S-4 1 d654493ds4.htm FORM S-4 Prepared by R.R. Donnelley Financial -- Form S-4
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As filed with the Securities and Exchange Commission on January 13, 2014

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

RENEWABLE ENERGY GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   2860   26-4785427
(State or Other Jurisdiction of Incorporation or Organization)  

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

416 South Bell Avenue

Ames, Iowa 50010

(515) 239-8000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Daniel J. Oh

Chief Executive Officer

Renewable Energy Group, Inc.

416 South Bell Avenue

Ames, Iowa 50010

(515) 239-8000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copy To:

 

Blair W. White, Esq.

William T. Krause, Esq.

Pillsbury Winthrop Shaw Pittman LLP

Four Embarcadero Center, 22nd Floor

San Francisco, California 94111

(415) 983-1000

(415) 983-1200 (facsimile)

 

Edward G. Roth

Chief Executive Officer

Syntroleum Corporation

5416 South Yale Avenue, Suite 400

Tulsa, Oklahoma 74135

(918) 592-7900

 

Paul D. Broude, Esq.

Richard C. Segal, Esq.

Foley & Lardner LLP

111 Huntington Avenue, Suite 2600

Boston, Massachusetts 02199

(617) 342-4000

(617) 342-4001 (facsimile)

 

 

Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as practicable after the effective date of this registration statement.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be
Registered

  Proposed
Maximum
Offering Price
per Share
 

Proposed
Maximum
Aggregate

Offering Price

 

Amount of

Registration Fee

Common Stock, $0.0001 par value per share (1)

  4,143,441(2)   N/A   $45,660,720(3)   $5,882(4)

 

 

(1) This registration statement relates to common stock, $0.0001 par value per share, of Renewable Energy Group, Inc., a Delaware corporation (“REG”), issuable to Syntroleum Corporation, a Delaware corporation (“Syntroleum”), under that certain Asset Purchase Agreement, dated as of December 17, 2013, by and among REG, REG Synthetic Fuels, LLC and Syntroleum (the “Asset Purchase Agreement”).
(2) The amount of REG common stock to be registered has been determined based on the estimated maximum number of shares of REG common stock that may be issued pursuant to the Asset Purchase Agreement calculated based on the sum of (A) 3,796,000 shares of REG common stock issuable to Syntroleum as consideration for the asset sale, and (B) 347,441 shares of REG common stock, reserved for issuance with respect to certain warrants of Syntroleum to be assumed by REG.
(3) Estimated solely for purposes of calculation of the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, as amended, based on the product of (A) 4,143,441, the maximum number of shares of REG common stock that may be issued pursuant to the transactions contemplated herein, and (B) $11.02, the average of the high and low sale prices for shares of REG common stock as reported on the NASDAQ Global Select Market on January 8, 2014.
(4) Calculated pursuant to Rule 457(o) at the statutory rate of $128.80 per $1 million of securities registered.

 

 

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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. Renewable Energy Group, Inc. may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 13, 2014

 

LOGO

SYNTROLEUM CORPORATION

 

 

Dear Syntroleum Stockholder:

You are cordially invited to attend a special meeting of the stockholders of Syntroleum Corporation (“Syntroleum”) to be held on [*] at 10:00 a.m. Eastern Time at the offices of Foley & Lardner LLP, 111 Huntington Avenue, Boston, Massachusetts 02199. At the special meeting, Syntroleum is seeking your approval of:

 

    the sale of substantially all of the assets of Syntroleum to REG Synthetic Fuels, LLC (“REG Synthetic”), a wholly-owned subsidiary of Renewable Energy Group, Inc. (“REG”), pursuant to and on the terms set forth in an asset purchase agreement, dated as of December 17, 2013, by and among REG, REG Synthetic, and Syntroleum;

 

    the plan of dissolution of Syntroleum, including the liquidation and dissolution of Syntroleum contemplated thereby, subject to the approval of the asset purchase agreement and asset sale and following the closing of the asset sale;

 

    the amendment to Syntroleum’s certificate of incorporation to change Syntroleum’s name to Sooner Holdings, Inc., subject to the approval of the asset purchase agreement and asset sale and following the closing of the asset sale;

 

    the grant of discretionary authority to the Syntroleum board of directors to adjourn or postpone the special meeting, even if a quorum is present, to solicit additional votes to approve the asset purchase agreement and asset sale, the plan of dissolution, and/or the change of Syntroleum’s name, if necessary;

 

    the compensation that certain executive officers of Syntroleum may receive in connection with the asset sale pursuant to existing agreements or arrangements with Syntroleum, which approval is non-binding and advisory in nature; and

 

    to consider and transact such other business as may properly come before the special meeting and any adjournments or postponements thereof.

As consideration for the asset sale, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000, adjusted downward (based on the value of REG common stock at closing, as calculated under the asset purchase agreement) to the extent that the amount of aggregate cash transferred to REG Synthetic at closing is less than $3,200,000; provided, that if the per share value of REG’s common stock at closing (as calculated under the asset purchase agreement) is equal to or greater than $12.91, then the number of shares of REG common stock will be equal to (A) $49,000,000, divided by (B) the REG common stock value at closing (as calculated under the asset purchase agreement). REG’s common stock is listed on the NASDAQ Global Select Market under the symbol “REGI.” The closing stock price per share of REG common stock on the NASDAQ Global Select Market on January 8, 2014 was $10.90 per share. If the asset purchase agreement and the asset sale are approved and the asset sale is consummated, Syntroleum will transfer substantially all of its assets and liabilities to REG Synthetic, and Syntroleum will continue to exist as a separate legal entity.

Syntroleum currently estimates that the cash it will retain following the asset sale will be sufficient to pay its expenses and satisfy its known retained liabilities and obligations and that all of the REG common stock to be received by Syntroleum in the asset sale will ultimately be available for distribution to the holders of Syntroleum common stock. If all of the REG common stock is ultimately distributed and there is no adjustment to the number of REG shares, Syntroleum stockholders would receive approximately 0.3809 shares of REG common stock per share of Syntroleum common stock; however, Syntroleum is unable at this time to predict the exact amount, nature and timing of any distributions to its stockholders. Following the closing of the asset sale, Syntroleum’s assets will primarily consist of the shares of REG common stock received as consideration for the asset sale and a cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement. Even though Syntroleum currently expects the cash reserve to be sufficient to pay, or provide for the payment of, all of Syntroleum’s known retained liabilities and obligations, it is possible that, in the course of the dissolution process, unanticipated expenses and contingent liabilities will arise. If such liabilities exceed the cash reserve, Syntroleum will be required to sell a portion or all of the REG common stock received in the asset sale to satisfy its obligations before its dissolution, thereby reducing, and perhaps eliminating, the assets available for distribution to Syntroleum stockholders.

Syntroleum’s board of directors has carefully reviewed and considered the terms and conditions of the asset purchase agreement, the asset sale and the plan of dissolution, and has concluded that the asset purchase agreement, asset sale, the liquidation and dissolution of Syntroleum pursuant to the plan of dissolution and the amendment of Syntroleum’s certificate of incorporation to change Syntroleum’s name are all in the best interests of Syntroleum and its stockholders. The Syntroleum board of directors therefore has approved these proposals and recommends that you vote FOR each of the proposals set forth in the attached proxy statement/prospectus.

Your vote is very important. Whether or not you plan to attend the special meeting, please complete, sign, date and return the enclosed proxy card, or submit your proxy by telephone or the Internet, as soon as possible. If you hold your shares in “street name,” you should instruct your broker how to vote in accordance with your voting instruction card.

You are also encouraged to review carefully the enclosed proxy statement/prospectus, as it explains the reasons for the proposals to be voted on at the special meeting and contains other important information, including copies of the asset purchase agreement and plan of dissolution, which are attached as annexes. In particular, please review the matters referred to under “Risk Factors” starting on page 24 for a discussion of the risks related to the proposed asset sale, the respective businesses of REG and Syntroleum, and the liquidation and dissolution of Syntroleum.

Thank you for your cooperation, attention to these matters and continued support.

 

Sincerely,
 

 

Karen L. Power
Principal Financial Officer

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the asset sale described in this proxy statement/prospectus or the REG common stock to be issued in connection with the asset sale, or determined if this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [*] and is first being mailed to Syntroleum stockholders on or about [*].


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LOGO

Syntroleum Corporation

5416 S. Yale Avenue, Suite 400

Tulsa, Oklahoma 74135

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To be held on [*]

To the Stockholders of Syntroleum Corporation:

A special meeting of the stockholders of Syntroleum Corporation (“Syntroleum”) will be held at the offices of Foley & Lardner LLP, 111 Huntington Avenue, Boston, Massachusetts 02199 on [*], at 10:00 a.m. Eastern Time, for the following purposes:

1. To approve the sale of substantially all of the assets of Syntroleum to REG Synthetic Fuels, LLC (“REG Synthetic”), a wholly owned subsidiary of Renewable Energy Group, Inc. (“REG”), pursuant to and on the terms set forth in an asset purchase agreement dated as of December 17, 2013 by and among REG, REG Synthetic and Syntroleum, which is referred to herein as the asset sale proposal.

2. To approve the plan of dissolution of Syntroleum, including the liquidation and dissolution of Syntroleum contemplated thereby, subject to the approval of the asset sale proposal and following the closing of the asset sale, which is referred to herein as the plan of dissolution proposal.

3. To approve an amendment to Syntroleum’s certificate of incorporation to change Syntroleum’s name to Sooner Holdings, Inc., subject to the approval of the asset sale proposal and following the closing of the asset sale, which is referred to herein as the name change proposal.

4. To grant discretionary authority to the Syntroleum board of directors to adjourn or postpone the special meeting, even if a quorum is present, to solicit additional votes to approve the asset sale proposal, the plan of dissolution proposal and/or the name change proposal, if necessary, which is referred to herein as the adjournment proposal.

5. To approve, on a non-binding advisory basis, the compensation that certain executive officers of Syntroleum may receive in connection with the asset sale pursuant to existing agreements or arrangements with Syntroleum, which is referred to herein as the Syntroleum compensation proposal.

6. To consider and transact such other business as may properly come before the special meeting and any adjournments or postponements thereof.

This proxy statement/prospectus and the proxy card are being furnished to Syntroleum’s stockholders in connection with the solicitation of proxies by the Syntroleum board of directors for use at the special meeting of stockholders.

Syntroleum’s board of directors has approved the asset purchase agreement and the asset sale, the plan of dissolution and the amendment to Syntroleum’s certificate of incorporation, and recommends that you vote FOR the approval of the asset sale proposal, FOR the approval of the plan of dissolution proposal, FOR the approval of the name change proposal, FOR the approval of the adjournment proposal, and FOR the Syntroleum compensation proposal. The proposals are described in more detail in the accompanying proxy statement/prospectus, which you should read in its entirety before voting.

Only holders of record of Syntroleum’s common stock at the close of business on [*] are entitled to notice of and to vote at the special meeting or any adjournment or postponement thereof. Approval of each of the asset sale proposal, the plan of dissolution proposal and the name change proposal require the affirmative vote of the


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holders of a majority of the outstanding shares of Syntroleum common stock. Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of Syntroleum common stock, present, either in person or by proxy, and entitled to vote at the special meeting. Each outstanding share of common stock entitles the holder thereof to one vote. Therefore, your vote is very important.

If you do not either submit your proxy, instruct your broker how to vote your shares or vote in person at the special meeting, it will have the same effect as a vote against approval of the asset purchase agreement and the asset sale, the plan of dissolution and the name change proposals, and will have no effect on the adjournment proposal. If the asset sale is not completed, whether due to the failure of Syntroleum’s stockholders to approve the asset sale proposal or any other reason, and Syntroleum is unable on a timely basis to identify an alternative source of working capital or enter into an alternative business combination transaction, Syntroleum may be required to seek protection under the U.S. Bankruptcy Code or similar relief.

To ensure your representation at the special meeting and the presence of a quorum at the special meeting, whether or not you plan to attend the special meeting, please complete, sign and date the enclosed proxy card and return it to Syntroleum without delay in the postage-paid envelope enclosed for your convenience or submit your proxy by telephone or the Internet as provided on the proxy card. If a quorum is not reached, Syntroleum’s proxy solicitation costs are likely to increase. Should you receive more than one proxy card because your shares are registered in different names and/or addresses, each proxy card should be signed, dated and returned to ensure that all of your shares will be voted. If you are present at the special meeting or any adjournments or postponements of the special meeting, you may revoke your proxy and vote personally on the matters properly brought before the special meeting. Your shares will be voted at the special meeting in accordance with your proxy.

 

    By Order of the Board of Directors,                
 

 

Tulsa, Oklahoma

  Karen L. Power

[*]

  Principal Financial Officer

IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE

VOTE BY (1) TELEPHONE, (2) USING THE INTERNET OR (3) COMPLETING AND PROMPTLY

RETURNING THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.


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     Page  

QUESTIONS AND ANSWERS ABOUT THE ASSET SALE, THE PLAN OF DISSOLUTION, THE NAME CHANGE AND THE ADJOURNMENT PROPOSALS AND THE SPECIAL MEETING

     1   

SUMMARY

     10   

SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF REG

     17   

SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF SYNTROLEUM

     20   

COMPARATIVE PER SHARE MARKET DATA

     22   

RISK FACTORS

     24   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     59   

SPECIAL MEETING OF THE STOCKHOLDERS OF SYNTROLEUM

     60   

PROPOSAL ONE—THE ASSET SALE PROPOSAL

     63   

THE ASSET PURCHASE AGREEMENT

     92   

PROPOSAL TWO—THE PLAN OF DISSOLUTION PROPOSAL

     105   

PROPOSAL THREE—THE NAME CHANGE PROPOSAL

     112   

PROPOSAL FOUR—THE ADJOURNMENT PROPOSAL

     113   

PROPOSAL FIVE —THE SYNTROLEUM COMPENSATION PROPOSAL

     114   

CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO SYNTROLEUM STOCKHOLDERS

     116   

INFORMATION ABOUT SYNTROLEUM

     119   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SYNTROLEUM

     126   

SYNTROLEUM SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     139   

COMPARISON OF STOCKHOLDER RIGHTS

     140   

FUTURE SYNTROLEUM STOCKHOLDER PROPOSALS

     149   

HOUSEHOLDING OF PROXY MATERIALS

     149   

LEGAL MATTERS

     150   

EXPERTS

     150   

WHERE YOU CAN FIND MORE INFORMATION

     150   

SYNTROLEUM FINANCIAL STATEMENTS

    
F-1
  

 

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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Renewable Energy Group, Inc. (“REG”) from documents that it has filed with the Securities and Exchange Commission but that have not been included in or delivered with this proxy statement/prospectus. For a listing of documents incorporated by reference into this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 150 of this proxy statement/prospectus.

REG will provide you with copies of such documents (excluding all exhibits unless REG has specifically incorporated by reference an exhibit into this proxy statement/prospectus), without charge, upon written request to:

Renewable Energy Group, Inc.

416 South Bell Avenue

Ames, Iowa 50010

Attention: Investor Relations

In order for you to receive timely delivery of the documents in advance of the special meeting, REG should receive your request no later than [*].

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the United States Securities and Exchange Commission (the “SEC”) by REG, constitutes a prospectus of REG under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of REG common stock to be issued to Syntroleum pursuant to the asset purchase agreement. This document also constitutes a proxy statement of Syntroleum under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting of Syntroleum stockholders, at which meeting Syntroleum stockholders will be asked to vote upon the asset sale proposal, the plan of dissolution proposal, the name change proposal and the adjournment proposal.

You should rely only on the information contained or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of such incorporated document. Neither the mailing of this proxy statement/prospectus to Syntroleum stockholders nor the issuance by REG of its common stock in connection with the asset sale will create any implication to the contrary.

Information contained in this proxy statement/prospectus regarding REG has been provided by REG and information contained in this proxy statement/prospectus regarding Syntroleum has been provided by Syntroleum.

This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

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QUESTIONS AND ANSWERS ABOUT THE ASSET SALE, THE PLAN OF DISSOLUTION, THE NAME CHANGE AND THE ADJOURNMENT PROPOSALS AND THE SPECIAL MEETING

The following are some questions that you, as a stockholder of Syntroleum, may have regarding the asset sale, the plan of dissolution, the name change and the adjournment proposals and the special meeting, and brief answers to those questions. Syntroleum urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section may not provide all the information that might be important to you with respect to the proposals being considered at the special meeting. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this proxy statement/prospectus.

 

Q. Why am I receiving this proxy statement/prospectus?

 

A. REG has agreed to acquire substantially all of the assets of Syntroleum under the terms of the asset purchase agreement that is described in this proxy statement/prospectus. Following the completion of the asset sale, Syntroleum intends promptly to wind-up its affairs and distribute any remaining assets to Syntroleum stockholders in accordance with a plan of dissolution. In order to complete the asset sale and the liquidation and dissolution of Syntroleum pursuant to the plan of dissolution, Syntroleum stockholders must approve the asset sale, plan of dissolution and name change proposals. Syntroleum will hold a special meeting of its stockholders in order to obtain this approval.

Please see “Proposal One—The Asset Sale Proposal” beginning on page 63 of this proxy statement/prospectus, “Proposal Two—The Plan of Dissolution Proposal” beginning on page 105 of this proxy statement/prospectus and “Proposal Three—The Name Change Proposal” beginning on page 112 of this proxy statement/prospectus. Copies of the asset purchase agreement and plan of dissolution are attached to this proxy statement/prospectus as Annex A and Annex B, respectively.

Your vote is very important. If you do not either submit your proxy or instruct your broker how to vote your shares or vote in person at the special meeting, it will have the effect as a vote against approval of the asset sale, plan of dissolution and name change proposals.

Syntroleum encourages you to vote as soon as possible. The enclosed voting materials allow you to vote your Syntroleum shares without attending the special meeting in person. For more specific information on how to vote, please see the questions and answers below.

 

Q. Why did Syntroleum enter into the asset purchase agreement?

 

A. After due consideration of all other alternatives reasonably available to Syntroleum, Syntroleum’s board of directors concluded that the consummation of the transactions contemplated by the asset purchase agreement will result in the most favorable outcome for Syntroleum stockholders. For more information, see “Proposal One—The Asset Sale Proposal—Recommendation of the Syntroleum Board of Directors and Syntroleum’s Reasons for the Asset Sale” beginning on page 70 of this proxy statement/prospectus.

 

Q. Who is the buyer?

 

A. The buyer is REG Synthetic, a wholly owned subsidiary of REG. REG Synthetic has not engaged in any activity and has been organized for the purpose of acquiring substantially all of Syntroleum’s assets pursuant to the asset sale and has not engaged in any other business activity. REG, the parent company of REG Synthetic, is the largest producer of biodiesel in the United States based on gallons produced. REG’s common stock is traded on the NASDAQ Global Select Market under the symbol REGI.

 

Q. What is the purchase price for Syntroleum’s assets?

 

A.

As consideration for the asset sale, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000, adjusted downward (based on the value of REG common stock at closing, as calculated under

 

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  the asset purchase agreement) to the extent that the amount of aggregate cash transferred to REG Synthetic at closing is less than $3,200,000; provided, that if the per share value of REG’s common stock at closing (as calculated under the asset purchase agreement) is equal to or greater than $12.91, then the number of shares of REG common stock will be equal to (A) $49,000,000, divided by (B) the REG common stock value at closing (as calculated under the asset purchase agreement). The closing stock price per share of REG common stock on the NASDAQ Global Select Market on January 8, 2014 was $10.90 per share.

 

Q. What will Syntroleum do with the REG common stock it receives in connection with the asset sale?

 

A. Syntroleum currently estimates that the cash it will retain following the asset sale will be sufficient to pay its expenses and satisfy its known retained liabilities and obligations and that all of the REG common stock to be received by Syntroleum in the asset sale will ultimately be available for distribution to the holders of Syntroleum common stock. If all of the REG common stock is ultimately distributed and there is no adjustment to the number of REG shares, Syntroleum stockholders would receive approximately 0.3809 shares of REG common stock per share of Syntroleum common stock; however, Syntroleum is unable at this time to predict the exact amount, nature and timing of any distributions to its stockholders. Following the closing of the asset sale, Syntroleum’s assets will primarily consist of the shares of REG common stock received as consideration for the asset sale and a cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement. Even though Syntroleum currently expects the cash reserve to be sufficient to pay, or provide for the payment of, all of Syntroleum’s known retained liabilities and obligations, it is possible that, in the course of the liquidiation and dissolution process, unanticipated expenses and contingent liabilities will arise. If such liabilities exceed the cash reserve, Syntroleum will be required to sell a portion or all of the REG common stock received in the asset sale to satisfy its obligations before its dissolution, thereby reducing, and perhaps eliminating, the assets available for distribution to Syntroleum stockholders. The cash Syntroleum will retain following closing of the asset sale will be used to satisfy its current and future obligations, including without limitation salaries of continuing employees; severance payments; legal, accounting, financial or other advisors fees; and insurance premiums and fees incurred in connection with Syntroleum’s liquidation and dissolution.

For a more detailed description of Syntroleum’s liabilities and obligations to be satisfied following the completion of the asset sale, see “Proposal Two—The Plan of Dissolution Proposal” beginning on page 105 of this proxy statement/prospectus.

 

Q. What assets are being sold by Syntroleum?

 

A. Syntroleum proposes to sell substantially all of its assets other than those specifically excluded under the terms of the asset purchase agreement. The assets to be sold include Syntroleum’s patents and other intellectual property rights; its 50% ownership interest in Dynamic Fuels, LLC (“Dynamic Fuels”); the rights under substantially all of its contracts; all of its cash in excess of a cash reserve equal to $5,300,000; Syntroleum’s accounts receivable and other current assets; and all of its tangible personal property. The assets excluded from the asset sale include: all contracts relating to employees such as employment agreements, benefit plans and stock option agreements; insurance policies; indemnification agreements; outstanding securities; and ownership interests in certain of Syntroleum’s subsidiaries.

 

Q. What liabilities will be assumed by REG Synthetic?

 

A. In connection with the asset sale, REG Synthetic will assume substantially all liabilities of Syntroleum, except for specifically identified liabilities, which include liabilities with respect to assumed contracts; certain warrant agreements; and accounts payable.

 

Q. What liabilities will not be assumed by REG Synthetic?

 

A.

While in connection with the asset sale, REG Synthetic will assume substantially all liabilities of Syntroleum, REG Synthetic will not assume liabilities arising or resulting from the following: (i) events that

 

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  occur after the asset sale, including in connection with Syntroleum’s liquidation and dissolution or any distribution to Syntroleum stockholders; (ii) contracts excluded in the asset purchase agreement, including but not limited to, certain warrants and warrant agreements, stock option agreements, severance agreements, benefit plans, and insurance and indemnity agreements; (iii) the asset purchase agreement; (iv) liabilities related to employees, directors or consultants of Syntroleum; (v) obligations to legal, accounting, financial or other advisors in connection with the transactions contemplated by the asset purchase agreement; (vi) tax liabilities; and (vii) liabilities with respect to the subsidiaries of Syntroleum that are not being acquired pursuant to the asset purchase agreement, which subsidiaries include Syntroleum International Corporation (“Syntroleum International”) and Scout Development Corporation (“Scout”).

 

Q. When do REG and Syntroleum expect the asset sale to be completed?

 

A. REG and Syntroleum are working to complete the asset sale as soon as practicable and currently expect that the asset sale will be completed promptly following the receipt of stockholder approval of the asset sale proposal at the special meeting. However, neither REG nor Syntroleum can predict the exact timing of the completion of the asset sale because it is subject to other conditions to closing.

 

Q. What will happen if the asset sale is not approved?

 

A. As previously publicly disclosed, Syntroleum has incurred recurring operating losses and continues to have working capital funding obligations to Dynamic Fuels, notwithstanding the non-operational status of Dynamic Fuel’s renewable diesel production facility located in Geismar, Louisiana, which is referred to herein as the Geismar Facility. If the asset sale or another similar transaction is not approved and consummated on a timely basis, the Geismar Facility does not return to operational status on a timely basis, and/or Syntroleum does not obtain substantial new debt or equity financing on a timely basis, Syntroleum would not likely have sufficient resources to continue operations and may be required to seek protection under the U.S. Bankruptcy Code or similar relief. In such an event, it is possible that there would not be significant assets, or any assets, available for distribution to Syntroleum’s stockholders.

 

Q. What will happen under the plan of dissolution?

 

A. Under the plan of dissolution, Syntroleum will file a certificate of dissolution with the Secretary of State of the State of Delaware, Syntroleum’s jurisdiction of incorporation, to dissolve Syntroleum as a legal entity following the satisfaction of its outstanding liabilities. The Syntroleum board of directors, in its sole discretion, will determine the timing for this filing. Upon receipt of approval from the Delaware Court of Chancery of the amount of reserves Syntroleum is required to hold upon payment or provision for its claims, including provision of amounts reasonably likely to be sufficient to satisfy pending and outstanding claims, Syntroleum expects it will begin to distribute its remaining assets, if any, to Syntroleum stockholders. A final distribution to holders of Syntroleum common stock will likely not be made until more than three years after Syntroleum files the certificate of dissolution with the Secretary of State of the State of Delaware.

 

Q. If the asset sale and plan of dissolution proposals are approved and the asset sale is consummated on the terms contained in the asset purchase agreement, what does Syntroleum estimate that the holders of Syntroleum common stock will receive?

 

A.

The number of shares of REG common stock and amount of cash or other property that may ultimately be distributed to the holders of Syntroleum common stock is not yet known, and there can be no assurance that Syntroleum will be able to make any distribution to the holders of its common stock. Syntroleum currently estimates that all of the shares of REG common stock to be received by it in the asset sale will ultimately be available for distribution to the holders of Syntroleum common stock. However, there are many factors that may affect the amounts available for distribution to holders of Syntroleum common stock including, among

 

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  other things, the proceeds Syntroleum may receive if it sells the shares of REG common stock, the amount of taxes, employee costs (including severance payments), transaction fees, and brokerage fees, expenses relating to the dissolution, and unanticipated or contingent liabilities arising hereafter. No assurance can be given as to the amounts holders of Syntroleum common stock will ultimately receive. If Syntroleum has underestimated its existing obligations and liabilities or if unanticipated or contingent liabilities arise, the amount ultimately distributed to the holders of Syntroleum common stock could be less than that set forth above.

 

Q. What vote of Syntroleum stockholders is required to approve the asset sale and the plan of dissolution proposals?

 

A. Approval of each of the asset sale proposal and the plan of dissolution proposal requires the affirmative vote of a majority of the outstanding shares of Syntroleum common stock.

 

Q. How does the Syntroleum board of directors recommend that Syntroleum stockholders vote on the asset sale and the plan of dissolution proposals?

 

A. Syntroleum’s board of directors recommends that Syntroleum stockholders vote FOR the asset sale proposal and FOR the plan of dissolution proposal. Syntroleum’s board of directors has determined that the asset purchase agreement and asset sale are expedient, fair to, and in the best interests, of Syntroleum and its stockholders and it has determined that the plan of dissolution is advisable and in the best interests of Syntroleum and its stockholders. Accordingly, the Syntroleum board of directors has approved the asset purchase agreement, the asset sale and the plan of dissolution. For a more complete description of the recommendation of the Syntroleum board of directors, see “Special Meeting of the Stockholders of Syntroleum” beginning on page 60 of this proxy statement/prospectus, “Proposal One—The Asset Sale Proposal—Recommendation of the Syntroleum Board of Directors and Syntroleum’s Reasons for the Asset Sale” beginning on page 70 of this proxy statement/prospectus, and “Proposal Two—The Plan of Dissolution Proposal” beginning on page 105 of this proxy statement/prospectus.

 

Q. Do Syntroleum’s directors and officers have any interest in the asset sale?

 

A. The interests of Syntroleum’s directors and officers in the asset sale are generally aligned with the interests of Syntroleum’s stockholders. However, in considering the asset sale proposal, Syntroleum’s stockholders should be aware that, as a condition to the closing of the asset sale, certain officers of Syntroleum intend to accept employment with REG Synthetic, including Edward G. Roth, Syntroleum’s Chief Executive Officer. Further, in connection with their termination as employees of Syntroleum upon the closing of the asset sale, certain officers of Syntroleum will receive severance benefits pursuant to historical agreements with Syntroleum, including payments of $900,000 to Mr. Roth and $48,125 to Karen L. Power, Syntroleum’s Principal Financial Officer. Syntroleum’s directors and executive officers will also retain the right to continued indemnification and insurance coverage for acts or omissions occurring prior to the asset sale.

 

Q. Are there any risks related to the asset sale or the plan of dissolution?

 

A. Yes. You should carefully review the section entitled “Risk Factors” beginning on page 24 of this proxy statement/prospectus.

 

Q. What are the United States federal income tax consequences of the asset sale and the plan of dissolution?

 

A.

The asset sale and intended subsequent liquidation and dissolution of Syntroleum pursuant to the plan of dissolution are intended to constitute a tax-free “reorganization” within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to the limitations and

 

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  qualifications described in this proxy statement/prospectus, in the event the asset sale and liquidation and dissolution constitutes a tax-free “reorganization” within the meaning of Section 368(a)(1)(C) of the Code, the material federal income tax consequences would be as follows:

 

    holders of Syntroleum common stock would not recognize gain or loss upon their receipt or deemed receipt of REG common stock in exchange for Syntroleum common stock in connection with Syntroleum’s liquidation and dissolution except that gain (but not loss) would be recognized to the extent of the cash and the fair market value of property (other than REG common stock) received in exchange for Syntroleum common stock;

 

    Syntroleum stockholders receiving cash or other non-stock property in addition to REG common stock in connection with Syntroleum’s liquidation and dissolution would recognize gain (but not loss) equal to the lesser of (i) the amount of cash plus the fair market value of property (other than REG common stock) received or (ii) the gain realized as a result of the liquidation and dissolution (i.e., the fair market value of the REG common stock and all other property (including cash) received by such stockholder less such stockholder’s tax basis in the Syntroleum common stock surrendered);

 

    generally, the aggregate tax basis of the REG common stock received by a Syntroleum stockholder in connection with Syntroleum’s liquidation and dissolution would be the same as such stockholder’s aggregate tax basis of the Syntroleum common stock surrendered in exchange therefor, increased by any gain recognized in the exchange and decreased by the amount of cash and the fair market value of property (other than REG common stock) received; and

 

    the holding period of the REG common stock received by Syntroleum stockholders in connection with Syntroleum’s liquidation and dissolution would include the holding period of the Syntroleum common stock surrendered in the exchange, provided that the Syntroleum shares surrendered were held as a capital asset.

SYNTROLEUM STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN RESPECTIVE TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF SUCH TRANSACTIONS.

You are urged to read the discussion in the section entitled “Certain Material United States Federal Income Tax Consequences to Syntroleum Stockholders” beginning on page 116 of this proxy statement/prospectus and to consult your tax advisor as to the United States federal income tax consequences of the asset sale and the dissolution, as well as the effects of state, local and foreign tax laws. The section entitled “Certain Material United States Federal Income Tax Consequences to Syntroleum Stockholders” also contains a discussion of the tax consequences to Syntroleum and its stockholders in the event that the asset sale and intended subsequent liquidation and dissolution of Syntroleum pursuant to the plan of dissolution do not constitute a tax-free “reorganization” within the meaning of Section 368(a)(1)(C) of the Code due to a failure to satisfy the requirements thereof.

 

Q. Is the dissolution of Syntroleum, as contemplated in the plan of dissolution, conditional upon the completion of the asset sale to REG?

 

A. Yes. Syntroleum does not intend to liquidate and dissolve unless it first sells substantially all of its assets in the asset sale.

 

Q. What will happen if the asset sale proposal is approved and the plan of dissolution proposal is not approved?

 

A.

If Syntroleum stockholders approve the asset sale and do not approve the plan of dissolution, Syntroleum will still complete the asset sale to REG Synthetic, assuming the other closing conditions are met. In that case, Syntroleum will have transferred substantially all of its operating assets to REG Synthetic and will not have any assets to support ongoing operating activity. Instead of making a distribution to stockholders

 

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  pursuant to the plan of dissolution, Syntroleum would use its assets to pay off its liabilities and then use its remaining assets to pay ongoing operating expenses. Syntroleum does not intend to invest in another operating business following the closing of the asset sale.

 

Q. Am I entitled to appraisal rights or dissenters’ rights in connection with the asset sale or the plan of dissolution proposals?

 

A. No. As a Syntroleum stockholder, you will not be eligible for appraisal rights or dissenters’ rights in connection with the asset sale or plan of dissolution, even if you abstain from voting or vote against the asset sale or the plan of dissolution proposals.

 

Q. Will I still be able to sell my shares of Syntroleum common stock following the closing of the asset sale?

 

A. Yes. Although no assurance can be given that Syntroleum common stock will continue to be listed on the NASDAQ Capital Market or that there will be an active and liquid trading market for Syntroleum common stock, you will be able to sell your shares of Syntroleum common stock until Syntroleum files its certificate of dissolution. If the plan of dissolution proposal is approved by Syntroleum stockholders, Syntroleum’s board of directors will then decide when to file the certificate of dissolution with the Secretary of State of the State of Delaware. From and after the end of trading on the date Syntroleum files the certificate of dissolution with the Secretary of State of the State of Delaware, Syntroleum will close its stock transfer books and discontinue recording transfers of shares of Syntroleum common stock. Thereafter, certificates representing shares of Syntroleum common stock will not be assignable or transferable on Syntroleum’s books. Syntroleum intends to make a public announcement of the anticipated filing date of the certificate of dissolution at least three business days in advance of the filing.

 

Q. Am I being asked to vote on anything else?

 

A. Yes. Syntroleum’s board of directors is asking you to approve an amendment to Syntroleum’s certificate of incorporation to change Syntroleum’s name to Sooner Holdings, Inc. following the completion of the asset sale. Syntroleum’s board of directors is also asking you to authorize it to adjourn or postpone the special meeting to a date not later than [*] if the shares of Syntroleum common stock voting in favor of approval of the asset sale proposal, the plan of dissolution proposal and/or the name change proposal are insufficient to approve the asset sale, plan of dissolution or name change proposals, as applicable. Further, Syntroleum’s board of directors is asking you to approve, on a non-binding advisory basis, the compensation that certain executive officers of Syntroleum may receive in connection with the asset sale pursuant to existing agreements or arrangements with Syntroleum. Syntroleum’s board of directors recommends that you vote FOR the name change proposal, FOR the adjournment proposal and FOR the Syntroleum compensation proposal.

 

Q. Why is Syntroleum proposing to change its name?

 

A. Under the asset purchase agreement, Syntroleum is selling all of its intellectual property, including its trademarks, which includes the name “Syntroleum.” Under Delaware law, Syntroleum must seek stockholder approval in order to change Syntroleum’s name in its certificate of incorporation. If the asset sale proposal is approved by Syntroleum’s stockholders, but the name change proposal is not approved by Syntroleum’s stockholders, Syntroleum will be in breach of the asset purchase agreement and the asset sale may not be consummated.

 

Q. Why is Syntroleum seeking your vote on the adjournment proposal?

 

A.

Adjourning or postponing the special meeting to a later date will give Syntroleum additional time to solicit proxies to vote in favor of approval of the asset sale, the plan of dissolution or the name change proposals.

 

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  Consequently, Syntroleum is seeking your approval of the adjournment proposal to ensure that, if necessary, Syntroleum will have enough time to solicit the required votes for the asset sale, plan of dissolution and name change proposals.

 

Q. What vote of Syntroleum stockholders is required to approve the name change proposal, the adjournment proposal, and the Syntroleum compensation proposal?

 

A. The name change proposal requires the affirmative vote of holders of a majority of the outstanding shares of Syntroleum common stock. The adjournment proposal and the Syntroleum compensation proposal each require the affirmative vote of the holders of a majority of the outstanding shares of Syntroleum common stock, present, either in person or by proxy, and entitled to vote at the special meeting.

 

Q. When and where will the special meeting be held?

 

A. The special meeting will be held at the offices of Foley & Lardner LLP, 111 Huntington Avenue, Boston, Massachusetts 02199, on [*], at 10:00 a.m. Eastern Time.

 

Q. Who is entitled to notice of and to vote at the special meeting?

 

A. Only holders of record of Syntroleum common stock outstanding as of the close of business on [*], which is referred to as the record date, are entitled to notice of and vote at the special meeting. As of the close of business on the record date, there were [*] shares of Syntroleum common stock outstanding and entitled to vote at the special meeting.

 

Q. What do I need to do now in order to vote on the proposals being considered at the special meeting?

 

A. You should carefully read and consider the information contained in this proxy statement/prospectus and you may vote by proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed, postage-paid envelope, by submitting a proxy over the Internet or by telephone following the instructions on the enclosed proxy card. If you sign, date and mail your proxy card without identifying how you want to vote, your proxy will be voted FOR the asset sale proposal, FOR the plan of dissolution proposal, FOR the name change proposal, FOR the adjournment proposal and FOR the Syntroleum compensation proposal.

You may also vote by appearing at the special meeting and voting in person. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Whether or not you plan to attend the special meeting, you should submit your proxy card or voting instruction form as described in this proxy statement/prospectus.

 

Q. If my Syntroleum shares are held in “street name” by my broker, will the broker vote the shares on my behalf?

 

A. If your shares are held in a stock brokerage account or by a bank or other nominee, then you are considered the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by your broker, bank or other nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote and you are also invited to attend the special meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the special meeting, unless you request a proxy from your broker, bank or other nominee. Your broker, bank or other nominee has enclosed a voting instruction card for you to use in directing the broker, bank or other nominee regarding how to vote your shares.

Brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approval of non-routine matters, such as the approval of the

 

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asset sale proposal, the plan of dissolution proposal and the name change proposal and, as a result, absent specific instructions from the beneficial owner of such shares, brokers will not vote those shares. This is referred to as a “broker non-vote.” Broker non-votes will be considered as “present” for purposes of determining a quorum, but are not considered as shares present with respect to the proposals. Broker non-votes will have the effect of a vote AGAINST the asset sale, plan of dissolution and name change proposals and will have no effect on the adjournment proposal or the Syntroleum compensation proposal. Your broker will send you information to instruct it on how to vote on your behalf. If you do not receive a voting instruction card from your broker, please contact your broker promptly to obtain the voting instruction card. Your vote is important to the success of the proposals. Syntroleum encourages all of its stockholders whose shares are held in street name to provide their brokers with instructions on how to vote. See “Special Meeting of the Stockholders of Syntroleum—Abstentions; Broker Non-Votes” beginning on page 61 of this proxy statement/prospectus.

 

Q. What will happen if I abstain from voting or fail to vote?

 

A. Your abstention will have the same effect as a vote AGAINST the approval of the asset sale, the plan of dissolution and the name change proposals and will have no effect on the adjournment proposal or the Syntroleum compensation proposal. Failure to attend and vote at the special meeting or to submit your proxy using one of the available methods will have the same effect as a vote AGAINST the approval of the asset sale, the plan of dissolution and the name change proposals, will have no effect on the adjournment proposal or the Syntroleum compensation proposal, and will result in your shares not being considered as “present” for purposes of determining a quorum.

 

Q. Can I change my vote after I have delivered my proxy?

 

A. Yes. If you are a holder of record, you can change your vote at any time before your proxy is voted at the special meeting by:

 

    delivering a signed written notice of revocation to the Corporate Secretary of Syntroleum;

 

    signing and delivering a new, valid proxy bearing a later date; or

 

    submitting another proxy by telephone or the Internet (your latest telephone or Internet voting instructions will be followed); or attending the special meeting and voting in person, although your attendance alone will not revoke your proxy.

If your shares are held in “street name,” you must contact your broker, bank or other nominee to change your vote.

 

Q. Who will count the votes cast at the special meeting?

 

A. Broadridge Financial Solutions, Inc. (“Broadridge”) has been engaged as Syntroleum’s independent agent to tabulate stockholder votes. If you are a stockholder of record, and you choose to vote over the Internet or by phone, Broadridge will access and tabulate your vote electronically, and if you have requested, and received proxy materials via mail and choose to sign and mail your proxy card, your executed proxy card is returned directly to Broadridge for tabulation. If you hold your shares through a broker, your broker (or its agent for tabulating votes of shares held in “street name”) returns one proxy card to Broadridge on behalf of all its clients.

 

Q. Who is paying for this proxy solicitation?

 

A.

Syntroleum will pay for the entire cost of soliciting proxies. In addition to mailed proxy materials, directors, officers and employees of Syntroleum and REG may also solicit proxies in person, by phone or by other means of communication. Directors, officers and employees of Syntroleum and REG will not be paid any additional compensation for soliciting proxies. Syntroleum has also hired [*] to assist in the proxy

 

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  solicitation process. [*] will be paid a fee of $[*] plus disbursements. Syntroleum may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

Q. What is the quorum requirement?

 

A. A quorum of Syntroleum stockholders is necessary to hold a valid meeting. A quorum will be present if the holders of a majority in voting power of the shares of Syntroleum common stock issued and outstanding and entitled to vote are present or represented by proxy at the special meeting. On the record date, there were [*] shares of Syntroleum common stock outstanding and entitled to vote. Accordingly, [*] shares of Syntroleum common stock must be represented by stockholders present at the special meeting or by proxy to have a quorum.

 

Q. What should I do if I receive more than one set of voting materials for the special meeting?

 

A. You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card and voting instruction form. For each and every proxy card and voting instruction form that you receive, please vote as soon as possible using one of the following methods:

 

    by telephone by calling the toll free number as instructed on the enclosed proxy card;

 

    by using the Internet as instructed on the enclosed proxy card; or

 

    by mail by completing, signing, dating and returning the enclosed proxy card in the postage-prepaid envelope enclosed for that purpose.

 

Q. What should I do if only one set of voting materials for the special meeting are sent and there are multiple Syntroleum stockholders in my household?

 

A. Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this proxy statement/prospectus may have been sent to multiple stockholders in your household. Syntroleum will promptly deliver a separate copy of this document to you if you contact Syntroleum at 5416 S. Yale Avenue, Suite 400, Tulsa, Oklahoma 74135, Attn: Investor Relations.

 

Q. How can I find out the results of the voting at the special meeting?

 

A. Voting results will be announced by the filing of a Current Report on Form 8-K within four business days after the special meeting. If final voting results are unavailable at that time, Syntroleum will file an amended Current Report on Form 8-K within four business days of the day the final results are available.

 

Q. Who can help answer my questions?

 

A. If you have any questions about the asset sale, the plan of dissolution, the name change or the adjournment proposals, how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, you should contact: Syntroleum or its proxy solicitor [*].

 

Syntroleum Corporation

5416 S. Yale Avenue, Suite 400

Tulsa, Oklahoma 74135

(918) 592-7900

Attention: Investor Relations

 

[*]

[*]

[*]

 

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SUMMARY

The following is a summary that highlights information contained in this proxy statement/prospectus. This summary may not contain all of the information that may be important to you. For a more complete description of the asset purchase agreement, the asset sale contemplated by the asset purchase agreement, the plan of dissolution and the name change proposal, Syntroleum and REG encourage you to read carefully this entire proxy statement/prospectus, including the attached annexes. In addition, Syntroleum and REG encourage you to read the information incorporated by reference into this proxy statement/prospectus, which includes important business and financial information about REG that has been filed with the SEC. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page 150 of this proxy statement/prospectus.

The Parties to the Asset Purchase Agreement

Renewable Energy Group, Inc.

416 South Bell Avenue

Ames, Iowa 50010

(515) 239-8000

REG is the largest producer of biodiesel in the United States and has been a leader in the biodiesel industry since 1996. REG operates eight active biodiesel production facilities with aggregate nameplate production capacity of 257 million gallons per year, or mmgy. REG produces biodiesel primarily from lower cost feedstocks, such as inedible corn oil, used cooking oil and inedible animal fat. A small portion of REG’s biodiesel is produced using virgin vegetable oils, such as soybean oil. REG owns the following biodiesel production facilities with the specified nameplate capacities: a 12 mmgy facility in Ralston, Iowa; a 35 mmgy facility near Houston, Texas; a 45 mmgy facility in Danville, Illinois; a 30 mmgy facility in Newton, Iowa; a 60 mmgy facility in Seneca, Illinois; a 30 mmgy biodiesel production facility near Albert Lea, Minnesota; a 15 mmgy facility in New Boston, Texas; and a 30 mmgy facility in Mason City, Iowa which was idle at the time REG purchased it in July 2013. REG completed repairs to the New Boston facility and started producing biodiesel at this facility in June 2013. REG completed repairs to the Mason City facility and started producing biodiesel at the facility in October 2013.

For the three and nine months ended September 30, 2013, REG sold 78 million and 186 million gallons, respectively, of biodiesel, including 17 million and 30 million gallons, respectively, that it purchased from third parties and resold. During 2012, REG sold a total of 188 million gallons of biodiesel, including 25 million gallons it purchased from third parties and resold.

REG owns four partially completed biodiesel production facilities. In 2007, REG began construction of two 60 mmgy nameplate production capacity facilities, one near New Orleans, Louisiana and the other in Emporia, Kansas. In February 2008, REG halted construction of these facilities as a result of conditions in the biodiesel industry and its inability to obtain financing necessary to complete construction of the facilities. Construction of the New Orleans facility is approximately 45% complete and construction of the Emporia facility is approximately 20% complete. Further, during the third quarter of 2010, REG acquired a 15 mmgy nameplate biodiesel production capacity facility in Clovis, New Mexico which is approximately 50% complete. Currently, the Clovis facility is being operated as a terminal. In November 2012, REG completed its acquisition of Bulldog Biodiesel, LLC, a 15 mmgy facility near Atlanta, Georgia, that was idled at the time REG purchased it and will remain so until certain repairs or upgrades are made. REG plans to complete construction of these facilities as financing becomes available, subject to market conditions.

 

 

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REG Synthetic Fuels, LLC

c/o Renewable Energy Group, Inc.

416 South Bell Avenue

Ames, Iowa 50010

(515) 239-8000

REG Synthetic is a wholly-owned subsidiary of REG. REG Synthetic has not engaged in any activity and has been organized for the purpose of acquiring substantially all of Syntroleum’s assets pursuant to the asset sale.

Syntroleum Corporation

5416 S. Yale Avenue, Suite 400

Tulsa, Oklahoma 74135

(918)592-7900

Syntroleum is engaged in the commercialization of its proprietary solutions to produce synthetic liquid hydrocarbons. Syntroleum owns the Syntroleum® process for Fischer-Tropsch (“FT”) conversion of synthesis gas into liquid hydrocarbons, the Synfining® process for upgrading FT liquid hydrocarbons into refined petroleum products, the Bio-Synfining® technology for converting renewable feedstocks into drop-in fuels and a 50% interest in Dynamic Fuels LLC, which owns the 75mm gallon per year Geismar, Louisiana renewable fuels plant using Bio-Synfining® technology.

The Asset Sale (see page 63)

REG and Syntroleum agreed to the acquisition by REG Synthetic of substantially all of the assets of Syntroleum under the terms of the asset purchase agreement that is described in this proxy statement/prospectus. Pursuant to the asset purchase agreement, REG Synthetic will acquire substantially all of the assets, and assume substantially all of the liabilities, of Syntroleum. However, REG Synthetic will not assume liabilities arising or resulting from the following: (i) events that occur after the asset sale, including in connection with Syntroleum’s liquidation and dissolution or any distribution to Syntroleum stockholders; (ii) contracts excluded in the asset purchase agreement, including but not limited to, certain warrants and warrant agreements, stock option agreements, severance agreements, benefit plans, and insurance and indemnity agreements; (iii) the asset purchase agreement; (iv) liabilities related to employees, directors or consultants of Syntroleum; (v) obligations to legal, accounting, financial or other advisors in connection with the transactions contemplated by the asset purchase agreement; (vi) certain tax liabilities; and (vii) liabilities with respect to the subsidiaries of Syntroleum that are not being acquired pursuant to the asset purchase agreement, which subsidiaries include Syntroleum International and Scout.

Syntroleum will remain in existence after the closing of the asset sale and its shares will continue to be traded on the NASDAQ Capital Market (to the extent that Syntroleum continues to meet the continued listing standards of the NASDAQ Capital Market) until it files a certificate of dissolution with the Secretary of State of the State of Delaware. Throughout this proxy statement/prospectus, REG’s acquisition of substantially all of the assets and assumption of substantially all of the liabilities of Syntroleum pursuant to the asset purchase agreement is referred to as the asset sale. The asset purchase agreement is attached as Annex A to this proxy statement/prospectus. You are encouraged to read carefully the asset purchase agreement in its entirety because it is the legal document that governs the asset sale.

As consideration for the asset sale, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000 minus a number of shares of REG common stock equal to (i) the difference between $3,200,000 and the aggregate cash transferred to REG Synthetic at closing, to the extent that such difference results in a positive number, divided by (ii) the average of the last reported sale price per share of REG Common Stock on the NASDAQ Global Select Market for the 20 consecutive trading days ending on the third day prior to the date of the closing; provided, that if the average last reported sale price per share of REG’s common stock for the 20

 

 

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consecutive trading days ending on the third day prior to the date of the closing is equal to or greater than $12.91, then the number of shares of REG common stock to be paid to Syntroleum as consideration for the asset sale will be equal to (A) $49,000,000, divided by (B) the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing. The closing stock price per share of REG common stock on the NASDAQ Global Select Market on January 8, 2014 was $10.90 per share.

For a full description of the consideration to be paid in connection with the asset sale, see “The Asset Purchase Agreement—Consideration to be Received by Syntroleum” beginning on page 94 of this proxy statement/prospectus.

Plan of Dissolution (see page 105)

If the asset sale is completed and the plan of dissolution is approved by Syntroleum stockholders, following the asset sale, Syntroleum intends to file a certificate of dissolution with the Secretary of State of the State of Delaware, which will commence a formal process under which Syntroleum will give notice of its intention to dissolve, allow its creditors to come forward to make claims for amounts owed to them, reserve amounts for payment to its creditors (including amounts required to cover unknown or contingent liabilities), wind-up its affairs, and distribute its remaining assets to its stockholders. Syntroleum intends to seek the approval of the Delaware Court of Chancery in connection with establishing the proper form and amount of reserves to be held by Syntroleum in connection with the liquidation and dissolution. If Syntroleum’s board of directors determines that the dissolution process is expected to take longer than twelve months, the board of directors will have the ability to establish one or more liquidating trusts for the benefit of Syntroleum’s stockholders, subject to the claims of Syntroleum’s creditors or directly for the benefit of certain creditors, and may transfer Syntroleum’s assets to such trust or trusts within such time frame in order to comply with the requirements of Section 368(a)(1)(C) of the Code so that the asset sale and liquidation and dissolution can comply with the requirements for tax-free “reorganization” status.

Risk Factors (see page 24)

In evaluating the asset sale and plan of dissolution proposals, you should carefully read this proxy statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors” beginning on page 24 of this proxy statement/prospectus.

Syntroleum Stockholders’ Meeting; Vote Required (see page 60)

The special meeting of Syntroleum stockholders will be held on [*] at 10:00 a.m. Eastern Time, at the offices of Foley & Lardner LLP, 111 Huntington Avenue, Boston, Massachusetts 02199. At the special meeting, Syntroleum stockholders will be asked to approve the asset sale proposal, to approve the plan of dissolution proposal, to approve the name change proposal, to approve the adjournment proposal, and to approve the Syntroleum compensation proposal.

Only holders of record of Syntroleum common stock at the close of business on [*], the record date, are entitled to notice of and to vote at the special meeting.

Approval of each of the asset sale proposal, the plan of dissolution proposal and the name change proposal requires the affirmative vote of a majority of the holders of the shares of Syntroleum common stock outstanding on the record date.

Approval of each of the adjournment proposal and Syntroleum compensation proposal requires the affirmative vote of the holders of a majority of the shares of Syntroleum common stock, present, either in person or by proxy, and entitled to vote at the special meeting.

 

 

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Recommendation of Syntroleum’s Board of Directors (see page 70)

Syntroleum’s board of directors has determined that the proposals are fair to and in the best interests of Syntroleum and its stockholders, and recommends that you vote FOR the asset sale proposal, FOR the plan of dissolution proposal, FOR the name change proposal, FOR the adjournment proposal and FOR the Syntroleum compensation proposal.

In considering the recommendation of the Syntroleum board of directors with respect to the asset sale, Syntroleum stockholders should be aware that certain executive officers and directors of Syntroleum have interests in the asset sale that may be different from, or in addition to, the interests of Syntroleum stockholders generally. These interests include the fact that (i) as a condition to the closing of the asset sale, certain officers of Syntroleum, including Edward G. Roth, Syntroleum’s Chief Executive Officer, intend to accept employment with REG Synthetic, (ii) in connection with their termination as employees of Syntroleum upon the closing of the asset sale, certain officers of Syntroleum will receive severance benefits pursuant to historical agreements with Syntroleum, including payments of $900,000 to Mr. Roth and $48,125 to Karen L. Power, Syntroleum’s Principal Financial Officer, and (iii) Syntroleum’s directors and executive officers will retain the right to continued indemnification and insurance coverage for acts or omissions occurring prior to the asset sale.

Syntroleum’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation.

Opinion of Syntroleum’s Financial Advisor (see page 73 and Annex D)

In connection with the asset sale, Syntroleum’s board of directors received a written opinion, dated December 16, 2013, of Syntroleum’s financial advisor, Piper Jaffray & Co. (“Piper Jaffray”), as to the fairness, from a financial point of view and as of the date of the opinion, to Syntroleum of the aggregate purchase price to be received by Syntroleum in the asset sale. The full text of Piper Jaffray’s written opinion, dated December 16, 2013, is attached to this proxy statement/prospectus as Annex D. The opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. Piper Jaffray’s opinion was provided to the Syntroleum board of directors in connection with its evaluation of the aggregate purchase price to be received by Syntroleum in the asset sale from a financial point of view to Syntroleum. Piper Jaffray’s opinion does not address any other aspect of the asset sale or the liquidation and dissolution of Syntroleum. Neither Piper Jaffray’s opinion nor the summary of its opinion and the related analysis set forth in this proxy statement/prospectus is intended to be, and they do not constitute, advice or a recommendation to any Syntroleum stockholder as to how such stockholder should vote or act with respect to any matters relating to the asset sale, the liquidation and dissolution of Syntroleum, or otherwise.

Ownership of REG Following the Asset Sale

As consideration for the asset sale, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000 minus a number of shares of REG common stock equal to (i) the difference between $3,200,000 and the aggregate cash transferred to REG Synthetic at closing, to the extent that such difference results in a positive number, divided by (ii) the average of the last reported sale price per share of REG Common Stock on the NASDAQ Global Select Market for the 20 consecutive trading days ending on the third day prior to the date of the closing; provided, that if the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing is equal to or greater than $12.91, then the number of shares of REG common stock to be paid to Syntroleum as consideration for the asset sale will be equal to (A) $49,000,000, divided by (B) the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing. Assuming no adjustments, immediately following the closing of the asset sale, Syntroleum would own approximately [*]% of the outstanding shares of REG common stock (based on the number of REG shares outstanding as of [*] on a fully diluted basis).

 

 

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Share Ownership of Syntroleum Directors and Executive Officers

As of the record date, the directors and executive officers of Syntroleum and their affiliates owned and were entitled to vote [*] shares of Syntroleum common stock, which represents approximately [*]% of the Syntroleum common stock outstanding on that date. Each of the directors and executive officers of Syntroleum and their affiliates intend to vote FOR each of the proposals described herein.

Conditions to Obligations to Complete the Asset Sale (see page 101)

A number of conditions must be satisfied before the asset sale can be completed. These include, among others:

 

    the asset sale being approved by Syntroleum’s stockholders;

 

    the receipt of any required regulatory approvals;

 

    the absence of any law or order that makes the consummation of the asset sale illegal;

 

    the absence of any instituted or pending action or proceeding by any governmental entity challenging or seeking to restrain or prohibit the consummation of the asset sale or any of the transactions contemplated by the asset purchase agreement;

 

    the effectiveness of the registration statement of which this proxy statement/prospectus forms a part;

 

    the authorization for listing on the NASDAQ Global Select Market of the shares of REG common stock to be issued in the asset sale;

 

    the delivery of assignment and transfer documents;

 

    the continued accuracy, in all material respects, of the representations and warranties of the parties; and

 

    the performance or compliance in all material respects of each party with all agreements and covenants contained in the asset purchase agreement and required to be performed or complied with at or before the closing.

The obligations of REG and REG Synthetic to complete the asset sale also include:

 

    receipt of all consents, approvals, authorizations, qualification and orders of all governmental authorities and third parties;

 

    the absence of material adverse changes with respect to Syntroleum since December 17, 2013, the date of the asset purchase agreement;

 

    the absence of an actions or claims that would likely have a material adverse effect on the benefits expected to be realized by REG Synthetic from the asset sale;

 

    the delivery of an employment agreement and acceptance of employment by Edward G. Roth with REG Synthetic; and

 

    the acceptance of employment with REG Synthetic by not less than six engineers employed by Syntroleum as of the date of the asset purchase agreement, excluding those engineers assigned to Syntroleum’s “Sasol project”.

Each of REG, REG Synthetic and Syntroleum may waive the conditions to the performance of its respective obligations under the asset purchase agreement and complete the asset sale even though one or more of these conditions have not been met. Neither REG nor Syntroleum can give any assurance that all of the conditions to the asset sale will be either satisfied or waived or that the asset sale will occur.

 

 

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Regulatory Matters (see page 91)

Neither REG nor Syntroleum is aware of any regulatory or governmental actions or approvals required to complete the asset sale. Syntroleum is not aware of any regulatory or governmental requirements that must be complied with or regulatory or governmental approvals that must be obtained in connection with the plan of dissolution, although Syntroleum intends to seek the approval of the Delaware Court of Chancery in connection with establishing the proper form and amount of reserves to be held by Syntroleum.

Syntroleum is Prohibited From Soliciting Other Offers (see page 98)

The asset purchase agreement contains detailed provisions that prohibit Syntroleum, its subsidiaries and their respective officers, directors and representatives from taking any action to solicit or engage in discussions or negotiations with any person or group with respect to an acquisition proposal, as defined in the asset purchase agreement, any proposal for the issuance by Syntroleum of over 20% of its equity securities, or any proposal or offer to acquire in any manner, directly or indirectly, over 20% of the equity securities or a substantial portion of the consolidated total assets of Syntroleum, in each case other than the transactions contemplated by the asset purchase agreement.

Syntroleum may, however, enter into discussions in response to an unsolicited written bona fide acquisition proposal by a third party that Syntroleum’s board of directors reasonably determines in good faith constitutes, or would reasonably be expected to result in, a superior proposal, as defined in the asset purchase agreement. However, Syntroleum is prohibited from entering into any agreement with respect to such superior proposal until the asset purchase agreement is terminated following the failure to obtain the required vote of Syntroleum stockholders at the special meeting. Moreover, Syntroleum is required by the asset purchase agreement to hold such a vote regardless of the existence of a superior proposal or any change in recommendation of the asset sale proposal by Syntroleum’s board of directors.

Termination of the Asset Purchase Agreement and Termination Fee (see page 102)

The asset purchase agreement specifies circumstances under which either REG or Syntroleum may terminate the agreement including, among others, the following:

 

    mutual written consent of REG and Syntroleum;

 

    the asset sale is not consummated by the date 150 days following the date on which the registration statement of which this proxy statement/prospectus forms a part is first filed with the SEC;

 

    a governmental entity issues a final order, decree or ruling or takes any other final action permanently restraining, enjoining or otherwise prohibiting the asset sale;

 

    Syntroleum’s stockholders do not approve the asset sale proposal at the special meeting; or

 

    the other party breaches its representations and warranties under the asset purchase agreement or fails to perform its obligations under the asset purchase agreement, subject in each case to a thirty-day cure period.

Under circumstances specified in the asset purchase agreement, REG may terminate the asset purchase agreement if Syntroleum has willfully breached its obligation not to solicit another acquisition proposal or if Syntroleum fails to recommend approval of the asset sale to Syntroleum stockholders.

Syntroleum has agreed to pay to REG a termination fee of $5 million if:

 

    the asset purchase agreement is terminated by REG because Syntroleum has willfully breached its obligation not to solicit another acquisition proposal or Syntroleum fails to recommend approval of the asset sale to Syntroleum stockholders; or

 

 

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    if (i) the asset purchase agreement is terminated because (A) the asset sale was not consummated by the date 150 days following the date on which the registration statement on Form S-4 is first filed with the SEC, (B) Syntroleum’s stockholders do not approve the asset sale, or (C) Syntroleum breaches its representations and warranties under the asset purchase agreement or fails to perform its obligations under the asset purchase agreement, (ii) a third-party acquisition proposal is publicly announced before the stockholder vote on the asset sale and (iii) Syntroleum enters into an agreement for or consummates an acquisition proposal within 12 months of such termination.

Certain Material United States Federal Income Tax Consequences to Syntroleum Stockholders (see page 116)

You are urged to read the discussion in the section entitled “Certain Material United States Federal Income Tax Consequences to Syntroleum Stockholders” beginning on page 116 of this proxy statement/prospectus and to consult your tax advisor as to the United States federal income tax consequences of the asset sale and the dissolution, as well as the effects of state, local and foreign tax laws.

Accounting Treatment (see page 91)

In accordance with accounting principles generally accepted in the United States, or GAAP, REG will account for the asset sale using the purchase method of accounting for business combinations.

 

 

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SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF REG

The following table sets forth REG’s selected consolidated historical financial and operating data, which should be read in conjunction with REG’s historical consolidated financial statements and notes thereto incorporated by reference in this proxy statement/prospectus. For a complete list of the documents incorporated by reference into this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 150 of this proxy statement/prospectus. The selected consolidated historical financial and operating data as of September 30, 2013, and for the nine-month periods ended September 30, 2013 and 2012, have been derived from REG’s historical unaudited interim consolidated financial statements and notes thereto incorporated by reference in this proxy statement/prospectus. The selected consolidated historical financial data as of September 30, 2012, has been derived from REG’s historical unaudited consolidated financial statements and notes thereto not included or incorporated by reference in this proxy statement/prospectus. In the opinion of REG’s management, these historical unaudited interim consolidated financial statements include all adjustments necessary for a fair presentation. The selected consolidated historical financial and operating data as of December 31, 2012 and 2011, and for each of the three years in the period ended December 31, 2012, have been derived from REG’s historical audited consolidated financial statements and notes thereto incorporated by reference in this proxy statement/prospectus. The selected consolidated historical financial and operating data as of December 31, 2010, 2009 and 2008, and for the years ended December 31, 2009 and 2008, have been derived from REG’s historical audited consolidated financial statements and notes thereto not included or incorporated by reference in this proxy statement/prospectus.

 

 

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CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

    Year Ended December 31,     Nine Months Ended
September 30,
 
    2012     2011(1)     2010 (2)     2009     2008 (3)     2013     2012  

Statement of Operations Data:

             

Revenues:

             

Biodiesel sales

  $ 1,006,471      $ 757,987      $ 207,902      $ 109,027      $ 69,509      $ 859,058      $ 774,820   

Biodiesel government incentives

    8,326        65,822        7,240        19,465        6,564        248,385        8,070   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Biodiesel

    1,014,797        823,809        215,142        128,492        76,073        1,107,443        782,890   

Services

    237        222        1,313        3,009        9,379        104        196   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,015,034        824,031        216,455        131,501        85,452        1,107,547        783,086   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of goods sold:

             

Biodiesel

    956,448        696,622        194,016        127,373        78,736        912,673        732,113   

Services

    263        198        807        1,177        4,470        149        199   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs of goods sold

        956,711            696,820            194,823            128,550            83,206            912,822            732,312   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    58,323        127,211        21,632        2,951        2,246        194,725        50,774   

Total operating expenses

    42,422        34,479        29,681        24,144        24,208        33,556        33,878   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    15,901        92,732        (8,049     (21,193     (21,962     161,169        16,896   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    7,812        (1,323     (16,102     (1,364     (2,318     (1,481     9,183   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit (expense) and income (loss) from equity investments

    23,713        91,409        (24,151     (22,557     (24,280     159,688        26,079   

Income tax benefit (expense)

    (1,454     (2,982     3,252        (45,212     9,414        (3,452     (3,669

Income (loss) from equity investments

    —          442        (689     (1,089     (1,013     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    22,259        88,869        (21,588     (68,858     (15,879     156,236        22,410   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net (income) loss attributable to noncontrolling interests

    —          —          —          7,953        2,788        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

    22,259        88,869        (21,588     (60,905     (13,091     156,236        22,410   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effects of recapitalization

    39,107        —          8,521        —          —          —          39,107   

Less: accretion of preferred stock to redemption value

    (1,808     (25,343     (27,239     (44,181     (26,692     —          (1,808

Less: participating preferred dividends

    (8,952     (4,186     —          —          —          (18,010     (8,952

Less: participating share-based awards

    (3,145     (3,864     —          —          —          (2,273     (3,145

Less: change in undistributed dividends allocated to preferred stockholders

    (823     (12,723     (10,027     (14,036     ( 11,145     (147     (1,685

Less: distributed dividends to preferred stockholders

    (3,156     —          —          —          —          (1,848     (1,470
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the company’s common stockholders

  $ 43,482      $ 42,753      $ (50,333   $ (119,122   $ ( 50,928   $ 133,958      $ 44,457   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders:

             

Basic

  $ 1.53      $ 3.14      $ (4.28     (15.35     (7.67   $ 4.20      $ 1.60   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.27      $ 3.14      $ (4.28     (15.35     (7.67   $ 4.20      $ 0.28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:

             

Basic

    28,381,676        13,607,840        11,770,848        7,762,891        6,637,422        31,918,951        27,729,676   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    34,340,466        13,607,840        11,770,848        7,762,891        6,637,422        31,924,197        33,676,699   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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    As of December 31,     As of
September 30,
 
    2012     2011     2010     2009     2008     2013     2012  

Consolidated Balance Sheet Data:

             

Total assets

  $ 495,784      $ 484,447      $ 369,643      $ 200,558      $ 251,984      $ 685,794      $ 538,318   

Long-term obligations

    31,806        73,079        61,024        25,749        25,161        13,172        46,144   

Redeemable preferred stock

    83,043        147,779        122,436        149,122        104,607        14,564        83,165   

 

(1) Reflects the acquisition of SoyMor as of July 12, 2011.
(2) Reflects the deconsolidation of Blackhawk as of January 1, 2010, the acquisition of Blackhawk as of February 26, 2010, acquisition of CIE as of March 8, 2010, acquisition and consolidation of Seneca Landlord as of April 8, 2010, acquisition of Tellurian and ABDF as of July 16, 2010, and the acquisition of Clovis as of September 21, 2010.
(3) Reflects the consolidation of Blackhawk as of May 9, 2008 and the acquisition of USBG as of June 26, 2008.

 

 

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SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF SYNTROLEUM

The following selected financial data of Syntroleum as of and for each of the five fiscal years in the period ended December 31, 2012 have been derived from Syntroleum’s audited historical financial statements. The following selected financial data of Syntroleum as of and for the nine months ended September 30, 2012 and 2013 have been derived from Syntroleum’s unaudited historical financial statements. The data below is only a summary and should be read in conjunction with Syntroleum’s financial statements and accompanying notes, as well as management’s discussion and analysis of financial condition and results of operations, all of which can be found in publicly available documents, and are included in this proxy statement/prospectus. All amounts retroactively reflect a 10-for-1 reverse stock split effected on Syntroleum common stock in April 2013.

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

    Year Ended December 31,     Nine Months
Ended
September 30,
 
    2012     2011     2010     2009     2008     2013     2012  

REVENUES:

             

Technology

  $ 9,600      $ 600      $ 3,600      $ 22,503      $ —        $ 100      $ 9,450   

Technical services

    1,909        1,719        2,805        1,940        576        1,111        1,470   

Technical services from Dynamic Fuels, LLC

    5,228        974        2,005        2,767        2,592        469        4,803   

Royalties from Dynamic Fuels, LLC plant production

    789        921        —          —          —          —          679   

Other revenues

    —          —          —          222        1,722        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    17,526        4,214        8,410        27,432        4,890        1,680        16,402   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COST AND EXPENSES:

             

Engineering

    2,571        2,236        2,871        3,416        3,803        1,720        1,900   

Depreciation and amortization

    186        200        217        339        620        131        143   

General, administrative and other

    5,552        4,827        7,574        11,208        8,848        6,040        4,345   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

    9,217        (3,049     (2,252     12,469        (8,381     (6,211     10,014   

INTEREST INCOME

    22        16        31        96        542        7        18   

EQUITY IN EARNINGS (LOSS) OF DYNAMIC FUELS, LLC

    (10,012     (13,880     (5,628     (4,158     (424     1,957        (5,737

OTHER INCOME, NET

    6        8        64        70        25        7        5   

FOREIGN CURRENCY EXCHANGE

    (296     (17     (1,848     (3,036     2,790        1,589        (304
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

    (1,063     (16,922     (9,633     5,441        (5,448     (2,651     3,996   

INCOME TAXES

    —          —          —          (281     —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

    (1,063     (16,922     (9,633     5,160        (5,448     (2,651     3,996   

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

    (38     (27     97        (122     1,310        6,391        (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

  $ (1,101   $ (16,949   $ (9,536   $ 5,038      $ (4,138   $ 3,740      $ 3,968   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BASIC AND DILUTED NET LOSS PER SHARE:

             

Income (loss) from continuing operations

  $ (0.11   $ (1.89   $ (1.24   $ 0.73      $ (0.87   $ (0.26   $ 0.41   

Income (loss) from discontinued operations

    0.00        0.00        0.01        (0.01     0.21        0.64        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (0.11   $ (1.89   $ (1.23   $ 0.72      $ (0.66   $ 0.38      $ 0.41   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

             

Basic

    9,835        8,977        7,761        7,036        6,273        9,928        9,838   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    9,912        8,977        7,761        7,302        6,273        9,928        9,949   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

    As of December 31,     As of September 30,  
    2012     2011     2010     2009     2008     2013     2012  

ASSETS

  

         

CURRENT ASSETS:

             

Cash and cash equivalents

  $ 15,909      $ 22,601      $ 12,513      $ 25,012      $ 10,101      $ 16,544      $ 17,579   

Restricted cash

    725        1,189        484        449          —          1,054   

Accounts receivable

    134        125        556        3,165        517        88        211   

Taxes receivable

    —          —          —          —          —          697        —     

Accounts receivable from Dynamic Fuels, LLC

    252        —          729        150        —          6        237   

Other current assets

    237        277        361        378        272        71        39   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    17,257        24,192        14,643        29,154        10,890        17,406        19,120   

ACCOUNTS RECEIVABLE FROM DYNAMIC FUELS, LLC

    —          2,624        —          —          —          —          —     

PROPERTY AND EQUIPMENT—at cost, net

    58        86        97        156        187        84        60   

INVESTMENT IN AND LOANS TO DYNAMIC FUELS, LLC

    38,407        38,643        43,523        26,059        26,059        40,365        42,682   

OTHER ASSETS, net

    1,023        1,106        1,133        1,702        1,072        1,069        1,031   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 56,745      $ 66,651      $ 59,396      $ 58,861      $ 38,838      $ 58,924      $ 62,893   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

       

CURRENT LIABILITIES:

             

Account payable

  $ 312      $ 220      $ 1,090      $ 361      $ 662      $ 703      $ 361   

Accrued employee costs

    71        288        119        339        858        593        744   

Deposits

    725        1,189        484        449        —          —          1,054   

Income tax payable

    —          —          —          281        —          —          —     

Current liabilities of discontinued operations

    —          —          —          417        1,661        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    1,108        1,697        1,693        1,847        3,181        1,296        2,159   

NONCURRENT LIABILITIES OF DISCONTINUED OPERATIONS

    603        603        603        603        —          —          603   

DEFERRED REVENUE

    15,612        24,366        24,300        25,668        22,613        14,023        15,671   

COMMITMENTS AND CONTINGENCIES

    —          —          —          —          —          —          —     

STOCKHOLDERS’ EQUITY:

             

Preferred Stock ($0.01 par value)

    —          —          —          —          —          —          —     

Common Stock ($0.01 par value)

    98        98        82        76        64        99        98   

Additional paid-in capital

    399,788        399,250        375,132        363,545        350,896        400,230        399,757   

Accumulated deficit

    (360,464     (359,363     (342,414     (332,878     (337,916     (356,724     (355,395
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    39,422        39,985        32,800        30,743        13,044        43,605        44,460   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 56,745      $ 66,651      $ 59,396      $ 58,861      $ 38,838      $ 58,924      $ 62,893   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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COMPARATIVE PER SHARE MARKET DATA

REG common stock trades on the NASDAQ Global Select Market under the symbol “REGI.” Syntroleum common stock trades on the NASDAQ Capital Market under the symbol “SYNM.”

The following table sets forth the closing prices for REG common stock and Syntroleum common stock as reported on their respective NASDAQ markets on December 17, 2013, the last trading day before REG and Syntroleum announced the asset sale, and [*], the last trading day before the date of this proxy statement/prospectus.

 

     REG Common
Stock
    Syntroleum Common Stock  

December 17, 2013

   $ 10.56      $ 2.46   

[*]

     $[*]        $[*]   

The above table shows only historical comparisons. These comparisons may not provide meaningful information to Syntroleum stockholders in determining whether to approve the asset sale proposal. Syntroleum stockholders are urged to obtain current market quotations for REG and Syntroleum common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference into this proxy statement/prospectus, when considering whether to approve the asset sale proposal. See “Where You Can Find More Information” beginning on page 150 of this proxy statement/prospectus.

Market Information

The following table sets forth the high and low sales prices of REG common stock on the NASDAQ Global Select Market for each quarter during 2014 to date, 2013 and 2012. Prior to January 19, 2012, there was no public market for REG common stock.

 

     High      Low  

2014

     

First Quarter (through January 8, 2014)

   $ 12.11       $ 10.83   

2013

     

Fourth Quarter

   $ 15.77       $ 10.26   

Third Quarter

   $ 16.50       $ 12.77   

Second Quarter

   $ 14.80       $ 7.69   

First Quarter

   $ 8.20       $ 5.90   

2012

     

Fourth Quarter

   $ 7.50       $ 4.28   

Third Quarter

   $ 9.00       $ 4.62   

Second Quarter

   $ 10.58       $ 6.11   

First Quarter (beginning January 19, 2012)

   $ 10.65       $ 8.56   

 

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The following table sets forth the high and low sales prices of Syntroleum common stock on the NASDAQ Capital Market for each quarter during 2014 to date, 2013, 2012 and 2011 (after giving effect to a 10-for-1 reverse stock split effected in April 2013).

 

     High      Low  

2014

     

First Quarter (through January 8, 2014)

   $ 3.59       $ 3.33   

2013

     

Fourth Quarter

   $ 4.98       $ 2.46   

Third Quarter

   $ 7.55       $ 4.38   

Second Quarter

   $ 7.20       $ 3.52   

First Quarter

   $ 5.30       $ 3.70   

2012

     

Fourth Quarter

   $ 7.90       $ 3.40   

Third Quarter

   $ 8.50       $ 6.10   

Second Quarter

   $ 10.20       $ 6.00   

First Quarter

   $ 13.60       $ 9.70   

2011

     

Fourth Quarter

   $ 12.20       $ 8.00   

Third Quarter

   $ 14.60       $ 8.60   

Second Quarter

   $ 22.40       $ 14.70   

First Quarter

   $ 23.50       $ 15.10   

Record Holders

As of the record date, there were approximately [*] holders of record of REG common stock and [*] holders of record of Syntroleum common stock.

Dividends

REG has never paid, and does not intend to pay in the future, a cash dividend on its common stock. Holders of REG’s Series B preferred stock are entitled to receive cumulative dividends semi-annually in arrears on June 30 and December 30 of each year at an annual rate of $1.125 per share. REG may, at its option, defer a regularly scheduled dividend payment on the Series B preferred stock and instead pay accumulated and unpaid dividends on the following dividend payment date, however, REG may only defer two such dividend payments and may not defer consecutive dividend payments. REG may pay any dividend in cash, by delivering shares of REG common stock, or through any combination of cash and shares of common stock. Unless all accumulated and unpaid dividends on the Series B preferred stock are paid in full, REG may not pay any dividends on other shares of its capital stock. As of September 30, 2013, REG had 525,617 shares of Series B preferred stock outstanding. In addition, REG has entered into agreements that contractually restrict certain of its subsidiaries from paying dividends, making distributions or making loans to REG or to any other subsidiaries.

Syntroleum has not paid cash dividends since its inception. Any future determination as to dividend policy will be made, subject to Delaware law, at the discretion of Syntroleum’s board of directors and will depend on a number of factors, including Syntroleum’s future earnings, capital requirements, financial condition, business prospects and other factors that Syntroleum’s board of directors may deem relevant; provided, that Syntroleum’s board of directors intends to make liquidating distributions of available amounts to Syntroleum’s stockholders in connection with the liquidation and dissolution of Syntroleum, as described in this proxy statement/prospectus.

 

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RISK FACTORS

In addition to the other information included in this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 59 of this proxy statement/prospectus, Syntroleum stockholders should carefully consider the following risks before deciding whether to vote for the proposals set forth herein. In addition, Syntroleum stockholders should read and consider the risks associated with each of the businesses of REG and Syntroleum because these risks will also affect the combined company.

Risk Factors Relating to the Asset Sale

Whether or not the asset sale is completed, there may be few, if any, assets available for distribution to Syntroleum stockholders.

Syntroleum has incurred recurring operating losses and continues to have working capital funding obligations to Dynamic Fuels, notwithstanding the non-operational status of the Geismar Facility. If the asset sale or another similar transaction is not approved and consummated on a timely basis, the Geismar Facility does not return to operational status on a timely basis, and/or Syntroleum does not obtain substantial new debt or equity financing on a timely basis, Syntroleum would not likely have sufficient resources to continue operations and may be required to seek protection under the U.S. Bankruptcy Code or similar relief. In such an event, it is possible that there would not be significant assets, or any assets, available for distribution to Syntroleum’s stockholders.

If the asset sale is completed, Syntroleum’s assets will primarily consist of REG common stock received as consideration for the asset sale and a cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement, which represents the amount Syntroleum estimates is reasonable to satisfy its known retained liabilities and expenses associated with the asset sale and the plan of dissolution. Even though Syntroleum currently expects the cash reserve to be sufficient to pay, or provide for the payment of, all of Syntroleum’s known retained liabilities and obligations, it is possible that, in the course of the dissolution process, unanticipated expenses and contingent liabilities will arise. If such liabilities exceed the cash reserve, Syntroleum or its successor (such as a liquidating trust) will be required to sell a portion or all of the REG common stock received in the asset sale to satisfy its obligations before its dissolution, thereby reducing, and perhaps eliminating, the assets available for distribution to Syntroleum stockholders.

Failure to complete the asset sale on a timely basis may result in Syntroleum discontinuing its business and operations, negatively impact Syntroleum’s stock price and/or reduce the assets available for distribution to Syntroleum’s stockholders.

If the asset sale is not completed on a timely basis for any reason, Syntroleum would be subject to a number of material risks, including that:

 

    Syntroleum may be unable to dispose of its assets for an aggregate amount equaling or exceeding its liabilities and obligations;

 

    Syntroleum would continue to have working capital funding obligations to Dynamic Fuels, notwithstanding the non-operational status of the Geismar Facility;

 

    Syntroleum may be unable to secure additional capital or enter into an alternative business combination transaction;

 

    Syntroleum may be unable to continue defense of its intellectual property portfolio;

 

    Syntroleum would still be required to pay expenses incurred in connection with the asset sale, including financial advisory, legal and accounting fees, which Syntroleum estimates to be approximately $3.27 million;

 

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    Syntroleum’s employees, faced with uncertain futures in light of Syntroleum’s financial condition, may seek alternative employment, which would have a negative impact on Syntroleum’s ability to continue its operations; and

 

    Syntroleum may be required to pay REG a termination fee of $5 million.

The occurrence of any of the above events would impair Syntroleum’s ability to conduct its operations and business and may force Syntroleum to discontinue its operations altogether. Any such impairment or discontinuation would likely cause the price of Syntroleum common stock to decline. In addition, the price of Syntroleum common stock may decline further if the current market price of Syntroleum common stock reflects an assumption that the asset sale or a similar business combination transaction will be completed. Additionally, if the asset sale is not completed on a timely basis and Syntroleum is required to seek protection under the U.S. Bankruptcy Code or similar relief, there may be no assets available to distribute to Syntroleum’s stockholders.

Even if Syntroleum’s stockholders approve the asset sale, the asset sale may not be completed.

The completion of the asset sale is subject to numerous closing conditions, some of which are out of Syntroleum’s control, and there can be no guarantee that Syntroleum will be able to satisfy all of the closing conditions set forth in the asset purchase agreement. Conditions to closing under the asset purchase agreement include, for example, no material adverse change having occurred with respect to Syntroleum during the period prior to the closing of the asset sale and receipt of required third-party consents. As a result, even if the asset sale is approved by the required vote of its stockholders at the special meeting, Syntroleum cannot guarantee that the asset sale will be completed.

The asset purchase agreement significantly limits Syntroleum’s ability to pursue alternatives to the asset sale.

The asset purchase agreement contains provisions that make it more difficult for Syntroleum to sell its business to a party other than REG. These provisions include the general prohibition on Syntroleum soliciting any third-party acquisition proposal, the prohibition on Syntroleum entering into any agreement with respect to an acquisition proposal before the stockholder vote on the asset sale, the requirement that Syntroleum hold the stockholder vote on the asset sale regardless of the existence of an acquisition proposal or a change in the recommendation of Syntroleum’s board of directors with respect the asset sale, and the requirement that Syntroleum pay a termination fee of $5 million if the asset purchase agreement is terminated in specified circumstances. See “The Asset Purchase Agreement—Termination; Termination Fee” beginning on page 102 of this proxy statement/prospectus.

These provisions could discourage a third party that might have an interest in acquiring all or a significant part of Syntroleum from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by REG. Furthermore, the termination fee may result in a potential competing acquiror offering to pay a lower per share price to acquire Syntroleum than it might otherwise have offered to pay. The payment of the termination fee could also have an adverse effect on Syntroleum’s financial condition.

Syntroleum and its stockholders will bear the risks associated with REG’s business, as well as market risks, either of which could result in a decline in the trading price of REG common stock.

If the asset sale is completed, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000, adjusted downward (based on the value of REG common stock at closing, as calculated under the asset purchase agreement) to the extent that the amount of aggregate cash transferred to REG Synthetic at closing is less than $3,200,000; provided, that if the per share value of REG’s common stock at closing (as calculated under the asset purchase agreement) is equal to or greater than $12.91, then the number of shares of REG

 

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common stock will be equal to (A) $49,000,000, divided by (B) the REG common stock value at closing (as calculated under the asset purchase agreement). Syntroleum and its stockholders will bear the risks associated with REG’s business, as well as market risks, either of which could result in a decline in the trading price of REG common stock. Although there is currently an active and liquid trading market for REG common stock, the market price of REG common stock has been historically volatile. In addition, any distribution of REG common stock to stockholders of Syntroleum is not expected to occur for some time, and the trading price of REG common stock may have declined by the time it is distributed. During 2013 through January 8, 2014, the closing price of REG common stock varied from a low of $5.90 to a high of $16.50, and closed at $10.90 on January 8, 2014. You are urged to obtain current market quotations for REG common stock before you vote your shares.

For a description of certain risks related to REG’s business see “Risk Factors—Risk Factors Relating to REG” beginning on page 32 of this proxy statement/prospectus. For a more detailed description of the business of REG and its historical financial results see REG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and Form 10-Q for the quarter ended September 30, 2013, and the other documents filed with the SEC by REG and incorporated by reference into this proxy statement/prospectus.

REG may not successfully integrate the businesses of Syntroleum and may not realize the anticipated benefits of the asset sale.

Achieving the anticipated potential benefits of the asset sale will depend in part on the successful integration of the operations and personnel of Syntroleum in a timely and efficient manner to minimize the impact on customers, employees and management. This integration will be a complex, time-consuming and expensive process and it is not certain that REG can successfully integrate Syntroleum in a timely manner, or at all, or that any of the anticipated potential benefits of the asset sale will be realized. In addition, there is no assurance that REG will be able to reach agreement with Tyson to restart the Geismar Facility. Failure to integrate Syntroleum’s business and restart the Geismar Facility could have a material adverse effect on the revenues, expenses, the operating results and cash resources of REG and could result in REG not achieving the anticipated potential benefits of the consolidation.

Certain directors and executive officers of Syntroleum have interests in the asset sale that may be different from, or in addition to, the interests of Syntroleum stockholders.

When considering the Syntroleum board of directors’ recommendation that Syntroleum stockholders vote in favor of the asset sale proposal, Syntroleum stockholders should be aware that some directors and executive officers of Syntroleum have interests in the asset sale that may be different from, or in addition to, the interests of Syntroleum stockholders. These interests include the fact that (i) as a condition to the closing of the asset sale, certain officers of Syntroleum, including Edward G. Roth, Syntroleum’s Chief Executive Officer, intend to accept employment with REG Synthetic, (ii) in connection with their termination as employees of Syntroleum upon the closing of the asset sale, certain officers of Syntroleum will receive severance benefits pursuant to historical agreements with Syntroleum, including payments of $900,000 to Mr. Roth, and $48,125 to Karen L. Power, Syntroleum’s Principal Financial Officer, and (iii) Syntroleum’s directors and executive officers will retain the right to continued indemnification and insurance coverage for acts or omissions occurring prior to the asset sale. As a result of these interests, these directors and executive officers could be more likely to recommend a vote in favor of the asset sale proposal than if they did not hold these interests, and may have reasons for doing so that are not the same as the interests of other Syntroleum stockholders. The Syntroleum board of directors discussed these interests prior to voting to approve the asset sale. For a full description of the interests of Syntroleum’s directors and executive officers in the asset sale, see “Proposal One The Asset Sale Proposal—Interests of Executive Officers and Directors of Syntroleum in the Asset Sale” beginning on page 90 of this proxy statement/prospectus.

 

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Following the asset sale, Syntroleum may be deemed an investment company and subjected to related restrictions under the Investment Company Act of 1940.

The regulatory scope of the Investment Company Act of 1940, as amended (the “Investment Company Act”), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The Investment Company Act may, however, also be deemed to be applicable to a company that does not intend to be characterized as an investment company but that, nevertheless, engages in activities that may be deemed to be within the definitional scope of certain provisions of the Investment Company Act. Syntroleum believes that the nature of its assets and anticipated principal activities following the assert sale (including the intended liquidation and dissolution of Syntroleum) will not subject Syntroleum to regulation under the Investment Company Act. Nevertheless, there can be no assurance that Syntroleum will not be deemed to be an investment company. If Syntroleum is deemed to be an investment company, Syntroleum may become subject to certain restrictions relating to Syntroleum’s activities, including restrictions on the nature of its investments and the issuance of securities. In addition, the Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain reporting, record keeping, voting, proxy, disclosure and other rules and regulations. In the event of the characterization of Syntroleum as an investment company, the inability of Syntroleum to satisfy such regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on Syntroleum. Further, Syntroleum’s characterization as an investment company would result in the asset sale and subsequent liquidation and dissolution of Syntroleum failing to constitute a tax-free “reorganization” within the meaning of section 368(a)(1)(C) of the Code.

If Syntroleum’s stockholders do not approve the name change proposal, Syntroleum will be in breach of the asset purchase agreement.

Under the asset purchase agreement, Syntroleum is selling all of its intellectual property, including its trademarks, which includes the name “Syntroleum.” Under the Delaware law, Syntroleum must seek stockholder approval in order to change Syntroleum’s name in its certificate of incorporation. If the asset sale proposal is approved by Syntroleum’s stockholders, but the name change proposal is not approved by Syntroleum’s stockholders, Syntroleum will be in breach of the asset purchase agreement and the asset sale may not be consummated.

Risk Factors Relating to the Liquidation and Dissolution of Syntroleum

Syntroleum’s stockholders could approve the asset sale proposal but vote against the plan of dissolution proposal.

Approval of the plan of dissolution is a necessary step for Syntroleum stockholders to receive shares of REG common stock and for the asset sale and subsequent intended liquidation and dissolution of Syntroleum to constitute a tax-free reorganization under Section 368(a)(1)(C) of the Code. If the transaction does not qualify as a tax-free reorganization under Section 368(a)(1)(C) Code, Syntroleum and its stockholders will suffer material adverse tax consequences. The corporate level gain that Syntroleum would recognize upon such a taxable sale of assets would be equal to the difference between Syntroleum’s adjusted tax basis in such assets and the fair market value of all of the consideration received from REG in the asset sale (including without limitation all of the REG common stock issued by REG and all of the liabilities assumed by REG). Syntroleum’s tax liability associated with any such recognized gain, after taking into account the effect of any relevant and available Syntroleum tax attributes (e.g., current and carryover net operating losses and tax credits), is a liability that is not assumed by REG in accordance with the asset purchase agreement, and it is anticipated that any such tax liability would be material. Further, Syntroleum stockholders would incur a stockholder-level tax liability in the event that property (including shares of REG common stock or cash) is distributed to stockholders where the value of the property so distributed exceeds the applicable stockholder’s tax basis in their shares of Syntroleum common

 

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stock (or where the distribution is characterized as a dividend for tax purposes). Pursuant to the asset purchase agreement, Syntroleum has agreed to dissolve following the closing of the asset sale, and a failure by Syntroleum stockholders to approve the plan of dissolution would cause Syntroleum to be in breach of its obligations under the asset purchase agreement. In addition, if Syntroleum obtains stockholder approval of the asset sale proposal and completes the asset sale, but does not obtain stockholder approval of the plan of dissolution proposal, Syntroleum would have to continue its business operations despite the sale of substantially all of its assets and its announced intent to liquidate and dissolve. Assuming the completion of the asset sale, Syntroleum would have no assets with which to generate operating revenue and likely will have retained only those employees required to wind-up its corporate existence. Further, Syntroleum does not intend to invest in another operating business following the closing of the asset sale. If the plan of dissolution proposal is not approved, Syntroleum would be required to use all or a significant portion of its remaining cash and the REG common stock received as consideration in the asset sale to pay taxes on the asset sale (as described above) and ongoing operating expenses.

Syntroleum cannot determine at this time the amount or timing of any distributions to its stockholders because there are many factors, some of which are outside of Syntroleum’s control, that could affect Syntroleum’s ability to make such distributions.

Syntroleum cannot determine at this time when, or potentially whether, it will be able to make any distributions to its stockholders or the amount of any such distributions. Those determinations depend on a variety of factors, including, but not limited to, whether the asset sale closes; the timing of the closing of the asset sale; the amount Syntroleum will be required to pay to satisfy unknown or contingent liabilities in the future; the cost of operating Syntroleum through the date of Syntroleum’s final dissolution; inaccuracies in the cost estimates to resolve currently known contingent liabilities; general business and economic conditions; and other matters.

Syntroleum will continue to incur claims, liabilities and expenses from operations (such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal and accounting fees and miscellaneous office expenses) as it seeks to close the asset sale and effect the dissolution. Syntroleum’s estimates regarding its expense levels may be inaccurate. Any unforecasted or unexpected claims, liabilities or expenses that arise between the date of filing of this proxy statement/prospectus and the liquidation and final dissolution of Syntroleum or any claims, liabilities or expenses that exceed Syntroleum’s estimates could leave Syntroleum with less cash than is necessary to pay liabilities and expenses and would likely reduce the amount of REG common stock available for ultimate distribution to Syntroleum’s stockholders. Further, if cash and the value of the REG common stock to be received in the asset sale are not adequate to provide for all of Syntroleum’s obligations, liabilities, expenses and claims, Syntroleum will not be able to distribute any amount at all to its stockholders.

The amount and value of REG common stock Syntroleum will ultimately distribute to its stockholders is subject to significant uncertainties, many of which are beyond Syntroleum’s control. Examples of uncertainties that could reduce the value of or eliminate distributions to Syntroleum stockholders include the following:

 

    the amount of Syntroleum’s liabilities and obligations or the estimated costs and expenses of the asset sale and the operation of Syntroleum until the date it is authorized to make a distribution to its stockholders under the applicable provisions of Delaware law and the plan of dissolution could increase;

 

    presently unknown or contingent liabilities of Syntroleum could later arise or become fixed in amount and Syntroleum would be required to satisfy or reserve for these liabilities as part of the dissolution;

 

    delays in completing the asset sale or delays in the timing of the dissolution of Syntroleum could result in additional fees and expenses and result in reduced distributions to Syntroleum stockholders; and

 

    the value of REG common stock could decline.

 

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For the foregoing reasons, there can be no assurance as to the timing and amount of distributions to Syntroleum’s stockholders, even if the asset sale is completed. As of the date of this proxy statement/prospectus, Syntroleum anticipates that its known retained liabilities as of the closing of the asset sale (together with the estimated liabilities to be incurred by Syntroleum between the closing of the asset sale and the final dissolution of Syntroleum) will be approximately $1.43 million. Thus, assuming, among other things, that Syntroleum is able to close the asset sale and that the cash reserve is sufficient to satisfy outstanding liabilities and outstanding expenses, Syntroleum currently estimates that Syntroleum stockholders would receive approximately 0.3809 shares of REG common stock per share of Syntroleum common stock. However, for the reasons set forth above, these amounts could be significantly less.

Syntroleum may be required under Delaware law or the Delaware Court of Chancery to hold back for distribution at a later date, if at all, some or all of the estimated amounts that Syntroleum currently expects to distribute to its stockholders.

Syntroleum’s board of directors may abandon or delay implementation of the plan of dissolution even if it is approved by Syntroleum’s stockholders.

Syntroleum’s board of directors has adopted and approved a plan of dissolution for the liquidation and dissolution of Syntroleum following the closing of the asset sale. Even if the plan of dissolution proposal is approved by Syntroleum’s stockholders, Syntroleum’s board of directors has reserved the right, in its reasonable discretion, to abandon or delay implementation of the plan of dissolution if as a result of the plan of dissolution Syntroleum would be insolvent or unable to pay its debts as they come due, would have remaining liabilities in excess of its remaining assets, or would otherwise be unable to satisfy in full all valid claims against Syntroleum. Following completion of the asset sale, Syntroleum will continue to exist as a public company until it is dissolved. Although Syntroleum’s board of directors has no present intention to pursue any alternative to the plan of dissolution, Syntroleum’s board of directors may conclude either that its fiduciary obligations require it to pursue business opportunities that present themselves or that abandoning the plan of dissolution is otherwise in the best interests of Syntroleum and its stockholders. If Syntroleum’s board of directors elects to pursue any alternative to the plan of dissolution, the value of Syntroleum’s common stock may decline, Syntroleum stockholders may not receive any of the REG common stock currently estimated to be available for distribution to Syntroleum stockholders pursuant to the plan of dissolution, and the asset sale will not constitute a tax-free “reorganization” within the meaning of Section 368(a)(1)(C) of the Code. If the transaction does not qualify as a tax-free reorganization under Section 368(a)(1)(C) Code, Syntroleum and its stockholders will suffer material adverse tax consequences. The corporate level gain that Syntroleum would recognize upon such a taxable sale of assets would be equal to the difference between Syntroleum’s adjusted tax basis in such assets and the fair market value of all of the consideration received from REG in the asset sale (including without limitation all of the REG common stock issued by REG and all of the liabilities assumed by REG). Syntroleum’s tax liability associated with any such recognized gain, after taking into account the effect of any relevant and available Syntroleum tax attributes (e.g., current and carryover net operating losses and tax credits), is a liability that is not assumed by REG in accordance with the asset purchase agreement, and it is anticipated that any such tax liability would be material. Further, Syntroleum stockholders would incur a stockholder-level tax liability in the event that property (including shares of REG common stock or cash) is distributed to stockholders where the value of the property so distributed exceeds the applicable stockholder’s tax basis in their shares of Syntroleum common stock (or where the distribution is characterized as a dividend for tax purposes).

Distribution of REG common stock received as consideration in the asset sale, if any, to Syntroleum’s stockholders could be delayed and Syntroleum’s stockholders could, in some circumstances, be held liable for amounts they received from Syntroleum in connection with Syntroleum’s dissolution.

Although Syntroleum’s board of directors has not established a firm timetable for distributions to Syntroleum’s stockholders, the board of directors intends, subject to contingencies inherent in the winding-up of Syntroleum’s business and the payment of Syntroleum’s obligations and liabilities, to distribute all of the REG common stock that it receives as consideration in the asset sale within twelve months or, in the event that

 

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Syntroleum is unable to make such distributions within such period, prior to the end of such period Syntroleum may (subject to any restrictions imposed by the Delaware Court of Chancery) establish one or more liquidating trusts (or take any other reasonable action it deems necessary, including but not limited to, converting Syntroleum to a limited liability company) to hold such assets and reserves so that the asset sale and dissolution can comply with the requirements for a tax-free “reorganization” within the meaning of Section 368(a)(1)(C) of the Code. Syntroleum does not anticipate making any distributions to its stockholders until it has repaid all of its known retained obligations and liabilities, paid all of its expenses, and complied with the requirements of Delaware law for companies in dissolution, including requirements for the creation and maintenance of adequate contingency reserves as determined by the Delaware Court of Chancery. Thereafter, Syntroleum anticipates making distributions to its stockholders as promptly as practicable in accordance with the plan of dissolution and the liquidation and dissolution process selected by the Syntroleum board of directors in its sole discretion.

Syntroleum is, however, currently unable to provide the exact timing of any distribution to its stockholders as part of this wind-up and dissolution process.

Under the Delaware General Corporation Law, Syntroleum will continue to exist for three years after the dissolution of the corporation becomes effective or for such longer period as the Delaware Court of Chancery shall direct, for the purpose of prosecuting and defending suits against Syntroleum and enabling Syntroleum to wind-up its business, to dispose of its property, to discharge its liabilities and to distribute to its stockholders any remaining assets. Under the Delaware General Corporation Law, in the event Syntroleum fails to create an adequate contingency reserve for payment of its expenses and liabilities during this three-year period, each Syntroleum stockholder could be held liable for payment to Syntroleum’s creditors of such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such Syntroleum stockholder.

Accordingly, in such event, a Syntroleum stockholder could be required to return all distributions previously made to such Syntroleum stockholder. As a result of the foregoing or for any of the other reasons described in this proxy statement/prospectus, a Syntroleum stockholder could receive nothing from Syntroleum under the plan of dissolution or otherwise in connection with the asset sale. Moreover, in the event a Syntroleum stockholder has paid taxes on amounts previously received from Syntroleum, a repayment of all or a portion of such amount could result in that stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. There can be no assurance that the contingency reserve Syntroleum will establish will be adequate to cover all of Syntroleum’s remaining expenses and liabilities.

It is also possible that a Syntroleum creditor could seek an injunction against the making of distributions to Syntroleum’s stockholders on the basis that the amounts to be distributed are needed to provide for the payment of Syntroleum’s liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for distribution to Syntroleum’s stockholders.

Syntroleum will continue to incur claims, liabilities and expenses that will reduce the amount available for distribution to its stockholders.

Syntroleum will continue to incur claims, liabilities and expenses from operations (including operating costs such as salaries, directors’ fees, directors’ and officers’ insurance, payroll and local taxes, legal and accounting fees and miscellaneous office expenses) as Syntroleum seeks to consummate the asset sale and wind-up its operations. Syntroleum anticipates that the amount of severance payments it will have to pay to all of its employees will be approximately $2.1 million and will be paid upon the closing of the asset sale. Syntroleum also estimates that salary and directors’ fees payable to remaining officers and directors after closing of the asset sale through the dissolution would be approximately $100,000 per quarter. These expenses will reduce the amounts available for ultimate distribution to Syntroleum’s stockholders. If (i) the cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset

 

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purchase agreement and (ii) the value of the REG common stock to be received in consideration of the asset sale are not adequate to provide for the full repayment of Syntroleum’s obligations, liabilities, expenses and claims, Syntroleum will not be able to distribute any assets to its stockholders.

Syntroleum’s stock transfer books will close on the date Syntroleum files the certificate of dissolution with the Secretary of State of the State of Delaware, after which it will not be possible for stockholders to trade Syntroleum’s stock.

Syntroleum will close its stock transfer books and discontinue recording transfers of its common stock at the close of business on the date it files the certificate of dissolution with the Secretary of State of the State of Delaware, which is referred to herein as the final record date. Thereafter, certificates representing shares of Syntroleum’s common stock will not be assignable or transferable on Syntroleum’s books. The proportionate interests of all of Syntroleum’s stockholders will be fixed on the basis of their respective stock holdings at the close of business on the final record date, and, after the final record date, any distributions made by Syntroleum shall be made solely to the stockholders of record at the close of business on the final record date.

Syntroleum will continue to incur the expenses of complying with public company reporting requirements.

Following the asset sale and through the subsequent liquidation and dissolution, Syntroleum has an obligation to continue to comply with the applicable reporting requirements of the Exchange Act, which is referred to herein as the Exchange Act, even though compliance with these reporting requirements is economically burdensome. In order to curtail expenses, Syntroleum intends, after filing its certificate of dissolution, to seek relief from the SEC from the reporting requirements under the Exchange Act. Syntroleum anticipates that, if such relief is granted, Syntroleum would continue to file current reports on Form 8-K to disclose material events relating to Syntroleum’s liquidation and dissolution, along with any other reports that the SEC might require, but would discontinue filing annual and quarterly reports on Forms 10-K and 10-Q. However, the SEC may not grant any such relief. To the extent that Syntroleum delays filing the certificate of dissolution, Syntroleum would be obligated to continue complying with the applicable reporting requirements of the Exchange Act. The expenses incurred by Syntroleum in complying with the applicable reporting requirements will reduce the assets available for ultimate distribution to Syntroleum’s stockholders.

If Syntroleum fails to retain the services of appropriate personnel, the plan of dissolution may not succeed.

The success of the plan of dissolution depends in large part upon Syntroleum’s ability to retain the services of qualified personnel who will be charged with operating Syntroleum following the closing of the asset sale. The retention of qualified personnel may be particularly difficult under Syntroleum’s current circumstances. There can be no assurance that Syntroleum will be successful in retaining the services of such qualified personnel or that Syntroleum will be able to retain the services of such qualified personnel for the amounts it is willing to pay for such services.

Syntroleum and its stockholders will be exposed to a number of tax-related risks in connection with the dissolution of Syntroleum.

The asset sale and subsequent liquidation and dissolution of Syntroleum are intended to constitute a tax-free “reorganization” within the meaning of section 368(a)(1)(C) of the Code. For the asset sale and intended liquidation and dissolution to so qualify, a number of requirements must be satisfied including the following general requirements: (i) REG or certain of its subsidiaries must continue at least one significant historic business line of Syntroleum’s or use a significant portion of Syntroleum’s assets in REG’s ongoing business, (ii) Syntroleum and REG must not be investment companies as that term is defined under the Code, (iii) “substantially all” of Syntroleum’s assets (defined for Internal Revenue Service ruling purposes as at least 70% in value of its total gross assets and 90% in value of its total net assets) must be transferred to REG or REG Synthetic, (iv) the portion of the purchase price paid in REG common stock must be equal to at least 80% or more of the fair market value of the assets of Syntroleum being purchased by REG Synthetic pursuant to the asset

 

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purchase agreement (and for purposes of this requirement, if any consideration other than REG common stock is paid, liabilities assumed by REG or REG Synthetic or to which the purchased assets are subject are treated as cash paid by REG), (v) the REG common stock received in the asset sale together with any other assets Syntroleum holds must be distributed to Syntroleum’s stockholders and creditors in pursuance of the plan of dissolution and (vi) Synroleum must be liquidate as part of the plan (unless a waiver is received from the Internal Revenue Service). Many of these requirements for such tax treatment are based on factual determinations and a change in circumstances could adversely affect the tax analysis. REG and Syntroleum are providing officers’ certificates in connection with this proxy statement/prospectus (“Tax Certificates”) that address most of the relevant requirements.

If any of the representations or certifications in the Tax Certificates or the relevant representations in the asset purchase agreement are inaccurate such that the requirements for a tax-free “reorganization” are not satisfied, or if any of these requirements are not otherwise met, the asset sale and subsequent liquidation and dissolution of Syntroleum would not be treated as a tax-free “reorganization” under the Code, which would result in several material adverse tax consequences.

In such an event (including in the event Syntroleum’s board of directors abandons the plan of dissolution for any reason and the liquidation and dissolution of Syntroleum do not occur, or such liquidation and dissolution is substantially delayed and a liquidating trust is not utilized), the sale of Syntroleum’s assets to REG would be treated as a taxable sale of such assets. The corporate level gain that Syntroleum would recognize upon such a taxable sale of assets would be equal to the difference between Syntroleum’s adjusted tax basis in such assets and the fair market value of all of the consideration received from REG in the asset sale (including without limitation all of the REG common stock issued by REG, cash, and all of the liabilities assumed by REG). Syntroleum’s tax liability associated with any such recognized gain, after taking into account the effect of any relevant and available Syntroleum tax attributes (e.g., current and carryover net operating losses and tax credits), is a liability that is not assumed by REG in accordance with the asset purchase agreement, and it is anticipated that any such tax liability would be material and would reduce the amounts of cash and REG common stock otherwise distributable to Syntroleum stockholders. Further, any distribution to Syntroleum stockholders under such circumstances would be a taxable event and the tax treatment of any such distribution may be substantially more adverse to Syntroleum stockholders than if the asset sale and subsequent liquidation and dissolution of Syntroleum constituted a tax-free “reorganization” within the meaning of section 368(a)(1)(C) of the Code.

For a discussion by Syntroleum of the material United States federal income tax consequences of the liquidation and dissolution, see the section entitled “Certain Material United States Federal Income Tax Consequences to Syntroleum Stockholders” beginning on page 116 of this proxy statement/prospectus.

Risk Factors Relating to REG

Risks Associated with REG’s Business

Loss or reductions of governmental requirements for the use of biofuels could have a material adverse effect on REG’s revenues and operating margins.

The biodiesel industry relies substantially on federal requirements and state policies for use of biofuels. Since biodiesel has been more expensive to produce than petroleum-based diesel fuel over the past few years, the biodiesel industry depends on governmental programs that support a market for biodiesel that might not otherwise exist.

The most important of these government programs in the United States is Renewable Fuel Standard 2, or RFS2, which requires that a certain volume of biomass-based diesel fuel, which includes biodiesel, be consumed. RFS2 became effective on July 1, 2010 and applies through 2022. REG believes that the increase in demand for its biodiesel since July 2010 is directly attributable to the implementation of RFS2. In addition, REG believes that biodiesel prices since July 2010 benefited significantly from RFS2.

 

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There can be no assurance that the United States Congress will not repeal, curtail or otherwise change, or that the United States Environmental Protection Agency, or EPA, will not curtail or otherwise change the RFS2 program in a manner adverse to REG. The petroleum industry is generally opposed to RFS2 and can be expected to continue to press for changes that eliminate or reduce its impact. Any repeal or reduction in the RFS2 requirements or reinterpretation of RFS2 resulting in REG’s biodiesel failing to qualify as a required fuel would materially decrease the demand for and price of REG’s biodiesel, which would materially and adversely harm REG’s revenues and cash flows.

If Congress decides to repeal or curtail RFS2, or if the EPA is not able or willing to enforce RFS2 requirements, the demand for REG’s biodiesel based on this program and any increases in demand that REG expects due to RFS2 would be significantly reduced or eliminated and REG’s revenues and operating margins would be materially harmed. In addition, although REG believes that state requirements for the use of biofuels increase demand for its biodiesel within such states, they generally may not increase overall demand in excess of RFS2 requirements. Rather, existing demand for REG’s biofuel from petroleum refiners and petroleum fuel importers in the 48 contiguous states or Hawaii, which are defined as “Obligated Parties” in the RFS2 regulations, in connection with federal requirements, may shift to states that have use requirements or tax incentive programs.

The EPA is required to determine the volume of biomass-based diesel that will be required each year beginning in 2013 based on the EPA’s consideration of a variety of factors, including biomass-based diesel production, consumption, and infrastructure issues, the likely impact of biomass-based diesel production and use in a variety of areas, including climate change, energy security, the agricultural sector, air quality, transportation fuel costs, job creation, and water quality, and other factors. RFS2 requires that the biomass-based diesel annual volume requirement be at least 1 billion gallons in each of those years. The biomass-based diesel volume requirement for 2013 was 1.28 billion gallons.

As of the date of this proxy statement/prospectus, the EPA has not finalized the 2014 Renewable Volume Obligations, or RVOs. The EPA has proposed a 2014 and 2015 biomass-based diesel RVO of 1.28 billion gallons in each of those years and a reduced Advanced Biofuel RVO of 2.0 to 2.51 billion gallons rather than the original Energy Independence and Security Act of 2009, or EISA, volume of 3.75 billion gallons for 2014. Before the RVO can be finalized, the Office of Management and Budget, or OMB, has to approve EPA’s proposal, based on the same factors outlined above. Due to the one year delay publishing the proposal, which the EPA was required to determine and publish by November 30, 2012, it is possible that the 2014 RVOs will be challenged in court which may further delay any final determination of the 2014 RVOs, which could reduce the demand for and price of REG’s biodiesel, which could harm its revenues and cash flows.

As an illustrative example, according to EMTS data, biomass-based diesel was produced and imported into the U.S. at average rate of 170 million gallons per month for September, October and November of 2013, the last three months of available EMTS data. If that rate is maintained in December, approximately 1.76 billion gallons of biomass-based diesel RINs would be generated in 2013. Adding the 2012 carry-over to the 2013 RIN generation would result in an estimated total biomass-based diesel RIN availability of approximately 1.96 billion gallons, which is approximately 680 million gallons more than required to satisfy the 1.28 billion gallon 2013 biomass-based diesel RVO. The proposed 2014 biomass-based diesel RVO of 1.28 billion gallons, would limit the 2014 carryover to 256 million gallons, or 20% of 1.28 billion, thus resulting in an excess supply of 424 million gallons of biomass-based diesel RINs. These excess RINs may be used to fulfill the advanced biofuel RVO or the renewable fuel RVO. If the volume of excess biomass-based diesel RINs exceeds the volume the Obligated Parties desire to use to fulfill their advanced biofuel and renewable fuel requirements, the demand for and price of REG’s biodiesel and biomass-based diesel RINs may be reduced, which could harm its revenues and cash flows.

 

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REG’s gross margins are dependent on the spread between biodiesel prices and feedstock costs.

REG’s gross margins depend on the spread between biodiesel prices and feedstock costs. Historically, the spread between biodiesel prices and feedstock costs has varied significantly. Although actual yields vary depending on the feedstock quality, the average monthly spread between the price per gallon of 100% pure biodiesel, or B100, as reported by The Jacobsen Publishing Company, or The Jacobsen, and the price per gallon for the amount of choice white grease, a common inedible animal fat used by REG to make biodiesel, was $1.83 in 2008, $1.25 in 2009, $1.06 in 2010, $1.32 in 2011 and $1.26 in 2012 assuming 8.0 pounds of choice white grease yields one gallon of biodiesel. The average monthly spread for the amount of crude soybean oil required to produce one gallon of biodiesel, based on the nearby futures contract as reported on the Chicago Board of Trade, or CBOT, was $0.61 per gallon in 2008, $0.39 in 2009, $0.25 per gallon in 2010, $0.89 in 2011 and $0.65 in 2012 assuming 7.5 pounds of soybean oil yields one gallon of biodiesel. For 2011 and 2012, approximately 83% and 84%, respectively, of REG’s total feedstock usage was inedible animal fat, used cooking oil or inedible corn oil and 17% and 16%, respectively, was soybean oil, compared to approximately 91% for inedible animal fat, used cooking or inedible corn oil and 9% for soybean oil in 2010.

Biodiesel has traditionally been marketed primarily as an additive or alternative to petroleum-based diesel fuel and as a result biodiesel prices have been influenced by the price of petroleum-based diesel fuel, adjusted for government incentives supporting renewable fuels, rather than biodiesel production costs. A lack of close correlation between production costs and biodiesel prices means that REG may be unable to pass increased production costs on to its customers in the form of higher prices. Any decrease in the spread between biodiesel prices and feedstock costs, whether as a result of an increase in feedstock prices or a reduction in biodiesel prices, including, but not limited to, a reduction in the value of RINs, such as the decrease that occurred in the last few months of 2012 and since September 1, 2013, would adversely affect REG’s gross margins, cash flow and results of operations.

The costs of raw materials that REG uses as feedstocks are volatile and REG’s results of operations could fluctuate substantially as a result.

The cost of feedstocks is a significant uncertainty for REG’s business. The success of REG’s operations is dependent on the price of feedstocks and certain other raw materials that it uses to produce biodiesel. A decrease in the availability or an increase in the price of feedstocks may have a material adverse effect on REG’s financial condition and operating results. At elevated price levels, these feedstocks may be uneconomical to use, as REG may be unable to pass feedstock cost increases on to its customers.

The price and availability of feedstocks and other raw materials may be influenced by general economic, market and regulatory factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and international trade, and global supply and demand. The significance and relative impact of these factors on the price of feedstocks is difficult to predict, especially without knowing what types of feedstock materials will be optimal for use in the future, particularly at new facilities that REG may construct or acquire.

Since 2009, REG has principally used inedible corn oil, used cooking oil and inedible animal fats as its feedstocks for the production of biodiesel. REG’s decision to shift to these feedstocks resulted from the reduction in profit caused by a significant increase in soybean oil prices, which rose from $0.1435 per pound in February 2001 to $0.7040 per pound in March 2008, and soybean oil having generally remained at high levels since that time. While prices for these alternative feedstocks can experience price volatility similar to soybean oil, their prices can also vary significantly from soybean oil based on market conditions. Since January 1, 2008, the cost per pound of choice white grease, an inedible animal fat commonly used by REG in the production of biodiesel, has traded in a range of $0.0950 to $0.5250 based on the closing nearby futures prices on the CBOT. The 2012 drought conditions experienced in the Midwest increased the cost of corn, soybeans and other feedstocks, including animal fat. Historically, the price of animal fat has been affected by the amount of rendering volumes in the United States, as well as demand from other markets. As the cost of animal feed rises as a result of the

 

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drought in the Midwest, the price of animal products may also rise, thereby reducing demand and rendering volumes. If biodiesel production continues to increase in response to RFS2, REG expects that more biodiesel producers will seek to use lower cost feedstocks, potentially increasing REG’s costs of production. In addition, because the market for animal fat is less developed than markets for vegetable oils such as soybean oil, REG generally is unable to enter into forward contracts at fixed prices. Further, the markets for used cooking oil and inedible corn oil are in their nascent stages.

The market and supply for used cooking oil as a feedstock for biodiesel is growing. The commercial supply of inedible corn oil is growing as more ethanol producers are installing corn oil extraction technology in their ethanol plants. Inedible corn oil is not generally available in quantities sufficient to cover all of REG’s operations. Approximately 75% of U.S. ethanol plants have the equipment necessary to extract inedible corn oil that can be used in biodiesel production. There are a number of additional ethanol producers who have announced plans to install corn oil extraction equipment in their ethanol plants. If more ethanol plants do not acquire and utilize corn oil extraction equipment or if ethanol plants are idled, REG may not be able to obtain additional amounts of inedible corn oil for use in its production of biodiesel and may be forced to utilize higher cost feedstocks to meet increased demand, which may not be economical.

Loss of or reductions in tax incentives for biodiesel production or consumption would have a material adverse effect on REG’s revenues and operating margins.

The biodiesel industry is also substantially aided by federal and state tax incentives. Prior to RFS2, the biodiesel industry relied principally on these tax incentives to bring the price of biodiesel more in line with the price of petroleum-based diesel fuel to the end user. The most significant tax incentive program was the federal blenders tax credit. The blenders tax credit provided a $1.00 refundable tax credit per gallon of pure biodiesel, or B100, to the first blender of biodiesel with petroleum-based diesel fuel. The blenders tax credit expired on December 31, 2009 and was re-enacted in December 2010, retroactively for all of 2010 and prospectively for 2011. The blenders tax credit expired again on December 31, 2011 and was again re-enacted on January 2, 2013, retroactively for all of 2012 and prospectively for 2013, and expired again December 31, 2013. There is no assurance that it will be reinstated. Unlike RFS2, the blenders tax credit has a direct effect on federal government spending and could be changed or eliminated as a result of changes in the federal budget policy. The absence of and uncertainty around the blenders tax credit during 2012 materially curtailed demand for biodiesel and reduced margins. Although the blenders tax credit was reinstated for all of 2012, it was restated in January of 2013 and thus is reflected in REG’s 2013 earnings. It is uncertain what action, if any, Congress may take with respect to reinstating the blenders tax credit or when such action might be effective. If Congress does not reinstate the credit, demand for REG’s biodiesel and the price REG is able to charge for its product may be significantly reduced, harming revenues and profitability. When the blenders tax credit expired on December 31, 2011, REG experienced an industry-wide acceleration of gallons sold in the fourth quarter of 2011, which was further influenced by the ability of Obligated Parties to satisfy up to 20% of their RVO for 2012 through RINs obtained in 2011. REG believes the resulting buildup of biodiesel inventories reduced gallons sold in the first quarter of 2012. REG may experience a similar situation in the first quarter of 2014.

In addition, several states have enacted tax incentives for the use of biodiesel. For example, Illinois offers an exemption from the generally applicable 6.25% sales tax for biodiesel blends that incentivizes blending at 11% biodiesel, or B11. Like the federal blenders tax credit, the Illinois tax incentive program and the tax incentive programs of other state could be changed as a result of state budget considerations or otherwise. Reduction or elimination of such incentives could materially and adversely harm REG’s revenues and profitability.

Risk management transactions could significantly increase REG’s operating costs and working capital requirements and may not be effective.

In an attempt to partially offset the effects of volatile feedstock costs and biodiesel fuel prices, REG may enter into contracts that establish market positions in feedstocks, such as inedible corn oil, used cooking oil, inedible animal fats and soybean oil, and related commodities, such as heating oil and ultra-low sulfur diesel, or

 

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ULSD. The financial impact of such market positions will depend on commodity prices at the time that REG is required to perform its obligations under these contracts. Risk management arrangements will also expose REG to the risk of financial loss in situations where the counterparty defaults on its contract or, in the case of exchange-traded or over-the-counter futures or options contracts, where there is a change in the expected differential between the underlying price in the contract and the actual prices paid or received by REG. Risk management activities can themselves result in losses when a position is purchased in a declining market or a position is sold in a rising market. Changes in the value of these futures instruments are recognized in current income and may result in margin calls. REG may also vary the amount of risk management strategies it undertakes, or REG may choose not to engage in risk management transactions at all. Further, REG’s ability to reduce the risk of falling biodiesel prices and rising feedstock costs will be limited as currently there is no established futures market for biodiesel or the vast majority of REG’s feedstocks, nor are fixed-price long-term contracts generally available. As a result, REG’s results of operations and financial position may be adversely affected by increases in the price of feedstocks or decreases in the price of biodiesel that are not managed effectively. For example, REG had losses of $4.6 million from risk management trading activity for the year ended December 31, 2012, compared to gains of $3.0 million from risk management trading for the year ended December 31, 2011, respectively. REG’s increased losses were largely due to a decrease in soybean oil prices in September 2012 and an increase in heating oil prices during the third quarter of 2012, which resulted in reduced market value of REG’s derivative financial instruments related to 2012 fourth quarter biodiesel sales.

REG’s success depends on its ability to manage its growing and changing operations.

Since REG’s formation, its business has grown significantly in size and complexity. This growth has placed, and is expected to continue to place, significant demands on its management, systems, internal controls and financial and physical resources. In addition, REG expects that it will need to further develop its financial and managerial controls and reporting systems to accommodate future growth, including as a result of its acquisition of substantially all of Syntroleum’s assets in connection with the asset sale. This will require REG to incur expenses related to hiring additional qualified personnel, retaining professionals to assist in developing the appropriate control systems and expanding its information technology infrastructure. REG’s inability to manage growth effectively could have a material adverse effect on its results of operations, financial position and cash flows.

One customer accounted for a meaningful percentage of revenues and a loss of this customer could have an adverse impact on REG’s total revenues.

One customer, Pilot Travel Centers LLC, or Pilot, accounted for 36% and 23% of REG’s total revenues in 2012 and 2011, respectively. REG’s agreements with Pilot have typically had a one-year term. In the event REG loses Pilot as a customer or Pilot significantly reduces the volume of biodiesel it buys from REG, it could be difficult to replace the lost revenues in the short term and potentially over an extended period, and REG’s profitability and cash flow could be materially harmed. Past news reports indicated that Pilot was the subject of a federal criminal investigation involving alleged fraud related to customer diesel fuel rebates. REG cannot determine what effect, if any, this may have on its future business relationship with Pilot.

REG’s business is primarily dependent upon one product. As a consequence, REG may not be able to adapt to changing market conditions or endure any decline in the biodiesel industry.

REG’s business is currently focused almost entirely on the production and sale of biodiesel, with glycerin and fatty acid sales and the operations of REG’s services segment representing only a small portion of revenues. REG’s reliance on biodiesel means that it may not be able to adapt to changing market conditions or to withstand any significant decline in the size or profitability of the biodiesel industry. For example, in 2009 and the beginning of 2010, it was required to periodically idle its plants due to insufficient demand at profitable price points which materially affected its revenues. If REG is required to idle its plants in the future or is unable to adapt to changing market conditions, its revenues and results of operations may be materially harmed.

 

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Technological advances and changes in production methods in the biodiesel industry could render REG’s plants obsolete and adversely affect its ability to compete.

It is expected that technological advances in biodiesel production methods will continue to occur and new technologies for biodiesel production may develop. Advances in the process of converting oils and fats into biodiesel could allow REG’s competitors to produce biodiesel faster and more efficiently and at a substantially lower cost. If REG is unable to adapt or incorporate technological advances into its operations, REG’s production facilities could become less competitive or obsolete. Further, it may be necessary for REG to make significant expenditures to acquire any new technology and retrofit its plants in order to incorporate new technologies and remain competitive. There is no assurance that third-party licenses for any proprietary technologies that REG would need access to in order to remain competitive for either existing processes or new technology will be available to REG on commercially reasonable terms or that any new technologies could be incorporated into REG’s plants. In order to execute REG’s strategy to expand into the production of renewable chemicals, additional advanced biofuels, next generation feedstocks and related renewable products, REG may need to acquire licenses or other rights to technology from third parties. REG can provide no assurance that it will be able to obtain such licenses or rights on favorable terms. If REG is unable to obtain, implement or finance new technologies, REG’s production facilities could be less efficient than its competitors, it may not be able to successfully execute its strategy and its results of operations could be substantially harmed.

If REG is unable to respond to changes in ASTM or customer standards, REG’s ability to sell biodiesel may be harmed.

REG currently produces biodiesel to conform to or exceed standards established by ASTM. ASTM standards for biodiesel and biodiesel blends may be modified in response to new observations from the industries involved with diesel fuel. New tests or more stringent standards may require REG to make additional capital investments in, or modify, plant operations to meet these standards. In addition, some biodiesel customers have developed their own biodiesel standards which are stricter than the ASTM standards. If REG is unable to meet new ASTM standards or REG’s biodiesel customers’ standards cost effectively or at all, REG’s production technology may become obsolete, and its ability to sell biodiesel may be harmed, negatively impacting its revenues and profitability.

Increases in REG’s transportation costs or disruptions in its transportation services could have a material adverse effect on its business.

REG’s business depends on transportation services to deliver its products to its customers and to deliver raw materials to it. The costs of these transportation services are affected by the volatility in fuel prices, such as those caused by recent geopolitical and economic events. For example, in 2012, the market rates of leasing new rail cars nearly doubled as a result of increased demand to move domestically drilled crude oil from new supply fields in the upper Midwest to various refineries. REG has not been able in the past, and may not be able in the future, to pass along part or all of any of these increases to customers. If REG continues to be unable to increase its prices as a result of increased fuel costs charged to it by transportation providers, its gross margins may be materially adversely affected.

If any transportation providers fail to deliver raw materials to REG in a timely manner, it may be unable to manufacture products on a timely basis. Shipments of products and raw materials may be delayed due to weather conditions, strikes or other events. Any failure of a third-party transportation provider to deliver raw materials or products in a timely manner could harm REG’s reputation, negatively affect its customer relationships and have a material adverse effect on its business, financial condition and results of operations.

REG is dependent upon its key management personnel and the loss of any of these persons could adversely affect its results of operations.

REG is highly dependent upon key members of its management team for the execution of its business plan. REG believes that its future success is highly dependent on the contributions of these key employees. There can

 

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be no assurance that any individual will continue in his or her capacity for any particular period of time. The loss of any of these key employees could delay or prevent the achievement of REG’s business objectives and have a material adverse effect upon its results of operations and financial position.

REG and certain subsidiaries have indebtedness, which subjects it to potential defaults, could adversely affect its ability to raise additional capital to fund its operations and limits its ability to react to changes in the economy or the biodiesel industry.

At September 30, 2013, REG’s total long-term debt was $35.5 million. This includes consolidated long-term debt owed by REG’s Variable Interest Entities, or VIEs, including 416 South Bell, LLC, or Bell, LLC. In December 2011, certain of REG’s subsidiaries entered into a new revolving credit agreement with a bank group and Wells Fargo Capital Finance, LLC, which REG refers to as the Wells Fargo Revolver. At September 30, 2013, there was no balance outstanding under REG’s lines of credit, all of which REG guarantees.

All of the agreements for REG’s indebtedness contain financial covenants the breach of which would result in an event of default by REG or its subsidiary obligor. For a discussion of the financial covenants related to REG’s debt agreements, see “Management’s discussion and analysis of financial condition and results of operations—Liquidity” in REG’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013, which is incorporated by reference into this proxy statement/prospectus.

REG’s subsidiaries are required annually to pay a certain portion of REG’s excess cash flow at REG’s Danville and Newton facilities to their respective lenders, which reduces the cash flow that REG receives from these facilities.

REG’s indebtedness could:

 

    require it to dedicate a substantial portion of its cash flow from operations to payments of principal, interest on, and other fees related to such indebtedness, thereby reducing the availability of its cash flow to fund working capital and capital expenditures, and for other general corporate purposes;

 

    increase its vulnerability to general adverse economic and biodiesel industry conditions;

 

    limit its flexibility in planning for, or reacting to, changes in its business and the biodiesel industry, which may place it at a competitive disadvantage compared to its competitors that have less debt; and

 

    limit among other things, its ability to borrow additional funds.

Despite REG’s current debt levels, it and its subsidiaries may incur substantially more debt. This could exacerbate the risks associated with its substantial indebtedness.

REG and its subsidiaries may incur substantial additional debt in the future, including secured debt. REG and certain of its subsidiaries are not currently prohibited under the terms of its existing debt from incurring additional debt, pledging assets, refinancing its debt or taking a number of other actions that could diminish its ability to make payments thereunder. If new indebtedness is added to its current debt levels, the related risks that it and its subsidiaries now face could intensify.

REG has partially constructed four non-operational plants and planned plant upgrades that require capital that it may not be able to raise and an impairment could negatively impact its financial position, results of operations and future cash flows.

REG has four partially constructed or non-operational plants, one near New Orleans, Louisiana, one in Emporia, Kansas, one in Clovis, New Mexico and one near Atlanta, Georgia. REG may choose to invest approximately $145 to $160 million in the aggregate, excluding working capital requirements, before these plants would be able to commence production. REG’s Clovis plant is currently being operated as a terminal facility. In

 

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order to complete construction or upgrade these facilities as planned, REG will require additional capital. In November 2012, REG acquired a biodiesel facility near Atlanta, Georgia that had been idled prior to its acquisition and will remain so until certain repairs or upgrades are made. REG also has various upgrades planned for its operating facilities, including the upgrades it is currently undertaking at its Mason City, Iowa facility. While REG intends to finance certain upgrades to its existing facilities from its cash flow from operations, it may need to raise significant capital to complete construction of the four partially constructed or non-operational facilities and to fund related working capital requirements. It is uncertain when or if financing will be available. It is also likely that the terms of any project financing would include customary financial and other covenants restricting its project subsidiaries, including restrictions on the ability to make distributions, to guarantee indebtedness and to incur liens on the plants of such subsidiaries. REG also may engage in acquisitions of assets or facilities in the future that require significant investment to complete or operate including REG’s contemplated acquisition of substantially all of the assets of Syntroleum in connection with the asset sale, which assets include a 50% membership interest in Dynamic Fuels, which in turn owns the currently non-operational Geismar Facility. If it is unable to obtain such capital on satisfactory terms, or if such capital is otherwise unavailable, or if REG encounters cost overruns on these projects such that it has insufficient capital, it may have to postpone completion of these projects indefinitely, which may adversely affect its ability to implement its strategy and its future revenues and future cash flows.

REG may not successfully identify and complete acquisitions and other strategic relationships on favorable terms or achieve anticipated synergies relating to any such transactions, and integration of acquisitions may disrupt its business and management.

REG regularly reviews domestic and international acquisitions of biofuel production facilities and has acquired most of its facilities from third parties. However, REG may be unable to identify suitable acquisition candidates in the future. Even if REG identifies appropriate acquisition candidates, it may be unable to complete such acquisitions on favorable terms, if at all. In addition, REG may not realize the anticipated benefits of any or all of its past or future transactions and each transaction has numerous risks. These risks include:

 

    difficulty in integrating the operations and personnel of the acquired company;

 

    difficulty in effectively integrating the acquired technologies, products or services with its current technologies, products or services;

 

    disruption of its ongoing business and distraction of its management and employees from other opportunities and challenges;

 

    inability to achieve the financial and strategic goals for the acquired and combined businesses;

 

    incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact its operating results;

 

    the need to fund significant working capital requirements of any acquired production facilities;

 

    potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality, environmental liabilities, data back-up and security, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies;

 

    exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties; and

 

    incurring significant exit charges if products or services acquired in business combinations are unsuccessful.

In addition, one of REG’s strategic goals is to expand its biodiesel production capabilities into international markets. In the event REG expands its operations into international markets through acquisitions or otherwise,

 

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REG may be exposed to additional risks, including unexpected changes in foreign laws and regulations, political and economic instability, challenges in managing foreign operations, increased costs to adapt its systems and practices to those used in foreign countries, export duties, currency fluctuations and restrictions, tariffs and other trade barriers, and the burdens of complying with a wide variety of foreign laws, each of which could have a material adverse effect on REG’s business, financial condition, results of operations and liquidity.

REG intends to pursue strategic initiatives to diversify its business that will require significant funding and management attention and these initiatives may not be successful.

REG is seeking opportunities to diversify its product lines, as a commercialization partner for companies engaged in the development of new advanced biofuels, by using its biorefinery platform to produce renewable chemicals from bio-mass feedstocks and by entering entirely new industries through acquisitions or otherwise, including through its contemplated acquisition of Syntroleum’s assets. There is no assurance that new technologies capable of economically producing advanced biofuels will be developed, that the developers of these technologies will select REG as their commercialization partner or that the terms of any such collaborative arrangement will be favorable to REG. Further, the renewable chemicals market is underdeveloped. Any chemicals that REG produces from renewable sources may not prove to be as effective as chemicals produced from petroleum or other sources and, regardless of their effectiveness, renewable chemicals may not be accepted in the chemical marketplace. Furthermore, REG may not be able to acquire companies in different industries at attractive valuations or at all. These strategic initiatives will require significant funding and management attention, and if REG is not successful in implementing them, REG’s financial condition and results of operations may be harmed.

REG may be obligated to redeem its Series B preferred stock beginning in 2015.

On June 30, 2015, each holder of the then-outstanding shares of Series B preferred stock may require that up to all of such holder’s shares of Series B preferred stock be redeemed by REG out of funds lawfully available at a price per share equal to $25 per share plus any accumulated and unpaid dividends. As of the date of this filing, the amount of this potential obligation would be approximately $3.6 million. In order to satisfy any redemption request, REG may need to use limited cash resources on hand, be required to borrow money, issue equity securities or sell assets to meet this obligation, which could impair REG’s working capital, reduce the funds necessary to operate and grow its business, involve significant dilution to holders of REG’s common stock or require the disposition of REG’s key assets. If REG is subject to a redemption request, it could have a material adverse effect on its financial condition, results of operations and cash flows, and cause the price of its common stock to decline.

REG’s business is subject to seasonal fluctuations, which are likely to cause its revenues and operating results to fluctuate.

REG’s operating results are influenced by seasonal fluctuations in the price of and demand for biodiesel. REG’s sales tend to decrease during the winter season due to perceptions that biodiesel will not perform adequately in colder weather. Colder seasonal temperatures can cause the higher cloud point biodiesel REG makes from inedible animal fats to become cloudy and eventually gel at a higher temperature than petroleum-based diesel or lower cloud point biodiesel made from soybean, canola, used cooking oil or inedible corn oil. Such gelling can lead to plugged fuel filters and other fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for REG’s higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point biodiesel. In addition, most of REG’s production facilities are located in colder Midwestern states and its costs of shipping biodiesel to warmer climates generally increase in cold weather months.

In addition, REG’s RINs also have an element of seasonality to them. Since only 20% of an Obligated Party’s annual RVO can be satisfied by prior year RINs, most RINs must come from biofuel produced or imported during the RVO year. As a result, one would expect RIN prices to decrease as the calendar year

 

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progresses if the RIN market is oversupplied compared to that year’s RVO and increase if it is undersupplied. For example, in 2012, which had a RVO for biomass-based diesel of one billion gallons, biomass-based diesel RIN prices, as reported by OPIS, began to decrease in September when biomass-based diesel RIN generation neared the equivalent of 900 million gallons, as reported by EMTS. Similarly, in September of 2013 when biomass-based diesel RIN generation reached approximately 960 million gallons, biomass-based diesel RIN prices, as reported by OPIS, began to decline. As a result of these seasonal fluctuations, comparisons of operating measures between consecutive quarters may not be as meaningful as comparisons between longer reporting periods.

Failure to comply with governmental regulations, including EPA requirements relating to RFS2, could result in the imposition of penalties, fines, or restrictions on REG’s operations and remedial liabilities.

The biodiesel industry is subject to extensive federal, state and local laws and regulations related to the general population’s health and safety and compliance and permitting obligations, including those related to the use, storage, handling, discharge, emission and disposal of municipal solid waste and other waste, pollutants or hazardous substances, discharges, air and other emissions, as well as land use and development. Existing laws also impose obligations to clean up contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the contamination. Compliance with these laws, regulations and obligations could require substantial capital expenditures. Failure to comply could result in the imposition of penalties, fines or restrictions on operations and remedial liabilities. These costs and liabilities could adversely affect REG’s operations.

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require REG to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on REG’s business in general and on its results of operations, competitive position or financial condition. REG is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would significantly increase its cost of doing business or affect its operations in any area.

Under certain environmental laws and regulations, REG could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether REG was responsible for the release or contamination, or if current or prior operations were conducted consistent with accepted standards of practice. Such liabilities can be significant and, if imposed, could have a material adverse effect on REG’s financial condition or results of operations.

In addition to the regulations mentioned above, REG is subject to various laws and regulations related to RFS2, most significantly regulations related to the generation and dissemination of RINs. These regulations are highly complex and evolving, requiring REG to periodically update its compliance systems. For example, in 2008, REG unintentionally generated duplicate RINs as a result of a change to the software it uses to manage RIN generation. REG voluntarily reported this violation to the EPA and followed EPA guidance in correcting the issue promptly. In 2011, REG entered into an administrative settlement agreement with the EPA regarding this violation and paid a fine for this inadvertent violation. Any violation of these regulations by REG, inadvertently or otherwise, could result in significant fines and harm REG’s customers’ confidence in the RINs REG issues, either of which could have a material adverse effect on REG’s business.

In response to certain cases of RIN fraud whereby biodiesel producers were selling biomass-based diesel RINs without having produced the required renewable fuel, the EPA is in the process of implementing a quality assurance program for RIN compliance. Compliance with these or any new regulations or Obligated Party verification procedures could require significant expenditures to attain and maintain compliance. Failure to comply could result in the imposition of penalties, fines, restrictions on operations, loss of customers and remedial liabilities. These costs and liabilities may have a material adverse effect on REG’s business in general and on its results of operations, competitive position or financial condition. REG is unable to predict the effect of any additional regulatory or customer requirements which may be adopted in the future, including whether any

 

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such regulations or verification procedures would significantly increase its cost of doing business or affect REG’s operations in any area.

REG is a holding company and there are limitations on its ability to receive dividends and distributions from its subsidiaries.

All of REG’s principal assets, including its biodiesel production facilities, are owned by subsidiaries and some of these subsidiaries are subject to loan covenants that generally restrict them from paying dividends, making distributions or making loans to REG or to any other subsidiary. These limitations will restrict REG’s ability to repay indebtedness, finance capital projects or pay dividends to stockholders from REG’s subsidiaries’ cash flows from operations.

REG’s business may suffer if it is unable to attract or retain talented personnel.

REG’s success depends on the abilities, expertise, judgment, discretion, integrity, and good faith of its management and employees to manage the business and respond to economic, market and other conditions. REG has a relatively small management team and employee base, and the inability to attract suitably qualified replacements or additional staff could adversely affect its business. No assurance can be given that its management team or employee base will continue their employment, or that replacement personnel with comparable skills could be found. If REG is unable to attract and retain key personnel and additional employees, its business may be adversely affected.

If REG fails to maintain effective internal control over financial reporting, REG might not be able to report its financial results accurately or prevent fraud; in that case, REG’s stockholders could lose confidence in its financial reporting, which would harm its business and could negatively impact the value of its stock.

Effective internal controls are necessary for REG to provide reliable financial reports and prevent fraud. The process of maintaining REG’s internal controls may be expensive and time consuming and may require significant attention from management. Although REG has concluded as of December 31, 2012 that its internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm REG’s results of operations or cause it to fail to meet its reporting obligations. If REG or its independent registered public accounting firm discover a material weakness, the disclosure of that fact could harm the value of REG’s stock and business.

A natural disaster, leak, fire or explosion at any of REG’s production plants or customer’s facilities could increase its costs and liabilities.

Because biodiesel and some of its inputs and outputs are combustible and flammable, a leak, fire or explosion may occur at a plant or customer’s facility which could result in damage to the plant and nearby properties, injury to employees and others, and interruption of operations. In addition, REG’s Houston facility, due to its coastal location, is vulnerable to hurricanes, which may cause plant damage, injury to employees and others and interruption of operations and all of REG’s plants could incur damage from other natural disasters. A majority of REG’s facilities are also located in the Midwest, which is subject to tornado activity. If any of the foregoing events occur, REG may incur significant additional costs including, among other things, loss of profits due to unplanned temporary or permanent shutdowns of its facilities, clean-up costs, liability for damages or injuries, legal expenses, and reconstruction expenses, which would seriously harm REG’s results of operations and financial condition.

REG’s insurance may not protect it against its business and operating risks.

REG maintains insurance for some, but not all, of the potential risks and liabilities associated with its business. For some risks, REG may not obtain insurance if it believes the cost of available insurance is excessive

 

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relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, REG may not be able to renew its existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Although REG intends to maintain insurance at levels it believes are appropriate for its business and consistent with industry practice, REG will not be fully insured against all risks. In addition, pollution, environmental risks and the risk of natural disasters generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on REG’s financial condition and results of operations.

Confidentiality agreements with employees and others may not adequately prevent disclosures of confidential information, trade secrets and other proprietary information.

REG relies in part on trade secret protection to protect REG’s confidential and proprietary information and processes. However, trade secrets are difficult to protect. REG has taken measures to protect its trade secrets and proprietary information, but these measures may not be effective. For example, REG requires new employees and consultants to execute confidentiality agreements upon the commencement of their employment or consulting arrangement with it. These agreements generally require that all confidential information developed by the individual or made known to the individual by REG during the course of the individual’s relationship with REG be kept confidential and not disclosed to third parties. These agreements also generally provide that knowhow and inventions conceived by the individual in the course of rendering services to REG are its exclusive property. Nevertheless, these agreements may be breached, or may not be enforceable, and REG’s proprietary information may be disclosed. Further, despite the existence of these agreements, third parties may independently develop substantially equivalent proprietary information and techniques. Accordingly, it may be difficult for REG to protect its trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of REG’s proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect REG’s competitive business position.

Moreover, REG cannot assure you that its technology does not infringe upon any valid claims of patents that other parties own. In the future, if REG is found to be infringing on a patent owned by a third party, it might have to seek a license from such third party to use the patented technology. REG cannot assure you that, if required, it would be able to obtain such a license on terms acceptable to it, if at all. If a third party brought a legal action against REG or its licensors, REG could incur substantial costs in defending itself, and it cannot assure you that such an action would be resolved in its favor. If such a dispute were to be resolved against REG, REG could be subject to significant damages.

Insiders have significant ownership positions and will continue to be able to exercise influence over corporate matters.

One of REG’s pre-initial public offering investors, West Central Cooperative, beneficially owns approximately 8.2% of REG’s common stock, and as a result has substantial influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of REG or its assets. In addition, two of REG’s directors are affiliated with West Central Cooperative. This concentration of ownership could limit other stockholders’ ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over REG.

In the event REG enters into new construction contracts, it may be exposed to a variety of risks that could affect its ability to realize profit.

While REG’s construction services management business has had only limited external operations over the last three years, REG intends to continue to pursue opportunities to provide these services. Substantially all of REG’s revenues from its new facility construction services business have been derived from fixed unit price contracts. Fixed unit price contracts require REG to perform the contract for a fixed unit price irrespective of its actual costs. As a result, REG realizes a profit on these contracts only if it and its subcontractors successfully

 

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estimate its costs and then successfully control actual costs and avoid cost overruns. Further, REG has historically subcontracted substantially all of its construction work to various engineering and construction companies on a time and materials, rather than fixed, basis. As a result, REG has less control over the largest component of its plant construction costs and the risk of cost overruns generally falls on REG rather than its subcontractors. If REG or its subcontractors do not perform a contract within cost estimates, then cost overruns may cause REG to incur losses or cause the contract not to be as profitable as REG initially expected. This, in turn, could negatively affect REG’s cash flow, earnings and financial position. As REG has acquired assets and begun consolidating the industry, its construction services management business has almost exclusively been focused on internal intercompany projects.

If REG or its subcontractors perform extra or change order work that is not approved by the customer in advance, REG may have a dispute with the customer over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. These disputes may result in REG not receiving payment for all or a significant portion of work that REG or its subcontractors have performed. Even where the customer agrees to pay for the extra work, REG may be required to fund the cost of that work for a lengthy period of time until the change order is approved and paid by the customer. To the extent actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in REG’s financial statements, the amount of any shortfall will reduce its revenues and profits, and this could have a material adverse effect on REG’s working capital and results of operations.

Risks Related to the Biodiesel Industry

The market price of biodiesel is influenced by the price of petroleum-based distillate fuels, such as ultra-low sulfur diesel, and decreases in the price of petroleum-based distillate fuels or RIN values would very likely decrease the price REG can charge for its biodiesel, which could harm REG’s revenues and profitability.

Historically, biodiesel prices have been strongly correlated to petroleum-based diesel prices and in particular ULSD, regardless of the cost of producing biodiesel itself. REG markets its biofuel as an alternative to petroleum-based fuels. Therefore, if the price of petroleum-based diesel falls, the price of biodiesel could decline, and REG may be unable to produce products that are an economically viable alternative to petroleum-based fuels. Petroleum prices are volatile due to global factors, such as the impact of wars, political uprisings, OPEC production quotas, worldwide economic conditions, changes in refining capacity and natural disasters. Additionally, demand for liquid transportation fuels, including biodiesel, is impacted by economic conditions.

Just as a small reduction in the real or anticipated supply of crude oil can have a significant upward impact on the price of petroleum-based fuels, a perceived reduction of such threats can result in a significant reduction in petroleum-based fuel prices. A reduction in petroleum-based fuel prices may have a material adverse effect on REG’s revenues and profits if such price decrease reduces the price REG is able to charge for its biodiesel.

There was a sharp decline in RIN prices during third quarter 2012 that carried through the end of 2012. During this period, RIN pricing declined from $1.17 per RIN at June 30, 2012 to $0.64 per RIN at December 31, 2012, as reported by OPIS, which contributed to the decline in price of biodiesel. RIN prices declined from $1.09 per RIN at July 1, 2013 to $0.35 per RIN at December 31, 2013, as reported by OPIS. A reduction in RIN values, such as those experienced in the second half of 2012 and 2013, may have a material adverse effect on REG’s revenues and profits as such price decrease reduce the price REG is able to charge for its biodiesel.

REG operates in a highly competitive industry and competition in its industry would increase if new participants enter the biodiesel business.

REG operates in a very competitive environment. The biodiesel industry is primarily comprised of smaller entities that engage exclusively in biodiesel production, large integrated agribusiness companies that produce

 

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biodiesel along with their soybean crush businesses and increasingly, integrated petroleum companies. REG faces competition for capital, labor, feedstocks and other resources from these companies. In the United States, REG competes with soybean processors and refiners, including Archer-Daniels-Midland Company, LLC, Cargill, Inc. and Louis Dreyfus Commodities. In addition, petroleum refiners are increasingly entering into biodiesel and renewable diesel production. These and other competitors that are divisions of larger enterprises may have greater financial resources than REG does. REG also has many smaller competitors. If REG’s competitors consolidate or otherwise grow and it is unable to similarly increase its scale, its business and prospects may be significantly and adversely affected.

In addition, petroleum companies and diesel retailers form the primary distribution networks for marketing biodiesel through blended petroleum-based diesel. If these companies increase their direct or indirect biodiesel and renewable diesel production, there will be less of a need to purchase biodiesel from independent biodiesel producers like REG. Such a shift in the market would materially harm REG’s operations, cash flows and financial position.

The development of alternative fuels and energy sources may reduce the demand for biodiesel, resulting in a reduction in REG’s revenues and profitability.

The development of alternative fuels, including a variety of energy alternatives to biodiesel has attracted significant attention and investment. Neste Oil operates four renewable diesel plants: a 240 million gallon per year plant in Singapore, a 240 million gallon per year plant in Rotterdam, Netherlands, and two 60 million gallon per year plants in Porvoo, Finland. Diamond Green Diesel, LLC has completed construction and commenced operations of its 137 million gallon per year renewable diesel plant in Norco, Louisiana in 2013. Under RFS2, renewable diesel made from biomass meets the definition of biomass-based diesel and thus is eligible, along with biodiesel, to satisfy the RFS2 biomass-based diesel requirement described in “Business—Government Programs Favoring Biodiesel Production and Use” in REG’s Annual Report on Form 10-K for the year ended December 31, 2012, which is incorporated by reference in this proxy statement/prospectus. Furthermore, under RFS2, renewable diesel may receive up to 1.7 RINs per gallon, whereas biodiesel currently receives 1.5 RINs per gallon. As the value of RINs increases, this 0.2 RIN advantage may make renewable diesel more cost-effective, both as a petroleum-based diesel substitute and for meeting RFS2 requirements. If renewable diesel proves to be more cost-effective than biodiesel, REG’s revenues and results of operations would be adversely impacted.

In addition, the EPA may allow other fuels to satisfy the RFS2 requirements and allow RINs to be attached to these fuels. The EPA recently adopted regulations to amend the definition of “Home Heating Oil” under RFS2, which expands the scope of fuels eligible to generate RINs. This will increase competition within heating oil markets by introducing fuels that generate more RINs (i.e., cellulosic diesel) and may be more cost competitive than biodiesel utilized as heating oil.

The biodiesel industry will also face increased competition resulting from the advancement of technology by automotive, industrial and power generation manufacturers which are developing more efficient engines, hybrid engines and alternative clean power systems. Improved engines and alternative clean power systems offer a technological solution to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. If and when these clean power systems are able to offer significant efficiency and environmental benefits and become widely available, the biodiesel industry may not be able to compete effectively with these technologies and government requirements for the use of biodiesel may not continue.

The development of alternative fuels and renewable chemicals also puts pressure on feedstock supply and availability to the biodiesel industry. If these emerging technologies compete with biodiesel for feedstocks, are more profitable or have greater governmental support than biodiesel does, then the biodiesel industry may have difficulty in procuring the feedstocks necessary to be successful.

 

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Increased industry-wide production of biodiesel could have a negative effect on REG’s margins and there remains excess production capacity in the biodiesel industry.

According to EPA EMTS data, approximately 1.1 billion gallons of biomass-based diesel RINs were generated in 2011, 1.14 billion gallons were generated in 2012 and approximately 1.59 billion gallons have been generated in 2013 through November 30, 2013, the most recent monthly data available. Such production was in excess of the 800 million gallon RFS2 requirement for 2011, the one billion gallon requirement for 2012, and the 1.28 billion requirement for 2013. Should biodiesel production continue to remain above RFS2 required volumes, the resulting supply could put downward pressure on REG’s margins for biodiesel, negatively affecting REG’s profitability.

Under RFS2, Obligated Parties are entitled to satisfy up to 20% of their annual volume requirement for any given year with gallons used in the previous year so long as they are in compliance with the RFS2. EMTS data indicates that Obligated Parties may have carried over approximately 200 million gallons of biomass-based diesel RINs from 2012 into 2013. As an illustrative example, according to EMTS data, biomass-based diesel was produced and imported into the U.S. at average rate of 170 million gallons per month for September, October and November of 2013, the last three months of available EMTS data. If that rate is maintained in December of 2013, approximately 1.76 billion gallons of biomass-based diesel RINs could be generated in 2013. Adding the 2012 carry-over to the 2013 RIN generation, would result in an estimated total biomass-based diesel RIN availability of approximately 1.96 billion gallons, which is approximately 680 million gallons more than required to satisfy the 1.28 billion gallon 2013 biomass-based diesel RVO. The proposed 2014 biomass-based diesel RVO is 1.28 billion gallons, and if adopted would limit the 2014 carryover to 256 million gallons, or 20% of 1.28 billion, thus resulting in an excess supply of 424 million gallons of biomass-based diesel RINs. These excess RINs can be used to fulfill the advanced biofuel RVO or the renewable fuel RVO. If the volume of excess biomass-based diesel RINs exceeds the volume the Obligated Parties desire to use to fulfill their advanced biofuel and renewable fuel requirements, the demand for and price of REG’s biodiesel and biomass-based diesel RINs may be reduced, which could harm its revenues and cash flows. Many biodiesel plants in the United States do not currently operate, and of those that do, many do not operate at full capacity. According to the National Biodiesel Board, or NBB, as of September 12, 2012, 2.7 billion gallons per year of biodiesel production capacity in the United States were registered under the RFS2 program by NBB members. In addition to this amount, several hundred more gallons of U.S. based biomass-based diesel production capacity was registered by non-NBB members and another 1.2 billion gallons of biomass-based diesel production was registered by foreign producers. Furthermore, plants under construction and expansion in the United States as of December 31 2011, if completed, could add an additional several hundred million gallons of annual biodiesel production capacity. The annual production capacity of existing plants and plants under construction far exceeds both historic consumption of biodiesel in the United States and required consumption under RFS2. If this excess production capacity was fully utilized for the U.S. market, it would increase competition for REG’s feedstocks, increase the volume of biomass-based diesel on the market and may reduce biodiesel gross margins, harming REG’s revenues and profitability.

The European Commission has imposed anti-dumping and countervailing duties on biodiesel blends imported into Europe, which have effectively eliminated REG’s ability to sell those biodiesel blends in Europe.

In March 2009, as a response to the federal blenders tax credit, the European Commission imposed anti-dumping and anti-subsidy tariffs on biodiesel produced in the United States. These tariffs have effectively eliminated European demand for 20% biodiesel blends, or B20, or higher imported from the United States. The European Commission has extended these tariffs through 2014. In May 2011, the European Commission imposed similar anti-dumping and countervailing duties on biodiesel blends below B20. These duties significantly increase the price at which REG and other United States biodiesel producers will be able to sell such biodiesel blends in European markets, making it difficult or impossible to compete in the European biodiesel market. These anti-dumping and countervailing duties therefore decrease the demand for biodiesel produced in the United States and increase the supply of biodiesel available in the United States market. Such market dynamics may negatively impact REG’s revenues and profitability.

 

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If automobile manufacturers and other industry groups express reservations regarding the use of biodiesel, REG’s ability to sell biodiesel will be negatively impacted.

Because it is a relatively new product, research on biodiesel use in automobiles is ongoing. While most heavy duty automobile manufacturers have approved blends of up to 20% biodiesel, some industry groups have recommended that blends of no more than 5% biodiesel be used for automobile fuel due to concerns about fuel quality, engine performance problems and possible detrimental effects of biodiesel on rubber components and other engine parts. Although some manufacturers have encouraged use of biodiesel fuel in their vehicles, cautionary pronouncements by other manufacturers or industry groups may impact REG’s ability to market its biodiesel.

Perception about “food vs. fuel” could impact public policy which could impair REG’s ability to operate at a profit and substantially harm its revenues and operating margins.

Some people believe that biodiesel may increase the cost of food, as some feedstocks such as soybean oil used to make biodiesel can also be used for food products. This debate is often referred to as “food vs. fuel.” This is a concern to the biodiesel industry because biodiesel demand is heavily influenced by government policy and if public opinion were to erode, it is possible that these policies would lose political support. These views could also negatively impact public perception of biodiesel. Such claims have led some, including members of Congress, to urge the modification of current government policies which affect the production and sale of biofuels in the United States.

Concerns regarding the environmental impact of biofuel production could affect public policy which could impair REG’s ability to operate at a profit and substantially harm its revenues and operating margins.

Under the EISA, the EPA is required to produce a study every three years of the environmental impacts associated with current and future biofuel production and use, including effects on air and water quality, soil quality and conservation, water availability, energy recovery from secondary materials, ecosystem health and biodiversity, invasive species and international impacts. The first such triennial report was released in February 2012. The 2012 report concludes that (1) the extent of negative impacts to date are limited in magnitude and are primarily associated with the intensification of corn production; (2) whether future impacts are positive or negative will be determined by the choice of feedstock, land use change, cultivation and conservation practices; and (3) realizing potential benefits will require implementation and monitoring of conservation and best management practices, improvements in production efficiency, and implementation of innovative technologies at commercial scales. Should future EPA triennial studies, or other analyses find that biofuel production and use has resulted in, or could in the future result in, adverse environmental impacts, such findings could also negatively impact public perception of biofuel and acceptance of biofuel as an alternative fuel, which also could result in the loss of political support.

To the extent that state or federal laws are modified or public perception turns against biofuels, use requirements such as RFS2 and state tax incentives may not continue, which could materially harm REG’s ability to operate profitably.

Problems with product performance, in cold weather or otherwise, could cause consumers to lose confidence in the reliability of biodiesel which, in turn, would have an adverse impact on REG’s ability to successfully market and sell biodiesel.

Concerns about the performance of biodiesel could result in a decrease in customers and revenues and an unexpected increase in expenses. Biodiesel typically has a higher cloud point than petroleum-based diesel. The cloud point is the temperature below which a fuel exhibits a noticeable cloudiness and is the conventional indicator of a fuel’s potential for cold weather problems. The lower the cloud point, the better the fuel should perform in cold weather. According to an article published by Iowa State University Extension, the cloud point of biodiesel is typically between 30 °F and 60 °F, while the cloud point of the most common form of pure

 

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petroleum-based diesel fuel is typically less than 20 °F. It is REG’s experience that when biodiesel is mixed with pure petroleum-based diesel to make a two percent biodiesel blend, the cloud point of the blended fuel can be 2 °F to 6 °F higher than petroleum-based diesel and the cloud point of a twenty percent biodiesel blend can be 15 °F to 35 °F higher than petroleum based diesel, depending on the individual cloud points of the biodiesel and petroleum-based diesel. Cold temperatures can therefore cause biodiesel blended fuel to become cloudy and eventually to gel when pure petroleum-based diesel would not, and this can lead to plugged fuel filters and other fuel handling and performance problems for customers and suppliers. The consequences of these higher cloud points may cause demand for biodiesel in northern and eastern United States markets to diminish during the colder months, which are the primary markets in which REG currently operates.

The tendency of biodiesel to gel in colder weather may also result in long-term storage problems. In cold climates, fuel may need to be stored in a heated building or heated storage tanks, which result in higher storage costs. This and other performance problems, including the possibility of particulate formation above the cloud point of a blend of biodiesel and petroleum-based diesel, may also result in increased expenses as REG tries to remedy these performance problems, including the costs of extra cold weather treatment additives. Remedying these performance problems may result in decreased yields, lower process throughput or both, as well as substantial capital costs. Any reduction in the demand for REG’s biodiesel product, or the production capacity of REG’s facilities will reduce its revenues and have an adverse effect on its cash flows and results of operations.

Growth in the sale and distribution of biodiesel is dependent on the expansion of related infrastructure which may not occur on a timely basis, if at all, and REG’s operations could be adversely affected by infrastructure limitations or disruptions.

Growth in the biodiesel industry depends on substantial development of infrastructure for the distribution of biodiesel. Substantial investment required for these infrastructure changes and expansions may not be made on a timely basis or at all. The scope and timing of any infrastructure expansion are generally beyond REG’s control. Also, REG competes with other biofuel companies for access to some of the key infrastructure components such as pipeline and terminal capacity. As a result, increased production of biodiesel or other biofuels will increase the demand and competition for necessary infrastructure. Any delay or failure in expanding distribution infrastructure could hurt the demand for or prices of biodiesel, impede delivery of REG’s biodiesel, and impose additional costs, each of which would have a material adverse effect on REG’s results of operations and financial condition. REG’s business will be dependent on the continuing availability of infrastructure for the distribution of increasing volumes of biodiesel and any infrastructure disruptions could materially harm REG’s business.

REG may face competition from imported biodiesel and renewable diesel, which may reduce demand for biodiesel produced by REG and cause REG’s revenues to decline.

Biodiesel and renewable diesel imports into the United States have increased significantly and compete with United States produced biodiesel. The imported fuels may benefit from production incentives or other financial incentives in their home countries that offset some of their production costs and enable them to profitably sell biodiesel or renewable diesel in the United States at lower prices than United States-based biodiesel producers. Under RFS2, imported biodiesel and renewable diesel is eligible and, therefore, competes to meet the volumetric requirements for biomass-based diesel. If imports continue to increase, this could make it more challenging for REG to market or sell biodiesel in the United States, which would have a material adverse effect on REG’s revenues. Imported biodiesel that does not qualify under RFS2, also competes in jurisdictions where there are biodiesel blending requirements.

Nitrogen oxide emissions from biodiesel may harm its appeal as a renewable fuel and increase costs.

In some instances biodiesel may increase emissions of nitrogen oxide as compared to petroleum-based diesel fuel, which could harm air quality. Nitrogen oxide is a contributor to ozone and smog. New Technology Diesel Engines eliminate any such increase. Emissions from older vehicles while the fleet turns over may

 

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decrease the appeal of biodiesel to environmental groups and agencies who have been historic supporters of the biodiesel industry, potentially harming REG’s ability to market its biodiesel.

In addition, several states may act to regulate potential nitrogen oxide emissions from biodiesel. California is in the process of formulating biodiesel regulations that may also require such an additive. In states where such an additive is required to sell biodiesel, the additional cost of the additive may make biodiesel less profitable or make biodiesel less cost competitive against petroleum-based diesel or renewable diesel, which would negatively impact REG’s ability to sell its products in such states and therefore have an adverse effect on its revenues and profitability.

Several biofuels companies throughout the United States have filed for bankruptcy over the last several years due to industry and economic conditions.

Unfavorable worldwide economic conditions, lack of credit and volatile biofuel prices and feedstock costs have likely contributed to the necessity of bankruptcy filings by biofuel producers. REG’s business has been, and in the future may be, negatively impacted by the industry conditions that influenced the bankruptcy proceedings of other biofuel producers, or REG may encounter new competition from buyers of distressed biodiesel properties who enter the industry at a lower cost than original plant investors.

Risks Related to REG’s Common Stock

The market price for REG’s common stock may be volatile.

Although there is currently an active and liquid trading market for REG common stock, the market price for REG’s common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

 

    actual or anticipated fluctuations in its financial condition and operating results;

 

    changes in the performance or market valuations of other companies engaged in its industry;

 

    issuance of new or updated research reports by securities or industry analysts;

 

    changes in financial estimates by it or of securities or industry analysts;

 

    investors’ general perception of it and the industry in which it operates;

 

    changes in the political climate in the industry in which it operates, existing laws, regulations and policies applicable to its business and products, including RFS2, and the continuation or adoption or failure to continue or adopt renewable energy requirements and incentives, including the blenders tax credit;

 

    other regulatory developments in its industry affecting it, its customers or its competitors;

 

    announcements of technological innovations by it or its competitors;

 

    announcement or expectation of additional financing efforts, including sales or expected sales of additional common stock;

 

    additions or departures of key management or other personnel;

 

    litigation;

 

    inadequate trading volume;

 

    general market conditions in its industry; and

 

    general economic and market conditions, including continued dislocations and downward pressure in the capital markets.

 

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In addition, stock markets generally and from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may have material adverse effect on the market price of REG’s common stock.

REG may issue additional common stock as consideration for future investments or acquisitions.

REG has issued in the past, and may issue in the future, its securities in connection with investments and acquisitions. The amount of its common stock or securities convertible into or exchangeable for its common stock issued in connection with an investment or acquisition could constitute a material portion of its then outstanding common stock.

REG has never paid dividends on its common stock and it does not anticipate paying any cash dividends on its common stock in the foreseeable future.

REG has paid no cash dividends on any of its classes of common stock to date, has contractual restrictions against paying cash dividends on its common stock and currently expects to retain its future earnings to fund the development and growth of its business. In addition, holders of REG’s Series B preferred stock are entitled to receive cumulative dividends semi-annually in arrears on June 30 and December 30 of each year at an annual rate of $1.125 per share. REG may, at its option, defer a regularly scheduled dividend payment on the Series B preferred stock and instead pay accumulated and unpaid dividends on the following dividend payment date, however, REG may only defer two such dividend payments and may not defer consecutive dividend payments. REG may pay any dividend in cash, by delivering shares of REG common stock, or through any combination of cash and shares of common stock. Unless all accumulated and unpaid dividends on the Series B preferred stock are paid in full, REG may not pay any dividends on other shares of its capital stock. As a result, stockholders must look solely to appreciation of REG’s common stock to realize a gain on their investment. This appreciation may not occur. Investors seeking cash dividends should not invest in REG’s common stock.

Delaware law and REG’s amended and restated certificate of incorporation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in REG’s amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in REG’s management. These provisions include the following:

 

    the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

 

    the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

 

    the ability of the board of directors to alter REG’s bylaws without obtaining stockholder approval;

 

    the ability of the board of directors to issue, without stockholder approval, up to 10,000,000 shares of REG’s preferred stock with rights set by the board of directors, which rights could be senior to those of common stock;

 

    a classified board;

 

    the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal REG’s bylaws or amend or repeal the provisions of REG’s amended and restated certificate of incorporation regarding the classified board, the election and removal of directors and the ability of stockholders to take action by written consent; and

 

    the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.

 

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In addition, because REG is incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of REG’s outstanding voting stock, from merging or combining with REG.

These provisions in REG’s amended and restated certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of REG’s common stock in the future and result in REG’s market price being lower than it would without these provisions.

If securities or industry analysts issue an adverse or misleading opinion regarding REG’s stock or do not publish research or reports about its business, its stock price and trading volume could decline.

The trading market for REG’s Common Stock relies in part on the research and reports that equity research analysts publish about REG and its business. It is difficult for companies such as REG to attract independent equity research analysts to cover its common stock. REG does not control these analysts or the content and opinions included in their reports. The price of REG’s common stock could decline if one or more equity research analysts downgrade its common stock or if those analysts issue other unfavorable commentary or cease publishing reports about REG or its business. Although there is currently an active and liquid trading market for REG common stock, if one or more equity research analysts ceases coverage of REG, it could lose visibility in the market, which in turn could cause its stock price to decline and the market for REG common stock to become illiquid.

Risk Factors Relating to Syntroleum

Risks Relating to Syntroleum’s Technology

Syntroleum might not successfully commercialize its technology, and commercial-scale plants based Syntroleum’s proprietary processes may never be successfully constructed or operated by Syntroleum or its licensees.

Syntroleum does not have significant experience managing the financing, design, construction or operation of commercial-scale plants, and it may not be successful in doing so. Although currently not operating, the Geismar Facility owned by Dynamic Fuels is Syntroleum’s first commercial scale plant to be operational at any point in time based on its Bio-Synfining® technology. The Geismar Facility has never achieved profitability or operated at full design capacity on a continuous basis for an extended length of time.

No commercial-scale plant based on Synfining® technology has been operational to date and a commercial-scale plant based on Synfining® technology may never be successfully built either by Syntroleum or by its licensees. Success in commercializing Synfining® technology depends on Syntroleum’s licensees’ ability to economically design, construct and operate commercial-scale plants, which depends on a variety of factors, many of which are outside Syntroleum’s control.

Each of Syntroleum’s licensees will determine whether Syntroleum issues any plant site licenses to them. In addition, Syntroleum’s license agreements may be terminated by the licensee, with or without cause and without penalty, upon 90 days’ notice to Syntroleum. If Syntroleum does not receive payments under its license agreements, it may not have sufficient resources to implement its business strategy. Syntroleum’s licensees, other than Dynamic Fuels, are not restricted from pursuing alternative technologies on their own or in collaboration with others, including Syntroleum’s competitors.

 

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Commercial-scale plants based on the Syntroleum technologies might not produce results necessary for success, including results demonstrated on a laboratory, pilot plant and demonstration basis.

A variety of factors may impact the successful commercialization of Syntroleum’s technologies at a commercial plant, and may cause the results demonstrated in research and development efforts not to be replicated in a commercial plan. These factors include:

 

    the use of feedstocks that are not consistent with the specifications of feedstocks used in research and development efforts, including feedstocks that have impurities, adulterants and/or contaminants requiring additional pretreatment or for which no pretreatment process is available;

 

    feedstock supply interruptions;

 

    failure of third party suppliers, contractors or technologies to deliver feedstocks, goods and/or services on specification;

 

    catalyst activity (of all types) that are less than design basis which would require an increase in the amount of catalyst, and/or number of reactors required to produce at the design rate resulting in increased capital and operating costs;

 

    shorter than anticipated catalyst life, which would require more frequent catalyst regeneration, catalyst replacements, or both, thereby increasing operating costs;

 

    excessive production of gaseous or light hydrocarbons compared to design basis, which would lower the amount of desirable hydrocarbons produced, and reduce revenues and margins;

 

    inability of third-party gasification and synthesis gas clean-up technology integrated into the Syntroleum processes to produce on specification synthesis gas adequate for economic operation of a FT plant; and

 

    longer project cycles and/or higher than anticipated capital and operating costs including feedstock costs.

In addition, Syntroleum has encountered, and future plants could experience, mechanical difficulties related or unrelated to elements of Syntroleum technologies, including difficulties resulting from damage caused by contaminants, impurities and adulterants in renewable feedstocks.

Many of Syntroleum’s competitors have significantly more resources than Syntroleum does, and technologies developed by competitors could become more commercially successful than Syntroleum’s or render Syntroleum’s technologies obsolete.

Development and commercialization of FT and renewable fuels technologies is highly competitive, and other technologies could become more commercially successful than Syntroleum’s. Syntroleum’s technologies are based on chemistry that has been used by several companies in synthetic fuel projects over the past 60 years. Syntroleum’s competitors include major integrated oil companies as well as independent technology providers that have developed or are developing competing technologies. These companies typically have significantly more resources than Syntroleum does.

As Syntroleum’s competitors continue to develop competing technologies, one or more of Syntroleum’s current technologies could become obsolete. Syntroleum’s ability to create and maintain technological advantages is critical to its future success. As new technologies develop, Syntroleum may be placed at a competitive disadvantage forcing it to implement new technologies at a substantial cost. Syntroleum may not be able to successfully develop or expend the financial resources necessary to acquire or develop new technology.

 

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Syntroleum’s ability to protect its intellectual property rights involves complexities and uncertainties and commercialization of its technologies could give rise to claims that its technology infringes upon the rights of others.

Syntroleum’s success depends on its ability to protect its intellectual property rights and open art rights, which involves complex legal and scientific uncertainties. Syntroleum relies on a combination of patents, copyrights, trademarks, trade secrets and contractual restrictions to protect its proprietary rights. Patents may not be granted, and Syntroleum’s existing patents might not provide it with commercial benefit or might be infringed upon, invalidated or circumvented by others. The availability of patents in foreign markets, and the nature of any protection against competition that may be afforded by those patents, is often difficult to predict and vary significantly from country to country. Syntroleum, its licensors, or its licensees may choose not to seek, or may be unable to obtain, patent protection in a country that could potentially be an important market for its technologies. The confidentiality agreements that are designed to protect Syntroleum’s trade secrets could be breached, and it might not have adequate remedies for the breach. Additionally, Syntroleum’s trade secrets and proprietary know-how might otherwise become known or be independently discovered by others.

Commercialization of Syntroleum’s technologies may give rise to claims that its technologies infringe upon the patents or proprietary rights of others. Syntroleum is currently involved in litigation concerning alleged infringement claims. Syntroleum may not become aware of patents or rights that may have applicability until after it has made a substantial investment in the development and commercialization of its technology. Third parties may claim infringement. Legal actions could be brought against Syntroleum, its co-venturers or its licensees claiming damages and seeking an injunction that would prevent it, its co-venturers or its licensees utilizing the affected technologies. If an infringement action were successful, in addition to potential liability for damages, its co-venturers, its licensees or it could be required to obtain a license in order to continue to test, market or commercialize the affected technologies. Any required license might not be made available or, if available, might not be available on acceptable terms, and Syntroleum could be prevented entirely from testing, marketing or commercializing the affected technology. Syntroleum may have to expend substantial resources in litigation, either in enforcing its patents, defending against the infringement claims of others, or both. Many possible claimants, such as the major energy companies that have competing technologies competitive with Syntroleum’s technologies, have significantly more resources to spend on litigation.

Syntroleum could have potential indemnification liabilities to licensees relating to the operation of plants based on its technologies or intellectual property disputes.

Syntroleum’s indemnification obligations could result in substantial expenses and liabilities to it if intellectual property rights claims were to be made against Syntroleum or its licensees, or if plants based on its technology were to fail to operate as designed. Generally Syntroleum’s license agreements require it to indemnify the licensee, sometimes subject to certain limitations against specified losses relating to, among other things:

 

    use of patent rights and technical information relating to the Syntroleum technologies;

 

    acts or omissions by Syntroleum in connection with its preparation of process design packages for plants; and

 

    performance guarantees that Syntroleum may provide.

 

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Risks Relating to Renewable Fuels Industry

The U.S. renewable fuels industry is highly dependent on a mix of international, federal and state legislation and regulation and any changes could harm Syntroleum’s business and financial condition.

The EISA and the Energy Policy Act of 2005, or EPAct, established Renewable Fuel Standard 2, or RFS2, which requires that certain volumes of renewable fuels be consumed, which includes biomass based diesel, ethanol and other liquid fuel produced from biomass to be blended into the fuel supply. RFS2 is effective through 2022. Syntroleum believes that RFS2 has increased the demand for renewable diesel and that renewable diesel prices have benefited significantly from RFS2. However, there can be no assurance that the United States Congress will not repeal, curtail or otherwise change, or that the EPA will not curtail or otherwise change the RFS2 program in a manner adverse to Syntroleum. The petroleum industry is generally opposed to RFS2 and can be expected to continue to press for changes that eliminate or reduce its impact. Any repeal or reduction in the RFS2 requirements or reinterpretation of RFS2 resulting in Syntroleum’s renewable diesel failing to qualify as a required fuel would have a material adverse effect on Syntroleum’s financial condition and results of operations.

The EPA is required to determine the volume of biomass-based diesel that will be required each year beginning in 2013 based on the EPA’s consideration of a variety of factors, including biomass-based diesel production, consumption, and infrastructure issues, the likely impact of biomass-based diesel production and use in a variety of areas, including climate change, energy security, the agricultural sector, air quality, transportation fuel costs, job creation, and water quality, and other factors. RFS2 requires that the biomass-based diesel annual volume requirement be at least 1 billion gallons in each of those years. The biomass-based diesel volume requirement for 2013 was 1.28 billion gallons.

As of the date of this proxy statement/prospectus, the EPA has not finalized the 2014 Renewable Volume Obligations, or RVOs. The EPA has proposed a 2014 and 2015 biomass-based diesel RVO of 1.28 billion gallons in each of those years and a reduced Advanced Biofuel RVO of 2 to 2.51 billion gallons rather than the original Energy Independence and Security Act of 2009, or EISA, volume of 3.75 billion gallons for 2014. Before the RVO can be finalized, the Office of Management and Budget, or OMB, has to approve EPA’s proposal, based on the same factors outlined above. Due to the one year delay publishing the proposal, which the EPA was required to determine and publish by November 30, 2012, it is possible that the 2014 RVOs will be challenged in court which may further delay any final determination of the 2014 RVOs, which could reduce the demand for and price of Syntroleum’s renewable diesel, which could harm its revenues and cash flows.

Risks Relating to Syntroleum’s Business

Syntroleum will need to obtain funds from additional financings or other sources for its business activities. If Syntroleum does not receive these funds, it would need to reduce, delay or eliminate some of its expenditures.

In the past Syntroleum has sustained recurring losses and negative cash flows from operations. As of September 30, 2013, Syntroleum had approximately $16.5 million of cash and cash equivalents to fund operations and investing activities. Syntroleum reviews cash flow forecasts and budgets periodically.

If Syntroleum were to remain an independent company, Syntroleum expects that it may need to raise additional capital to accomplish its business plan over the next several years through debt or equity financing, joint ventures, license agreements, sale of assets, as well as various other financing arrangements. If Syntroleum obtains additional funds by issuing equity securities, dilution to stockholders may occur. In addition, preferred stock could be issued without stockholder approval and the terms could include dividend, liquidation, conversion, voting and other rights more favorable than the rights of the holders of Syntroleum’s common stock. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

Syntroleum’s agreements with Tyson Food, Inc. (“Tyson”) concerning Dynamic Fuels allows Syntroleum and Tyson, respectively, to elect not to invest in a plant or to cease making capital contributions in the

 

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construction of a plant under certain circumstances. Should Tyson or Syntroleum, as applicable, decide not to invest or to cease investing in the construction of a plant, the other participants in the applicable project will need to raise additional capital from third parties or to take on additional interest in the project and fund the additional capital internally. There can be no assurances that Syntroleum would be able to raise the additional capital from third parties on terms acceptable to it or to fund the additional capital requirements internally.

Construction and operations of plants based on the Syntroleum technologies will be subject to risks of delay and cost overruns.

The construction and operation of plants based on Syntroleum’s technologies will be subject to the risks of delay or cost overruns. Delays in construction or operation of the plant could directly impact the capital expenditures or working capital. Increases in costs could result in increased equity payments from parent companies.

Shutdown of the Geismar Facility for an extended period could adversely affect Syntroleum’s financial position.

The Geismar Facility has not operated since the completion of repairs in December 2012 and Syntroleum and Tyson have not agreed on the conditions necessary to re-start the Geismar Facility. In addition, any natural disaster or other serious disruption to this facility due to flooding, hurricane, fire or other extreme factors beyond Syntroleum’s control could damage its capital equipment or supporting infrastructure and materially impair the ability of the plant to operate. Such a disruption could result in lost revenues, increased costs and /or reduced profits. Similarly, the Geismar Facility may experience a prolonged start-up period, ranging from several days to several months. Further, it is possible that the Geismar Facility may never re-restart or operate profitably at all.

Syntroleum could experience disagreements with its joint venture partners which could adversely affect the operations or financial condition of its plants.

The operation of Dynamic Fuels is to be controlled by representatives of Syntroleum and Tyson equally, with no member exercising exclusive control. Decisions surrounding operation and financing of the Geismar Facility generally require both members to agree. Disagreements between the members, such as surrounding the current non-operational status of the Geismar Facility, or a modification in the level of participation from one of the members could significantly impact the Geismar Facility and have a material adverse effect on Syntroleum’s financial position and results of operations.

Syntroleum has incurred losses.

As of September 30, 2013, Syntroleum had an accumulated deficit of $356.7 million. Because Syntroleum does not have an operating history upon which an evaluation of its prospects can be based, its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by small companies seeking to develop new and rapidly evolving technologies. To address these risks Syntroleum must, among other things, continue to attract investment capital, respond to competitive factors, continue to attract, retain and motivate qualified personnel and commercialize Syntroleum’s technologies. If Syntroleum remains an independent company, Syntroleum may not be successful in addressing these risks, and it may not achieve or sustain profitability.

Syntroleum’s anticipated expense levels are based in part on its expectations as to future operating activities and on historical financial data. Capital expenditures will depend on progress it makes in developing various projects on which it is currently working. Increased revenues or cash flows may not result from these expenses.

 

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If prices or margins for crude oil, natural gas, coal, vegetable oil, biomass and fats and other commodities are unfavorable, plants based on the Syntroleum technologies may not be economical.

Because the products from plants utilizing Syntroleum’s technologies are expected to compete in markets with conventional petroleum products, an increase in alternative feedstock prices relative to prices for oil, or a decrease in prices for oil relative to alternative feedstock prices, could adversely affect the operating results of these plants. Higher than anticipated costs for the feedstocks, catalysts and other materials used in these plants could also adversely affect operating results. Factors that could cause changes in the prices and availability of oil, natural gas, coal, biomass, fats, oils and refined products include:

 

    changes in supply and demand balance of petroleum feedstocks, refined petroleum products, agricultural commodities variances impacted by crop yields, planting decisions, protein complex variances;

 

    weather conditions;

 

    domestic and foreign government regulation;

 

    actions of the Organization of Petroleum Exporting Countries;

 

    political conditions in countries producing feedstocks;

 

    supply of crude oil, natural gas, coal, biomass fats, greases and oils;

 

    fuel switching between various sources of energy (natural gas, coal, solar, fats, oils and greases, biomass, or other renewable or non-renewable);

 

    capacities of pipelines;

 

    seasonality;

 

    price and availability of alternative fuels; and

 

    overall economic conditions.

Syntroleum’s success depends on the performance of its executive officers and key personnel, the loss of who would disrupt its business operations.

Syntroleum depends to a large extent on the performance of its executive officers, Edward G. Roth, its Chief Executive Officer, Karen L. Power, its Senior Vice President and Principal Financial Officer, and certain key personnel. Syntroleum’s ability to implement its business strategy may be constrained and the timing of implementation may be impacted if it is unable to attract and retain sufficient personnel. Syntroleum does not maintain “key person” life insurance policies on any of its employees. Syntroleum has entered into employment agreements with several key employees.

Syntroleum depends on strategic relationships with feedstock suppliers, site owners engineering companies, and customers. If Syntroleum is not successful in entering into and achieving the benefits of these relationships, this could negatively impact its business.

Syntroleum’s licensee’s typically enter into commercial arrangements with feedstock suppliers, construction contractors, engineering service companies, site owners, equipment manufacturers, and customers. These relationships may take the form of joint ventures with other private parties or local government bodies, contractual arrangements with other companies, or minority investments from third parties. There can be no assurances that Syntroleum or its licensees will be able to establish and maintain these strategic relationships. In addition, the dynamics of Syntroleum’s relationships with strategic participants may require it to incur expenses or undertake activities it would not otherwise incur in order to fulfill its obligations. If Syntroleum does not successfully establish or maintain strategic relationships, its business may be negatively affected.

 

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Syntroleum’s operating results may be volatile due to a variety of factors and are not a meaningful indicator of future performance.

Syntroleum expects to experience significant fluctuations in future annual and quarterly operating results because of the unpredictability of many factors that impact its business. These factors include:

 

    government legislation, subsidies on renewable product, and varying domestic and international regulatory quotas;

 

    volatile price of commodities used and produced;

 

    overcapacity in the renewable fuels industry;

 

    demand for licenses or other technology transfer agreements for Syntroleum’s Technologies and receipt and revenue recognition of license fees;

 

    timing of any construction by Syntroleum or its licensees of plants;

 

    introduction or enhancement of FT and renewable fuels technologies by Syntroleum and its competitors;

 

    market acceptance of new technologies; and

 

    general economic conditions.

As a result, Syntroleum believes that period-to-period comparisons of its results of operations are not meaningful and should not be relied upon as any indication of future performance. Due to the foregoing factors, it may be that in some future year or quarter Syntroleum’s operating results will be below the expectations of public market analysts and investors. In that event, the price of Syntroleum’s common stock would likely be materially adversely affected.

Syntroleum is subject to extensive laws relating to the protection of the environment, and these laws may increase the cost of designing, constructing and operating Syntroleum’s plants based on its technologies or affect demand for the products of these plants.

If Syntroleum violates any of the laws and regulations relating to the protection of the environment, it may be subject to substantial fines, criminal sanctions or third party lawsuits and may be required to install costly pollution control equipment or curtail operations. Plants built with Syntroleum’s technologies will generally be required to obtain environmental, industrial siting, construction and numerous other permits. Compliance with these permits may increase the costs of designing, constructing and operating Syntroleum’s plants or delay plant development. New legislation or regulatory programs that restrict emissions of greenhouse gases could have an adverse effect on Syntroleum’s operations. Syntroleum may also face exposure to actual or potential claims and lawsuits involving environmental matters with respect to its previously owned real estate. Changes in environmental laws and regulations occur frequently, and changes may have a material adverse effect on Syntroleum’s results of operations, competitive position, or financial condition.

Terrorist threats and U.S. military actions could result in a material adverse effect on Syntroleum’s business.

Acts of terrorism in the United States or elsewhere could occur. These and like developments could cause instability in the world’s financial and insurance markets and increase political and economic instability in the geographic areas in which Syntroleum may wish to operate. These developments could also lead to increased volatility in prices for crude oil, natural gas and the feedstocks for Syntroleum’s plants and the cost and availability of insurance. In addition, these developments could adversely affect Syntroleum’s ability to access capital.

 

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United States government regulations effectively preclude Syntroleum from actively engaging in business activities in certain countries. These regulations could be expanded to cover countries where Syntroleum may wish to operate in the future. These developments could subject the operations of Syntroleum to increased risks and, depending on their magnitude, could have a material adverse effect on Syntroleum’s business.

Syntroleum may not have enough insurance to cover all of the risks it faces.

In accordance with customary industry practices, Syntroleum maintains insurance coverage against some, but not all, potential losses in order to protect against the risks it faces. Syntroleum may elect not to carry insurance if its management believes that the cost of available insurance is excessive relative to the risks presented. In addition, Syntroleum cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance, such as a leak, fire or explosion could have a material adverse effect on Syntroleum’s financial condition and results of operations.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This proxy statement/prospectus contains such “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this proxy statement/prospectus, and they may also be made a part of this proxy statement/prospectus by reference to other documents filed with the SEC, which is known as “incorporation by reference.”

The words “believe,” “may,” “will,” “would,” “might,” “could,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “plan,” “seek,” “potential,” “expect” and similar expressions are intended to identify forward-looking statements. All forward-looking statements represent present expectations of REG and Syntroleum management regarding future events and are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks associated with obtaining Syntroleum’s stockholder approval and the failure to satisfy other closing conditions to the asset sale; REG’s ability to integrate Syntroleum’s business with its own, changes or events affecting the business, financial condition or results of operations of either Syntroleum or REG prior to the closing of the asset sale; the risk that Syntroleum will discover or incur unanticipated or contingent liabilities or expenses in connection with the dissolution that would limit or eliminate distributions to Syntroleum stockholders; and other risks and uncertainties set forth in “Risk Factors” beginning on page 24 of this proxy statement/prospectus, as well as those set forth in the other SEC filings incorporated by reference herein.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this proxy statement/prospectus or in any document incorporated by reference might not occur. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/prospectus or the date of the document incorporated by reference in this proxy statement/prospectus. REG and Syntroleum do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to REG or Syntroleum, or to any person acting on their behalf, are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

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SPECIAL MEETING OF THE STOCKHOLDERS OF SYNTROLEUM

When and Where the Special Meeting Will Be Held

A special meeting of the stockholders of Syntroleum will be held at the offices of Foley & Lardner LLP, 111 Huntington Avenue, Boston, Massachusetts 02199 on [*], at 10:00 a.m. Eastern Time.

What Will Be Voted Upon

The purpose of the special meeting is to consider and vote upon the following proposals:

1. To approve the sale of substantially all of the assets of Syntroleum to REG Synthetic, a wholly owned subsidiary of REG, pursuant to and on the terms set forth in an asset purchase agreement dated as of December 17, 2013 by and among REG, REG Synthetic and Syntroleum, which is referred to herein as the asset sale proposal.

2. To approve the plan of dissolution of Syntroleum, including the liquidation and dissolution of Syntroleum contemplated thereby, subject to the approval of the asset sale proposal and following the closing of the asset sale, which is referred to herein as the plan of dissolution proposal.

3. To approve an amendment to Syntroleum’s certificate of incorporation to change Syntroleum’s name to Sooner Holdings, Inc., subject to the approval of the asset sale proposal and following the closing of the asset sale, which is referred to herein as the name change proposal.

4. To grant discretionary authority to the Syntroleum board of directors to adjourn or postpone the special meeting, even if a quorum is present, to solicit additional votes to approve the asset sale proposal, the plan of dissolution proposal and/or the name change proposal, if necessary, which is referred to herein as the adjournment proposal.

5. To approve, on a non-binding advisory basis, the compensation that certain executive officers of Syntroleum may receive in connection with the asset sale pursuant to existing agreements or arrangements with Syntroleum, which is referred to herein as the Syntroleum compensation proposal.

6. To consider and transact such other business as may properly come before the special meeting and any adjournments or postponements thereof.

Syntroleum’s board of directors does not currently intend to bring any business before the special meeting other than the specific proposals set forth above and specified in the notice of the special meeting. Syntroleum’s board of directors does not know of any other matters that are to be brought before the special meeting. If any other business properly comes before the special meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent as Syntroleum’s board of directors may recommend.

The matters to be considered at the special meeting are of great importance to Syntroleum’s stockholders. Accordingly, stockholders are urged to read and carefully consider the information presented in this proxy statement/prospectus, and to complete, date, sign and promptly return the enclosed proxy in the enclosed postage-paid envelope. Proxies may also be returned to Syntroleum by telephone or on the Internet.

Syntroleum’s Board of Directors’ Recommendation

Syntroleum’s board of directors has approved the asset sale proposal, the plan of dissolution proposal, the name change proposal and the adjournment proposal and recommends that you vote FOR the asset sale proposal, FOR the plan of dissolution proposal, FOR the name change proposal, FOR the adjournment proposal and FOR the Syntroleum compensation proposal.

 

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Which Stockholders May Vote

Syntroleum’s board of directors has fixed the close of business on [*] as the record date for determining stockholders entitled to receive notice of the special meeting, and to vote their shares at the special meeting and any adjournment or postponement of the special meeting. Only holders of record of Syntroleum common stock at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Each share of Syntroleum common stock is entitled to one vote.

At the close of business on the record date, Syntroleum had issued and outstanding [*] shares of Syntroleum common stock.

How Do Syntroleum Stockholders Vote

The proxy card accompanying this proxy statement/prospectus is solicited on behalf of Syntroleum’s board of directors for use at the special meeting. Syntroleum’s stockholders are requested to complete, date and sign the accompanying proxy card and promptly return it in the accompanying envelope or otherwise mail it to Syntroleum. Syntroleum’s stockholders can also submit their proxy by telephone or the Internet. All proxies that are properly executed and returned, or submitted by telephone or the Internet, and that are not revoked, will be voted at the special meeting in accordance with the instructions indicated thereon. Executed or submitted but unmarked proxies will be voted FOR approval of all of the proposals listed on the proxy card.

Quorum and Vote Required to Approve Each Proposal

The presence at the special meeting, in person or by proxy, of the holders of a majority in voting power of the issued and outstanding shares of common stock entitled to vote at the special meeting will be necessary to constitute a quorum.

Voting requirements for the approval of the asset sale proposal, the plan of dissolution proposal and the name change proposal. Assuming a quorum is present, approval of the asset sale proposal, the plan of dissolution proposal and the name change proposal will require the affirmative vote of the holders of a majority of the outstanding shares of the Syntroleum common stock.

Voting requirements for the approval of the adjournment proposal and Syntroleum compensation proposal. Approval of the adjournment proposal and the Syntroleum compensation proposal will require the affirmative vote of the holders of a majority of the Syntroleum common stock, present, either in person or by proxy, and entitled to vote at the special meeting.

Abstentions; Broker Non-Votes

The inspector of election at Syntroleum’s special meeting will treat abstentions and shares represented by proxies that reflect abstentions as shares that are present and entitled to vote for the purpose of determining the presence of a quorum. Abstentions will have the effect of votes against the asset sale proposal, the plan of dissolution proposal and the name change proposal, but will not affect the adjournment proposal.

Brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approval of non-routine matters, such as the approval of the asset sale proposal, the plan of dissolution proposal and the name change proposal and, as a result, absent specific instructions from the beneficial owner of such shares, brokers will not vote those shares. This is referred to as a “broker non-vote.” Broker non-votes will be considered as “present” for purposes of determining a quorum, but are not considered as shares present with respect to the proposals. Broker non-votes will have the

 

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effect of a vote AGAINST the asset sale, plan of dissolution and name change proposals and will have no effect on the adjournment proposal or the Syntroleum compensation proposal. Your broker will send you information to instruct it on how to vote on your behalf. If you do not receive a voting instruction card from your broker, please contact your broker promptly to obtain the voting instruction card. Your vote is important to the success of the proposals. Syntroleum encourages all of its stockholders whose shares are held in street name to provide their brokers with instructions on how to vote.

Revocability of Proxies

Stockholders of record who execute proxies may revoke them by giving written notice to, or by signing and delivering a new, valid proxy bearing a later date to, Syntroleum’s Corporate Secretary at any time before such proxies are voted. Stockholders who submit a proxy by telephone or the Internet can revoke such proxy by submitting another proxy by telephone or the Internet at any time before such proxy is voted. Attendance at the special meeting will not have the effect of revoking a proxy unless the stockholder attending the special meeting notifies the Secretary, in writing, of the revocation of the proxy at any time prior to the voting of the shares represented by the proxy. If a stockholder’s shares are held in “street name,” the stockholder must contact its broker, bank or other nominee to change its vote.

Solicitation of Proxies and Expenses of Solicitation

Syntroleum and REG will both bear the costs of printing, filing and mailing this proxy statement/prospectus. Syntroleum will pay for the entire cost of soliciting proxies and holding the special meeting. In addition to mailed proxy materials, directors, officers and employees of Syntroleum and REG may also solicit proxies in person, by phone or by other means of communication. Directors, officers and employees of Syntroleum and REG will not be paid any additional compensation for soliciting proxies. Syntroleum has also hired [*] to assist in the proxy solicitation process. Syntroleum may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

Assistance

If you have any questions about the asset sale, the plan of dissolution, the name change or the adjournment proposals, how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, you should contact: Syntroleum or its proxy solicitor [*].

 

Syntroleum Corporation

5416 S. Yale Avenue, Suite 400

Tulsa, Oklahoma 74135

(918)592-7900

Attention: Investor Relations

 

[*]
[*]

[*]

 

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PROPOSAL ONE—THE ASSET SALE PROPOSAL

The following is a description of the material aspects of the asset sale, including the asset purchase agreement. While REG and Syntroleum believe that the following description covers the material terms of the asset purchase agreement and the asset sale, the description may not contain all of the information that is important to you. REG and Syntroleum encourage you to read carefully this entire proxy statement/prospectus, including the asset purchase agreement attached to this proxy statement/prospectus as Annex A, for a more complete understanding of the asset sale.

Background of the Asset Sale

The terms of the asset purchase agreement by and among REG, REG Synthetic and Syntroleum resulted from negotiations between the representatives of REG and Syntroleum. As described below, REG initially contacted Syntroleum on an unsolicited basis in early 2012 in connection with a possible business relationship centered on Syntroleum’s Bio-Synfining® technologies, and the parties began to engage in substantive discussions about the merits and terms of a possible transaction in May 2013.

During 2012 and 2013, Syntroleum was operating in an increasingly difficult economic environment. Although the Geismar Facility has not operated since 2012, Syntroleum remained responsible to fund approximately $925,000 per month in operating expenses for Dynamic Fuels, resulting in an ongoing decrease in Syntroleum’s cash position. In addition, Syntroleum was facing an increasingly uncertain regulatory environment surrounding the renewal of the $1.00 per gallon subsidy for biomass-based diesel as well as possible reductions in the EPA’s renewable volume obligations (“RVOs”). As a result, Syntroleum was receptive to a potential acquisition or a sale of its interest in Dynamic Fuels. In April 2013, Syntroleum’s board of directors determined to engage Piper Jaffray to act as Syntroleum’s financial advisor. As described below, Piper Jaffray contacted 103 possible transaction partners (other than REG and Party A) on behalf of Syntroleum, of which only three, including REG, ultimately submitted any indication of interest in a possible transaction.

Syntroleum’s first contact with REG began in February 2012, and was not focused on an acquisition. On February 23, 2012, Edward G. Roth, Syntroleum’s Chief Executive Officer, was contacted by Eric Bowen, REG’s now Vice President, Corporate Business Development and Legal Affairs. Mr. Bowen expressed REG’s interest in a business relationship between REG and Syntroleum centered on Syntroleum’s Bio-Synfining® technology.

On February 28, 2012, in response to REG’s expressed interest in Syntroleum technology, REG and Syntroleum entered into a confidentiality agreement to facilitate the sharing of information between them. As a result of Syntroleum’s broad intellectual property portfolio and REG’s proven leadership in the biodiesel industry and strong financial position, Syntroleum considered REG to be a viable transaction partner and saw the potential for strategic synergies through licensing Syntroleum’s Bio-Synfining® technology to REG.

On March 2, 2012, Mr. Roth made a presentation to REG representatives including Mr. Bowen; David Slade, Director, Technical Services; and Brad Albin, Vice President, Manufacturing to discuss the fundamentals of Syntroleum’s Bio-Synfining® technology and the economics of the renewable diesel industry, based on publicly available information.

Between March 5, 2012 and April 2, 2012, representatives of Syntroleum and REG had follow-up communications regarding Syntroleum’s Bio-Synfining® technology.

On April 4, 2012, Mr. Roth and Ronald Stinebaugh, Syntroleum’s Senior Vice President, Finance, met with Mr. Bowen and Daniel Oh, REG’s Chief Executive Officer, and further discussed potential collaborations between Syntroleum and REG involving Syntroleum’s Bio-Synfining® technology.

On May 8, 2012, representatives of REG requested information on the net operating losses generated by Syntroleum over the course of its operations, and Syntroleum provided the requested information.

 

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Between May 8, 2012 and December 17, 2012, representatives of Syntroleum and REG exchanged occasional communications, including coordinating plans for a meeting which was held on December 19, 2012.

On December 19, 2012, Mr. Oh, Mr. Albin, Mr. Bowen and Natalie Lischer, Executive Director, Corporate Finance and Investment Banking visited Syntroleum’s Tulsa, Oklahoma office for the purpose of discussing, among other things, the general status and operational economics of the Geismar Facility, based on publicly available information, and the potential alternate markets for products generated by a renewable diesel process.

On January 16, 2013, representatives of Syntroleum made available due diligence materials to representatives of REG, including documents related to Dynamic Fuels and Syntroleum’s relationship with Tyson, information on Syntroleum’s overhead expenses and budget and Bio-Synfining® technical information.

On February 4, 2013, Mr. Roth and Mr. Oh discussed by phone REG’s potential interest in an acquisition of Syntroleum, although no specific proposal was made. Mr. Oh invited Mr. Roth to make a presentation to REG’s board of directors regarding Syntroleum’s business and technology, which Mr. Roth subsequently prepared. No specific transaction or transaction terms were discussed.

On February 13, 2013, Mr. Roth and Mr. Stinebaugh met with Mr. Oh and Ms. Lischer at Syntroleum’s Tulsa, Oklahoma office. Mr. Oh and Ms. Lischer discussed the potential combination of REG and Syntroleum and reviewed the key attributes of REG that they felt helped support the rationale for the potential combination. No specific transaction or transaction terms were discussed.

On March 5, 2013, Mr. Roth met with the REG’s board of directors in Texarkana, Texas to provide an overview of key attributes of Syntroleum and its technologies. No specific transaction or transaction terms were discussed.

In view of the challenges that Syntroleum was facing, primarily due to the shut-down of the Geismar Facility, as well as in the interest of maximizing stockholder value, Syntroleum’s board of directors approved the engagement of Piper Jaffray on April 22, 2013 to serve as Syntroleum’s financial advisor, including to assist Syntroleum in soliciting interest from potential buyers with respect to a merger or other business combination transaction involving a controlling interest in Syntroleum or Syntroleum’s interest in Dynamic Fuels and to issue an opinion regarding the fairness of the consideration to be received by Syntroleum in connection with any such transaction.

On May 6, 2013, Syntroleum requested that its outside legal counsel, Foley & Lardner LLP (“Foley”), be prepared to advise Syntroleum’s board of directors with respect to consideration of strategic alternatives.

On May 7, 2013, Syntroleum received a non-binding indication of interest letter from a party other than REG (“Party A”), proposing an all-cash merger with Syntroleum at a price per share between $4.18 and $5.22, or another strategic transaction, subject to the final approval of both Syntroleum’s and Party A’s board of directors, the completion of due diligence and the negotiation of a mutually agreeable definitive acquisition agreement with customary terms and conditions. The proposal reflected that Party A was primarily interested in acquiring Syntroleum’s interest in Dynamic Fuels and did not ascribe value to Syntroleum’s GTL technology.

On May 9, 2013, Mr. Oh and Mr. Roth discussed a potential transaction between REG and Syntroleum whereby REG would consolidate Syntroleum into REG. Mr. Oh advised Mr. Roth that REG would send a letter for consideration by Syntroleum’s board of directors describing REG’s preliminary proposal.

On May 11, 2013, Syntroleum received a non-binding letter of intent from REG, pursuant to which REG proposed to acquire 100% of the issued and outstanding shares of capital stock of Syntroleum for per share consideration of approximately $5.76, payable in shares of REG common stock and/or cash at REG’s election, subject to approval of REG’s board of directors, the completion of due diligence and the negotiation of a mutually agreeable definitive acquisition agreement with customary terms and conditions.

 

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On May 20, 2013, Syntroleum executed an engagement letter with Piper Jaffray. On the same day, a meeting of Syntroleum’s board of directors was held where a representative of Piper Jaffray was present and discussed Piper Jaffray’s proposed strategy for seeking potential buyers to maximize value for Syntroleum stockholders. Piper Jaffray also reviewed with the board of directors the preliminary proposals Syntroleum had received from Party A and REG.

On June 4, 2013, a meeting of Syntroleum’s board of directors was held at which representatives of Piper Jaffray reviewed the status of the indications of interest furnished by Party A and REG, and discussed possible negotiation and pricing strategies for response to the May 7, 2013 letter from Party A and the May 11, 2013 letter from REG. Representatives of Foley participated in this meeting.

On June 6, 2013, because Party A’s May 7, 2013 proposal had not ascribed value to Syntroleum’s GTL technology, Syntroleum responded to Party A with a proposed offer for Party A to acquire Syntroleum’s ownership interest in Dynamic Fuels and related intellectual property (but not the GTL technology) for $90 million, subject to Party A and Syntroleum entering into a definitive purchase agreement with customary terms and conditions.

On June 7, 2013, Dynamic Fuels and REG entered into a mutual confidentiality and non-use agreement to facilitate Syntroleum providing information regarding Dynamic Fuels to REG.

On June 10, 2013, Mr. Oh, Ms. Lischer, Mr. Albin, Mr. Bowen, Mr. Slade and other representatives of REG visited the Geismar Facility.

On June 12, 2013 and June 13, 2013, Piper Jaffray responded to inquiries from Party A concerning Syntroleum’s June 6, 2013 counter-proposal.

On June 17, 2013, a meeting of Syntroleum’s board of directors was held at which Piper Jaffray provided an update to the board of directors on the status of discussions with Party A and REG and reviewed plans to begin contacting other potential business combination partners for Syntroleum or acquirors of its Dynamic Fuels interest.

On June 19, 2013, Party A responded to Syntroleum’s June 6, 2013 letter with a preliminary proposal to acquire Syntroleum’s ownership interest in Dynamic Fuels and related intellectual property for $55 million, subject to completion of due diligence and Party A and Syntroleum entering into a mutually agreeable definitive purchase agreement with customary terms and conditions.

Also starting on June 19, 2013 and through the end of July 2013, Piper Jaffray contacted 100 parties that were jointly identified by Piper Jaffray and Syntroleum as potentially having interest in a business combination involving Syntroleum or the acquisition of Syntroleum’s interest in Dynamic Fuels.

On June 25, 2013, Syntroleum sent a non-binding indication of interest letter to Party A in response to Party A’s June 19, 2013 letter, pursuant to which Syntroleum proposed to sell its interest in Dynamic Fuels and all related intellectual property (but not the GTL technology) to Party A for $70 million, subject to Party A and Syntroleum entering into a definitive purchase agreement with customary terms and conditions.

On July 3, 2013, a meeting of Syntroleum’s board of directors was held at which Piper Jaffray provided a status update on discussions with Party A and the status of contacts with other parties. Representatives of Foley participated in this meeting.

On July 9, 2013, Robert Rosene, Chairman of Syntroleum’s board of directors, participated in a telephone call with a representative of Party A to discuss a potential counter-offer from Party A in response to Syntroleum’s June 25, 2013 non-binding indication of interest letter. During that call, the representative of

 

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Party A verbally proposed a purchase price of $65 million for Party A to acquire Syntroleum’s ownership interest in Dynamic Fuels and all related intellectual property (but not the GTL technology). Syntroleum requested a written counter-offer from Party A with these terms, which Syntroleum received on July 10, 2013.

On July 10, 2013, a meeting of Syntroleum’s board of directors was held at which the board of directors discussed and approved a press release announcing that the board of directors was evaluating strategic alternatives to enhance value for Syntroleum’s stockholders and had engaged Piper Jaffray as its financial advisor, which press release was issued on July 17, 2013. The board of directors believed that issuing the press release might encourage potential buyers to express interest in Syntroleum or its assets, and would also serve to inform Syntroleum’s stockholders that the company was evaluating such alternatives. Representatives of Foley participated in this meeting, and advised the board of directors on its fiduciary duties in connection with the potential sale of Syntroleum or of significant assets held by Syntroleum.

On July 22, 2013, a meeting of the Syntroleum’s board of directors was held at which Piper Jaffray provided the board of directors with an update on the transaction process, including the receipt of the July 10, 2013 revised non-binding indication of interest letter from Party A and the status of discussions with REG. Representatives of Foley participated in this meeting.

On July 25, 2013, representatives of Piper Jaffray spoke with representatives of REG to discuss agreements that Syntroleum had with Tyson, including through Dynamic Fuels.

On July 26, 2013, in response to media and stockholder inquiries regarding Syntroleum’s July 17, 2013 press release, Syntroleum issued a subsequent press release announcing that its engagement of Piper Jaffray was prompted by unsolicited offers from third parties with respect to a potential sale of Syntroleum, its assets, its intellectual property rights, or a combination thereof.

On July 29, 2013, Syntroleum received a further revised non-binding indication of interest letter from Party A, which continued to offer a purchase price of $65 million for Party A to acquire Syntroleum’s ownership interest in Dynamic Fuels and all related intellectual property (but not the GTL technology).

On July 31, 2013, a meeting of Syntroleum’s board of directors was held at which the directors discussed potential adverse changes in the biomass-based and advanced biofuel requirements under RFS2 and the likelihood that the federal blenders tax credit would expire in the absence of resolution of federal budgeting issues, both of which would negatively affect Syntroleum and its value to a potential transaction partner. In response to Syntroleum’s request, Piper Jaffray presented data calculated based on Syntroleum’s assumptions regarding possible future Biomass-Based Diesel Renewable Identification Numbers (“RINs”) pricing and the effects on potential transaction pricing. Piper Jaffray also provided Syntroleum’s board of directors with an update of the status of discussions with Party A and REG and responses to the broader solicitation process it had undertaken regarding a possible transaction involving Syntroleum or its interest in Dynamic Fuels. Piper Jaffray indicated that as of July 31, 2013, it had contacted 100 potential acquirors (other than Party A or REG), five of which signed non-disclosure agreements and received financial information on Syntroleum and Dynamic Fuels, but only one of which (“Party B”) ultimately submitted an acquisition proposal on August 20, 2013, as described below. Party A and REG were the only parties that had as of July 31, 2013 indicated sufficient interest in the transaction to warrant access to a data room containing additional information about Syntroleum. Representatives of Foley participated in this meeting.

On August 2, 2013, a meeting of Syntroleum’s board of directors was held at which Piper Jaffray provided the board of directors with a further update of the solicitation process it had undertaken regarding a possible transaction involving Syntroleum or its interest in Dynamic Fuels. It was reported to the board of directors that two additional parties executed non-disclosure agreements and received financial information on Syntroleum and Dynamic Fuels between July 31, 2013 and August 2, 2013, although neither of these parties subsequently submitted any indication of interest with respect to the acquisition of Syntroleum or its interests in Dynamic Fuels. At Syntroleum’s board of directors’ request and direction, Piper Jaffray also furnished to the board of

 

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directors a more detailed analysis of the effect of differing RIN and feedstock pricing on Syntroleum’s current financial model for its membership interest in Dynamic Fuels, and discussed the impact of RIN and feedstock pricing on potential transaction pricing. Further, Syntroleum’s management presented information regarding the potential adverse impact of EPA reductions to RVOs and non-renewal of the $1.00 per gallon subsidy for biomass-based diesel. Based on its consideration of several strategic factors, including the foregoing, a lack of any other interested parties other than Party A and REG and the higher valuation reflected in Party A’s proposal, Syntroleum’s board of directors also considered and approved Syntroleum entering into a non-binding letter of intent, including a 45 day exclusivity period demanded by Party A, which was executed on August 8, 2013. REG was notified that Syntroleum had entered into exclusivity with Party A and during that period of exclusivity no further discussions were held with REG regarding a potential transaction. During the period from August 2, 2013 until October 11, 2013, Party A continued to conduct due diligence and request supplemental due diligence materials from Syntroleum, which were provided to Party A through Syntroleum’s data room. During this time counsel for Syntroleum and Party A also negotiated drafts of a proposed purchase agreement for the contemplated transaction between Syntroleum and Party A.

On August 20, 2013, Syntroleum received a letter from Party B, which had signed a non-disclosure agreement, with a preliminary proposal to acquire Syntroleum’s interest in Dynamic Fuels for a purchase price of between $40 million and $50 million. Syntroleum advised Party B that it could not pursue discussions at that time as a result of the exclusivity agreement with Party A.

On September 23, 2013, a meeting of Syntroleum’s board of directors was held at which the board of directors discussed a request from Party A to extend the original 45 day exclusivity period, which expired on September 22, 2013, for an additional 30 days. Syntroleum’s board of directors authorized a 10 day extension with an additional five days if necessary to keep Party A engaged in the transaction process. Representatives of Foley participated in this meeting. Thereafter, Syntroleum sent a letter to Party A providing a 10 day extension of the exclusivity period between Syntroleum and Party A.

On October 2, 2013, Syntroleum’s exclusivity agreement with Party A expired after Syntroleum and Party A failed to reach an agreement with respect to the acquisition of Syntroleum’s membership interest in Dynamic Fuels. Notwithstanding this expiration of exclusivity, Party A continued to request supplemental due diligence materials, which were provided through Syntroleum’s data room.

On October 11, 2013, representatives of Syntroleum and Party A discussed a potential transaction between the parties for the sale of Syntroleum to Party A. Syntroleum agreed to prepare and provide Party A with a draft transaction agreement for the sale of Syntroleum to Party A.

Also on October 11, 2013, Syntroleum initiated a meeting between Mr. Roth, Mr. Stinebaugh and a representative of Piper Jaffray and Mr. Oh and Ms. Lischer at the Ames, Iowa offices of REG to renew discussions regarding a potential transaction between Syntroleum and REG.

On October 14, 2013, Syntroleum directed Piper Jaffray to reinitiate contact with, and invite proposals from, those parties that previously signed non-disclosure agreements with Syntroleum and other previously contacted parties that at that time were believed to be most interested in a potential transaction involving Syntroleum or its Dynamic Fuels interest. Piper Jaffray also contacted three new parties that were jointly identified by Piper Jaffray and Syntroleum. None of such new parties or those with whom contact was reinitiated ultimately submitted any indication of interest with respect to the acquisition of Syntroleum or its interests in Dynamic Fuels. Piper Jaffray made several attempts to contact Party B, beginning on October 16, 2013, but received no further response from Party B regarding its interest in a potential transaction involving Syntroleum or its Dynamic Fuels interest.

On October 16, 2013, Syntroleum received a non-binding letter of intent from REG offering an all-stock merger involving Syntroleum based on a price per share of Syntroleum common stock of $4.48, which would result in Syntroleum stockholders owning approximately 7.5% of the combined company, subject to the parties entering into a definitive agreement with customary terms and conditions.

 

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On October 18, 2013, Syntroleum furnished Party A with a draft merger agreement.

On October 21, 2013, a meeting of Syntroleum’s board of directors was held at which Piper Jaffray provided the board of directors with an update on the status of discussions with Party A and REG. The board of directors determined to provide REG with a draft merger agreement and to attempt to negotiate the draft merger agreement provided to Party A on October 18, 2013.

On October 25, 2013, Syntroleum furnished REG with a draft merger agreement.

On November 1, 2013, Mr. Roth and Mr. Stinebaugh met at the Ames, Iowa offices of REG with representatives of REG including: Jeff Stroburg, Chairman of REG’s board of directors; Randolph L. Howard, a member of REG’s board of directors; Mr. Oh; and other members of REG’s senior management. At the meeting, REG and Syntroleum discussed, among other things, the Syntroleum technologies installed at the Geismar Facility and REG was provided with additional information on Syntroleum’s GTL technology.

On November 5, 2013, representatives of Party A met with representatives of Tyson and Syntroleum and visited the Geismar Facility.

On November 6, 2013, Syntroleum delivered a counter-offer to REG’s non-binding letter of intent received on October 16, 2013 in which Syntroleum proposed an all-stock merger in which Syntroleum stockholders would receive 0.481660 shares of REG common stock for each share of Syntroleum common stock, resulting in Syntroleum stockholders owning approximately 12% of the combined company following consummation of the merger.

On November 8, 2013, Syntroleum received a counter-offer from REG in response to the proposal from Syntroleum delivered on November 6, 2013, in which REG proposed an all-stock merger in which Syntroleum stockholders would receive 0.3838 shares of REG common stock for each share of Syntroleum common stock, with a limit on the value of the REG shares to be issued of $55 million.

On November 11, 2013, a meeting of Syntroleum’s board of directors was held at which the board of directors considered the transaction terms set forth in REG’s November 8, 2013 counter-offer. At this meeting, Piper Jaffray reviewed the status of discussions with Party A and REG and the potential pro forma effects on REG of a combination with Syntroleum based on REG’s most recent counter-offer. Representatives of Foley participated in this meeting.

On November 12, 2013, Syntroleum received a letter from Party A discontinuing any further discussions regarding a potential transaction between Party A and Syntroleum. In this letter, Party A indicated that while it had concluded it was not interested in a transaction with Syntroleum under any circumstance, it had identified through the course of its due diligence the potential for stress corrosion in the piping and vessels at the Geismar Facility as a result of the use of out-of-specification feedstock containing chlorides, but further indicated that the identification of these concerns was not intended to be an attempt to negotiate a change in price or terms of a transaction.

On November 13, 2013, Syntroleum received a revised draft of the proposed merger agreement from REG.

On November 18, 2013, a meeting of Syntroleum’s board of directors was held at which the board of directors discussed progress on the proposed transaction with REG, including a review of the various transaction options available to Syntroleum under the Dynamic Fuels operating agreement. Representatives of Foley participated in this meeting.

On November 19, 2013, representatives of Syntroleum met with representatives of REG at the Ames, Iowa office of REG to discuss the stress corrosion issue raised in the November 12, 2013 letter from Party A and the EPA’s November 15, 2013 announcement of its proposal to maintain the renewable volume obligation for biomass-based diesel fuel at 2013 levels and to significantly reduce the advanced biofuel volume obligation.

 

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On November 20, 2013, Syntroleum received from REG a draft asset purchase agreement, which reflected a change in the proposed transaction structure from a merger to a sale of Syntroleum’s assets.

Between November 20, 2013, and December 10, 2013, Foley and Pillsbury Winthrop Shaw Pittman LLP, outside counsel to REG, exchanged five revised drafts of the asset purchase agreement reflecting negotiation of various legal and business points between the parties, including negotiation of the rights of the parties to terminate the agreement, including in the event Syntroleum were to receive a superior proposal, and the consequences of termination, the scope of Syntroleum’s liabilities to be assumed by REG, and the scope of certain representations and warranties being made by Syntroleum regarding tax, environmental compliance and intellectual property matters.

On December 11, 2013, a meeting of Syntroleum’s board of directors was held at which Foley provided the board of directors with an update on the status of negotiations between REG and Syntroleum with respect to the draft asset purchase agreement. The board of directors also considered the alternatives available to Syntroleum in the event that REG and Syntroleum failed to complete a transaction.

On December 14, 2013, a meeting of Syntroleum’s board of directors was held at which Mr. Roth discussed concerns raised by REG with respect to the amount of liabilities to be assumed by REG. As a result, REG negotiated for adjustments to the purchase price, involving reductions in both the number of shares to be issued to Syntroleum and the maximum dollar value of the shares to be issued. After negotiations between Syntroleum management and REG regarding the scope of liabilities to be assumed by REG, Syntroleum’s board of directors approved a reduction in the number of shares of REG common stock to be received as consideration for the asset sale from 3,992,000 to 3,900,000, and a reduction in the maximum value of REG shares to be issued to Syntroleum from $55 million to $50 million.

On December 15, 2013, Syntroleum received a revised draft of the asset purchase agreement from REG. Mr. Roth and Mr. Oh then discussed further modifications to the transaction terms as a result of Syntroleum’s cash projections through closing which were below REG’s previous assumptions. REG demanded a further reduction in the number of shares of REG common stock to be issued in the asset sale from 3,900,000 to 3,796,000, subject to downward adjustment if the amount of cash transferred to REG at closing is less $3.2 million, and a reduction in the maximum value of REG shares to be issued to Syntroleum from $50 million to $49 million.

On December 16, 2013, a meeting of Syntroleum’s board of directors was held at which Piper Jaffray reviewed its financial analysis of the proposed aggregate purchase price and delivered its oral opinion (which oral opinion was subsequently confirmed by delivery of its written opinion dated December 16, 2013) that, as of December 16, 2013, and based on and subject to the assumptions made, matters considered and qualifications and limitations on the scope of the review undertaken by Piper Jaffray, as described in its opinion, the aggregate purchase price to be paid to Syntroleum was fair, from a financial point of view, to Syntroleum. Thereafter, Syntroleum’s board of directors approved the asset purchase agreement with REG and the transactions contemplated thereby (which asset purchase agreement reflected the terms discussed in the December 15, 2013 conversation between Mr. Roth and Mr. Oh), and authorized the officers of Syntroleum to execute and deliver the asset purchase agreement to REG. Syntroleum’s board of directors also approved a plan of dissolution that provides for the liquidation and dissolution of Syntroleum following the consummation of the asset sale to REG. Representatives of Foley participated in this meeting.

On December 17, 2013, a meeting of Syntroleum’s board of directors was held at which the board of directors discussed a concern raised by REG regarding an outstanding warrant agreement from 2007. Syntroleum’s board of directors approved a proposal pursuant to which REG and Syntroleum agreed that Syntroleum would retain the 2007 warrant agreement at issue, but that REG would be responsible either to fund any amount necessary to satisfy any contingent liability of Syntroleum under the 2007 warrant agreement or assume the 2007 warrant agreement, and the parties further agreed to make corresponding revisions necessary to

 

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the asset purchase agreement, including an increase of $200,000 in the amount of cash to be retained by Syntroleum and a reduction of $200,000 in the minimum amount of cash to be delivered by Syntroleum to REG at closing to avoid triggering an adjustment in the number of shares of REG common stock to be delivered to Syntroleum. Representatives of Foley participated in this meeting.

On December 17, 2013, the parties executed the asset purchase agreement and issued a press release regarding the transactions contemplated thereby.

Recommendation of the Syntroleum Board of Directors and Syntroleum’s Reasons for the Asset Sale

Syntroleum’s board of directors, by unanimous vote of its members at a meeting duly called, determined that the asset sale is fair to, and in the best interests of, Syntroleum and its stockholders and that the asset purchase agreement and the asset sale are expedient. Syntroleum’s board of directors unanimously approved the asset sale and recommended that Syntroleum’s stockholders vote FOR the approval of the asset sale proposal. In the course of reaching its decision to recommend that Syntroleum’s stockholders vote FOR the asset sale proposal, Syntroleum’s board of directors consulted with Syntroleum’s financial and legal advisors and reviewed a significant amount of information and considered a number of factors, including without limitation the following:

 

    the oral opinion of Piper Jaffray rendered to Syntroleum’s board of directors on December 16, 2013, which opinion was subsequently confirmed in writing that, as of that date, based upon and subject to the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Piper Jaffray, as set forth in its opinion, the purchase price to be received by Syntroleum in connection with the asset sale was fair, from a financial point of view, to Syntroleum, as more fully described below in the section entitled “Proposal One—The Asset Sale Proposal—Opinion of Syntroleum’s Financial Advisor” beginning on page 73 of this proxy statement/prospectus;

 

    the fact that the asset purchase agreement affords Syntroleum’s board of directors flexibility to negotiate and discuss a superior proposal, as defined in the asset purchase agreement, in the period after signing and prior to approval of the asset sale by Syntroleum’s stockholders as follows:

 

    subject to compliance with the asset purchase agreement, Syntroleum’s board of directors is permitted to participate in discussions or negotiations with, or provide non-public information to, any person in response to an unsolicited acquisition proposal for Syntroleum, if Syntroleum’s board of directors determines in good faith, after consultation with outside legal counsel and financial advisors, that such acquisition proposal constitutes, or is reasonably likely to result in, a superior proposal;

 

    subject to compliance with the asset purchase agreement, Syntroleum’s board of directors is permitted to withdraw, modify or qualify its recommendation to Syntroleum stockholders in favor of the asset sale proposal and to recommend an alternative acquisition proposal if Syntroleum’s board of directors determines in good faith, after consultation with outside legal and financial advisors, that such alternative acquisition proposal constitutes a superior proposal; provided that Syntroleum would be required to pay a termination fee to REG of $5 million in the event that REG elects to terminate the asset purchase agreement as a result of such change of recommendation;

 

    subject to compliance with the asset purchase agreement, Syntroleum’s board of directors is permitted to change its recommendation to Syntroleum’s stockholders in favor of the asset sale proposal in response to the occurrence of a material event, fact, development, circumstance, or occurrence that affects the business, assets, or operations of Syntroleum or its subsidiaries that was not known to Syntroleum as of the date of the asset purchase agreement and that occurs after the date of the asset purchase agreement; and

 

   

Syntroleum’s board of directors’ belief that the termination fee of $5,000,000 payable to REG under the above described circumstances and under certain other circumstances described in this

 

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proxy statement/prospectus is reasonable, particularly when considered relative to the total value to Syntroleum of the transaction with REG (including assumption of Syntroleum’s actual liabilities as well as any of Syntroleum’s contingent liabilities related to its interest in Dynamic Fuels, the indebtedness of Dynamic Fuels, and ongoing Neste Oil intellectual property litigation), and would not be likely to preclude another party that is so inclined from making a superior proposal.

 

    Syntroleum’s board of directors’ belief that the asset sale is more favorable to Syntroleum’s stockholders than any other alternative reasonably available to Syntroleum and its stockholders, which belief was based on a number of factors, including without limitation (i) that the transaction with REG was the only strategic transaction available to Syntroleum despite Piper Jaffray contacting 103 parties (other than REG and Party A) in order to solicit potential interest, (ii) Syntroleum’s board of directors’ evaluation of Syntroleum’s business, operations, financial condition, strategy, and prospects, (iii) the risks involved in achieving those prospects, both on a historical and on a prospective basis, especially in light of the continued non-operation of the Geismar Facility and Syntroleum’s ongoing financial obligations related to Dynamic Fuels, (iv) general industry, economic, and market conditions, both on a historical and on a prospective basis and (v) Syntroleum’s board of directors’ analysis of the risk-adjusted probabilities associated with each of the other alternatives reasonably available to the Syntroleum and its stockholders, of which more specific factors include;

 

    Syntroleum had been unable to agree with Tyson on the conditions for re-start of the Geismar Facility and believes that the prospects of re-start are uncertain;

 

    Syntroleum’s continued $1 million per month obligation to fund non-operation costs of Dynamic Fuels;

 

    Syntroleum’s declining cash balance relative to its continuing obligations to fund its ongoing business operations, including those related to Dynamic Fuels, and uncertainty regarding Syntroleum’s ability to raise additional funds;

 

    a negative regulatory bias against Syntroleum’s renewable fuels business;

 

    significant likely excess capacity for biomass based diesel (biodiesel and renewable diesel) in 2014, in light of the EPA’s proposed 2014 RVO; and

 

    a declining RIN price environment due to such regulatory concerns and excess capacity.

 

    Syntroleum’s board of directors’ belief that the synergies that potentially could be achieved through a business combination between REG and Syntroleum as a result of Syntroleum’s broad intellectual property portfolio combined with REG’s proven leadership in the biodiesel industry and strong financial position made it unlikely that potential alternative buyers would be able to match or exceed REG’s final offer of 3,796,000 shares of REG common stock with a market value of approximately $49.0 million as of the date of the asset purchase agreement;

 

    the fact that Syntroleum’s stockholders are expected to retain an interest in the future earnings and growth of Syntroleum’s business as stockholders of REG following Syntroleum’s liquidation and dissolution and associated in-kind distribution of the shares of REG common stock received by Syntroleum in consideration of the asset sale, for which there is currently an active and liquid trading market;

 

    the fact that shares of REG common stock received by Syntroleum in consideration of the asset sale which are expected to be distributed to Syntroleum’s stockholders in connection with Syntroleum’s liquidation and dissolution, will be registered under the Securities Act and will be freely tradable;

 

    the historical market prices and volatility in trading information with respect to Syntroleum’s common stock, including without limitation the possibility that, in the event of a decline in the market price of Syntroleum’s common stock or the stock market in general, the price that might be received by holders of Syntroleum’s common stock in the open market or in a future transaction might be less than the imputed value of Syntroleum’s common stock resulting from the asset sale;

 

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    the significant uncertainty related to Syntroleum’s ability to secure sufficient financial resources to commercialize its other technologies;

 

    historical, current, and projected information concerning Syntroleum’s business, financial performance and condition, operations, management, and competitive position, including without limitation the sensitivities and uncertainties related thereto, and current industry, economic, and market conditions, including Syntroleum’s prospects if it were to remain an independent company;

 

    the efforts made by Syntroleum’s board of directors and its advisors to negotiate and execute an asset purchase agreement favorable to Syntroleum, including the fact that Syntroleum conducted a thorough process with Piper Jaffray contacting 103 parties (other than REG and Party A) to elicit interest from prospective buyers of Syntroleum or all or a material portion of its assets;

 

    Syntroleum’s determination not to negotiate exclusively with REG at any time;

 

    the fact that Syntroleum’s board of directors consists of a majority of independent, non-management directors;

 

    the fact that Syntroleum’s board of directors engaged financial and legal advisors with significant experience in public company transactions to advise it in connection with the asset sale, and that those financial and legal advisors were involved throughout the negotiations with REG, Party A and others and updated Syntroleum’s board of directors directly and regularly, which provided Syntroleum’s board of directors with additional perspectives on the negotiations in addition to those of Syntroleum’s management;

 

    the fact that many of Syntroleum’s directors are experienced in business combination transactions;

 

    the fact that Syntroleum’s board of directors was unanimous in its determination to recommend that its stockholders approve the asset sale proposal; and

 

    the fact that completion of the asset sale will require the approval of Syntroleum’s stockholders.

In the course of its deliberations, Syntroleum’s board of directors also considered a variety of risks and other countervailing factors concerning the asset purchase agreement and the asset sale, including without limitation the following:

 

    the risk that not all of the conditions to the parties’ obligations to complete the asset sale will be satisfied or waived in a timely manner or at all, and, as a result, the possibility that the asset sale may not be completed even if approved by Syntroleum’s stockholders;

 

    the restrictions that the asset purchase agreement imposes on Syntroleum’s ability to actively solicit competing bids, the fact that Syntroleum is required to submit the asset sale proposal to its stockholders even if it has received a superior proposal or changed its recommendation in favor of the asset sale proposal and the fact that Syntroleum would be obligated to pay a termination fee to REG under certain circumstances, and that such termination fee could reduce the incentive for a third party to make a competing bid for Syntroleum;

 

    the fact that the consideration that will ultimately be distributed to Syntroleum’s stockholders as a result of the asset sale will likely be in the form of REG common stock, the value of which may decline prior to or following any distribution thereof;

 

    the possibility of that the shares of REG of common stock received by Syntroleum in consideration of the asset sale may never ultimately be distributed to Syntroleum’s stockholders, or that any such distribution may be substantially delayed due to the liquidation and dissolution process;

 

    the restrictions on the conduct of Syntroleum’s business prior to the completion of the asset sale, which may delay or prevent Syntroleum from undertaking business opportunities that may arise pending the completion of the asset sale; and

 

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    the fact certain executive officers and directors of Syntroleum have interests in the asset sale that may be different from, or in addition to, the interests of Syntroleum stockholders, including that (i) as a condition to the closing of the asset sale, certain officers of Syntroleum will accept employment with REG Synthetic, (ii) in connection with their termination as employees of Syntroleum upon the closing of the asset sale, certain officers of Syntroleum will receive severance benefits pursuant to historical agreements with Syntroleum, including payments of $900,000 to Edward G. Roth, Syntroleum’s Chief Executive Officer, and $48,125 to Karen L. Power, Syntroleum’s Principal Financial Officer, and (iii) Syntroleum’s directors and executive officers will retain the right to continued indemnification and insurance coverage for acts or omissions occurring prior to the asset sale.

The foregoing discussion of the factors considered by Syntroleum’s board of directors is not intended to be exhaustive, but does set forth the principal factors considered by Syntroleum’s board of directors. Syntroleum’s board of directors collectively reached the unanimous conclusion to recommend the approval of the asset sale in light of the various factors described above and other factors that each member of Syntroleum’s board of directors believed were appropriate. In view of the wide variety of factors considered by Syntroleum’s board of directors in connection with its evaluation of the asset sale and the complexity of these matters, Syntroleum’s board of directors did not consider it practical, and did not attempt, to quantify, rank, or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination. Rather, Syntroleum’s board of directors made its recommendation based on the totality of information presented to it and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

After evaluating these factors and consulting with its legal and financial advisors, Syntroleum’s board of directors unanimously determined that the asset sale is fair to, and in the best interests of, Syntroleum and its stockholders and that the asset purchase agreement and the asset sale are expedient. Accordingly, Syntroleum’s board of directors unanimously approved the asset purchase agreement and recommended that Syntroleum’s stockholders approve the asset sale proposal.

Syntroleum’s board of directors unanimously recommends that Syntroleum’s stockholder vote FOR the approval of the asset sale proposal.

Opinion of Syntroleum’s Financial Advisor

Overview

Syntroleum retained Piper Jaffray to render a fairness opinion to Syntroleum’s board of directors in connection with the asset sale. Syntroleum instructed Piper Jaffray to evaluate the fairness, from a financial point of view, of the aggregate purchase price to be paid to Syntroleum in the asset sale. On December 16, 2013, Piper Jaffray delivered its oral opinion, subsequently confirmed in writing, to Syntroleum’s board of directors that, based on and subject to the limitations and assumptions stated in the opinion, as of the date of the opinion the aggregate purchase price to be received by Syntroleum in consideration for the asset sale was fair, from a financial point of view, to Syntroleum.

The full text of Piper Jaffray’s written opinion dated December 16, 2013, which contains the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, and with the prior written approval of Piper Jaffray, is attached as Annex D to this proxy statement/prospectus and is incorporated herein by reference. The summary of Piper Jaffray’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. You are urged to read the opinion in its entirety. Piper Jaffray’s opinion addressed solely the fairness of the aggregate purchase price, from a financial point of view, to Syntroleum. Piper Jaffray’s opinion was directed solely to Syntroleum’s board of directors in connection with its consideration of the asset sale and was not intended to be, and does not constitute, a recommendation to any Syntroleum stockholder as to how such stockholder should vote or how any such stockholder should act with respect to the asset sale, the liquidation and dissolution of Syntroleum, or any other matter. Piper Jaffray’s opinion was approved for issuance by the Piper Jaffray Opinion Committee.

 

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In arriving at its opinion, Piper Jaffray, among other things:

 

    reviewed and analyzed the financial terms included in the last draft of the asset purchase agreement made available to Piper Jaffray, dated December 15, 2013;

 

    reviewed and analyzed certain financial and other data with respect to Syntroleum and REG, which was publicly available or made available to Piper Jaffray by Syntroleum;

 

    reviewed and analyzed certain internal unconsolidated financial projections of Syntroleum on a stand-alone basis (Piper Jaffray having been advised by Syntroleum’s management that Syntroleum has not prepared consolidated financial projections), including relating to its 50% Dynamic Fuels ownership interest, its GTL business, its technology license to Dynamic Fuels, its corporate overhead expenses, and its net operating losses (“NOLs”) (collectively, the “Material Business Components”), prepared for financial planning purposes and furnished to Piper Jaffray by the management of Syntroleum;

 

    reviewed publicly available consensus analyst estimates for REG;

 

    conducted discussions with members of the senior management of Syntroleum with respect to the business and prospects of Syntroleum on a stand-alone basis, and Syntroleum and REG on a combined basis following the asset sale;

 

    reviewed the reported prices and trading activity for Syntroleum, REG, and certain companies deemed by Piper Jaffray to be comparable to Syntroleum;

 

    compared the financial performance of Dynamic Fuels on a historical and projected basis with that of certain other publicly traded companies deemed by Piper Jaffray to be comparable to Dynamic Fuels;

 

    reviewed the financial terms, to the extent publicly available, of certain business combination transactions that Piper Jaffray deemed comparable to a sale of Dynamic Fuels;

 

    reviewed the premiums paid, to the extent publicly available, in certain acquisitions of other public companies;

 

    performed discounted cash flows analyses for the Material Business Components on a stand-alone basis; and

 

    performed certain financial analyses for Syntroleum and REG on a pro forma combined basis giving effect to the asset sale.

In addition, Piper Jaffray conducted such other inquiries, examinations and analyses and considered such other financial, economic and market criteria as Piper Jaffray deemed necessary in arriving at its opinion.

The following is a summary of the material financial analyses performed by Piper Jaffray in connection with the preparation of its fairness opinion, which was reviewed with, and formally delivered to, Syntroleum’s board of directors at a meeting held on December 16, 2013. Subsequent to its presentation on December 16, 2013, Piper Jaffray advised Syntroleum of corrections to certain data included in its presentation. Piper Jaffray further advised Syntroleum that these corrections, which are reflected in the summary below, would not have affected in any material respect the financial analyses presented to Syntroleum’s board of directors on December 16, 2013, nor would they have altered in any way the opinion of Piper Jaffray given as of December 16, 2013. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, this summary does not purport to be a complete description of the analyses performed by Piper Jaffray or of its presentation to Syntroleum’s board of directors on December 16, 2013.

This summary includes information presented in tabular format, which tables must be read together with the text of each analysis summary and considered as a whole in order to fully understand the financial analyses presented by Piper Jaffray. The tables alone do not constitute a complete summary of the financial analyses. The order in which these analyses are presented below, and the results of those analyses, should not be taken as an

 

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indication of the relative importance or weight given to these analyses by Piper Jaffray or Syntroleum’s board of directors. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 13, 2013, and is not necessarily indicative of current market conditions. Unless otherwise indicated, all forward-looking information and estimates with respect to Syntroleum are based on projections furnished to Piper Jaffray by Syntroleum’s management and all forward-looking information and estimates for REG and any other public company were derived by Piper Jaffray from publicly available Wall Street consensus data reported by Thomson Reuters or CapIQ for those companies, in each case as of December 13, 2013.

As noted elsewhere in this proxy statement/prospectus, “aggregate purchase price” means a number of shares of REG common stock equal to 3,796,000 minus a number of shares of REG common stock equal to (i) the difference between $3,200,000 and the aggregate cash transferred to REG Synthetic at closing, to the extent that such difference results in a positive number, divided by (ii) the average of the last reported sale price per share of REG Common Stock on NASDAQ for the 20 consecutive trading days ending on the third day prior to the date of the closing; provided, that if the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing is equal to or greater than $12.91, then the number of shares of REG common stock to be paid to Syntroleum as consideration for the asset sale will be equal to (A) $49,000,000, divided by (B) the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing. In addition to the payment of the aggregate purchase price, REG Synthetic will assume substantially all of the liabilities of Syntroleum as part of the asset sale. For purposes of its analyses and based on the closing trading price of REG common stock of $10.51 on December 13, 2013 on the NASDAQ Global Select Stock Market and Syntroleum’s net debt (outstanding indebtedness less cash) as of December 13, 2013, Piper Jaffray calculated the implied value of the aggregate purchase price to be $39.9 million, and the implied enterprise value (equity value of Syntroleum as derived from the implied value of the aggregate purchase price, plus its net debt of $16.5 million at September 30, 2013) of Syntroleum based on the aggregate purchase price to be $23.4 million.

Historical Trading Analyses

Piper Jaffray reviewed the historical closing prices and trading volumes for Syntroleum common stock (after giving effect to a 10-for-1 reverse stock split on Syntroleum common stock effected in April 2013) and REG common stock over the twelve-month period from December 13, 2012 to December 13, 2013 in order to provide background information on the prices at which Syntroleum and REG have historically traded.

The following table summarizes selected market-derived data based upon these historical closing prices of Syntroleum common stock and REG common stock:

 

($ in millions except per share data)    Syntroleum
Price Per Share
     REG
Price Per
Share
     Syntroleum
Market Capitalization
     Implied Value of
Aggregate Purchase
Price
 

Current Price

   $ 2.60       $ 10.51       $ 25.9       $ 39.9   

52 week low

   $ 2.60       $ 5.46         N/A       $ 20.7   

7 day average

   $ 2.79       $ 10.57         N/A       $ 40.1   

30 day average

   $ 3.29       $ 11.29         N/A       $ 42.8   

60 day average

   $ 3.61       $ 12.01         N/A       $ 45.6   

90 day average

   $ 3.91       $ 13.00         N/A       $ 49.4   

Average since July 17, 2013 (1)

   $ 4.74         N/A         N/A         N/A   

One day prior to July 17, 2013 (1)

   $ 7.46         N/A         N/A         N/A   

Volume weighted average price since IPO (01/19/2012)

     N/A       $ 11.31         N/A         N/A   

 

“N/A” means not applicable, not available or not presented.

(1) Reflects Syntroleum’s announcement on July 17, 2013 of Piper Jaffray’s engagement to explore strategic alternatives.

 

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Piper Jaffray also prepared a chart of indexed trading performance that showed that Syntroleum common stock decreased 36.0% over the twelve-month period from December 13, 2012 to December 13, 2013, as compared to an increase of 27.1% for the S&P 500 Index, an increase of 74.2% for REG, and an increase of 28.1% for an index of selected downstream refiner companies described below.

A review of volume-weighted trading at various price ranges in the last twelve months indicated that the highest volume of trading for Syntroleum was at less than $4.00 per share (23.1%) and then $4.00—$4.75 per share (22.0%) and that the highest volume of trading for REG was at greater than $14.00 per share (31.5%) and then less than $11.00 per share (26.3%).

Material Business Components Analyses

Overview

For purposes of its opinion, Piper Jaffray analyzed the Material Business Components and net debt of Syntroleum and aggregated the values derived from these analyses. These component parts included Syntroleum’s:

 

    50% ownership interest in Dynamic Fuels;

 

    Net debt;

 

    GTL business;

 

    Renewable diesel technology license to Dynamic Fuels;

 

    NOLs for federal income tax purposes; and

 

    Corporate overhead expenses.

Based on the advice of Syntroleum’s management, Piper Jaffray assumed for purposes of this aggregated value analysis, without independent verification and with the consent of Syntroleum, that:

 

    the purchased assets and assumed liabilities in the asset sale constitute substantially all of the assets and liabilities of Syntroleum and are the assets and liabilities material to the operation of Syntroleum as a going concern;

 

    the Material Business Components and cash are the only assets that are material to the business, earnings and prospects of Syntroleum; and

 

    the amount of cash reserved by Syntroleum in connection with the asset sale will be in an amount adequate to satisfy the liabilities of Syntroleum that are not being assumed by REG in the asset sale and that sufficient cash will be conveyed to REG at closing so that there will not be a reduction in the aggregate purchase price.

 

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The table below sets forth a summary of the results of Piper Jaffray’s aggregated value analysis based on its analyses of the Material Business Components. In aggregating for purposes of the tabular summary below, the non-Dynamic Fuels business components with Dynamic Fuels, where so required, Piper Jaffray converted the derived range of Dynamic Fuels enterprise values and other Dynamic Fuels values (which were based on Dynamic Fuels as a whole) to Syntroleum equity values by adjusting enterprise values for $100 million of debt at Dynamic Fuels as of September 30, 2013 and all values for Syntroleum’s 50% ownership interest. To derive an equity value of Syntroleum as a whole, Piper Jaffray added to the derived range of equity values for Dynamic Fuels the net cash (adjusted for Syntroleum management’s estimate of working capital expenses of restarting the Dynamic Fuels plant) of Syntroleum as of September 30, 2013 and the derived range of values for each other non-Dynamic Fuels Material Business Component to derive an equity value for Syntroleum as a whole.

 

($ in millions)

   Low     Midpoint     High  

Dynamic Fuels (50% ownership interest)

   ($ 44.7   ($ 15.9    $ 12.8   

GTL Business (expected 50% interest)

   ($ 16.0   ($ 1.0    $ 20.9   

Royalty Payments under Bio-Synfining® Site License Agreement

    $ 2.7       $ 3.1       $ 3.6   

NOLs

    $ 22.6       $ 27.3       $ 35.3   

Corporate Overhead Expenses

   ($ 12.0   ($ 13.4   ($ 15.3
  

 

 

   

 

 

   

 

 

 

Implied Aggregated Equity Value of Syntroleum (1):

   ($ 36.8    $ 10.5       $ 66.0   

 

(1) Includes $10.5 million in net cash.

The aggregated value analysis of the Material Business Components indicated that the implied value of the aggregate purchase price of $39.9 million was within the derived range of the midpoint to high implied aggregated equity values of Syntroleum.

Analyses Related to Dynamic Fuels

Unless otherwise indicated, the analyses summarized below relate to Dynamic Fuels as a whole, rather than Syntroleum’s 50% ownership interest in Dynamic Fuels. For purposes of the analyses below, Piper Jaffray derived the equity value of Dynamic Fuels from the enterprise value of Dynamic Fuels by adjusting for the net debt of Dynamic Fuels as of September 30, 2013 of $99.0 million.

Per Gallon Analysis. In order to analyze Dynamic Fuels’ value based on its nameplate production capacity, Piper Jaffray analyzed REG’s enterprise value on a per gallon basis for both total nameplate operating production capacity as well as total nameplate production capacity of all plants owned. Piper Jaffray selected REG, based on its professional judgment, due to the similarity of its business operations to Dynamic Fuels and that it is the only publicly traded, pure-play biodiesel company operating at scale, making it the most similar publicly traded comparable company. For purposes of this analysis, Piper Jaffray (i) utilized public filings, press releases and certain databases; and (ii) REG’s current market capitalization as of December 13, 2013 plus its net debt as of September 30, 2013.

This analysis resulted in an estimated per gallon nameplate operating production capacity for REG of $1.14 for operating plants only and $0.72 for all plants, based on an enterprise value of $291.9 million and an operating production capacity of 257 million gallons per year and a total production capacity of 407 million gallons per year, respectively. Based on the nameplate production capacity of the Dynamic Fuels plant and applying the derived per gallon values (in a range of plus or minus $0.10 of the estimated per gallon values for REG), Piper Jaffray calculated for Dynamic Fuels implied enterprise values ranging from $79.4 million to $94.7 million and implied equity values ranging from ($19.6) million to ($4.2) million on an operating plants basis and implied enterprise values ranging from $47.3 million to $62.6 million and implied equity values of ($51.7) million to ($36.3) million on an all plants basis.

 

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Selected Precedent Transaction Analysis. Piper Jaffray reviewed merger and acquisition transactions involving target companies in the biodiesel sector that it deemed comparable to Dynamic Fuels. Piper Jaffray selected these transactions based on information obtained by searching public filings, press releases and certain databases. Piper Jaffray selected these transactions based on the following criteria:

 

    available public data;

 

    all transactions announced since January 1, 2008 in the biodiesel sector; and

 

    transactions in which the acquiring company purchased 100% of the target.

Based on these criteria, the fifteen transactions below were selected. The selling price or another comparable was not publicly disclosed for all of the transactions. For each transaction, Piper Jaffray compiled, where available, the enterprise value of each transaction, the announced nameplate capacity in gallons for each transaction target, and the enterprise value per gallon for each transaction, as set forth below:

($ and gallons in millions)

 

Announcement Date

 

Name of Target

 

Name of Acquirer

  Enterprise
Value
    Nameplate
Capacity
in Gallons
    Enterprise
Value per
Gallon
 

05/03/2013

 

Soy Energy LLC Bio-Refinery in Mason City, IA

  Renewable Energy Group   $ 16.6        30.0      $ 0.55   

05/01/2013

 

Biodiesel Facility in Brooklyn, NY

  United Refining Co.     NA        50.0        NA   

01/04/2013

 

Biodiesel Plant in Cleburne, TX

  Delek US Holdings   $ 5.5        12.0      $ 0.46   

11/19/2012

 

Multi-Feedstock Facility in Atlanta, GA

  Renewable Energy Group   $ 2.6        15.0      $ 0.17   

11/01/2012

 

North Texas Bio Energy, Bio-Refinery in New Boston, TX

  Renewable Energy Group   $ 4.7        15.0      $ 0.32   

01/26/2012

 

Seneca Landlord, LLC

  Renewable Energy Group   $ 12.6        60.0      $ 0.21   

11/30/2011

 

Biodiesel Plant in Beatrice, NE

  Flint Hills Resources     NA        50.0        NA   

08/31/2011

 

Biodiesel Plant Near Algona, IA

  Ag Processing Inc.     NA        60.0        NA   

04/05/2011

 

Biodiesel Plant in Deerfield, MO

  Archer Daniel Midland     NA        30.0        NA   

08/30/2010

 

Clovis Biodiesel, LLC

  Renewable Energy Group     NA        15.0        NA   

08/10/2009

 

Biodiesel Plant in Atacosa County, TX

  National Wind Solutions   $ 3.0        NA        NA   

05/08/2009

 

Central Iowa Energy, LLC

  Renewable Energy Group     NA        30.0        NA   

12/12/2008

 

Blackhawk Biofuels LLC

  Renewable Energy Group     NA        45.0        NA   

06/03/2008

 

U.S. Biodiesel Group

  Renewable Energy Group   $ 80.0        35.0      $ 2.29   
    Minimum   $ 2.6        12.0      $ 0.17   
    25th Percentile   $ 3.9        15.0      $ 0.24   
    Mean   $ 17.9        34.4      $ 0.67   
    Median   $ 5.5        30.0      $ 0.39   
    75th Percentile   $ 14.6        50.0      $ 0.53   
    Maximum   $ 80.0        60.0      $ 2.29   

 

“NA” means not applicable, not available or not presented

Based on Dynamic Fuels’ nameplate capacity in gallons of 5,000 barrels per day or 76.65 million gallons per year, Piper Jaffray calculated implied enterprise values of $40.6 million and $18.1 million and implied equity values of ($58.4) million and ($80.9) million for Dynamic Fuels at the 75th and 25th percentiles.

No company, transaction or business used in this analysis is identical to Dynamic Fuels or the asset sale. Accordingly, an evaluation of the results of these analyses is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the transaction or other values of the companies to which Dynamic Fuels was compared.

Selected Public Company Analysis. Piper Jaffray reviewed selected historical financial data of Dynamic Fuels and estimated financial data of Dynamic Fuels based on projections provided by Syntroleum’s management and compared them to corresponding financial data, where applicable, for U.S. listed public

 

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companies in the downstream refiners sector, in addition to comparing Syntroleum directly to REG. Piper Jaffray selected companies in these sectors based on information obtained by searching public filings, press releases and certain databases. Piper Jaffray selected, based on its professional judgment, companies in the downstream refiners sector based on aspects of these companies it deemed similar to Dynamic Fuels’ business, including transportation fuel production, end-market commodity exposure and limited exposure to upstream oil and gas activities. Piper Jaffray excluded fully integrated oil and gas refiners as well as privately held refiners. Based on these criteria, Piper Jaffray identified and analyzed the following selected companies:

 

Downstream Refiners

HollyFrontier Corporation

Marathon Petroleum Corporation

Murphy Oil Corporation

Tesoro Corporation

Valero Energy Corporation

Piper Jaffray also selected, based on its professional judgment, REG due to the similarity of its business operations to Dynamic Fuels and that it is the only publicly traded, pure-play biodiesel company operating at scale, making it the most similar publicly traded comparable company.

For the selected public companies analysis, Piper Jaffray derived selected valuation multiples for the selected public companies. The valuation multiples were derived using the following financial metrics: (i) enterprise value; (ii) book value; (iii) revenue; (iv) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (v) earnings; and (vi) price to earnings growth (“PEG”), in each case based on periods comprising the latest 12 months (“LTM”), projected 2014 and projected 2015.

 

    EV/Book
Value
    EV/Revenue     EV/EBITDA     Price/Earnings     PEG  
Downstream Refiners   LTM     LTM     2014P     2015P     LTM     2014P     2015P     LTM     2014P     2015P     LTM     2014P     2015P  

Maximum

    2.8x        0.45x        1.09x        1.29x        6.6x        5.1x        4.6x        17.5x        10.5x        10.6x        1.4x        1.1x        0.9x   

Median

    2.4x        0.29x        0.32x        0.32x        5.2x        4.9x        4.4x        10.5x        9.8x        8.9x        1.1x        0.9x        0.8x   

Mean

    2.2x        0.33x        0.49x        0.52x        5.2x        4.6x        4.2x        11.7x        9.8x        9.0x        1.1x        0.9x        0.8x   

Minimum

    1.5x        0.22x        0.25x        0.25x        3.8x        3.1x        3.2x        7.8x        9.1x        8.0x        0.9x        0.8x        0.8x   

Renewable Energy Group, Inc.

    0.6x        0.22x        0.24x        0.20x        1.7x        3.0x        2.7x        3.8x        6.6x        6.9x        0.3x        0.4x        0.5x   

Piper Jaffray then applied the valuation multiples at the derived high (median of downstream refiners) and low (REG) to Dynamic Fuels and derived the following implied enterprise and equity values for Dynamic Fuels:

 

     EV/Revenue     EV/EBITDA  

($ in millions)

   LTM     2014P     LTM     2014P  

Implied Enterprise Value of Dynamic Fuels

        

High

    $ 13.5       $ 43.5       $ 28.6       $ 120.1   

Low

    $ 10.1       $ 33.5       $ 9.5       $ 74.3   

Implied Equity Value of Dynamic Fuels

        

High

   ($ 85.5   ($ 55.4   ($ 70.3    $ 21.1   

Low

   ($ 88.9   ($ 65.5   ($ 89.5   ($ 24.7

No company utilized in the selected public companies analysis is identical to Dynamic Fuels. In evaluating the selected public companies, Piper Jaffray made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters.

Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Piper Jaffray calculated an estimated range of theoretical values of Dynamic Fuels based on (i) the net present value of Dynamic Fuels’ projected free cash flows from December 31, 2013 to December 31, 2018; and (ii) the net present value of an

 

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estimated terminal value for Dynamic Fuels at December 31, 2018. For purposes of this analysis, Piper Jaffray (i) relied upon the Dynamic Fuels financial projections furnished to Piper Jaffray by Syntroleum’s management for the period from December 31, 2013 to December 31, 2018; (ii) calculated the free cash flows for each year from Dynamic Fuels’ projections as operating income, less taxes, plus depreciation and amortization, less capital expenditures and adjusted for increases or decreases in working capital; (iii) discounted amounts related to unlevered free cash flows using an assumed discount range from 25.0% to 35.0%, based on the calculated weighted average cost of capital for Dynamic Fuels (Piper Jaffray noted that this wide discount rate range was due to the uncertainty of future feed stock and renewable fuels commodity prices as well as the value of RINs and other subsidies); (iv) assumed a terminal value growth rate of 0.0% to 2.0% based upon the long-term growth rate from projections provided by Syntroleum’s management, pricing uncertainty and 100% capacity utilization; and (v) applied a tax rate of 35.0%, the current United States federal corporate tax rate.

The analysis resulted in implied enterprise and equity values of Dynamic Fuels ranging from $78.5 million to $124.7 million and ($20.5) million to $25.7 million, respectively.

Analyses Related to Non-Dynamic Fuels Material Business Components

GTL Analysis. Using a discounted cash flow analysis, Piper Jaffray calculated a theoretical value of Syntroleum’s GTL business based on (i) the net present value of the projected free cash flows of the GTL business from December 31, 2013 to December 31, 2023; and (ii) the net present value of an estimated terminal value for GTL at December 31, 2023. For purposes of this analysis, Piper Jaffray (i) relied upon the GTL business projections furnished to Piper Jaffray by Syntroleum’s management for the period from December 31, 2013 to December 31, 2023; (ii) calculated free cash flows from each year from Syntroleum’s projections as operating income, plus depreciation and depletion, less capital expenditures, less upstream well cost, and less taxes; (iii) discounted amounts related to unlevered free cash flows using an assumed discount range from 12.0% to 14.0%, based on the calculated weighted average cost of capital for the GTL business; (iv) assumed a terminal value growth rate of 0.0% to 2.0% based upon the long-term growth rate from projections provided by Syntroleum’s management, pricing uncertainty and 100% capacity utilization; and (v) applied a tax rate of 35%, as provided by Syntroleum’s management.

This analysis resulted in an implied equity value of the GTL business ranging from ($16.0) million to $20.9 million with a midpoint of the range of ($1.0) million, after adjustment to reflect Syntroleum’s expected 50% ownership of the GTL business based on its existing letter of intent with its GTL joint venture partner.

Bio-Synfining® Site Licensing Analysis. Piper Jaffray calculated an estimated net present value of future royalty payments to which Syntroleum would be entitled pursuant to the Bio-Synfining® Site License Agreement with Dynamic Fuels using a discounted cash flow analysis. Piper Jaffray’s calculation was based on (i) the net present value of Dynamic Fuels’ projected free cash flows pursuant to its nameplate capacity from December 31, 2013 to December 31, 2018; and (ii) the net present value of an estimated terminal value at December 31, 2018. For purposes of this analysis, Piper Jaffray (i) utilized projections furnished to Piper Jaffray by Syntroleum’s management for the period from December 31, 2013 to December 31, 2018; (ii) calculated the free cash flows from each year from Syntroleum’s projections based on the royalty cash flows; (iii) discounted amounts related to unlevered free cash flows using an assumed discount range from 25.0% to 35.0%, based on the calculated weighted average cost of capital for Dynamic Fuels; (iv) assumed a terminal value growth rate of zero due to the fixed royalty payment structure of the license; and (v) applied a tax rate of 35.0%, the current United States federal corporate tax rate.

This analysis resulted in an implied equity value of Bio-Synfining® Site License Agreement royalty payments ranging from $2.7 million to $3.6 million, with a midpoint of the range of $3.1 million.

NOL Analysis. Using a discounted cash flow analysis, Piper Jaffray estimated the net present value of future tax benefits to Syntroleum of utilizing Syntroleum NOLs in full by 2023, based on Syntroleum’s management’s

 

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estimate of its accumulated NOLs of approximately $363.0 million. For purposes of this analysis, Piper Jaffray (i) utilized projections furnished to Piper Jaffray by Syntroleum’s management of earnings before taxes of the Material Business Components (in the case of Dynamic Fuels and GTL, adjusted for Syntroleum’s existing or expected 50% ownership interest in the related joint venture) from December 31, 2013 through December 31, 2022; (ii) assumed the remaining NOL balance would be utilized in 2023; (iii) discounted amounts using an assumed discount range from 25.0% to 35.0% based on the calculated weighted average cost of capital for Dynamic Fuels; and (iv) applied a tax rate of 35.0%, the current Federal corporate tax rate.

This analysis resulted in an estimated net present value of NOLs of $33.5 million, $27.3 million, and $22.6 million, based on respectively an assumed 25%, 30% and 35% discount rate.

Corporate Overhead Expenses Analysis. Piper Jaffray analyzed the corporate overhead expenses of Syntroleum not otherwise addressed in its analyses related to the other Material Business Components. These expenses primarily consist of employee salaries, office expenses, public company costs and other similar costs. Piper Jaffray calculated an estimated net present value of corporate overhead expenses using a discounted cash flow analysis. Piper Jaffray’s calculation was based on (i) the net present value of operating expenses from December 31, 2013 to December 31, 2018; and (ii) the net present value of an estimated terminal value at December 31, 2018. For purposes of this analysis, Piper Jaffray (i) utilized projections of corporate overhead expenses furnished to Piper Jaffray by Syntroleum’s management for the period from December 31, 2013 to December 31, 2018; (ii) discounted amounts related to unlevered free cash flows using an assumed discount range from 25.0% to 35.0%, based on the calculated weighted average cost of capital for Dynamic Fuels; (iii) assumed a terminal value growth rate of 0.0% to 2.0% based upon the long-term growth rate from projections provided by Syntroleum’s management, pricing uncertainty and 100% capacity utilization; and (iv) applied a tax rate of 35.0%, the current United States federal corporate tax rate.

This analysis resulted in an estimated net present value of corporate overhead expenses ranging from ($15.3) million to ($12.0) million, with a midpoint of the range of ($13.4) million.

Analyses Related to Syntroleum

Premiums Paid Analysis. Piper Jaffray reviewed publicly available information for selected completed acquisitions to determine the premiums (discounts) paid in the transactions over market capitalization based upon recent trading prices of the target companies prior to announcement of the transaction. Piper Jaffray selected these transactions based on the following criteria:

 

    all domestic transactions since January 2010 with U.S.-listed public company targets;

 

    100% change-of-control;

 

    up to $1 billion transaction value;

 

    excluded transactions with a purchase price discount as compared to the closing share price one day prior to the announcement; and

 

    all target companies in the energy, chemicals and industrial sectors.

Piper Jaffray performed its analysis on approximately 60 transactions that satisfied these criteria. The table below shows the premiums paid over market capitalization in these transactions at various periods relative to the acquisition transaction announcement date, and the implied equity value of Syntroleum based on these premiums at comparable periods from the assumed announcement date of the asset sale.

 

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     Minimum     Mean     Median     Maximum     75th
Percentile
    25th
Percentile
 

Selected Transactions

            

1-Day Spot Premium

     1.9     38.5     38.5     91.2     53.1     20.5

7-Day Spot Premium

     3.7     40.8     37.6     160.0     51.3     20.4

30-Day Spot Premium

     5.8     44.2     38.1     128.6     57.1     22.9
            

Implied Equity Value of Syntroleum

($ in millions)

            

1-Day

   $ 27      $ 36      $ 36      $ 50      $ 40      $ 32   

7-Days

   $ 32      $ 43      $ 42      $ 80      $ 46      $ 37   

30-Days

   $ 40      $ 55      $ 53      $ 87      $ 60      $ 47   

Piper Jaffray determined the premium (discount) of the implied value of the aggregate purchase price over the market capitalization of Syntroleum as of various time periods prior to the assumed announcement date of December 13, 2013, as follows:

 

     Premium (Discount) of Aggregate
Purchase Price
 

Premiums: Spot

  

Current (as of December 13, 2013)

     54.0

1-Day prior

     52.2

10-Days prior

     20.2

30 Days prior

     3.4

90 Days prior

     (18.5 )% 

Premiums: Average

  

Current (as of December 13, 2013)

     54.0

10-Days Average

     36.2

30-Days Average

     21.8

90-Days Average

     2.4

The premiums paid analysis showed that, based on the estimates and assumptions used in the analysis, the spot premiums of the aggregate purchase price over the market capitalization of Syntroleum at the 1-Day period was within the range of premiums paid in the selected transactions and the spot premium at the 30-Day period was below the range of premiums paid in the selected transactions.

 

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Pro Forma Analyses. Piper Jaffray analyzed the contribution of each of Syntroleum and REG to the pro forma combined entity with respect to market capitalization as of December 13, 2013 and projected revenue, EBITDA, and net income for each of the years ending December 31, 2014 and 2015, based on the most recent publicly available financial statements, management projections and consensus estimates. For purposes of the contribution analysis, Piper Jaffray included pre-asset sale metrics of each company and excluded possible transaction related effects, including any possible synergies and transaction related costs and adjustments, except for giving effect to the shares to be issued to Syntroleum in the asset sale (assuming no reduction in the number of shares based on the terms of the asset purchase agreement). The analysis yielded the following implied pro forma contributions of Syntroleum to the combined entity:

 

     Implied Syntroleum
Contribution
 

Market capitalization as of December 13, 2013

     6

Revenue

  

2014P

     6

2015P

     9

EBITDA

  

2014P

     8

2015P

     17

Net Income

  

2014P

     6

2015P

     17

Average of 2014P/2015P

     10

Piper Jaffray calculated the relative equity ownership of REG following the asset sale and determined that Syntroleum would own approximately 9% of the fully diluted equity value of REG following the asset sale.

Piper Jaffray also analyzed the pro forma effects resulting from the asset sale on the projected earnings of the combined company for fiscal years 2014, 2015, and 2016 based on management estimates for Syntroleum and consensus estimates based on Wall Street research, as reported by Thomson Reuters for REG. For purposes of this analysis, Piper Jaffray excluded possible transaction-related effects, including, any possible synergies and transaction related costs and adjustments, except for giving effect to the shares to be issued to Syntroleum in the asset sale (assuming no reduction in the number of shares based on the terms of the asset purchase agreement), a reduction in the estimated cash due to the wind-down and liquidation of Syntroleum and a reduction in the overhead expenses of Syntroleum to reflect that it would no longer be a separate public reporting company after completing its liquidation and dissolution. Piper Jaffray determined that the asset sale could be accretive to the earnings per share of REG for fiscal years 2014, 2015, and 2016.

Miscellaneous

The summary set forth above does not contain a complete description of the analyses performed by Piper Jaffray, but does summarize the material analyses performed by Piper Jaffray in rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Piper Jaffray believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses or of the summary, without considering the analyses as a whole or all of the factors included in its analyses, would create an incomplete view of the processes underlying the analyses set forth in the Piper Jaffray opinion. In arriving at its opinion, Piper Jaffray considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Instead, Piper Jaffray made its determination as to fairness on the basis of its experience and financial judgment after considering the results of all of its analyses. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Piper Jaffray’s view of the actual value of Syntroleum, any of the Material Business Components or REG.

 

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No company or transaction used in the above analyses as a comparison is directly comparable to Syntroleum or Dynamic Fuels and the asset sale transaction contemplated by the asset purchase agreement. Accordingly, an analysis of the results of the comparisons is not mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which the asset sale was compared and other factors that could affect the value or transaction value of the companies involved.

Piper Jaffray performed its analyses for purposes of providing its opinion to Syntroleum’s board of directors. In performing its analyses, Piper Jaffray made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Certain of the analyses performed by Piper Jaffray are based upon forecasts of future results furnished to Piper Jaffray by Syntroleum’s management, which are not necessarily indicative of actual future results and may be significantly more or less favorable than actual future results. Similarly, certain of Piper Jaffray’s analyses relied upon forecasts of future results for REG and comparable companies published by investment research analysts or otherwise publicly available. All these forecasts are inherently subject to uncertainty because, among other things, they are based upon numerous factors or events beyond the control of the parties or their respective advisors. Piper Jaffray does not assume responsibility if future results are materially different from forecasted results.

Piper Jaffray’s opinion was one of many factors taken into consideration by Syntroleum’s board of directors in making the determination to approve the asset purchase agreement. While Piper Jaffray provided advice to Syntroleum’s board of directors during their negotiations with REG, Piper Jaffray did not recommend any specific consideration for the asset sale.

Piper Jaffray relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to Piper Jaffray or discussed with or reviewed by Piper Jaffray and that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Syntroleum or REG since the respective dates of the most recent financial statements and other information, financial or otherwise, provided or publicly available to Piper Jaffray that would be material to Piper Jaffray’s analyses or its fairness opinion, and Piper Jaffray did not independently verify such information. Piper Jaffray further relied upon the assurances of Syntroleum’s management that the financial information provided to Piper Jaffray was prepared on a reasonable basis in accordance with industry practice, and that Syntroleum’s management was not aware of any information or facts that would make any information provided to Piper Jaffray incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of Piper Jaffray’s opinion, Piper Jaffray assumed that neither Syntroleum, Dynamic Fuels nor REG was a party to any material pending transaction, including any external refinancing, recapitalization, acquisition or merger other than the asset sale and the liquidation and dissolution of Syntroleum, and with respect to financial forecasts, pro forma adjustments, estimates and other forward-looking information relating to Syntroleum or REG reviewed by Piper Jaffray, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of Syntroleum’s management as to the expected future results of operations and financial condition of Syntroleum. Piper Jaffray expressed no opinion as to any such financial forecasts, pro forma adjustments, estimates of NOLs and other estimates or forward-looking information of Syntroleum, REG or Syntroleum and REG on a pro forma combined basis, or the assumptions on which they were based. Piper Jaffray was not engaged to undertake on behalf of Syntroleum, nor was the fairness opinion intended to supplement or substitute for, due diligence required in connection with the asset sale or any other transaction. Piper Jaffray relied, with Syntroleum’s consent, on advice of the outside counsel and the independent registered public accounting firm to Syntroleum, and on the assumptions of Syntroleum’s management, as to all accounting, legal, tax and financial reporting matters with respect to Syntroleum, REG, the asset sale, the liquidation and dissolution, and the asset purchase agreement. Piper Jaffray’s opinion does not address any accounting, legal, regulatory, tax and financial reporting matters.

In arriving at its opinion, Piper Jaffray assumed that the executed asset purchase agreement was in all material respects identical to the last draft reviewed by Piper Jaffray. Piper Jaffray also assumed (a) the asset sale would be consummated pursuant to the terms of the asset purchase agreement without material amendments

 

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thereto and without waiver by any party of any material obligations thereunder; (b) that all necessary regulatory approvals and consents required for the asset sale would be obtained in a manner that would not adversely affect Syntroleum and REG or alter the terms of the asset sale, including without limitation the registration of the shares of REG common stock comprising the aggregate purchase price; (c) without verification and with Syntroleum’s consent, that the shares of REG common stock comprising the aggregate purchase price, when registered and issued to Syntroleum in accordance with the asset purchase agreement, would be freely tradeable without restriction under applicable securities laws or otherwise; and (d) the asset sale and liquidation and dissolution would qualify as a reorganization within the meaning of Section 368(a)(1)(C) of the Code. In arriving at its opinion, Piper Jaffray did not perform any appraisals or, except as it may relate to its analyses of the Material Business Components, any valuation of any specific assets or liabilities (fixed, contingent, derivative, off-balance sheet or other) of Syntroleum, Dynamic Fuels or REG, and was not furnished with any such appraisals or valuations, nor did Piper Jaffray make any physical inspection of the properties or assets of Syntroleum (including Dynamic Fuels). The analyses performed by Piper Jaffray in connection with its opinion were going-concern analyses. For that purpose, among others, Piper Jaffray assumed with Syntroleum’s consent, based on advice of Syntroleum’s management and without independent verification, that (a) the assets and liabilities transferred and assumed by REG Synthetic in connection with the asset sale constitute substantially all the assets and liabilities (fixed, contingent, derivative, off-balance sheet or other), respectively, of Syntroleum and are the assets and liabilities material to the operation of the business as a going concern, (b) there are no assets of Syntroleum (whether or not reflected on its balance sheet) material to the business, earnings and prospects of Syntroleum, other than the assets included in the Material Business Components and cash, and (c) the cash reserve retained by Syntroleum will be in an amount adequate to satisfy any liabilities retained by Syntroleum and sufficient cash will be conveyed at closing to REG without reduction of the aggregate purchase price for any “Adjustment Shares” (as calculated under the asset purchase agreement). Piper Jaffray expressed no opinion regarding the liquidation value of Syntroleum or REG. Without limiting the generality of the foregoing, Piper Jaffray neither performed (except as it may relate to its analyses of the Material Business Components) nor was furnished any appraisal, valuation or other independent analysis of any assets or liabilities (fixed, contingent or other) of Syntroleum or REG, including the purchased assets, excluded assets, assumed liabilities and excluded liabilities (including possible unasserted claims or other contingent liabilities, to which Syntroleum, REG or any of their affiliates is a party or may be subject, and at the direction of Syntroleum and with its consent, Piper Jaffray’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes (favorable or unfavorable) or damages arising out of any such matters), nor did Piper Jaffray make any analysis of, and its opinion did not address, whether the aggregate purchase price, together with the excluded assets and cash reserve, will satisfy the excluded liabilities or any other obligations of Syntroleum then existing or incurred in the future, or what, if any, portion of the aggregate purchase price would be distributable to Syntroleum’s stockholders in the liquidation and dissolution or any other aspect of the liquidation and dissolution.

Piper Jaffray’s opinion was necessarily based upon the information available to it and facts and circumstances as they existed and were subject to evaluation on the date of its opinion. Events occurring after the date of its opinion could materially affect the assumptions used in preparing its opinion. Piper Jaffray did not express any opinion as to the price at which shares of common stock of Syntroleum or REG have traded or such stock may trade following announcement of the asset sale or at any future time. Piper Jaffray did not undertake to reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of its opinion and does not have any obligation to update, revise or reaffirm its opinion.

Piper Jaffray’s opinion addressed solely the fairness, from a financial point of view, to Syntroleum of the aggregate purchase price to be received by Syntroleum in the asset sale, as set forth in the asset purchase agreement, and did not address any other terms or agreement relating to the asset sale, the liquidation or dissolution, or any other terms of the asset purchase agreement. Piper Jaffray was not requested to opine as to, and its opinion does not address, the basic business decision to proceed with or effect the asset sale and the liquidation and dissolution, the pre- and post-signing process conducted or to be conducted by Syntroleum, the solvency or financial viability of Syntroleum or REG at the date of its opinion, upon consummation of the asset

 

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sale or at any future time, the merits of the asset sale and liquidation and dissolution relative to any alternative transaction or business strategy that may be available to Syntroleum, or the fairness of the asset sale to Syntroleum. Furthermore, Piper Jaffray expressed no opinion with respect to the amount or nature of the compensation to any officer, director or employee, or any class of such persons, relative to the aggregate purchase price to be received by Syntroleum in the asset sale or with respect to the fairness of any such compensation.

Piper Jaffray is a nationally recognized investment banking firm and is regularly engaged as financial advisor in connection with mergers and acquisitions, underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Syntroleum’s board of directors selected Piper Jaffray to serve as its financial advisor in connection with the transactions contemplated by the asset purchase agreement on the basis of its experience and reputation in acting as financial advisor in connection with such transactions in the renewable energy sector.

Piper Jaffray acted as a financial advisor to Syntroleum in connection with the asset sale and will receive an estimated fee of approximately $1,250,000 from Syntroleum, which is contingent upon the consummation of the asset sale, except for (i) $100,000 paid to Piper Jaffray upon signing its engagement agreement with Syntroleum, and (ii) $400,000 paid to Piper Jaffray for providing its fairness opinion, which in each case will be credited against the total fee paid on consummation of the asset sale. The opinion fee was not contingent upon the consummation of the asset sale or the conclusions reached in Piper Jaffray’s opinion. Syntroleum has agreed to indemnify Piper Jaffray against certain liabilities and reimburse Piper Jaffray for certain expenses in connection with its services. In the ordinary course of its business, Piper Jaffray and its affiliates may actively trade securities of Syntroleum for their own account or the account of their customers and, accordingly, may at any time hold a long or short position in such securities. Piper Jaffray has in the past performed investment banking services for REG, serving as one of the joint book running managing underwriters of REG’s 2012 initial public offering for which Piper Jaffray received a fee of approximately $1,119,000. In addition, Piper Jaffray and its affiliates publish investment research on REG and make a market in and actively trade securities of REG for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Following REG’s initial public offering, Piper Jaffray also furnished cash management services to REG for which it received compensation aggregating approximately $16,800. Piper Jaffray and its affiliates may also, in the future, in the ordinary course of business, perform various investment banking, financial advisory and other services for Syntroleum, REG or their respective affiliates and for other clients and customers that may have conflicting interests with Syntroleum, for which Piper Jaffray would expect to receive compensation.

Consistent with applicable legal and regulatory requirements, Piper Jaffray has adopted policies and procedures to establish and maintain the independence of Piper Jaffray’s research department and personnel. As a result, Piper Jaffray’s research analysts may hold opinions, make statements or investment recommendations and/or publish research reports with respect to the asset sale and other participants in the asset sale that differ from the opinions of Piper Jaffray’s investment banking personnel.

Certain Financial Information

In connection with the evaluation of a possible transaction, Syntroleum provided to Piper Jaffray, in its capacity as Syntroleum’s financial advisor, REG and other prospective parties to a business combination transaction with Syntroleum certain prospective financial information concerning Dynamic Fuels and Syntroleum’s prospective GTL business. As described in greater detail below, prospective financial information was provided by Syntroleum on several occasions throughout the process described above under “Proposal One—The Asset Sale Proposal—Background of the Asset Sale” beginning on page 63 of this proxy statement/prospectus.

Syntroleum’s management does not in the ordinary course prepare prospective financial information for upcoming fiscal years. Syntroleum made available prospective financial information relating to its interest in Dynamic Fuels and its prospective GTL business for use in connection with the financial analyses performed by

 

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Piper Jaffray in connection with delivering its fairness opinion to Syntroleum’s board of directors and to assist REG and other prospective parties to a business combination with their due diligence review of Syntroleum and its interest in Dynamic Fuels. The summary of such information below is included solely to give stockholders access to the information that was made available to Piper Jaffray, REG and such other interested parties, and is not included in this proxy statement/prospectus in order to influence any stockholder to make any investment decision with respect to Syntroleum or the asset sale.

The prospective financial information reflects numerous estimates and assumptions made by Syntroleum with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Syntroleum’s business, all of which are difficult to predict and many of which are beyond Syntroleum’s control. The prospective financial information reflects subjective judgment in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the prospective financial information constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such prospective information, including, but not limited to, Syntroleum’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, other matters addressed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 59 of this proxy statement/prospectus, and the various risks set forth in the section entitled “Risk Factors” beginning on page 24 of this proxy statement/prospectus. There can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than forecasted. The prospective financial information covers multiple years and such information by its nature becomes less reliable with each successive year. In addition, the prospective information will be affected by Syntroleum’s ability to achieve strategic goals, objectives and targets over the applicable periods. The assumptions upon which the prospective information was based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond Syntroleum’s control. The prospective information also reflects assumptions as to certain business decisions that are subject to change. Such prospective information cannot, therefore, be considered a guaranty of future operating results, and this information should not be relied on as such. The inclusion of this information should not be regarded as an indication that Syntroleum, its board of directors, REG, any of their respective affiliates or advisors, or anyone else who received this information then considered, or now considers, it a reliable prediction of future events, and this information should not be relied upon as such. None of Syntroleum, its board of directors, REG or any of their respective affiliates or advisors intends to, and each of them disclaims any obligation to, update, revise or correct such prospective information if they are or become inaccurate.

The prospective financial information does not take into account any circumstances or events occurring after the date it was prepared, including the transactions contemplated by the asset purchase agreement or the intended subsequent liquidation and dissolution of Syntroleum. Further, the prospective financial information does not take into account the effect of any failure of the asset sale to occur and should not be viewed as accurate or continuing in that context.

In addition, the prospective financial information contained in this proxy statement/prospectus was originally prepared solely for internal use in connection with the financial analyses performed by Piper Jaffray in connection with delivering its fairness opinion to Syntroleum’s board of directors and to assist REG and other prospective parties to a business combination with their due diligence review of Syntroleum and its interest in Dynamic Fuels, and not with a view toward public disclosure or toward complying with generally accepted accounting principles, which is referred to as “GAAP”, the published guidelines of the SEC regarding projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The prospective financial information included below was prepared by, and is the responsibility of, Syntroleum’s management. Neither Syntroleum’s independent registered public accounting firm, nor any other independent accountants, have

 

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compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

The inclusion of the prospective financial information herein should not be deemed an admission or representation by Syntroleum, its board of directors, REG or any of their respective affiliates or advisors that they are viewed by Syntroleum, its board of directors, REG or any of their respective affiliates or advisors as material information of Syntroleum. The prospective information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Syntroleum contained in this proxy statement/prospectus. In light of the foregoing factors and the uncertainties inherent in Syntroleum’s prospective information, stockholders are cautioned not to place undue, if any, reliance on the prospective information included in this proxy statement/prospectus.

The prospective financial information included in this proxy statement/prospectus was prepared by, and is the responsibility of, Syntroleum’s management. Piper Jaffray did not prepare or compile the prospective financial information, did not examine or perform any procedures with respect to the prospective financial information and did not and does not express any opinion or any other form of assurance with respect to the prospective financial information included in this proxy statement/prospectus or its achievability.

The prospective financial information prepared by Syntroleum with respect to Dynamic Fuels was for Dynamic Fuels taken as a whole, and not solely Syntroleum’s 50% membership interest therein. In addition, except as indicated below, the prospective financial information prepared by Syntroleum for Dynamic Fuels reflected the Geismar Facility being operational for full twelve month periods beginning January 1, 2014, notwithstanding that the timing of any restart of the Geismar Facility was not yet determinable.

The prospective financial information prepared by Syntroleum with respect to its prospective GTL business was for the GTL business taken as a whole, not solely Syntroleum’s yet-to-be-determined interest therein. Pursuant to an executed memorandum of understanding (the “MOU”), Syntroleum is exploring the feasibility of a GTL facility as described below with a potential joint venture partner. For purposes of preparing its financial analyses in connection with its fairness opinion, at management’s direction and with its consent, Piper Jaffray assumed Syntroleum’s ownership interest in the GTL joint venture contemplated by the MOU would be 50%.

Confidential Information Memorandum Projections

On July 5, 2013, Syntroleum provided Piper Jaffray the prospective financial information set forth in the table below, relating to Dynamic Fuels, for use in a confidential information memorandum (the “CIM”) furnished to certain prospective parties, which contained information relating primarily to Dynamic Fuels and did not contain information related to Syntroleum’s prospective GTL business. REG neither requested nor received a copy of the CIM; however, the prospective financial information was made available to REG on a datasite.

 

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This prospective financial information prepared by Syntroleum for Dynamic Fuels contained assumptions that included, but were not limited to, (i) the Geismar Facility having 85% “uptime”; (ii) renewable diesel product yield at the Geismar Facility of 88%, (iii) operating costs for the Geismar Facility consistent with those of the Geismar Facility during 2012, (iv) feedstock inputs of 50% yellow grease and 50% inedible corn oil, projected at 80% and 73%, respectively, of soybean oil futures strip prices as of June 21, 2013, consistent with prevailing prices, (v) a $1.00 subsidy for renewable diesel remaining in place during the forecast period, (vi) prices of diesel and soybean oil equal to CME Group futures strip prices therefor as of June 21, 2013, and (vii) continued RIN prices consistent with average prevailing RIN prices for the calendar quarter ending June 30, 2013.

 

     2014E      2015E      2016E      2017E      2018E  
(100% of Dynamic Fuels)    (in millions, except $1.00 subsidy, D4 RIN Price, and
Feedstock Cost)
 

Revenue

   $ 316.0       $ 310.3       $ 311.1       $ 309.5       $ 309.5   

Feedstock Margin

     127.0         125.0         128.2         126.6         126.6   

Net Income

     76.9         74.7         77.8         75.9         75.5   

EBITDA

     84.6         82.4         85.5         83.6         83.2   

Depreciation

     5.3         5.3         5.3         5.3         5.3   

$1.00 Subsidy

   $ 1.00       $ 1.00       $ 1.00       $ 1.00       $ 1.00   

D4 RIN Price

   $ 0.95       $ 0.95       $ 0.95       $ 0.95       $ 0.95   

Feedstock Cost per Pound (delivered)

   $ 0.40       $ 0.40       $ 0.39       $ 0.39       $ 0.39   

December 2013 Projections

On December 2, 2013, Syntroleum provided Piper Jaffray prospective financial information for Dynamic Fuels and for Syntroleum’s prospective GTL business. This prospective financial information was made available to REG on a data site.

Dynamic Fuels Financial Information

This prospective financial information prepared by Syntroleum for Dynamic Fuels contemplated a significantly different regulatory environment than the prospective financial information prepared by Syntroleum for Dynamic Fuels in July 2013 as a result of (i) the EPA’s November 2013 proposal to reduce RVOs for 2014 below the levels contemplated by the Energy Policy Act of 2009 and (ii) an expectation that the $1.00 subsidy for renewable diesel would not be renewed effective January 1, 2014. Accordingly, this prospective financial information prepared by Syntroleum for Dynamic Fuels contained assumptions that included, but were not limited to, (i) the Geismar Facility having 85% “uptime”; (ii) renewable diesel product yield at the Geismar Facility of 88%, (iii) operating costs for the Geismar Facility consistent with those of the Geismar Facility during 2012, (iv) feedstock inputs of 20% soybean oil, 40% yellow grease, and 40% inedible corn oil, projected at 100%, 75%, and 73% of soybean oil futures strip prices, respectively, as of October 24, 2013, consistent with prevailing prices, (v) a $1.00 subsidy for renewable diesel no longer being in effect as of January 1, 2014, (vi) prices of diesel and soybean oil equal to CME Group futures strip prices therefor as of July 31, 2013, and (vii) RIN prices at a level required for a 30 million gallon per year soy biodiesel plan to break even in light of expected excess capacity for biomass-based diesel due to the EPA’s proposed RVO reductions.

 

     2014E      2015E      2016E      2017E      2018E  
(100% of Dynamic Fuels)    (in millions, except $1.00 subsidy, D4 RIN Price, and
Feedstock Cost)
 

Revenue

   $ 274.4       $ 279.9       $ 285.4       $ 284.8       $ 284.8   

Feedstock Margin

     96.7         101.0         107.4         106.8         106.8   

Net Income

     41.2         44.4         49.8         48.3         47.3   

EBITDA

     49.0         52.2         57.6         56.1         55.2   

Depreciation

     5.3         5.3         5.3         5.3         5.3   

$1.00 Subsidy

   $ 0.00       $ 0.00       $ 0.00       $ 0.00       $ 0.00   

D4 RIN Price

   $ 1.07       $ 1.18       $ 1.24       $ 1.20       $ 1.20   

Feedstock Cost per Pound (delivered)

   $ 0.38       $ 0.38       $ 0.38       $ 0.38       $ 0.38   

 

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For purposes of preparing its financial analyses in connection with its fairness opinion, at management’s direction and with its consent, Piper Jaffray adjusted the prospective financial information for calendar year 2014 set forth in the table above to reflect an assumed July 1, 2014 restart of the Geismar Facility. As a result, the prospective financial information for calendar year 2014 upon which Piper Jaffray relied for purposes of these analyses and its opinion were as follows: Revenue: $137.2 million, Feedstock Margin: $48.3 million, Net Income: $20.6 million, EBITDA: $24.5 million, Depreciation: $2.6 million, $1.00 Subsidy: $0.00, D4 RIN Price: $1.07 and Feedstock Cost per Pound (delivered): $0.38.

GTL Financial Information

The prospective financial information prepared by Syntroleum for its prospective GTL business contemplated a hypothetical 5,000 barrel per day GTL facility integrated with natural gas reserves owned and drilled by the GTL venture, although no such GTL facility currently exists and the feasibility of any such venture has yet to be determined. The revenue and natural gas assumptions included in the prospective financial information prepared by Syntroleum for its prospective GTL business assumed (i) Brent crude pricing of $100 per barrel and (ii) Henry Hub natural gas pricing of $4.00 per thousand cubic feet (with 100% of the natural gas to be processed at the GTL facility to be initially purchased at such rate and with the amount of natural gas so purchased being reduced correspondingly as natural gas from the reserves integrated with the GTL facility is extracted (at customary well drilling and operation costs), until no natural gas need be purchased). Further, the prospective financial information prepared by Syntroleum with respect to its prospective GTL business assumed the timing for construction of a GTL facility consistent with that contemplated by the MOU.

 

     2014E      2015E      2016E      2017E      2018E      2019E      2020E      2021E      2022E      2023E  
(100% of GTL facility)    (in millions)  

Revenue

   $ 0.0       $ 0.0       $ 0.0       $ 67.2       $ 173.7       $ 194.5       $ 198.1       $ 197.0       $ 199.1       $ 188.2   

EBITDA

     0.0         0.0         0.0         21.2         86.4         113.2         125.7         124.7         125.4         126.6   

Depreciation and Depletion

     0.0         0.0         0.0         14.4         21.9         28.1         33.2         32.9         33.5         33.5   

Capital Expenditures

   $ 0.0       $ 72.0       $ 180.0       $ 108.0       $ 0.0       $ 0.0       $ 0.0       $ 0.0       $ 0.0       $ 0.0   

Interests of Executive Officers and Directors of Syntroleum in the Asset Sale

In considering the recommendation of the Syntroleum board of directors with respect to the asset sale, Syntroleum stockholders should be aware that certain executive officers and directors of Syntroleum have interests in the asset sale that may be different from, or in addition to, the interests of Syntroleum stockholders generally. These interests include the fact that (i) as a condition to the closing of the asset sale, certain officers of Syntroleum will accept employment with REG Synthetic, (ii) in connection with their termination as employees of Syntroleum upon the closing of the asset sale, officers of Syntroleum will receive severance benefits, and (iii) Syntroleum’s directors and executive officers will retain the right to continued indemnification and insurance coverage for acts or omissions occurring prior to the asset sale.

Pursuant to an employment agreement dated April 24, 2007, if the employment of Edward G. Roth, Syntroleum’s Chief Executive Officer, is terminated for any reason other than (i) as a result of his death, disability or retirement, (ii) upon Syntroleum’s dissolution or liquidation, or (ii) for just cause, Mr. Roth is entitled to receive an amount equal to 300% of his then-current annual salary payable over 24 months following termination of employment. Mr. Roth’s employment will be terminated upon completion of the asset sale and accordingly he will be entitled to receive this payment.

Pursuant to an employment agreement dated June 13, 2007, if the employment of Karen L. Power, Syntroleum’s Principal Financial Officer, is terminated for any reason other than (i) as a result of her death, disability or retirement, (ii) upon Syntroleum’s dissolution or liquidation, or (ii) for just cause, Mrs. Power is entitled to receive an amount equal to three times her then-current monthly salary payable over three months

 

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following termination of employment. Mrs. Power’s employment will be terminated upon completion of the asset sale and accordingly she will be entitled to receive this payment.

In light of (i) the fact that Syntroleum will not have any ongoing business operations or income following consummation of the asset sale and (ii) the expected timing of Syntroleum’s liquidation and dissolution, Syntroleum will make the $900,000 and $48,125 severance payments due to Mr. Roth and Mrs. Power, respectively, in single lump-sums upon consummation of the asset sale rather than over the periods contemplated by the employment agreements.

Syntroleum’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation.

Regulatory Matters

REG and Syntroleum do not believe that the asset sale is subject to review by any governmental authorities under the antitrust laws of the jurisdictions where REG and Syntroleum conduct business.

Accounting Treatment

In accordance with accounting principles generally accepted in the United States, REG will account for the asset sale using the purchase method of accounting for business combinations. REG will allocate the purchase price to the net tangible and intangible assets acquired based on their respective fair values at the date of the completion of the asset sale. Any excess of the purchase price over those fair values will be recorded as goodwill.

Listing of REG Common Stock

Application will be made to have the shares of REG common stock issued in the asset sale approved for listing on the NASDAQ Global Select Market, where REG common stock currently is traded under the symbol “REGI.” It is a condition to the obligation of Syntroleum to complete the asset sale that the shares of REG common stock to be issued in the asset sale be approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance.

Litigation Relating to the Asset Sale

Three lawsuits challenging the asset sale have been filed. First, on December 26, 2013, Daniel Baxter, on behalf of himself and the public stockholders of Syntroleum, filed a putative class action complaint in the District Court of Tulsa County, State of Oklahoma. Second, on December 30, 2013, Philip Crawley, on behalf of himself and the public stockholders of Syntroleum, filed a putative class action complaint in the District Court of Tulsa County, State of Oklahoma. Third, on January 10, 2014, George Kashouh and Thomas Victor, on behalf of themselves and the public stockholders of Syntroleum, filed a putative class action complaint in the District Court of Tulsa, State of Oklahoma. All of the lawsuits name as defendants Syntroleum, each member of Syntroleum’s board of directors, REG, and REG Synthetic; the Baxter lawsuit also names Syntroleum’s Principal Financial Officer as a defendant. All of the lawsuits allege that Syntroleum’s directors breached their fiduciary duties in connection with entering into the asset purchase agreement, as publicly disclosed on December 17, 2013, by failing to maximize stockholder value, agreeing to onerous and unreasonable deal protection devices and failing to act in accordance with their duties of care, loyalty, and good faith. All of the complaints also allege that Syntroleum, REG and REG Synthetic aided and abetted those alleged breaches of fiduciary duties. Based on these allegations, the complaints seek to enjoin the asset sale and to obtain other related declaratory and injunctive relief; the Crawley and Kashouh lawsuits also seek rescissory damages. Each complaint also seeks recovery of the costs of the action, including reasonable attorneys’ fees. Baxter filed an Emergency Motion and Memorandum in Support to Expedite Discovery and Shorten Prescribed Time Period for Defendants to Respond to Discovery together with the original complaint, which motion was heard on January 6, 2014 and denied. A subsequent hearing has been scheduled for January 24, 2014. No hearing dates have been set in connection with the Crawley or Kashouh lawsuits.

 

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THE ASSET PURCHASE AGREEMENT

The following summary describes the material provisions of the asset purchase agreement. The provisions of the asset purchase agreement are complicated and not easily summarized. This summary may not contain all of the information about the asset purchase agreement that is important to you. The asset purchase agreement is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus, and REG and Syntroleum encourage you to read it carefully in its entirety for a more complete understanding of the asset purchase agreement.

The Asset Sale

Acquired assets. The asset purchase agreement provides for the sale of substantially all of the assets of Syntroleum to REG Synthetic, a newly formed, wholly owned subsidiary of REG. Specifically, the asset purchase agreement provides that Syntroleum will sell to REG Synthetic all of Syntroleum’s tangible and intangible assets, other than those assets specifically excluded under the asset purchase agreement. The assets to be acquired include:

 

    all stock or equity interests other than Syntroleum’s ownership interests in Syntroleum International and Scout, but including Syntroleum’s 50% ownership interest in Dynamic Fuels;

 

    all of Syntroleum’s licenses, franchises, permits, patents, patent rights, copyrights, works which are the subject matter of copyrights, trademarks, service marks, trade names, trade styles, patent applications, trademark applications, service mark applications, and all licenses and rights related to any of the foregoing, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing;

 

    all notes, bonds, mortgages, indentures, contracts, agreements, leases, licenses, permits or other instruments or obligations to which Syntroleum is a party, except to the extent specifically excluded;

 

    all cash and cash equivalents, in excess of a cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement;

 

    all accounts receivable and other current assets;

 

    all tangible personal property (such as machinery, equipment, furniture, office equipment, vehicles and tools);

 

    all permits, licenses, authorizations, consents, certificates, approvals, permissions, notifications, waivers, orders, exemptions and franchises from governmental authorities, to the extent transferable under applicable law;

 

    all files, documents, instruments, papers, books, reports, records, tapes, microfilms, photographs, letters, budgets, forecasts, ledgers, journals, title policies, customer lists, regulatory filings, tax returns and other tax records, marketing documentation, and other similar materials related to the business and the asset of Syntroleum in each case whether or not in electronic form; and

 

    all claims, deposits, prepayments and rights to refunds (including without limitation any refunds relating to taxes) causes of action, rights of recovery and rights of set-off.

Excluded Assets. The assets excluded from those being purchased by REG Synthetic under the asset purchase agreement include:

 

    Syntroleum’s ownership interests in its subsidiaries Syntroleum International and Scout;

 

    any contracts that cannot be transferred due to the absence of a required counterparty consent to assignment;

 

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    Syntroleum’s rights under the asset purchase agreement and associated assignment and assumption agreement;

 

    treasury shares in Syntroleum;

 

    Syntroleum’s certificate of incorporation, by-laws, minute books, corporate seal and other corporate records relating to its corporate organization and capitalization;

 

    Syntroleum’s employee benefit plans;

 

    the amount of cash equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement;

 

    all personal records and other records that Syntroleum is required by law to maintain in its possession; and

 

    all insurance policies, including director and officer insurance policies, of the Syntroleum and rights to proceeds thereunder.

Assumed liabilities. The asset purchase agreement also provides that in addition to acquiring the assets of Syntroleum, set forth in the agreement, REG will also assume the following liabilities of Syntroleum, which represent substantially all of Syntroleum’s liabilities:

 

    all liabilities arising from or related to the purchased contracts, as defined in the asset purchase agreement;

 

    liabilities arising from certain warrants to purchase shares of common stock of Syntroleum, which will be assumed by REG, and become warrants at the closing of the asset sale to purchase an estimated 347,441 shares of common stock of REG; and

 

    all accounts payable reflected on Syntroleum’s balance sheet as of September 30, 2013 and accounts payable arising since the date of such balance sheet in the ordinary course of business.

Excluded liabilities. Except as set forth above, REG has excluded all other liabilities from assumption, including without limitation each of the following liabilities of Syntroleum:

 

    except to the extent expressly included as an assumed liability, any liability arising or resulting from events occurring after the closing of the asset sale, including without limitation any liability arising in connection with the liquidation and dissolution of Syntroleum and/or any dividend or other distribution by Syntroleum to its stockholders;

 

    except to the extent expressly included as an assumed liability, any liability under or with respect to any assets excluded from the asset sale;

 

    any liability arising under the asset purchase agreement;

 

    all liabilities of Syntroleum for fees, expenses and costs of legal, accounting, financial or other advisors incurred in connection with or arising from the asset purchase agreement, the asset sale or any of the other transactions contemplated by the asset purchase agreement;

 

    any liability or obligation of Syntroleum with respect to its employees, directors or consultants, including those arising out of the employment or retention of any employee or service provider, including without limitation any liability arising out of any employment agreements, employee benefit plans, stock option agreements and severance agreements;

 

    all liabilities under warrants and warrant agreements, with certain limited exceptions;

 

    all liabilities for taxes not expressly assumed by REG Synthetic; and

 

    all liabilities related to Syntroleum International and Scout.

 

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Consideration to be Received by Syntroleum

As consideration for the asset sale, Syntroleum will receive a number of shares of REG common stock equal to 3,796,000 minus a number of shares of REG common stock equal to (i) the difference between $3,200,000 and the aggregate cash transferred to REG Synthetic at closing, to the extent that such difference results in a positive number, divided by (ii) the average of the last reported sale price per share of REG Common Stock on the NASDAQ Global Select Market for the 20 consecutive trading days ending on the third day prior to the date of the closing; provided, that if the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing is equal to or greater than $12.91, then the number of shares of REG common stock to be paid to Syntroleum as consideration for the asset sale will be equal to (A) $49,000,000, divided by (B) the average last reported sale price per share of REG’s common stock for the 20 consecutive trading days ending on the third day prior to the date of the closing.

Liquidation of Syntroleum

In connection with the asset sale, Syntroleum is proposing a plan of dissolution pursuant to which it will satisfy its obligations, distribute its assets, wind-up its affairs and cease its corporate existence. Syntroleum currently estimates that the cash it will retain following the asset sale will be sufficient to pay its expenses and satisfy its known retained liabilities and obligations and that all of the REG common stock to be received by Syntroleum in the asset sale will ultimately be available for distribution to the holders of Syntroleum common stock. If all of the REG common stock is ultimately distributed and there is no adjustment to the number of REG shares, Syntroleum stockholders would receive approximately 0.3809 shares of REG common stock per share of Syntroleum common stock; however, Syntroleum is unable at this time to predict the exact amount, nature and timing of any distributions to its stockholders. Following the closing of the asset sale, Syntroleum’s assets will primarily consist of the shares of REG common stock received as consideration for the asset sale and a cash reserve equal to the lesser of $5,300,000 and the amount of cash on hand at Syntroleum as of the closing of the transactions under the asset purchase agreement. Even though Syntroleum currently expects the cash reserve to be sufficient to pay, or provide for the payment of, all of Syntroleum’s known retained liabilities and obligations, it is possible that, in the course of the dissolution process, unanticipated expenses and contingent liabilities will arise. If such liabilities exceed the cash reserve, Syntroleum will be required to sell a portion or all of the REG common stock received in the asset sale to satisfy its obligations before its dissolution, thereby reducing, and perhaps eliminating, the assets available for distribution to Syntroleum stockholders.

Completion of the Asset Sale

REG and Syntroleum will complete the asset sale when all of the conditions to completion of the sale contained in the asset purchase agreement, which are described in the section entitled “The Asset Purchase Agreement—Conditions to Obligations to Complete the Asset Sale” beginning on page 101 of this proxy statement/prospectus, are satisfied or waived, including approval of the asset sale by the stockholders of Syntroleum.

Appraisal Rights

Under Delaware law, Syntroleum’s stockholders are not entitled to appraisal, dissenters’ or similar rights in connection with the asset sale.

Representations and Warranties

The asset purchase agreement contains general representations and warranties made by Syntroleum on the one hand, and REG and REG Synthetic on the other, regarding aspects of their respective businesses, financial condition and structure, as well as other facts pertinent to the asset sale. These representations and warranties are subject to materiality, knowledge and other similar qualifications in many respects and expire at the effective time of the asset sale. The representations and warranties of each of Syntroleum on the one hand and REG and

 

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REG Synthetic on the other have been made solely for the benefit of the party or parties to which they have been made, and those representations and warranties should not be relied on by any other person. In addition, those representations and warranties may be intended not as statements of actual fact, but rather as a way of allocating risk between the parties, may have been modified by the confidential disclosure schedules attached to the asset purchase agreement, are subject to the materiality standards described in the asset purchase agreement, which may differ from what may be viewed as material by you, and were made only as of the date of the asset purchase agreement or another date specified in the asset purchase agreement.

Syntroleum made a number of representations and warranties to REG and REG Synthetic in the asset purchase agreement, including representations and warranties relating to the following matters:

 

    corporate organization, qualifications to do business and corporate standing of Syntroleum and its subsidiaries;

 

    capital structure and the absence of preemptive rights with respect to Syntroleum and its subsidiaries;

 

    corporate authorization to enter into and carry out the obligations contained in the asset purchase agreement;

 

    absence of any conflict or violation of the corporate charter and bylaws of Syntroleum and its subsidiaries, any applicable legal requirements, or any agreements with third parties, as a result of entering into and carrying out the obligations contained in the asset purchase agreement;

 

    governmental and regulatory approvals required to complete the asset sale;

 

    SEC filings and the financial statements contained in those filings;

 

    disclosure controls and procedures;

 

    accuracy of the information supplied for this proxy statement/prospectus;

 

    absence of certain changes or events since September 30, 2013;

 

    absence of material transactions between Syntroleum or its subsidiaries and any of Syntroleum’s affiliates;

 

    absence of loans made by Syntroleum or its subsidiaries to another person;

 

    taxes and tax returns;

 

    accurate and complete records of Syntroleum’s inventory and equipment;

 

    accounts receivable of Syntroleum;

 

    title to assets and real property;

 

    indebtedness of Syntroleum;

 

    intellectual property;

 

    material contracts and the absence of breaches of material contracts;

 

    litigation;

 

    compliance with regulatory requirements;

 

    environmental matters;

 

    benefit plans, employees and employment practices;

 

    compliance with applicable law by Syntroleum and its subsidiaries;

 

    permits;

 

    insurance;

 

    proprietary rights;

 

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    inapplicability of takeover statutes;

 

    receipt of a fairness opinion from Syntroleum’s financial advisor; and

 

    entitlements to any brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the transactions contemplated by the asset purchase agreement.

REG and REG Synthetic made a number of representations and warranties to Syntroleum in the asset purchase agreement, including representations and warranties relating to the following subject matters:

 

    corporate organization, qualifications to do business and corporate standing;

 

    corporate authorization to enter into and carry out the obligations contained in the asset purchase agreement and the absence of any conflict or violation of the corporate charter and bylaws of REG and REG Synthetic, any applicable legal requirements, or any agreements with third parties, as a result of entering into and carrying out the obligations contained in the asset purchase agreement;

 

    capital structure;

 

    SEC filings and the financial statements contained in those filings;

 

    accuracy of the information supplied for this proxy statement/prospectus;

 

    entitlements to any brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the transactions contemplated by the asset purchase agreement; and.

 

    absence of encumbrances on the shares of REG common stock to be issued to Syntroleum in connection with the asset purchase agreement.

Syntroleum’s Conduct of Business Before Closing of the Asset Sale

Under the asset purchase agreement, Syntroleum has agreed, until the closing of the asset sale, except under certain circumstances or as consented to in writing by REG, to conduct its business in the usual, regular and ordinary course and to use commercially reasonable efforts to preserve its business organization, preserve its business relationships, and keep available the services of its officers and employees.

In addition, Syntroleum agreed that, until the closing of the asset sale, it will not and will not permit any of its subsidiaries to:

 

    declare, set aside or make or pay any dividend or distributions in respect of its capital stock (other than dividends or other distributions by wholly-owned subsidiaries of Syntroleum);

 

    adjust, split, combine, recapitalize or reclassify its capital stock;

 

    acquire or redeem, directly or indirectly, or amend the terms of, any equity securities of Syntroleum or equity interests in any subsidiaries (other than securities of wholly-owned subsidiaries of Syntroleum);

 

    except as permitted under the asset purchase agreement, dispose of or encumber any shares of its capital stock or any securities convertible into or exercisable for its capital stock, subject to limited exceptions;

 

    except as contemplated in the asset purchase agreement, amend its certificate of incorporation, by-laws or other comparable charter or organizational documents;

 

    except as contemplated in the asset purchase agreement, or as required by the terms of any agreement between Syntroleum or any of its subsidiaries and an officer, director or employee, or any employee benefit plan:

 

    grant any loan or increase in compensation (including incentive compensation), benefits or perquisites to any officer employee or director of Syntroleum;

 

    grant any increase in severance or termination pay or termination benefits to any officer employee or director of Syntroleum;

 

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    enter into any employment, loan, retention, consulting, indemnification, or similar agreement with any officer employee or director of Syntroleum;

 

    enter into any change of control, severance, termination or similar agreement with any officer employee or director of Syntroleum;

 

    amend, waive or otherwise modify in any material respect any of the terms of any employee stock option or stock option plan of Syntroleum; and

 

    establish or amend any employee benefit plan or trust agreement or other operative document relating to any employee benefit plan.

 

    enter into any material new line of business;

 

    enter into an arrangement that limits or otherwise restricts Syntroleum from engaging or competing in any line of business or in any geographic area;

 

    except for permitted liens under the asset purchase agreement, sell, pledge, dispose of, transfer, lease, license or encumber, or authorize the sale, pledge, disposition, transfer, lease, license or encumbrance of, any assets to be purchased by REG Synthetic or any property or assets of any of the Syntroleum’s subsidiaries valued in excess of $100,000 individually or in the aggregate;

 

    incur or modify any indebtedness in excess of $100,000;

 

    adopt a plan liquidation or resolutions providing liquidation, dissolution, restructuring, recapitalization or other reorganization of Syntroleum or any of its subsidiaries other than a liquidation as contemplated by the asset purchase agreement or a liquidation of a wholly-owned subsidiary in connection with which all liabilities of such subsidiary are assumed by Syntroleum or any of its wholly-owned subsidiaries;

 

    acquire any corporation, partnership or other business organization or division thereof or any material equity interest therein;

 

    make any material changes in accounting methods, principles or practices, except as required by a change in GAAP or by a governmental authority;

 

    make or rescind any material tax election, settle or compromise any material tax liability; extend or waive any tax claim or assessment; or materially amend any tax return;

 

    commence or compromise any legal proceeding, other than compromises, settlements or agreements that involve the payment of monetary damages not in excess of $50,000 individually or $100,000 in the aggregate and that do not concede any fault on the part of Syntroleum or any of its subsidiaries or impose any material restrictions on any of their future activities;

 

    except as otherwise contemplated in the asset purchase agreement, make any capital expenditures in excess of $50,000 individually or $100,000 in the aggregate;

 

    amend, modify, extend, renew or terminate, or enter into any new lease, sublease, license or other agreement for real property with a term longer than five years or a total rental obligation over the term of such lease, sublease, license or other agreement of $50,000 individually or $100,000 in the aggregate for the same properties, except as contemplated by the asset purchase agreement;

 

    write up, write down, or write off the book value of any material assets material, other than in the ordinary course of business consistent with past practice or as required by GAAP;

 

    enter into any material contract, or modify, amend, terminate or cancel any existing material contract;

 

    enter into any transaction or take any other action that would reasonably be expected to prevent or materially delay the completion of the Asset Sale;

 

    fail to timely file any SEC document;

 

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    enter into, materially amend or materially modify any contract with any affiliates, officers or directors;

 

    enter into a collective bargaining agreement;

 

    transfer or license any proprietary rights;

 

    make of record any statement regarding any proprietary right in any judicial or administrative proceedings;

 

    submit any document to the United States Patent Office or any foreign equivalent; or

 

    authorize or agree to do any of the actions described above.

No Solicitation of Other Offers

Under the terms of the asset purchase agreement, subject to certain exceptions described below, Syntroleum agreed that it and its subsidiaries will not, and that it will use commercially reasonable efforts to cause its directors, officers, employees, investment bankers, attorneys, accountants, other advisors and representatives not to, directly or indirectly:

 

    solicit, initiate or knowingly encourage the making of any inquiries, proposals, or offers that could reasonably be expected to lead to any other acquisition;

 

    participate in any discussions regarding, or furnish to any person any non-public information regarding, any other acquisition; or

 

    approve or recommend any other acquisition.

Syntroleum and its subsidiary also agreed to immediately cease, and to cause their officers, directors, affiliates, employees, investment bankers, attorneys, accountants and other advisors and representatives to cease, any and all existing activities, discussions or negotiations with third parties regarding any acquisition proposal.

Notwithstanding the foregoing, at any time prior to obtaining the approval of the asset sale by Syntroleum’s stockholders, Syntroleum may, in response to an unsolicited written bona fide acquisition proposal by a third party that the Syntroleum board of directors reasonably determines in good faith (after consultation with Syntroleum’s financial and legal advisors) constitutes (or would reasonably be expected to lead to) a superior proposal, furnish nonpublic information to a person making the acquisition proposal, and enter into discussions with that person regarding the acquisition proposal; provided, that:

 

    the person making the acquisition proposal must have provided a waiver under any non-disclosure agreement entered into with Syntroleum to permit disclosures to REG as required by the asset purchase agreement;

 

    Syntroleum will not, and will not allow its subsidiaries or representatives to, disclose any non-public information without first entering or having entered into a confidentiality agreement containing provisions no less favorable to Syntroleum that those contained in the confidentiality agreement between Syntroleum and REG; and

 

    Syntroleum will provide REG with the same information concerning Syntroleum that it gives to such a person.

The asset purchase agreement defines an acquisition proposal as any inquiry, proposal or offer from any person (other than REG or any of its affiliates) relating to any direct or indirect acquisition, in one transaction or a series of transactions, including by way of any merger, consolidation, tender offer, exchange offer, binding share exchange, business combination, sale of substantially all assets, recapitalization, restructuring, investment, liquidation, dissolution or similar transaction, of (i) assets or that constitute or represent 20% or more of the total assets or total revenues of Syntroleum and its subsidiaries, taken as a whole, or (ii) 20% or more of the Syntroleum’s Common Stock outstanding on a fully diluted basis (giving effect to the exercise of all outstanding options and warrants).

 

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Syntroleum must promptly (but in any event within forty-eight (48) hours) notify REG of any acquisition proposal or request for any information (or access to information) in connection with a possible acquisition proposal. Syntroleum must also keep REG reasonably informed of the status of any acquisition proposal and promptly provide REG with copies of all written materials of correspondence sent or provided to Syntroleum that describes any terms or conditions of any acquisition proposal. Syntroleum must also promptly provide notice to REG of any meeting of its board of directors (or any committee thereof) at which its board of directors (or any such committee) is reasonably expected to consider any acquisition proposal or request, and shall promptly notify REG that it intends to take any action with respect to an acquisition proposal.

Syntroleum’s board of directors may change or withdraw its recommendation to stockholders for the asset sale if it concludes in good faith that taking such action is required for it to comply with its fiduciary obligations under applicable law and either (i) in the case of a change or withdrawal in respect to an acquisition proposal, Syntroleum’s board of directors determines in good faith that such acquisition proposal constitutes a superior proposal, or (ii) in the case of a change or withdrawal in the absence of an acquisition proposal, such change or withdrawal is solely in response to the occurrence of a material event, fact, development, circumstance, or occurrence that affects the business, assets, or operations of Syntroleum or its subsidiaries that was not known to Syntroleum as of the date of the asset purchase agreement and that occurs after the date of the asset purchase agreement, which is referred to herein as an intervening event.

Syntroleum’s board of directors cannot make a change or withdraw its recommendation with respect to the asset sale unless it promptly notifies REG of its intention to do so and REG does not make an offer that Syntroleum’s board of directors determines, in good faith, is at least as favorable to Syntroleum as such acquisition proposal. Syntroleum’s board of directors may not change or withdraw its recommendation in response to an intervening event unless:

 

    Syntroleum has provided REG with written information describing such intervening event in reasonable detail promptly after becoming aware of it;

 

    Syntroleum has provided REG prior written notice advising REG of its intention to make a change or withdraw its recommendation with respect to the asset sale in response to such intervening event; and

 

    REG does not make an offer that Syntroleum’s board of directors determines, in good faith, would obviate the need for a change or withdraw its recommendation with respect to the asset sale in light of such intervening event.

Access to Information

Under the asset purchase agreement, Syntroleum will:

 

    provide REG and REG Synthetic with reasonable access to all employees, offices and other facilities and to all books, contracts, commitments and records (including tax returns and workpapers);

 

    permit REG and REG Synthetic to make inspections of Syntroleum and its subsidiaries and their respective properties and assets;

 

    reasonably attempt to provide REG and REG Synthetic access to financial and operating data and other information with respect to the business, properties and personnel of Syntroleum and its subsidiaries; and

 

    provide unaudited consolidated monthly financial statements of Syntroleum and its subsidiaries.

Stockholder Approval

Syntroleum is required by the asset purchase agreement to hold a lawful special meeting of stockholders to obtain a vote with respect to the asset sale regardless of the existence of other acquisition proposals or the change of the recommendation of the board of directors of Syntroleum in favor of the asset sale proposal. Unless REG

 

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consents otherwise, and other than procedural matters, the only proposals for consideration at the special meeting must be the asset sale proposal, the plan of dissolution proposal and the name change proposal.

Syntroleum must set a single record date for persons entitled to notice of, and to vote at, the special meeting and cannot not change such record date without the prior written consent of REG. The special meeting must be held as promptly as practicable after the effectiveness under applicable law of the registration statement of which this proxy statement/prospectus forms a part. After the special meeting has been called and noticed, Syntroleum must not postpone or adjourn the special meeting without the consent of REG, other than (i) for the absence of a quorum, (ii) as contemplated by the adjournment proposal, or (iii) to allow reasonable additional time for the filing and mailing of any supplemental or amended disclosure which Syntroleum believes is necessary under applicable law.

Commercially Reasonable Efforts

Each of REG, REG Synthetic and Syntroleum agreed to use commercially reasonable efforts to:

 

    take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective the transactions contemplated in the asset purchase agreement as promptly as practicable;

 

    prevent the issuance of, or lift or rescind, any judgment, injunction, order, decree or ruling or the taking of any action by any governmental authority that could materially adversely affect the ability of the parties hereto to consummate the transactions contemplated by the asset purchase agreement;

 

    not take any action or knowingly fail to take any action, that would be reasonably likely to result in any of the conditions to the consummation of the asset sale not being satisfied;

 

    cooperate to defend vigorously against any legal action relating to the transactions contemplated by the asset purchase agreement;

 

    take commercially reasonable actions necessary to obtain any necessary approval with regard to any antitrust filings and resist in good faith any assertion that the transactions contemplated under the agreement amount to violations of applicable antitrust laws; and

 

    keep each other apprised of the status of matters relating to completion of the transactions contemplated by the asset purchase agreement.

Employee Matters

Syntroleum has agreed to honor all existing employment, change in control, severance or other agreements between it or any of its subsidiaries, and any of its officers, directors or employees. REG will take into account Syntroleum’s, or its subsidiaries’, employees’ services for vesting, eligibility and benefits purposes under any employee benefit plan of REG or REG Synthetic which is made available to any employee hired by REG or REG Synthetic or who becomes eligible to participate in such employee benefit plan as a result of the acquisition. REG and REG Synthetic will reasonably attempt to provide: (i) that any employee of Syntroleum and its subsidiaries hired by REG or REG Synthetic or who is otherwise eligible to participate in any REG or REG Synthetic employee benefit plan will not be subject to any waiting period or pre-existing condition limitation under any such plan for any condition for which they would have been entitled to coverage under the corresponding employee benefit plan of Syntroleum or its subsidiaries in which they participated prior to the closing of the transactions under the asset purchase agreement, except to the extent of any waiting periods that had not been met as of the closing and (ii) REG and REG Synthetic will credit any covered expenses incurred by any such employee, for any plan period prior to the closing, toward any co-payments and deductibles limits and out-of-pocket maximums under any applicable REG or REG Synthetic employee benefit plan for the applicable plan year in which the closing occurs.

 

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Conditions to Obligations to Complete the Asset Sale

The respective obligations of REG and REG Synthetic, on the one hand, and Syntroleum, on the other, to complete the asset sale are subject to the satisfaction or waiver of each of the following conditions:

 

    all waiting periods under applicable antitrust laws, if any, and any other antitrust filings applicable to the transactions contemplated by the asset purchase agreement shall have expired or terminated, and all actions, permits and approvals by or in respect of, and all registrations and filings with, any governmental authority that are required to permit the consummation of the transactions contemplated by the asset purchase agreement shall have been taken, made or obtained and shall remain in full force and effect;

 

    the asset sale proposal is duly approved by Syntroleum’s stockholders;

 

    the registration statement of which this proxy statement/prospectus forms a part must be declared effective by the SEC, there must be no stop order suspending the effectiveness of such registration statement in effect, and there must be no proceeding initiated for that purpose pending or threatened;

 

    no governmental authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order which is then in effect and which has the effect of making the asset sale illegal or otherwise prohibits the completion of the asset sale, and there can be no pending or active proceeding seeking to restrain or prohibit the consummation of the asset sale;

 

    the shares of REG’s Common Stock to be issued pursuant to the terms of the asset purchase agreement shall have been approved for listing (subject to official notice of issuance) on the NASDAQ Global Select Market;

 

    the representations and warranties of the other party must be true and correct in all respects as of the closing date of the asset sale;

 

    each party must have performed or complied in all material respects with all of its agreements and covenants required by the asset purchase agreement to be performed or complied with before closing of the asset sale;

 

    each party must have received an officer’s certificate from the other party regarding the satisfaction of certain conditions to the completion of the asset sale; and

 

    the parties must have executed the asset transfer documents identified in the asset purchase agreement.

The obligation of Syntroleum to complete the asset sale is also subject to its receipt of the purchase price in the form of book-entry shares of REG common stock from the transfer agent of REG.

The obligations of REG and REG Synthetic to complete the asset sale are also subject to each of the following conditions:

 

    Syntroleum shall have obtained all consents, approvals, authorizations, qualification and orders of all governmental authorities and third parties;

 

    REG Synthetic shall have received stock certificates representing all ownership interests held by Syntroleum in each of its subsidiaries duly endorsed in blank or accompanied by stock transfer powers and Syntroleum shall have delivered to REG Synthetic an agreement assigning its interest in Dynamic Fuels;

 

    REG shall have received the written resignation, effective as of the closing date, of each director, manager, and officer or individual holding any similar positions of Syntroleum’s subsidiaries to be acquired by REG Synthetic;

 

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    no actions or claims shall have been asserted or shall be pending which involve Syntroleum, the asset purchase agreement, the asset sale, or the other transactions contemplated by the asset purchase agreement that would be likely to have a material adverse effect on the benefits REG reasonably expects to realize from the asset sale;

 

    no material adverse effect with respect to Syntroleum shall have occurred since the date of the asset purchase agreement;

 

    Edward G. Roth shall have executed and delivered an employment agreement and accepted employment with REG Synthetic;

 

    not less than six engineers employed by Syntroleum as of the date of the asset purchase agreement, excluding those engineers assigned to Syntroleum’s “Sasol project,” shall have accepted employment with REG Synthetic as of the closing; and

 

    no actions shall have been taken by any governmental authority that would be expected to prohibit or impose any material limitations on REG Synthetic’s ownership or operation of the assets to be purchased from Syntroleum, or compel REG Synthetic to dispose of or hold separate any material portion of the purchased assets of Syntroleum.

Definition of Material Adverse Effect

Under the terms of the asset purchase agreement, a material adverse effect on either REG or Syntroleum means any change that, individually or in the aggregate with all other changes, has, or would reasonably be expected to have (with or without notice or the passage of time, or both), a material adverse effect on: (i) the consummation of the asset sale and the other transactions contemplated by the asset purchase agreement or (ii) the condition (financial or otherwise), results of operations, assets or liabilities of the company and its subsidiaries, taken as a whole; provided, that a material adverse effect shall not include:

 

    any change to the extent resulting from any conditions or changes generally affecting the economy or securities markets of the United States, which conditions or changes do not disproportionately affect Syntroleum relative to other participants in the industry in which Syntroleum and its subsidiaries operate;

 

    any change to the extent resulting from conditions or changes in the industry in which Syntroleum and its subsidiaries conduct business, which conditions or changes do not disproportionately affect the Syntroleum relative to other participants in the industry in which the Syntroleum and its subsidiaries operate;

 

    any change to the extent resulting from changes in law or GAAP (or the interpretation thereof), which conditions or changes do not disproportionately affect Syntroleum relative to other participants in the industry in which Syntroleum and its subsidiaries operate; and

 

    any change to the extent resulting from changes in the stock price or the trading volume of Syntroleum’s common stock, in and of itself (it being understood that the facts or occurrences giving rise or contributing to any such change, other than any of those described above, may be taken into account in determining whether there has been a material adverse effect).

Termination; Termination Fee

Termination

The asset purchase agreement may be terminated in accordance with its terms at any time prior to completion of the asset sale:

 

    by mutual written consent of REG and Syntroleum;

 

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    by either REG or Syntroleum if:

 

    the asset sale is not consummated by the date 150 days follow the date on which the registration statement of which this proxy statement/prospectus forms a part is first filed with the SEC;

 

    a governmental entity issues a final order, decree or ruling or takes any other final action permanently restraining, enjoining or otherwise prohibiting the asset sale;

 

    Syntroleum’s stockholders do not approve the asset sale proposal at the special meeting; or

 

    the other party breaches its representations and warranties under the asset purchase agreement or fails to perform its obligations under the asset purchase agreement, and such breach or failure is not cured within thirty days following the receipt of notice from the party not in breach.

 

    by REG if:

 

    Syntroleum has willfully breached its obligation not to solicit another acquisition proposal or the recommendation of Syntroleum’s board of directors in favor of the asset sale is changed;

 

    the board of directors of Syntroleum (or a committee thereof) approves or recommends, or publicly proposes to approve or recommend, any third-party acquisition proposal;

 

    following the date any bona fide acquisition proposal or any material modification thereto is first publicly announced, disclosed or otherwise made known prior to the time at which Syntroleum’s stockholders approve the asset sale proposal, Syntroleum fails to issue a press release that expressly reaffirms the affirmative recommendation of Syntroleum’s board of directors with respect to the asset sale proposal within ten (10) business days following REG’s written request to do so; or

 

    any tender offer or exchange offer constituting an acquisition proposal is commenced or materially modified by any third party with respect to the outstanding Syntroleum common stock prior to the time at which Syntroleum’s stockholders approve the asset sale proposal, and Syntroleum’s board of directors shall not have recommended that Syntroleum’s stockholders reject such tender offer or exchange offer and not tender their Syntroleum common stock into such tender offer or exchange offer within ten (10) business days after commencement or material modification of such tender offer or exchange offer, unless Syntroleum has issued a press release that expressly reaffirms the affirmative recommendation of Syntroleum’s board of directors with respect to the asset sale proposal within such ten (10) business day period.

Termination Fee

Under the terms of the asset purchase agreement, Syntroleum must pay REG a termination fee of $5 million if:

 

    the asset purchase agreement is terminated by REG for any of the reasons described above generally involving a change in the recommendation of Syntroleum’s board of directors (see description of REG termination rights in the section immediately above entitled “Termination” under the heading “by REG if”; or

 

    if (i) the asset purchase agreement is terminated because (A) the asset sale was not consummated by the date 150 days following the date on which the registration statement on Form S-4 is first filed with the SEC, (B) Syntroleum’s stockholders do not approve the asset sale, or (C) Syntroleum breaches its representations and warranties under the asset purchase agreement or fails to perform its obligations under the asset purchase agreement, (ii) a third-party acquisition proposal is publicly announced before the stockholder vote on the asset sale and (iii) Syntroleum enters into an agreement for or consummates an acquisition proposal within 12 months of such termination.

 

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Amendment and Waiver

The asset purchase agreement may be amended at any time by a writing signed on behalf of REG and Syntroleum.

Expenses Generally

All fees and expenses incurred in connection with the asset sale will be paid by the party incurring the fees or expenses, whether or not the asset sale is completed.

Required Vote

The affirmative vote of the holders of a majority of the outstanding shares of Syntroleum common stock is required for the approval of the asset sale proposal.

SYNTROLEUM’S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ASSET SALE PROPOSAL.

 

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PROPOSAL TWO—THE PLAN OF DISSOLUTION PROPOSAL

General

Syntroleum is seeking stockholder approval of the plan of dissolution proposal at the special meeting. The plan of dissolution was approved by Syntroleum’s board of directors on December 17, 2013, subject (i) the consummation of the asset sale and (ii) to stockholder approval. The following summary describes the material provisions of the plan of dissolution. This summary does not purport to be complete and may not contain all of the information about the plan of dissolution that is important to you. The plan of dissolution is attached to this proxy statement/prospectus as Annex B and is incorporated by reference into this proxy statement/prospectus, and Syntroleum encourages you to read it carefully in its entirety for a more complete understanding of the plan of dissolution. By approving the plan of dissolution, Syntroleum’s stockholders will be approving the dissolution of Syntroleum under Section 275 of the Delaware General Corporation Law.

Although Syntroleum is proposing that its stockholders approve the plan of dissolution at the same time as the asset sale proposal, the plan of dissolution is an entirely separate transaction from the asset sale. Syntroleum stockholders may approve the asset sale without regard to the plan of dissolution; provided, that approval of the plan of dissolution proposal is contingent upon approval of the asset sale proposal. If the Syntroleum stockholders approve the asset sale proposal, Syntroleum may consummate the asset sale even if its stockholders do not approve the plan of dissolution. Please review the matters referred to under “Risk Factors” beginning on page 24 for a discussion of the risks related to approving the asset sale proposal, but not approving the plan of dissolution proposal. In the event that Syntroleum consummates the asset sale and its stockholders do not approve the plan of dissolution proposal, the asset sale would not qualify as a tax-free reorganization under Section 368(a)(1)(C) Code and Syntroleum and its stockholders will suffer material adverse tax consequences. The corporate level gain that Syntroleum would recognize upon such a taxable sale of assets would be equal to the difference between Syntroleum’s adjusted tax basis in such assets and the fair market value of all of the consideration received from REG in the asset sale (including without limitation all of the REG common stock issued by REG and all of the liabilities assumed by REG). Syntroleum’s tax liability associa