fees $1,044 $                — $                —    
General and administrative expenses 154 375 9,162    
Minority interest in BioFuel Energy, LLC     (6,818)    
Net income (loss) 416 (396) (2,334)    
Net loss per share – basic and diluted     (2,334)(1)
       
Selected cash flow data:      
Net cash flow provided by (used in):      
Operating activities 22 275 (3,225)    
Investing activities (144) (363) (60,153)    
Financing activities 225 207 90,616    
       
Selected balance sheet data
(at end of period):
     
Total current assets     27,708    
Property, plant and equipment, net     82,892    
Total assets     121,481    
Total current liabilities     19,818    
Total liabilities     22,835    
Minority interest     74,027    
Total members’ equity/stockholder’s equity     24,619    
Total liabilities and members’ equity/stockholder’s equity     121,481    
(1) This figure does not give effect to an anticipated stock split to effect the recapitalization, which will be determined based on the final offering price.

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Management’s discussion and analysis of financial
condition and results of operations

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in ‘‘Risk factors’’.

Overview

We are a development stage company whose goal is to become a leading ethanol producer in the United States. We are currently constructing two 115 Mmgy ethanol plants in the Midwestern corn belt. In addition, we expect to commence construction of a third 115 Mmgy ethanol plant later this year. At each location, Cargill has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities. Three similar sites are being developed in anticipation of the possible construction of additional plants. All six sites were selected primarily based on access to favorably priced corn as well as availability of rail transportation and natural gas. We ultimately expect to grow, at least in part, through acquisitions. However, in current market conditions, we believe it is more attractive financially to build rather than buy. We will continue to assess the build versus acquire trade-off as we consider initiating construction on one or more of our next three sites.

Upon completion of the recapitalization, which is described under ‘‘Organizational structure’’, we will be a holding company with no operations of our own, and will be the sole managing member of the LLC, which will itself be a holding company and will indirectly own all of our operating assets. The financial statements contained elsewhere in this prospectus primarily reflect certain start-up costs, fees and expenses incurred by the LLC, the initial costs incurred in connection with the preparation for, and commencement of, construction of our Wood River and Fairmont ethanol facilities and the equity contributions received by the LLC. The financial statements of Bio Fuel Solutions Colorado and BioFuel Solutions Delaware contained elsewhere in this prospectus primarily reflect certain unrelated ethanol development activities conducted during 2005, as well as certain activities related to the development of our Wood River and Fairmont facilities. We believe that the results of operations of our predecessor should not be relied upon as an indication of our future performance.

In September 2006, certain of our subsidiaries entered into a credit agreement with a syndicate of financial institutions, and the LLC entered into a subordinated loan agreement with certain of our major stockholders, to fund the construction of our Wood River and Fairmont facilities. See ‘‘Description of indebtedness’’. We expect to incur additional indebtedness in connection with the construction of our Alta facility under development.

We have engineering, procurement and construction, or EPC, contracts with TIC for the construction of our Wood River and Fairmont ethanol plants pursuant to which the timely construction and performance of the two plants is guaranteed by TIC. Construction of both plants has begun, and as of December 31, 2006, we had invested approximately $46.8 million in the financing and construction of the Wood River plant and approximately $45.1 million in the financing and construction of the Fairmont plant. Spending on the actual construction of the Wood River and Fairmont plants (excluding related financing costs) is expected to total approximately $310 million. We currently anticipate that both plants will be completed and begin commercial operation during the first quarter of 2008 and will generate net cash inflows in 2008. If we encounter significant difficulties or delays in constructing our plants as described under ‘‘Risk Factors’’, our results of operations and financial condition could be materially harmed. We may also be required to borrow additional funds to replace lost revenues in the event of such delay. Furthermore, if provisional acceptance of a facility does not occur by December 31, 2009, Cargill may terminate, or seek to renegotiate the terms of, its commercial agreements with us with respect to the relevant facility.

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Components of revenues and expenses

Total revenues

Our primary source of revenue will be the sale of ethanol. We will also receive revenue from the sale of distillers grain, which is a residual co-product of the processed corn and is sold as animal feed.

The selling prices we realize for our ethanol are largely determined by the market supply and demand for ethanol, which, in turn, is influenced by industry factors over which we have little if any control. See ‘‘Industry outlook’’.

Ethanol prices are extremely volatile. In early 2005, ethanol prices decreased due to a perceived over-supply of ethanol. During the summer of 2006, ethanol prices rose due to increased gasoline prices and legislative changes, resulting in an average realized price for the first six months of 2006 that was $0.56 per gallon higher than for the comparable period of the prior year. From September 2006 through April 2007, however, ethanol prices have declined from the levels prevailing in the summer of 2006. The ethanol Bloomberg rack price rose from $1.18 per gallon at April 29, 2005 to a high of $3.98 per gallon at July 3, 2006 and has subsequently declined to $2.36 at April 17, 2007. The following table provides information on ethanol rack prices for the periods shown.

Ethanol Rack Prices $/Gallon (September 12, 1997 — April 17, 2007)

Source: Bloomberg; U.S. average ethanol rack prices.

Cost of goods sold and gross profit

Our gross profit will be derived from our total revenues less our cost of goods sold. Our cost of goods sold will be affected primarily by the cost of corn and natural gas. Both corn and natural gas are subject to volatile market conditions as a result of weather, market demand, regulation and general economic conditions.

Corn will be our most significant raw material cost. In general, rising corn prices result in lower profit margins because ethanol producers are unable to pass along increased corn costs to customers. The price of corn is influenced by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. Historically, the spot price of corn tends to rise during the Spring planting season in May and June and tends to decrease during the Fall harvest in October and November. From November 18, 2005 to April 17, 2007, the spot price of corn has risen from $1.83 per bushel to $3.39 per bushel. The following table provides information on corn prices for the periods shown.

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Corn $/Bushel (April 17, 1997 — April 17, 2007)

Source: Bloomberg; Chicago No. 2 yellow corn spot prices.

We will purchase natural gas to power steam generation in our ethanol production process and fuel for our dryers to dry our distillers grain. Natural gas will represent our second largest operating cost after corn, and natural gas prices are extremely volatile. The following table provides information on natural gas prices for the periods shown.

Natural Gas $/Mmbtu (April 17, 1997 — April 17, 2007)

Source: Bloomberg; Henry Hub spot prices.

We will include corn procurement fees that we pay to Cargill in our cost of goods sold. Other cost of goods sold will primarily consist of our cost of chemicals, depreciation, manufacturing overhead and rail car lease expenses.

Spread between ethanol and corn prices

Our gross profit will depend principally on our ‘‘crush spread’’, which is the difference between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol. Using our dry-mill technology, each bushel of corn produces approximately 2.7 gallons of fuel grade ethanol.

During the first half of 2006, the spread between ethanol and corn prices reached historically high levels, driven in large part by high oil prices and historically low corn prices resulting from continuing record corn yields and acreage, although the spread has since fallen back to $2.99 as of April 17, 2007. Any increase or decrease in the spread between ethanol and corn prices, whether as a result of changes in the price of ethanol or corn, will have an effect on our financial performance.

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The following graph sets forth the crush spread for recent periods and illustrates the impact of the volatility of corn and ethanol market prices on the crush spread.

Crush Spread $/Bushel (September 12, 1997 — April 17, 2007)

Source: Bloomberg; Chicago No. 2 yellow corn spot prices, U.S. average ethanol rack prices.

Selling, general and administrative expenses

Selling, general and administrative expenses will consist of salaries and benefits paid to our management and administrative employees, expenses relating to third-party services, insurance, travel, marketing and other expenses, including certain expenses associated with being a public company, such as costs associated with compliance with Section 404 of the Sarbanes-Oxley Act and listing and transfer agent fees.

Results of operations

We are a new company with no material operating results to date.

BioFuel Solutions Delaware is considered our predecessor for accounting purposes. The aggregate revenues of our predecessor from its inception through December 31, 2005 were $1,043,707 earned for development services provided in connection with ethanol projects that were unrelated to our planned business. There were no revenues earned by our predecessor in 2006. Costs incurred from inception through December 31, 2005 related to expenses incurred in connection with the initial development of our Wood River and Fairmont facilities. Expenses incurred in 2006 were related primarily to the development of our Wood River and Fairmont facilities. We believe that the results of operations of our predecessor are not meaningful and should not be relied upon as an indication of our future performance.

The LLC, which has been consolidated for accounting purposes by BioFuel Energy Corp., has been arranging financing for and initiating construction of our first two ethanol plants as well as development work on our planned Alta facility and our three additional plant sites. From its inception through December 31, 2006, the LLC incurred a loss of $9,151,306. This loss was primarily due to general and administrative expenses of $9,162,618, of which $7,712,371 was compensation. Compensation expense includes a non-cash charge of $6,094,615 related to share-based payments awarded to our founders and certain key employees. These share-based payments include issuance of membership interests (considered profits interests under the LLC agreement and for tax puposes) which are required to be expensed under generally accepted accounting principles. Compensation expense also includes a $550,000 payment made to a founder, who has since left the LLC, for work performed in connection with the formation of the LLC and initial financing.

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Liquidity and capital resources

Our cash flows from operating, investing and financing activities during the period from inception through December 31, 2006 are summarized below (in thousands):


Cash provided by (used in):  
Operating activities $ (3,225 ) 
Investing activities (60,153 ) 
Financing activities 90,616

Cash used in operating activities consisted primarily of compensation paid to our employees and expenses incurred by our corporate office. Expenditures incurred under investing activities relate primarily to the construction of our Wood River and Fairmont ethanol plants. Cash provided by financing activities consisted of proceeds of equity investments made by our historical equity investors less equity and debt issuance costs and distributions to certain owners of our predecessor company. We expect to fund the completion of our Wood River and Fairmont plants with our available capital resources as summarized in the following table:


  December 31, 2006
  (in thousands)
Cash and equivalents $27,239
Available under bank facility 230,000
Available under subordinated loan agreement 50,000
Available from tax increment financing 5,961

Our principal sources of liquidity consist of cash and equivalents and available borrowings under our bank facility and our subordinated loan agreement. Our existing balance of cash and equivalents consists entirely of proceeds of equity investments made by our historical equity investors.

Our principal liquidity needs are expected to be the construction of our planned production facilities, debt service requirements of our indebtedness and general corporate purposes.

We believe that our cash and equivalents, the net proceeds of this offering and borrowings under our bank facility, together with certain tax incentive financing, will be sufficient to meet our cash requirements for the next twelve months. We have sufficient cash or other means to fund our operations for the next 12 months and the costs of constructing our Wood River and Fairmont plants, but we are dependent on the proceeds of the offering to fund the equity portion of the cost to construct our Alta plant under development.

Ethanol plant construction

We currently have two ethanol plants under construction and expect to commence construction of a third ethanol plant later in 2007. Furthermore, we have three additional sites in development in anticipation of the possible construction of additional plants. We estimate that total project costs to complete our two facilities under construction and our planned Alta facility will be approximately $565 million, of which we expect approximately $285 million and $171 million will be incurred during 2007 and 2008, respectively. We expect the remaining total project costs related to our Wood River and Fairmont plants, in the amount of approximately $260 million, to be funded through borrowings under our bank facility. We expect to fund the total project costs attributable to our Alta plant, in the amount of approximately $226 million, using the net proceeds from this offering, after repayment of subordinated debt, and borrowings under new or amended credit facilities. See ‘‘Use of proceeds’’.

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We have entered into a bank facility and a subordinated loan agreement in connection with the construction of our Wood River and Fairmont facilities. Upon completion of this offering, we intend to repay any outstanding borrowings under our subordinated loan agreement and permanently terminate the subordinated loan agreement. We intend to obtain additional debt financing for the construction of our Alta plant under development. We cannot assure you that we will be able to obtain the required funding on terms acceptable to us or at all.

We expect to complete the construction of our Wood River facility in the first quarter of 2008. We have spent approximately $58 million on total project costs relating to the Wood River facility from May 1, 2006, to March 31, 2007. We expect to make additional capital expenditures in 2007 and 2008 of approximately $93 million in connection with the total project costs relating to our Wood River facility. We expect to complete the construction of our Fairmont facility in the first quarter of 2008. We have spent approximately $50 million on total project costs relating to the Fairmont facility from June 1, 2006, to March 31, 2007. We expect to make additional capital expenditures in 2007 and 2008 of approximately $113 million in connection with the total project costs relating to our Fairmont facility. To date, we have used the net proceeds of equity investments by our historical equity investors to finance the construction of the Wood River and Fairmont facilities. As of March 31, 2007, no amounts were outstanding under our bank facility and $18 million was outstanding under our subordinated loan agreement.

Tax and our tax benefit sharing agreement

We expect that, as a result of future exchanges of membership interests in the LLC for shares of common stock, the tax basis of the LLC’s assets attributable to our interest in the LLC will be increased. These increases in tax basis will result in a tax benefit to BioFuel that would not have been available but for the future exchanges of the LLC membership interests for shares of our common stock. These increases in tax basis would reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge.

We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits between the company and the historical LLC equity investors. Under this agreement, BioFuel will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a result of this increase in tax basis. BioFuel and its common stockholders will benefit from the remaining 15% of cash savings, if any, in income tax that is realized by BioFuel. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of the LLC as a result of the exchanges and had we not entered into the tax benefit sharing agreement. The term of the tax benefit sharing agreement will commence upon consummation of this offering and will continue until all such tax benefits have been utilized or expired, unless a change of control occurs and we exercise our resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments remaining to be made under the agreement.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors will not reimburse us for any payments previously made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit sharing agreement in excess of our cash tax savings. Our historical LLC equity investors will receive 85% of our cash tax savings, leaving us with 15% of the benefits of the tax savings. The actual amount and timing of any payments under the tax benefit sharing agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income. We expect that, as a result of the size of the increases of the tangible and intangible assets of the LLC attributable to our interest in the LLC, during the

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expected term of the tax benefit sharing agreement, the payments that we may make to our historical LLC equity investors could be substantial.

Bank facility

In September 2006, certain of our subsidiaries entered into a $230 million bank facility with BNP Paribas and a syndicate of lenders to finance the construction of our Wood River and Fairmont plants. Upon completion of this offering, and subject to lender consent, borrowings under our bank facility may also be applied to our other ethanol plants under development. Neither BioFuel Energy Corp. nor the LLC is a party to the bank facility, although the equity interests and assets of our subsidiaries are pledged as collateral to secure the debt under the bank facility.

Our bank facility consists of $210 million of non-amortizing construction loans, which will convert into term loans amortizing in an amount equal to 6.0% of the outstanding principal amount thereof per annum and maturing in September 2014, if certain conditions precedent, including the completion of our Wood River and Fairmont plants, are satisfied prior to June 2009. The construction loans otherwise mature in June 2009. Once repaid, the construction loans may not be reborrowed in whole or in part.

Our bank facility also includes working capital loans of up to $20 million, a portion of which may be available to us in the form of letters of credit. The working capital loans will be available to pay certain operating expenses of the Wood River and Fairmont plants, or alternative plants, as the case may be, with up to $5 million becoming available upon mechanical completion of a plant, up to $10 million becoming available upon provisional acceptance of a plant and the full $20 million becoming available upon conversion of the construction loans to term loans. The working capital loans will mature in September 2010 or, with consent from two-thirds of the lenders, in September 2011.

Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility remains subject to the satisfaction of a number of additional conditions precedent, including provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders.

The obligations under the bank facility are secured by first priority liens on all assets of the borrowers and a pledge of all of our equity interests in our subsidiaries. In addition, substantially all cash of the borrowers is required to be deposited into blocked collateral accounts subject to security interests to secure any outstanding obligations under the bank facility. Funds will be released from such accounts in accordance with the terms of the bank facility.

Interest rates on each of the loans under our bank facility will be, at our option, (a) a base rate equal to the higher of (i) the federal funds effective rate plus 0.5% and (ii) BNP Paribas’s prime rate, in each case, plus 2.0% or (b) a Eurodollar rate equal to LIBOR adjusted for reserve requirements plus 3.0%. Interest periods for loans based on a Eurodollar rate will be, at our option, one, three or six months, or, if available, nine or twelve months. Accrued interest is due quarterly in arrears for base rate loans, on the last date of each interest period for Eurodollar loans with interest periods of one or three months, and at three month intervals for Eurodollar loans with interest periods in excess of three months. Overdue amounts will bear additional interest at a default rate of 2.0%.

The bank facility includes certain limitations on, among other things, the ability of our subsidiaries to incur additional indebtedness, grant liens or encumbrances, declare or pay dividends or distributions, conduct asset sales or other dispositions, mergers or consolidations, conduct transactions with affiliates and amend, modify or change the scope of the projects, the project agreements or the budgets relating to the projects.

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We are required to pay certain fees in connection with our bank facility, including a commitment fee equal to 0.50% per annum on the daily average unused portion of the construction loans and working capital loans and letter of credit fees.

As of March 31, 2007, we had no outstanding balance under our bank facility.

For a more detailed description of our bank facility, see ‘‘Description of indebtedness’’.

Subordinated loan agreement

In September 2006, the LLC entered into a subordinated loan agreement with certain affiliates of Greenlight Capital, Inc. and Third Point LLC. The subordinated loan agreement provides for up to $50 million of non-amortizing loans, all of which must be used for general corporate purposes, working capital or the development, financing and construction of our Wood River and Fairmont Plants. The entire principal balance, if any, plus all accrued and unpaid interest will be due in March 2015.

The payments due under our subordinated loan agreement are secured by the subsidiary equity interests owned by the LLC and are fully and unconditionally guaranteed by all of the LLC’s subsidiaries. The guarantees are subordinated to the obligations of these subsidiaries under our bank facility.

Interest on outstanding borrowings under our subordinated loan agreement accrues at a rate of 15.0% per annum and is due on the last day of each calendar quarter. If an event of default occurs, interest will accrue at a rate of 17.0% per annum.

We are required to pay certain fees in connection with our subordinated loan agreement, including an initial aggregate fee of $2.5 million and takedown fees equal to 5.0% of the principal amount of each borrowing made under the subordinated loan agreement.

As of March 31, 2007, there was $18 million outstanding under our subordinated loan agreement. We expect to incur up to an additional $32 million in subordinated borrowings by May 31, 2007. Upon completion of this offering, we intend to repay any outstanding indebtedness under our subordinated loan agreement and permanently terminate the subordinated loan agreement. See ‘‘Use of proceeds’’.

Tax increment financing

We have entered into an arrangement with the City of Wood River pursuant to which the City of Wood River has issued approximately $6.0 million in tax increment financing notes, or TIF notes, maturing in 2021, and bearing interest at an initial rate of 7.85%, subject to reset every five years, based upon specified prevailing market rates. The subsidiary constructing our Wood River plant is obligated to service and repay the TIF notes through property tax payments we make to the City of Wood River over the fifteen-year term of the TIF notes. The amount of the property tax payments will be based on the value of our land and buildings in Wood River. The TIF notes are guaranteed by the LLC.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual obligations

The following summarizes our significant contractual obligations with respect to our Wood River and Fairmont plants, in thousands, as of December 31, 2006. No obligations relating to our Alta plant under development are reflected in the table because we have not yet entered into definitive agreements with respect to this plant.

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Type of obligation
(in thousands)
2007 2008 2009 2010 2011 Thereafter Total
Construction contracts(1) $ 177,479 $ 33,454 $ $ $ $ $ 210,933
Operating leases(2) 811 10,120 10,284 10,284 10,284 77,177 118,960
Capital lease obligation(3) 50 300 300 300 300 7,750 9,000
Minimum energy charges(3) 50 300 300 300 300 7,750 9,000
Puchase obligations(4) 772 2,100 2,400 2,400 2,400 38,700 48,772
Loan commitment fees(5) 3,643 65 3,708
Minimum commissions(6)
Total contractual obligations $ 182,805 $ 46,339 $ 13,284 $ 13,284 $ 13,284 $ 131,377 $ 400,373
(1)  We have entered into engineering, procurement and construction contracts covering the construction of our Wood River and Fairmont plants. The obligations reported are the remaining amounts payable under the existing contracts and include the retainage reported in our consolidated balance sheet. We are responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. We expect to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start dates.
(2)  We have entered into agreements with Cargill to lease corn storage facilities adjacent to our Wood River and Fairmont plants. We expect to pay Cargill approximately $800,000 per year to lease each of these storage facilities provided the applicable corn supply agreement remains in effect.
(3)  We have entered into an agreement for electrical service for our Fairmont plant under which we will pay, beginning in the fourth quarter of 2007, a monthly facilities charge of approximately $25,000 and a minimum monthly electric service charge of $25,000 for the 30-year term of the agreement to cover the investment expected to be made by the utility in order to provide electrical service to the plant.
(4)  We have corn supply agreements with Cargill for our Wood River and Fairmont plants under which we will pay Cargill minimum origination fees of $1.2 million annually for each plant.
(5)  Under our bank facility we will pay a commitment fee of 0.50% per annum, payable quarterly, on the daily average unused portion of the facility. Under our subordinated loan agreement, we are required to pay takedown fees, at the time of borrowing, equal to 5.0% of the principal amount of each borrowing made under the subordinated loan agreement. The obligations are based on estimated timing of funding under the facilities, which we expect will commence in 2007.
(6)  We have marketing agreements with Cargill for the ethanol and distillers grain that will be produced by our Wood River and Fairmont plants. Pursuant to these agreements we are required to pay a minimum commission to the extent either plant fails to produce 82.5 million gallons of ethanol or 247,500 tons of distillers grain for the twelve-month period beginning with the start of commercial operations and each anniversary thereafter. If the number of gallons of ethanol actually produced by a plant is less than 82.5 Mmgy, the minimum commission will be the deficiency multiplied by the average selling price of our ethanol during such period, multiplied by 1%. If the number of tons of distillers grain produced is less than 247,500 tons, the minimum commission will be equal to the sum of the deficiency applicable to dry distillers grain multiplied by $2/ton and the deficiency applicable to wet distillers grain multiplied by $3/ton. The deficiency volume applicable to dry and wet distillers grain will be determined based on the ratio of dry products to wet products produced at the relevant plant during the applicable year.

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Quantitative and qualitative disclosures about market risk

We will be subject to significant risks relating to the prices of four commodities: corn and natural gas, our principal production inputs, and ethanol and distillers grain, our principal products. In recent years, ethanol prices have been primarily influenced by gasoline prices, the availability of other gasoline additives and federal, state and local laws and regulations. Distillers grain prices tend to be influenced by the prices of alternative animal feeds. However, in the short to intermediate term, logistical issues may have a significant impact on ethanol prices. In addition, the anticipated sharp increase in distillers grain production as new ethanol plants become operational could significantly depress its price.

Higher corn prices will tend to result in lower profit margins, as it is unlikely that such an increase in costs can be passed on to ethanol customers. The availability as well as the price of corn are subject to wide fluctuations due to weather, carry-over supplies from the previous year or years, current crop yields, government agriculture policies, international supply and demand and numerous other factors. We estimate that corn will represent approximately 63% of our operating costs. Over the period from April 1997 through April 2007, corn prices (based on the CBOT daily futures data) have ranged from a low of $1.83 per bushel in July 2000 to a high of $4.48 per bushel in February 2007, with prices averaging $2.43 per bushel during this period. As of April 17, 2007, the CBOT spot price of corn was $3.39 per bushel.

Higher natural gas prices will tend to reduce our profit margin, as it is unlikely that such an increase in costs can be passed on to ethanol customers. Natural gas prices and availability are affected by weather, overall economic conditions, oil prices and numerous other factors. We estimate that natural gas will represent approximately 15% of our operating costs. The price of natural gas over the period from April 1997 through April 2007, based on the NYMEX daily futures data, has ranged from a low of $1.66 per Mmbtu in February 1999 to a high of $15.36 per Mmbtu in December 2005, averaging $4.88 per Mmbtu during this period. As of April 17, 2007, the NYMEX spot price of natural gas was $7.50 per Mmbtu.

To reduce the risks implicit in price fluctuations of the four principal commodities we will use or sell and variations in interest rates, we plan to continuously monitor these markets and to hedge a portion of our exposure. Specifically, when we can reduce volatility through hedging on an attractive basis, we expect to do so. It is unlikely that we will enter into material commodity hedging until production at our plants begins or is imminent. Thereafter, we currently anticipate hedging between 40% and 80% of our commodity price exposure on a rolling 12 to 36 month basis. This range would include the effect of intermediate to longer-term purchase and sales contracts we may enter into, which act as de facto hedges. In hedging, we may buy or sell exchange-traded commodities futures or options, or enter into swaps or other hedging arrangements. In doing so, we may access Cargill’s risk management and futures advisory services and utilize its trading capabilities. It should be recognized that while there is an active futures market for corn and natural gas, the futures market for ethanol is still in its infancy and we do not believe a futures market for distillers grain currently exists. Consequently, our hedging of ethanol and distillers grain may be limited by the market.

We believe that managing our commodity price exposure will reduce the volatility implicit in a commodity-based business. However, it will also tend to reduce our ability to benefit from favorable commodity price changes. Finally, hedging arrangements expose us to risk of financial loss if a counterparty defaults. Furthermore, if geographic basis differentials are not hedged, they could cause our hedging programs to be ineffective or less effective than anticipated.

We will be subject to interest rate risk in connection with our bank facility. Under the facility, our bank borrowings will bear interest at a floating rate based, at our option, on LIBOR or an alternate base rate. Pursuant to our bank facility, we are required to hedge no less than 50% of our interest rate risk until all obligations and commitments under the facility are paid and terminated. Borrowings under our subordinated loan agreement bear interest at a fixed annual rate of 15%. As of March 31, 2007, we had no borrowings outstanding under our bank facility

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and $18 million of borrowings outstanding under our subordinated loan agreement. Consequently, a hypothetical 100 basis points increase in interest rates would not have any effect on our annual interest expense.

Summary of critical accounting policies

The consolidated financial statements of BioFuel Energy Corp. included in this prospectus have been prepared in conformity with accounting principles generally accepted in the United States. Note 2 to these financial statements is a summary of our significant accounting policies, certain of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities, the disclosure of contingent liabilities and reported amounts of expenses during the reporting period.

The accounting estimates and assumptions discussed in this section are those that involve significant judgments and the most uncertainty. Changes in these estimates or assumptions could materially affect our financial position and results of operations and are therefore important to an understanding of our consolidated financial statements.

Recoverability of property, plant and equipment

We are in the process of making a significant investment in property, plant and equipment and will continue to make significant investments over the next several years. We are currently developing three ethanol production facilities. Two facilities are under construction, and we have acquired land options and are permitting the property on which up to four additional plants may be constructed. We evaluate the recoverability of property, plant and equipment whenever events or changes in circumstances indicate that the carrying value of our property, plant and equipment may not be recoverable.

Management must exercise judgment in assessing whether or not circumstances require a formal evaluation of the recoverability of our property, plant and equipment. If an impairment test is required, management must estimate future sales volume, prices, inflation and capital spending, among other factors. These estimates involve inherent uncertainties, and the measurement of the recoverability of the cost of our property, plant and equipment is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to our future operating performance. Certain of the operating assumptions will be particularly sensitive to the development of the ethanol industry.

We have not recognized an impairment loss on any of our property, plant and equipment from our inception through December 31, 2006.

Share-based compensation

We account for the exchanges of equity instruments for employee services in accordance with Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payments (‘‘SFAS 123R’’). For the period from inception of the LLC to December 31, 2006, we issued 425,000 Class M units, 2,103,118 Class C units and 676,039 Class D units to our founding members and key employees and recorded compensation expense of $6,094,615. To determine the amount of compensation expense associated with the issuance of these membership units, we engaged an independent valuation firm to assist in determining the estimated fair value of the Class M, C and D Units. The non-contemporaneous valuation of the membership units required an estimation of the fair value of the company’s total invested capital at each date the membership units were awarded to management. These estimates of the fair value of the company’s total invested capital were made by discounting projected cash flows through December 2014. These cash flows

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were based on estimates made by management of future sales volume, prices, inflation and capital spending requirements. The rates used to discount the cash flows at each valuation date were based on a projected weighted average cost of capital. The projected weighted average cost of capital required estimates of the required rates of return on equity and debt and projections of our capital structure. Once the fair value of the total invested capital at each valuation date was determined, it was allocated among our debt and equity holders through a series of call options. The Black-Scholes option pricing model was used to value these call options. The key assumptions used in the Black-Scholes calculation were the expected time to a liquidity event, the implied volatilities of comparable companies and the risk-free rate of return during the expected term of the options.

The amount of compensation expense recorded as a result of the issuance of equity membership units to members of management involved a significant number of estimates. Due to the uncertainties inherent in these estimates, the accuracy of the amount of compensation expense recorded is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to the company’s future operating performance and our ability to raise debt and additional equity. Certain of the operating assumptions will be particularly sensitive to the development of the ethanol industry and the attractiveness of ethanol companies to the capital markets.

Inflation

Due to our lack of operating history, inflation has not yet affected our operating results. However, construction costs, costs of goods sold, taxes, repairs, maintenance and insurance are all subject to inflationary pressures and could adversely affect our ability to construct our planned ethanol production facilities, our ability to maintain our facilities adequately once built and our business and results of operations.

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Industry outlook

General

Ethanol is a clean-burning, high-octane fuel that is produced from the fermentation of carbohydrates such as grains, starches and sugars. In the United States, ethanol is produced primarily from corn. It is used primarily as a gasoline additive to increase octane rating and to comply with air emissions regulations by reducing emissions of carbon monoxide and nitrogen oxide. The RFS mandated that ethanol comprise a minimum of 4.0 billion gallons of the U.S. fuel supply as of January 1, 2006, rising to 7.5 billion gallons in 2012. According to the RFA, ethanol is blended into 30% of the gasoline sold in the United States. Fuel blended with up to 10% ethanol, also referred to as E10 fuel, is approved for use by major motor vehicle manufacturers and is often recommended as a result of ethanol’s clean burning characteristics. Ethanol comprises up to 85% of E85 fuel. E85 fuel currently represents a relatively small portion of the U.S. gasoline supply. Approximately six million vehicles out of more than 200 million vehicles in the United States today are Flexible Fuel Vehicles, or FFVs, capable of using E85 fuel.

The ethanol industry has grown significantly over the last few years, expanding production capacity at a compound annual growth rate of approximately 20% from 2000 to 2006, according to the RFA. We believe the ethanol market will continue to grow as a result of its favorable production economics relative to gasoline, a shortage of domestic petroleum refining capacity, federally-mandated renewable fuel usage, favorable tax treatment, ethanol’s clean-burning characteristics and geopolitical and environmental concerns with petroleum-based fuels. Reasons for substantial growth prospects in the ethanol market include:

Favorable production economics

Based on data provided by the RFA, the costs ethanol producers incur in producing a gallon of ethanol currently are significantly lower than the costs refiners incur in producing a gallon of petroleum-based gasoline.

Blending benefits

Ethanol has an octane rating of 113, and is added to gasoline to raise the octane level of gasoline. Unblended gasoline typically has a base octane level of approximately 84. Gasolines blended with ethanol have typical octane ranges of 87 to 93 octane. Higher octane gasoline has the benefit of reducing engine knocking. Gasoline with higher octane typically has been sold at a higher price per gallon than lower octane gasoline.

Expansion of gasoline supply

By blending ethanol with gasoline, refiners can expand the volume of fuel available for sale. As a result, refiners can produce more fuel from a barrel of oil and expand their ability to meet consumer demand, especially when refinery capacity and octane sources are limited. According to the Energy Information Administration, between 1980 and 2005, petroleum refining capacity in the United States decreased approximately 5% while domestic demand increased approximately 21%. We believe that increased pressure on domestic fuel refining capacity will result in greater demand for ethanol.

Strong legislative and government policy support

In August 2005, the President signed the Energy Policy Act, which established the RFS. The RFS mandates minimum annual use of 7.5 billion gallons per year of renewable fuels in the United States by 2012. We believe that the RFS sets a floor on the amount of ethanol to be consumed. The RFS requires motor fuels sold in the United States to contain in the aggregate the following minimum volumes of renewable fuels in future years:

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Year Renewable
fuel usage
  (in billions of gallons)
2006 4.0
2007 4.7
2008 5.4
2009 6.1
2010 6.8
2011 7.4
2012 7.5

The Energy Policy Act also proposed a credit trading program to facilitate meeting the industry-wide renewable fuels requirements. The Environmental Protection Agency has proposed a rule for issuing and trading the credits. In addition, the President and members of Congress have on numerous occasions expressed their support of the use of ethanol in major vehicles as a clean, renewable fuel to replace foreign crude oil and to diversify the U.S. fuel supply. Finally, many farm state legislators are extremely supportive of the ethanol industry due to its perceived favorable impact on corn prices and local employment and tax base.

Environmental benefits

Ethanol, as an oxygenate, reduces tailpipe emissions when added to gasoline. The additional oxygen in the ethanol results in a more complete combustion of the fuel in the engine cylinder, resulting in reduced carbon monoxide and nitrogen oxide emissions. Prior federal programs that mandated the use of oxygenated gasoline in areas with high levels of air pollution spurred widespread use of ethanol in the United States.

Favorable tax treatment

One factor contributing to ethanol’s attractive economics is the availability of a partial exemption from the federal fuel excise tax for ethanol blended fuels. We believe that ethanol’s favorable production economics, further enhanced by the blenders’ tax credit, will enable ethanol to comprise an increasingly larger portion of the U.S. fuel supply. The benefit of the blenders’ tax credit can be captured by refiners or passed on to consumers. Due to this credit, ethanol historically has traded at a per gallon premium to gasoline.

Replacement of MTBE

Because of their blend characteristics, availability and cost, ethanol and MTBE were the two primary additives used to meet the Clean Air Act’s oxygenate requirements. Because MTBE could be produced and blended with gasoline at the refinery and transported through a pipeline, it was initially the preferred oxygenate ingredient used by the petroleum industry in most reformulated gasoline. Before 2003, ethanol was used primarily as a fuel extender and octane enhancer, predominantly in the Midwest.

In recent years, health and environmental concerns have arisen from the discovery of the presence of MTBE, a suspected carcinogen, in ground water supplies. As a result, 25 states, including California, New York and Connecticut, have banned or significantly limited the use of MTBE. These states accounted for more than half of the MTBE consumed in the US. Product liability concerns regarding MTBE increased following passage of the Energy Policy Act, which did not contain limitations on product liability claims relating to MTBE use. As a result, refiners have been phasing out MTBE, creating additional demand for ethanol outside of the Midwest and California. Ethanol has served as a replacement for much of the MTBE volume eliminated because of its favorable production economics, high octane rating and clean burning characteristics.

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Geopolitical concerns

The United States is dependent on foreign oil. Political unrest and attacks on oil infrastructure in the major oil-producing nations, particularly in the Middle East, have periodically disrupted the flow of oil. Fears of terrorist attacks have added a ‘‘risk premium’’ to world oil prices. At the same time, developing nations such as China and India have increased their demand for oil. As a result, NYMEX oil prices ranged from $50 to $70 per barrel at times during 2005 and averaged above $60 a barrel during 2006 and 2007, reaching record highs above $78 a barrel during July 2006. As a domestic, renewable source of energy, ethanol can help to reduce the United States’ dependence on foreign oil by increasing the amount of fuel that can be consumed for each barrel of imported crude oil.

Ethanol as a gasoline substitute

Automakers in the United States have been accelerating work on their E85 FFV programs, according to the American Coalition for Ethanol. Motorists may increasingly choose FFVs due to their lower greenhouse gas emissions, flexibility and performance characteristics. Future widespread adoption of FFVs could significantly boost ethanol demand and reduce the consumption of gasoline. Currently, however, only a small percentage of automobiles and gasoline stations in the United States are E85-compatible.

Supply of ethanol

The primary feedstock for ethanol production in the United States is corn. Proximity to corn supplies is a crucial factor in the economics of ethanol plants, as transporting corn is much more expensive than transporting finished ethanol product. As such, the ethanol industry is geographically concentrated in the Midwest based on the proximity to the highest concentration of corn supply. According to the RFA, approximately 79% of the ethanol produced in the United States comes from five Midwestern states, with the corn-rich state of Iowa alone possessing nearly 32% of the total U.S. ethanol capacity. In addition to corn, the ethanol production process requires natural gas or, in some cases, coal in order to power the facility and dry distillers grain.

Despite the geographic concentration, production in the ethanol industry remains fragmented. According to the RFA, while domestic ethanol production increased from 1.3 billion gallons in 1997 to 4.9 billion gallons in 2006, the top ten producers accounted for approximately 45% of the industry’s total estimated production capacity as of April 2007. More than 50 smaller producers and farmer-owned cooperatives, most with production of 50 Mmgy or less, generate the remaining production. Since a typical ethanol facility can be constructed in approximately 18 months from groundbreaking to operation, the industry is able to forecast capacity additions for up to 18 months in the future. As of April 2007, the RFA estimates that approximately 6.2 Bgpy of additional production capacity is under construction at 85 new or existing ethanol facilities. This estimate does not include our construction plans or certain expansion plans of other ethanol producers, particularly Archer Daniels Midland Company, the largest domestic ethanol producer, which has announced plans to increase its production capacity by approximately 51% by mid-2008. As a result of this projected increase in production, the ethanol industry faces the risk of excess capacity. See ‘‘Risk factors’’.

Ethanol is typically either produced by a dry-milling or wet-milling process. Although the two processes feature numerous technical differences, the primary operating trade-off of the wet-milling process is a higher co-product yield in exchange for a lower ethanol yield. Dry-milling ethanol production facilities constitute the substantial majority of new ethanol production facilities constructed in the past five years because of the increased efficiencies and lower capital costs of dry-milling technology. Older dry-mill ethanol facilities typically produce between five and 50 Mmgy, with newer dry-mill facilities producing over 100 Mmgy and enjoying economies of scale in both construction and operating costs per gallon. According to the RFA, 82% of the ethanol production capacity in 2006 was generated from dry-mill facilities, with only 18% coming from wet-mill facilities.

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With the largest proportion of ethanol production, the Midwest is also one of the largest consumers of ethanol fuel in the United States. After California, which is the largest consumer of ethanol, Midwestern states such as Minnesota, Illinois and Ohio are the largest consumers of ethanol. Additionally, the state MTBE bans in Connecticut and New York have increased the ethanol consumption in these states. Various states have mandated ethanol use, including Minnesota, Ohio and Hawaii. These state policies require the use of ethanol above what is required by federal regulations, including the RFS.

Legislation

There have been various legislative incentives that have spurred growth in the ethanol industry. These incentives include:

Energy Policy Act

The Energy Policy Act of 2005 established the Renewable Fuels Standard that mandates minimum annual volumes of renewable fuel to be used by petroleum refiners in the fuel supply. The annual requirement grows from 4.0 billion gallons of renewable fuels mandated usage per year in 2006 to 7.5 billion gallons per year by 2012. The Energy Policy Act also removed the oxygenate requirements that were put in place by the Clean Air Act. The Energy Policy Act included anti-backsliding provisions, however, that require refiners to maintain emissions quality standards in the fuels that they produce, thus providing continued opportunities for ethanol.

Federal blenders’ credit

The federal government also supports ethanol by offering refiners and blenders volumetric ethanol excise tax credits, or VEETCs, that entitle them to $0.51 a gallon — $0.051 a gallon of gasoline for a 10% ethanol blend — tax credit against the excise tax they pay on gasoline. This tax credit was first implemented in 1979 and is scheduled to expire in 2010, unless otherwise extended. The federal VEETC incentives, which are intended to make refiners indifferent to the transportation and other costs of blending ethanol as opposed to other additives, support the refiners’ practice of supplementing gasoline with ethanol.

State and local incentives

Twenty-one states have implemented incentives to encourage ethanol production and use. These incentives include tax credits, producer payments, loans, grants, tax exemptions and other programs. Midwestern states have initiated most of the programs and policies to promote ethanol production and development. States on the East and West Coasts also are beginning to initiate ethanol production programs in connection with drives to construct ethanol plants in these states.

State legislation banning or significantly limiting the use of MTBE

In recent years, due to environmental concerns, 25 states, including California, Connecticut and New York, have banned, or significantly limited, the use of MTBE. Ethanol has served as a replacement for much of the discontinued MTBE volumes and is expected to continue to serve as a primary replacement product in the future for MTBE volumes that are removed from the fuel supply.

Federal tariff on imported ethanol

In 1980, Congress imposed a tariff on foreign produced ethanol, which typically is produced at significantly lower cost from sugar cane, to encourage the development of a domestic, corn-derived ethanol supply. This tariff was designed to prevent the federal tax incentive from benefiting non-U.S. producers of ethanol. The tariff is $0.54 per gallon and is scheduled to expire in January 2009. In addition, there is a flat 2.5% ad valorem tariff on all imported ethanol.

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Ethanol imports from 24 countries in Central America and the Caribbean Islands are exempt under the Caribbean Basin Initiative from the tariff. The Caribbean Basin Initiative provides that specified nations may export an aggregate of 7.0% of U.S. ethanol production per year into the United States, with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit. In addition, the North American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new plants under development.

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Business

Overview

We are a development stage company whose goal is to become a leading ethanol producer in the United States. We are currently constructing two 115 Mmgy ethanol plants in the Midwestern corn belt. In addition, we expect to commence construction of a third 115 Mmgy ethanol plant later this year. At each location, Cargill has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities. Three similar sites are being developed in anticipation of the possible construction of additional plants. All six sites were selected primarily based on access to favorably priced corn as well as availability of rail transportation and natural gas. We ultimately expect to grow, at least in part, through acquisitions. However, in current market conditions, we believe it is more attractive financially to build rather than buy. We will continue to assess the build versus acquire trade-off as we consider initiating construction on one or more of our next three sites.

From inception, we have worked closely with Cargill, one of the world’s leading agribusiness companies. Cargill will handle corn procurement, marketing of ethanol and distillers grain and transportation logistics for our two initial plants under long-term contracts. In addition, they will lease us their adjacent grain storage and handling facilities. We expect to enter into similar agreements for our third plant. Finally, we will have access to Cargill’s risk management services, which we believe to be particularly attractive with regard to corn given their virtually unique position in that market.

The Wood River, Nebraska and Fairmont, Minnesota plants are currently under construction and should be operational in the first quarter of 2008. Plans to construct a third plant in Alta, Iowa are being finalized and engineering and construction contracts relating to that facility should be finalized within 90 to 120 days. In the interim, site preparation in Alta will begin so that construction can proceed promptly once agreements are finalized. Sites in Gilman, Illinois, Atchison, Kansas and Litchfield, Illinois have been selected as the locations for possible additional plants. Land has been optioned and permit filings have begun at each of these sites.

Fixed-price, turnkey construction contracts are in place covering the Wood River and Fairmont plants with The Industrial Company, or TIC, of Steamboat Springs, Colorado, a leading industrial general contractor. We have a construction time slot confirmed and a preliminary agreement with TIC to build our Alta plant. Groundbreaking for the facility is currently expected late in the third quarter or early in the fourth quarter of 2007. Technology for the Wood River and Fairmont plants is being provided by Delta-T Corporation of Williamsburg, Virginia, a company with extensive experience in ethanol process technology and plant operation. We have not yet reached a commercial understanding with Delta-T for using its technology at Alta. If we are unable to reach an agreement, we will need to engage an alternative technology firm for that plant before construction there can begin. Once complete, the initial three plants are expected to produce 345 Mmgy of fuel grade ethanol and 1.1 million tons of distillers grain annually.

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The following table provides an overview of ethanol plants we have under construction or in development.


  Under Construction Under
Development
Additional Development Sites
  Wood
River,
Nebraska
Fairmont,
Minnesota
Alta,
Iowa
Gilman,
Illinois
Atchison,
Kansas
Litchfield,
Illinois
Capacity 115 Mmgy 115 Mmgy 115 Mmgy 115 Mmgy 115 Mmgy 115 Mmgy
Rail transportation Union
Pacific
Union
Pacific
CN CN and TPW Union
Pacific
Norfolk
Southern
and BNSF
Site Owned
Owned Optioned Optioned Optioned Optioned
Construction start Begun Begun Q3/Q4 2007
Expected completion Q1 2008 Q1 2008 Q2 2009

Company history

In January 2005, Scott H. Pearce, our President and Chief Executive Officer, together with TIC and Delta-T, formed Bio Fuel Solutions Colorado, and throughout 2005 and early 2006, worked to develop plans for our Wood River and Fairmont plants. In January 2006, Mr. Pearce and Daniel J. Simon, our Executive Vice President and Chief Operating Officer, together with Thomas J. Edelman, our Chairman and Chairman of the Board, and his partner Irik P. Sevin, co-founded BioFuel Energy, LLC to take over development and construction of the plants from Biofuel Solutions Delaware. In August 2006 we began construction of our Wood River plant, and in October 2006 we began construction of our Fairmont plant. In July 2006, we commenced development of our planned Alta plant and our additional development sites.

Competitive strengths

We believe that we have the following competitive strengths:

  Proven management.    Our senior management has an extensive and successful track record in the energy and natural resources sectors. Our Chairman, Thomas J. Edelman, has founded, led or played a significant role in managing more than half a dozen successful public and private energy companies over the past 25 years and will help assure us strong strategic, managerial and financial leadership. Most notably, these included Snyder Oil Corporation, Patina Oil & Gas Corporation and Range Resources Corporation, three oil and gas exploration and production companies. We believe that Mr. Edelman’s experience in developing, acquiring and building companies in the energy field will help assure us strong strategic, managerial and financial leadership. In addition, Mr. Edelman has extensive experience in selling companies, parts of businesses and specific properties owned by enterprises he has founded and run. Consequently, we may actively consider and regularly seek the possibility of a sale of one or more of our plants or plant sites if that could be accomplished at a favorable price. Our President and Chief Executive Officer, Scott H. Pearce, previously served as President and Chief Executive Officer of Poseidon Resources Corporation, a company that partnered with energy companies to build, own and operate water and environmental systems for large industrial and government clients. Our Executive Vice President and Chief Operating Officer, Daniel J. Simon, has extensive senior management experience with a number of industrial and energy-related companies, including TIC. Messrs. Pearce and Simon both have significant expertise in industrial development and are therefore particularly well-suited to lead the development, construction and operation of our ethanol

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  production facilities. Our Executive Vice President and Chief Financial Officer, David J. Kornder, has extensive senior management experience operating public energy companies. Our Vice President–Operations, Timothy S. Morris, brings significant leadership and experience in the operations and management of ethanol production facilities.
  Plant locations.    We have selected our plant locations based on an in-depth analysis designed to maximize profitability, particularly by minimizing the costs of corn, natural gas and electricity, and assuring adequate rail access. For example, the sites of our Wood River and Fairmont plants were selected by us with input from Cargill based on, among other factors, the surplus corn supply in the surrounding areas, as well as the availability of local acreage that may be converted to corn production as demand for corn increases. For these reasons, we expect the price of corn supplied to our Wood River and Fairmont plants to be materially lower than prevailing CBOT corn prices. We also expect that our Alta plant and additional sites under development will benefit from surplus corn supply and additional local acreage available for future corn production. Because geography is critical in siting ethanol plants, due to corn supply, access to ethanol and distillers grain markets and the ability of management to efficiently oversee multiple facilities, we believe opportunities to sell certain of our plants or plant sites, exchange them or buy those built by others are likely to arise. We intend to actively pursue such opportunities.
  Relationship with Cargill.    We have entered into a number of long-term contracts with Cargill, which will provide us access to corn supply, an extensive logistics and transportation network and an experienced marketer of ethanol and distillers grain. We will also have the opportunity to utilize Cargill’s risk management services. Cargill participates in almost every aspect of the corn industry in the United States, including operation of grain elevators, management of export facilities, transportation, ethanol production and livestock nutrition. Pursuant to 10-year ethanol marketing agreements and 10-year distillers grain marketing agreements, Cargill has agreed to market 100% of the ethanol and distillers grain, respectively, produced at our Wood River and Fairmont facilities and, under 20-year corn supply agreements, has agreed to supply 100% of our corn for these facilities. For our additional plants under development, we expect to enter into similar contractual arrangements with Cargill for the supply of corn as well as for the logistics, transportation and marketing of our ethanol and distillers grain. In addition, Cargill has made an equity investment in our company. We are aware of only one other ethanol company with which Cargill has this type of commercial relationship. We believe that our relationship with Cargill will provide us with a number of competitive advantages:
  Reliable corn supply.    We expect to benefit from Cargill’s expertise in corn origination services and extensive experience with corn supply in the areas of our facilities. Pursuant to our corn supply agreements for our Wood River and Fairmont plants, Cargill will supply our corn requirements during the 20-year term of the contracts, regardless of local supply and demand. In addition, we have leased corn elevators from Cargill adjacent to each of the Wood River and Fairmont plants, providing us with significant corn storage and handling capacity.
  Logistics and transportation.    We believe that our access to Cargill’s expertise, through its extensive network of rail and trucking relationships and an array of logistical and scheduling tools, will minimize the risk of disruption or unexpected additional transportation costs for the delivery of corn and the transportation of the ethanol and distillers grain produced by our Wood River and Fairmont plants to our end markets.
  Ethanol and distillers grain marketing.    Because of Cargill’s significant historical experience marketing ethanol and feed ingredients, including distillers grain, Cargill will provide immediate access to a broad customer base. Under 10-year agreements,

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  Cargill will be responsible for maintaining a continuous outlet for the marketing, sale and distribution of all ethanol and distillers grain produced by our Wood River and Fairmont plants, eliminating the need for us to hire marketing personnel. Under the terms of our agreements, we will receive the same average price for our ethanol that Cargill receives for all ethanol that it produces. In addition, we believe our relationship with Cargill positions us well with large end-users of ethanol due to the size and reliability of Cargill compared to other small ethanol marketers and producers that market ethanol directly or through other marketing channels.
  Risk management services.    We will have the opportunity to utilize Cargill’s comprehensive risk management platform to help manage our commodity risks relating to corn, ethanol and natural gas prices and may hedge through them.

We have entered into a letter agreement with Cargill with respect to our planned Alta plant and anticipate entering into long-term commercial agreements with Cargill for this facility similar to those described above.

  Close relationship with TIC.    We are one of TIC’s strategic ethanol accounts and have a priority relationship with them. We believe this will enable us to add new ethanol production capacity faster than many of our competitors. We believe that TIC is one of the largest heavy industrial contractor engaged in the production of ethanol facilities in the United States. Daniel J. Simon, our Executive Vice President and Chief Operating Officer, formerly led TIC’s Renewable Energy Development subsidiary and co-founded and served as the executive sponsor of a joint venture between TIC and Delta-T. We have entered into EPC contracts with TIC Wyoming, a subsidiary of TIC, for our Wood River and Fairmont facilities. We have received a committed project slot for our Alta plant under development, and we believe that our relationship with TIC will provide us access to additional construction slots as needed for future plant development. We believe this is a key advantage over our competitors that have not secured construction commitments for their announced capacity expansions.
  State-of-the-art production technology and operational scale.    We expect each of our plants will utilize state-of-the-art ethanol production technology designed to produce the highest corn-to-ethanol conversion yields in the industry today, in addition to higher throughput, lower production costs and higher operating efficiency than smaller and older plants, which currently comprise the vast majority of industry capacity. While the average size of an ethanol production facility in the United States, according to the Renewable Fuels Association, or RFA, is approximately 50 Mmgy, we expect each of our plants to generate 115 Mmgy, thereby generating significant cost efficiencies and other economies of scale. For example, the scale of our facilities will enable us to transport our ethanol with dedicated unit trains, which we believe is the most cost-effective method available to deliver ethanol to customers.

Strategy

  Become an industry leader.    We intend to become one of the nation’s leading producers of ethanol. We intend to achieve this through the construction of our Wood River and Fairmont plants, each of which will produce 115 Mmgy of fuel grade ethanol, and the development and construction of an additional large-scale dry-mill ethanol facility in Alta, Iowa. We expect that when these three ethanol plants are fully operational, we will generate a total of 345 Mmgy of fuel grade ethanol. We also have three additional sites under development and additional projects under evaluation that could further expand our ethanol production capacity. We expect to incur up to approximately $125 million in additional debt as funds are required to finance a portion of the costs of construction of our Alta plant under development. We also intend to further leverage our existing strong relationships with Cargill and TIC in our future plant development activities.

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  Dedication to cost control and efficiency.    We are developing and constructing our ethanol facilities with focus on minimizing cost inputs such as corn, natural gas and transportation. We have chosen the sites for our Wood River and Fairmont plants in part because of their access to significant local corn production, their proximity to competitive natural gas supplies and their access to transportation infrastructure, each of which we expect to keep costs lower than industry averages. Once our plants are operational, we will continue to promote a culture of cost control and efficiency regardless of the economic cycle. We will strive to be one of the lowest cost ethanol producers in the industry through the application of the latest technology, strict attention to cost efficiencies and, where appropriate, long-term contracts for the supply of inputs such as corn and natural gas.
  Evaluate alternative production technologies.    We will continually review new technological developments that could result in more efficient methods of ethanol production. We intend to maintain continued access to emerging ethanol technology. We believe that our sites will accommodate modifications to utilize alternative feedstock supplies or production technologies that may become available in the future, including ethanol from corn stover, cellulosic biomass and switchgrass.
  Flexibility to capitalize on market opportunities.    Because of the unpredictability of energy markets and commodity prices, we believe it is important to be prepared to respond quickly to strategic opportunities presented by changes in market conditions. We plan to maintain an appropriate capital structure that will enable us to respond to changing market conditions rapidly and opportunistically. While we believe that industry conditions are currently very attractive for domestic producers of ethanol, the energy business is often cyclical and there remains the possibility of a future downturn. We intend to be well-positioned to withstand and capitalize on opportunities presented by changes in industry conditions. We will focus on maintaining the flexibility to either build production facilities, make disciplined and opportunistic acquisitions or enter into strategic alliances or joint ventures, in each case based on market opportunities and industry conditions.
  Consider possible sales of plants or plant sites.    We believe that because of certain competitive advantages of our plants, particularly their locations, there may be opportunities to sell individual plants or plant sites on favorable terms under certain market conditions. Being dedicated to maximizing our stockholders’ returns, we expect to actively seek such opportunities on a regular basis and to consider the sale of one or more plants or plant sites, particularly if the resultant proceeds can be redeployed at a higher potential return elsewhere in our business. Mr. Edelman has extensive experience in buying and selling companies and/or their assets and senior management expects to actively seek and assess such opportunities.
  Risk management.    We intend to utilize risk mitigation techniques. We will seek to eventually hedge a majority of our corn and natural gas costs, as well as our primary product, ethanol. To this end, we will participate in the futures and derivatives markets and, where appropriate, enter into long-term purchase and sale contracts. By doing so, we expect to limit our exposure to commodity price fluctuations and reduce earnings volatility. We also will have the benefit of significant corn storage facilities, which should allow us to purchase and store corn opportunistically.

Facilities

Headquarters

Our corporate headquarters are located in Denver, Colorado, where we currently lease approximately 6,000 square feet of office space.

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Facilities under construction

The table below provides an overview of our Wood River and Fairmont ethanol plants, which are under construction.


  Wood River plant Fairmont plant
Location Wood River, Nebraska Fairmont, Minnesota
Expected date of completion Q1 2008 Q1 2008
Annual ethanol production capacity (Mmgy) 115 115
Ownership 100% 100%
Production process Dry-Milling Dry-Milling
Primary energy source Natural Gas Natural Gas
Estimated distillers grain production (dry equivalents) per year 360,000 tons 360,000 tons
Transportation Union Pacific Union Pacific

Wood River plant

Our Wood River production plant is expected to begin operations in the first quarter of 2008 with an initial production capacity of 115 Mmgy. The plant will be located on an approximately 125-acre site owned by us approximately 100 miles west of Lincoln, Nebraska. The site is immediately adjacent to an existing Cargill grain elevator, which will be upgraded during the construction of the plant. The grain elevator will provide all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased, effective upon provisional acceptance of the plant, from Cargill pursuant to a 20-year lease.

TIC is guaranteeing the timely construction and performance of the Wood River plant under a turnkey EPC contract pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol. The contract provides for liquidated damages that are capped at 100% of the contract price until substantial completion of the facility and 30% of the contract price thereafter. Pursuant to our EPC contract, TIC has obtained a performance bond from three major insurance companies in an amount equal to 100% of the contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plant will be free of defects in parts and workmanship. We remain responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. We expect to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start date.

Our Wood River plant will transport ethanol primarily by rail and is adjacent to a rail mainline operated by the Union Pacific Railroad. A unit train loading facility (75-110 cars) will be constructed at the plant. The site is also readily accessible by road for transport of large equipment, supplies and products, and we may transport ethanol from the facility by truck, as needed.

Natural gas distribution to the site’s lateral pipeline will be provided from the Kinder Morgan Interstate Pipeline. We have entered into an agreement for the construction of the lateral gas pipeline to the plant. Electricity to the site will be provided by the City of Wood River. We will drill our own wells for water needed at our Wood River facility.

The Wood River plant is well-located for the sale of distillers grain. Because of the sizeable cattle herd in the area of Wood River, we estimate that up to 40% of the plant’s distillers grain

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will be sold in wet form, which will substantially reduce natural gas requirements. The remainder of the distillers grain sold from the plant will be dried distillers grain.

Fairmont plant

Our Fairmont production plant is expected to begin operations in the first quarter of 2008 with an initial production capacity of 115 Mmgy. The plant will be located on an approximately 200-acre site owned by us approximately 150 miles southwest of Minneapolis, Minnesota. The site is immediately adjacent to an existing Cargill grain elevator. The grain elevator will provide all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased, effective upon provisional acceptance of the plant, from Cargill pursuant to a 20-year lease.

TIC is guaranteeing the timely construction and performance of the Fairmont plant under a turnkey EPC contract pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol. The contract provides for liquidated damages that are capped at 100% of the contract price until substantial completion of the facility, and 30% of the contract price thereafter. Pursuant to our EPC contract, TIC has obtained a performance bond from three major insurance companies in an amount equal to 100% of the contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plant will be free of defects in parts and workmanship. We remain responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. We expect to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start date.

Our Fairmont plant will transport ethanol primarily by rail and is adjacent to a rail mainline operated by the Union Pacific Railroad. A unit train loading facility (75-110 cars) will be constructed at the plant. The site is also readily accessible by road for transport of large equipment, supplies and products, and we may transport ethanol from the facility by truck, as needed.

Natural gas distribution will be provided to the plant’s lateral pipeline from the Northern Border Interstate pipeline. We have issued a limited notice to proceed and are in the process of finalizing an agreement for the construction of the lateral gas pipeline to the plant. Electricity to the site will be provided by Federated Rural Electric Association. Wells on the site will provide water needed at our Fairmont facility.

We expect that substantially all of the distillers grain sold from the Fairmont plant will be dried distillers grain.

Facilities under development

The table below provides an overview of our planned Alta, Iowa plant, as well as our additional development sites in Gilman, Illinois, Atchison, Kansas and Litchfield, Illinois. We have entered into a preliminary agreement with TIC regarding the construction of our planned Alta facility. Completion of this facility is contingent on permitting, financing and other factors. We plan to finance the costs of design and construction of the Alta plant using a portion of the proceeds of this offering and our excess cash flow as well as with the issuance of additional debt. Our Gilman, Atchison and Litchfield sites are in various stages of permitting and development. See ‘‘Risk factors — We may not be able to implement our strategy as planned or at all’’ and ‘‘Description of indebtedness’’.

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  Under Development Additional Development Sites
Location Alta, Iowa Gilman, Illinois Atchison, Kansas Litchfield, Illinois
Annual ethanol production capacity (Mmgy) 115 115 115 115
Ownership 100% 100% 100% 100%
Production process Dry-Milling Dry-Milling Dry-Milling Dry-Milling
Primary energy source Natural Gas Natural Gas Natural Gas Natural Gas
Rail transportation CN CN and TPW Union Pacific Norfolk Southern
and BNSF
Expected construction start date Q3/Q4 2007
Expected completion date Q2 2009

Alta plant

We expect to construct a 115 Mmgy dry-mill plant located in Alta, Iowa, to be fueled by natural gas. Land options have been secured for the facility site covering approximately 212 acres. We have received a commitment from TIC to construct our Alta plant and anticipate entering into engineering and construction agreements within 90 to 120 days. We are evaluating alternative construction approaches with respect to construction of our Alta facility, including a design, bid, build approach and a traditional EPC approach. We will make our determination depending upon which approach allows us to optimize plant quality while controlling construction costs in a competitive construction environment. We have received an air permit and are currently engaged in the process of obtaining remaining permits. We have also completed a preliminary environmental Phase I analysis. We expect to enter into ethanol and distillers grain marketing agreements for our Alta plant with Cargill, a corn supply agreement with Cargill and corn storage agreement with a joint venture in which Cargill is a member, which collectively are similar to those we have entered into with respect to our Wood River and Fairmont plants.

The Alta site has been approved by the Iowa Department of Economic Development for an estimated $19.3 million in refunds of sales tax during construction, investment tax credits and local value-added property tax exemptions under the High Quality Jobs Creation program. We are in the process of negotiating the final documentation with Buena Vista County and the Iowa Department of Economic Development for this program.

The Canadian National Rail Road has approved our conceptual rail design for the Alta plant. This rail design will accommodate a 75-car unit train and has sufficient track to permit the Canadian National Rail Road to increase the unit train program to 100 cars.

We have evaluated electric service, natural gas supply, water supply and waste discharge for the Alta plant and believe that they can be obtained without material difficulty on commercially reasonable terms.

Gilman site

We are developing a site in Gilman, Illinois for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas. Land options have been secured for the facility site covering approximately 100 acres. We are currently engaged in the permitting process. We have also completed a preliminary environmental Phase I analysis.

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Atchison site

We are developing a site in Atchison, Kansas for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas. Land options have been secured for the facility site covering approximately 140 acres. We are currently engaged in the permitting process.

Litchfield site

We are developing a site in Litchfield, Illinois for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas . A land option has been secured for a 200-acre parcel that would serve as the site for this plant. We are currently engaged in the permitting process.

Upon commencement of construction of any of our plants in development, we would expect to enter into corn supply and ethanol and distillers grain marketing agreements with Cargill, similar to those we have entered into with respect to our Wood River and Fairmont plants.

Potential future facility sites and acquisitions

In addition, we expect to consider and evaluate additional projects from time to time. We also may consider purchasing existing ethanol facilities or plants in development if we believe such acquisitions would enhance our business or our strategic position in the industry. We also intend to evaluate opportunities to acquire additional ethanol storage or distribution facilities and related infrastructure.

Corn supply

Our Wood River and Fairmont facilities collectively will require approximately 82 million bushels of corn per year in order to produce the 230 Mmgy of expected ethanol output. During the last three crop years, approximately 1.1 billion bushels of corn were grown in the 125-mile radius surrounding our Wood River plant and approximately 2.4 billion bushels of corn were grown in the 125-mile radius surrounding our Fairmont plant.

Under our corn supply agreements, Cargill will be the exclusive supplier of corn to our Wood River and Fairmont facilities for a period of 20 years, and has agreed to provide 100% of the plants’ corn requirements. Under the agreements, Cargill will deliver U.S. No. 2 yellow dent corn with maximum moisture of 15.0% and meeting other certain specifications. On a daily basis, Cargill will provide bid sheets reflecting the expected price levels required to purchase grain for the upcoming delivery period at each of the plants. We will pay the weighted average ‘‘basis’’ price paid by Cargill to purchase corn on our behalf, plus the applicable corn futures price then in effect and an origination fee.

We have also entered into concurrent 20-year leases of Cargill’s existing grain elevators at each of our Wood River and Fairmont sites. These elevators will provide sufficient corn storage capacity to service the plants at normal operating levels plus excess capacity to allow us to purchase corn opportunistically, for example, based on seasonality.

Our planned Alta facility will require approximately 41 million bushels of corn per year in order to produce the 115 Mmgy of expected ethanol output. During the last three crop years, a total of approximately 552 million bushels of corn were grown in the 75-mile radius surrounding our planned facility in Alta, Iowa.

Sales logistics

Both our Wood River and Fairmont ethanol plants will be located adjacent to a rail mainline operated by the Union Pacific Railroad. A railcar unit train loading facility handling 75 to 110 cars will be constructed at each of the plants. A 110-car unit train will hold approximately 3.3 million gallons of ethanol, roughly equivalent to nine days of ethanol production at each of these plants. We will have tank storage capacity to accommodate 10 days of ethanol production and 10 days of dried distillers grain production at each of these plants.

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Each of the Wood River and Fairmont ethanol plants will also have road access for delivery of ethanol and distillers grain by truck, as needed.

Under our ethanol marketing agreements and distillers grain marketing agreements with Cargill, Cargill will perform a number of logistics functions relating to the ethanol and distillers grain produced at our Wood River and Fairmont facilities, utilizing its extensive network of rail and trucking relationships. These functions will include arranging for rail and truck freight, bills of lading and scheduling pick-up appointments. Under the ethanol marketing agreements, we will be responsible for providing a minimum of 550 tank railcars to service these facilities, and under the distillers grain marketing agreements, we will be responsible for providing a minimum of 465 covered hopper railcars to service these facilities. In that regard, we have entered into 10-year leases for approximately 590 tank railcars and 475 hopper railcars from Trinity Industries Leasing Company.

Marketing arrangements

Ethanol marketing

We expect all of our ethanol to be sold to Cargill as our third party marketer and distributor. Cargill has established relationships with many of the leading end-users of ethanol products such as major oil companies and refiners, as well as independent jobbers, storage companies and transportation companies. Our ethanol will be ‘‘pooled’’ into a cooperative system whereby we will receive the average price of the ethanol sold for all producers in the marketing group, which includes all ethanol produced by Cargill in the United States.

Under our existing ethanol marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to purchase from us, 100% of the fuel grade ethanol produced at our Wood River and Fairmont facilities, including as a result of any expansion of these facilities, for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive marketer of the ethanol produced at these facilities. We have agreed to pay Cargill a commission for its ethanol marketing. Cargill will market and distribute our ethanol pursuant to a common marketing pool program, under which Cargill currently markets its own ethanol and ethanol for third parties. Each participant in the pool will receive the same price for its share of ethanol sold, net of freight and other agreed costs incurred by Cargill with respect to the pooled ethanol. Freight and other charges will be divided among pool participants based upon each participant’s ethanol volume in the pool rather than the location of the plant or the delivery point of the customer.

Under our arrangements with Cargill, we have the ability to opt out of the marketing pool described above. In order to opt out of the marketing pool, we would need to provide six-months notice prior to the date on which ethanol will first be delivered under the contract or any anniversary of that date, except that we may be obligated to participate in the pool for up to 18 months to the extent necessary to allow Cargill to fulfill contractual commitments to deliver ethanol from the pool. We will also have the ability to sell ethanol directly to end-customers on a long-term basis, using Cargill as an agent, and in the future we may do so if an attractive opportunity arises. In these circumstances, Cargill would continue to provide transportation and logistics services, would act as a contracting agent and would continue to be paid commissions by us. We will evaluate the desirability of selling ethanol directly to end-customers on an ongoing basis.

Distillers grain marketing

We expect all of our distillers grain to be sold to Cargill as our third party marketer and distributor. Our dried distillers grain will be primarily marketed nationally to agricultural customers for use as an animal feed ingredient. Due to its limited shelf life and high freight costs, our wet distillers grain will be sold to local agricultural customers for use as an animal feed ingredient.

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Under our existing distillers grain marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to purchase from us, all of the distillers grain produced at our Wood River and Fairmont facilities for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive marketer of the distillers grain produced at these facilities. We have agreed to pay Cargill a commission for its distillers grain marketing.

Our agreements with Cargill

Pursuant to the contracts described below, which we have entered into with Cargill with respect to each of our Fairmont and Wood River facilities, Cargill will provide each of these facilities with corn procurement services and ethanol and distillers grain marketing services, as well as management services in connection with the transportation of the ethanol and distillers grain. In addition, Cargill will provide corn risk management advisory services. We have entered into a letter agreement with Cargill with respect to our Alta plant in development and we anticipate entering into similar long-term commercial agreements with Cargill relating to this facility. The following is a summary of our agreements with Cargill.

Master agreement

In addition to the agreements described below, our relationships with Cargill with respect to our Wood River and Fairmont facilities are each governed by a master agreement. Each of these master agreements provides certain terms and conditions that apply to all of our agreements with Cargill with respect to the relevant plant. The master agreements contain a right of first negotiation in favor of Cargill in the event we subsequently acquire or construct additional ethanol facilities. Under this right, Cargill and we have agreed to negotiate in good faith for Cargill to provide all of the commercial arrangements covered by the agreements described below with respect to any additional facilities.

The master agreements allow for payments due and owing to each party under all of our agreements with Cargill to be netted and offset by the parties. Pursuant to the master agreements, if provisional acceptance of a facility does not occur by December 31, 2009, Cargill may, upon written notice, terminate the master agreement and all (but not less than all) the goods and services agreements with respect to the facility.

Corn supply agreements

With respect to each of our Wood River and Fairmont facilities, we have entered into a corn supply agreement with Cargill. These agreements have a term of twenty years from provisional acceptance of the relevant facility. Pursuant to the agreements, Cargill will be the exclusive supplier of corn to each facility. If Cargill fails to make a confirmed delivery, we are entitled to purchase replacement corn from third parties. Under the agreements, we pay Cargill the weighted average ‘‘basis’’ price paid by Cargill to purchase corn on our behalf, plus the applicable corn futures price then in effect. In addition, we pay an origination fee per bushel of corn that is delivered to the facility. While we are not required to purchase a minimum amount of corn, we are required to pay a set minimum origination fee for each contract year of $1.2 million per plant. Based on the production capacity of our plants and our intent to operate at full capacity, we expect that our level of corn purchases will be in excess of the level below which this minimum fee obligation would be triggered.

Cargill will be in default under our corn supply agreements if it fails, under certain circumstances, to deliver corn on five occasions within any 12-month period, engages in certain acts of willful misconduct, is subject to certain events of bankruptcy or insolvency, fails to comply with any final and binding arbitration award rendered pursuant to the master agreements, fails to pay us any amounts due under the agreements within five days of receiving written notice from us of the failure to pay or permits the grain facility leases to expire or terminate. We will be in default if we fail to pay Cargill any amounts due under the agreements within 30 days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful

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misconduct, procure corn or an alternative feedstock from a third party except as permitted by the agreements, are subject to certain events of bankruptcy or insolvency, sell, lease, assign or otherwise transfer the Wood River of Fairmont plant or any rights in the corn supply or marketing agreements or grain facility leases related to those plants to a third party except as permitted by the agreements between Cargill and us, permit the grain facility leases to expire or terminate or fail to comply with any final and binding arbitration award rendered pursuant to the master agreements. If a default occurs, the non-defaulting party may terminate the relevant corn supply agreement.

Grain facility leases

In addition, with respect to each of our Wood River and Fairmont facilities, we have leased Cargill’s grain facility, located adjacent to each plant, for the purpose of receiving, storing and transferring corn to each ethanol facility. Under each of these leases, which have an initial term of twenty years, the annual rental amount is $1.2 million and increases annually based on the percentage change in the Consumer Price Index. The fees we pay to Cargill under the corn supply agreements are deemed to satisfy one-third of the rental amounts due under the leases for so long as the corn supply agreement with respect to a particular facility is still in place. Under the lease agreements, we are responsible for the maintenance and repair of the premises. We will be in default under the leases, and Cargill will have the right to terminate the relevant lease, if we fail to pay any rent or other amounts due to Cargill within 30 days following written notice that such amounts are due and payable, default in any non-monetary obligation under the lease and fail to cure such default within a specified time, become subject to certain events of bankruptcy or insolvency or permit the relevant lease to be sold under any attachment or execution.

Ethanol marketing agreements

With respect to each of our Wood River and Fairmont facilities, we have entered into an ethanol marketing agreement with Cargill. These agreements have a term of ten years. Cargill will be the exclusive purchaser and marketer of the facilities’ ethanol production. In addition, Cargill will be responsible for the logistics and transportation relating to the marketing of the ethanol produced at our facilities and we will provide Cargill with at least 550 rail cars for the facilities. We have elected to participate in Cargill’s marketing pool program whereby a facility’s ethanol is marketed in a common pool with other ethanol under Cargill’s management and all pool participants receive the same net price for ethanol sold from the pool. We have the ability to opt out of such election with advance notice. We will pay Cargill a set commission of 1% on our net proceeds from ethanol sales, subject to minimum volumes of 82.5 Mmgy for each plant. If the number of gallons of ethanol actually produced by a plant is less than 82.5 Mmgy, the minimum commission will be the deficiency multiplied by the average selling price of our ethanol during such period, multiplied by 1%. Our facilities must deliver ethanol in accordance with certain specifications, and Cargill takes title to the product at the inlet flange into railcars or tank trucks at our facilities. The agreements require Cargill to market our ethanol using the same standards that Cargill uses to market its own ethanol and all other ethanol that Cargill markets. Cargill may sell and market its own and/or third parties’ ethanol into the same markets in which it sells our ethanol. We have waived any claims of conflicts of interest against Cargill for failure by it to maximize the economic benefits of the agreement for us, but we may terminate the relevant ethanol marketing agreement if the conflict of interest results in a material quantifiable pecuniary loss to us. Cargill will have the authority to make all final determinations regarding sales, strategy and marketing decisions for all ethanol; provided that we must consent to any sales agreement proposed to be entered into by Cargill with a term of more than 12 months.

Cargill will be in default if it fails, under certain circumstances, to purchase ethanol from our Wood River or Fairmont facility on three separate occasions in any 12-month period and as a result we are forced to suspend operations due to excess quantities of ethanol at the relevant facility, fails to pay us any amounts due under the agreements within seven days of receiving written notice from us of the failure to pay, engages in certain acts of willful misconduct or is

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subject to certain events of bankruptcy or insolvency. We will be in default if we fail to pay Cargill any amounts due under the agreements within seven days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful misconduct or are subject to certain events of bankruptcy or insolvency. If either Cargill or we are in default under the agreement, the non-defaulting party may terminate the agreement.

Distillers grain marketing agreements

With respect to each of our Wood River and Fairmont facilities, we have entered into a distillers grain marketing agreement with Cargill. These agreements have a term of ten years. Cargill will be the exclusive purchaser and marketer of the facilities’ distillers grain production. In addition, Cargill will be responsible for the logistics and transportation relating to the marketing of the distillers grain produced at our facilities. Cargill will purchase and take title to the distillers grain at the time it is loaded for transport at each plant. For dried distillers grain, we will pay Cargill a set commission equal to the greater of 3% of the sale price or $2.00 per ton, after transportation and storage costs. For wet distillers grain, we will pay Cargill a commission of $3.00 per ton. We are required to pay a minimum commission to Cargill to the extent either plant fails to produce 247,500 tons of distillers grain for the twelve-month period beginning with the start of commercial operations and each anniversary thereafter. If the number of tons of distillers grain produced is less than 247,500 tons, the minimum commission will be equal to the sum of the deficiency applicable to dry distillers grain multiplied by $2/ton and the deficiency applicable to wet distillers grain multiplied by $3/ton. The deficiency volume applicable to dry and wet distillers grain will be determined based on the ratio of dry products to wet products produced at the relevant plant during the applicable year. We must deliver distillers grain meeting certain specifications. Cargill has agreed to market our distillers grain using the same standards that Cargill uses to market its own distillers grain and all other distillers grain that Cargill markets. Cargill may sell and market its own and/or third parties’ distillers grain into the same markets in which it sells our distillers grain. We have waived any claims of conflicts of interest against Cargill for failure by it to maximize the economic benefits of the agreement for us, but we may terminate the relevant distillers grain marketing agreement if the conflict of interest results in a material pecuniary loss to us. Cargill will have the authority to make all final determinations regarding sales, strategy and marketing decisions for distillers grain under the agreement; provided that we must consent to any sales agreement proposed to be entered into by Cargill with a term in excess of 32 weeks or for quantities of dried distillers grain exceeding 25,000 tons or wet distillers grain exceeding 75,000 tons.

Cargill will be in default if it fails, under certain circumstances, to purchase distillers grain from our Wood River or Fairmont facility on three separate occasions in any 12-month period and as a result we are forced to suspend operations due to excess quantities of distillers grain at the relevant facility, fails to pay us any amounts due under the agreements within seven days of receiving written notice from us of the failure to pay, engages in certain acts of willful misconduct or is subject to certain events of bankruptcy or insolvency. We will be in default if we fail to pay Cargill any amounts due under the agreements within seven days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful misconduct or are subject to certain events of bankruptcy or insolvency. If either Cargill or we are in default under the agreement, the non-defaulting party may terminate the agreement.

Corn risk management services

We have entered into a futures advisory agreement with Cargill for each of our Wood River and Fairmont facilities. Pursuant to these agreements, which have initial terms of ten years, Cargill will provide us with its hedging and other risk management services for corn purchasing. Pursuant to the futures advisory agreements, we will pay Cargill a flat fee per bushel per calendar month based on the projected number of bushels of corn that are hedged. In addition, we have agreed to negotiate in good faith a performance incentive payable to Cargill prior to commercial operation of each facility.

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Additional agreement with Cargill

Cargill has made an equity investment in our company. Under the terms of an agreement with Cargill, Cargill has the right to terminate any or all of its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires 30% or more of our common stock or the power to elect a majority of our Board. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of designated parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited.

Engineering, procurement and construction contracts and technology licenses

Engineering, procurement and construction contracts

Each of our first two facilities is being constructed by TIC—The Industrial Company Wyoming, Inc., a subsidiary of TIC, a well-established industrial general contracting firm, under engineering, procurement and construction, or EPC, contracts, utilizing an operations and process technology licensed from Delta-T Corporation, an experienced engineering and design firm in the ethanol industry. The contracts provide that provisional acceptance of each facility will occur within a specified number of days after we have given notice to proceed with all work and services under the relevant EPC contract. In the event that TIC does not achieve provisional acceptance or substantial completion of a facility within the required timeframe, we will be entitled to receive liquidated damages from TIC. Under certain circumstances, we will pay an early completion bonus to TIC for every day that substantial completion is achieved prior to the scheduled date. The EPC contracts include customary default, cure and termination provisions.

TIC is guaranteeing the timely construction and performance of the Fairmont and Wood River plants under turnkey EPC contracts pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol at each plant. The contracts provide for liquidated damages that are capped at 100% of the contract price until substantial completion of the relevant facility, and 30% of the contract price thereafter. Pursuant to our EPC contracts, TIC has obtained performance bonds from three major insurance companies in an amount equal to 100% of each contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plants will be free of defects in parts and workmanship.

Delta-T technology licenses

In connection with each of the EPC contracts described above, Delta-T is granting to us limited licenses to use Delta-T’s proprietary technology and information in connection with the operation, maintenance, optimization, enhancement and expansion of each of our Wood River and Fairmont facilities up to the designed limits. Consideration for the licenses is built into the payments under the EPC contracts described above. If we terminate or materially breach one of the EPC contracts, the related license will automatically terminate. The licenses will also terminate upon termination of the relevant EPC contract for any reason other than the fault of Delta-T if the license fee has not been paid to Delta-T, provided that we will have the option to cure any such payment defaults to Delta-T and complete construction of the facility covered by the license.

Competition

The markets where our ethanol will be sold are highly competitive. According to the RFA, world ethanol production rose to 13.5 billion gallons in 2006. The United States and Brazil are the world’s largest producers of ethanol. According to the RFA, industry capacity in the United States was approximately 4.9 Bgpy in 2006, with an additional 6.2 Bgpy of capacity under construction as of April 2007. The ethanol industry in the United States consists of more than 100 production facilities and is primarily corn-based, while ethanol production in Brazil is primarily sugar cane-based.

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We will compete with Archer Daniels Midland Company, the largest ethanol producer in the United States. According to the RFA, as of April 2007, Archer Daniels had 1,070 Mmgy of current annual capacity, representing approximately 18% of total production capacity in the United States. Historically, Archer Daniels’ ethanol plants have used wet-mill technology with a focus on the co-products of ethanol production. Archer Daniels has announced that it intends to increase its ethanol production capacity by approximately 51% by mid-2008 through the construction of new dry-mill ethanol plants. According to the RFA, as of April 2007, the next nine largest domestic ethanol producers accounted for approximately 26% of domestic production capacity.

We also will compete with other large ethanol producers such as VeraSun Energy Corporation, ASAlliances Biofuels, Inc., Aventine Renewable Energy, Inc., Abengoa Bioenergy Corporation, US BioEnergy Corporation and Hawkeye Holdings Inc. One such competitor, ASAlliances Biofuels, Inc., has commercial arrangements in place with Cargill similar to ours and Cargill, through a subsidiary, has made an equity investment in that company. In addition, Cargill has announced plans to expand production at an existing ethanol facility by approximately 110 Mmgy and to develop four new 100 Mmgy ethanol plants in the Midwestern United States. A number of our competitors have substantially greater financial and other resources than we do. The industry is highly fragmented, with many small, independent firms and farmer-owned cooperatives constituting the rest of the market. We will compete with our competitors primarily on a national basis.

Ethanol is a commodity and as such is priced on a very competitive basis. We believe that our ability to compete successfully in the ethanol production industry depends on many factors, including price, reliability of our production processes and delivery schedule and volume of ethanol produced and sold. We expect to differentiate ourselves from our competition through continuous focus on cost control and production efficiency, pursuit of acquisition opportunities through our expertise in consolidation, aggressive hedging of market risk and by utilization of Cargill’s expertise in ethanol marketing and corn supply.

With respect to distillers grain, we will compete with other ethanol producers as well as a number of large and smaller suppliers of competing animal feed. We believe the principal competitive factors are price, proximity to purchasers and, especially, product quality. We expect to differentiate ourselves from our competition through high product quality, strategic plant locations and access to Cargill’s expertise in feed merchandising and corn supply.

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Ethanol production process

The dry-mill process of using corn to produce ethanol and co-products that we will implement at our plants is illustrated in the following chart and described below.

Step one: grain receiving, storing and milling

Corn is delivered by rail and by truck, at which point it is inspected, weighed and unloaded in a receiving building and then transferred to storage bins. On the grain receiving system, a dust collection system limits particulate emissions. Truck scales and a rail car scale weigh delivered corn. The corn is then unloaded to the storage systems consisting of concrete and steel storage bins. From its storage location, corn is conveyed to cleaning machines called scalpers to remove debris from the corn before it is transferred to hammermills or grinders where it is ground into a flour, or ‘‘meal.’’

Step two: conversion and liquefaction, fermentation and evaporation systems

The meal is conveyed into slurry tanks for processing. The meal is mixed with water and enzymes and heated to break the ground grain into a fine slurry. The slurry is routed through pressure vessels and steam flashed in a flash vessel. This liquefied meal, now called ‘‘mash’’, reaches a temperature of approximately 200ºF, which reduces bacterial build-up. The sterilized mash is then pumped to a liquefaction tank where additional enzymes are added. This cooked mash continues through liquefaction tanks and is pumped into one of the fermenters, where propagated yeast is added, to begin a batch fermentation process.

The fermentation process converts the cooked mash into carbon dioxide and beer, which contains ethanol as well as all the solids from the original corn feedstock. The mash is kept in a fermentation tank for approximately two days. Circulation through heat exchangers keeps the mash at the proper temperature.

Step three: distillation and molecular sieve

After batch fermentation is complete, the fermented mash, now called ‘‘beer’’, is pumped to an intermediate tank called the beer well and then to the columnar distillation tank to vaporize

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and separate the alcohol from the mash. The distillation results in a 96%, or 190-proof, alcohol. This alcohol is then transported through a system of tanks and sieves where it is dehydrated to produce 200-proof anhydrous ethanol. The 200-proof ethanol is then mixed with approximately 5% unleaded gasoline to prepare it for sale.

Step four: liquid — solid separation system

The residue corn mash from the distillation stripper, called ‘‘stillage’’, is pumped into one of several decanter type centrifuges for dewatering. The water, or thin stillage, is then pumped from the centrifuges back to mashing or to an evaporator where it is dried into a thick syrup. The solids that exit the centrifuges, known as ‘‘wet cake’’, are conveyed to the wet cake storage pad or the gas-fired rotary dryer for removal of residual water. Syrup is added to the wet cake. The result is wet distillers grain with solubles. The wet distillers grain is then placed into a dryer, where moisture is removed. The end result of the process is dried distillers grain.

Step five: product storage

Storage tanks hold the denatured ethanol product prior to being transferred to loading facilities for truck and rail car transportation. Our plants will each have approximately 3.1 million gallons of ethanol tank storage capacity, which will accommodate nine days of ethanol production per plant.

Co-products of ethanol production

Dried distillers grain with solubles.    A co-product of dry-mill ethanol production, dried distillers grain is a high-protein and high-energy animal feed that is sold primarily as an ingredient in beef and dairy cattle rations. Dried distillers grain consists of the concentrated nutrients (protein, fat, fiber, vitamins and minerals) remaining after starch in corn is converted to ethanol. Over 85% of the dried distillers grain is fed to cattle. It is also used in poultry, swine and other livestock feed.

Our facilities will utilize the latest dried distillers grain production technology and produce high quality dried distillers grain, which commands a premium over products from older plants. This dried distillers grain will have higher nutrient content and will be more easily digested than other products produced from older plants.

Wet distillers grain with solubles.    Wet distillers grain is similar to dried distillers grain except that the final drying stage of dried distillers grain is bypassed and the product is sold as a wet feed containing 25% to 35% dry matter, as compared to dried distillers grain, which contains about 90% dry matter. Wet distillers grain is an excellent livestock feed with better nutritional characteristics than dried distillers grain because it has not been exposed to the heat of drying. The sale of wet distillers grain is usually more profitable because the plant saves the cost of natural gas for drying. The product is sold locally because of its limited shelf life and the higher cost of transporting the product to distant markets.

Carbon dioxide.    Carbon dioxide, or CO2, is also a by-product of our dry-mill ethanol production process. While the CO2 produced will most likely be of sufficient quality to be collected and sold, we do not currently plan to market our CO2. Currently, we plan to scrub the CO2 during the production process and release it to the atmosphere, which will be allowed under the air permits obtained for each of our facilities. However, our ability to release the CO2 into the atmosphere may be limited by laws or regulations in the future. See ‘‘Risk factors’’. In the future, we also may explore the possibility of collecting and disposing of or marketing the CO2.

Environmental matters

We are, and will be upon completion of our ethanol production facilities, subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and the health and safety of our employees.

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These laws and regulations can require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damage claims, criminal sanctions, permit revocations and facility shutdowns. We do not anticipate a material adverse impact on our business or financial condition as a result of our efforts to comply with these requirements. We also do not expect to incur material capital expenditures for environmental controls in this or the succeeding fiscal year.

There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under CERCLA or other environmental laws for all or part of the costs of investigation or remediation and for damage to natural resources. We also may be subject to related claims by private parties alleging property damage and personal injury due to 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 do not have material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our ongoing 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. Our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. The U.S. EPA has promulgated National Emissions Standards for Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we would be required to comply with the NESHAP related to our manufacturing process and would be required to come into compliance with another NESHAP applicable to boilers and process heaters. Although expected emissions from our plants are not expected to exceed the relevant threshold levels, new or expanded facilities would be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards also may limit our operating flexibility. Because other domestic ethanol manufacturers will have similar restrictions, 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.

The hazards and risks associated with producing and transporting our products, such as fires, natural disasters, explosions, abnormal pressures, blowouts 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, employer’s liability, comprehensive general liability, automobile liability and workers’ compensation. 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 do not currently have pending material claims for damages or liability to third parties relating to the hazards or risks of our business.

Employees

As of April 15, 2007, we had 19 full-time employees, who are responsible for our management and development. None of these employees is subject to a collective bargaining agreement. We expect the number of our employees to increase significantly as we transition

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from construction of our ethanol facilities to operation of those facilities. Upon completion, each of our ethanol production facilities is expected to employ approximately 50 people.

Legal proceedings

From time to time, we may be involved in litigation and administrative proceedings that arise in the course of our business. We are not currently party to any legal proceeding.

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Management

Directors and executive officers

The following table identifies our executive officers and Directors who will be serving upon completion of this offering, and their ages as of April 15, 2007.